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

PRI reporting framework 2017

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Overview

INF 01. Breakdown of investments

01.1. Indicate the level of ownership you typically hold in your infrastructure investments.

01.2. Additional information. [Optional]

The ownership interest we currently hold in our portfolio companies ranges from circa 15% to 100%. Our approach is to ensure that:

a meaningful level of equity is acquired (typically >50%);
formal board representation is secured (i.e. a Board Seat); and
relevant influence for all material decisions.

We take an active approach to asset management in pursuit of long term responsible development and sustainable value creation. This is often achieved through controlling interests, or at least meaningful stakes with decision-making influence.  Whilst not a criteria for investment, we have a preference for taking 100% ownership of our investee companies; and the evolution of our fund structures increasingly enables 100% ownership. Six out of the previous seven acquisitions in our portfolios have been for 100% interests. 

Any minority interest held tends to be significant. We require a shareholders agreement that clearly defines decision making among the portfolio company investors, including a list of reserved matters, where veto rights exist. In such instances we typically have additional strategic reasons for the minority position (e.g. envisaging accretion opportunities at a later date, quality of business, sector access).

We like to take a lead role in any acquisition (most obviously in 100% acquisition scenarios) and lead the agenda in the consideration of all investment issues, including ESG. Furthermore, in instances where we do not acquire a control interest, we make sure we carefully select aligned co-investors so that we have a similar approach to all investment issues, including ESG considerations, which extends to defining strategy and approving policies.

We are long term investors in each of the portfolio companies we buy (typically longer than 10 years; and we have examples in our portfolio of infrastructure businesses that have been held for 20 years). Our underlying investors, such as pension funds and insurance companies, typically have very long term investment horizons. Additionally, the assets in which we invest are typically long-life assets.  This all allows us to take a long term view on business cases and investment decisions.  This is particularly pertinent for investment decisions involving ESG issues that will have a positive impact on the value of the infrastructure business over a longer time period. A long term investment horizon is advantageous for business cases on issues like resource use (e.g. energy and water) and climate change, that have longer term pay back periods (generally greater than 7-8 years).

 


INF 02. Breakdown of assets by management

02.1. Provide a breakdown of your organisation’s infrastructure assets based on who manages the assets.

Infrastructure assets managed by

Breakdown of your infrastructure assets (by number)

Managed directly by your organisation/companies owned by you

Managed via third-party operators appointed by your organisation/companies owned by you

Managed by other investors/their third-party operators

Total

100%

02.2. Additional information. [Optional]

In most instances, our infrastructure investments are large, complex, multi-million or multi-billion dollar businesses. For this reason the infrastructure assets typically sit, in an organisational context, within a large operating company managed by expert professional management teams. These teams are embedded in the operating company in the investment structure and are responsible for the day to day operations of the respective infrastructure business and its assets.

Our investment team members are always members of governance committees, such as Board of Directors or Shareholder Representative Groups. Once appointed to the Board, our Directors oversee executive management, influence business strategy and embed operational and investment policies (specifically including consideration of ESG issues). We implement and follow good corporate governance codes seeking to facilitate effective, entrepreneurial and prudent management practices that enable the portfolio company to deliver long-term sustainable outcomes for key stakeholders including shareholders, staff and communities. We also seek to create an effective board through Board reviews and appointing independent Non-Executive Directors to complement the board.


INF 03. Largest infrastructure

03.1. Indicate up to three of your largest infrastructure sectors by AUM.

Sector

Main infrastructure sectors (by AUM)

Largest infrastructure sector

Second largest infrastructure sector

Third largest infrastructure sector

03.2. Additional information.

Our approach is to invest in 'core' infrastructure. This means that we typically target mature, operating, brownfield infrastructure businesses. These infrastructure businesses have characteristics such as stable, predictable revenue streams, often stemming from a monopoly position. Our expertise to date has been largely focussed on transport and utilities in Australia and Europe; however, we are also invested in renewable energy, storage terminals, district heating, car parking, and communications infrastructure. 

Whilst our business is able to invest in greenfield assets where appropriate, significant greenfield investments are usually only made in the context of business cases developed within an existing infrastructure business where the development adds growth and value to the existing business case (e.g. a new runway expansion project at an existing operating airport). 


INF 04. Description of approach to RI

04.1. Provide a brief overview of your organisation’s approach to responsible investment in infrastructure where you have equity stakes.

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, and is reflected in our ESG policy and guidelines (refer to question 5.2).

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 and long-life assets;
need to deliver stable long-term risk-adjusted returns; and
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. ESG is an essential component of what is often described as the 'social licence to operate' i.e. the reputation of the company to its customers, the general public and regulators. For example, one of our airport businesses opened an ‘experience centre’ to engage with the local community on the potential impacts of airport development.  The centre allowed community stakeholders the ability to experience potential impacts of things like aircraft noise and construction development. 

Our business considers itself a leader in ESG; leading with ESG principles not only delivers investment outcomes for our clients, it can also be a motivating factor for employees across the business and is a key differentiator to attract and retain the most talented staff.

Pre Investment

Prior to an investment being made in an infrastructure business, the team considers relevant ESG issues for the business.

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.    

Ongoing asset management

Once an infrastructure business is acquired, the team undertakes ongoing active asset management to enhance performance and effectively manage risk. Specialist fund managers and asset managers in the Unlisted Infrastructure team 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, we actively seek 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, we seek 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:

  1. Environmental and social risks impacting materially on earnings, including contingent liabilities.
  2. 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.
  3. Human capital processes including: retention programs; workplace health and safety performance; staff turnover; succession planning, and; training and development programs.
  4. 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.

Valuations

Appropriate management of ESG considerations is undertaken as part of the ongoing valuation of infrastructure businesses. The methodologies used for the valuation of our infrastructure assets typically include forecast periods in excess of 20 years.  This long-term forecasting period means that long-term ESG issues are inevitably captured in the current valuation of each infrastructure asset.  ESG issues are also captured in the valuation of our investments by the independent expert valuer.  Notably, when we select valuation experts to appoint to our independent valuation panel, their ability to include ESG factors as part of their valuation is a key consideration in making the appointment. The management and impact of these issues are also considerations in decisions on whether to divest an investment. 


INF 05. Responsible investment policy for infrastructure

05.1. Indicate if your organisation has a responsible investment policy for infrastructure.

05.2. Provide a URL if your policy is publicly available.

05.3. Additional information. [Optional]


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