Investments aligned with this Strategic Goal aim to reduce greenhouse gas emissions resulting from electricity and heat generation while shifting energy generation away from fossil fuels and towards low- and zero-carbon energy alternatives. Investments aligned with this Strategic Goal may also aim to accelerate energy efficiency.

What

Dimensions of Impact: WHAT

Investors interested in deploying this strategy should consider the scale of the addressable problem, what positive outcomes might be, and how important the change would be to the people (or planet) experiencing it.

Key questions in this dimension include:

What problem does the investment aim to address? For the target stakeholders experiencing the problem, how important is this change?

Investments in this Strategic Goal aim to address greenhouse gas (GHG) emissions resulting from human activity, a key contributor to global climate change (1). Climate change has many adverse impacts on people and planet, including higher average temperatures, greater likelihood of extreme weather events, sea level rise, and extinction of plant and animal species (2). In the landmark 2018 report by the UN Intergovernmental Panel on Climate Change (IPCC), the world’s top climate scientists warned that just a dozen or so years are left to keep global temperature increase to a maximum of 1.5 degrees Celsius, the low end of the Paris Agreement 1.5–2°C limit, after which irrecoverable, heightened climate impacts will be felt across many dimensions—from drought to flood to extreme weather—with attendant consequences for people worldwide (3).

Investments aligned with this Strategic Goal aim to reduce greenhouse gas (GHG) emissions from the generation of electricity and heat. Among sectors consuming energy, which include transportation, electricity and heat, manufacturing, and construction, electricity and heat for residential and commercial use are the most emissions-intensive, accounting for 30.4% of all worldwide emissions in 2016, as per the World Resource Institute (3).

Research further shows that investments in clean electricity and heat have benefits beyond emissions reductions, improving air quality and human health by decreasing reliance on fuels for the production of electricity and heat that emit pollutants (4). Investments in this Strategic Goal can also provide access to reliable, sustainable sources of electricity and heat for more vulnerable households, many of which even today lack access to electricity and the economic and social security it provides. Finally, with advancements in renewable energy technology, electricity and heat generated from renewable sources can be cheaper today than that generated from fossil fuels.

Given the outsize share of GHG emissions emitted by electricity and heat generation, GHG emissions from heat and electricity generation must decrease. Compounding the problem’s urgency is the reality that many people worldwide currently have access only to energy sources that severely impact human health. For example, more than 2.7 billion people (38% of the world’s population) rely on the traditional use of solid biomass for cooking, which can cause adverse health effects (5). Bridging the existing energy divide and securing equal access globally is paramount to enable further human development for those who lack adequate energy access. (For more on energy access, see the Energy Access theme in IRIS+).

Investments aligned with this Strategic Goal can: 

  • create new or expanded forms and sources of clean and renewable energy;
  • build energy infrastructure that is decentralized, decarbonized, an democratized;
  • reduce consumers’ energy use through technological innovation, such as smart meters;
  • generate electricity and heat from renewable energy sources, such as solar, wind, biomass, hydropower, and geothermal; and
  • bring to market products and systems to improve energy efficiency.

Note: See more about the GIIN’s resources on Climate Finance.

What is the scale of the problem?

Emissions from electricity and heat production dropped by 2% from 2013 to 2016, following a multi-year growth trajectory (6). However, emissions rose again in subsequent years as a result of slower-than-anticipated adoption of renewable energy resources, higher overall energy consumption driven by a strong global economy, and increased demands for heating and cooling in some geographic regions, driven in part by climate change (7). The scale of the problem is therefore massive and growing. Still, there have been promising innovations in both technology (including new sources of energy, such as offshore wind) and financing (such as specialty finance companies that can operate distributed energy assets over the long term, saving both cost and energy). Concurrently, dirty energy infrastructure could be “leapfrogged” in some emerging markets.

Exacerbating the scale of the problem, the world has roughly a decade remaining to successfully mitigate the worst impacts of global climate change (8). Massive capital investment in renewable energy will be needed to set the world on a low-carbon trajectory. As Bloomberg New Energy Finance reported in its 2019 New Energy Outlook, a 12-terawatt expansion of generating capacity calls for USD 13.3 trillion in new investment from 2019 to 2050, with 77% going to renewables (9). As of 2014, an additional USD 1 trillion in clean energy investment overall was needed—each year—to keep the world below a projected two-degree temperature increase (10). Since then, unfortunately, investment has fallen far short. From a peak of USD 326.3 billion in 2017, global renewable energy investment fell 11.5% to USD 288.9 billion in 2018.

