Acción Energía’s controversial wind farm on Mexico’s Isthmus of Tehuantepec shows the dark side of “positive social investments” that ignore their impact on the local community.
Reports of authorities and company workers sending death threats and commiting acts of violence against locals have often marred the reputation of renewable energy projects in Mexico. Considerable media hype and support from President Peña Nieto have done little to calm these suspicions or quell local protests and sabatoge.
What went wrong? The prospect of socially productive profitability led to a land grab in which Spanish companies put profits ahead of actual social benefit. Morgan Simon writes:
A foreign company developed a project without thinking through its community engagement strategy or making any attempt to share financial returns fairly. … Investors in this type of circumstance were [probably] told that they were going to be a major force in spreading renewable energy in Latin America—a seemingly great impact story.
Latin American leaders highlighted the need for development projects to prioritize social and environmental impact at a recent forum. However, even well-intentioned investors can be duped when companies lift buzz phrases like “renewable energy” and “economic development” to whitewash exploitive projects. Investors and NGOs need better ways make sure their investments are doing good and not harm.
There are two ways Acción Energía could have avoided this disaster: they could have made community engagement the center of their development strategy and more prominently featured an analysis of their local impact in the cost-benefit analysis.
Yansa Group, which works in the same region, decided to make community engagement a top priority. Yansa partners with indigenous communities to secure 20-year fixed contracts with the Federal Electricity Commission, in which Mexico’s only utility company agrees to pay a set price for any electricity produced for the duration of the contract. The village then uses that guaranteed income to attract investors, and Yansa provides technology and management training so that the local communities can do the work needed to make the project successful. Yansa then reinvests half of the profits in a community trust fund to improve economic opportunities locally, while half is reinvested to finance new projects and expand Yansa’s impact.
Bangladesh-based BRAC also gets to know their communities first, a strategy that recently earned them recognition as number one in Global Journal’s list of 100 top NGOs. BRAC lets locals chime in on who needs to be helped by ranking community members based on their economic needs.
Metrics that Measure Impact
Investors could have also asked Acción Energía for metrics that evaluated how the local community would be impacted. Well-known philanthropists like Bill Gates and expert Hans Rosling have called for better data analysis of social impact, and the Global Impact Investing Network has responded by setting up standardized metrics, partnering with organizations like Acumen Fund and USAID.
Social scientists have complained that "standardized measurement tools risk omitting, or even worse, misrepresenting, important dimensions of social change." Investors may be turned off by the complexity of the metrics used, but without them, they simply can't objectively evaluate social investments.
Are metrics enough? Maybe not, but coupled with a good community engagement strategy like BRAC's or Yansa's, they are a necessary tool to avoid investment disasters like the one in Oaxaca. If a firm fails to include a firm and broad understanding of where they are investing in the cost-benefit analysis, the whole impact investing concept falls apart, and “development projects” may cause more harm than good.