Good governance: ESG needs at the Sofia project
RWE is putting its ESG commitments to the test at its Sofia offshore wind project. Giles Crosse asks how the facility could prove the company’s commitments to compliance.
Offshore wind turbine. Credit: ShutterDesigner via Shutterstock
RWE’s Sofia project is among the most exciting offshore windfarms in Europe, a massive development that could change the balance of power in the continent’s energy mix.
The 1.4GW Sofia offshore wind farm, sited on the shallow central area of the North Sea known as Dogger Bank, is the largest offshore wind project in RWE's current portfolio. The project is located 195-km off the UK’s north-east coast on a site of 593 square kilometres.
But, by definition, projects of this scale come with hefty environmental, sustainability and governance (ESG) burdens, which RWE has tried to carry. These include the nature of renewable power itself to the fact turbines will be made from recyclable material.
Hopes are this could be one of the most ESG-compliant new power projects in the world, but with complexities around the very definition of ESG, overcoming these challenges could require considerable effort.
“Clear targets across all dimensions”
The total power RWE is likely to generate from the Sofia facility would provide almost 1.2 million average UK homes with their annual electricity needs. With 100 turbines across a site the size of the Isle of Man, it's a huge undertaking, both in terms of its sheer scale, and potential impacts.
“ESG is a major driver, both internally and externally,” says Kelly Nye, press and public relations manager at RWE. “Internally, we have set ourselves clear targets across all dimensions of E, S and G. Externally, many stakeholders reflect ESG in their decisions, be it as equity investors or bond holders.
“RWE has a strong reputation in ESG, not only for the significant progress in decarbonising our generation portfolio, but also in other aspects such as biodiversity and circular economy.”
RWE has a strong reputation in ESG, not only for the significant progress in decarbonising our generation portfolio, but also in other aspects such as biodiversity and circular economy.
Evidence of the complexities of ESG within a project of this size can be found on RWE's project documents page. Management, safety and scoping reports on waste, fisheries, construction, noise and ecology are all there, as is to be expected at a project of this size, considering the array of potential consequences that could stem from inadequate compliance.
For instance, the leak of a toxic pollutant during construction or while the facility is in operation, would be a pollution risk to fisheries and the sea, but also a health and safety risk to staff.
This is to say nothing of the impacts on the value of the project’s shares, which would affect those holding a stake in the project, people around the world with no direct involvement in the facility.
For its part, the company is well aware of these challenges. Within RWE's Marine Pollution Contingency Plan (MPCP), statements explain that: “All potential pollutants used throughout the works and held on the turbines and the [offshore converter platform] must be bunded to at least 110% of the volume of the storage container and therefore the risk of any spill from a stored pollutant is considered to be very low as the bunding will act as the primary mitigation measure.
“As such, the primary focus of this MPCP is on the reporting and management of spills from vessels or activities associated with the construction or operation of the project rather than from stored material.”
This may sound dull, but it's the kind of detail that is vital from an ESG perspective. These very necessary documents represent due diligence and practice, but they also represent real-world work to prevent potentially bad things from happening. Equally, they represent a backstop for investors. Having documents like these demonstrates a company did the right thing on ESG and helps maintain and even increase share value.
On such reporting and standards, Nye says transparency is the key, independent of any regulations. “The EU Sustainable Finance action plan goes in the right direction driving regulatory incentives.
The EU Sustainable Finance action plan goes in the right direction driving regulatory incentives.
“The directive on corporate sustainability reporting [the Corporate Sustainability Reporting Directive (CSRD)] entered into force to develop and strengthen sustainability reporting further,” she continues.
“In order to increase the trust and comprehensibility of the published information, uniform, proportionate and transparent requirements for complete and meaningful reporting of non-financial information at EU level are a key prerequisite and the new CSRD regulation will contribute to achieve these goals.”
Evidence for further detailed planning and reporting exists; for example all vessels working on the project that weigh at least 400 tonnes are required to have an approved Shipboard Oil Pollution Emergency Plan under Regulation 37, Annex I of the International Convention for the Prevention of Pollution by Ships (MARPOL).
In addition, under Regulation 17 of Annex II of MARPOL, any ship of 150 tonnes or more, that is certified to carry noxious liquid substances in bulk, is required to have a Shipboard Marine Pollution Emergency Plan.
Tangible ESG commitments
In 2021, RWE backed up these lofty ESG commitments with action. It used the prolongation of its $5.5bn syndicated credit line to link the longer-term $3.3bn tranche to ESG criteria. That's a complex way of saying it voluntarily borrowed against promises to do the right thing on ESG. Whilst not completely unusual, this is not fully mainstreamed in the global power sector and represents a strong case for the strength of RWE's commitment to ESG.
The conditions of the billions in credit are now linked to three criteria: the share of RWE's renewables portfolio in the generation fleet; the reduction of the carbon dioxide footprint of RWE’s assets; and the share of sustainable investments in the total investments, according to the taxonomy criteria of the EU Commission.
Critically, it will be to the detriment of RWE if the company fails to meet its self-imposed targets. In this scenario, higher interest payments and commitment fees will be due on the credit line, which is provided by an international banking consortium of 27 banks. Plainly Sofia, as a renewable project and a carbon dioxide reduction asset, would fall under these criteria; in effect, the big offshore build is underpinned by RWE's portfolio-wide ESG credit promises.
Critically, it will be to the detriment of RWE if the company fails to meet its self-imposed targets.
RWE's 2021 Sustainability Report says it has the goal of anchoring ESG criteria more strongly in the international procurement for projects by the renewable energy business.
In one example, a comprehensive sustainability questionnaire is answered by its suppliers for qualification purposes and this allows key topic areas relevant for ESG to be reviewed before a contract is concluded.
Nye believes that only by transforming the economy can sustainability goals be achieved. “This requires substantial investments in green climate and environmentally friendly technologies,” she says. “The EU Taxonomy provides a system for classifying sustainable investments in the European Union.”
Evidence suggests RWE is pushing hard on ESG criteria, and that Sofia could represent the example of best practice investors and campaigners alike are seeking.
GlobalData, the leading provider of industry intelligence, provided the underlying data, research, and analysis used to produce this article.
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