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First Sentier Investors (including First State Investments)

PRI reporting framework 2020

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Pre-Investment (Selection)

INF 05. Incorporating ESG issues when selecting investments

05.1. Indicate if your organisation typically incorporates ESG issues when selecting infrastructure investments.

05.2. Describe your organisation`s approach to incorporating ESG issues in infrastructure investment selection.

Our pre-investment ESG assessment approach incorporates the following elements:

  1. All new investment opportunities are subject to an initial assessment process. This process determines the potential suitability of an investment according to our investment strategy. Part of this initial process will be to screen for high level risks and opportunities. This risk assessment will include an initial 'traffic light' or ‘red-amber-green assessment’ and high-level discussion of potential ESG issues.
  2. Costs and benefits are attributed to ESG issues over the life cycle of an investment (value attribution). This enables the net benefit (either quantitatively or qualitatively) to be monitored over the life of the investment. This information will assist in maximising portfolio returns over time by capturing a full spectrum of risks and opportunities in the investment. All investment processes need to include an assessment of Environmental, Social and Governance risks and opportunities, including an assessment about climate change risk; quantified where possible (using data from the target company, external research providers and expert advisors, and consideration of benchmarks against relevant assets, sectors and countries) and explaining how the issues have affected value and/or deal terms and structure
  3. All investment processes must include an assessment of the alignment of the investment opportunity with relevant United Nations Sustainable Development Goals (‘SDGs’)
  4.  Our approach to valuing new investment opportunities includes a long-term forecast period, often exceeding 20 years. Considering that many ESG issues are played out over the long-term, our similarly long-term forecast inevitably captures ESG considerations in the valuation of each investment opportunity.
  5. Our sector focus is informed (in part) by our view on ESG issues. By way of example, macro level sector views have formed part of recent investment decisions in the energy sector including in renewables as well as those with an exposure to hydrocarbons.
  6. We ensure that we are aware of potential regulatory or industry requirements with ESG implications (e.g. the introduction of a carbon tax / market scheme in a particular jurisdiction) via industry contacts and industry participation. Having our investment professionals up-to-speed on a broad range of industry-specific issues, including ESG issues, helps to perform initial investment opportunity selection on an industry level.
  7. We incorporate learnings from existing investments on ESG issues into new investment assessments - "experience is the best education". These include learnings from the impact of issues such as climate change risk i.e. global warming (rising sea levels, drought, etc.) or changes in social behaviour (consumption patterns, population growth, ageing demographics, technological change, new policies etc.). This allows us to add value by identifying opportunities and taking steps to mitigate potential risks at the portfolio and infrastructure business level.
  8. Our formal Investment Papers, which are presented to the Investment Committee of the relevant fund, must include a discussion of ESG issues and an evaluation of the SDGs in the context of the investment opportunity. Generally the papers include a specific section on ESG and sustainability. Occasionally the relevant ESG issues are captured throughout other sections in the body of the paper - for example, discussion of workplace safety may be included in a broader discussion of the business operating model, or stakeholder impacts may be highlighted where the paper talks about business growth options.

INF 06. ESG advice and research when selecting investments

06.1. Indicate whether your organisation typically uses ESG advice and research sourced internally and/or externally when incorporating ESG issues into the infrastructure investment selection process.

          Asset Managers
          ESG/RI Team leads
          Centralised RI Team

06.2. Additional information. [Optional]

Internal staff make the final recommendation to the relevant investment committee on investments, but will take a range of advice in forming that recommendation including external advice on ESG issues associated with an investment opportunity. Our commitment to responsible investment means maintaining internal capability with the highest quality investment professionals across asset classes and across other specialisations. Our internal investment team staff are trained in the identification of ESG issues to ensure appropriate ownership of ESG issues and embedding of this expertise within the team. For example, during 2019 the FSI ESG Committee concluded the work from its Climate Change working group, which included a representative from our infrastructure investments team. This work included detailed research and discussion on the various investment impacts of climate change. The output of this work was captured in a series of papers, which are shared with investment professionals across the whole of the organisation (as well as our clients). Using this body of work, our Infrastructure Investments team held a training session and workshop discussion on investment impacts of climate change, which was hosted by the Head of Responsible Investment Asia Pacific and the Sydney-based team lead on ESG/RI.

