CR Leaders Corner: Shawn Heath

Steve Rochlin, Director, AccountAbility interviews Shawn Heath, Vice President, Sustainability and Chief Sustainability Officer about Duke Energy’s sustainability journey.
Shawn Heath serves as Vice President and Chief Sustainability Officer for Duke Energy. He was named to his position in January 2012, and is responsible for the company’s integrated strategy to operate in a way that is good for people, the planet, and profits. Heath joined Duke Energy in 2001 as an internal auditor and moved to the company’s local Government Relations group in 2005. From 2006 to 2009, he held a variety of positions focused on regulatory and legislative planning for Duke Energy’s utility business in North Carolina and South Carolina, including Director of State Energy Policy and Vice President of Outreach and Advocacy. From 2010 to 2011, Heath served as Vice President of Planning and Business Support for the company’s U.S. Franchised Electric and Gas organization.

Steve Rochlin (SR): Shawn, could you give us some background on Duke Energy sustainability’s journey; where did the company come from and where do you see yourself going today?

Shawn Heath (SH): At Duke Energy, we’ve really tried to impress upon employees and external stakeholders that we think about sustainability in the context of people, planet, and profits. It’s about striving to strike the right balance across the needs of our diverse stakeholders, which include customers, shareholders and the environment.

Sustainability has always been part of our corporate DNA. Over time, stakeholder expectations have evolved and so have we. We were founded in 1904 and in the early days of the company, the focus was on universal access, reliability, and affordability. Many of our customers would still say reliability and affordability are important, no doubt about that, but in the last few years there’s been more of a push on our industry as a whole to focus on increasingly cleaner forms of energy.

The elephant in the room is that Duke Energy is one of the largest C02 emitters in America, so how can we claim to be a proponent of sustainability? I would say where we are today is based on decisions we made more than 40, 50 or 60 years ago – and at that time, it was a different world. Times have changed and we are pushing hard to change the status quo.

We are advancing renewable energy and digital grid applications. We’re also focusing on new products and services to help customers be more energy efficient. The question here is how do we, as an investor-owned utility, incent customers to buy less of our product without negatively impacting profits? For us, it provided an opportunity to think creatively about how to create a new regulatory model that places investments in energy efficiency on more equal footing with investments in power plants.

SR: What do you see as the role of the Chief Sustainability Officer (CSO)?

SH:  I think it is very valuable to have someone that is laser-focused on advancing a company’s sustainability agenda. We have a small team that focuses full time on driving sustainability improvements. One key role of our team is to set aggressive enterprise sustainability goals, in collaboration with the business, that show what a more sustainable company could look like.

We have a strong foundation in place, but now it’s really a question of how do we achieve scale and integrate sustainability into the business so it isn’t an add-on, but a mindset.

If we do our job well, we will serve as a catalyst to push the organization in a more sustainable direction. It’s not about delivering mandates of ‘thou shalt do X.’ It’s about prompting conversation and opening minds to how sustainability can create business value.  Having a small group of professionals focused on sustainability has been incredibly valuable for Duke Energy.

SR: What have been your biggest lessons learned since taking over as CSO in January 2012?

SH: I think it’s mission-critical that sustainability be done in collaboration with the business and in a way that connects sustainability with the objectives of the business. If you are working in transmission and distribution, what resonates is a conversation around operational excellence, reliability, cost stewardship and safety. Each of these business unit specific examples is very compatible with our broad sustainability goals. We must not fall into the trap of talking about sustainability in a way that doesn’t resonate with field personnel.

From an external perspective, balancing stakeholder expectations can be difficult, especially when stakeholders do not have a firm grounding on how our business model works, and what the pressures on our model are from a customer perspective versus a Wall Street perspective versus an environmental NGO perspective. Those conversations can be challenging as we attempt to explain options and trade-offs for meeting today’s energy challenges.

SR: How do you think your background in regulatory and legislative affairs helps you in your job as CSO?

SH: It goes back to the importance of stakeholder engagement – the electric utility business may be the ultimate stakeholder business. Working in regulatory and legislative affairs gave me a deep appreciation for the different groups and vantages they see our business from.

Regulatory action defines the parameters of what’s possible. Oftentimes we have to ask ourselves if we have the authority to do what our stakeholders want us to do. If the answer is ‘no,’ then the next step is to look at how we might engage in the legislative and regulatory arena and move in a direction where we do have the authority to make a decision or change.

SR: How do you think utilities and government can work together to encourage customers to be more energy efficient?

