The materiality matrix
Sustainability sits at the heart of CLP’s business strategy. With a proud history of more than 120 years, CLP is committed to creating long-term value for stakeholders.
GRI reference: 3-1, 3-2
To build a Utility of the Future, CLP has the vision:
"Through its values and commitments, to work every day to grow its business and meet its strategic priorities of:
- creating a sustainable business portfolio;
- accelerating its response to climate change for the business and the communities in which it operates;
- meeting growing demand for energy solutions;
- leveraging technology to deliver leading customer experiences and enhance operating performance; and
- investing to build an agile and innovative workforce.”
Against a backdrop of an increasingly complex operating environment, CLP has conducted robust materiality assessments based on megatrends analysis since 2018. These rigorous assessments consider how megatrends impact the success of CLP’s strategy in the medium- to long-term.
In 2021, a double materiality approach was adopted to reflect the full integration of sustainability into CLP’s strategy.
The materiality matrix below summarises the relationship between megatrends, material topics and relevant sub-topics.
Managing the social
impact of decarbonisation
Responding to evolving
Acting as a trusted partner in
the clean energy transition
Investing in clean electricity
Building resilience in a
Reinforcing cyber resilience
and data protection
Creating new earning
streams as other
Deepening our value proposition
with the right partners
Upholding labour standards
in the supply chain
diversity and inclusion
Attracting and retaining
Enhancing technical and
safety and wellbeing
This interactive map shows the results of the double materiality assessment.
Shaping and executing the transition to net-zero
CLP’s growth opportunities are positioned around becoming a Utility of the Future.
Key areas to address are: decarbonisation of existing assets; investment in clean electricity infrastructure; delivery of reliable energy; and acting as a trusted partner for governments, communities and customers in the transition to a just, fair and clean energy future.
Policies in most markets are moving towards the decarbonisation of economies. CLP must respond accordingly to remain competitive. Its focus is on reducing stranded asset risk for fossil fuel-powered assets, and supporting its reputation as a responsible energy provider. Investments in non-carbon assets and transition enablers are drawing increasing interest from a broad spectrum of investors who share CLP's climate vision objectives, creating the environment for CLP to attract capital and gain support from the insurance market. Also enhanced is the Group’s attractiveness as a commercial partner for private sector and government joint ventures.
The lower emissions that result from the transition to net-zero benefit the environment, and by extension the community, through lower greenhouse gas (GHG) emissions. CLP’s investment in the utility-scale use of clean energy solutions also supports the economy by facilitating major investment in critical supply chains and infrastructure.
- Government & regulators
Reinforcing resilience in a changing operating environment
COVID-19, alongside the accelerating pace of environmental, technological, regulatory and social change, has reinforced the importance of business resilience.
CLP recognises the strategic value of anticipating, withstanding and learning from disruptive events, including regulatory changes and responding to the growing threats posed by climate change and cybercrime.
Business resilience is an important component of sustainable value creation and helps protect CLP’s assets and cash flows. Negative risks associated with damage to physical assets and operations caused by global warming and cybercrime require careful management. As countries begin to plan for a post-pandemic future, CLP has a role to play in rejuvenating the economies in which it operates.
Reinforcing resilience in CLP’s assets and operations underpins a stable and reliable energy supply. This benefits communities and the economy by minimising disruption.
Pursuing growth opportunities in Hong Kong and the Greater Bay Area
The different regulatory environments in each market affect CLP’s growth opportunities locally.
Opportunities in Mainland China, especially in the Greater Bay Area (GBA), are significant for CLP due to the region’s large population, proximity to CLP’s home market of Hong Kong, and increasing cooperation with the GBA. CLP is working with public and private sector partners to: accelerate the clean energy transition in line with government objectives; scale up clean electricity generation to meet rising demand as other sectors electrify; and introduce new energy products and services that serve customer needs.
Electricity demand is expected to increase as specific market segments electrify, presenting opportunities for CLP to access new markets, establish partnerships in high-growth segments, and diversify earning streams. CLP operates in different geographies, allowing it to attract capital, technology and talent globally. The energy transition presents new opportunities to CLP through customer-facing solutions and expansion into high-growth market segments by providing different energy services, such as district cooling.
Aligning business activities with community, employee and customer expectations
As a purpose-led business, CLP recognises its obligation to meet evolving stakeholder expectations around the positive role business plays in society.
