Climate change, shifting demographics, and globally recognized standards are a few driving forces that have contributed to the rising importance of Environmental (E), Social (S) and Governance (G) factors in asset management. This, coupled with the ongoing global pandemic, made many institutional asset allocators and investors realize that it is equally important to deliver financial returns and preserve client capital in a sustainable manner.
We believe that sound, fundamental ESG underwriting will translate into meaningful value creation through closer alignment between the objectives of institutional investors, business stakeholders, and society at large. The goal of strong risk-adjusted returns does not require us to compromise our core ESG values.
Capital Dynamics R-EYE™ rating system: Longhill onshore wind project in West Lothian, Scotland
ESG Screening in Action
ESG and responsible investment (RI) principles are deeply rooted in our corporate DNA, and go back to 2008 when we became one of the earliest signatories of the UN-supported Principles for Responsible Investment (PRI). The PRI, the United Nations Sustainable Development Goals (UN SDGs) and other ESG factors are integrated across our investment processes and corporate ethos.
Our proprietary ESG scoring system, the R-Eye™, developed in 2018, and implemented across our investment strategies in 2019, helps ensure that the UN-supported PRI principles and ESG factors along with UN SDGs are included throughout the full investment cycle, starting from investment appraisal to post-investment monitoring. Our R-Eye™ rating system scores each potential investment from 5 (strongest ESG score) to 0 (weakest ESG score) based on a set of criteria developed in conjunction with the UN SDGs. This scoring system helps ensure a consistent and transparent approach to RI due diligence.
In February 2021, Capital Dynamics acquired a 50 megawatt onshore wind project in West Lothian, Scotland, which is expected to be one of the largest subsidy-free onshore wind projects in the United Kingdom once operational. The project received a high R-Eye™ score during the due diligence process, which is indicative of the project’s positive impact on the climate, environment and local community, among other factors.
Construction of Longhill commenced in March 2021 and is expected to achieve commercial operations in the second half of 2022. The project is estimated to reduce greenhouse emissions by over 2.6 million metric tons during its lifetime – the equivalent of emissions produced by over 550,000 passenger vehicles driven for a year or the electricity to power over 440,000 homes for a year*.
The project’s company Board is made up of 40% females and the project will ensure the local habitat is maintained. Longhill will be replanting the trees that have been felled and have leased a forestry area outside of the site to plant trees that cannot be replanted on the existing site due to the windfarm. Memorandum of Understandings have also been signed with three local community groups based within the vicinity of the wind farm. Longhill is committed to contributing a significant portion of its annual revenue to supporting these local community groups. Local employment will be utilized where possible during the construction process and key members of the asset management team managing the wind farm once operational will mostly be based in Scotland or North England.
(*) Source: Capital Dynamics
Featured image: Markus Distelrath from Pixabay
“Capital Dynamics” comprises Capital Dynamics Holding AG and its affiliates.
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