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Colonial First State Global Asset Management (including First State Investments)

PRI reporting framework 2016

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You are in Direct - Infrastructure » Post-investment (monitoring and active ownership)

Post-investment (monitoring and active ownership)

Overview

INF 14. ESG issues in post-investment activities

14.1. Indicate if your organisation, and/or operators, consider ESG issues in post-investment activities relating to your infrastructure assets.

14.2. Indicate how your organisation, and/or operators, considers ESG issues in the following post-investment activities relating to your infrastructure assets.

14.3. Describe how your organisation, and/or operators, considers ESG issues in post-investment activities related to your infrastructure investments. [Optional]

The boards of our infrastructure investments govern and require management to set meaningful and appropriate ESG targets for their annual performance scorecards. These targets are monitored on an ongoing basis and form part of board reporting. Management compensation may be impacted by the achievement of the ESG targets.

As owner of a portfolio of companies in similar sectors we encourage and facilitate the exchange of experience and best practice by organising workshops, site visits exchange of documents amongst the management teams of our portfolio companies. This has already let to operational improvement for the prevention of electricity outages caused by trees falling on electricity lines during storm events, and thus improved power outage statistics.

Further examples include:

  • the replacement of current fuel sources by alternative fuel with lower environmental impact in our ferry business
  • improvement of customer satisfaction , measured on a monthly basis
  • encouraging local university research projects to take place on the premises of our portfolio companies to encourage a sharing of knowledge and strong relationships with the local community
  • setting specific targets for the reduction of embedded carbon in all new installed hardware. This forced the supply team and chain to think of innovative ways to reduce embedded carbon (in a cost effective way) and led to a significant fall in the level of embedded carbon in new hardware
  • setting ESG reporting standards for our airport business. As a result the business implemented improved, measurable goals that were tracked. The results of the measurement were presented to shareholders and new goals were set

14.4. Additional information. [Optional]

Please also refer to the attached ESG report for EDIF which contains examples for each portfolio company.


Infrastructure monitoring and operations

INF 15. Proportion of assets with ESG performance targets

15.1. Indicate the proportion of infrastructure assets where your organisation, and/or operators, included ESG performance in investment monitoring during the reporting year.

 (in terms of number of infrastructure assets)

15.2. Indicate ESG issues for which your organisation, and/or operators, typically sets and monitors targets (KPIs or similar) and provide examples per issue.

List up to three example targets per issue

          Resource use and reuse
        
          Pollution and contamination
        
          Carbon targets (including embedded carbon)
        

List up to three example targets per issue

          Community engagement (e.g. complaints)
        
          Procurement targets (local procurement)
        
          Success of education programs
        

List up to three example targets per issue

          Performance incentives
        
          Board structure (diversity, independence)
        
          Reporting and transparency
        

15.3. Additional information. [Optional]

Typically, board meetings are held monthly or quarterly. Board includes scorecards with ESG components.

Industry standards in Europe and OECD countries tend to be fairly well developed. These are then monitored by the board and independent bodies or associations that certify or grant licences for the operation of the business. We aim for all of our portfolio companies to be industry leaders and to implement best practice standards and procedures into their operations.

Ongoing management of ESG issues, as with all risks and opportunities that go to value, are considered by our investment team on an ongoing basis. Where changes are required, this can involve action plans for exploiting an opportunity, remedial work to mitigate a risk, or ultimately a divestment if exit is considered the most valuable option.


INF 16. Proportion of portfolio companies with ESG/sustainability policy

16.1. Indicate if you track the proportion of your infrastructure investees that have an ESG/sustainability-related policy (or similar guidelines).

16.2. Indicate the proportion of your infrastructure investees that have an ESG/sustainability-related policy (or similar guidelines).

(in terms of number of infrastructure investees)

16.3. Describe how your organisation, and/or your operators, contribute to the infrastructure investees’ management of ESG issues. [Optional]

We are taking a very pro-active role in engaging in various activities to promote and contribute to development of ESG initiatives.

