Investors around the world are making impact investments to unleash the power of capital and help address some of the world’s most pressing challenges, from green energy to nature conservation. Impact investments aim to generate positive and measurable social and environmental impact alongside a financial return. Investors are keenly interested, and in 2020 the market for impact investing was between USD 715 billion to 2.3 trillion1.
The concept of impact investing is often confused with environmental, social and governance (ESG). Impact investors might assume that companies seeking investment automatically have strong ESG performance because their products and services are aligned with positive environmental or social outcomes, but this isn’t always the case. Impact investing is about a company’s products and services, whereas ESG is about how a company operates.
1 IFC Investing for Impact, The Global Impact Investing Market 2020; GINN Annual Impact Investor Survey 2020
The value of solar
As companies and investors seek to achieve carbon reduction or net zero greenhouse gas emission ambitions, many are including renewable energy sources as a key component to reach their goals. Solar PV, for instance, is emerging as the world’s lowest-cost form of electricity generation, with a projected five-fold growth in annual deployment towards 2030, according to the International Energy Agency. These factors, along with a green profile, make solar projects attractive to investors.
However, even though clean energy projects may initially appear to be an environmental and social slam-dunk, they too require full and independent assessments to establish their true ESG position.
De-risking the supply chain
The solar industry is particularly vulnerable to supply chain issues, due to the sourcing of materials to make the solar modules. Nearly all solar modules rely on solar-grade polysilicon, about half of which is sourced from China’s Xinjiang Uyghur Autonomous Region (XUAR). In December 2021, US President Joe Biden signed a law banning virtually all imports from the Xinjiang region into the US in response to alleged abuses of the Uyghur minority group, including forced labor. The legislation creates a presumption that goods manufactured in Xinjiang are made with forced labor, unless proven otherwise.
This new law builds on restrictions that have been in place since the second half of 2021 regarding silicon used in solar projects, and further increases the complexity for solar investors in the US. Not only must project developers and investors ensure that their projects comply with this new law, but they must also be attentive to the situation where silicon is transported to solar panel production facilities outside of the region for eventual export, which markedly reduces the transparency of the supply chain for these materials.
Investors in solar energy projects would be wise to undertake independent investigation to ensure that they have solid evidence of the origins of the materials used in their supply chain.