This includes empowering end users with decentralised energy solutions that meet their needs and collaborating with partners to deliver clean energy solutions that benefit customers, communities and the environment. Employee and supplier wellbeing is also a priority; CLP’s long-term success relies on its capacity to build organisational agility, diversity and inclusion and to attract and retain highly skilled talent.
Business activities which meet the expectations of stakeholders benefit employees, customers, suppliers and local communities. Additionally, an economic system that respects and upholds non-financial value creation (such as social value) is likely to be fairer and more resilient over the longer term.
Building an agile and innovative workforce
The successful execution of CLP’s strategy depends in large part on its employees’ ability to adapt to evolving industrial, technological, and demographic trends.
As a result, the Group is investing in attracting and retaining a diverse, multi-generational and digitally-adept workforce capable of swiftly navigating change and meeting customer needs. Workplace safety is another key consideration.
Fostering an agile, innovative and safe work environment increases the quality and productivity of CLP’s workforce. Enhancing technical and digital skills within the business is necessary to capture growth opportunities in China and supports the uptake of new business models. Gender and ethnic diversity also increase the likelihood of financial outperformance.
Technology as enabler and disrupter
Artificial intelligence (AI), digitalisation, automation and advanced robotics are shifting the way we work, live, and interact with the world around us.
The COVID-19 pandemic has accelerated this trend, with companies forced to expedite the digitalisation of their operations and customer interactions. In the utilities sector, for example, AI is driving efficiency gains, underwriting the next generation of clean energy and storage technologies, and helping deliver a better customer experience.
Accelerating energy transition
As the world settles into a new “normal”, the transition to a clean energy future remains a priority for governments and business alike.
Post COP26 in Glasgow, 153 countries put forward new or updated carbon reduction targets for 2030, bringing global net-zero commitments to 90% of the world’s economy. However, although COP26 outcomes clearly indicate accelerating pressure for climate action, government inaction and supply chain and investment uncertainty remain key risks to the rapid transition required to limit global warming to 1.5°C.
Evolving energy business models
The falling cost of renewables and the introduction of new technologies is powering the shift towards an intelligent, integrated and more decentralised energy system.
Utilities are exploring new business models and capabilities in areas such as microgrids, storage, electric vehicles (EVs) and energy-as-a-service. Incumbent electric utilities face competition from non-traditional utilities including big tech, communications providers, oil companies and EV manufacturers. Each has identified opportunities to integrate energy products and services into their customer value proposition.
Sealed borders and trade disruption caused by the pandemic fuelled indications that globalisation may have peaked.
There will be no easy return to the unfettered movement of people, goods, capital and ideas; COVID-19 has established a bias towards self-reliance. As the world deglobalises, regional integration grows stronger. Many nations are focused on reshoring critical manufacturing and building greater resilience in their supply chains. Businesses are facing greater regulatory and investment uncertainty as a result.
The demand for electricity is set to increase by more than 2.5 times by 2050, driven by urbanisation and the massive electrification of end-use sectors, such as transport and industry.
Despite the increasing availability of renewable energy generation, growth is unable to match increasing demand. Increases in energy needs also creates additional strain on energy grids, especially at times of peak demand, with widespread clean electrification limited by current energy infrastructure. In IEA’s Net Zero by 2050 roadmap, the current US$260 billion annual investment in transmission and distribution grids will need to expand to US$820 billion by 2030.
Trust and fairness
For many nations, trust in the institutions of government and media is changing. Pressure is mounting on business to address major social, environmental and technological challenges such as wealth disparity, climate change and job automation.
In addition, companies are increasingly scrutinised for human rights violations in their supply chains. This shift towards a more purpose-driven approach to private enterprise is a global phenomenon and will have implications on how companies retain customers, employees and capital. Governments are also looking to adjust economic and social policies to lessen social inequality. China, for example, has announced a Common Prosperity initiative to raise living conditions for low-income workers.
Climate change adaptation
Societies and economies must increase their resilience to adapt to a hotter climate.
The 2022 Global Risks Report ranks extreme weather as most likely to become a critical threat to the world within the next two years, and climate action failure and extreme weather are the top 2 risks in both 2-5 year and 5-10 year horizons. COVID-19 foreshadows what the climate crisis could look like: systemic, fastmoving, and global. At worst, unmitigated global warming could result in catastrophic scenarios that outstrip any capacity to adapt. The energy sector is especially vulnerable to physical climate risks, but leading utilities will also be critical to future adaptation solutions.
Future of work
A rapid increase in the availability and use of digital collaboration tools is accelerating a structural shift in the way people work, communicate and organise their lives.
