Morningstar - Q1 2020 - 61

Miller: The utilities industry is focused on the
E in ESG. That's where a lot of the growth is. You both
touched on what your companies are doing in
terms of the social elements. Can you expand on that,
and governance and stewardship?

Bustilho: An example is the way we treat
our employees. Safety is the first focus in each
business review. We deal with dangerous
energy technologies. It is unacceptable that
someone who works with us would head
out in the morning to work and not return that
night. If any technician sees something
that could put his life at risk or harm colleagues
or the general population, he is not obliged
to proceed. It's a golden rule for us.

That's why we invest a lot in technology and
innovation. To solve ESG issues requires massive
innovation from all of us-banks, companies,
the universities, the communities, everybody. The
challenge is huge. As for governance, in our
view, it requires transparency. We have independent members on our board, and we are invested
in improving transparency in our decisions.
An important area where there is room for
improvement is the reliability of information about
ESG. All companies should invest more in data
(consider the problems Exxon had here in the
United States). Information is key, and it's an area
where we have space and opportunity to improve.
Hulen: Safety comes to mind, first and foremost.
When [NiSource's CEO] Joe Hamrock took over the
helm in 2015, we had seven stakeholder commitments and the first of those was around safety.

We suffered a serious incident about a year
ago in Massachusetts with an over-pressurization
on our gas system. That led us to accelerate
implementation of a new safety-management
system, or SMS. We're one of the early adopters
of SMS in the utility space. It's a proactive,
comprehensive approach that's been adopted by
the airline industry with significant results,
and the nuclear industry has been using it for
years as well. As part of that, we have a separate
quality review board that reviews safety practices
and SMS specifically, and is headed by Ray
LaHood, the former secretary of the Department
of Transportation. We also added a new member

Purchasing renewable energy is not
only a brand or a marketing issue, but also an
efficiency issue.
Aurelio Bustilho

to the NiSource board who was a former
chairperson of the National Transportation Safety
Board. We have high hopes for this SMS system
being a long-term, results-driven approach
to keeping our customers, employees, contractors,
and communities safe.
Performance-driven compensation has been
a focus for us. We've added safety metrics
to senior executives' variable compensation, which
tends to be 50/50, or an even higher proportion
of compensation for some of our named
executive officers. We've also added environmental metrics, measuring methane-emissions
reductions with our pipeline-replacement
programs, for example, and our effort to shift
over to renewables.

Another area of focus is inclusion and diversity.
If you look at the dynamic and our makeup of
our board, that's where it starts: 27% of our board
is female and 36% of our board members are
minorities. We're trying to set that as the example
for the rest of the organization. These efforts have
had us on the Dow Jones Sustainability Index for
the last six years, and we were named one of the
world's most ethical companies by the Ethisphere
Institute for seven consecutive years, as well.
We're proud of the progress that we've made.
Miller: Thank you both for sharing your insight.

K
Travis Miller is a utilities and energy strategist with
Morningstar Research Services.

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Morningstar - Q1 2020

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