ESG RISK 1: Societal Contribution
Overview
ESG Risk 1 – Societal Contribution evaluates whether a proposed hydropower project meaningfully addresses identified energy and water needs, aligns with key policies and plans, and generates a net economic benefit for society. It compares the project’s ability to provide reliable, low-carbon electricity (e.g., baseload, peak-load, grid stability, dry-season power) and essential water services (e.g., ecosystem flows, irrigation, municipal supply, flood control) against alternative options. It also examines consistency with spatial, sectoral and environmental policies, and weighs all social, environmental and financial costs and benefits to determine if overall economic contributions outweigh societal impacts.
Additional Guidance
It will be incumbent on the user of HydroSelect to defensibly justify the rating given for ESG Risk 1. With regards to the first component asking about the relative advantages of the hydropower project over alternative energy options, the most ideal information source, if available, is an ‘Analysis of Alternatives’ with respect to identified energy needs. If one does not exist, it would ideally be conducted by the developer or energy agency.
Sources of information that can help inform the understanding of energy needs and the consistency of the project with key policies and plans include:
Relatively recent national or state energy master plans.
Relevant water resource, river basin, or integrated water management plans.
National and/or regional publications and websites addressing energy and water needs.
NGO research and assessments.
Geographically-relevant development, climate change, land use, and/or environmental and social related plans.
A GIS analysis to evaluate a project option fit with spatial plans or zoning.
The ‘Analysis of Alternatives’ cited above would ideally show how a project option fits with energy, water and other policies and plans.
In the situation of little to no sources of information relevant to the area of the project option, users of HYDROSELECT should reference any of the following online sources:
National energy ministries and agencies, which in most countries publish reports and data on national energy needs, policies, and plans.
The International Energy Agency (IEA) provides country-specific information on energy production, consumption, and policies.
The World Bank regularly publishes reports on energy access, consumption, and policies worldwide.
Renewable Energy Policy Network for the 21st Century (REN21) produces country-specific information and trends on renewable energy.
International Renewable Energy Agency (IRENA) provides country-level data on renewable energy.
Economic viability is another expression for a positive net economic contribution to society of a project. Costs and benefits are expressed as far as possible in monetary terms so that they can be compared on an equal level. A project is assessed as economically viable if the project benefits exceed the project costs. Economic viability is informed by the financial analysis but takes a broader approach to costs and benefits than just financial considerations. Compared to a financial analysis, the economic analysis typically encompasses a larger geographic scale, examining the national or regional implications of the project and social and environmental externalities.
Social and environmental externalities are factors that are not reflected well in market prices but can affect societal well-being; pollution is an example of a negative externality (e.g. it can impose public health and clean-up or remediation costs), and education is an example of a positive externality (e.g. educated people can be more productive and go on to educate other people). These externalities are the social and environmental costs and benefits in an economic assessment.
Indications of financial costs are usually able to be gained from similar projects and the known price for main components. Monetary evaluation of the environmental and social costs and benefits of a project can be difficult, especially so at the early stage where just the project option is being considered. Wherever possible, environmental and social values should be estimated as this allows a comparison with financial assessments. If it is not possible to estimate a value for a particular benefit or cost, at least estimates can be provided for expected changes in the environment and for society and/or a ranking could be assigned on the basis of its materiality (i.e. societal importance or significance).
Sources of information that can help inform ratings for economic viability include:
The International Hydropower Association (IHA) Hydropower Sustainability Guidelines on Good International Industry Practice (HGIIP) Economic Viability guidance.
Analysis, quantification and valuation of project costs and benefits.
Loan appraisal reports.
Analysis of the economic context or region.
Analysis of climate change benefits of the project.
Economic analyses of natural resources and riparian linked livelihoods.
For the conclusion that a project has a net positive impact, benefits must exceed costs in the most probable scenario. The economic model should not be biased towards positive economic benefits (particularly financial benefits) or misrepresent the costs of negative material impacts. If assessments are undertaken by parties with vested interests they may focus on benefits of project and place less weight on negative impacts, which can create significant bias in the analysis.
The opportunity in the area of societal contribution for hydropower projects is to transparently and objectively document all three ranking requirements for ESG Risk 1.
The most defensible assessments for the ‘Analysis of Alternatives’, the project fit with key policies and plans, and the project economic viability will:
Use appropriate expertise;
Use independent expertise;
Be objective;
Be comprehensive in fully considering all alternatives, all key policies and plans, and all costs and benefits;
Ensure quality and defensibility of the inputs, assumptions and methods; and
For the economic assessment, take a balanced approach to considering costs and the broader implications of the development for the community and the environment.
