Energy investment opportunities that can drive Sustainable Development Goals

Guest post by Alan Sproule
Executive Director of Project Export Finance, Standard Charter Bank
Originally published on BizCommunity website in June, 2020

The term 'crisis' is used all too frequently but unfortunately it is often accurate, whether it's the Covid-19 global pandemic affecting us all or socio-economic crises that impact individual countries. The World Economic Forum reports that just recently, when business leaders were asked to identify the biggest risks of the coming decade, climate change was high on the list. Now that we are all faced with the immediate humanitarian crisis as a result of Covid-19, which has also quickly developed into an economic crisis, it is important that we don't lose sight of the longer term risk that climate change poses to humankind.

The United Nations' (UN)17 Sustainable Development Goals (SDGs) are among the most ambitious projects humanity has ever attempted. They represent our best hope of tackling the most serious challenges facing our societies and our planet. The investment required to meet the targets by 2030 cannot be provided by governments and NGOs alone. The private sector has a critical role to play if we are, collectively, to achieve them.

While many investors, corporations and financial institutions say they are committed to achieving the goals, capital is not flowing at the required speed to the countries where SDG investment matters most. In emerging markets alone, the UN estimates $3.9trn per year will be required to reach all 17 goals by 2030. At the current rate of investment, the UN has calculated a gap of $2.5trn per year.

SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all

SDG 7 is of particular relevance to us in sub-Saharan Africa. Investing in clean, renewable energy sources is vitally important for combating climate change, while ensuring universal access to electricity is fundamental for providing the basic standard of living needed to provide good life opportunities.

The private sector is well established as the leading source of finance for power generation in most economies around the world (accounting for 80-100 per cent of power generation in developed markets). Thus, private investment is critical for reaching SDG 7, and it is vital that as much of this finance as possible is directed into clean energy infrastructure. In emerging markets, private investors provide around 45 per cent on average of total funding. .

Some of the most compelling investment opportunities can be found in renewable-energy projects in emerging markets, where growing demand for new sources of reliable, clean and affordable electricity is greatest. In sub-Saharan Africa (SSA), it is becoming increasingly common for governments to use independent power producers (IPPs) to build new generating capacity. This benefits the economy by attracting necessary capital and expertise and can also offer attractive rates of return for investors in IPPs. In addition, because payment is made under long-term power purchase agreements, this type of investment can also provide certainty for investors. While emerging markets offer the potential for high returns there are also added risks, including payment in volatile currencies, and less-developed transport infrastructure which adds to the cost of construction.

The UN believes that progress towards universal access to electricity is accelerating, indicating that this important target can be achieved with enough dedicated resources. However, much more needs to be done. The share of renewable sources in the total global energy supply only increased from 16.6 per cent in 2010 to 17.5 per cent in 2016. This was despite international finance to support clean energy in emerging markets almost doubling across the same period (increasing from $9.9bn to $18.6bn). Recently, costs have been falling rapidly, particularly for onshore wind and solar power, often making them more affordable, which should pave the way for increased investment. Achieving universal access to electricity globally is an important step, but this alone will not be enough to achieve SDG 7.

A shift away from fossil fuel-powered electricity generation, towards clean renewable energy sources, will be needed to achieve this. Investors still have significant opportunities to contribute to SDG 7 by increasing investment to clean energy projects.

Investment potential in sub-Saharan Africa

The total investment needed in the power sector to achieve and maintain universal access to power across emerging markets by 2030 is estimated to be approximately $9trn. Considering average private-sector participation rates of 45 per cent, the potential private sector investment opportunity in achieving universal access to power in emerging markets by 2030 is about $4.2trn.

According to the OECD, sub-Saharan Africa (SSA) has the lowest energy access rates in the world. Roughly half the population, 600-million people, do not have access to electricity. Just over $146bn is required to achieve universal power access by 2030 in in five countries in sub-Saharan Africa - Kenya, Uganda, Nigeria, Ghana and Zambia alone. If international trends were followed almost $66bn of this would be expected to be contributed by the private sector.

While much of the developed world is substituting existing carbon energy sources for renewables, SSA is still ramping up its base load power to achieve universal access. Renewable energy plays a smaller role as most of the large scale developments are in gas and hydro, but the investment potential is significant. A recent Bloomberg New Energy Finance report indicates that $2.8bn was spent on renewables projects in sub-Saharan Africa (excluding South Africa) in 2018 .An interesting development is that smaller scale, off-grid renewable energy is making significant progress in reaching remote rural areas and this is largely being driven by private sector developers.

SSA has additional complexities which should be considered, not least of which is whether end users – and thus the countries - can afford to pay for the power. Of related concern are high levels of debt that have accumulated over the past decade leading to a recent appeal by African finance ministers to the IMF, World Bank and European Central Bank (ECB) for debt relief in relation to around $44bn in debt service payments this year. Covid-19 has accelerated matters but the broader debt levels have been increasing for some time.

