Sourcing Renewable Energy for Your Business: Worth its Weight in Gold/Green

An increasing number of companies are making public commitments to power their operations with renewable energy, but convincing senior management that the investment is worth it can still be a difficult task. Evidence of improvements to ESG ratings and reputation make the task easier, writes Rosie Helson, Marketing Manager at Natural Capital Partners, and Eric Vermeiren, Consultant at Corporate Citizenship.

Convincing internal decision makers to set bold targets

At the time of writing, ninety-six companies from around the world have joined RE100, an initiative of influential businesses committed to procuring 100% of their electricity from renewable energy sources. These leading companies form a global coalition backed by The Climate Group and CDP and are working to increase demand for – and delivery of – clean, renewable energy. Ninety-six companies may not sound like many, but RE100 members are part of a much larger trend of private sector organizations mobilizing around clean energy and setting green energy targets. And while setting a renewable electricity target may sound straight-forward, convincing internal decision-makers that doing so can add value to the business is a crucial yet underrated venture.

The first step that internal corporate responsibility teams, with the help of operations and energy procurement, should consider is to garner buy-in from the finance department. It’s no surprise that CFOs like to hear of opportunities to reduce or stabilize costs, so building a standard business case is an essential step. Data shows that since 2009, renewable energy prices have plummeted (by 65% for wind and 85% for solar), and in some areas of the world renewable energy has reached price parity with traditional fossil-fuels. More so, economists and energy analysts are projecting significant future reductions in renewable electricity prices.[1]

The next step is to generate internal support from key decision-makers. Members of the Board or heads of communications or marketing departments will likely look for potential paybacks in terms of enhanced brand reputation or improved alignment with expectations from customers, clients or shareholders. Sourcing renewable electricity enables a business to bolster its environmental credentials and decrease its Scope 2 emissions, which contributes to credible carbon reduction programs.[2] Additionally, setting and achieving renewable energy targets can position a company well on environmental, social, or governance (ESG) related indexes and ratings and may yield recognition or awards.

How are companies meeting their targets?

There are four main solutions available to companies interested in setting renewable energy targets, and the most comprehensive strategies use some combination of the four.

• On-site: Businesses with favourable locations, facilities and budgets can choose to independently install solar, wind or biomass plants on their own property to power their operations and sell any excess back to the grid.
• PPAs: A Power Purchase Agreement (PPA) represents a contract between a business that agrees to purchase renewable energy from a named asset, and a developer that agrees to supply it. PPAs are normally complex, long-term (typically 12-20 year), high value commitments; the company must therefore have significant upfront capital as well as a strong credit history.
• Green tariffs: Some utilities can supply renewable energy through the local grid to meet a company’s energy demand.
• Renewable energy certificates: Renewable Energy Certificates (RECs) in the U.S. and Guarantees of Origin (GOs) in Europe are certificates that represent the environmental attributes of one Megawatt-hour (MWh) of electricity produced from renewable sources. They are essential to all renewable energy delivery and usage claims[3] and enable companies to cost-effectively and credibly state their use of renewable energy. Such attribute certificates continue to be favoured by RE100 member companies, with 85% of U.S. based companies and 60% of companies with operations across the rest of the world using them to achieve their renewable energy goals.[4]

Most renewable energy technologies, including solar, wind, geothermal, and hydropower do not directly emit greenhouse gases (GHGs) to generate electricity.[5] A purchaser of RECs – either as a standalone instrument or through a tariff or PPA – can claim zero emissions for the portion of their electricity consumption covered by the certificates, thereby reducing their reportable carbon footprint.[6]

International RECs (I-RECs) are the main instrument used by companies with operations outside of the UK and Europe and are available in many of the locations where on-site facilities and PPAs are not feasible. Businesses can create a portfolio of renewable sourcing methods and technologies based on their preferences for location, quality, and age of the power plant.

Reporting on renewable energy sourcing

By sourcing renewable energy and disclosing their achievements, companies can make a strong leadership statement while demonstrating their contribution to the global, multi-sectoral effort to reduce the volume of GHGs in the atmosphere. A recent report by the Energy Transitions Commission has shown that clean electrification alone could deliver half of the carbon emissions reductions required by 2040 to limit global warming to two degrees Celsius[7].