After each acquisition we design an individual asset management plan to aid and improve the businesses ESG standards within a given timeline. Apart from a good corporate governance structure and process, we seek to implement at our portfolio companies minimum standards, such as ISO 9001, ISO 14001, ISO 50001 and OHAS 18001 or similar accreditations.

Our primary method of contributing to our portfolio companies' ESG management is at Board level. Our nominee board directors will progress management to an ESG-focused approach. This is typically achieved through strategic direction, business case approvals, setting of Key Performance Indicators and Company Scorecards. The Board will also typically demand regular reporting against measurable metrics. Our team members are involved in various governance bodies at each portfolio company and push for ESG targets to be aligned with management scorecards and incentive KPIs.

The list below highlights a few key elements of how we manage ESG at a company level:

Governance

  • Board level committees and risk workshops
  • Reporting of ESG issues at every board meeting
  • Risk registers including safety, environment and carbon management

Environmental and Safety

  • Program to retain ISO 9001, 14001, 50001, 55001 and OHSAS 18001 and other sector relevant accreditations
  • Dedicated safety managers to implement and share best practice
  • All safety issues are escalated to boards on the same day as the incident occurs and reviewed at the highest level

Scorecard and reporting

  • Executive and company scorecard aligned to achievement of safety, environment and customer targets
  • Reporting and monitoring of operating statistics including safety and environmental impacts

In addition, and were appropriate, regular workshops between the management teams of different portfolio businesses are organised in order to share new ideas and best management practices.

For example, a sustainable tree cutting program implemented in our UK electricity distribution business was successfully transferred to our electricity distribution business in Finland.

16.4. Additional information. [Optional]


INF 17. Type and frequency of reports received from investees

17.1. Indicate the type and frequency of reports you request and/or receive from infrastructure investees covering ESG issues.

Type of Reporting

Typical reporting frequency

Typical reporting frequency

17.2. Additional information.

By having board representation on the portfolio companies we invest in we receive board information that contains significant ESG information, including performance data for ESG targets. This is typically part of the normal Board reporting cycle, which is usually monthly or quarterly.

For example, companies report on energy and water use, embodied carbon reduction performance, safety performance, pollution and other environment compliance outcomes, customer satisfaction data, service level statistics and other targets as set by the board. We usually receive monthly and quarterly reports including performance data and ESG information.

Annual reporting documentation from a majority of our companies also provides summary outcomes of ESG performance available for a broader stakeholder audience. Most of our portfolio companies for example produce some kind of sustainability or ESG report in addition to the required financial reports,

As part of our governance approach we usually establish an Environmental, Health& Safety committee as a subcommittee to the supervisory board which specifically focuses on the review and assessment of ESG issues in the respective company. These committees meet on a regular basis to discuss particular topics in a more detailed way.

To determine the format of ESG reporting we frequently refer to guidelines and recommendations given by IFC/ World Bank with respect to the relevant sectors, but also to those required by national or international associations which issue certifications and accreditations.


Infrastructure maintenance

INF 18. Proportion of maintenance projects where ESG issues were considered

18.1. Indicate the proportion of active infrastructure maintenance projects where ESG issues have been considered.

(in terms of number of active maintenance projects)

18.2. Describe your approach to ESG considerations for infrastructure maintenance projects. [Optional]

Major and ongoing maintenance forms a large part of the expenditure line for most infrastructure businesses. As such it is an area where there is significant scope for driving value. As highlighted in Section 16.3 we have an active approach to managing, monitoring and reporting on ESG matters across our entire infrastructure portfolio.

The drivers for ESG considerations include:

  • Proven economic benefit (makes good business sense);
  • Focus on sustainability drives operational efficiencies; 
  • Mitigation to climate change effects (rising seawater levels etc.) drives investments to secure asset's sustainability;
  • Compliance with existing regulation (note: many of our portfolio infrastructure businesses operate in the European Union which has some of the highest standards with respect to environmental regulation in the world); and
  • Leading the implementation of ESG considerations increases the resilience against changes in regulation;
  • Investors looking for responsible and sustainably managed investments.

