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ESG Measures and Financing Major Projects
Corporations are increasingly concerned about their environmental, social and governance performance, especially now that political and financial institutions have issued ESG reporting requirements and regulations. Measures of ESG risk and impact, however, are still being developed and tested. In July, The Economist published a special report on this issue that was quite critical of ESG reporting. It argued that ESG quantification was so complex that most regulations are premature, inappropriate and unbalanced.
Still, the European Central Bank is fining certain financial institutions for their failure to act according to their stated ESG objectives, and the US Securities and Exchange Commission has also started to penalize financial corporations for misstatements on ESG performance. Some cases of “greenwashing” may be obvious, but without the data-based approaches to quantify ESG performance that are beginning to appear, strict regulations would be premature. In any case, ESG improvements at the corporate level will inevitably be slow, given that major organizations are difficult to transform. Where quick impacts could be expected is in the ESG performance of investments in new assets—infrastructure, brownfields, real estate, etc. Limiting the ESG risks and improving the ESG positive impact of their projects could accelerate the sustainability progress of corporations, of investment portfolios, and of the whole of society.
Still, the European Central Bank is fining certain financial institutions for their failure to act according to their stated ESG objectives, and the US Securities and Exchange Commission has also started to penalize financial corporations for misstatements on ESG performance. Some cases of “greenwashing” may be obvious, but without the data-based approaches to quantify ESG performance that are beginning to appear, strict regulations would be premature. In any case, ESG improvements at the corporate level will inevitably be slow, given that major organizations are difficult to transform. Where quick impacts could be expected is in the ESG performance of investments in new assets—infrastructure, brownfields, real estate, etc. Limiting the ESG risks and improving the ESG positive impact of their projects could accelerate the sustainability progress of corporations, of investment portfolios, and of the whole of society.
How? The environmental, socioeconomic, and governance components of projects can be identified and measured at the project planning stage. Moreover, improvements can be made at that time to reduce risks and improve ESG results during construction and when in operation. In particular, the benefits of designing for climate resilience can better be taken into account. Less risk usually translates into better terms of financing, which can make up for higher-cost construction materials or practices to avoid environmental or climate change risk.
With good data and analysis, project developers, investors, and financiers can better take the ESG aspects of a project into account. For project developers, it may open up more sources of financing and potentially reduce its cost. For investors and financiers, ESG due diligence at the time they are considering projects can help them reduce ESG-related risks and better take into account plans and designs that are more environmentally friendly and socially beneficial.
Author: Mateu Turró
With good data and analysis, project developers, investors, and financiers can better take the ESG aspects of a project into account. For project developers, it may open up more sources of financing and potentially reduce its cost. For investors and financiers, ESG due diligence at the time they are considering projects can help them reduce ESG-related risks and better take into account plans and designs that are more environmentally friendly and socially beneficial.
Author: Mateu Turró