The importance of ESG in Asset Management

While RES as a business has its own Environmental, Social & Governance (ESG) strategy and objectives to deliver, our asset management service is responsible for supporting investors and asset owners in delivering strong investment outcomes including ESG performance.​ In this article, Melissa Charlton, Head of Strategy & Sustainability, discusses the importance of ESG in asset management and provides some insight into areas that RES supports for clients.

The transition towards net zero emissions is the biggest challenge every business and organisation will face.  Companies are increasingly being held to account by employees, investors, customers, regulators and other stakeholders on their ESG practices. It is now essential to disclose a variety of activities including energy use, emissions data, habitat management, homes equivalent powered, displaced carbon, community benefits, community outreach activities and more.  At RES, we have been working and supporting our clients to demonstrate market leading ESG performance at a project and portfolio level.

Reporting

ESG reporting standards and frameworks are crucial to provide consistent and comparable reporting of relevant ESG information. There is no shortage when it comes to the frameworks available. For instance, some popular ESG Frameworks include UN SDGs, GRESB, PRI, SBTi, PCAF, and TCFD.  Frameworks and ESG standards can be voluntary but we are seeing increasing government requirements around mandatory disclosure. We support our clients on various frameworks and at the end of 2020 we also committed to the Science Based Targets initiative (SBTi) which means we will reduce our greenhouse gas (GHG) emissions in line with the latest climate science on meeting the goals of the Paris Agreement.

Reporting can cover a wide range of specific metrics, targets, and requirements to be met at an asset, portfolio or fund level. It can include qualitative and quantitative data for mandatory reporting or voluntary disclosure across the environmental, social and governance categories. There is no one size fits all when it comes to reporting – it is important that an ESG support service is tailored to meet each organisation’s individual needs and commitments.  However, one area that is required by virtually every ESG reporting framework is emissions data, which can be challenging to collect.

To reduce emissions, you need to have an emissions baseline and ongoing measurement of reductions. There are different emissions ‘Scopes’. For instance, Scope 1 emissions are direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by an organisation (e.g., emissions associated with fuel combustion in boilers, furnaces, vehicles). Scope 2 emissions are indirect and originate from energy purchased and used by the organisation. Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly impacts in its value chain.  As an asset manager, we collect Scope 1 & 2 emissions for clients (as well as for ourselves) and are also actively engaging with supply chain and contractors to improve the process of collecting Scope 3 emissions data.

Given the vast amounts of data available for collection and the various third-party software systems used to gather ESG metrics, we have developed a support services platform to create efficiencies, streamline reporting as well as manage ESG portfolio performance.

Community support   ​

Not only do wind and solar assets power thousands of homes across the country with clean, green energy, but they can also benefit local environments and create support mechanisms to local communities through grants. For instance, we work with communities on behalf of our clients to maximise the opportunities presented by their community funds. These funds usually support activities such as sports clubs, community groups, and local events.

We also provide additional support for funds examining initiatives such as the installation of EV charging points, improving diversity and increasing biodiversity. When delivering ESG enhancements we take the same approach to delivering a new project – identify local contractors to complete works on site to limit travel where appropriate and put sustainability at the heart of everything we do.

Improving biodiversity is also an important consideration. By providing wildlife corridors and vital resources for mammals, birds, and insect species this can lead to a net gain in biodiversity on site.  An example of some of the work we have carried out includes establishing relationships with local beekeeper associations and enlisting beekeepers to deploy beehives at some of the solar sites that we manage, in addition to the creation of wildflower meadows.  Enhancing biodiversity has a positive impact by improving the resilience of surrounding ecosystems and also contributes to improved dialogue with key stakeholders like landowners, authorities, and local communities.

Wildflower meadows and beehives deployed at a site managed by RES

How can your asset manager help?

Asset management is seen as a central point for both reporting and enhancement activities for operational projects.  We approach ESG as a long-term process and understand that whether setting net zero targets or improving on sustainability reporting, planning and transparency are essential to delivering on ESG goals.

To identify and prioritise ESG enhancement opportunities we host dedicated workshops with our clients. This enables us to include action plans for improving the ESG performance of individual projects or portfolios and support reporting.​ We look into opportunities such as substation energy efficiency, biodiversity and peatland restoration, replacing harmful chemicals, like glyphosate, supply chain compliance, policy updates, etc. We also advise our clients on project level ESG policies and activities and keep track of ESG KPIs. Furthermore, we drive positive change, keep our stakeholders responsible and support them in improving their own processes.

Conclusion

ESG reporting gives companies the opportunity to be transparent with stakeholders about their approach to environmental, social, and corporate governance topics. It’s quickly becoming a necessary part of operating for any business, especially renewables. Taking ESG seriously and implementing responsible plans on an operational level can help meet investor’s requirements, back up net-zero commitments and add to the positive image of renewable energy projects, especially with local stakeholders. As asset managers, our deep understanding of the opportunities and challenges on ESG at a site and portfolio level means we are well placed to support best ESG practice and deliver on achieving net-zero targets.