2024Annual report

Sustainability is an integrated part of Småkraft’s strategy and business model. In recent years, Småkraft and its peer companies have faced increasing reporting requirements related to Environmental, Social and Governance (ESG) topics. Småkraft views these requirements positively, as they enhance transparency and focus on meaningful actions. Småkraft is committed to align its processes with the EU Taxonomy, the EUs Sustainable Financial Disclosure (SFDR) and other evolving reporting standards such as the Task Force for Climate Change (TCFD). For the financial year 2024, Småkraft will voluntarily report on double materiality as outlined in the Corporate Sustainability Reporting Directive (CSRD). In 2024, Småkraft once again secured its strong position in GRESB’s annual ESG reporting assessment. Småkraft will continue to strive for transparency in its interactions with the environment and society, as outlined in a separate Sustainability Report.

Sustainability is about creating meaningful impact, managing risks, seizing opportunities, making strategic investments and optimizing processes. Småkraft prioritizes investing in topics we have identified as the most material to Småkraft and its stakeholders.

Småkraft’s main efforts are concentrated on the following topics:

Småkraft’s production history shows that climate change leads to more precipitation and more extreme weather. This influences production, and it may increase the forces Småkraft’s installations need to sustain. Over the past few years, Småkraft has experienced a continued pattern of more extreme weather. Also in 2024, storms have had negative impact on infrastructure in Norway. While most of Småkraft’s power plants have proven resilient to the storms, there have been examples of flood damages. These incidents represent a small portion of Småkraft’s overall portfolio and proves the company’s ability to manage and recover from extreme weather events. Still, it is essential for Småkraft to understand how future climate change is likely to influence its power plants.

Småkraft, along with other companies in sectors vulnerable to climate change such as energy, food production, shipping, and insurance, has joined forces with leading research groups in a center for research-based innovation called Climate Futures. In the center, Småkraft has partnered with NORCE and the Norwegian Computing Center (NR) to develop sub-seasonal runoff forecasts. Going forward, the focus will shift to understanding how climate change will impact runoff in the catchments where Småkraft operates.

Producing renewable energy generates significantly lower carbon emissions compared to other energy sources. Additionally, due to its long lifetime, small-scale hydro is efficient compared to other renewable energy options, with minimal carbon emissions per unit energy produced.

In discussion with key stakeholders about important ESG topics for Småkraft and the environment, emissions have been highlighted. As almost 100% of the life cycle emissions from small-scale hydro come during construction and upgrading activities, Småkraft has increased its focus on understanding these emissions. Småkraft has analysed such emissions for both new-builds and existing power plants. This analysis provides valuable insight that can be utilised to reduce emissions in future construction projects, in close cooperation with Småkraft’s partners.

All energy production, including small-scale hydropower, has an impact on the local environment. Småkraft changes the flow patterns of the river between the intake and the power plant, which may affect the biodiversity and vulnerable species in and around the river around the power plant, the penstock and the intake.

The majority of Småkraft’s power plants are governed by restrictions on water flow for energy production. This implies that power plants must release water to the river to ensure ecological water flow and avoid drought. All Småkraft sites are inspected annually to detect and report negative impacts. Data from these inspections is what is reported in our ESG report, and not a 24/7l surveillance.

Other key concession requirements are bypass valves that ensure sufficient water in the river during an immediate production stop, restrictions regarding water level regulation in the reservoir or specific water flow requirements.

Småkraft from time to time invests in power plants that may not operate in compliance with the governmental intentions. This is assessed and reflected in the investment process, where Småkraft decides on upgrades to meet the requirements. In most cases, these investments are minor. However, in some cases, Småkraft needs to invest significantly to increase the environmental standards.

Fosstveit power plant is an example of this. Småkraft bought the power plant in 2022, aware of the high fish mortality in the river caused by fish and eel swimming through the turbine. After two years of significant reconstruction, the power plant in Tvedestrand municipality reopened in August 2024 with considerable improvements. The results from the second half of 2024 are promising, showing tagged smolt and eel that are able to pass the powerplant with significant reduction in mortality. This which indicates that the new intake, combined with a surface escape route, ensures improved downstream migration bypassing the power plant.

In Småkraft, all critical functions of the company are to be covered by permanent employees. Non-critical functions are outsourced to suppliers to ensure larger professional environments and access to capacity, but the company possess ordering expertise in all disciplines to ensure the quality and efficiency of the services requested.

The company strives to offer equal pay for equal work. Småkraft does not give preference to or discriminate against employees based on gender, ethnicity, sexual orientation or religion, and strive to achieve a better gender balance through recruitment efforts and prioritise gender equality when conditions otherwise are equal. Confidential handling of reports is ensured through the available whistleblowing channel on Småkraft’s website.

The company conducts annual employee surveys to assess the internal working environment and analyse trends and implement measures. In Småkraft’s 2024 employee survey, its employees reported zero cases of discrimination. Additionally, the employees state that sustainability is a crucial factor in their choice of employer.

Hydropower plant installations may have some negative consequences for people in the local communities. Småkraft aims to reduce these negative consequences as much as possible. The company follows requirements in the license provisions and does the utmost to make sure that the hydropower plants successfully harmonise with the natural environment.

Småkraft's business model shares values with the local communities. The company’s operating procedure and management models ensure that large parts of the value creation from a small-scale power plant are local. In 2024, Småkraft made direct payments of more than EUR 65 million to municipalities throughout Norway through its investments, maintenance, operations, tax payments and waterfall lease payments. These payments will result in major ripple effects especially in minor municipalities where Småkraft is present with its small-scale power plants.

Rysna power plant in Vang municipality is a good example of this. In 2024, Småkraft celebrated the opening of the power plant. After a construction period, one of the landowners described the project as a positive contribution to the local community. Through the joint efforts of the landowners, the local entrepreneurs played a crucial role in the development of the power plant. This contributes to economically strengthen the local community.

Ethical business is about doing the right thing. Småkraft makes a living from creating and sharing resources that many people have interests in. For us, it is therefore fundamental to act transparently towards landowners, suppliers, authorities, investors and creditors. Småkraft shares information, as long as this is available, and sharing is not in breach with privacy regulations or negatively affecting competitive strengths. Transparency is crucial for the stakeholders, as it allows them to understand the rationale behind Småkraft’s decisions. Additionally, ethical business practices are important to stakeholders, as it reflects Småkraft’s commitment to integrity and responsibility.

Småkraft has implemented robust internal control measures to mitigate the potential for fraud or misconduct. In 2024, Småkraft encountered minor attempts of “CEO fraud” and similar schemes. Fortunately, all such attempts have been successfully detected by Småkraft’s or its partners security mechanisms. Over the past years, Småkraft has introduced a number of security measures to protect against fraud and attacks.