Report Card: assessing environmental, social and governance (ESG) content in corporate annual reports


Around 60% of Iberdrola’s capacity derives from renewable energy. The company is based in Bilbao, Spain.

Room for improvement

Iberdrola has been performing well but still shows room for improvement, says analyst Tom Crocker of carbon disclosure non-profit CDP. Among the most positive achievements of the company, ranked second in the 2017 CDP study of utilities, ‘Charged or Static’, is its adoption of integrated annual reporting, in which social and environmental issues are incorporated into the main statements.

Confusing access

But an initial search for the statements is off-putting. A quick look at Iberdrola’s annual report web page for 2016 shows no less than 14 links to various documents, containing information that is either mandatory or voluntary or both. How does the reader know which data are included in which report, whether information overlaps between the reports, and what is voluntary disclosure? That’s the first concern.

Secondly, the reader suffers from information overload – at least for the sustainability report, which runs to 272 pages. “You could argue that it is to its detriment that it is that long. You have to wade through a lot of repeated information to get through to the facts”, comments Crocker. Among the facts that were surprisingly difficult to find was the company’s commitment to carbon neutrality by 2050. “It’s odd because you’d think it would be clearly labelled at the front”, says Crocker.

Good detail

That said, the sustainability report scores high in several areas, providing information omitted from many utility reports. Most annual reports show emissions data but Iberdrola is more granular, publishing installed capacity by energy source. It lists outputs by some installations, reports on direct (own facilities – known as scope 1) indirect (purchased energy – scope 2) and value chain emissions (scope 3) and splits data into regions. “The holy grail for equity analysts is to obtain asset-level data from the company. Breaking it down by scope and region is very helpful and gives an indication of where the companies are operating, allowing you to tie the regional aspects into other factors”, says Crocker.

There’s a sense of reluctance to report on scope 3 – admittedly a contentious issue. The Global Reporting Index (GRI), a campaigning international standards organisation, lists 12 categories for scope 3 reporting. But Iberdrola only opts to report on a few. Why did the company pick these in particular? No explanation is provided.

Obscure remuneration data

Overall, Crocker is positive about Iberdrola’s use of the GRI framework for its 2016 sustainability report because the company has gone through every single criterion and responded to it. Among the company’s more unusual practices is board remuneration linked to climate. However, these details are hard to find: “It’s not very intuitive in getting a summary of how remuneration packages work. You have to dig for it. It’s a lot of words for something you could put at the top of the section”, suggests Crocker.

When publishing their results, corporations have to tread a line between thorough data that’s difficult to access, and concision that oversimplifies. That’s a skill Iberdrola, like many companies, still needs to master. But overall, its style is more open than most companies and less formal.

RWE (2016)

Germany’s largest producer of coal-fired power

Has slipped back and shows reticence

RWE’s statements contrast strongly with those produced six years ago, when it was brimming with optimism and set a 20% target for renewables by 2020. Gone is the promise of smart energy home systems communicated in its 2011 reports. In its place is a rather restrained description of the company’s activities. The tone in 2016 was defensive, but massive changes have happened since then, of course.

RWE’s 2020 renewables target splintered when the company split off its renewables business, Innogy. And it has been at the frontline of political controversy, as well as litigation, due to its coal-based business. The company’s 2011 report is probably closer to Iberdrola style and provides more information than its 2016 statements, describing more about its value chain and responsibility policies, for example.

Structural transition

When company structures and management change, the quality of corporate disclosures may well slip back, especially if they are voluntary. “The 2016 report is traditional and you get the main facts but it has a different feel from Iberdrola. The style is: “we’ve been told to do this and writing it to say we are required to do it”, comments Tom Crocker.

RWE’s announcement this March on its asset swap with E.On partly explain this reticence, of course, since it is now clear the company was in a transitional stage. With its newfound control over E.On’s renewable energy generation, a different tone may be expected in future.

Spotted Lynx Media