This report shows public data only. Is this your organisation? If so, login here to view your full report.

First Sentier Investors (including First State Investments)

PRI reporting framework 2020

Export Public Responses
Pdf-img

You are in Direct - Infrastructure » Outputs and outcomes

Outputs and outcomes

INF 17. ESG issues affected financial/ESG performance

17.1. Indicate whether your organisation measures how your approach to responsible investment in Infrastructure investments has affected financial and/or ESG performance.

Describe the impact on:
Impact
Funds` financial performance
Describe the impact on:
Impact
Funds` ESG performance

17.2. Describe how you are able to determine these outcomes.

The foundation of our approach to responsible investment is based on driving long term, sustainable value for our investors by identifying and managing risks, and capitalising on opportunities. We seek to optimise our investment decisions through careful diligence of all factors affecting value and considering risks, including ESG factors. It also means that in the ongoing operation and maintenance of our infrastructure businesses, ESG initiatives are developed and supported by robust business cases that drive investor value and mitigate risks. Several measures are used across the range of our portfolio of infrastructure businesses to assess financial performance from ESG initiatives, including:

  • Business case assessments focused on return on capital - for example, the installation of embedded solar PV energy generation should yield a positive financial return when compared to traditional energy sources. This cost/benefit outcome can then be used to determine a return on investment measure for the business case.
  • Achievement of an ESG outcome for no net increase in unit cost - for example the reduction in embodied carbon in concrete used in the construction of new assets for no net increase in supply cost of that asset (benchmarked against previous provision of similar assets) reduces the carbon exposure of the business at no additional cost to the delivery of the infrastructure. In fact in many cases it has been shown that the low carbon solutions have led to real savings when compared to the more traditional method. In the UK one of our companies has been instrumental in developing PAS 2080, the carbon management code for supply chain management. Members of our asset management team have been part of the work group.
  • Reduction in pollution or other regulatory compliance breach events - each event has a cost to the business to rectify. The reduction of the occurrence of these events provides a direct, quantifiable reduction in these business costs.
  • Time delay outcomes - projects can be delivered on time through good community and workforce engagement. If a project is delivered early then this can have a direct benefit to the financial performance of the business;
    • one of our water utility business is currently in the process of implementing additional storage facilities, which will have an impact on the local community - community engagement and stakeholder management will be required to deliver the storage capacity, which in turn drives revenue opportunities, in accordance with the investment forecast.
    • one of our parking businesses often has fixed-term concessions, meaning that any delays during construction directly shortens the revenue-earning period of the concession agreement.
    • one of our water utilities, in the design of a water storage facility, significant work was put into community engagement. The strong engagement from this business helped ensures that the project was delivered as a ‘State Significant Infrastructure’ project, which helped deliver the facility according to plan for both ESG performance and financial performance
  • Integrating climate change response into business planning helps ensure the resilience of these businesses. Capital intensive infrastructure projects often require a long asset life to ensure that the investment generates sufficient return. By integrating climate change response into business planning (for example, incorporating revised design standards) this ensures that the assets are viable for many years to come.
    • The continued program for undergrounding electricity distribution infrastructure increases the weather related resilience of this business (particularly in response to climate change) and builds the regulated base of the company.

Below are some examples where multiple measures are impacted

  • When considering the new ambitious ESG targets for Brisbane Airport, the Board considered the proposed or potential business cases supporting those targets, helping to ensure alignment between ESG performance and financial performance.
  • A lighting upgrade at one of our car park businesses satisfied a business case for reduced costs as well as reduced energy and emissions, again ensuring both ESG performance and financial performance.
  • Work on fuel efficiency initiatives, such as scrubbers and flettner rotors, at one of our ferry transport businesses results in emissions reduction and cost savings, driving ESG performance and financial performance.
  • The exemplary safety record of one of our rail businesses provides quality outcomes for staff as well as providing an important capability to support potential new acquisitions.
  • The conversion of ferry vessels from ship diesel to electric propulsion led to a decrease of CO2 and other emissions of >50% in 2019. The investment case for the batteries has a payback period of c 6 years.
  • The installation of a real time fuel consumption monitoring system led to a further decrease of total energy consumption of c 10% in 2019 and has a payback period of c 2 years.
  • In our French district heating company, the business was able to secure new concession wins in part because of its proposal to dramatically reduce the carbon footprint of the concession by converting the fuel source from fossil fuels to renewable sources.
  • Business case for investment in renewable energy projects are profitable and part of our investment strategy.

Our long-term investment horizon and conviction that good ESG performance will be an indicator of good business performance also drives our focus on the performance of our investee companies under various ESG metrics. ESG performance measures include:

  • Resources use (water, energy, materials)
  • Waste generation and reduction
  • Emissions and carbon generation reduction
  • Safety performance
  • Days of operational interruption (from protests, strikes, regulatory intervention)

It can also be measured by individual asset accreditation; for example, both of our airport investments have achieved ACI Level 3, 'Optimisation', in their Airport Carbon Accreditation.


