Solar, wind, fuel cell, and biofuel renewable energy companies operate with the distinction of contributing to the low carbon energy landscape. They are innovative, green, and are disrupting markets and industries. The fuel and power may be clean, but are these companies good stewards of the environment – and of investors’ capital? Do green companies need an environmental, social, and governance (ESG) report?
The accelerating demand for ESG reports stems from investors and other stakeholders requiring more than traditional financial information. In order to understand the complete picture of risks, opportunities, and value of a company, the scope of relevant performance data now includes environment, social, and governance metrics. Some or all of these categories impact renewable energy companies and investors seek access to the full view of a company, driving the importance of a relevant sustainability report.
Consumers, the general public, and other stakeholders may hold renewable energy companies to a different standard of conduct, as there is a unique social contract that differs from one with traditional energy companies. This strengthens the case for greater transparency of the impact of the full lifecycle of renewable energy, such as materials sourcing and water management. Supporters want to know the net benefit of investing in clean energy.
The Sustainability Accounting Standards Board (SASB) provides financially-material ESG reporting standards for 77 industry sectors including:
- Fuel Cells & Industrial Batteries
- Solar Technology & Project Developers
- Wind Technology & Project Developers
SASB standards are identified as financially-material because there is industry-backed evidence that they impact performance metrics including operating expense, market share, and cost of capital. In addition, different sustainability topics affect industries in different ways. SASB standards are also industry specific based on a fundamental view of individual business models, resource intensity and sustainability impacts, and sustainability innovation potential. This is why at ESG Lynk, when advising companies on developing a relevant sustainability report, we recommend the use of SASB standards.
SASB includes the following five Sustainability Dimensions that map to E, S, and G:
- Environment (E)
- Social Capital (S)
- Human Capital (S)
- Business Model & Innovation (G)
- Leadership & Governance (G)
Among the four renewable energy standards, there are thirteen Governance topics, seven Environment topics, and two Social topics. The Governance topics are mostly driven by the materials used in the system from sourcing to product end-of-life. The Environment topics cover energy management (in manufacturing), water management, and ecological impact. And, like all energy providers, workforce health and safety is a relevant Social topic. Some examples of financially-material topics affecting the four renewable energy standards are discussed below:
Environment Topic: Water Management in Manufacturing
This topic is financially-material for companies in both the Solar Technology & Project Development and Biofuels industries. Both industries face the potential for increased operational costs due to contaminated waste water resulting from the manufacturing process, which results in restricted water availability or interrupted operations.
Social Topic: Workforce Health & Safety
Wind Technology & Project Development companies have exposure to this topic when they provide operating and maintenance (O&M) services. Inadequate safety protocoals lead to injuries or fatalities, resulting in penalties and possible litigation, which not only increases costs, but also reduces profit margin or market share, and the increased risk can also result in an increase of cost of capital.
Governance Topic: Product End-of-life Management
In the Fuel Cells & Industrial Batteries industry, this topic is financially-material, as a Fuel Cell company can gain market share, drive operational efficiency, reduce its risk profile, and increase investment attractiveness when it tracks its sold products that are recyclable or reusable and/or recovers and recycles products at end-of-life.
Identifying, measuring, and managing ESG topics will extend a renewable energy company’s commitment to sustainability, which is an important component of the social contract with customers or the public. Prioritizing these ESG metrics will position the company favorably in a competitive environment with investors.