A wilful blindness to look beyond emissions statistics is compromising supposedly sustainable portfolios.
Too often, the measure of a portfolio’s ESG pedigree is based on a single emissions figure that hides further environmental impacts, such as deforestation; governance concerns, such as poor data protection; and social implications, such as human rights violations.
In the world of renewable energy, we are now seeing the emergence of a number of increasingly accepted methodologies being employed to calculate the impact of renewable energy schemes. When a renewable power source, such as a solar farm, is added to the grid, the emissions avoided by the assumed displacement of more carbon intensive power plants can be added up to gain a figure indicative of that energy source’s environmental impact. A calculation validates a solar project as sustainable, giving a green light to investors looking to add a project to their ESG-forward portfolio.
But that big green stamp masks a more complex story. Before those solar panels were connected to the grid, lighting up homes with eco-friendly power and burnishing ESG ratings in tandem, they were built with thousands of components from across the world.
Tough questions are the most powerful tool in an ESG investor’s arsenal to hold asset managers to account.
