NRG’s former CEO David Crane wrote a very thought-provoking piece on how it is never easy for traditional polluting companies such as that of a coal company to become green. The company recently announced a divestment from renewable assets, as well as a sale that’s just been put up for their renewable business arm. This is a cold and cruel reminder for all of us how the reality of simple business models running on profit-making under scrutiny of indifferent investors can be a setback to any effort to push forward, regardless of how pure and good the intention for change is.
NRG’s capital allocation strategy — reinvesting coal profits into clean energy businesses — fell into disfavor with NRG’s traditional investor base. – Crane
Back in 2014 when Crane was still on board, he pushed for green goals of steering the business towards a less carbon-focused energy portfolio, in proportions as astounding as 90% carbon reductions by 2050. Many employees were on board this green hype and were extremely motivated by this new notion of doing good while doing well. The management painted a very rosy picture of how businesses can keep improving whilst switching to cleaner alternatives. Sure enough, the board was sold. They started to publicly announce the transition to cleaner energy.
But after the announcement of the company’s decision to move towards renewable projects, share prices dipped and investors started to turn their backs. The board thus had no choice but to reinstate faith in investors by abandoning ship. One of the main reasons why investors had lost faith so quickly is because they are only focused on short to at best, medium-term profits. This goes entirely against the tide of the renewable energy business where profits are more visible towards the end of a longer term.
This is also one of the road blocks that companies like Solar City will face in their pursuit for green energy. In the short-term, their finance reports looks dented when the main investment vehicle of solar projects is a zero-down payment model. Then it seems to turn into a self-fulfilling prophecy. Investors start becoming apprehensive which in turn hurts the business potential.
If we are going to make meaningful progress on carbon emissions, chronic emitters cannot be given a free pass simply because they have announced long-term reduction goals. If we are to maintain the integrity of the collective corporate effort, the climate movement needs to demand visible and meaningful progress from companies that have embraced long-term carbon reduction goals.
An important point for any meaningful efforts in transiting a business to a greener one is this: to show visible and meaningful progress, beyond just stating goals. That is why sustainability reporting and more importantly, an integrated reporting where investors can see a full picture of longer-term risks and costs is crucial. Investors ought to also be educated on how to invest and where to invest. Although NRG investors can cheer for now, their joy may not last beyond the decade or even the next few years.
NRG’s return to their old dirty coal business, in the mean time, serves as a harrowing wake-up call for us to reflect on chasing after our green dreams without being prepared for setbacks when they strike.