In response, companies are paying closer attention to worker health, wellbeing and morale. In addition, the benefits of a flexible, digitalised, diverse and inclusive working environment have become increasingly clear, particularly in relation to attracting and retaining talent. However, more than 50 percent of workers currently remain tethered to physical job sites, limiting their access to the benefits of the future of work enjoyed by others.
Data privacy and security
The mass adoption of working from home has increased the number of vulnerabilities for cyber criminals to exploit.
Cybercrime damage is predicted to reach US$10.5 trillion by 2025. Critical infrastructure targets such as electricity grids, power plants and dams are particularly vulnerable to attack. Data privacy is similarly in focus. Greater regulatory scrutiny, increasing incidents related to the release of personal data and changing consumer privacy expectations have forced companies to reconsider how customer data is collected and used.
Investing in clean electricity infrastructure
Investing in clean electricity infrastructure ensures future electrification will come from efficient, low-carbon sources.
Investment throughout the energy value chain will make the grid more resilient and reliable despite rising electricity demand due to greater overall dependence on electricity.
Large upfront capital expenditure for clean electricity infrastructure will impact CLP’s short-term financial position. However, the low marginal costs of renewables and customer willingness to pay a premium for clean electricity will result in investments becoming fully amortised over time. During the transition, CLP will continue to invest in gas-fired infrastructure, in readiness for the transition to green hydrogen when it becomes commercially viable.
Read more from the Annual Report:Financial Capital, Manufacturing Capital, Natural Capital
In addition to the long-term benefits of GHG emission reduction, replacing thermal generation with clean energy infrastructure reduces the use of resources and production of by-products, including airborne fine particulate matter and waste. Investment in clean electricity infrastructure also benefits the economy by establishing new industries and decarbonisation opportunities.
Read more from the Sustainability Report:Air emissions Waste Water Biodiversity and land use
Responding to evolving regulatory landscapes
Effective progress in decarbonisation must factor in evolving government expectations within the markets where CLP operates.
Regulatory uncertainty and increasing competition may exacerbate risks associated with transition to new operating models.
Regulatory uncertainty and sometimes contradictory government ambitions limit CLP’s ability to execute long-term planning and strategic decision-making, and increase the risk of regulatory and non-compliance costs. Continued alignment enhances CLP’s attractiveness as a partner for governments. It is vital that CLP participates in dialogues relating to government policy decisions.
Read more from the Annual Report:Financial Capital, Natural Capital, Social and Relationship CapitalRead more from the Climate-related Disclosures Report
Managing the social impact of decarbonisation
CLP contributes to clean energy transition by removing emissions from its existing portfolio and accelerating the decommissioning of its legacy thermal assets.
Navigating the changing fuel mix, the provision of affordable and reliable electricity to customers, and the uncertainty around long-term storage solutions presents challenges for all utilities. It is important to manage the impacts of the transition on all stakeholders.
The transition to a low carbon economy requires community support. However, some stakeholders may be unfavourably impacted by, for example, the increased energy costs brought on by the substantial investment required to adjust to the new energy model. Failure to achieve balance between decarbonisation and customer and community outcomes may damage CLP’s reputation, and its credibility as a trusted partner.
Read more from the Annual Report:Social and Relationship Capital
The provision of reliable, affordable electricity positively impacts customers and communities by providing an essential service. It is a service particularly important for vulnerable customers who may not be able to bear the cost of decarbonisation. Supporting a just transition for workers and communities also benefits the economy through upskilling opportunities and job creation.
Read more from the Sustainability Report:Access to electricity Availability and reliability
Acting as a trusted partner in clean energy transition
Governments, regulators, communities and customers are committing to ambitious decarbonisation agendas in each CLP market.
As a provider of reliable, affordable and increasingly low-carbon energy, CLP acts as a trusted partner in the transition to a just, fair and clean energy future. This status is particularly important in Hong Kong, where CLP services most of the population and is known for its integrity.
Maintaining trusted partner status preserves CLP’s social licence and reputation, increases the attractiveness of forming joint ventures to deliver society-wide decarbonisation, and reduces regulatory risk. This position improves CLP’s ability to enter new markets, increases customer retention and improves understanding of the trade-offs between a low tariff and greener energy. It also helps CLP attract capital at lower cost, such as via green finance opportunities.