SH: There are great opportunities here. I’d like to point to one program in particular – the Economy, Energy and Environment (E3) program. In a nutshell, it’s a collaborative federal, state and local initiative that provides manufacturers with a customized technical assessment of their production process. The assessment identifies recommendations on how they can streamline their process, reduce water and energy usage and waste streams, and increase profitability. As an E3 partner, Duke Energy has worked with federal and state agencies to help shape programs in North Carolina, South Carolina and Ohio.  For us, it’s an opportunity to evaluate how a particular manufacturing facility can benefit from our energy efficiency programs. If it wasn’t for the government stepping up with a willingness to help shepherd the program and provide funding, and if it wasn’t for utilities like Duke Energy having an interest in their customers becoming more energy efficient, you wouldn’t see programs like this get off the ground. So that’s a small-scale example that is having meaningful results.

SR: What do you think it will take to encourage U.S. utilities to increase their renewables portfolio?

SH: I would say we are on the front end of that transformation now. If state and federal governments had not provided incentive programs for renewable energy, it would have been difficult for that sector to get a jump start.  For example, policymakers in North Carolina deserve credit for stepping forward and putting in place a piece of progressive legislation to establish a portfolio standard. Utilities like Duke Energy and Progress Energy were at the negotiating table providing input and helping shape a workable outcome. Customers will say they want renewables but not at any cost. Shareholders are interested in cost recovery. We found a way to make it work for customers and shareholders alike making North Carolina a success story. As these technologies mature, prices are coming down. I feel very bullish on where renewables are headed but it will take time.

SR: What opportunities do you see for energy companies to more effectively engage with stakeholders?

SH: Given our stakeholder-driven business, the opportunities for this are unlimited. To give one example, we need to reevaluate our enterprise sustainability goals. They are a balanced scorecard of sustainability goals that cover the traditional economic, environmental and social dimensions. These goals have been in place a few years but now with the merger, there is an opportunity to re-cast those goals and engage external stakeholders in the conversation around where Duke Energy is heading in the next 10-20 years from a sustainability perspective. This isn’t rocket science, but it requires a commitment and willingness to sit down with people who may see the world differently than we do. It’s important for them to have a voice and it’s important for us to play a role in being in the middle of that process, gathering information and understanding the direction stakeholders want to see the company go. Ultimately, we have to make a decision on what makes the most business sense.

SR: Duke Energy recently became the largest U.S. utility following the merger with Progress Energy. How do you plan to leverage the new scale and meet growing expectations of a company of this size?

SH: How do we leverage our size to be the best in every category? That was prominent in the merger conversations and the undercurrent is, of course, as the biggest we’ll be under the microscope even more, especially when it comes to our CO2 emissions. But instead of taking a defensive posture, why not turn it on its head and use our size and stature in the industry as an opportunity to shape and mold where we are heading as a company and industry? We are interested in how we can shape the future and in doing so create superior value for all of our stakeholders.

SR: What lessons have you learned about how to effectively create a sustainability-minded corporate culture?

SH: First I’d say you have to be realistic: it takes time. And it needs to permeate throughout each business unit’s culture. Employees need to feel a direct connection about how their work impacts our sustainability performance. We are trying to help business units see those connection points and in some cases they are pointing them out to us. It has to be incorporated into what they do and their business objectives, and they have to see how it creates business value. We can help them get there, but they are the ones that will pursue the opportunities within their business.

SR: You’ve talked about sustainability being a roadmap for Duke Energy to navigate the transformative changes in the industry, how do you see that?

SH: I believe we are at an inflection point as an industry. Over the next 50 years, a lot of what we look at today as the conventional model will be turned on its head and you’ll see winners and losers in the traditional regulated utility space. As I think about the next 50 years, I think that sustainability can be a differentiator. It can be an opportunity for us to drive home the importance of embracing change and finding new ways to serve customers and create value. It’s the notion of not shying away from new technologies, whether it be renewables, digital grid, or energy storage. Embrace them and find ways to leverage them.

In energy policy arena, don’t be a just ‘say no’ company. Find opportunities to shape policy into something workable. Once again, it can create an advantage for your stakeholders. If you think about our product, in many ways it’s been like Henry Ford’s reference to the Model T, which was, “You can have it in any color you want as long as it’s black.” That’s been the way our industry has delivered electricity: here it is and here is the cost.

As you think about changes in technology that will allow residential consumers to optimize their energy use, I think it creates an opportunity for a regulated utility like Duke Energy. It becomes a question of ‘do we sit back and ride the wave?’ or ‘do we explore new ways to harvest value behind the meter that can create beneficial outcomes for customers and shareholders?’ That is the sort of company I am proud to work for and that is the sort of thing I don’t take any credit for as the leader of the sustainability department. These are the things that people across our company are working on, and on a daily basis, they are trying to advance the ball on renewables and customer solutions, and the digital grid. So I shine a light on them and applaud their work because it’s what makes me proud and what makes me confident when I am in front of people talking about sustainability.