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New investor guide addresses social aspect of renewable energy

© ShutterstockWind turbines in the sunny morning..

The Business & Human Rights Resource Centre has launched a guide for investors to assess human rights risks and impacts associated with the renewable energy sector.

  • The Business & Human Rights Resource Centre has developed a guide for investors in renewable energy projects.
  • The sector needs support from local communities to avoid project delays and suspensions, community conflict and higher costs.
  • All industry stakeholders can benefit from better understanding the social impact of the energy transition to ensure it is done quickly and fairly.

How will the guide help investors?

The Business & Human Rights Resource Centre (BHRRC) has developed a guide for investors in the renewable energy sector, based on its own research. It provides practical information on how investors can engage with companies on human rights and environmental issues, both prior to and during investment.

This includes adopting stewardship and responsible investment policies, such as voting and proxy resolution guidelines, as well as building rights-respecting investment practices, for instance by screening potential investees based on public commitment to human and labour rights through policy and practice, project portfolio coherence and company track record.

If the company is already on the portfolio, the BHRRC encourages investors to use and maximise leverage by actively engaging with all stakeholders and harnessing the power of collective action. For example, minority shareholders can join investor coalitions.

Jessie Cato, natural resources & human rights programme manager at the BHRRC, said: “We want investors to be aware of the critical role they play in this transition. When investors fail to consider human rights an essential part of the energy transition, they expose themselves and their portfolio companies to reputational risk and legal and financial costs.” 

She added: “Investors are uniquely placed to influence the development of this key sector and ensure it positions human rights at its core, resulting not only in a sustainable path to a global green energy transition, but also helping create a sector that remedies past inequalities exacerbated by the traditional profit driven extractive model.”

Local communities need to be on board with renewable projects

The world needs $5 trillion worth of investments to scale up renewable energy projects, according to the EY, based on the IEA’s Sustainable Development Scenario, presenting significant opportunities for investors. The BHRRC said it is important to factor in the social aspect in business decisions to prevent human rights breaches. 

Opposition from local communities risks project delays and suspensions, community conflict, and ballooning costs. Even though the fossil fuel and traditional extractive industries have longer history in terms of human rights infringement, it has occurred in the renewable energy sector, too.

The BHRRC found that between 2010 and 2021, one of the most serious and commonly occurring human rights issue in the renewables sector was the failure to respect the right to Free, Prior and Informed Consent (FPIC) of Indigenous Peoples, a right protected under international law. Over half of all attacks against defenders related to violations of land rights. 

Between 2015 and 2021, 369 attacks against defenders were recorded, including 98 cases of lethal attacks. Most of them occurred in Central and South America.

Focusing on the S of ESG

While the guide is designed for investors, it can be a helpful tool for all stakeholders to better understand the social impact of the renewable energy sector. It has been widely recognised that the energy transition needs to be fair and inclusive as well as fast. 

For example, the European Union announced in June 2022 that Member States committed policy packages that “ensure the green transition is fair and leaves no one behind”, while fairness and solidarity are defining principles of the European Green Deal. In the US, the Biden administration allocated $60 billion for environmental justice, including a $3 billion programme created by the Inflation Reduction Act.

As such, investors need to include the social implications of their energy transition-related investments to ensure long-term returns.

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