Who

Dimensions of Impact: WHO

Investors interested in deploying this strategy should consider whom they want to target, as almost every strategy has a host of potential beneficiaries. While some investors may target women of color living in a particular rural area, others may set targets more broadly, e.g., women. Investors interested in targeting particular populations should focus on strategies that have been shown to benefit those populations.

Key questions in this dimension include:

Who (people, planet, or both) is helped through investments aligned with this Strategic Goal?

As with any Strategic Goal aiming to mitigate climate change, all people benefit from aligned investments. This said, specific target stakeholders include the following:

Planet: Industrial activities, such as electricity and heat generation, have caused a sharp increase in atmospheric carbon dioxide from 280 to 412 parts per million over the last 150 years (11). The International Renewable Energy Agency (IRENA) has projected that 65% of worldwide energy use could come from renewables by 2050, which would allow countries to meet the Paris Agreement climate goals. Right now, renewable energy represents about 25% of global electricity generation and 15% of all energy; the rest is generated by fossil fuels (12).

Municipalities: Cities worldwide must transition to clean generation of electricity and heat. For example, New York’s 2015 State Energy Plan seeks to implement a “clean, resilient, and affordable energy system for all New Yorkers,” calling for a 40% reduction in GHG emissions from 1990 levels and for half of electricity to come from renewable energy sources (13). Absent increased private and public investment in technologies and infrastructure, such goals cannot be realized.

Individuals: New innovations, resilient infrastructure, and choice in energy sources provide individual energy consumers with cleaner, more cost-effective ways to run their homes and businesses. These positive impacts apply to both residential and commercial real estate and often last quite long. For example, retail consumer geothermal heating and cooling installations have a projected lifespan of more than 50 years, over which substantial energy savings can be realized (14).

Households without energy access: Currently, more than 860 million people worldwide lack access to energy (15). Investments in this strategy can increase energy access while also potentially leapfrogging fossil-fuel-intensive energy sources in regions lacking existing energy infrastructure. Beyond tackling unequal energy access, investments in this strategy also tackle the broader inequity that many of the world’s most vulnerable populations to climate change have contributed the fewest GHG emissions.

Previously excluded and minority groups: The worst impacts of global climate change disproportionately affect previously excluded or minority groups – often communities of color. Investments in this Strategic Goal can facilitate the urgent transition to cleaner sources of energy, with attendant improvements to both energy access and human health. As the COVID-19 pandemic has further laid bare, in the United States, the disproportionate proximity of communities of color to fossil fuel power plants severely harms human health as a result of the associated particulate matter and nitrogen dioxide (16).

Women and girls: The worst impacts of global climate change likewise disproportionately impact women and girls as a result of multidimensional factors. These include a higher likelihood of living in poverty, less access to basic human rights, and greater indoor occupational hazards—such as, in the context of this strategic goal, greater responsibilities for cooking, leading to greater exposure to indoor air pollution resulting from dirty forms of energy used to prepare food (17). According to the World Health Organization, roughly 3 billion people worldwide still cook using solid fuels (such as wood, crop waste, charcoal, coal, or dung) or kerosene over open fires and inefficient stoves (18). These practices lead to an estimated 3.8 million premature deaths each year from illness caused by the resulting household air pollution (19). Women and children have the greatest exposure and thus are most impacted.

What are the geographic attributes of those who are affected?

Access to electricity and heat is a global human necessity. Investment needs vary somewhat by geographic location, as follows:

  • Where none currently exist, investments can construct new transmission lines or decentralized generation facilities.
  • Hydroelectric power may be exploited in regions where this source of energy is available and viable at scale.
  • Energy-efficiency retrofits may be completed for buildings that are not currently LEED certified and where this improvement would make a material difference in emissions.

Notwithstanding this type of differentiation, outside deeply remote, nearly unpopulated areas, the impact target effectively extends worldwide.

Contribution

Dimensions of Impact: CONTRIBUTION

Investors considering investing in a company or portfolio aligned with this strategy should consider whether the effect they want to have compares to what is likely to happen anyway. Is the investment's contribution ‘likely better’ or ‘likely worse’ than what is likely to occur anyway across What, How much and Who?

