By Akinwole Omoboriowo II, Chairman, Board of Directors of Genesis Energy
Given that socially responsible investments are largely becoming a proactive approach; how can societal and community impacts be accomplished through investor partnerships with renewable energy infrastructure projects?
Sustainability has become a universal key factor for investors looking to bankroll energy projects. While socially responsible investments now account for a good chunk of the global mainstream of investment strategies.
Also, investors are increasingly applying non-financial factors as part of their investment process to evaluate the risks as well as growth opportunities.
Therefore, an equitable framework to reflect the impact is now essential since strategies are increasingly integrated with approaches to environmental, social and governance (ESG) and climate change.
The ESG approach
The results, benefits and measurement of an ESG approach could be realised in the following ways:
- Short term jobs for a large proportion of the community and long-term jobs for a smaller percentage of the community; community members would increase the knowledge and skills as a result.
- Increase in productive use of labour with attendant multiplier impact on average earning in the community especially as service providers emerge to support construction activities and the construction staff.
- Women empowerment through solar-powered appliances and solar-related business ownerships.
- Increased education access in the rural population where solar power systems can make it possible for access to online learning and longer hours of studies.
- Cleaner energy supply reduces the negative health effects from the noxious fumes generated from burning wood, kerosene, petrol or diesel for lighting and other uses.
Investors may choose to highlight certain components as critical when deciding to proceed with a project. It is important that when assessing the ESG framework for projects, that project developers align not only the interest of the investors and developers but also take into consideration the needs of the community.
This stance will ensure the long-term sustainability of the project. There is always a tension between what can be considered within the ESG scope of the project and its ultimate financial viability.
For example, in the environmental bucket it may be more important for a project to consider climate adaptation, climate resilience or energy efficiency impact rather than the traditional carbon reduction focus of most renewable energy projects or;
While, in the social bucket, it might be worthwhile to codify the opportunities for community involvement with the project operations to provide a sense of ownership and buy-in. Additionally, it is critical for host communities to be direct beneficiaries of the energy being generated.
Global socially responsible investments linked to cash flow
Research by McKinsey indicates that “ESG-oriented investing has been rising remarkably with global sustainable investment now topping $30 trillion – up 68% since 2014 and tenfold since 2004.”
According to the McKinsey article, the acceleration has been driven by heightened social, governmental, and consumer attention on the broader impact of corporations. The advancement of socially responsible investments is also driven by the investors and executives who realise that a strong ESG proposition can safeguard a company’s long-term success.
In what way does a strong ESG plan make financial sense?
The aforementioned research by the organisation highlights that ESG links to cash flow in five important ways:
(1) facilitating top-line growth,
(2) reducing costs,
(3) minimising regulatory and legal interventions,
(4) increasing employee productivity, and
(5) optimising investment and capital expenditures.
The McKinsey co-authors conclude that “each of these five levers should be part of a leader’s mental checklist when approaching ESG opportunities—and so should be an understanding of the ‘softer’, more personal dynamics needed for the levers to accomplish their heaviest lifting”.
Five ways that ESG creates value – McKinsey