The investment process pertaining to ESG assessment is as follows:
i. Investment Opportunity Sourcing
Upon receipt of a lead regarding a potential investment, an Investment Team member will be appointed to undertake an initial review of the opportunity and present a basic initial summary to the bi-monthly Project Pipeline meeting. Should the potential investment gain approval through this meeting, that individual would sponsor the transaction and work as required with other members of the wider Infrastructure team throughout the various stages of the investment process, inclusive of ESG assessment. Should a potential investment not proceed due to its non-conformity criteria, the reason will be recorded on the Project Pipeline spreadsheet.
ii. Investment Committee (IC) Screening
The sponsor of the project will then be required to prepare an IC Note using all available information to present a case for continued due diligence into the project. If approved, expenses for the conduct of further due diligence will be authorised and the investment process can continue to the Initial Appraisal stage. If rejected, the reason will be recorded on the Project Pipeline spreadsheet and the decision will be recorded in the minutes.
iii. Initial Appraisal and Investment Structuring
During the Initial Appraisal stage, Foresight applies its intensive screening process. The ESG performance of a potential investment is modelled using qualitative and quantitative data that captures the Key Performance Indicators detailed in the SEC. This gives a result that can be scored against Foresight’s minimum threshold and inform of any red flag areas that need review.
This will be included in the Initial Appraisal document alongside all other stipulated criteria that feature in the Initial Appraisal’s sustainability template. The Initial Appraisal is then presented again to the Investment Committee for consideration and approval, with decisions recorded in the meeting minutes.
iv. Advanced Due Diligence, Investment Execution and Investment Approval
The core team members allocated to the potential investment are responsible for all due diligence, supported by other individuals from the Infrastructure Team where required. This includes the preparation of a detailed financial model and the appointment of advisors from Foresight’s network to undertake environmental, legal, technical, market, tax, model audit and insurance due diligence on the project, all of which will cover a whole host of specifically requested ESG considerations in greater detail.
For example, the technical due diligence will include a review of the proposed technology and its application to a specific site in conjunction with an analysis of key factors including planning permissions, environmental permits and feedstock where applicable. The legal advisor undertakes full legal due diligence to review and advise on the negotiation of contracts including investment documentation and any other matters such as property due diligence and reporting on land titles. The market advisor will advise on the market for power price forecasts, tradeable certificates pricing (e.g. Renewable Energy Certificates and Renewables Obligation Certificates), feedstock materials and any other resource limitations.
All relevant information pertaining to the potential investment will then be presented in the Final Investment Paper which is assessed by the Investment Committee. This incorporates a comprehensive report on the findings of the internal and third party due diligence work streams, alongside the recommendation to invest from the core team. The Investment Committee scrutinises whether the potential investment is consistent with the relevant Fund’s investment policy, complies with the approach laid out in the Sustainable Investing in Infrastructure Paper and meets all threshold requirements, all risks are appropriately mitigated and that returns properly reflect the risk profile of the asset. Decisions are taken based on the merits of a potential investment, inclusive of its ESG score and how well it fits with the wider portfolio and the overall objectives of the Fund.
If the Investment Committee believes that the investment risks are not appropriately mitigated, the opportunity will be either deferred pending further due diligence or rejected outright as inconsistent with the investment policy.
v. Pre-Completion Memorandum
Prior to completion, the core team will also prepare a Pre-Completion Memorandum to notify the Investment Committee of any non-material updates, including the satisfaction of any Conditions Precedent, minor changes in terms and resolution of any questions arising from due diligence.