October 2022 / INVESTMENT INSIGHTS
T. Rowe Price Global Impact Equity Fund Case Study: NextEra Energy
Reducing Greenhouse Gases (GHGs)
Pressure Points
With energy generation responsible for over 73% of global greenhouse gas emissions,1 decarbonizing the sector is essential to limiting temperature rises to 1.5° C. From a health perspective, the World Health Organization (WHO) also estimates that air pollution kills 7 million people annually. Electrification will be a key feature of decarbonization efforts.
In its Net Zero Emissions by 2050 Scenario, the International Energy Agency (IEA) identified low-emissions electricity replacing fossil fuels as a principal driver of emissions reductions, potentially accounting for around 20% of the total reduction target by 2050. 2
Impact Thesis
With nearly USD 100 billion in clean energy infrastructure deployed since 2011,3 NextEra Energy is the largest renewable energy generator in the United States. Its clean energy generation significantly reduces emissions of harmful greenhouse gases. As of 2020, 56% of NextEra’s revenues are aligned to our Reducing Greenhouse Gases (GHGs) sub-pillar, with 28% of revenues derived from renewable energy generation and 28% of revenues related to electricity transmission and distribution. Renewable energy generation is expected to exceed 50% of revenues by 2030 with continued incremental capital investment. We report NextEra’s energy impact on the environment by measuring the amount of CO2e emissions avoided from clean energy generation and number of lives extended.
Key Performance Indicator (KPI): Amount of electricity produced by renewable energy sources and greenhouse gas emissions mitigated (in metric tons of CO2e avoided)
Five Dimensions of Impact
- What: Reduction of greenhouse gas emissions from the generation of electricity
- Who: Planet
- How much: 58.6 million MWh of electricity produced using renewable sources in 2020, 18% more than 2019. 3
- Contribution: Between 2005 and 2020, the firm cut its CO2 emissions rate by 56.6% and its absolute CO2 emissions by 24.2%.3
- Risks: Levelized cost of renewable energy does not trend downward as planned, or fossil fuels continue to be used more broadly for longer than anticipated.
Progress Monitoring
While NextEra is clearly assisting the energy transition, its carbon footprint and intensity is one of the largest in the representative portfolio. Therefore, we are focused on understanding and pushing NextEra’s commitment to reducing its electricity generation from fossil fuels. Coal plays a very minor role in the firm’s generation mix, but we will continue to monitor its reduction and push to reduce CO2 e levels further.
Note: T. Rowe Price uses a proprietary custom structure for impact pillar and sub-pillar classification
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October 2022 / INVESTMENT INSIGHTS
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Hari Balkrishna is a portfolio manager for the Global Impact Equity Strategy. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd. He completed an internship at T. Rowe Price in 2009. Prior to joining the firm in 2010, he worked at Goldman Sachs, Sydney, Australia, in the financial institutions group of the Investment Banking Division.
