Measuring socially responsible investments

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By Akinwole Omoboriowo II, Chairman of the Board of Genesis Energy

As socially responsible investments largely become a proactive approach; How can societal and community impacts be achieved through investor partnerships with renewable energy infrastructure projects?

Sustainability has become a universal key factor for investors looking to finance energy projects. While socially responsible investments now represent a good part of the global stream of investment strategies.

In addition, investors are increasingly applying non-financial factors as part of their investment process to assess risks as well as growth opportunities.

Therefore, a fair framework to reflect impact is now essential as strategies are increasingly integrated with environmental, social and governance (ESG) approaches and climate change.

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The ESG approach

The results, benefits and measurement of an ESG approach could be achieved as follows:

  • Short-term jobs for a large part of the community and long-term jobs for a smaller percentage of the community; community members would thus increase their knowledge and skills.
  • Increased productive use of labor with a concomitant multiplier effect on average income in the community, especially as service providers emerge to support construction activities and construction personnel.
  • Empowering women through solar-powered devices and ownership of solar-related businesses.
  • Increased access to education in the rural population where solar energy systems can provide access to online learning and longer study hours.
  • A cleaner energy supply reduces the negative health effects of harmful fumes generated by burning wood, kerosene, gasoline or diesel for lighting and other uses.

Investors may choose to highlight certain items as critical when deciding to go ahead with a project. It is important that when evaluating the ESG framework for projects, project developers not only align the interests of investors and developers, but also take into consideration the needs of the community.

This position will ensure the long-term sustainability of the project. There is always a tension between what can be considered in the ESG framework 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 the impact on energy efficiency rather than the traditional carbon reduction target of most renewable energy projects or ;

While in the social bucket, it might be useful to codify the opportunities for community involvement in project operations in order to create a sense of ownership and buy-in. In addition, it is essential that the host communities are the direct beneficiaries of the energy produced.

Global socially responsible investments linked to cash flow

McKinsey research indicates that “ESG-focused investments have increased dramatically, with global sustainability investing now exceeding $ 30 trillion, an increase of 68% since 2014 and tenfold since 2004”.

According to the McKinsey article, the acceleration was driven by increased social, government, and consumer attention to the broader impact of businesses. The promotion of socially responsible investments is also motivated by investors and executives who realize that a strong ESG proposition can guarantee the long-term success of a company.

How does a solid ESG plan make financial sense?

The aforementioned research from the organization highlights that ESG is linked to cash flow in five important ways:

(1) facilitate revenue growth,
(2) reduce costs,
(3) minimize regulatory and legal interventions,
(4) increase employee productivity, and
(5) optimize investments and capital expenditure.

The McKinsey co-authors conclude that “each of these five levers should be part of a leader’s mental checklist when addressing ESG opportunities – and therefore should be an understanding of ‘softer’ dynamics and more. necessary for the levers to accomplish their heaviest lift ”.

Reference:

Five Ways ESG Creates Value – McKinsey


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