Rasmus N. D. Skov, Head of Sustainability at Ørsted
In what ways is impact investing making headway, and where is it lagging?
There is an investment gap of around USD 2.5 trillion per year in key sectors related to the UN Sustainable Development Goals, which define some of humanity’s greatest challenges towards 2030. Companies need to deliver scalable, sustainable and affordable solutions that progress the Goals – and that will require the support of far-sighted investors.
To date, Ørsted has installed enough offshore wind capacity to bring renewable energy to more than 12 million people. The company’s offshore wind farms help avoid more than 6 million tons of carbon emissions every year and, collectively, create 180,000 job years throughout their life cycle.
But, at a global level, the change from fossil fuels to renewables is taking place far too slowly. To avoid runaway climate change, society must radically decarbonise the way it produces and consumes energy and keep global temperature rise below 1.5° Celsius as compared with pre-industrial levels. According to the UN, investments in sustainable energy infrastructure will have to triple from USD 400bn to USD 1.25 trillion, to reach the Goal on clean and affordable energy, by 2030.
Renewable energy will play a critical role in keeping the world below the 1.5° Celsius threshold. It is also the economic choice as life-time costs of renewable energy generation are lower than those of new-built coal, gas and nuclear plants.
Can you really tell when businesses are “being good”?
As the Sustainable Development Goals aim to solve global challenges towards 2030, they encourage a long-term approach to setting targets and measuring performance. While companies should focus on progressing individual Goals most relevant to their business, they should also work hard to minimize negative impacts on the Goals.
By prioritizing transformational progress over incremental approaches and setting scientifically-verified targets that drive action towards Goals, businesses can take important strides towards “being good”.
What are the payoffs and costs associated with impact investing for all parties?
Companies need to consider their long-term impact on society and ask whether their business makes a measurable, positive contribution to society.
Ørsted has made the transformational decision to focus on developing offshore wind farms and other renewable energy technologies. Since 2006, the company’s greenhouse-gas emissions have fallen by more than two-thirds, while operating profit touched an all-time high of approx. USD 4.6bn in 2018. The company already generates more than 75% green energy and targets 99% by 2025, when it aims to bring renewable energy to more than 30 million people.
Increasingly, investors want to know about the climate-impacts of businesses before they make investment decisions. There may be costs in transforming business models, but the cost of companies not taking action on climate will be much higher.