Energy Transition

How can impact investors balance the green energy equation?

General view of the Walney Extension offshore wind farm operated by Orsted off the coast of Blackpool, Britain September 5, 2018.

What happens to these turbine blades at the end of their life? Image: REUTERS/Phil Noble

Ladislas de Guerre
Manager, Impact Investing, KOIS
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  • Impact investors must be aware of both the positive and negative consequences of their activities.
  • Clean energy sources all involve some environmental cost, such as disposing of equipment at the end of its life.
  • Understanding these impacts throughout renewable sources' lifecycles can help investors strike the right balance.

Impact investing has always been a matter of balance. Most endeavours of social entrepreneurs, while having a great positive impact, still involve some negative externalities – whether they are investing in education, health, housing or agriculture.

So how can we truly invest for impact? The key is to be aware of all externalities, and to focus capital on companies with the best balance between positive and negative impacts.

The field of renewable energy is a great example of the need to find the right balance. As electricity consumption rises globally and natural resources are depleted, a major shift is rightly occurring towards green or clean sources of energy.

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There is no doubt that investing in the development of renewables is a step in the right direction. Our society will continue to need energy, and so developing and investing in sensible greener energy solutions is crucial. Yet the balance in this field can be hard to strike. While we are great advocates for green energy, we are also aware that – as with any activity – producing any type of energy comes with some sort of negative environmental impact. Clean energies can come with their own caveats: from their intermittence and recyclability to their impact on biodiversity.

Today, we want to open a discussion with the impact-investing community. How can we make the best energy-related investment decisions for our planet?

A holistic and local approach to energy

As impact investors, we must seek to balance positive social and environmental impacts with financial returns, taking into account both positive and negative externalities, and ensuring the outcome leads to a fairer, more sustainable society.

To aim for impact, impact investors must try to apply holistic reasoning, on a differential basis, taking into account all local specificities. One solution does not fit all. Each country, region or city has a different energy mix. One must look at the negative and positive impact of each project in the short, medium and long-terms.

One of my company's investee, BEE, is a developer of locally generated renewable energy in Belgium, and so its board reviews projects on a regular basis. BEE’s latest project is a €100 million ($119 million) biomass energy plant in Belgium. The sourcing of fuel for biomass is a critical question with regards to its sustainability. In this case, the project will use waste wood from demolitions rather than forest wood. The plant will process around 150,000 tons of demolition waste wood per year. This will supply heat to a neighbouring industrial facility and electricity to the grid.

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Wind turbines offer another example. Ensuring a sustainable solution requires considering their entire lifecycle, from beginning to end. For instance, France legally requires a €50,000 budget to be set aside for the dismantling of each wind turbine. This budget also ensures every part is recycled: from metal rotors and masts to the less easily recyclable fibreglass/composite blades. Recycling options for blades are being developed progressively by firms such as Global Fiberglass Solutions, which recycles blades for new composite.

However, few countries mandate a budget for dismantling turbines. A best practice would be to include an amount for proper dismantlement and recycling as part of the business plan and financing.

Comprehensive impact measurement: a condition for optimal energy investments

Finding a solution to the green energy equation is unavoidable. Our society will continue to need energy, and more investments in greener alternatives are needed to move us forward. However, these must be made with the right balance.

In this context, comprehensive impact measurement frameworks are vital in order to force investment managers to properly analyse each deal. Some interesting solutions, such as the Impact Management Project, already exist. They enable analysts to review each investment opportunity in a standard and organized way, but also help them track impact and externalities throughout the investment life cycle. Solutions are never white or black, but such frameworks should enable investment managers to pick the best shade of grey.

As impact investors, impact assessments must sit at the core of what we do. Our community is always looking for new and better ways to assess impact, to ensure our operations ultimately lead to a positive impact. In fact, we believe this is a way to ensure we invest in a truly more sustainable future. But, like many in this fast-evolving sector of impact investing, we still have much to learn and love to be challenged. Throughout our work, we wish to increasingly support renewable energy, and we are on the lookout for ways to do it better.

What is your way of investing for impact in energy?

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