The economic costs associated with climate change are affecting the criteria that move the financial marketplace. A study conducted by the NGO Germanwatch has found that over the past 20 years, Chile has spent over 9 billion dollars to address the consequences of climate disasters, 46% of which has been spent since 2016. This means that investing in sustainable projects is no longer just an environmental issue, it is also an economic challenge.
Sustainable investing for the future
“Companies are increasingly filtering for green projects (...). If they fail to do so, their future assets may be severely impaired, return on investment can be very low, and they may lose out to depreciation. It is relevant for companies that make investments to stay aware of these issues, because this is now one of the key factors for the long term,” stated David Falcón, Sustainability Director at Deloitte Chile, speaking at the talk cycle “Learning About Climate Change”, organized by Enel Chile in the run-up to COP 25 as part of the company’s efforts to provide education about this new outlook that balances business activities, the environment, and society.
Falcon noted that in January 2019, the World Economic Forum released a list of the top five probable risks facing the planet: three of them were linked to environmental factors. Indeed, the first three items on the list are “extreme climatic events,” “failure in mitigation and adaptation to climate change” and “natural disasters”.
In the face of this situation, a number of investment options have been on offer for years in Europe and the United States to provide long-term sustainable return on investment, focusing not only on companies’ economic performance but also on their environmental, social, and governance impacts, with projects that are compatible with the current context of social changes, climate change, greater connectivity, and digitalization.
Falcon did not mince his words about this paradigm shift: “Many projects that used to be thought of as traditional and offering highly attractive return on investment are now looking like a feast for today in exchange for famine tomorrow.”
The evaluation system of listed companies
Mechanisms exist that allow investors to identify companies listed on stock exchanges that operate sustainable business strategies. Sustainability indexes have become benchmarks for markets and investors aware of the importance of generating value for all interest groups, putting their money behind companies that combine economic success with sustainable development in their processes. Leading sustainability indexes include: DJSI, FTSE4Good, MSCI, Sustainalytics, and Vigeo.
Dow Jones Sustainability Index (DJSI): annually gauges the performance of more than 2,500 major companies worldwide, listed on top stock exchanges, allocating each a Total Sustainability Score (TSS). This is a highly competitive index, as it only features companies that achieve “Best in Class” performance. Its sections include categories for “Chile”, “Latin American Integrated Market” (MILA), and “Emerging Markets”. Enel Chile is currently listed for the second year running in DJSI Chile, DJSI MILA Pacific Alliance, and DJSI Emerging Markets and is one of just two Chilean power companies - together with Enel Américas - featured on all three of these indexes.
FTSE4Good Index Series: created in 2001 by global index company FTSE Russell, part of the London Stock Exchange Group, to support investment in sustainable businesses. FTSE4Good includes over 300 indicators grouped into 14 different categories that are reviewed twice per year, in three core pillars: environmental, social, and corporate governance. The FTSE Russell methodology is based entirely on public information, thus requiring high levels of transparency from listed companies. Enel Chile has been verified as part of the categories “Emerging Markets Index” and “Latin America Index”.
Sustainalytics: this leading index in global ESG ratings and research is used by top investors that take into account companies’ performance in terms of ESG (Environment, Social, and Governance) when making investment decisions.
MSCI: MSCI ESG indexes are designed to validate investment approaches in terms of environmental, social, and governance (ESG) performance, helping institutional investors to effectively analyze ESG investments. MSCI ESG ratings also provide investors with transparency about the sustainability of companies’ environmental, social, and corporate governance credentials. Enel Chile has been listed in core MSCI ESG indexes since last year.
Vigeo Eiris: evaluates organizations’ integration of social, environmental, and governance factors in their strategies, operations, and management, based on an approach that promotes economic performance, responsible investment, and sustainable value creation. Enel Chile has been featured on its Best EM Performers ranking since December 2017. It should be noted that Vigeo Eiris does not operate a stock exchange index for Latin American markets.
Other certifications and indexes can also be used to gauge a company’s permanent policies for ensuring a sustainable and responsible long-term business plan. These are some of the corporate policy recognitions and certifications earned by Enel Chile:
Criminal Risk Prevention Model (MPRP) Certification - Certifying Agency: ICR Chile, Risk Classification: evaluates the functioning of the company’s crime prevention model, which seeks to prevent and detect the crimes of bribery, financing of terrorism, money laundering, and receipt of illegal earnings in any regard linked to third parties, in compliance with Chilean Law 20,393. All Enel Group companies in Chile, including Enel Chile, Enel Generación Chile, Enel Distribución Chile, Enel Green Power Chile, and all subsidiaries, have received this certification each of the past six years, with the latest certification standing for a two-year duration - the longest possible under Chilean law - until December 29, 2020, thus confirming the maturity of the compliance system implemented at Enel Group companies in the country.
ISO 37001 Certification – Certifying Agency: RINA: this is the International Organization for Standardization’s bribery prevention management system standard. The system’s objective is to prevent, detect, and combat undue influence, bribery, and corruption, and to promote culture of ethics, transparency, and compliance amongst employees and all interested parties. Enel Chile and Enel Generación Chile were the country’s first two power companies to achieve certification for their bribery prevention management systems in December 2018, with certification for the maximum duration of three years. Meanwhile, Enel Distribución Chile is undergoing the certification process, which is expected to be completed during 2019.
3rd Annual Generación Empresarial – Diario Financiero Awards “For Commitment to Integrity”: this is an award issued by Fundación Generación Empresarial (FGE) and Diario Financiero, in recognition of companies that have shown commitment to the systematic promotion of ethical practices and corporate best practices, both internally and externally. In its third year (2019), the awards highlighted the implementation of measurable policies by Enel Chile and Enel Américas, naming these companies amongst the highest-placed in the ranking.
COP 25 and markets
Discussion at the forthcoming COP 25 in Santiago will seek to form a consensus regarding Article 6 of the Paris Agreement, which sets out to regulate carbon markets and make their implementation feasible, mobilizing the financial resources necessary to strengthen climate action goals.
Article 6 refers to market mechanisms necessary to leverage cooperation between countries and facilitate compliance with each country’s Nationally Determined Contribution (NDC) mitigation commitment. Options include the use of tradable mitigation initiatives to reduce emissions based on mitigation, as well as different ways of supporting countries in meeting their NDCs.
Here you can find out more about Enel Chile’s actions and commitments in the field of Sustainability and COP 25.
Here you can find out more about the business strategy of Enel Chile and its subsidiaries.