We firmly believe in long-term value creation for our investors through the application of ESG principles in the management of our portfolio companies. As one of Australia's first unlisted infrastructure investment managers, we have significant experience in considering and implementing ESG factors into our investment management practices, particularly as they relate to risk mitigation and value creation. This approach has been adopted globally across our infrastructure business.
Our corporate engagement document summarises our approach to integrating ESG considerations into our investment process. The document is the `Direct Infrastructure corporate engagement guidelines summary' (the Guidelines). This can be found at
Businesses and organisations do not operate in a vacuum, and while ESG considerations apply to all, we think they are particularly relevant to infrastructure businesses due to:
- the long-term investment horizon;
- the need to deliver stable long-term risk-adjusted returns; and
- the role infrastructure companies have in providing essential services.
In addition, infrastructure companies often operate as monopolies or quasi-monopolies and therefore good ESG practice is paramount to the long-term sustainability of the business. Increasingly, regulators recognise this and develop economic incentives for regulated companies that adhere to such principles.
We invest in regulated infrastructure and consequently ESG becomes an essential component of what is often described as the 'licence to operate' i.e. the reputation of the company to its customers, the general public and regulators. Leading with ESG principles can also be a motivating factor for employees across the business and is a key differentiator to attract and retain the most talented staff.
Prior to an investment being made in an infrastructure business, the team considers relevant ESG issues for the business. No checklist can appropriately cover all the possible issues, so considerations are made on a case by case basis.
In the subsequent due diligence process, an in-depth analysis will be undertaken to understand and quantify (where possible) the relevant key ESG risks and opportunities and to identify any potential gaps in the company's existing ESG policies.
Risk assessment tools are used to help in this analysis. These tools also provide opportunities for benchmarking against similar infrastructure businesses.
Ongoing asset management
Once an infrastructure business is acquired, the team undertakes ongoing active asset management to enhance performance and effectively manage risk.
CFSGAM Infrastructure specialist fund managers and asset managers meet regularly with infrastructure business management teams to discuss various matters, including ESG issues. They also visit business sites in their capacity as shareholder, board member and/or board committee member.
To add value, CFSGAM Infrastructure actively seeks to build relationships at various management levels within the business during the life cycle of the investment. Such relationships provide the opportunity for the open exchange of information and constructive debate of risks and opportunities including ESG issues that materially impact on the value of the investment.
In addition, CFSGAM Infrastructure seeks to ensure that management provides an appropriate level of information to the board to ensure the approach management takes in managing potential risks and realising opportunities is understood by the board. In fact the reporting of ESG issues at board level forms a core part of board reporting.
Examples of the types of reporting requested include:
- Environmental and social risks impacting materially on earnings, including contingent liabilities.
- Governance policies and procedures for assuring compliance with internal ESG policies, improving performance and mitigating risks across operations, the supply chain and products and services.
- Human capital processes including: retention programs; workplace health and safety performance; staff turnover; succession planning, and; training and development programs.
- Performance reporting on measurable environmental factors, for example: energy use; water use, and; greenhouse gas emissions.
In addition, executive and company scorecards are developed to ensure the alignment of compensation of management with the achievement of ESG targets.