Renewable energy has widely, and rightly, been heralded as fundamental to our pursuit of net zero. Intergovernmental organisations and leading industry bodies were vocal in the run-up to COP28 regarding the need for a clear global roadmap to generate the 11,000 GW of renewable energy needed to meet the Paris Agreement targets.
Yet, the pursuit of these crucial aims has created a host of new challenges that investors and developers must consider when attempting to act ethically and sustainably. This article will discuss common obstacles, and technological enablers, for renewable energy investors and developers when conducting asset due diligence.
Factors to consider for renewable asset due diligence
Renewable energy developers typically have strong asset portfolios but often lack local staff in the relevant jurisdictions. In some cases, this can result in the businesses having much smaller public profiles than their operational footprint or revenues would dictate for similar-sized businesses in consumer-facing industries. Their corporate structures also tend to be a broad collection of holding companies, intermediary entities and recently incorporated special-purpose vehicles. These peculiarities present a series of challenges that must be met with creativity and innovation when conducting effective due diligence.
Convergence of compliance and ESG mandates
For significant renewable transactions, Control Risks' teams often provide input into two separate due diligence workflows for ESG and integrity/reputational matters. These workflows are typically managed by different units (ESG by the ESG/sustainability team and integrity/reputational by compliance or legal teams), which allows the teams to view the same problem – for example, community displacement at a wind farm – through different lenses. At Control Risks we often suggest that clients integrate these two workstreams.
This approach has significant advantages, for example, when policy- and standards-driven ESG due diligence is consolidated with the more intelligence-led reputational and integrity due diligence. Perhaps the most crucial benefit is that intelligence-led due diligence into renewable assets allows for a local-level “stress-testing” of the values and performance that the counterparty professes or that the investor upholds. These results can give ESG/sustainability teams a head start in identifying the practical steps required to address the on-the-ground reality.
The value of intelligence
A client recently asked Control Risks to examine the reputational risks associated with a renewable energy developer with a global asset footprint. The developer had a mature, transparent corporate responsibility programme that included well-drafted policies on compliance, human rights and sustainability, as well as having integrated the UN’s sustainable development goals into its corporate priorities. The other key factor to consider was that many of the target’s assets were in markets categorised as high-risk in Control Risks’ ESG Country Monitor.
Control Risks therefore determined that the key area to examine was how the developer was upholding its corporate responsibility programme, not just within markets but at specific assets. This intelligence-led work uncovered local community grievances surrounding a cluster of assets at the development stage that the developer had not disclosed either publicly or in its discussions with the client. The exercise provided the client with full visibility over the assets’ operating environments and served as a useful point for their negotiations over the sale.
Technology advancements in due diligence
The above case illustrates how the renewable energy sector increasingly embraces third-party verification over self-disclosure for environmental and social impact assessments. This shift enhances the credibility and transparency of data, which is crucial for informed decision-making. Independent verification therefore builds stakeholder trust by ensuring that claims made by developers are not only accurate but also impartial. This evolution in due diligence signifies a commitment to greater integrity and objectivity in the renewable energy industry.
Integrating technologies such as satellite remote sensing and AI (artificial intelligence) will revolutionise due diligence in the renewable energy sector. Satellite imagery and analysed advanced analytics, including AI, allow for up-to-date remote monitoring of renewable assets and their environmental impacts. By providing detailed insights into the conditions of both operational and potential future project sites, this technological approach facilitates more accurate and efficient asset evaluation.
A game-changer for sustainable renewable energy
GlobalTrust’s team is at the forefront of this revolution, employing geospatial solutions to provide clients with tailored insights needed for effective due diligence.
The scalability of these technologies is a significant advantage, allowing for the simultaneous oversight of numerous assets globally, thereby dramatically enhancing the efficiency and breadth of due diligence processes. Crucially, adopting these geospatial solutions minimises the necessity for physical site visits, presenting a tech-driven methodology that aligns closely with the renewable energy industry’s sustainability ethos and contributes to a significant reduction in the environmental impact associated with travel. In navigating the complex terrain of renewable energy due diligence, geospatial solutions emerge as a powerful tool, offering unparalleled transparency, efficiency and environmental stewardship in pursuing sustainable energy practices.
To meet their net-zero commitments, governments are likely to promote sites in increasingly remote areas that are less commercially developed. Many investors, asset managers and operators will see their portfolios grow and spread across different regions, complicating the risk management process. It is essential that businesses develop an approach to asset due diligence and monitoring that reflects these new realities, much in the same way that supply chains have recently taken centre stage in deal risk management.
By leveraging unbiased data from satellites, we can dispel suspicions of harmful practices, information concealment, and greenwashing within industries through transparent and verifiable insights into operational activities and environmental impacts.