The CEO of Iberdrola on Committing to Clean Energy

I will never forget the day Íñigo de Oriol e Ybarra, the former chairman of Iberdrola, asked me to join the company as its new CEO. Iberdrola was the second-largest Spanish utility, after the state-owned Endesa. At the time, I was leading Airtel Movil, the Spanish mobile telecom company that in just five years had become the main competitor of Telefónica. Airtel had recently been acquired by Vodafone, and I had been asked to stay on under the new parent company. But I got a surprise call from Íñigo de Oriol, whom I knew by reputation. He asked me to meet him at a Madrid hotel bar frequented by the city’s top executives, bankers, and politicians. I walked in at 7 PM and found him at a central table. He got right down to business: “Ignacio, you need to join me. Come lead Iberdrola.” This was not said in a whisper; his voice was so loud everyone around us could hear. Iberdrola was the result of the merger of two Spanish utilities about 10 years before. Its assets, unlike those of many other energy companies at the time, were primarily sustainable: hydro and nuclear. But it also had some oil- and coal-fired power-generation plants, and its footprint was limited to Spain and a bit of Latin America. The company needed a CEO who was willing to challenge traditional industry models and build a better future. Needless to say, I decided to seize that opportunity. I was appointed CEO in 2001 and then chairman and CEO in 2006. The past two decades have been some of the most rewarding of my career. Thanks to the hard work of our entire team, we have expanded into dozens of countries on four continents, grown to serve 100 million people with power, created one of the largest wind energy companies in the world, and closed all our oil and coal plants. It wasn’t easy to commit to a growth strategy based on clean energy and reducing our operating emissions by 50% by 2030—before virtually anyone else in our industry was making any such promises. But it was the right decision. And in recent years we have been rewarded for our foresight. Since 2001 we have grown from about the 20th-largest worldwide electric utility to the third-largest, with our size and results multiplying by a factor of five. Most important, employees and subcontractors around the world consistently tell both us and rating organizations that Iberdrola is a great place to work. Our story should be instructive for any company interested in remaking its strategy in a way that benefits all stakeholders and promotes more-sustainable living. In the wake of the Covid-19 pandemic and the resulting economic and social fallout, it will be critically important to build back better than before. And we can. It just takes values, vision, focus, and a lot more urgency than patience. A Century of History Iberdrola the corporate brand was born in 1992, when Iberduero merged with Hidroeléctrica Española. In 2001, following my arrival, the company adopted a strategic plan that anticipated the world’s need for more clean energy and called for global expansion with the aim of doubling the size of the company’s revenue and EBITDA in just five years. We met that goal. Now Iberdrola was ready for the next step. My background had prepared me for the challenge. After graduating as an industrial engineer from ICAI, the engineering school of Universidad Pontificia Comillas, in Madrid, I went to work for a car-battery manufacturer and rose through the executive ranks. I then moved on to lead two aerospace-engine makers before my time building Airtel Movil into the second-largest telecom company in Spain and a Vodafone acquisition target. (It is now Vodafone España.) Left: Iberdrola’s Groton Wind Farm, in Grafton County, New Hampshire; top right: Iberdrola’s Núñez de Balboa project, in Badajoz, Spain, contains 1.43 million solar panels; bottom right: Construction work at the Tâmega hydroelectric plant, in northern Portugal, which will be able to provide 440,000 homes with electricity by 2023 Courtesy Iberdrola Both the board and I recognized that my previous experience was relevant. My engineering degree meant I could understand the details of the business. I’d led teams of engineers on complex projects and had built and sold highly technical products. I’d developed and executed on an ambitious B2C growth strategy. And my values gave me the grounding to design and lead Iberdrola’s green mission. I have a love for nature born during a village childhood surrounded by cows, horses, rabbits, trees, streams, and fields, and I abide by the Jesuit calling to serve not only oneself or—in the case of a corporate executive—one’s investors but all stakeholders and the broader society. Once in the CEO seat, my first job was to finally complete the merger that had been signed so many years before. I needed to make sure we were all rowing in the same direction. For months I talked to people around the company—in 10 to 15 meetings a day—and asked about their perceptions and priorities. I still have the sticky notes. I sought advice from professors, mentors, former colleagues, contacts within and outside the energy industry, even my son. What I discovered was that we had many good people who could unite around some key corporate values: hard work, honesty, loyalty, and team spirit. A Modern-Day Strategy We also needed vision: a more ambitious strategy focused squarely on our core business of generating and distributing sustainable and renewable energy through plants, networks, and storage facilities. As world governments began taking climate change seriously and setting carbon emissions reduction targets, we aimed to leave fossil fuels and other interests (small stakes in Telefónica and Spanish media and property) and double down on that low-carbon future. And to have real impact, we had to transition from being a nearly 100% Spanish company to being a truly global one. My team and I worked on a plan and presented it to the board, explaining that it would require a €12 billion investment over five years, even as we accrued proceeds from divestitures. We would invest in acquisitions, new ventures, digitization, and the well-educated and -trained talent we would need to execute the plan. The board gave its approval within a day. Of course, we heard criticism from other corners. Competitors thought I was crazy: Wind power was in its infancy, and solar was prohibitively expensive, so no one understood why I wanted to target renewable energy. Regulators raised a skeptical brow. Some senior executives retired or left. Change is never easy. But after those departures and a few key hires, I knew I had a team committed to our plan, values, target, and goals. I won buy-in from employees through constant engagement. In those early years I started hosting hundreds of people in large town-hall-style gatherings. If we were scheduled for two hours, I would open with a 10-minute speech and spend the rest of the time answering questions. I also took online queries and feedback via our corporate intranet. Over and over, I explained what we aimed to do, where we wanted to go, and why it would be good for everyone. I still do this regularly. Believe it or not, the biggest hurdle in the whole transition process may have been persuading the board to change our blue logo to the green, blue, and orange leaves you see today. Everyone was