Environmental, social, and governance risks and opportunities

ESG Often Led by Renewable Energy

Green power in ESG efforts
esg law

Businesses often ask about including green power in ESG efforts. We suggest rephrasing the query such that it is about using renewable energy to reduce the environmental harms associated with fossil fuel energy, reduce greenhouse gas emissions, increase the supply of renewable energy and foster a just transition to an ESG driven economy.

Businesses do not need to engage in the current political fights over what are green energy, noting that the European Union just announced on New Year’s Eve the Brussels “green taxonomy” list of what is sustainable energy including natural gas and nuclear, to the displeasure of some. As opposed to the renewable energy portfolio standards adopted for utilities in many U.S. states, which by way of example in Maryland restrict renewable fuel sources to: solar, wind, biomass, methane from a landfill or wastewater treatment plant, geothermal, ocean, fuel cell, hydroelectric, poultry litter to energy, waste to energy, and refuse derived fuel (but, not nuclear despite that in 2020, nuclear accounted for 41% of electricity generation in the State).

Additionally, the government disputes over all electric building codes (.. which strike us as a wrong headed idea, given that most electricity in the U.S. is generated from fossil fuels) are best left for elected officials and not for companies pursuing good ESG practices.

And we suggest most businesses not install their own solar panels, giving a wide berth to supply chain restrictions that have been imposed by multiple governments on labor and source of goods from the Xinjiang region of China (where more than 80% of the world’s solar panels are sourced).

While in a limited number of instances, including where local codes mandate it (.. from Baltimore City to San Francisco) on site renewable energy systems may make sense for a business, in the vast majority of situations a business is best served by procuring renewable energy from offsite sources for all or a portion of the company’s energy use.  That is, there are at least 3 procurement strategies for renewable energy varying according to the source, from wind and sun (solar), water (hydropower) and plant waste (biomass), to any number and variety of alternative sources such as waste heat or geothermal: onsite renewable energy generation, newly constructed off site renewable energy, and a purchase of off site renewable energy.   

EPA’s Guide to Purchasing Green Power, while a bit dated, provides good information on the process of and strategies for procuring off site renewable energy.

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In a year when Trump International Hotels are “out” and Waldorf Astoria Hotels are “in” (.. yes, the flagship Manhattan location is closed for renovations) both report using offsite renewable energy sources.

There are few, if any laws or for that matter even rules in this space, but from our own proprietary ESG disclosure standard, we have specific guidelines for energy. Off site renewable electricity is that power contracted for from an existing renewable energy provider or off site renewable systems that were contracted for a business after the renewable system came online. Existing off site renewables, which may include utility green tariff programs or direct access to wholesale markets, may be more widely available depending on business location. Renewable energy generated locally, proximate to the business location, is preferable to that produced somewhere else across the nation. Renewable energy should meet or exceed 25% of total site energy use. The contract length should ideally be a minimum of 2 years. Alternatively, for most utility green tariff programs where a multi year contract is not available, a company may commit that it will continue to renew the renewable contract or engage in an alternate renewable energy contract for a total of at least 2 years.

When in a geographic area where it is available, we strongly encourage the purchase of Green-e off site renewable energy. The not for profit is a trusted independent third party verifier in clean energy certification.

According to the U.S. Department of Energy, fossil fuels remain the largest sources of energy for electricity generation, with natural gas, the largest fossil fuel source, being 40% of electricity generated in 2020. Coal was the source of about 19% of U.S. electricity generation. The diverse renewable energy sources combined to provide about that same 19% of total U.S. electricity generation in 2020. Hence there is much opportunity for renewable growth.

Many companies are seeking to include renewable electricity in their ESG efforts to reduce the environmental harms associated with fossil fuels, reduce greenhouse gas emissions concomitantly increasing the supply of renewable energy, and fostering a just transition to an ESG driven economy. Procuring renewable energy from offsite sources, often from the local electricity utility, can assist a company in upholding its basic “E” environmental responsibilities to people and planet.

About the Author

Nancy Hudes and Stuart Kaplow, two Maryland attorneys who are among the principals at ESG Legal Solutions have combined forces, joining together to publish this blog leveraging their focused experience and legal knowledge for business interests in the ESG space.

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