Key questions in this dimension include:

How can investments in line with this Strategic Goal contribute to outcomes, and are these investments’ effects likely better, worse, or neutral than what would happen otherwise

Organizations can consider contribution at two levels—enterprise and investor. At the enterprise level, contribution is “the extent to which the enterprise contributed to an outcome by considering what would have otherwise happened in absence of their activities (i.e. a counterfactual scenario).” To learn more about methods for assessing counterfactuals, see the Impact Management Project.

Investments in electricity and heat generation can contribute markedly to reducing overall GHG emissions as follows.

Signal that Impact Matters: By investing in technologies that support renewable and clean generation of electricity and heat or improvements in energy efficiency, investors signal that these technologies will be vital to global efforts to keep the rise in temperature below 1.5°C. Given the huge volume of GHG emissions currently resulting from the production of heat and electricity, investments in this theme are linchpins in the world’s emissions reductions: speeding the transition to low-carbon energy sources; constructing renewable energy infrastructure; increasing consumer adoption of energy-saving technologies, such as smart meters; and increasing energy access by leapfrogging traditional energy infrastructure and proliferating technologies like micro-grids.

Engage Actively: Investors can proactively engage management teams of companies in their portfolios to switch to renewable energy generation and to increase the energy efficiency of their buildings and operations. Investors can also engage in policy advocacy at municipal, state, and national levels. As just one example, investors can advocate for renewable portfolio standards. Investors’ voices are powerful and important for advocacy in the transition to a much-needed low-carbon global economy.

Grow New or Undersupplied Markets: Capital-intensive and time-consuming research and development of new technologies will be needed to transform infrastructure and scale renewable and clean production of electricity and heat. Investors with higher risk appetites can provide the necessary patient capital. Likewise, investments in undersupplied markets can expand energy systems to reach new and underserved geographies (21).

Provide Flexible Capital: Investments aligned with this Strategic Goal can face high risks, demanding flexibility on the part of investors, which can provide catalytic capital. In addition, end users may not be able to afford some of the upfront costs of the infrastructure or technology needed to transition electricity and heat production to renewable and clean energy (users could be, for example, a college campus or a municipality). By providing needed capital for upfront investments, investors can help heat and electricity users make this transition.

How Much

Dimensions of Impact: HOW MUCH

Investors deploying capital into investments aligned with this strategy should think about how significant the investment's effect might be. What is likely to be the change's breadth, depth, and duration?

Key questions in this dimension include:

How many target stakeholders can experience the outcome through investments aligned with this Strategic Goal?

As heat and electricity consumption are universal human needs, investments aligned with this strategic goal can affect the entire world population. As a proxy for the impact of providing energy access, this strategy could reach more than 860 million people (15). In order to achieve a higher quality of life and decent living standards globally, as referenced in SDG 7, universal energy access is needed. If increased energy usage does not come from renewables, the planet risks increased negative effects due to carbon emissions.

How much change can target stakeholders experience through investments aligned with this Strategic Goal?

The amount of change that target stakeholders can experience through this strategy can be transformative and long-lasting, since built infrastructure has a multi-decadal lifespan. The long-lasting nature of infrastructure also underlines the pressing need for near-term investments that hasten the transition to renewable infrastructure, before non-renewable infrastructure is locked in. Meeting the Paris Agreement’s goal to limit global warming to well below 2 °C and pursuing efforts towards 1.5 °C will likely require rapid and fundamental changes to energy systems (20).

Risk

Dimensions of Impact: RISK

Key questions in this dimension include:

What impact risks do investments aligned with this Strategic Goal run? How can investments mitigate them?

  • External Risk (climate risk): As global climate change intensifies, extreme weather events (such as heat, drought, storms, and floods) are becoming more frequent and severe, with significant implications for companies and investors. Following intense wildfires in 2017-2018, for example, California's largest utility Pacific Gas and Electric Company (PG&E) became the first “climate change bankruptcy” when it filed for protections as a result of tens of billions of dollars in liability for wildfires (26). In 2012, the New York City subway system suffered the worst damage since its construction due to storm surge from Hurricane Sandy. For investors in renewable energy infrastructure, external climate risk factors must be considered carefully from the standpoints of both potential damage to built infrastructure and potential disruptions to supply chains for raw materials used in its construction.
  • Endurance Risk: Given the intermittency of solar and wind, lack of ability to store energy at scale is one challenge hindering the widespread use of these major sources of renewable energy for producing electricity and heat. Despite promising recent developments in energy storage, technology has not yet advanced to enable true renewable transformation of the energy sector. Modernization and adoption of “smart grids” play pivotal roles in decarbonization. Pumped hydroelectric storage is one promising form of electricity storage, though one not without its own environmental impacts. Related risks due to intermittency and lack of storage capacity include challenges getting projects funded or a lack of data on the exact degree of intermittency in a given geographical area.

