Adverse Social Impacts of Green Energy Investments: Danish Institutional Investors' Internalization of Social Risk Indicators in Green Energy Investments

Abstract

This study investigates the adverse social impacts of three renewable energy sectors, namely hydropower, wind power, and solar power, and how Danish institutional investors internalize these risks when considering green energy investments. The study is built on four independent research objectives to explore the investors’ insights, methodologies, strategies, and approaches. Based on an extensive, systematic literature review and 13 in-depth, semi-structured interviews with Danish institutional investors, it is concluded that: 1. The investors’ general insight into the social impacts of green energy investments is inadequate when mapped against a set of sector-specific social risk indicators. 2. The investors are active owners and carry forward a generally active, responsible investment methodology based on different mixes of screening, monitoring, collaborative engagement, exclusion, divestment, and incorporation of international standards. 3. The investors’ strategy throughout the financial intermediation chain is based on a high degree of trust created through an ex-ante alignment of interest and upheld via ex-post monitoring of fund managers. 4. The investors have mainly an overall calculus approach towards institutions, which is based on an unconditional adoption of universal standards, complete outsourcing of engagement activities to third parties, and attention to only national conditions in the due diligence processes. Based on these conclusions, a brief recommendation is presented for investors in general, pleading for a higher prioritization of human rights. A higher degree of awareness and internalization of the social risks are needed through capability-centered engagement plants with local communities, supplemented by apparent due diligence of the company or project at stake, materiality assessments, social impact assessments, and social development plans, guided by, e.g., the UN Guiding Principles, and with a just transition as the ultimate target.