AEP Sustainability - Materiality

ESG Materiality

The evolution of corporate sustainability reporting and ESG disclosure has become more detailed and complex as stakeholders demand deeper levels of transparency. We live in a hyper-transparent and data-driven world – where ESG was once seen as qualitative by nature but is now becoming measureable – that drives demand for companies to enhance the quality, comparability and usefulness of their ESG disclosure.

Materiality matters when disclosing performance. We cannot address every issue, nor should we. To most effectively manage our resources and focus on the material issues to our business and our stakeholders, we must focus on what is most relevant to our financial and nonfinancial success. That is what our stakeholders expect of us and how we are best able to respond to their needs and concerns. AEP defines material issues as those that reflect our most relevant environmental, social and governance impacts and contributions because they can:

  1. Have a significant impact on the company’s finances and/or operations;
  2. Have or may have a significant impact on the environment or society now or in the future; and/or
  3. Substantially influence the assessments, decisions and actions of our stakeholders.

To identify material and emerging issues, in 2020 we conducted a materiality analysis using Datamaran, a cloud-based software platform that enables a comprehensive and data-driven process for monitoring external risks. The analysis monitors ESG issues in real-time, using analytics that give us insights into strategic, regulatory and reputational risks and opportunities that could impact AEP. This helps strengthen our understanding of ESG, geopolitical, technology and emerging issues, ensuring alignment with different internal and external stakeholder expectations while enhancing our in-house capabilities to monitor progress.

This effort provides critical input to the development of our corporate strategy, risk management, and disclosure and engagement, as well as meets growing stakeholder expectations. This is especially important as new issues, such as COVID-19 and social justice, continue to emerge, highlighting the rapid pace of the changing ESG landscape.

Purpose and value of a materiality assessment:

  • Identify ESG/sustainability trends and future risks
  • Target and improve disclosure and engagement
  • Reduce risk and exposure
  • Ensure consistency across risk management, Board oversight and annual reporting

Our integrated reporting is one way we demonstrate the connections between financial and nonfinancial performance, as well as our commitment to transparency. AEP has been reporting in this way for more than a decade. In addition, we participated in an industrywide priority issue assessment, led by the Electric Power Research Institute (EPRI). This is the third such assessment at the industry level. EPRI’s deep understanding of the utility industry coupled with the vast research through their Priority Assessment complements our ESG materiality assessment by providing us with broader perspectives and insights.