It didn’t take long to see results, as Enel was quick to show that it was serious about renewables. They say that true sustainable investing is not possible unless it comes from the very top, and Enel had just the right man at the helm.

Francesco Starace was chief executive officer of Enel Green Power from 2008-2014, listing it on the Milan and Madrid Stock Exchanges in a celebrated EUR 8 billion IPO in 2010. He became CEO of the whole group in 2014 and put renewables at the heart of the company’s strategy. In 2016, the company delisted Enel Green Power and incorporated it fully into the group.

“So the fact that the CEO of the renewables business became the group's CEO really set the tone,” says Van Lamoen. “He has been very important in the transition, and he's still driving that today.”

“If you already have top management with that conviction, then that really helps our engagement, because you have a company that is open to discuss these topics.”

After the initial few years of establishing the basics, the Active Ownership team member handling utilities left Robeco, and a new person was needed to take charge of it. The team chose Cristina Cedillo Torres, who had joined Robeco three years earlier in 2014, was a specialist in transition pathways, and was looking for a challenge.

As she explains, engagement usually starts off informally with talks with staff from the company’s sustainability and investor relations departments, which was already in place. It then graduates to more formal talks with top management to obtain binding commitments. This brought a change of emphasis that would prove fruitful in the following four years.

“When we started the engagement, it was mostly having calls with members of Enel’s Investor Relations team to gain an understanding of what their thinking was, and to introduce ideas about what we wanted to do as a shareholder,” says Cedillo Torres.

“Once we had established a relationship with the company and were getting to know them better, we started sending them letters with more formal requests. We had – and still have – very open lines of communication with Investor Relations, who have been very, very helpful in giving us access to top management.”

“There has also been a lot of interaction more informally between myself and Investor Relations throughout the past years.”

Covid proved no obstacle, however, in furthering the engagement, as another milestone was reached when Robeco successfully nominated a renewable energy expert as independent director to Enel’s board. In May 2020, Samuel Leupold, the former CEO of Wind Power at DONG Energy, was appointed as a non-executive director. He had played an important role in transforming the Danish company from a fossil-fuel player into the world’s largest offshore wind developer.

“Corporate governance over climate was one of the areas that we wanted to enhance at Enel, as indeed we do at other companies,” says Cedillo Torres. “With the CEO coming from the renewables business, clearly he has a lot of expertise.”

“But when we looked at the board composition, we were missing the expertise on climate and the energy transition among independent directors somewhat. So we asked ourselves what can we do to help enhance the skills-set of the board?”

This led to a fabulous opportunity that the Active Ownership team was quick to embrace.

Independent directors at listed Italian companies are nominated by shareholders, including the government where the state retains a stake. The company gets two lists of nominees – one from the government and the other from minority shareholders. The process to submit the list from minority shareholders is coordinated by the Investment Manager’s Committee with the support of Assogestioni, the association of Italian asset managers.

“Italy actually has a great system because it allows minority shareholders like us to nominate members of the board,” says Cedillo Torres. “That’s where I really saw an opportunity for us to get involved and exercise this legal right.”

“Every year the Committee searches for potential candidates across Italian listed companies, so I asked them if we could work together to get someone with climate expertise on Enel’s board. They were pretty excited about it, and so I joined their nomination committee.”

The Active Ownership team’s corporate governance expert, Michiel van Esch, was drafted in to assist with the nomination process. “Michiel has a lot of experience with the nominations of directors, so he advised us on how to pursue the nomination, and helped Cristina with how to go about it,” says Van Lamoen.

“Our collaboration with the Committee also made the nomination possible, as they facilitated the entire process, helped reach the number of shares needed to file the nominee list thanks to its investor network, and provided legal advice.”

“Finding the right person was the most challenging problem because the nominee needed to be an Italian speaker, and that narrowed down the pool really quickly. We were lucky to find that this former wind energy executive actually spoke Italian, even though he's not Italian (Leupold is Swiss), so I think that was indeed one of the great outcomes that we had.”

Another progressive step was the use of Climate Action 100+’s Net Zero Benchmark, which assesses companies’ transition readiness across ten indicators. The benchmark clarifies investor expectations on what elements a corporate climate strategy should address, and provides concrete goals that companies can work towards.

“The benchmark helped our engagement tremendously,” says Cedillo Torres. “We received very positive feedback from Enel on the use of it, and they genuinely engaged with it right from the start.”

“By using the Net Zero Benchmark, our engagement also became more formal. It enabled us to approach the board and top management with a concrete set of requests. This has been mostly in the form of written correspondence, which provides investors with confidence that the company is taking it seriously.”

Another accomplishment came from noticing that Enel was very good at reducing emissions for Scope 1 and 2 but less so for Scope 3. Scope 1 emissions are generated by the company, while Scope 2 are caused by the energy used to make the electricity. Scope 3 are generated by end-users of the product – in Enel’s case, the sale of gas to customers for heating – and are much harder to mitigate.

Engagement on this issue set in motion a chain of events that would lead to an historic pledge in November 2021. “One of the gaps in their reporting when working towards the net zero benchmark with them was related to Scope 3 emissions target – I remember flagging this to them when we met them personally in 2019,” says Cedillo Torres.

“They had a net zero target for 2050 but it explicitly only covered Scope 1 emissions; for a utility like Enel, Scope 3 is also important.”

“These emissions are derived from the sale of gas to customers for heating and cooking. They are significant – probably around 20% of their total footprint. Enel only had set an intermediate target for 2030 but had not yet disclosed its strategy for net zero emissions by 2050, and had not made a clear commitment to achieving it.”

“So, we asked the management and the board to consider setting a Scope 3 target and to explain how they're going to address Scope 3 if they truly want to become carbon neutral, since they could not do so without it.”

“That became one of the major areas of attention for them in 2021. And they did listen. In November 2021, the company brought forward its net zero target to 2040 from 2050 across all scopes, setting intermediate 1.5°C aligned targets for both Scope 1 and the main Scope 3 emissions in gas and power retail. They also confirmed their commitment to be coal-free globally by 2027, while keeping a pledge to become coal-free in Italy by 2025.”

It has all led to Enel finally setting the most ambitious target of all – something that had not been thought possible back in 2015. And perhaps this is the greatest achievement of all after six years of hard work.

“A really important feature of the 2040 strategy is to only generate electricity from renewable energy sources – they plan to rely fully on renewables and batteries – to fully decarbonize Scope 1,” says Cedillo Torres

“In that sense, this is not so much about achieving net zero emissions, but actually having absolute zero emissions from energy generation. In order to achieve this, they have a target to reach 154 gigawatts of renewable energy capacity by 2030.” “That is the most ambitious target seen so far – if they do indeed install that amount of renewable energy capacity, they will strengthen their global leadership position in the renewables space.”

It has left a significant legacy. “Enel’s wider plan to become carbon neutral by 2040 by stopping selling gas to customers as energy production is electrified is perhaps the biggest triumph of all,” says Van Lamoen.” Enel is the first utility to make this commitment, so it's very, very significant.”

“It’s been an amazing journey with Enel over the past six years, and it proves that engagement works. We’re really pleased about what we have achieved, and how far they have come.”