Climate change
How we encourage the companies we invest in to take responsibility for reducing their impact on the climate.
The effects of climate change are already having a major impact on people’s lives, as well as company operations and business models, across the world. It’s one of the biggest issues we think about when making investment decisions, as we want to get the best possible investment returns for members.
Railpen bought Bracks solar farm from global energy renewal company BayWa r.e. in 2022. A solar farm is a large collection of photovoltaic solar panels that absorb the sun’s energy and turn it into electricity. The Bracks solar farm will generate enough clean energy for about 8,000 homes. It’s the second deal we’ve done with BayWa r.e. We also bought Tralorg Wind Farm in 2019.
Achieving net zero across our portfolio is something we’ve committed to, so the Bracks deal was the latest in a series of investments in renewable energy. Renewable energy is energy that comes from natural sources, like sunlight or wind, and is replenished at a higher rate than it is consumed.
The project would have a positive effect on the environment, harnessing clean and renewable energy from the sun, and helping reduce greenhouse gas emissions and dependence on fossil fuels. But we still had to think about environmental, social and governance (ESG) issues. We wanted to check for any risks to us generating good investment returns for members.
We designed a process that identified the ESG issues we needed to think about before the deal went ahead. We looked at industry standards, regulations, academic research and a variety of other things all connected to the solar photovoltaic sector.
The main issues we identified included:
We thought about the risks involved in the project and what was in place to reduce the impact of those risks.
Over 80% of solar cell manufacturing takes place in China, and the country plays a big role in producing the key materials such as solar-grade polysilicon. About 54% of Chinese polysilicon is processed in the Xinjiang region, where the Muslim Uyghur population has been subject to forced labour. It was discovered in 2021 that some suppliers in the region may have received incentives to employ members of the Uyghur population under coercive conditions.
Railpen expects the companies it invests in to follow good business practices. These include the Ten Principles of the UN Global Compact (UNGC). UNGC Principle 4 is the elimination of all forms of forced and compulsory labour.
We spoke to the project developers about the issue of forced labour. We wanted to understand their approach to procurement – how they choose the suppliers they work with.
We also reviewed all the policies and practices in place to make sure the risk of forced labour in the supply chain was managed properly. By talking to the people behind the project, we got more details about the manufacturer’s approach, including auditing, whistleblowing, and employee engagement.
After this detailed assessment process, we decided that ESG risks were sufficiently mitigated and the investment could go ahead.
However, we know that China remains a high-risk area when it comes to forced labour. So we’ll be doing the same level of checks on any similar deals in the future.
And we’re continuing to carefully monitor the key risks on the Bracks project, including responsible procurement.
See an example of how we've used our influence to encourage companies to reward their employees fairly and appropriately.
Find out how we've worked with companies to improve their governance and mitigate risks.
Our blogs on Sustainable Ownership and environmental, social and governance (ESG) issues will help you learn more about the Scheme's approach to its investments.