Wednesday 1 May 2019

‘Every investment is an impact investment’

Amy Clarke, Tribe Impact Capital


I have been thinking a lot about impact investing since speaking at the King’s Impact Investing Society conference at the end of January.  There still seems to be a lot of debate about definitions but it seems clear that impact investing is any investment which is aimed at achieving a positive impact on some societal problem as well as a financial return, personally I think of it as investing to have a positive impact on sustainability.  Then the question of how to benchmark and measure that impact arises. The Sustainable Development Goals (SDGs) are a good roadmap to all the areas where we need to improve sustainability – across environmental, social and economic spheres – and can form the basis of measurement. Impact investing aims to have a positive impact on key sustainability problems as well as make a return, it is not philanthropy.  At the King’s conference Amy Clarke, the founder of Tribe said, “every investment is an impact investment” and that is correct – every investment has multiple impacts in the areas covered by the SDGs, some good, some bad, some intentional and some unintended. Impact investing is about focusing on making a positive impact as well as a financial return.


The question, that for so long has not been asked, and which impact investors ask, is what is the impact of this investment on the non-financial factors such as the environment, gender inequality, access to basic services or whatever areas the investment affects. Taking a systems view, we need to ask what is the totality of all the impacts of the investment?  An impact investment should be positive in its impact on at least some of these factors. Important questions include; what is the base line for comparison, what are the targets and how do we measure progress?  The SDGs are a set of global targets covering all aspects, economic, environmental and social and provide an overall context.  Various initiatives to define and measure impacts now exist and are beginning to be applied more often.  The Impact Management Project, which grew out of a project by Bridges Fund Management is one emerging global impact measurement tool.


Of course financial investors are not the only decision makers who have impact.  Managers of organisations make decisions every day, small and large that have multi-dimensional impacts – whether they be decisions on which mode of travel to take or decisions to build a new factory or develop a new product.  A systems based approach to investment appraisal should cover the non-financial impacts, both good and bad.  To what extent and how do organisations that have environmental goals factor this into every decision?  Appraisal of capital investment and the way it is taught and practiced is almost entirely focused on the financial aspect and yet we know that other non-financial factors can be more strategic and therefore important.


Consumers make purchase decisions every-day that have impacts – often impacts in distant and remote parts of the world in some part of the long supply chains, impacts that can be negative in various aspects when viewed against the lens of the SDGs.  Systems that bring greater transparency of the impacts to consumers have emerged but we need a lot more of them such that consumers can factor them into their decisions.  How can we measure and communicate the wider impact of relatively small purchase decisions to consumers?


Impact investing is growing in volume and this is a really positive trend but we also need to think about, and talk about impact managing and impact consuming.  Every investment decision, every management decision and every purchase decision has multiple impacts.


EnergyPro works to identify, develop and implement impact investment opportunities, particularly in support of the energy transition but also in other dimensions of sustainability.  We also work with organisations to help them make more impactful decisions.


If we can help you in these areas let us know.



Steve Fawkes speaking at King’s Impact Investing Society Conference 2019

Wednesday 17 April 2019

Although there is still a lot to do to deliver the transition to a cleaner, low carbon, more flexible energy system, it does sometimes feel that the seismic plates in energy have shifted and that the outcome is inevitable. That should not be taken to mean we can relax – not only is there a lot to do to deliver existing and new technologies, business models and regulation – we still have to combat the resistance of the old guard who as in any paradigm shift spread confusion and fight to hang onto their positions.  However the other dimensions of improving sustainability cannot be ignored. Earlier in the year we saw the report on how “rapidly declining insect populations could threaten the collapse of nature” which reminded me of the book “Wilding” which I read recently.


‘Wilding’, which I highly recommend, tells the story of Knepp Castle Estate in West Sussex which since 2001 has switched from traditional intensive (and unprofitable) agriculture to rewilding which has resulted in an incredible increase in biodiversity.  The approach is to establish a functioning ecosystem and let nature get on with it – rather than target specific goals or species.  Knepp has seen great increases in bio-diversity and become a breeding ground for several species that were absent or in severe decline including, purple emperor butterflies, turtle doves, nightingales and 13 out of the 17 UK resident species of bats.


Rewilding Britain define rewilding as follows:


Rewilding is the large-scale restoration of ecosystems where nature can take care of itself. It seeks to reinstate natural processes and, where appropriate, missing species – allowing them to shape the landscape and the habitats within.


