EU must harness energy efficiency or miss climate targets

27 July 2017 Consultancy.uk

According to a new study, in order to maintain the current level of ambition for RES deployment, renewables targets will need to be increased compared to the EC proposal of at least 27%. At the same time, driving up energy efficiency is one way to facilitate increased RES shares as it reduces the additional RES capacities needed.

The signing and coming into force of the Paris Agreement enshrined global efforts to keep average global warming well below 2C. The climate accord placed considerable onus on countries to meet various reduction targets for their greenhouse gas emission, based on, among others, their historic output and their capabilities.

The European Union has for a long time made moves to limit the pollution of member states. The currently 28 state strong community has been active in terms of various initiatives for decades, including the 1998 Kyoto Protocol, the launch of an emissions trading scheme in 2005 and key signatories of the Paris Agreement. Prior to Paris, the block had already laid plans to collectively cut emissions in the EU by at least 40% below 1990 levels by 2030, while increasing the share of renewables used to at least 27% of the EU energy consumption by 2030, and increase energy efficiency by at least 27% by 2030.

In spite of this, a new report from Ecofys, suggests the EU’s efforts are still not enough. The study also recommends possible targets for various energy efficiency and renewable usage that would allow the block as a whole to reach the levels required to maintain the current level of ambition for the period 2020-2030. The benchmark considers a range of metrics, from the size of member states’ economies to their capacity to generate renewable energy.

Meeting the Paris Agreement for the EU

According to the publication, the required RES deployment for different levels of energy efficiency levels required by 2030 vary considerably, although even the 2030 target for 27% RED deployment is well within reach on the back of very high levels of investment in energy efficiency improvement. To meet with current targets then, the EU will likely need to significantly increase its renewable deployment, with the level of significance highly dependent on the level of energy efficiency achieved, at between 464 Mtoe at 30% and 398 Mtoe at 40%.

As it stands 30% RES is achievable without improving energy efficiency to the level (40%) required to meet the Paris Agreement. To meet the Paris Agreement RES target (45%) efforts would need to be doubled in the case of a 40% energy efficiency target, or tripled for a 30% energy efficiency target.

Member state benchmark

The research also considered the benchmark required by member states in line with their respective GDP scores, “according to the method adopted to derive Member States’ 2020-targets, i.e. a flat rate increase of 2020 RES shares modulated by GDP per capita”. This is then further modulated based on the level of energy efficiency achieved by the respective member state.

The research notes that most member states are on their way towards reaching at least their 2020 commitments, with some, such as Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, Hungary, Italy, Lithuania, Romania and Sweden, already surpass their respective goals.

Energy efficiency 40%

In terms of the effort required to hit 45% RES by 2030, if energy efficiency of 40% is achieved to that period, most member states will require a slight increase in their level of ambition, compared to their 2010-2020 logic, in order to meet 45%RES and 40%EE (based on the 2020 benchmark). The UK, for instance, will need to boost levels by around a third above current levels, while the Netherlands needs a boost of around 40%. Italy will need to considerably boost its efforts meanwhile, although France would almost achieve the target with its current level.

Particularly small states, such as Luxemburg, Slovakia, Slovenia and Bulgaria will need to considerably boost their respective effort in this case. Austria, Sweden and Belgium too have their work cut out for them to achieve the higher targets, even with high levels of energy efficiency.

Energy efficiency 30% scenario

Combined with the 45% RES, for a scenario in which energy efficiency of 30% is achieved, considerably more effort will be needed for all states involved. The UK would need to double its efforts, with similar effort required from the Netherlands and France. Spain would have its work cut out for it, as would Sweden and Hungary. Latvia is the only country on track in the 30% energy efficiency scenario.

Remarking on the report, the authors said, “An increase in the EU energy efficiency target from 30% to 40% would help to achieve any EU target for renewable energy (RES) more easily as the aggregated RES deployment needed for any RES target would be reduced by nearly 15%. Assuming a 40% energy efficiency target, a RES-target of at least 35% would be needed to maintain current net deployment increase of renewables in the EU-28.”

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.