Scottish Hydro Electricity Transmission’s commitment to combining social, environmental and economic factors when planning capital investment projects won the company the top prize within the large business category at the Finance for the Future Awards in October last year. With entries for this year’s awards closing in May, it is worth taking note of the company’s strategy and how it won them industry recognition.
As one of the three transmission electricity network owners (TOs) in the UK, and a regulated part of the SSE Group, Scottish Hydro Electric Transmission (SHE Transmission) is obliged by the government to grow the electricity transmission network capacity - or the grid - in the north of Scotland to offer sufficient capacity to electricity generators. In particular, the UK has set an ambitious target for carbon reduction, which will require greater generation of electricity from low-carbon sources.
SHE Transmission knows the perils of not considering sustainability at the inception of capital investment projects.
In the past, the cost of projects has risen by about 10-15% due to delays in obtaining planning consent, and opposition from varied stakeholders concerned about damage to Scotland's environment, economy and communities.
In 2010, SHE Transmission started work to upgrade one of the main transmission lines between Beauly and Denny in the highlands of Scotland.
It was one of SHE Transmission's major capital investment projects, with over £675 million of investment between 2010 and 2016.
It was for these reasons that SHE Transmission undertook a retrospective look at the capital investment process involved in the Beauly-Denny project, so that it could use the information to benefit the company in its future developments, annd strenghten the wider transmission network. The impact evaluation methodology that the company produced is known as the sustainable commercial model (SCM).
In a venture driven by SSE's finance director, Gregor Alexander, the company wanted to understand the impacts that capital investment projects have on society, and to measure them using a consistent metric. In looking at the Beauly-Denny transmission line, the assessment focused on sustainability impacts that were considered to be most important to the project, including:
- total economic footprint of the construction expenditure
- cultural heritage
- traffic management
- carbon footprint
- building waste
- visual amenity.
With support from sustainability consultants, SHE Transmission developed the SCM framework, comprising over a dozen methodologies, to quantify and monetise the environmental, social and economic impacts of the transmission line. The impact can be identified, measured and financially quantified in a globally recognised currency, namely pound sterling. Previously, expected impacts were submitted using qualitative data. Using a consistent monetary value enables all stakeholders of transmission projects and the wider community to review the value created in a transparent and accountable format against an established baseline value.
Finance function leadership
The finance function was instrumental to the development of the SCM. It embedded into the analysis a significant level of rigour with an audit trail of information, which confirmed that a robust process was undertaken. This ensured that key decisions and assumptions were documented and substantiated, creating transparent results for internal and external parties. The finance function facilitated the link between finance and the wider sustainability community, and it illustrated to senior management that a financially sound project can also have the best sustainability outcomes.
Positive long-term impact
Having a consistent approach to compare different values across multiple factors has given SHE Transmission a far greater understanding of the end-to-end impacts of capital investment projects. This means different options can be assessed systematically and capital can be allocated to a solution that has solid financial returns, and yields societal and environmental benefits. In addition, as SHE Transmission is a regulated organisation, any building project requires compensation to those affected by mitigating measures.
Previously, this figure was settled arbitrarily, but, using the new model, the impacts can be measured and financially quantified, calculating a more accurate compensation. This means that public money used for these projects is being spent on the areas that matter most to communities and the environment. By using this methodology, it is possible to implement a project that costs more as long as it can be demonstrated that there will be improved social and environmental outcomes.
Lessons from the case study
Materiality is fundamental to the scope of any project, but particularly projects where there are numerous sustainability impacts. A proper materiality assessment allows those working on the project to focus on driving the outputs and demonstrating greater understanding of the overall business. Anything can be measured, but without the proper context it is of limited use. For example, SHE Transmission was surprised to learn the value that the local community placed on visual amenity, a conclusion that would not have been reached without quantifying the different impacts in a complete way.
Integrating sustainability impacts as a core part of decision-making requires a shift in thinking: one size does not fit all. The process of undertaking a full sustainability assessment of a project is challenging, but with the correct guidance, it can be achieved to lay the foundations for the next project.
SHE Transmission's holistic approach to measuring the total social, environmental and economic impacts of major capital projects, and the leadership of Alexander and group sustainability accountant, George Cobb, impressed the judges.
The company also demonstrated how the process influenced decisions in practice to drive better outcomes for the business, environment and local communities.
The Finance for the Future
Awards accept entries from organisations that show how its finance function has helped to build a sustainable organisation.
Visit www.financeforthefuture.co.uk for more information.