INF 18. Examples of ESG issues that affected your infrastructure investments

18.1. Provide examples of ESG issues that affected your infrastructure investments during the reporting year.

ESG issue
          Regulatory impacts
        
Types of infrastructure affected
          All infrastructure
        
Impact (or potential impact) on investment

Threat of adverse regulatory decisions could impact the investment performance of infrastructure businesses 

Activities undertaken to influence the investment and the outcomes

All of our infrastructure businesses face a regulator in some way, whether it is through direct regulation of price and quality outcomes, or ‘light-touch’ regulation, or other aspects of regulation and compliance. The threat of an adverse regulatory decision could negatively influence the investment outcomes. These businesses all work diligently with regulators to ensure that the outcomes sought (most commonly around outcomes for end users) are maintained and delivered by these businesses, without the need for any more adverse regulatory rulings. 

At a new development at one of our airports, which a low-lying coastal site, the increased flood risk from climate change meant that the design of a new on-airport commercial development required enhanced flood protection measures etc. to ensure the asset could perform to its expected life.

At one of our bulk liquid storage terminals businesses, located amongst port infrastructure, the threat of rising sea levels has led the business to include this consideration in its discussions and negotiations with the relevant landlord around port infrastructure planning going forward.

The undergrounding of electricity cables in one of our distribution grids is a direct result to reduce potential physical impact caused by more frequently occurring severe storm events.

ESG issue
          Social Licence
        
Types of infrastructure affected
          All infrastructure
        
Impact (or potential impact) on investment

New developments require enduring social licence to prevent any adverse rulings or political decisions 

Activities undertaken to influence the investment and the outcomes

One of our water utilities was developing a new storage facility, which is located reasonably close to residential areas, and as such required community consultation and design modifications to ensure the social licence is preserved and the project delivered according to plan.

One of our airport businesses is soon scheduled to open a new runway; the community acceptance, particularly in relation to aircraft noise and airport access, is vital in ensuring social licence to operate is maintained to keep the asset operating as intended.

The construction of a new pipeline in one of our gas assets required an environmental impact study as part of the public approval process.

ESG issue
          Incentives and standards of corporate
        
Types of infrastructure affected
          All infrastructure
        
Impact (or potential impact) on investment

Ensure long-term decision making by executives aligns with long term sustainability of the business 

Activities undertaken to influence the investment and the outcomes

Most of our businesses had remuneration arrangements reviewed during the year. Part of our role as manager, and as Board director, is to ensure that those remuneration arrangements ensure that executives are appropriately incentivised to make long-term sustainable decisions for the business and to encourage proper standards of corporate behaviour.

The utilisation of the SDGs as a long term planning framework has helped in our assets to focus on long term impact of the company’s activities and the consideration in strategic plans

ESG issue
          Physical impacts of climate change
        
Types of infrastructure affected
          All infrastructure
        
Impact (or potential impact) on investment

Risk to highly capital intensive physical assets is exacerbated by climate change and investors need to ensure these long life assets deliver an appropriate return 

Activities undertaken to influence the investment and the outcomes

At a new development at one of our airports, which a low-lying coastal site, the increased flood risk from climate change meant that the design of a new on-airport commercial development required enhanced flood protection measures etc. to ensure the asset could perform to its expected life.

At one of our bulk liquid storage terminals businesses, located amongst port infrastructure, the threat of rising sea levels has led the business to include this consideration in its discussions and negotiations with the relevant landlord around port infrastructure planning going forward.

The undergrounding of electricity cables in one of our distribution grids is a direct result to reduce potential physical impact caused by more frequently occurring severe storm events.

ESG issue
          Market impacts of climate change
        
Types of infrastructure affected
          All infrastructure, particularly with a direct or indirect exposure to hydrocarbons
        
Impact (or potential impact) on investment

Risk or opportunity from changing regulatory or market responses to climate change may impact the long term outlook for infrastructure businesses 

Activities undertaken to influence the investment and the outcomes

One of our gas distribution companies is currently participating in industry groups to examine the potential for transporting alternative fuels, e.g. hydrogen, as well as assessing the potential tariff impacts of the economy moving to net zero emissions by 2050.

One of our water utility business has invested significantly in new water recycling plants to deliver an increased supply to meet growing demand for recycled water in the face of a hotter, drier climate, with the propensity for longer duration, more intense drought-like conditions in the face of climate change.

The investment in renewable energy projects that often benefit from regulatory frameworks can be seen as a direct response to market opportunities 

18.2. Additional information.


Top