Sustainability at Pinnacle West: An Integrated Business Model

"Sustainability is much more than being green.  While sustainability often helps reduce our environmental footprint, it also benefits the communities we serve and helps the company operate more efficiently and, ultimately, more profitably. It is a sound business strategy that helps companies identify economic, environmental and social trends, and manage the downside risk of those trends while identifying the upside opportunities that all risk presents. Sustainability is not a static state of being. At any one time, one of these issues may be more important than the others.  The point is to weigh all three in the decision-making process."
                            - Ed Fox, Vice President and Chief Sustainability Officer

Sustainable business practices are a critical component of our business strategy.  In August 2008, we implemented a new corporate Strategic Framework which defines the company’s vision, mission, areas of focus and values, and illustrates how these work together to create our sustainable future. This is discussed in our Executive Message.

Anchoring a Sustainable Workforce
To achieve the highest level of sustainable business practices, we work towards incorporating sustainability concepts into our daily operations and to drive "ownership" of sustainability to every employee. This includes efforts such as ongoing communications through our daily employee newsletter and our sustainability Web site and blog; having special activities such as our "sustainability month"; and coordinating sustainability measures across the company through our managers' Sustainability Working Group. We also develop employee work plans which allow for continuous improvement and innovation and helpmus make making decisions with a deliberate understanding of how those decisions will ultimately impact our customers, shareholders, environment and employees. Our goal is to get our workforce practicing sustainable business as a normal course of business.

For many years, our company has had a formal corporate philosophy of "doing the right thing" which basically means focusing on ethical business decisions that are good for the company while also being good for our customers, our communities, our employees and the environment. This built a strong foundation for our current sustainability efforts, and we continue to build on that philosophy. 

Sustainability Governance
Pinnacle West has a strong and focused sustainability governance system in place which includes:

1. Board of director and executive engagement and oversight, including a chief sustainability officer. 
2. Public disclosure of sustainability goals and performance through this annual Corporate Responsibility Report and participation in numerous reporting surveys with public disclosure such as the Dow Jones Sustainability Index survey and the Climate Disclosure Project.
3. Establishment, communication and ongoing monitoring of sustainability goals and metrics.
4. Ongoing dialogue and interaction with our employees about sustainability. 
5. A formal sustainability organizational structure for effective evaluation, communication and management of our sustainability efforts.

The chart below illustrates our sustainability governance structure. 

The Eco-Efficiency and Technology Innovation Department's charge is to help integrate sustainability practices throughout the enterprise and to better address the evolving expectations and opportunities of stakeholder groups and the general public. This department helps us to improve the strategic direction and planning of our efforts, while allowing the company to better plan and respond to emerging issues, risks and opportunities. The department is headed by a senior manager, who reports directly to the Chief Sustainability Officer. The department does not have line authority over other Pinnacle West departments; rather it serves a planning, support and coordination role in our sustainability efforts.

The Sustainability Working Group (SWG), a cross-departmental team of key managers and leaders, works in tandem with the Eco-Efficiency and Technology Innovation Department to improve coordination among the company's various departments, establish track and evaluate new issues and opportunities in sustainable business practices; and help ingrain those business practices and philosophies among our front-line employees. This team also helps develop and track sustainability performance, including appropriate metrics. The SWG forms Initiatives Teams from employees across the company as needed to work on specific sustainability focus areas.

A policy group of company officers and senior managers provides executive level oversight to our sustainability effort. The policy group and chief sustainability officer interface with our board of directors on sustainability focus areas.

Enterprise Risk Management
At Pinnacle West, we recognize that in order to achieve our objectives and ultimately our corporate vision and mission, we must also look forward to identify and proactively manage those events that have the potential to alter the likelihood of their achievement.  Having a consistent, sustainable process for managing risk and seizing opportunity, is just another way we create long-term value for our customers, shareholders, employees and the communities we serve.

Managing risk is inherent in everything we do at Pinnacle West and part of every employee’s responsibility, every day.  Whether the risk is identified as keeping our employees and customers safe, ensuring adequate liquidity to meet financial obligations, or planning for a sustainable energy future for Arizona, the process of identifying, assessing, and responding to risk is of utmost importance.

To help the Company accomplish this, we emphasize to our leaders the need to be proactive in thinking about risk, rather than reactive. By taking time to proactively identify, assess, and respond to potential events, we can increase the likelihood that we will achieve our objectives, and ultimately, achieve our corporate vision and mission. One example of this is the internal working group we have established to identify and effectively manage those factors that will be key in shaping the utility of the future and more importantly, Arizona’s energy future. Undoubtedly, these factors will not only include risks to be managed, but opportunities to be seized. Factors such as climate change, social and economic trends as well as technological advancements all play an important role.

To ensure accountability for the risk management process, we have charged our Enterprise Risk Management (ERM) department with the mission of supporting business leaders across the company by assisting them in identifying, assessing and responding to risk. Through this direct interaction, we better prepare our employees, and ultimately our Company, to succeed in carrying out our Vision and mission. 

Sustainability Metrics Successful in Driving Reduction Goals
In 2007, our SWG, in conjunction with an outside consultant, conducted a comprehensive benchmarking study of corporate sustainability goals and metrics, with particular focus on the electric utility industry. Following that benchmarking study, the SWG completed a detailed review of all sustainability metrics at Pinnacle West.  Based on those two studies, Pinnacle West re-established our sustainability foundation, ensuring that the goals, metrics and key issues being used were appropriate to our company.  As part of that baseline setting, the SWG identified several new goals and metrics for key areas related to water use, customer energy conservation and employee engagement, which were reviewed with the Policy Committee for incorporation in 2008 which was the first year the SWG tracked and monitored these metrics against the baseline. Tracking and monitoring was successful in driving these metrics to reduction goals and further engaging employees at all levels in the ownership of these metrics.