    Investors can mitigate both External and Endurance Risks through risk transfer, for example through the use of weather-related reinsurance products. In doing so, they can effectively quantify and mitigate risks to renewable energy projects deriving from either extreme weather events or solar and wind intermittency. This approach to managing risk can allow projects to proceed that are good for people and the planet.

  • Participation Risk: Stable climate policies are the basic building blocks to stimulate investment and decision-making around clean energy technologies and infrastructure. Investment decisions in the clean energy sector are increasingly affected by state and national policies. Renewables investment in OECD and G20 countries between 2000 and 2014 was driven primarily by targeted investment incentives: feed-in tariffs (FiTs), tradable renewable energy certificates, and public tenders (22). Clean energy policies can also help encourage investment by removing fossil fuel subsidies, as well as by stimulating demand through consumer incentives and environmentally motivated tax incentives. Investors face additional risk when such investment incentives and regulations are unstable, unpredictable, or not transparent. To mitigate these risks, investors should understand at a high level any government policy that underpins their investments’ business models while working with policymakers to advocate for robust, comprehensive, and consistent policies that encourage investments in the sector.
  • Unexpected Impact Risk: All sources of energy have some impact on our environment, including renewable sources, even though fossil fuels do substantially more harm than renewable energy sources by most measures. The exact type and intensity of environmental impacts from clean energy varies with specific technology and geographic location. Wind power, for example, may impact land use, wildlife, and habitat. Solar power can impact land use and lead to habitat loss and water use, in addition to hazardous materials used in manufacturing. Investors should complete thorough due diligence that includes climate data and modeling to identify locations for projects with the least negative environmental impact and least prone to severe changes in weather, like droughts or floods. Energy projects may also have negative human rights impacts that investors should mitigate against; for more on human rights risks in the energy sector, see BSR’s “10 Human Rights Priorities for the Power and Utilities Sector."

What are likely consequences of these impact risk factors?

These risk factors have multiple likely consequences. One is the potentially stalled development of infrastructure projects in light of extreme weather events (as seen in the context of the impact of COVID-19 on society and business) or challenging policy environments. A second likely consequence could be difficulty securing favorable deal terms in instances with little data on the degree of renewable energy intermittency and thus possible overestimation of intermittency risk, as investors would typically prefer to overestimate intermittency to minimize their downside risk. Investors may also encounter potential challenges to project funding if environmental impacts are too great a cost as weighed against a project’s benefits in terms of lowered GHG emissions. Finally, overall, there is inherent risk in the challenge of keeping global temperature rise to 1.5 degrees Celsius—a goal that scientists broadly agree is both deeply urgent and challenging to achieve absent a very swift transition to a low-carbon global future (23).

Illustrative Investment

K-Road DG, an independent power developer and investor, invested USD 56 million in Green Charge Networks (of which the bulk was project finance, with a fraction dedicated to corporate equity). Green Charge is a turnkey energy-storage developer differentiated by control software used to predict load and dispatch at the right time. By offering systems at zero upfront cost, Green Charge aims to help more businesses utilize energy storage. The investment increased the number of businesses which are able to use energy storage and therefore decreased GHG emissions associated with their business operations.

Clean Energy Venture Group, a venture capital firm focused on climate solutions, co-invested with multiple other investment firms in the 2011 Series A funding round of MyEnergy. MyEnergy used AI-driven software to retrieve data from utility websites with the goal of finding and aggregating relevant information on residential customer patterns of use of utilities (electric and gas). MyEnergy then communicated this aggregated information to consumers to motivate behavioral change and drive significant energy savings. MyEnergy shares were exchanged for Nest Lab shares in 2013; Nest Labs was acquired by Google one year later for USD 3.2 billion. This investment decreased consumer energy usage by motivating behavioral change through this aggregation and sharing of utility information.

