- Impact investors must be aware of both the positive and negative consequences of their activities.
- Clean energy sources all involve some environmental cost, such as disposing of equipment at the end of its life.
- Understanding these impacts throughout renewable sources’ lifecycles can help investors strike the right balance.
Impact investing has always been a matter of balance. Most endeavours of social entrepreneurs, while having a great positive impact, still involve some negative externalities – whether they are investing in education, health, housing or agriculture.
So how can we truly invest for impact? The key is to be aware of all externalities, and to focus capital on companies with the best balance between positive and negative impacts.
The field of renewable energy is a great example of the need to find the right balance. As electricity consumption rises globally and natural resources are depleted, a major shift is rightly occurring towards green or clean sources of energy.
There is no doubt that investing in the development of renewables is a step in the right direction. Our society will continue to need energy, and so developing and investing in sensible greener energy solutions is crucial. Yet the balance in this field can be hard to strike. While we are great advocates for green energy, we are also aware that – as with any activity – producing any type of energy comes with some sort of negative environmental impact. Clean energies can come with their own caveats: from their intermittence and recyclability to their impact on biodiversity.
Today, we want to open a discussion with the impact-investing community. How can we make the best energy-related investment decisions for our planet?
A holistic and local approach to energy
As impact investors, we must seek to balance positive social and environmental impacts with financial returns, taking into account both positive and negative externalities, and ensuring the outcome leads to a fairer, more sustainable society.
To aim for impact, impact investors must try to apply holistic reasoning, on a differential basis, taking into account all local specificities. One solution does not fit all. Each country, region or city has a different energy mix. One must look at the negative and positive impact of each project in the short, medium and long-terms.
One of my company’s investee, BEE, is a developer of locally generated renewable energy in Belgium, and so its board reviews projects on a regular basis. BEE’s latest project is a €100 million ($119 million) biomass energy plant in Belgium. The sourcing of fuel for biomass is a critical question with regards to its sustainability. In this case, the project will use waste wood from demolitions rather than forest wood. The plant will process around 150,000 tons of demolition waste wood per year. This will supply heat to a neighbouring industrial facility and electricity to the grid.