We recently caught up with Julie Smolinski, VP, Investor Relations & Corporate Sustainability at Hawaiian Electric Industries (HEI), which provides electricity, financial services, and sustainable infrastructure in Hawaii. HEI recently published its first consolidated enterprise ESG report, which is aligned with SASB Standards. Here, we present a few highlights.
Your sustainability reporting is very different this year than in the past. How would you describe the change?
We see our mission of being a catalyst for a better Hawaii as a core driver of our long-term financial sustainability. We’re advancing our state goals of 100 percent renewable energy and a carbon neutral economy by 2045, increasing our state’s resilience in the face of a changing climate, and strengthening our economy through affordable housing, innovation, job creation, and promoting community financial health.
Our electric utility has long published an annual sustainability report focused on our community and customer audiences here in Hawaii, and our banking subsidiary had published a corporate responsibility report, also focused on our local constituencies. We saw the need for a report that would address the growing investor need for information on environmental, social, and governance (ESG) performance and how that connects to long-term value. So, for 2020 we decided to publish a data-driven, investor-oriented ESG report aligned with SASB for our consolidated enterprise.
The SASB Standards provided an accessible roadmap for getting started, as they identify industry-specific topics and metrics that investors have highlighted as important. The significant investor support for SASB made the decision to align our reporting with SASB a natural one for us to make.
What’s next on HEI’s sustainability reporting journey?
We’re committed to making continued progress in ESG performance and reporting, and are currently working on our next ESG report. Our upcoming report will build on the foundation we laid with our SASB-aligned 2020 report by incorporating our ESG materiality matrix and more of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We see the SASB Standards and TCFD recommendations as complementary. The TCFD recommendations will help us flesh out our disclosures on key SASB topics for our industries, and SASB metrics help address some of the TCFD recommendations.
HEI’s sustainability report is exceptional because it shows at least three years of ESG data. How did you decide to do that?
For investors and other stakeholders to understand how we’re performing over time, we believe trend information is really important. A snapshot of one year’s performance doesn’t provide that perspective.
Reporting multiple years also lets us place unique things that may happen in a given year in context. For example, our utility has been aggressively working to add renewable energy to our system, driving greenhouse gas emission (GHG) reductions. In 2018, part of a geothermal plant we buy electricity from was overrun by lava—hard to imagine happening almost anywhere but Hawaii! That caused our GHG emissions to increase for a couple of years, as we had to replace that renewable resource with other sources. Thankfully, the geothermal plant is back up and delivering power to our grid, and that should reduce future emissions. If we didn’t show multiple years of data, it would be harder to put something like that in context.
We’re used to reporting several years of data for financial disclosures, so it made sense to use a similar approach for ESG data. We had also begun using the Edison Electric Institute ESG reporting template in 2018. Having already published some ESG data in that form helped us decide to report for multiple years.
Do you see your sustainability reporting converging with financial reporting?
While our ESG and financial reporting are largely separate today, we already included certain ESG data in our SEC disclosures as appropriate, and now companies are required to include human capital management information in SEC reports. Down the road there may be new regulatory requirements or other reasons to further align ESG and financial reporting, so we wanted to set ourselves on a path that would allow us to bring them together.
In addition to reporting multiple years of ESG data, another way we’ve sought to parallel financial reporting is by emphasizing controls and data accuracy. For our first ESG report, we engaged an external party to conduct a “pre-verification” process with us so we could make sure we were thinking about controls and data integrity for ESG data like we do for financial reporting.
We published our 2020 ESG report in September, and we’ve decided to shift our future annual ESG reporting to earlier in the year, bringing the timing closer to the rest of our reporting. Conducting the ESG data gathering and report update process alongside financial reporting helps people think of these as similar processes.
At HEI, the investor relations team is handling sustainability reporting. What drove that decision?
We see our sustainability goals as central to our value proposition, so in our investor communications we need to explain the connection between sustainability and financial matters. Our 100 percent renewable energy and carbon neutrality goals link to our investment opportunities, our regulatory framework, our customer offerings, and many other aspects of our business that investors care about and that connect to long-term financial performance. We also saw the increasing focus our existing and potential investors—both equity and debt—were placing on ESG goals, performance, and data, so we knew investors were a core audience.
Our department mandate is now “Investor Relations & Corporate Sustainability,” reporting to our CFO, who is a champion of ESG integration and the senior executive sponsor for our ESG initiatives. We’ve received great feedback on the fact that our CFO, Greg Hazelton, is such an ESG advocate. More and more CFOs are moving in that direction, yet it’s not every company where you would see sustainability as intertwined with the financial organisation as it is at HEI.
What’s one piece of advice for companies like HEI that are making a significant change toward investor-driven and data-oriented sustainability reporting?
One of the most helpful things we heard from investors was to just get started reporting. Do what you can, don’t wait until you have everything—SASB, TCFD, an ESG materiality assessment, etc.—in place before issuing a report. The SASB Standards were a great way for us to get started since they provided clarity about topics and metrics to cover for our industries. And the investor support we’ve seen for SASB and its materiality-driven approach gave us further confidence with using SASB as our starting point.
How can you engage teams within the company and get them excited about ESG reporting when sometimes it looks like a lot of added work?
This is an important question because everyone’s plates are already full—especially in 2020 when peoples’ personal and professional lives changed so profoundly.
A critical element for us was setting the tone at the top. Our senior executive team and our board saw integration of ESG into risk management and strategy, along with ESG reporting, as important priorities. They saw ESG reporting not just as a way to tell our story better and provide greater transparency for investors and other stakeholders, but also to improve our performance by increasing accountability. Our last two board retreats have had ESG topics, including a deep dive on climate change, as a key focus. Our board and senior leadership team played an essential role in setting the direction, ambition, and timing for our ESG initiatives, including reporting, and helping communicate the importance of this effort across our companies.
While investors are an essential audience for ESG reporting, we see ESG transparency as helpful in building trust and connection with other constituencies, too—from employees and customers to policymakers and community organisations. Our colleagues instinctively understood that, so I think that also helped encourage their strong participation in the ESG reporting effort.