Sarasin & Partners LLP votes against reappointment of NextEra Energy’s Lead Director Sherry Barrat and Chair James Robo
NextEra is included in the Climate Action 100+ initiative’s target list of the highest-emitting companies globally. Among US power utilities it was ranked sixth in its emissions of carbon dioxide in 2019. This matters because the electricity sector alone accounts for approximately a quarter of total US greenhouse gas emissions.
Taken together, this makes NextEra a material contributor to global greenhouse gas emissions, which are accelerating global warming. Aside from the dangers this poses to society, including NextEra’s shareholders, this means that the company’s future earnings potential is exposed to tightening regulation to tackle climate change. This is acknowledged in NextEra’s latest 10K under Risk Factors: “NextEra’s and FPL’s business could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions.”
Conversely, NextEra’s large carbon footprint also means that it has an important role to play in global decarbonisation efforts, and substantial related opportunities to build a strong and resilient business around zero-carbon power.
NextEra recognises this opportunity, as is evident in its growing renewables business and increased focus on the potential for battery storage and green hydrogen. It has also set a scope 1 carbon intensity reduction target of 67% by 2025 versus a 2005 reference year.
The new CEO’s recent statement on the company’s outlook further underscored the strategic focus on decarbonisation:
“I expect our strategy to be consistent with how we have grown the company over the past several decades, but that we will continue to adapt and evolve our strategy to meet increasing customer expectations, to leverage new technologies and to lead the decarbonization of the U.S. economy.”
We welcome the steps taken to date, which have underpinned NextEra’s performance over many years. Despite this, NextEra has yet to make an explicit commitment to align its business with, at the very least, a 2050 net-zero emissions target. According to the latest CA100+ benchmark assessment NextEra is the only US power utility of thirteen covered not to make a long-term carbon commitment.
In keeping with the International Energy Agency’s Net Zero by 2050 scenario (which is aligned with a 50% chance of achieving a 1.5°C outcome), power companies in advanced countries should go further and commit to reaching net zero carbon emissions by 2035. This ensures harder to abate sectors have more time to deliver decarbonisation, and thereby allowing the world to stabilise the climate.
It is our opinion that the emission targets that NextEra has set are inadequate. They cover only a portion of their emissions (Scope 1) and are not sufficiently ambitious to meet the requirements of a 1.5°C pathway. According to the World Benchmarking Alliance, although NextEra reduced its scope 1 and 2 emissions intensity from 249 gCO2e/kWh in 2015 to 199 gCO2e/kWh in 2020, this is only about half the rate required to align with a 1.5°C pathway. They project that NextEra will exceed its carbon budget to 2035 by 40%.
This is not, in our view, in shareholders’ long-term interests. And we are not alone. CA100+, currently representing over $60 trillion in assets under management, has explicitly called for all companies on its target list, including NextEra, to make a credible net-zero commitment aligned with the achievement of the temperature goals of the Paris Climate Agreement.
The global Paris Climate Agreement commits signatory nations to seeking to keep temperature increases to ‘well below 2°C’ and make efforts to limit warming to 1.5°C above pre-industrial times. The Intergovernmental Panel on Climate Change sets out a number of scenarios for emission pathways to deliver these goals. Overall, this work indicates that the world must achieve Net Zero carbon emissions by 2050.
Board access is a pillar of effective governance
Sarasin & Partners LLP is a long-term shareholder in NextEra on behalf of its clients. We are co-leading the CA100+ engagement for NextEra, which seeks to support the Board to deliver a 1.5°C-aligned strategy that will generate enduring returns for shareholders.
Critical to this effort is ensuring constructive dialogue with the Board of Directors, and particularly the independent non-executive directors, appointed to represent shareholder interests and oversee the executive. This ensures the Board has direct and independent feedback and underpins a healthy process of oversight and inquiry. It is, thus, in our view a key pillar of effective governance.
NextEra has declined access to independent directors
Despite requests by Sarasin & Partners LLP in its capacity as an investor and co-lead for CA 100+ for a meeting or call with NextEra’s non-executive directors, and specifically the Lead Director, this has been declined.
We note that Lead Director Sherry Barrat has been on the board since 1998, or twenty-four years. This length of tenure puts at risk her ability to act independently. Her unwillingness to meet with shareholders further isolates her from investor views, which are communicated via the executive team. She does not, in our view, fulfil the needed role of an independent lead director.
We also note that with the change of CEO in March, the former Chair and CEO James Robo has moved to the role of Executive Chair for a transition period. We believe this offers NextEra an opportunity to institute a permanent split between CEO and Chair and to introduce a new requirement that future Chairs will be independent. We believe such a step would help to strengthen the Board’s effectiveness.
Our 2022 vote
- AGAINST: Lead Director Sherry Barrat (Item 1a) – We cannot support a Lead Director who is unwilling to meet with shareholders to discuss concerns relating to NextEra’s governance and alignment with a 1.5°C pathway. We furthermore believe her long tenure poses a risk to her ability to ensure independent oversight of the executive team.
- AGAINST: Chair James Robo (Item 1i) – We would like to see NextEra institute a permanent split between the CEO and Chair roles, and we favour an independent Chair as a key pillar of effective governance.
For more information, please contact:
Stephanie Ross | Kaso Legg
T: +44 (0)20 3995 6676 | [email protected]
The views expressed are those of the authors and Sarasin & Partners LLP as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. These views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. This piece is for informational purposes and should not be construed as a research report.
 See IPCC reports for a comprehensive and up to date view on the science behind Global Warming: https://www.ipcc.ch
 The global Paris Climate Agreement commits signatory nations to seeking to keep temperature increases to ‘well below 2C’ and make efforts to limit warming to 1.5°C above pre-industrial times. The Intergovernmental Panel on Climate Change sets out a number of scenarios for emission pathway to deliver these goals. Overall, this work indicates that the world must achieve Net Zero carbon emissions by 2050.
 See CA100+ latest Benchmark assessment: https://www.climateaction100.org/company/nextera-energy-inc/