Rewilding encourages a balance between people and the rest of nature where each can thrive. It provides opportunities for communities to diversify and create nature-based economies; for living systems to provide the ecological functions on which we all depend; and for people to re-connect with wild nature.


Attaining greater sustainability requires ensuring we have food supplies as well as protecting the environment, objectives that can clearly be in opposition to each other. The food production system is essential infrastructure, although it is not usually characterised as such.  As in other areas of infrastructure we are seeing a shift towards digitisation, we are also seeing a shift towards production of food in controlled environments.  Like producing buildings, producing food in a controlled environment rather than out on site makes a lot of sense and the ability to control environments, possibly in an urban location, can raise productivity as well as reduce resource input for production and transportation.


The idea of the environment created by large-scale farming as being somehow natural, an idea we all grew up with, is clearly wrong – the agricultural environment is as man-made as the inner city and maybe it is largely incompatible with truly protecting nature.  The combination of food production in a controlled environment and rewilding provides a clear direction of travel.  We need to greatly ramp up food production in controlled environments, out of the field and into the converted warehouse, and then rewild former agricultural land.


Our vision should be healthy food for all produced in controlled and efficient environments enabling large areas of the land and seas to be rewilded.


Thursday 14 March 2019

This blog previously appeared in Project ABRACADABRA newsletter in January.


The beginning of a new year is always a good time to take stock of where we are in achieving our objectives in life and what we need to change to make greater progress.  The same is true for energy efficiency and building renovation so let’s begin by looking at where we are.


The good news from the International Energy Agency’s 2018 Energy Efficiency Market Report[1] is that global investment in energy efficiency grew by 3% to reach USD 236 billion in 2017, although the rate of investment growth slowed in all sectors which is a concern.  Europe remained the largest source of investment, rising by 1%.  Buildings accounted for 59% of total investment.


The challenge is that we have to do much better and greatly increase the investment into efficiency. To realise the IEA’s Efficient World Scenario (EWS), one in which carbon emissions fall, we need to double the average rate of investment between 2017 and 2025 to USD 584 billion a year, and then double the average rate again between 2025 and 2040 to USD 1,284 billion a year.  The cumulative investment between now and 2040 in the EWS is USD 24,514 billion.  Table 1 summarizes the investment levels required in the EWS.


Table 1. Investment into energy efficiency required in the IEA Efficient World Scenario

Annual average 2017-2025

(USD billions)


Annual average 2025-2040

(USD billions)


Cumulative 2017-2040

(USD billions)


According to the IEA 30% of the total investment will have to go into buildings and 30% of that will be in the EU, suggesting some USD 2.2 trillion would need to be invested in EU buildings between 2017 and 2040.  Various EU studies show the size of the potential and the problem in Europe.  With 35% of the EU’s buildings over 50 years old and the slow replacement rates, the renovation potential in the EU is huge, some 110 million buildings[2] could be in need of renovation.  The total costs could be in excess of EUR 1 trillion.  So we know what the target is but current levels of investment are much lower than where we need to get to.


Another positive development in recent years is that financial institutions are beginning to recognise the value and potential of energy efficiency.  For many years it was ignored but the pioneering 2015 report of the Energy Efficiency Financial Institutions Group (EEFIG), convened by the EC and the UNEP Financial Initiative, as well as work by the G20 and others have increased interest – over 100 banks and financial institutions from more than 40 countries signed up to a statement that they acknowledged the unaddressed financing opportunities, would contribute to scaling up energy efficiency financing, and further embed energy efficiency principles into the way they engage with clients.


In more good news green banks around the world have increased their annual allocations for energy efficiency.  In the expanding green bond market, worth USD 161 billion in 2017, energy efficiency’s share of the disclosed uses of funds increased from 18% to 29%.  In the US the use of Property Assessed Clean Energy (PACE) financing is also growing and by mid-2018 nearly USD 5.9 billion in energy efficiency measures had been financed by PACE programmes in the US, covering both residential and commercial buildings (C-PACE) but with 90% in the residential sector.  PACE is being introduced to Europe by the Euro-PACE project[3].


As energy efficiency specialists and advocates we must pull all the levers we can to increase the levels of investment to those in the Efficient World Scenario as it is clear that the outcome will be a much better world, with falling carbon emissions, reduced air pollution, less fuel poverty, improved health and many other benefits.  Increasing the levels of investment into energy efficiency on this scale is undoubtedly a challenge, but I believe that we are now beginning to understand the barriers and the levers that we can pull to achieve it.  We need to really acknowledge the problems with efficiency as an investment and address them.


