Business operations in coal carry real risks. As the NGO community, we would like to provide you with recommendations in light of the coal commission proposal to encourage you to use your power to re-steer Fortum, and therefore Uniper, in the right path.
Recently, the German Coal Commission released the long awaited coal phase out proposal which suggests to close by 2022 12.5 GW of coal power plants and coal-fired power generation by 2038 with an option to end it by 2035. The German government has now started a process of putting a phase out into law, building on the coal commission outcomes. This has profound impacts on the utilities operating coal power plants in Germany. Therefore, through its 49.9 % ownership of Uniper, Fortum has a central role to play.
In your position as the board member of Fortum, upholding the principles of responsible corporate governance is one of your key responsibilities. It is in your power to maintain a system of checks and balances and to ensure that the your oversight over a company can prevent any reckless behavior by the company leadership that can result in both reputational risk – and consequently financial risks.
1. Both Fortum and Uniper needs to commit to align their business models with the UN Paris Climate Agreement and, more concretely, to adopt a time-bound climate science-based targets built on forward-looking climate-scenario analysis.
Climate science demands closures in Europe for 2030 as has been proposed by the International Energy Agency and is increasingly demanded by coalitions of responsible investors. While the Commission’s suggested end date is out of step with climate science, there will be various revision points in the next decade. The pressure to fasten pace will inevitably increase as countries are expected to tighten their pledges to meet the ambition level of the Paris Agreement. As board members of Fortum, it is wise to request already Uniper’s strategy to become truly future-proof in order to guard long term investments from transition risks, anticipating that the phase out will have to happen more rapidly than by 2038.
While Fortum’s business strategy is rooted in clean energy solutions, the company still has several problematic coal assets of its own (including the Zabrze plant in Poland and several coal plants in Russia). These assets must be phased out alongside with those of Uniper’s.
2. Uniper and Fortum need to publish a clearly articulated and detailed roadmap for the gradual closure (not sale) of existing coal plants, ending at the latest in 2030, incorporating just transition plans for affected communities and workers.
Uniper has already started the disposal of its coal plants in France and initiated the talks with the Czech utility EPH. The privately owned EPH is come to be known for scooping up unwanted plants from big power companies that are switching to other forms of generation. However, selling the assets to another company without any real intentions to reduce global emissions is not only a wasted opportunity – it betrays the ambition of the Paris Agreement.
Furthermore, selling coal assets in times where their closure is foreseeable, means ducking away from responsibilities towards the employees and affected regions. Instead, Uniper should use the opportunity to take actively part in a socially just energy- transition.
The request to close the plants instead of selling them by 2030 must also be front of center of board members’ asks towards Uniper and Fortum. The investors must rise to the occasion and demand the appropriate corporate citizenship from the utilities.
3. Uniper must put an immediate end to capital expenditure into new coal plants and any form of lifetime extension for existing coal plants.
In light of the Commission’s recommendations, Uniper’s almost finished hard coal power plant Datteln 4 will not be connected to the grid. If the government follows the proposal of the coal commission that clearly states, no new plants should go online.
However, the company is already pushing back and declares to hold firm onto Datteln 4 in the light of the enormous investments already made by now. Those investments should not have been made in the first place and, in light of the global carbon budget, it is evident that Datteln 4 should never go online. If the German government follows the Commission’s recommendations, Datteln 4 will become a clear example of a stranded asset. In addition, the reputational damage of inaugurating a new coal plant in 2020, when most of Europe is walking away from coal, is a reputational risk par excellence.
It is therefore deeply worrying that Pekka Lundmark has now explicitly expressed his support for Datteln 4 to be allowed online. This is unacceptable and such statements call into question Fortum’s credentials to strive for their vision For a cleaner world. Coal’s social license to operate in Germany is quickly evaporating: to inaugurate new coal capacity in 2020 would simply be outrageous.
It has been agreed that Uniper’s current leadership will step down in August 2019. It is of utmost importance that the new CEO and CFO are able to steer Uniper towards a business model that can accommodate coal-free power production by 2030. The board members’ need to make this a clear demand towards Fortum to provide long-term confidence of the companies’ future.
In conclusion, the responsible board members play a pivotal role in shaping the company behaviour . This can in turn can positively influence decisions on how Uniper and Fortum are run in the rapidly changing policy landscape. We hope that you will exercise that power.