Target Rock Advisors


Each of the three TBL Elements (Economic, Environment, and Social) in our scoring system contains anywhere from three to five high-level TBL Dimensions (each in turn comprising many sub-dimensions). In our estimation, the dimensions and sub-dimensions selected are good indicators of a company’s historically demonstrated and continuing sustainability performance.

Fundamentally, we asked ourselves whether a given type of utility performance either directly or indirectly influences the ability of a company to continue and thrive as an enterprise, while also demonstrating environmentally and socially responsible behavior.

Each company in our present portfolio of forty-nine U.S. utilities exhibits some degree of sustainable, socially responsible behavior, but no individual company is perfect. Although imperfect, however, some companies do demonstrate markedly superior performance when compared to their peers. These are the sustainability leaders of the utility industry.

The three TBL Elements and their respective high-level TBL Dimensions, including weightings (as a percentage of overall Sustainability Score), are as follows:

Economic Element (33.3%)

Regional economic health, which creates the demand for energy, is critical to the success of a utility. Reciprocally, it is essential that the utility make economic and other contributions to its service territory and the stakeholders within it to promote socio-economic health. A constructive regulatory climate is required to facilitate this exchange of social and economic benefits between the utility and society at large and ensure a framework for the development of holistic sustainability policy.

The economic dimensions that Target Rock addresses include – but are not limited to - measures of jobs and jobs creation; trends and strengths in the regional economy; regulatory diversity, risk and quality; firm-specific operating efficiency; housing, income and population data; and various financial metrics associated with the long term performance and stability of the company. For example, we have developed metrics to measure trends in balance sheets, cash flows, payout ratios, dividend rates and credit history that we believe are indicative of a company’s long-term financial resilience.

Economic Dimensions fall into four broad categories:

  • Corporate Financial Health & Stability (15.0%)
  • Regional Economic Health & Development (9.2%)
  • Electric & Natural Gas Operating Efficiency (4.6%)
  • Regulatory Quality, Diversity & Risk (4.6%)

Environmental Element (33.3%)

Environmental factors are often referred to collectively as the “E” in the popular acronym “ESG,” which stands for “Environmental, Social and Governance.” Target Rock’s convention is to treat environmental issues separately from the “S” and “G,” both of which will be addressed in the Social Factors section below.

The environmental leg is extremely important since utilities touch the environment in many significant ways. They use large amounts of fuel, water and other resources; they emit gasses, particulates and trace elements into the atmosphere; they place wires and towers across developed properties as well as pristine country; and do countless other things that potentially degrade the environment. In fact, environmental degradation is one of the greatest sustainability risks facing energy utilities. Even utilities that do not generate or produce natural gas are responsible for the purchase of power and natural gas supplies, all of which has behind it some degree of environmental risk. But these activities must be undertaken in the interest of serving the public with reliable energy that is essential to life, health, safety and the economy.

From a positive viewpoint, utilities have effectively met ever-increasing customer demands for the energy that drives our digital economy. They are serving this growth with greater efficiency and proportionately lower emissions than ever before. Utilities have provided markets and interconnectivity for alternative and renewable energy sources and they have transported these renewables vast distances over increasingly sophisticated transmission systems that move the energy from source to sink. Finally, utilities have been centers of excellence for developing customer-facing energy conservation, efficiency and demand-side management programs that reduce energy consumption, the need for new generating capacity, emissions and resource depletion.

Environmental factors that Target Rock has included in its sustainability rankings include metrics related to present and trended emission intensity rates and levels of emissions; the mix, nature and diversity of generating technologies owned by the utilities; the quality of power purchases; level of participation in renewables; and independent third party reviews of the utility’s corporate social responsibility (CSR) and carbon disclosure practices. We also reviewed the level and quality of each company’s participation in industry-wide sustainability organizations, such as the Global Reporting Initiative (GRI), Carbon Disclosure Project (CDP) and the Electric Utility Industry Sustainable Supply Chain Alliance (EUISSCA).

Environmental Dimensions considered in our analysis fall into three broad categories:

  • Emissions & Emissions Reporting (15.0%)
  • Energy Conservation and Demand Side Management (11.7%)
  • Generation/Purchased Power Portfolio Quality & Diversity (6.7%)

Social Element (33.3%)

As mentioned earlier, this leg of the TBL approach is often referred to as the “Social and Governance” components of sustainability. Target Rock includes both of these in the Social leg of our analysis.

We are concerned here with how a utility’s behavior affects its stakeholders and society in general. These factors can take on multiple dimensions depending upon the perspectives of each stakeholder group. Stakeholders include the full diversity of customers, employees, creditors and shareholders, regulators and community members.

We consider factors such as executive compensation and its relationship to historical financial performance and long-term incentives, concentration of executive power, shareholder rights, OSHA violations, and each company’s history of participation in the CDP, GRI, EUISSCA and other sustainability indexes and reporting regimes.

Social and governance dimensions considered fall into five broad categories:

  • Employee Health & Safety (10.0%)
  • Customer Resilience (6.7%)
  • Quality of Corporate Governance Structures, Policies and Practices (6.7%)
  • Local Charitable Giving (5.0%)
  • Quality of CSR, carbon disclosure, and sustainability policies and practices (5.0%)
  • 3 Triple Bottom Line Elements
  • 12 major dimensions
  • 200+ sub-dimensions