But renewable energy claims must be credible and accurate. CDP endorses The Greenhouse Gas Protocol Scope 2 Guidance requirement for companies to report their Scope 2 emissions using both the location-based and market-based method.[8] The same guidance also specifies quality criteria for Scope 2 reporting, including that certificates must be tracked or retired on behalf of the purchasing organisation, as close to the date and location of the electricity consumption as possible, and must not be double counted.

Disclosing renewable energy achievements and improving ESG rankings

Investors consider a variety of factors when determining the long-term value of a company and whether to invest. Public information such as annual reports and earnings statements have served as the traditional source of this information, helping investors discern the effects of macroeconomic and company-specific issues on valuations. However, companies are largely not required to disclose achievements on ESG issues via traditional reporting – meaning that investors are left with only a partial understanding of their potential investments.

This has led more and more investors to seek out ESG data across a range of issues to glean valuable investment insights, including measures of a company’s carbon emissions reductions, renewable energy sourcing, labour and human rights policies, and corporate governance structures. These monikers of a company’s sustainable business practices and products are increasingly seen by investors as potential links to a company’s operational strength, efficiency, and management of long-term financial risks.[9]

A 2017 report by EY shows that investors are seeing long-term financial benefits in companies with high ESG ratings. This is because high performing ESG factors can help companies identify new opportunities and manage long-term investment risks, thereby avoiding poor company performance that can come from lax governance, or from weak environmental or social practices.[10] Other studies corroborate the EY report, showing that companies that integrate initiatives which improve ESG outcomes realized increased revenue, supply chain cost reductions, and increases to brand value.[11] While findings from a recent study by the Cass Business School demonstrate that ESG is the key to improving business productivity, revealing that companies with strong disclosure around ESG factors outperform their peers.

As ESG becomes more of a central tenet for investment analysts, institutional investors are considering the sustainability rankings of the companies in which they invest more than ever. A recent Deutsche Bank study found that companies with high ESG ratings have lower cost of debt and equity and companies with high ESG ratings outperform the market in the medium (three to five years) and long (five to ten years) term.

Among all sustainability initiatives within an organization, energy can be one of the most impactful on corporate performance and long-term brand equity as well as on achieving sustainability goals. A move to a clean energy source, whether on-site or through other renewable sourcing methods, can provide a company with opportunities to create greater short and long-term value. Organizations can save on energy costs, reduce operating expenses, stabilize budgeting, receive associated tax credits, and lower the cost of debt and capital from institutional investors that favour organizations with strong ESG ratings.

How does your company stack up?

As the renewable energy market has grown and matured, options available to ambitious companies seeking to source credible clean electricity have proliferated. VMware, a global leader in cloud infrastructure and business mobility, RE100 member and a client of Natural Capital Partners, has committed to sourcing 100% renewable energy for its global operations by 2020. Having pioneered virtualisation, VMware was at the forefront of enabling customers to reduce server requirements and avoid millions of tonnes of carbon emissions.

As an EPA Green Power Partner, member of the Renewable Energy Buyer’s Principles and at the CDP Leadership Level, VMware is focused on continuing to drive innovation and commitment to the transition to a low carbon economy. It has already achieved more than 71% renewable power through on-site solar, a PPA and the purchase of renewable energy certificates. “With our commitment to 100% renewable energy and carbon neutrality, we’re on the next stage of our journey towards delivering a net positive impact. Over the next three years we will progressively move our global operations to meet the renewable energy target and finance low carbon development projects to cover our remaining emissions,” said Nicola Acutt, Vice President, Sustainability Strategy at VMware.

Global alcohol beverage maker and client of Corporate Citizenship, Diageo, is another example of a corporate leader in renewable energy. The company behind famous brands like Guinness, Johnnie Walker, and Tanqueray has committed to halving its direct carbon emissions by 2020 in part by sourcing renewable energy and generating on-site renewable energy. The company sees reducing its reliance on fossil fuels as contributing to its long-term sustainability as well as mitigating its exposure to the risks of energy insecurity and rising costs and has thus prioritized addressing its direct carbon emissions as well reducing emissions associated with its value chain. These green energy efforts have contributed to the company’s high standing on various ESG-related ratings used by researchers, investors and analysts to evaluate company performance.

