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Ashmore Group plc

PRI reporting framework 2019

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Pre-investment (selection)

PR 04. Incorporating ESG issues when selecting investments

04.1. Indicate if your organisation typically incorporates ESG issues when selecting property investments.

04.2. Provide a description of your organisation's approach to incorporating ESG issues in property investment selection.

A. Initial Screening and Notification

The success of investments depends largely on our ability to source, underwrite and negotiate investment terms consistent with our performance targets, in real estate development projects that align with our investment strategy. Our experience has demonstrated that those performance targets are best achieved when social and environmental considerations are integrated in our investment decision-making process. Thus, it is our policy to assess the social and environmental risk present in a prospective development project, to the best of our ability, aiming at avoiding, or when avoidance is not possible minimising, and compensating or offsetting the potential negative impacts of those risks.

To determine the extent of environmental and social due diligence required for a particular project, we review all pertinent documentation provided by the prospective partner, as well as additional relevant sources including public records and databases. With that information, we assign an Environmental and Social (E&S) risk category, using an approach consistent with the International Finance Corporation (IFC) Performance Standards to assign risk levels to potential investments during the due diligence process.

We evaluate the potential risk of a project on a case-by-case basis, and the E&S risk categorisation system enables us to monitor and evaluate our potential exposure to environmental and social risk aggregated at the portfolio level:

Category A Projects: are likely to have significant adverse environmental and/or social impacts that are irreversible, sensitive, diverse, or unprecedented. In the absence of adequate mitigation measures, Category A Projects are considered high risk.

Category B Projects: are likely to have limited adverse environmental and/or social impacts, are generally site-specific, largely reversible and readily addressed through mitigation measures. Category B Projects are considered medium risk.

Category C Projects: are likely to have minimal adverse environmental or social impacts.

Additionally, the underwriting team reviews the environmental and social risks of a proposed project or partner according to the following:

• If a project involves an excluded activity as listed in the IFC Exclusion List, it will not be considered for investment

• If a development partner has a history of environmental and social incidents that have not been adequately managed, it will not be considered for partnership

All findings during the preliminary investment appraisal are documented and a summary of key risks and opportunities is detailed in the investment memorandums reviewed by the Investment Committee.

Subsequently, in cases where environmental and social issues are identified, corrective actions according to the impact hierarchy proposed by the IFC will be stipulated in agreement with the development partner. We monitor the progress of the corrective actions.

B. Due Diligence

After all risks have been categorised and documented, we define the appropriate due diligence required on the development partner by risk level:

• Review of E&S good standing, E&S compliance, and property rights for proposed development site (All Categories). Regardless of the sourcing of the proposed project (i.e. in-house sourcing, project presented by known partner, project presented by potential partner), the due diligence process begins with a desktop review or a visit to the competent authorities to assess previous or current social and/or environmental disputes involving the proposed development site. At a minimum the review includes previous and current land use, property rights clearance, current occupancy and terms, and environmental sanctions.

• Review of the development partners’ track record on E&S issues including potential non-compliance with national regulations or negative publicity (Categories A and B). We have developed long-term relationships with well-established development companies and currently work with trusted partners. Nonetheless, as part of the environmental and social due diligence process we conduct a thorough review of a potential partner’s track record including but not limited to compliance with environmental and social laws at the local and national level including previous sanctions, and existence of environmental and social policies and initiatives including Environmental and Social Management System (ESMS).

• Review of the development partners’ performance against international standards or industry best practices regarding environmental and social issues (Categories A and B). In order to achieve superior risk adjusted returns through our development projects, we look for best-in-class partners who are specialist in our projects’ asset types and align with our social and environmental commitments.

• Review of the development partners’ actions to mitigate potential environmental and social issues associated with operations (Category A only). When reviewing the track record of a prospective partner we assess the previous actions taken and mitigation plans designed when considering E&S issues. We conduct a desktop review of the legal documentation of environmental and social management plans for previous projects of large scale. We categorise large scale as development sites over 10 hectares, residential developments more than 2,500 units, retail developments over 2,000 square meters of saleable area in urban locations, projects where local regulations require environmental and social surveys and mitigation plans.

• Site visit to the proposed project site (All Categories): As part of the project due diligence, we conduct site visits to gather additional information and corroborate/contrast the findings of the desktop review as described above.

The environmental and social due diligence process is led by those responsible for the implementation of the Environmental and Social Policy with the support of the underwriting and project management teams. Upon completion of the due diligence, the findings, conclusions, and recommendations are presented in an Environmental and Social Due Diligence report (ESDD). The recommendations include the actions required for the proposed investment to proceed to closure. At a minimum, these describe the mitigation, management and, monitoring measures required pre- and post-investment. The results of the ESDD are presented to the Fund’s investment committee alongside the results of additional due diligence conducted on the prospective investment.

04.3. Indicate which E, S and/or G issues are typically considered by your organisation in the property investment selection process, and list up to three examples per issue.

Environmental example 1, description

          
        

Environmental example 2, description

          
        

Environmental example 3, description

          
        

Social example 1, description [OPTIONAL]

          
        

Social example 2, description [OPTIONAL]

          
        

Social example 3, description [OPTIONAL]

          
        

Governance example 1, description

          
        

Governance example 2, description

          
        

Governance example 3, description

          
        

04.4. Additional information. [Optional]

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PR 05. Types of ESG information considered in investment selection (Private)


PR 06. ESG issues impact in selection process

06.1. Indicate if ESG issues impacted your property investment selection process during the reporting year.

06.2. Indicate how ESG issues impacted your property investment deal structuring processes during the reporting year.

06.3. Additional information.

ESG integration is part of the overall decision-making process for potential portfolio projects and forms an integral part of the considerations presented to the Investment Committee. The ESG Integration Lead is part of the initial viability assessment for pipeline projects and works closely with the deal sourcing and structuring team to align potential investments with our responsible investing policy early in the process.


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