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

PRI reporting framework 2017

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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.

          We consider ESG issues in our buy/sell/hold decision-making
        

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.

Some recent examples of our approach to ESG issues in operations, maintenance and stakeholder engagement include:

Operations

  • Implementation of energy efficiency programs to reduce annual energy usage by 1.79GWh at one of our airport businesses
  • Reduce embedded carbon in construction
  • Issuing improved health and safety guidelines at one of energy distribution businesses
  • Implementing more specific ESG reporting standards from the management teams of our investee companies
  • Maintaining requisite health and safety standards accreditation
  • Reduce lost time frequency ratios and number of accidents / incidents
  • Improve near miss reporting

Maintenance

  • Upgrading lighting to energy efficient LED lighting
  • Reduce venting or flaring of pipeline gas during pipeline relocation   

Stakeholder engagement

  • Investment in stakeholder engagement for the development of one of our airport businesses  
  • Improvement of customer and employee satisfaction, measured on a regular basis, weekly, monthly or other relevant frequencies
  • Establishment of intern programs at our investee companies, some specifically centred on ESG issues

Buy / sell / hold decision-making

  • Consideration of ESG issues also features in our decisions around the buy / sell / hold investment strategy for our assets. By way of example, we were previously invested in a brown coal fired electricity generator.  The limited prospects for this asset in the future generation mix was one of the key reasons that we took the decision to divest and sell the asset. In the years after our exit, the current owners have announced the plant’s early closure.  

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 and emissions)
        

List up to three example targets per issue

          Community engagement (including satisfaction and complaints)
        
          Gender balance
        
          Health and safety records
        

List up to three example targets per issue

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

15.3. Additional information. [Optional]

Typically, board meetings are held monthly or quarterly. Board reporting invariably includes scorecards with ESG components. The scorecards include a mix of industry-based standards, which are fairly well developed in the OECD markets in which we operate, and internally generated standards or KPIs, which may be applied to the management team by investors. These standards and scorecards are tracked by management and monitored by the board (and the independent bodies or certifying associations, as relevant). 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.

In a recent example, in 2016 Adelaide Airport commissioned the largest airport rooftop solar power system in Australia, further enhancing its reputation as a leader in environmental sustainability. The 1.17MW system, built on the short term car park roof by Solgen Energy, has reduced Adelaide Airport Ltd’s energy consumption and carbon emissions by close to 10 per cent. It is the largest private-sector solar system in South Australia and more than 10 times larger than the airport’s existing system, bringing the total rooftop solar capacity to 1.28MW. The solar system, made up of 4,500 panels, is large enough to power the equivalent of more than 300 homes.  This solar system significantly reduces Adelaide Airport’s energy consumption while assisting the State Government in achieving its renewable energy targets.

In another example, one of our electricity distribution network operator played a vital role in responding to a major storm event in the UK.  In this storm event, a month’s worth of rain fell in 24 hours and 68,000 properties were effected.  In its response to the event, the business: deployed 75 generators to support 23,000 homes (the most mobile generation ever connected in the UK); made 4,500 proactive call to vulnerable customers; provided ongoing information updates via social and traditional media channels; provided 22,000 free meals to customers; and handled over 26,000 incoming phone calls. 

Other examples in this area include leading the industry in integrated annual reporting, most notably at one of water utilities in the UK.  This business also actively monitors and reports on its progress towards the goal of being a zero waste company and played a leading role in the development and promotion in the infrastructure industry of a new Publicly Available Specification (PAS 2080) for Carbon Management in Infrastructure. 

A recently acquired company that provides district heating is already leader in the utilisation of renewable energy utilisation in the sector, as it provides more than 50% of its energy generated from renewable sources. In line with state government policy target is to increase this further over the next decade. To achieve this, in the context of the build-out of new district heating solutions, as a standard approach the company answers to the RfP always with an alternative option that increases the utilisation of renewable energy as compared to the base case.

Our ferry business in Europe operates 5 vessels on a high frequency crossing between Sweden and Denmark and the reporting and improvement for emissions forms part of managements KPIs. While the vessels were the first ones to comply with European emission regulations years before these were implemented, the company is currently going further and converting two of its largest vessels to battery powered operation. This is the first electrification project of this scale globally. As a result the company will reduce total emissions by more than 50% and save 18,000 tons of CO2 per year. 


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.

Our primary method of contributing to our portfolio companies' ESG management is at Board level. Our nominee board directors will impress on the management team 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.

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 often seek to implement at our portfolio companies minimum standards, such as ISO 9001, ISO 14001, ISO 50001 and OHAS 18001 or similar accreditations.

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, 23001, 27001OHSAS 18001, PAS 2080 and other sector relevant accreditations
Dedicated safety managers to implement and share best practice
All serious safety issues are escalated to boards 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 where 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.


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

          Ad hoc
        

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. 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. Specific issues, such as health and safety, are typically part of the normal board reporting cycle, which is usually monthly or quarterly.  Broader ESG reporting is typically annual or semi-annual.  As part of our governance approach we usually establish relevant Board sub-committees; for example, an Environmental, Health & Safety committee. 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.

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 (for example, the Brisbane Airport Sustainability Report in accordance with the Global Reporting Initiative; http://www.bne.com.au/sites/all/files/content/files/BAC%20Sustainability%20Report%20FY2016.pdf).  We also survey all of our investee companies on standardised criteria for the publication of our fund ESG Reports.  

 


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 consideration and monitoring of ESG issues in major maintenance projects would come through these regular channels.

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 (noting that many of our portfolio infrastructure businesses operate in the jurisdictions that have some of the highest standards with respect to environmental regulation in the world);
  • Leading the implementation of ESG considerations increases the resilience against changes in regulation; and
  • 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; and down to treatment of the natural resources it exploits.

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 customers through lower cost for the services provided.

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).

A recent example of the consideration of ESG issues in active maintenance projects is a multi-million dollar maintenance capex project at one of our airport businesses.  In this project, the existing fluorescent lighting will be replaced by energy efficient LED lighting in all car parks across the precinct.  The project will reduce CO2e emissions by nearly 3,000 Tonnes per annum and will generate demonstrable financial benefits to the business over a period of at least 10 years (supported by business case modelling in excess of 20 years).  The new technology to be employed requires lower operating and maintenance expense over time whilst maintaining the required operational output (i.e. lux levels).  


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 & adjacent businesses
        

Percentage of infrastructure assets these apply to

 (in terms of number of infrastructure assets)

          Government (non-regulatory arms) & Customers
        

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. Many of our investee companies operate within a proscribed regulatory environment and as such, 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.  One recent example is a multi-million dollar project at one of our airport businesses that is in the midst of major development.  The project will involve detailed airspace design and noise modelling, including forecast noise modelling with growth in flights over the very long term. Stakeholder engagement will include the preparation of a multi-platform interactive noise model and engagement tools such as displays, experience centre, printed media and social media.  The stakeholder engagement will not just be implemented during the development phase but after opening and during regular operations. 

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 and the Long Term Infrastructure Investors Association.  


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