Management teams within our portfolio companies are incentivised to target ESG specific initiatives which move the company towards the top of their industry. As such the ESG targets shape every part of the business: from how the company procures its services, manages its supply chains down to treatment of the natural resources it exploits.

Below are some examples of ESG considerations for Infrastructure maintenance projects:

  • On a recent pipeline maintenance program, environmental issues were considered to minimise the potential for future leaks and spills.
  • Recent focus has been on supply chain improvements in the ESG space for supply contractors to our businesses, particularly in relation to energy use and embodied carbon. Our regulated water utility in the UK, for example, is on track to reduce embodied carbon on all new capital investments by 50%. This will be a significant achievement and has been achieved without significant escalation of input costs to the maintenance programs. On the contrary, in most of the cases a clear and quantifiable economic benefit could be achieved.

Contractors’ compliance with portfolio companies ESG targets is controlled through setting up procurement processes which drive ESG outcomes and allow contractors to innovate in their contract delivery to ensure cost efficient ESG outcomes. These procurement processes generally reward contractors for better ESG outcomes via incentive payments or sharing of company financial benefits.

The long term ownership of portfolio assets allows for long term procurement strategies, which help suppliers and manufactures to optimise their processes, produce more efficiently and reduce costs. This allows for economic outperformance of capex plans which in turn will benefit customer through lower cost for the services provided.

18.3. Additional Information. [Optional]

Another focus has been on full life cycle ESG impacts and managing the individual assets over their whole life. This may or may not involve a higher upfront cost (asset replacement vs maintenance), but delivers whole of life savings on things such as resource use (energy for example) and better environmental outcomes (such as reduced carbon output or embodied carbon).


Stakeholder engagement

INF 19. Proportion of stakeholders that were engaged with on ESG issues

19.1. Indicate which stakeholders your organisation, and/or operators, engaged with on ESG issues in relation to your infrastructure assets during the reporting year and what proportion of your investments they apply to.

Stakeholders engaged

Percentage of infrastructure assets these apply to

 (in terms of number of infrastructure assets)

Percentage of infrastructure assets these apply to

 (in terms of number of infrastructure assets)

          Supply chain contractors
        

Percentage of infrastructure assets these apply to

 (in terms of number of infrastructure assets)

          Politicians and interest lobby groupsNGOs
        

Percentage of infrastructure assets these apply to

 (in terms of number of infrastructure assets)

19.2. Describe your approach to stakeholder engagements in relation to your infrastructure assets.

Each portfolio company generally has dedicated resources that engage with stakeholders on ESG issues and it is in almost all instances incorporated into line management key performance indicators. For example, CEO's of investment companies often present to community groups and engage directly with regulators and politicians on ESG issues.  There are also dedicated staff for engagement with relevant regulators. 

In many instances our portfolio companies have formal community engagement forums set up that provide communities with an opportunity to communicate directly with the upper management of the company about concerns they may have on the operation of our assets. These engagement forums are either set up through open invitation or via formal regulator appointment mechanisms.

In the case of our UK water utility the complete business planning process has been developed on an outcomes focused approach considering the expected service level provided to customers. To develop such an approach, the company has engaged with all its stakeholders and identified the key criteria it will consider in the long term business planning. These criteria include for example satisfied customers, fair profits, fair charges, safe and clean water, caring for communities etc.

In case of our ferry business we conduct monthly surveys on customer satisfaction. The pricing of some of the tickets are directly impacted by the scores achieved.

We are also a member of, or engaged in, a number of forums that bring us in contact with various stakeholders in our investment space. This includes the Investor Group on Climate Change, the Roundtable Discussion with the Clean Energy Regulator and the Australian Sustainable Built Environment Council. We are also participating in the infrastructure working group of the Green Construction Board in the UK which is currently drafting guidelines to reduce embedded carbon in construction throughout the whole supply chain.

19.3. Additional information.


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