Those of us who advocate for improved levels of energy efficiency regard it as special for several reasons; it is the cleanest and often cheapest way of providing energy services, it offers high return, rapid payback projects which are often not implemented for a variety of organisational and structural reasons. However, we need to recognize a fundamental truth and that is for the rest of the world energy efficiency is not special at all – in fact it is boring.  Energy is usually a small cost line for most building owners and operators.  Also for senior managers making investment decisions there are many other more pressing decisions which are linked to the organisation’s core business, energy efficiency will always be lower priority than basic maintenance, production or marketing.


We do know that there are massive opportunities to improve energy efficiency in all areas especially buildings.  Many, many examples from Europe and the rest of the world show that buildings can be retrofitted in ways that can reduce energy use by 30%, 50% or even 80%.  Net zero energy use is the ultimate goal and is achievable but at significant cost.  The European Buildings Performance Directive requires all new building to be Near Zero Energy Buildings (NZEB) by 2020.  For existing buildings we need to recognise that the energy savings alone will not pay for the investment needed to get to anywhere near NZEB performance.  We also need to recognize that building refurbishments happen at certain points in the building life-cycle, refurbishing on energy grounds other than as part of a major refurbishment is not likely to be optimal or even viable. We also need to learn how to build and present better business cases to decision makers.


For a financial institutions looking to invest in energy efficiency projects there are a number of barriers including:


  • The fact that the economic benefit is a saving – a counter-factual compared to what would have happened without the investment.
  • Energy savings are hard to measure – unlike energy production projects where you can meter output and charge a client accordingly.
  • A lack of data on the outcomes of projects.
  • Projects are usually very small and need to be aggregated.
  • Balance sheet treatment of assets which are integrated into buildings can be an issue.
  • There is a lack of standardization in the way that projects are developed and documented – financial institutions require standardization.
  • Financial institutions lack capacity to assess energy efficiency projects – despite the high level commitments from many financial institutions at the operational level there is a lack of understanding and knowledge about energy efficiency.


These barriers within organisations and within financial institutions help explain why there is such a big gap between the potential and what we are achieving.  These problems are beginning to be addressed in a number of ways.


Standardization is addressed by the Investor Confidence Project[4] with its project Protocols and independent quality assurance system which certifies projects as Investor Ready Energy Efficiency™.  Standardization also helps aggregate projects.


The lack of data on projects is being addressed by the EEFIG database DEEP[5] which contains data on over 10,000 projects across Europe.  Financial institutions can now review projects by sector, type and geography and hence build their confidence in the sector.


The lack of capacity in the financial sector is addressed by the EEFIG Underwriting Toolkit[6] which provides a common approach to assess the value and risk of energy efficiency projects.  It also provides a common language that project owners, project developers and financial institutions can use, something that has been sorely lacking.  The newly reconvened EEFIG will be doing more work to spread the use of the Toolkit and build upon it as a training tool.


Better business cases need to be built but they need to go far beyond just energy savings. We now know that energy efficiency projects bring multiple non-energy benefits including things like increased productivity, increased occupant satisfaction, improved health outcomes and increased asset values.  We need to recognise that all of these are much more interesting to decision makers than some energy cost savings and value them in our investment decisions.  Valuing multiple benefits is the focus of Horizon 2020 funded project Multiple Benefits[7].


The ABRACADBRA[8] project is a specific case of utilising multiple benefits to build better business cases.  It is focused on utilising volumetric additions such as façade additions or rooftop extensions which can add value to tenants and building owners and help finance near zero energy refurbishments.  Having more space and amenities such as sun rooms is a real benefit to tenants and owners that is highly attractive, and the added real value they bring to the property can be used for financing improvements.


Although we have only recently started on the journey of increasing investment into energy efficiency we are already seeing the pieces of the jigsaw emerge.  To reach the investment levels in the Efficient World Scenario and reap all the economic, environmental and social benefits that would bring, we need to put all the jigsaw pieces together into platforms that develop and implement projects that meet the needs of financial institutions and enable investment at scale i.e. in the billions rather than the millions.  There are grounds to be optimistic.




[1] Energy Efficiency 2018. International Energy Agency, 2018.

[2] Boosting Building Renovation: What Potential and Value for Europe. European Parliament. 2016.

[3] EuroPACE. Funded by Horizon 2020 grant number 785057.

[4] Investor Confidence Project Europe. Funded by Horizon 2020  grant numbers649836 and 754056.

