B Capital Partners AG and IISD quantify ESG factors for the assessment and evaluation of direct infrastructure investments

A case study: B Capital Partners AG (B Capital) and the International Institute for Sustainable Development (IISD), supported by the MAVA Foundation, have undertaken a Sustainable Asset Valuation (SAVi) on one of B Capital’s onshore wind portfolios in Germany, thereby laying the groundwork for the quantification of selected environmental, social and governance (ESG) factors in the investment process of direct infrastructure assets.

The main goals of such an assessment are to improve the transparency of an asset’s impact on the environment as well as stakeholders, to obtain a more comprehensive view on “sustainability adjusted” risks and internal rate of returns (IRRs), as well as to reveal the asset’s financial resilience towards climate change risks. For a summary of the results, please see link below).

Infrastructure interacts with its adjacent society, it impacts the environment, and plays a vital role in the economic development of societies. Accordingly, understanding ESG risks of and co-benefits delivered by infrastructure assets matters. Yet, the investment industry is still struggling how to quantify and integrate ESG factors adequately in the investment as well as asset management process. The goal of such an integration is to reflect a more realistic risk adjusted return in light of climate change and other environmental and societal challenges.

The SAVi assessment applies system dynamics modelling and financial analysis, which in combination serves to value selected environmental, social, and economic externalities (costs and benefits), and calculate the costs induced on the asset owner by two climate change risks (air temperature increase and introduction of a carbon tax). These factors are then integrated into the calculation of key financial performance indicators.

The results demonstrate that unlike gas power plants, with which the wind power plant was compared, the performance of the onshore wind portfolio is not affected by the two climate change risks considered. The internalisation of environmental, social, and economic costs and benefits (externalities) however do reduce the sustainability adjusted IRR of the wind portfolio.

 Sustainable Asset Valuation (SAVi)-Brochure (PDF/1.5 MB)