Investors Focused on Climate Change Should Integrate Land Rights into their Renewable Energy Investment Strategies

Author: Trudie Makens | UC Berkeley School of Law | J.D. Candidate 2020 | Posted: February 14th, 2019 | Download PDF

As of the end of 2017, $12 trillion or more of the $46.6 trillion under professional management in the United States was invested pursuant to sustainable, responsible and impact investing (“SRI”) strategies.[1] This is up 38% from $8.7 trillion in 2016.[2] The drivers of SRI growth are asset managers who value environmental, social and corporate governance (“ESG”) criteria to generate long-term financial returns and social good.[3] The most important ESG issue that asset managers were focusing on in their SRI strategies was climate change.[4] Among institutional investors, climate change was also one of their top three issues.[5]

That climate change is topping the list of investor concerns is likely because climate change is happening fast and its impact will be devastating to both business and society. The effects of climate change are already disproportionately impacting indigenous peoples.[6] Changes in the availability of traditional food sources, deforestation, decreases in rainfall and increases in droughts are limiting indigenous peoples’ access to natural resources and burdening their ability to subsist.[7] However, indigenous peoples often resist renewable energy projects that would facilitate a transition to clean energy and help mitigate the impacts of climate change because the projects mean their forcible displacement from the land they live on.[8] Many indigenous groups have customary rights but lack legal title to their land despite having lived there for generations, in some cases even before the existence of the government’s land tenure laws.[9] Governments who possess the title to land occupied by indigenous communities will transfer title to renewable energy companies without consulting the communities, getting their consent, or compensating them for their loss leading to these communities’ displacement.[10]

If renewable energy companies and their investors aren’t doing their due diligence about who actually owns and occupies the land purportedly being sold, these projects can displace entire communities who hold customary rights to land they have lived on for hundreds of years. Access to land and natural resources is foundational for the realization of a number of human rights, including rights to housing, water, food and the expression of cultural identity.[11] Moreover, land rights disputes might lead to conflict which can delay the project at great financial cost or take away a company’s social license to operate completely.[12] Purchasers of power may also face reputational risks if consumers link their company with complicity in human rights abuses.[13] This all can lead to a decrease in financial returns for investors.[14]

Most renewable energy companies do not have adequate due diligence processes in place to identify land rights issues.[15] A recent report addressed to investors encouraged “investors [to] drive [the] conversations with [renewable energy] companies” on land rights by (i) conditioning their investment on the undertaking of human rights due diligence per the UN Guiding Principles on Business and Human Rights (“UNGP”); (ii) monitoring human rights performance of those investments and engaging with companies to encourage respect for communities’ rights per the UNGP; and (iii) asking questions to companies or asset managers both before and during their investment about human rights related to the project, as well as engaging with the government, civil society, communities and other stakeholders to “encourage community-led best practices and renewable energy that respects human rights.”.[16]

Encouragingly, investors like CalPERS, APG Asset Management, and Boston Common Asset Management have applauded the report’s recommendations.[17] Each generally noted the importance of safeguarding communities’ rights in the transition to clean energy as well as mitigating against avoidable risks to investors.[18]