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Sustainable Investing

Q&A: ESG Builds a Sustainable Business

According to Aurelio Bustilho, the CFO of Enel Americas, focusing on ESG helps the company avoid risks and stay competitive.

Editor’s note: This is one in a series of Q&As with financial professionals about how they’re incorporating environmental, social, and governance factors into their investing approaches and their views on ESG risk.

To boost its sustainable business, South American diversified utility Enel Americas ENIA is buying electric buses for the city of Bogotá, Colombia. It’s just one way the company is using ESG to protect its narrow moat, says CFO Aurelio Bustilho.

Some people think that ESG just means extra costs to bear to meet certain requirements or attract certain types of investors. Does ESG actually enhance shareholder returns? ESG is a part of our business strategy. If we don't take this approach, we won't get any business. Our share-price history shows that by focusing on ESG, we are avoiding risks, not just in the long run, but even in the short and medium term. Other companies that are focused on ESG are also performing better in the long term than companies that are not.

We don’t like doing projects that a community doesn’t want--for example, a big hydro plant is unacceptable in certain places. For a project to make sense to us, it should be a win-win approach in order to reduce risk.

We are implementing a project to provide 500 electric buses in Bogotá, Colombia, to reduce carbon emissions. We are contributing a lot to this mass transportation business. Why? Because otherwise, we won’t have a sustainable business and a sustainable return.

Meanwhile, investors are increasingly looking for companies that take this approach. It’s not like we are only doing good because of climate change. Yes, we believe in addressing climate change. But ESG is also an economic decision to be transparent, to have clear governance in the company, and to respect the social and environmental approach.

We found that gas, wind, and solar power have come to cost parity right now, in the United States and worldwide. But a year ago, we wouldn't haven't been sitting here talking about solar. Is solar the disruptor? Solar is increasing a lot, especially in Brazil, where Enel Green Power built the biggest South American solar plant. The price is very competitive. Enel Americas is contributing to this process, developing more sustainable solutions for cities in the region. We are developing trading and energy-management plans that involve purchasing solar energy for our clients, especially in big cities.

In 2018, we bought the biggest utility in Latin America, which is Eletropaulo in São Paulo. In our region, 80% of people live in big cities, according to the United Nations. In 2030, 85% will live in big cities. Our contribution is solving energy and efficiency problems in these big cities. We prefer to buy energy from renewable sources.

Can you talk more about the new services you're offering? Part of it is to improve the quality of life in cities. Given the movement of people to cities, you must transform the cities. That's how we are positioning our strategy in the megacities of South America. Three years ago, we created a global business line called Enel X, which is based on services. Our vision is that we are not selling commodities or energy or the megawatt-hour to clients. We are selling services and solving issues.

That’s why we created a business line called e-mobility to invest in electric mass transportation. I gave the example of 500 buses in Bogotá. We are also implementing this in São Paulo, Brazil. Another line is what we call eCity. In our cities in Latin America, there is a big lack of lighting. If you put lighting up in these places, you increase inclusion. It’s a social issue. We are investing in public-lighting infrastructure, and we already have a business that’s bringing in $20 million per year. It’s not much, considering our EBITDA, but it’s growing. We are implementing this in Bogotá, where there is violence in certain parts of the city, so this will improve the quality of life.

In our industrial services business, we are helping customers solve problems of demand response. In our region, 60% of the energy generated for our cities is lost along the energy value chain. Mainly it’s related to transmission losses, but energy also is lost at the industrial-customer level through inefficient motors, and so on. So, it’s a very sustainable business when you give industrial customers tools to be more competitive by making their processes more productive. We are offering these kinds of services.

With our eHome service, we are providing financial products to our clients. We know these customers, and we can offer some products based on their behavior with energy consumption and bill payments, and so on. For example, in Colombia and Peru, we started a business to finance white goods for clients, especially poor people. This is the first banklike experience for these people. Again, it’s an inclusive process, giving credit to these people.

What about corporate demand for renewable energy to meet ESG goals? More and more corporations are coming to us. Purchasing renewable energy is not only a brand or a marketing issue but also an efficiency issue. For example, a local company in the northeast of Brazil--a chain of drugstores--had land, and we helped them implement a solar plant that provides energy to all the stores. We are working with a bank in São Paulo to improve their distributed generation to all the branches in Brazil--5,000 branches--and source green energy for them.

Some may ask, “But you are a distribution company, why are you doing this? You are killing your market.” We have to change that way of thinking. We are a part of the solution, and that will increase our business. It makes sense to us, rather than taking to the streets and protesting, like taxi drivers with Uber UBER. Because there’s no returning from this path. Our approach is to be part of the solution. That’s also why we are implementing and pushing a free market, which is another trend in the region. We are open to building a sustainable business with this approach.

This article is an excerpt from the Morningstar Conversation that appeared in the first-quarter 2020 issue of Morningstar magazine. Learn how financial professionals can subscribe for free.

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