Read more from the Annual Report:Financial Capital, Social and Relationship Capital
Supporting the decarbonisation agendas of key stakeholders positively impacts people, and by extension the environment, by helping reduce emissions to ensure the continued supply of reliable and affordable electricity and energy services. CLP’s role as a trusted partner in the low carbon transition also supports the economy by making energy systems more efficient and resilient, and by decoupling generation and distribution from extractive, non-renewable and polluting fossil fuels.
Read more from the Sustainability Report:Community investment Public policy Stakeholder Engagement Framework
Creating new earning streams as more sectors electrify
Electricity demand is set to increase dramatically as more industry sectors electrify. CLP can enable transition to a low carbon economy by scaling up clean electricity generation to meet demand.
In addition, electrification presents opportunities to expand into new parts of the energy value chain, such as energy-as-a-service and other energy management services.
Wider sector electrification will provide opportunities to access new markets and earning streams, enhancing CLP’s attractiveness to investors not only through non-carbon generation assets, but other electricity infrastructure supporting distributed and variable generation sources.
Read more from the Annual Report:Intellectual Capital
Deploying customer-facing energy solutions
Technological breakthroughs are enabling decentralised energy systems that empower consumers to take control of their energy needs.
CLP is well positioned to support this transition by deploying customer-facing energy solutions, including EV charging stations, smart meters and battery storage. Developing decentralised energy solutions opens up new growth opportunities, while helping CLP build long-term relationships with end users.
Developing decentralised energy solutions creates opportunities for CLP to expand into new business lines and diversify revenue streams. By offering ‘high-touch’ customer solutions, such as charging stations and smart meters, CLP can raise its brand profile and build stronger customer relationships. Leveraging these opportunities allows CLP to improve its strategic resilience against new market entrants.
Read more from the Annual Report:Intellectual Capital
Supporting decentralised energy solutions benefits people by enabling flexible, reliable, and cost-effective access to clean energy. A smart energy system equipped with sensors, robots and information and communication technology offers a greater range of services answering customers’ needs. These solutions can go beyond improving energy efficiency, benefitting the environment through reduced per capita GHG emissions.
Read more from the Sustainability Report:Customer portfolio Customer satisfaction Energy services and solutions
Developing energy-as-a-service business models
Residential and commercial consumers are demanding more personalised and customisable offerings from utility service providers, including how their energy is generated, allowing them to manage and monitor usage in real time.
Advances in technology are enabling energy-as-a-service business models, including power purchase agreements, battery storage and charging facilities and demand-side management. These models combine hardware and software services, giving consumers greater flexibility and choice and promote the adoption of renewable energy sources.
Energy-as-a-service business models are expected to deliver reasonable margins, scalability and long-term customer relationships. CLP’s earnings will be supplemented by such asset-light business models.
Read more from the Annual Report:Intellectual Capital
Deepening our value proposition with the right partners
The utilities sector faces challenges from regulatory changes, emerging technologies and new market entrants.
Partnerships between leading utilities and new market entrants develop synergies that deliver better and more innovative customer solutions. CLP can add significant value by delivering clean energy infrastructure that can respond quickly to variability, and offer better energy optimisation solutions.
Partnerships unlock growth opportunities in high-value market segments which are beyond the traditional electric utilities value chain, such as data centres or district cooling. Conversely, businesses attempting to operate in isolation are sacrificing future growth areas, losing opportunities to deepen their value proposition and insulate themselves against new market entrants.
Read more from the Annual Report:Intellectual Capital
As digitalisation and integration across the energy industry increases, partnerships between incumbent electricity providers and business partners, such as start-ups from other sectors, have the potential to leverage the strengths of both partners. Such partnerships can expand CLP’s clean energy services into new business lines with environmental benefits. The economy also benefits by further decoupling economic growth from carbon-intensive activities.
Read more from the Sustainability Report:Energy services and solutions
Attracting and retaining future talent
Creating the right working environment is critical to attracting and retaining the diverse and highly-skilled talent needed to build a Utility of the Future.
Employees will also need to adjust to new ways of working, such as flexible and remote work, and develop appropriate skills for an increasingly digitalised and decentralised workplace.
CLP aims to have the right capabilities to respond successfully to fast-moving trends and remain competitive. Attracting the right talent also drives organisational agility, enhances employee productivity and improves efficiency.
Read more from the Annual Report:Human Capital
Creating a fit-for-purpose, flexible and digitalised working environment benefits individuals, namely employees, who experience higher levels of job satisfaction, team cohesion and productivity and a better work-life balance.