[5] De-risking Energy Efficiency Platform.

[6] EEFIG Underwriting Toolkit.

[7] Multiple Benefits. Funded by Horizon 2020 grant number 785131.

[8] ABRACADABRA. Funded by Horizon 2020 grant number 696126.


Tuesday 5 March 2019

I must admit I used to be a sceptic of the call to “electrify everything” but then that was back in the days when the carbon intensity of the UK electricity system was c.500 gCO2/kWh whereas now that intensity is down to c.250 gCO2/kWh.  I also have to admit that I have been a sceptic on heat pumps and guilty of falling foul of one of the ‘human’ barriers to better energy management I identified back in my PhD in the early 1980s, i.e. a bias against a technology resulting from out of date experience, in this case the view that heat pumps were over-hyped and under-performing.


One of the problems with a long career in one field is that there are cycles of fashion and interest that seem to repeat, albeit with differences. Back in the early 1980s there was a push for industrial heat pumps.  As is often seen in non-technical, or even semi-technical explanations of heat pumps it was said that “heat pumps are like refrigerators in reverse” (which we all know is wrong anyway as they are “running in the same direction” as refrigerators).  One esteemed and highly technical expert at the time, who in fact wrote the book on industrial heat pumps which I still have on my shelves somewhere, said; “comparing heat pumps to a refrigerator is like comparing a Ferrari to a Mini.  They both have four wheels and an engine but there is a huge difference in their complexity, their maintainability and their running costs”. That comment clouded my views on the enthusiasm to use heat pumps as an answer to decarbonising heat.  Also, as with any technology there is no question that there were many bad installations, as always happen when there is a bubble and consumer facing hype gets ahead of installer capabilities.


My scepticism was made worse by stories like the one I reported in a blog on 28 March 2014 when the front page of the Independent on Sunday reported: “Exclusive: Renewable energy from rivers and lakes could replace gas in homes“ and the article started by saying “millions of homes across the UK could be heated using a carbon-free technology that draws energy from rivers and lakes in a revolutionary system that could reduce household bills by 20 per cent”.  That piece of pure hype, which was wrong in so many ways, was aided and abetted by the then Secretary of State Ed Davey who really should have known better.


However, things change and when they do it is time to change your mind. The quote; “when the facts change, I change my mind. What do you do sir?’ is attributed to John Maynard Keynes although as with many other famous quotes apparently there is no proof he ever said it.  It is clear that heat pump technology, particularly for space heating, has moved on.  An article on LinkedIn by Paul Kenny of Tipperary Energy Agency, “How did the beast from the east affect heat pump performance” was very interesting as it recorded real-world performance of 16 residential heat pump installations during extreme cold weather in March 2018.


As well as advances in heat pumps the other thing that got me thinking more about electrification was some surprising data about the effects of gas cooking on indoor quality, particularly the effect on CO, CO2, NO2 and VOCs. Having grown up cooking with natural gas most of us have ignored the effects, thinking instead, if we did at all, that indoor air quality problems resulting from cooking were confined to developing countries where people cook on wood fires or kerosene stoves in poorly ventilated spaces.  It turns out that we have an indoor air quality problem from cooking as well – particularly in badly ventilated kitchens.  Lloyd Alter produced a good summary here. The answer is to go electric.  Induction hobs are the way to go for fine control of cooking as well as improving indoor air quality.


It is clear that we are moving to a more electrified future, in heat and ultimately transport.  For new build the only way to go is to mandate Passive House standard and therefore cut heat loads so much that direct electric heating (possibly with storage to allow households to take advantage of PV generated power and to interact with the electricity market) is viable.  For retrofit situations where taking the building to Passive House standard is not possible technically or economically there is definitely no one silver bullet and fully electrifying the entire current heating load is clearly not going to be possible because of its impact on the electricity supply system, as Michael Liebreich pointed out, “in a normal year, the UK’s winter heating load – which is practically zero in summer months – reaches peaks six times as high as the country’s electricity load, and it can cycle up and down by a factor of three in just a few days.”  Having said that heat pumps will have a growing role to play, either for individual homes or perhaps group heating schemes with thermal stores that also interact with the electricity flexibility market. Other emerging technologies such as “heat batteries” or thermal stores will also have a role to play in electrifying heat alongside heat pumps.


For more real world examples of completely electrifying homes in the harsh climate of the US mid-West check out the excellent work of Nate The House Whisperer




After finishing this blog I discovered the DryFiciency project, an EU Horizon 2020 funded project to develop high temperature industrial heat pumps with the aim of reducing specific energy for drying/dehydration/evaporation processes by 60-80%.  Industrial heat pumps may yet have their day.