As a potential solution, many sub-Saharan African countries have introduced legislation in the past decade to enable public private partnerships and are using this legislative framework to drive private investment in power. However, to date much of this has been investment in base load power rather than renewables.

Local financial markets

While there is no shortage of funding available for renewable energy, much of the recent debt financing in this sector has been provided by development finance institutions. There is room to increase the pool of lenders by structuring projects to facilitate the participation of commercial banks alongside DFIs. The World Bank and other multilaterals play an important role in this regard by enhancing borrower credit profiles through blended or viability gap financing and political risk mitigation.

Despite the progress to date, achieving universal power access is slow because utility scale IPPs are expensive in absolute amounts and take several years from bid stage to delivery of power. The high cost of developing new transmission lines to reach often remote areas which have renewable energy potential (for example, high solar radiance or wind occurrence) but are far from power demand centres further adds to the cost and timeline challenges of utility scale renewable energy projects. In addition, governments are still exposed to foreign currency risk as the financing markets require power purchase agreements to be indexed to the debt currency, which is invariably dollars.

With the exception of South Africa, local financial markets in SSA currently do not have the capacity to provide the long-term local currency finance required for infrastructure projects without incremental foreign currency risk. There is a drive to develop local capital markets to the point where they can finance projects in local currency, however this process is slow and will be set back further by current economic conditions. Recent successes in Cameroon and Kenya, where such structures are being developed, point the way to the future and should serve as successful templates for developers and lenders to emulate.

The off-grid or distributed power solutions mentioned earlier offer more immediate solutions for achieving universal power access in remote locations. These solutions typically make use of solar technology and are at the forefront of private sector renewable energy investments on the continent. On the back of electricity connections service providers have expanded their offering to include items like household appliances, internet connectivity, and financial services. All provided as part of a pay as you go package.

As these off-grid energy providers achieve scale they will increasingly look to consolidate operations and introduce strategic partners to take them to the next level – creating yet another avenue for private investors to play a role in achieving SDG 7.

As Covid-19 continues to unfold, and as everyone is focused on the immediate relief for those impacted and on the general economy, the subject of clean energy to support this agenda cannot be forgotten. Our motto should be to do no harm and to actively do good. The investments made today will preserve our planet for future generations.

Originally published on BizCommunity (Jun, 2020). You can read more here.

USCIB Member Companies Rally to Combat COVID-19

Guest post by Stephen J. Ubl
President & CEO, PhRMA
Originally published on PhRMA website in February, 2020

As public officials scramble to construct a comprehensive plan to contain the novel coronavirus (COVID-19), some USCIB members are taking necessary action through public-private partnerships or employing company resources to contain the outbreak.

PhRMA members, which include USCIB members Bayer, Gilead Sciences, Johnson & Johnson and Pfizer, have dedicated the following programs and initiatives to combat COVID-19:

• Bayer donated financial and medical resources to support those affected by the outbreak in China. Donations have been made to the Chinese Red Cross, which works directly with Chinese health authorities to aid with the crisis.

• Gilead Sciences is working directly with government organizations and public health officers to support clinical trials to diagnosed patients . Gilead is also accelerating its process in developing a novel antiviral drug, Remdesivir, which has gained recognition for treating Ebola and Marbug.

• Johnson & Johnson launched an investigational vaccine developmental program through collaborations with Biomedical Advanced Research and Development Authority (BARDA), Office of the Assistant Secretary for Preparedness and Response (ASPR), and the U.S. Department of Health & Human Services. J&J is also analyzing previously tested medicines that can reduce the severity of COVID-19 symptoms and lower fatality rates.

• Pfizer has completed its preliminary assessment of antiviral compounds similar to that of cultured cells found in COVID-19 cases. The company is now working with a third party to speed the screening process and is expecting results in late March. Depending on toxicology results, Pfizer hopes to move to clinical development by no later than the end of 2020.

While many of these initiatives are in direct response to an evolving public health crisis, they also meet one of the “means of implementation” criteria within UN Sustainable Development Goal 3: Ensure Healthy Lives. Most notably, these initiatives meet “means of implementation 3.d: strengthening the capacity of all countries…for early warning, risk reduction and management of national and global health risks.”

Originally published on PhRMA (February, 2020). You can read more here.

How companies can align their materials strategy to the SDGs

Guest post by Liesl Truscott
Director, European & Materials Strategy
Textile Exchange
Originally published on GreenBiz website in January, 2020

The way we produce, (re)use and dispose of or recycle our materials has an impact on nearly every one of the United Nations Sustainable Development Goals (SDGs), a collection of 17 global 2030 goals introduced by the United Nations in 2015. Also known as the Global Goals, the SDGs were designed to be universal (for both developed and developing countries), holistic (people-centered and planet-sensitive) and measurable. They include 169 targets and aim to end poverty, protect the planet and ensure prosperity for all.