On behalf of the Swiss Investment Fund for Emerging Markets (SIFEM) and United Bank of Switzerland (UBS) Impact Investing SME Focus Fund (IIF SME), Obviam, an investment advisor in emerging markets and developing countries, invested in Apis Growth Fund I, a private equity fund focused on financial inclusion in Africa and Asia. In 2017, Apis provided USD 30.8 million to Greenlight Planet, supporting the company expand across Africa. Greenlight Planet provides an innovative lighting and energy solution through solar energy designed particularly for rural villages and offgrid communities. Alongside funding, Apis supported the company’s future growth by offering technical support, appointing and covering the costs of an internal auditor, and assisting with the implementation of operating guidelines to formalize the company’s environmental initiatives. This investment supported acceleration of the company’s growth across Africa and strengthened its capital structure (25).

Draw on Evidence

This mapped evidence shows what outcomes and impacts this strategy can have, based on academic and field research.

NESTA: 2
Access to Energy and Human Development

Amie Gaye. “Access to Energy and Human Development”. UNDP (2007/2008): 1-18

NESTA: 2
Energy Innovation and Renewable Energy Consumption in the Correction of Air Pollution Levels

Agustin Alvarez-Herranz, Daniel Balsalobre-Lorente, Muhammad Shahbaz, José María Cantos, “Energy innovation and renewable energy consumption in the correction of air pollution levels”. Energy Policy, 105 (2017): 386-397

NESTA: 2
Reducing Carbon Dioxide Emissions from Electricity Sector Using Smart Electric Grid Applications

Lamiaa Abdallah, Tarek El-Shennawy, “Reducing Carbon Dioxide Emissions from Electricity Sector Using Smart Electric Grid Applications”, Journal of Engineering, vol 2013, (2013)

NESTA: 2
Global Energy Perspective 2019: Reference Case

McKinsey. “Global Energy Perspective 2019: Reference Case.” (2019)

NESTA: 1
Implications of High Renewable Electricity Penetration in the U.S. for Water Use, Greenhouse Gas Emissions, Land-Use and Materials Supply

Doug Arent, Jacquelyn Pless, Trieu Mai, Ryan Wiser, Maureen Handa, Sam Baldwin, Garvin Heath, Jordan Macknick, Morgan Bazilian, Adam Schlosser, Paul Denholm. “Implications of high renewable electricity penetration in the U.S. for water use, greenhouse gas emissions, land-use, and materials supply.” Applied Energy 123, (2014): 368-377

NESTA: 1
An analysis of efforts to scale up clean household energy for cooking around the world

Ashlinn K.Quinna, Nigel Bruce, Elisa Puzzolo, Katherine Dickinson, Rachel Sturke, Darby W. Jack, Sumi Meht, Anita Shankar, Kenneth Sherr, Joshua P Rosenthal. “An analysis of efforts to scale up clean household energy for cooking around the world”. Energy For Sustainable Development, Volume 46, (2018): 1-10

NESTA: 1
Implementation Science to Accelerate Clean Cooking for Public Health

Joshua Rosenthal, Kalpana Balakrishnan, Nigel Bruce, David Chambers, Jay Graham, Darby Jack, Lydia Kline, Omar Masera, Sumi Mehta, Ilse Ruiz Mercado, Gila Neta, Subhrendu Pattanayak, Elisa Puzzolo, Helen Petach, Antonello Punturieri, Adolfo Rubinstein, Michael Sage, Rachel Sturke, Anita Shankar, Kenny Sherr, Kirk Smith, and Gautam Yadama. “Implementation Science to Accelerate Clean Cooking for Public Health”. ehp Enviromental Health Perspectives. Vol. 125, No. 1. (2017)

Each resource is assigned a rating of rigor according to the NESTA Standards of Evidence.

Define Metrics

Core Metrics

This starter set of core metrics — chosen from the IRIS catalog with the input of impact investors who work in this area — indicate performance toward objectives within this strategy. They can help with setting targets, tracking performance, and managing toward success.

Additional Metrics

While the above core metrics provide a starter set of measurements that can show outcomes of a portfolio targeted toward this goal, the additional metrics below — or others from the IRIS catalog — can provide more nuance and depth to understanding your impact.