Utilities face flak over ethical concerns

Investors in renewables have received heavy flak in the last month.

First, the London-based Business & Human Rights Resource Centre put out a report in late June that said renewables investors are at risk of ‘losing their social license to operate’ due to alleged human rights abuses.

The BHRC claimed that it has received 197 allegations of human rights abuses globally related to renewables in the last ten years, such as killings, threats, land grabs, poor working conditions, and low wages.

It said 121 of the allegations were related to projects in Latin America, and that eight of 16 renewables-focused utilities in its benchmarking report faced allegations about their conduct. The four that did best in there were Iberdrola, Acciona, Ørsted and Enel. You can read more about that report here.

The headlines about the report were predictable: ‘Green-energy firms have a human rights problem,” thundered Bloomberg and the Japan Times.

Second, the World Benchmarking Alliance released its own report this month. It said only four of the world’s 50 most influential electric utilities have a clean energy target that would achieve the goal of the Paris deal – Ørsted, Enel, EDP and AES Corporation – and only the first three are on track to hit them.

The report also highlighted that E.On, Iberdrola and Vattenfall have carbon neutrality targets, but that these aren’t ambitious enough to hit the Paris goal.

The result again is a series of headlines arguing most investors in renewables aren’t taking steps that are bold enough to tackle climate change, even if they talk a good game.

Air quality and pollution has become an even more pressing issue since the killing of George Floyd in Minneapolis on 25th May. This has sparked a global series of Black Lives Matter protests, and among the many issues identified protestors including that of environmental injustice. This is where those most at risk from the climate crisis, in developed and developing countries, are in black and ethnic minority communities.

This means companies that aren’t being bold enough on climate change are also contributing to these broader social problems. Calls for action will grow.

Finally, this month Portuguese utility EDP and its subsidiary EDP Renewables were forced to suspend their CEOs, Antonio Mexia and Joao Manso Neto, on the orders of a judge in Lisbon. The suspensions are related to an investigation into corruption involving former economy minister Manuel Pinho.

EDP, Mexia, Neto and Pinho have always denied any wrongdoing on the allegations, which relate to transactions in 2007. EDP said “there was no irregularity that can be attributed to the company”, while Mexia and Neto said that the claims are a “fictional narrative” and that the suspensions were illegal.

We will follow this with interest and won’t comment on the fairness of the suspension – but, whether the suspension is illegal or not, any allegation of corruption in this sector means unhelpful headlines.

Renewables reputation

Does this mean that renewables has an image problem?

It’s a controversial question for sure, but one that we have to ask when faced with headlines such as these. Such publicity can only do damage to wind.

In our view there are three trends at play.

First, it’s the high ethical standards that companies in the wind industry are held to. It is a trend we have covered before, but the fact is that companies that are most vocal on their environmental credentials will also face more scrutiny over their actions. You can complain if you like, but journalists follow any perceived ‘hypocrisy’ like sharks follow blood.

Second, it’s a recognition of the growing influence of renewables. This extra scrutiny is a side effect of the growing proportion of wind and solar in the electricity system of countries across the world. If there are more headlines about wind generally then that includes negative ones, and that's a challenge that renewables firms will have to deal with.

And third, it’s simply a coincidence that these headlines landed so close to each other. That isn’t to say that the reports can be ignored. Human rights abuses and climate targets are both key strategic issues that investors in this sector need to address. Both require attention. Both require action.

Neither is yet a major threat to wind's reputation, but the industry is on notice.

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