For the textile industry, "SDG 12: Responsible Consumption and Production" is a gateway to many of the other SDGs. More sustainable cultivation of cotton, wool, wood and other natural raw materials aligns with the "Zero Hunger" and "Life on Land" goals. Converting to renewable energy and deploying cleaner technologies in the fiber processing stages have a positive effect on the "Clean Water and Sanitation," "Industries, Innovation and Infrastructure" and "Climate Action" goals. And designing out waste, keeping materials in use longer and regenerating farmland plays an important role in reducing carbon emissions, a major target of the "Climate Action" goal. The textile industry has a powerful opportunity to shift the needle in both producer and consumer contexts.

The Global Goals have been widely adopted by governments, NGOs and businesses. In some cases, companies have a stronger lever to pull than governments do. By aligning their business and sustainability strategies to the Global Goals — or more radically, reshaping their business models — companies are able to position themselves as global leaders, rather than merely business leaders, and reframe their achievements as wins for the world. Not only does business hold the key to long-term SDG success but the SDGs will help shape business transformation. 

How can companies level up their Global Goals alignment?

Every year, Textile Exchange publishes a Material Change Index that tracks the fashion industry’s progress toward more sustainable materials sourcing, as well as alignment with global efforts such as the SDGs and the transition to a circular economy. There are some key activities that top performers in the SDGs category have in common. These should serve as inspiration for companies that are looking to push their alignment to the next level. Textile Exchange also will be sharing a more detailed analysis of findings later in 2020.

1. Embed into business 

To ensure long-term benefits for all, companies should integrate the SDGs into business models and strategies. To do this successfully requires getting key stakeholders (including employees, suppliers and investors) on board and on the same page. Through materiality assessment or plain, old-fashioned conversations, the top performers make sure to factor perspectives from across the business into the development of their strategies for positive SDG action.

Material change in action: Gap Inc. aligned its sustainability framework with the U.N.’s Sustainable Development agenda soon after it was released. The company first identified the issues most material to its business and reviewed how these aligned with the SDGs, finding that its efforts align most closely with the goals on quality education, gender equality, clean water and sanitation, decent work and economic growth, responsible consumption and production and climate action.

Gap Inc. formally incorporated these six SDGs into its sustainability strategy in 2016. By 2018, all of its brands (including Gap, Banana Republic, Old Navy and Athleta) had established executive sustainability steering committees, defined their own priorities and led sustainability strategy workshops with cross-functional teams.

"The best advice we could give is to work closely with partners across the company to understand how their work is affected by the Sustainable Development Goals and lay a foundation for working together," said Diana Rosenberg, product sustainability manager at Gap Inc. "Then, it is critical to set jointly-held company goals and develop internal metrics that we can use to promote progress and hold ourselves accountable."

2. Leveraging spheres of influence

While each SDG is important, it is likely that some SDGs will resonate more strongly with a company’s business competencies and priorities. Leading companies double-down on their priority SDGs and partner with other organizations to deliver on them.

Diversity brings different perspectives to the table, and leading brands see the advantage of partnering within their own supply chain, particularly when tackling complex sustainability challenges in sourcing regions They also keep in mind that the 17 goals are interconnected, and a holistic approach is important to ensure that progress towards certain SDGs has a positive, not detrimental, effect on the others.

3. Partner for change

The SDGs are shared goals, so forming collaborations within and between sectors and industries is essential if we are to achieve them. Engaging others with your efforts will raise visibility for the Global Goals and inspire others to take action against them. Companies leading the charge not only partner with others, but also initiate the kinds of working groups, coalitions and platforms that inspire collective engagement and can scale impact.

Material change in action: Sports brand PUMA began efforts to combat the effects of climate change over a decade ago. When it was approached by U.N. Climate to engage in an initiative for the fashion industry, it naturally chose to get involved. PUMA since has worked with multiple stakeholders to develop the Fashion Industry Charter for Climate Action, a framework that helps brands jointly address the climate challenge by preparing and executing their sustainability strategies in line with other players.

"Industry collaborations are catalysts for systemic change," said Stefan Seidel, head of corporate sustainability at PUMA. "When we talk about sustainability, brands often have similar goals but to a certain extent, limited resources and limited reach in shared supply chains. Sharing commitments and resources, brands have more chances to make a positive impact. We are only a small company compared to the size of the overall industry, that is why we know how important it is to work together on sustainability."

Originally published on GreenBiz (January, 2020). You can read more here.