When human beings make large-scale incursions into the natural environment to satisfy their need for energy, the impact on nature can be severe. That is often true even of dams that act as sources of renewable energy. Settlements and cultural heritage are flooded, ecosystems destroyed and with them, the livelihoods of many people who have their homes nearby or depend on the dammed river. The new way in which the water is controlled also harbours potential for conflict with countries downstream.
Successful dialogue with dam supplier
PUBLICA holds shares in Andritz AG, an international technology company based in Austria that supplied the turbines and generators for the hydroelectric power stations involved in three especially controversial dam projects: Belo Monte in Brazil, Ilisu in Turkey, and Xayaburi in Laos. Other international partners had already withdrawn in response to public pressure. As a supplier, Andritz’s influence on the projects was limited, but the mere fact of its involvement cast the company in an unfavourable light: completed in 2019, the Xayaburi Dam is blamed for a decline in the fish stocks in the Mekong River on which millions of people depend. The WWF has described it as one of the most harmful dams in the world.
As an investor with a long-term orientation, PUBLICA is keen to ensure that companies take full account of ESG risks. It therefore supported SVVK-ASIR and its partner Sustainalytics in their efforts to seek direct dialogue with Andritz. The central question was how does Andritz approach projects that, while attractive, involve major sustainability risks? Would the company identify such risks at an early stage in future? The company had initially appeared unwilling to provide answers, but ultimately a dialogue did take place.
In the course of the discussions, it became clear that the company was already taking action, but that this was neither formally embedded in its strategy nor communicated externally. Andritz confirmed that an environmental and social compatibility audit was mandatory for all major projects, and set out the criteria involved. In 2020, Andritz named “compliance with legal and ethical norms” as its most important ESG topic. In 2021, it announced an ESG strategy designed to integrate ESG risks better into standard systems. Andritz also confirmed to us that it been actively involved in the new Hydropower Sustainability Assessment Protocol (HSAP), which was jointly developed by the hydropower industry, environmental associations and developing countries. The protocol is a measurement tool designed in particular to raise awareness of compliance with environmental and social standards among national authorities and bodies commissioning dam projects. The project also receives financial support from Switzerland. Finally, an examination of the analyses carried out by various research partners reveals that Andritz’s controversy rating has improved sharply. Since reaching a high in March 2011, the risk of further incidents has fallen progressively since July 2020 and is currently rated as low to moderate by all providers.
Andritz has additionally come to the attention of other players, such as Austria’s Finance & Trade Watch. It is also entirely possible that customers have brought pressure to bear. The moves towards sustainability that Andritz has made can therefore not be attributed entirely to SVVK-ASIR and Sustainalytics. Unquestionably, though, SVVK-ASIR’s engagement has served to underscore its importance, and the results of the dialogue are gratifying.