Read more from the Sustainability Report:Talent and skills development
Promoting workplace safety and wellbeing
Employees, service providers, contractors, customers and members of the public alike desire safe CLP workplaces which support psychological wellbeing and physical health.
Ensuring health, safety and wellbeing enhances CLP employee productivity and improves business efficiency. Conversely, non-compliance increases the prospect of lawsuits and financial sanctions from industry regulators. It also damages brand, reputation and social licence.
Read more from the Annual Report:Human Capital
CLP’s strong performance in occupational health and safety benefits individuals by protecting their health, safety and wellbeing in all workplace locations. Safe operations, such as minimising the risk of COVID-19 virus transmission, also benefits the communities in which CLP operates.
Read more from the Sustainability Report:Occupational health and safety
Enhancing technical and digital capabilities
CLP is recognised for its expertise in hardware and engineering.
However, as digital technologies evolve, customer expectations increase. Electric utilities are under pressure to develop the technical capabilities necessary to attract and retain an increasingly sophisticated and empowered customer base.
Developing and maintaining strong technical and digital capabilities will ensure CLP can execute its business strategy. Utilities responsive to evolving customer preferences and emerging technologies, such as blockchain and batteries, have an opportunity to enhance sales and diversify revenue streams.
Read more from the Annual Report:Human Capital
Building resilience in a changing climate
To ensure a reliable, affordable and sustainable supply of energy, CLP must address the challenges that natural resource constraints and extreme weather conditions pose to physical assets.
While investment is needed to manage physical climate risks, innovative adaptation practices also present opportunities to create demonstrable value.
A failure to adequately address the impacts of climate change on operations could result in damage to physical assets, increasing the likelihood of supply disruption and rising insurance costs. Some adaptation solutions offer opportunities to maximise revenue generation through increased efficiency, greater diversity of energy supply and meeting new customer requirements.
Read more from the Annual Report:Manufactured Capital, Social CapitalRead more from the Climate-related Disclosures Report
Adapting CLP’s physical assets to cope with the disruptive realities of global warming benefits the economy by maintaining a reliable energy supply, even in the face of extreme weather events. This adaptation relates not only to the Company’s own operations, but to its value chain as well.
Read more from the Sustainability Report:Availability and reliability Asset management system
Reinforcing cyber resilience and data protection
Threats to operational technology (OT) are especially important for companies like CLP, which provide critical infrastructure.
Governments and customers are increasingly concerned about how personal information is stored, protected and used. The financial and reputational cost of a major information technology (IT) breach can be prohibitive.
A cyberattack could cause an outage of CLP’s IT systems, leak sensitive customer information or confidential company data, lead to financial losses through fines, legal damages, or ongoing credit monitoring for affected customers. A cyberattack on CLP’s OT could cause severe service interruptions resulting in wider economic impacts and significant reputational damage.
Read more from the Annual Report:Manufactured Capital
The importance of cyber resilience and data protection is growing as the energy industry is becoming smarter and more data is collected. Data privacy is strengthened by increasing IT system resilience, allowing normal day-to-day activities to proceed without fear or threat of cyberattack. Because of CLP’s role in providing critical infrastructure, a massive breach could significantly impact the economy by temporarily shutting essential energy services.
Read more from the Sustainability Report:Security management Cyber security Customer privacy
Fostering agility, diversity and inclusion
CLP’s success is based in large part on the quality, morale and productivity of its human capital.
The CLP workforce benefits from a culture that is open to new ideas and ways of working, and which celebrates diversity and inclusivity in all its forms.
Organisational agility, diversity and inclusion benefits the economy by attracting talent, whether locally or from abroad, and creating higher performing businesses. Cultural openness and inclusivity benefits individuals, particularly employees, who experience higher team morale and cohesion, creating fewer opportunities for discrimination.
Read more from the Sustainability Report:Fair and ethical work practices Fostering diversity and inclusion Supporting employees to thrive in change
Upholding labour standards in the supply chain
The responsibilities of a company should not be constrained within its own operations.
Moreover, human rights due diligence is a critical input in managing supply chain risks. In becoming a Utility of the Future, CLP continues to promote supply chain transparency as a competitive advantage. CLP recognises its responsibility to eliminate all forms of modern slavery and labour exploitation in its operations and throughout its supply chain.
CLP recognises suppliers as a core asset. The close collaboration that comes from these partnerships provides an opportunity to align targets, objectives and standards. Upholding high standards in labour practices has a positive impact on employees, supply chain partners and the communities in which CLP operates.
Read more from the Sustainability Report:Responsible procurement