Tuesday 19 February 2019

The Paris Agreement of December 2015 signalled an international intention to mitigate climate change and attempt to contain the global temperature rise.  To have any chance of achieving the targets we need to step up investment into clean energy and energy efficiency.  The World Economic Forum stated that the Paris Agreement was a $23 trillion investment opportunity.  Carbon Brief estimated that to achieve a 1.5°C investment into clean energy would need to be 50% higher.  The IEA says that to achieve its Efficient World Scenario would require investment in energy efficiency, currently about $270 billion a year, to double between 2017 and 2025 and then double again between 2025 to 2040.  The European Commission estimate that to achieve its energy and climate goals requires an additional investment of €170 billion per annum.


So how is Europe approaching the need to steer more investment into clean energy and energy efficiency, as well as wider sustainability objectives?  In 2016 the EC convened the High Level Expert Group (HLEG) on Sustainable Finance to provide advice on how to ‘steer the flow of capital towards sustainable investment; identify steps that financial institutions and supervisors should take to protect the financial system from sustainability risks; and deploy those policies on a pan-European scale’.   The HLEG met from December 2016 to December 2017 and its report made the following recommendations:


  • Introduce a common sustainable finance taxonomy to ensure market consistency and clarity, starting with climate change.
  • Clarify investor duties to extend time horizons and bring greater focus on ESG factors.
  • Upgrade Europe’s disclosure rules to make climate change risks and opportunities fully transparent.
  • Empower and connect Europe’s citizens with sustainable finance issues.
  • Develop official European sustainable finance standards, starting with one on green bonds.
  • Establish a ‘Sustainable Infrastructure Europe’ facility to expand the size and quality of the EU pipeline of sustainable assets.
  • Reform governance and leadership of companies to build sustainable finance competencies.
  • Enlarge the role and capabilities of the European Supervisory Authorities to promote sustainable finance as part of their mandates.


The report was followed quickly by the Commission publishing an Action Plan on Sustainable Finance in March 2018. This included:


  • Establishing a common language for sustainable finance, i.e. a unified EU classification system – or taxonomy – to define what is sustainable and identify areas where sustainable investment can make the biggest impact.
  • Creating EU labels for green financial products on the basis of this EU classification system.
  • Clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process and enhance disclosure requirements.
  • Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.
  • Incorporating sustainability in prudential requirements.
  • Enhancing transparency in corporate reporting.


The Commission also published three legislative proposals covering the taxonomy, disclosure and duties and benchmarks.  Then in July 2018 the Commission convened the Technical Expert Group (TEG) to assist the Commission in developing:


  • an EU classification system – the taxonomy – to determine whether an economic activity is environmentally sustainable
  • an EU Green Bond Standard
  • benchmarks for low-carbon investment strategies
  • guidance to improve corporate disclosure of climate-related information.


The TEG will report on its taxonomy proposals by June 2019.  On energy efficiency, the latest iteration of the Energy Efficiency Financial Institutions Group (EEFIG), supported by the EC and UN Environment, will feed directly into the work of the TEG on the taxonomy.


The Commission is moving quickly to put in place a framework that will help steer investment into sustainable activities.  This first phase is focused on climate change mitigation and adaptation but future phases will also start to examine other aspects of sustainability including; healthy natural habitats, water resource conservation and management, waste minimisation, pollution prevention and control, agricultural and fisheries productivity, access to food, access to basic infrastructure and access to essential services.


To achieve improved levels of sustainability we need to increase investment flowing into sustainable projects, assets and sectors.  The investment needs can only be met from the private sector.  The EC is moving quickly and Europe is leading the world in building the enablers that will direct more capital into sustainable finance.  Ultimately however success will be measured by changes of direction and increases in the flow of capital into more sustainable activities.



Dr Steven Fawkes

Welcome to my blog on energy efficiency and energy efficiency financing. The first question people ask is why my blog is called 'only eleven percent' - the answer is here. I look forward to engaging with you!

Get in touch

Email Twitter Linkedin Skype

Email notifications

Receive an email every time something new is posted on the blog

Energy Efficiency

Energy Efficiency by Steven Fawkes

My book Energy Efficiency is available to buy now

Outsourcing Energy Management

Outsourcing Energy Management by Steven Fawkes

My book Outsourcing Energy Management is available to buy now

Only Eleven Percent