Hydropower Pushes for Greater Access to Green Finance

Hydropower, the world’s largest source of renewable electricity,
could begin using environmental, social and corporate governance
(ESG) measures to bolster project financing from the end of this
year.

The hydro sector has had a voluntary ESG code of practice in
place for the past decade. But the industry’s criteria�may soon be
used for green bond financing under a scheme being developed with
the Climate Bonds Initiative, an international, investor-focused
not-for-profit body.

The application of the
hydropower criteria
to the climate bonds standard and
certification scheme has been under review since 2019. “By the
end of the year, it’s expected that hydropower will have to pass
an ESG gap
analysis
to be eligible for climate bonds,†said Joao Costa,
head of sustainability at the International Hydropower Association
(IHA).

The move comes amid growing investor scrutiny of environmental,
social and ethical standards.

Hydropower sector grapples with environmental challenges

Clean energy projects and developers are frequently a focus of
ESG programs because they can help corporations that want to
improve environmental performance by reducing emissions. But large
energy infrastructure projects such as those frequently undertaken
by the hydropower industry can also have significant adverse ESG
impacts.

In the past, “hydro has had to struggle with a reputation
issue,” Costa acknowledged.

Around 2005, the sector began working with stakeholders such as
the World Wildlife Fund, Oxfam, the World Bank and others on an ESG
framework that hydro developers could adopt to demonstrate best
practice. The Hydropower Sustainability
Assessment Protocol
, launched in 2010, was a major step forward
for the sector. It covers 26 topics, from community communications
and consultation to infrastructure safety and resettlement
issues.

Costa said the protocol had delivered some major ESG gains for
the hydropower sector, for example by encouraging developers to
create biodiversity corridors and natural parks to offset the
environmental impact of projects.

However, the level of uptake has been uncertain at best. While
hundreds of new hydro projects have come online worldwide since
2010, only around 30 have officially applied the protocol, Costa
said. “It’s being used unofficially dozens of times,†he
added.

ESG, even for renewables

The IHA has been working to address this low level of uptake for
the last three or four years, mainly by reducing the complexity of
the process that developers have to apply.

The result is a much simpler checklist which forms the basis of
the scheme being pondered by the Climate Bonds Initiative. As well
as helping to mobilize cash for hydro projects, the checklist could
be applied to other renewable energy industries.

One early adopter of the methodology has been the geothermal
industry. In 2018, the Icelandic geothermal developer Orka
náttúrunnar announced it had used a sustainability assessment
protocol based on the hydro model to rate the impact of its
Hellisheiði Power Station, near Reykjavik, Iceland.

Costa said the IHA would be launching a consultation this year
on whether its ESG protocol could be turned into an industry
standard for energy projects, potentially to be issued from next
year. Initially, the standard would be applied to hydro and
geothermal projects, although there is no reason why other
renewable energy industries could not embrace it.

Tim Norman, U.K. director and vice president for offshore at
Niras, an international engineering consultancy, said ESG was
playing an increasingly large role in investor decisions, even in
ostensibly beneficial sectors such as renewable energy.

“Investors in wind are now increasingly concerned about their
[ESG] agenda,†Norman said in an interview. “It’s more than
CSR [corporate social responsibility]. It’s criteria that
investors use to evaluate acceptability of investments.”

“These companies are divesting out of hydrocarbons and other
damaging activities and would like to see renewables as a very
positive investment target. But they are very concerned about the
actual ESG position,” Norman said.

Source: FS – GreenTech Media
Hydropower Pushes for Greater Access to Green
Finance