used to the existing color and image, which had been around for decades. But I wanted a logo that symbolized our future. I had to plead my case over the course of three meetings. For the last one my team and I pulled out all the stops: We decorated the boardroom green, set a corridor of green flags along the road that fronts our Madrid headquarters, and lined up a fleet of green cars outside. The directors finally agreed. Competitors thought I was crazy: Wind power was in its infancy, and solar was prohibitively expensive, so no one understood why I wanted to target renewable energy. Then the work began, starting with divestitures and closures. We began phasing out oil- and coal-fired power plants and announced our final closure in 2017. We also sold off our nonenergy businesses. Then we turned our attention to renewable energy, smart grids, and storage, both at home and abroad. Most Spanish companies start with Latin America. Indeed, Iberdrola had already done that to a limited extent. Without setting aside that region, I was interested in countries with high credit ratings, more-predictable regulation, and stabler legal frameworks. They may not be as profitable as emerging countries, but they’re less risky. And our board and shareholders were expecting us to make safe and long-term—not speculative—investments. By 2007 we had integrated ScottishPower, which had a few fossil-fuel-dependent facilities but was moving toward a focus on wind; its subsidiary PPM Energy was at the time the second-largest wind farm operator in the United States. The £11.6 billion all-stock deal made us the third-largest utility in Europe. Many questioned whether a Spanish company could manage a traditional British utility. I remember that one competitor launched a campaign with a picture of a flamenco dancer, inviting our customers to switch to it. But when we presented our philosophy and targets to executives, shareholders, and local politicians, they bought in. And, as with subsequent foreign acquisitions, we kept the local team in place while transitioning the business in the same way our Spanish one had—moving out of unsustainable and high-carbon businesses and investing in sustainable and low-carbon ones. Our next move was in the United States: We acquired Energy East, a utility that then had more than 3 million electricity and gas customers spanning New England and New York. The investment community, particularly Wall Street, remained skeptical at first. It viewed us as Spaniards trying to push some crazy ideas through a heavily regulated industry in various parts of the world. And engineers aren’t always the greatest salespeople. But after further growth and mergers, our Avangrid business in the United States has $30 billion in assets and is listed on the NYSE with more than $15 billion in market capitalization at the time of this writing. I should point out that not everything we heard in the early days was negative; as we set out to implement our new strategy, we heard some positive voices, too. Even as far back as 2002, the analyst who covered us for UBS published a report called “Kiss the Frog,” referring to our new green image and suggesting that we now looked pretty attractive. The financial community started to believe, as we did, that our goals were achievable. See more HBR charts in Data & Visuals We pressed on. In Brazil we bought and built assets and companies that now make up Neoenergia, which was successfully listed in 2019. We operate across 18 states in the country, covering all areas of the energy value chain—from wind and hydro and gas generation to transmission and distribution networks—and supplying energy to 35 million people. In Mexico we have grown over 20 years to become the country’s largest private generator of electricity. We have since invested in hydro and wind and solar in Portugal and in offshore wind in Germany and France, and we’ve established sustainable operations in Greece and Hungary. In 2020 we took our first steps in Australia, a country with huge renewable-energy potential. That has helped make us one of the top five electricity utilities in the world and a leader in wind power. And we continue to build out our operations in the United States and the United Kingdom, particularly with wind farms, while closing coal-fired facilities. Back home in Spain we’ve expanded hydroelectric capacity and deployed smart grids and meters around the country. We are now the country’s largest electricity company, supplying 20 million people—almost half the population. We plan to triple our renewables business here in the coming years. We are also investing in electric mobility, photovoltaics, battery storage systems, and blockchain technology to guarantee that our energy is 100% clean. Three-Way Wins At Iberdrola we are working to benefit society and our employees as well as shareholders. Since 2001 we have invested more than €100 billion in cleaner energy, smarter networks, and storage around the world. In 2019 our carbon dioxide emissions per kilowatt hour of electricity generated were just one-third the average among our competitors in Europe. For the second year in a row, Corporate Knights named us one of the world’s top 100 sustainable companies. The Ethisphere Institute has also rated us one of the world’s most ethical companies for seven consecutive years. In 2018 we received both the European Environmental Award from the king of Spain and an award from Al Gore’s Climate Reality Project, and we have been included on the FTSE4Good Index for a decade. We support 400,000 jobs around the world and focus on training and development, including company-sponsored university programs and classes on our own campuses. For just one example of how international and highly educated our teams are now: Our offshore wind design group consists of close to 1,000 people in four countries (a UK base plus the United States, Germany, and France) representing 18 nationalities and dozens of expertise areas, from marine biology to drilling, corrosion to weather. Internal surveys show that nearly 90% of our employees would recommend working for Iberdrola. The investment community remained skeptical at first. It viewed us as Spaniards trying to push some crazy ideas through a heavily regulated industry. Meanwhile, our net profit of €3.4 billion in 2019 represents a fivefold increase since 2001. In fact, since 2001 the total return for shareholders has been about 715%. Not only are we more profitable but we’re creating a stronger workforce; a cleaner, more efficient operation; and a safer world. Investors and analysts joke with me about some European competitors who are now trying to follow our strategy after years of milking fossil fuels. I say, “Welcome.” Climate change has become a climate emergency, and we need everyone on board to fight it. In a post-Covid world clean energy will offer real opportunities to drive economic growth, support industry, and create jobs. We believe that leaders in any organization, in any sector, can build companies that exist to benefit not just shareholders but also their workers and society. We must ensure that the business world puts sustainability and a future orientation at the forefront of strategy. It is both an obligation and an opportunity.

The CEO of Iberdrola on Committing to Clean Energy

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