Climate leaders source renewable energy

Focusing on achieving a bold target like sourcing 100% renewable energy helps organizations manage their carbon impacts and can improve shareholder, employee, and wider stakeholder relations. Although relatively few companies have publicly committed to sourcing 100% renewable energy, many more have begun incorporating it into their business strategies. An increased demand for renewable electricity by businesses drives the implementation of renewable technologies and boosts the market for green energy while enabling companies to report lower carbon emissions.

As companies seek to improve their standing on ESG indexes and ratings in order to attract investor and stakeholder interest, sourcing renewable energy can help to support this. Increased visibility in forums dedicated to renewable energy, like RE100, can also yield significant benefits to member companies, such as facilitating global leadership roles and proffering widespread recognition for environmental achievements in the press and across social media. These can serve to boost a company’s competitive advantage as the global economy transitions to a low carbon paradigm.

Who we are

Natural Capital Partners

With offices in London and the U.S., Natural Capital Partners works with clients to combine business success with positive impact on the environment and society. Through collaboration with global project partners, the development of innovative solutions, and understanding the specific goals of its clients, the company delivers programmes for renewable energy, reducing carbon emissions, enabling water stewardship and protecting biodiversity. Find out more about how Natural Capital Partners helps businesses achieve their renewable energy goals here or by contacting rhelson@naturalcapitalpartners.com.

Corporate Citizenship

Corporate Citizenship is the world’s leading management consulting company specialising in sustainability and corporate responsibility. It partners with clients from around the world to achieve their commitments to sustainable practices and responsible business behaviours – advising on a number of areas including strategy, community, engagement, environment, supply chain, socio-economic impacts, reporting, and assurance. With twenty years of experience, Corporate Citizenship’s global team serves as a catalyst for the positive shift in companies’ attitudes towards sustainability and corporate responsibility. Learn more about how Corporate Citizenship can help your organization here or by contacting mail@corporate-citizenship.com.

 

[1] The Power to Change: Solar and Wind Cost Reduction Potential to 2025, IRENA, 2016. Available at: http://www.irena.org/DocumentDownloads/Publications/IRENA_Power_to_Change_2016.pdf

[2] The CarbonNeutral Protocol, Natural Capital Partners, 2017. Available at: http://s3-eu-west-1.amazonaws.com/ncp-cdn/downloads/The-CarbonNeutral-Protocol-Jan2017.pdf

[3] How Renewable Energy Certificates Make a Difference, Center for Resource Solutions, 2016. Available at: https://resource-solutions.org/wp-content/uploads/2016/03/How-RECs-Make-a-Difference.pdf

[4] Accelerating Change: How Corporate Users are Transforming the Renewable Energy market, RE100, 2017. Available at: http://media.virbcdn.com/files/a9/55845b630b54f906-RE100AnnualReport2017.pdf

[5] Making Credible Renewable Electricity Usage Claims, RE100, 2016. Available at: http://media.virbcdn.com/files/62/53dc80177b9cc962-RE100CREDIBLECLAIMS.pdf

[6] The Greenhouse Gas Benefits of Renewable Energy Purchases, Center for Resource Solutions, 2016. Available at: https://resource-solutions.org/wp-content/uploads/2016/11/GHG-Benefits-of-RE-Purchases.pdf

[7] Power Forward 3.0, Energy Transitions Commission, 2017. Available at: http://bit.ly/2poDLs0

[8] Accounting of Scope 2 emissions, CDP, 2016. Available at: https://www.cdp.net/Documents/Guidance/2016/CDP-technical-note-Accounting-of-Scope-2-Emissions-2016.pdf

[9] The Links Between ESG Factors and Company Performance, Paranassus Investments. Available at: https://cdn.parnassus.com/downloads/archive/2016/Digest/Parnassus_Digest_May_2016.pdf

[10] The Importance of Nonfinancial Performance to Investors, Harvard Law School, 2017. Available at: https://corpgov.law.harvard.edu/2017/04/25/the-importance-of-nonfinancial-performance-to-investors/

[11] Beyond Supply Chains: Empowering Responsible Value Chains, World Economic Forum, 2015. Available at: https://www.accenture.com/t20150523T032947__w__/us-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Dualpub_7/Accenture-Beyond-Supply-Chains-Report-2015.pdf