Other learning session included Webinars offered by third parties to specific topics or so called “lunch and learn” session hosted by our Global Head of Responsible investment. The internal session in 2019 included “policy and regulatory landscape” a session about upcoming Global, EU, and UK regulations. External webinars included an ESG Disclosure Regulation offered by Simmons and Simmons and benchmarking infrastructure assets on ESG performance hosted by PRI.

The team also engages in informal education and learning. For example, the business subscribes to various ESG-related publications, such as ‘Responsible Investor’. Market leading publications such as these help to ensure we stay abreast of the latest thinking and research in the ESG space.

Our Asset Managers also have extensive and first-hand experience in managing a breadth of infrastructure assets. A number of team members have previously worked in senior positions within infrastructure companies and so can bring that experience, including identification and management of ESG issues, to the investment selection and ongoing asset management processes.

A risk-and-opportunity based approach is part of the responsibilities of the investment team to ensure a broad and continuous focus on ESG issues. ESG and SDG topics are on the agenda of our weekly team meetings, as well as our quarterly and annual asset management reviews for each discrete infrastructure business. This includes discussions about relevant topics on assets, reporting on initiatives on assets or governance and new developments that are relevant for our teams.

Whilst the adoption of responsible investment techniques is the responsibility of all investment team members and embedded in every stage of our investment life cycle, at FSI we also maintain a centralised and dedicated Responsible Investment team, with global and local leadership, to support and coordinate certain responsible investment efforts. The resources from the Responsible Investment team are drawn on as and when required to enhance the inherent capability of the Infrastructure Investments team. The business also maintains an ESG Committee, with members drawn from both the Responsible Investment team as well as various investment teams including Infrastructure Investments. The ESG Committee has previously, for example, published papers on stranded asset risks and an internal Guidance Note and Toolkit relating to Human Rights. The Committee recently published a series of papers on the investment impacts of climate change (described above).

Our internal team members also draw on external resources and publications. External resources are used to supplement the skill base of the Infrastructure Investments team and the dedicated Responsible Investment team. These external resources are employed on a project-by-project basis as required. The typical due diligence process associated with a large infrastructure investment will involve environmental and technical advisors on environment impacts and asset condition. Additional advice may be sought on legal liability issues or on social licence to operate issues should they be relevant to the particular asset. Also corporate governance will be reviewed and compliance with good corporate governance codes assessed. For example, in a recent project we reviewed external advice around the regulatory setting that would support the local take-up of recycled water, supporting the demand and business case for a particular acquisition. The specific advice supplements the knowledge of the investment team and ensures that we submit fully considered bids, which ultimately drive value for investors.

Through memberships and participation in working groups hosted and led by organisations such as PRI, GIIA, LTIIA and others, members of the team both benefit and contribute to the development of through leadership and industry best practice about ESG issues.

INF 07. Examples of ESG issues in investment selection process

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

ESG issues

List up to three typical examples of environmental issues

          Emissions, pollution and contamination
          Physical impacts of climate change
          Market impacts of climate change

List up to three typical examples of social issues

          Health and safety of employees and customers
          Social licence to operate, also as evidenced by customer relationships and customer service
          Diversity, Labour relations, staff engagement and continuous development

List up to three typical examples of governance issues

          Board structure and composition including the establishment of dedicated subcommittees such as audit committee, Remuneration committee, Health & Safety committee etc.
          Executive remuneration and incentives
          Regulation and compliance

07.2. Additional information. [Optional]


Our funds favour infrastructure assets that are making a positive environmental contribution, whether this be by reducing emissions, waste or by other means.

During the acquisition phase we consider multiple environmental factors, including but not limited to:

  • Contamination and pollution risks. These are considered for both existing and potential future contamination. This will include a physical assessment where possible, as well as an appropriately robust mechanism (legal and otherwise) to deal with the potential impacts of contamination.
  • The market impacts of climate change. For example, considering the global transition to low emission energy generation has helped inform new bids for renewable generation as well as examining possible impacts on businesses such as gas distribution networks.
  • The physical impacts of climate change. These are vitally important to investment in real assets. Examples include the consideration of climate change induced rising sea levels and heightened flood risks in the development projects of a new low lying coastal airport runway, or in the replacement and maintenance program for our network utilities, or the undergrounding of transmission cables and backup plans for emergency recovery in response to increased storm frequencies and increased flooding. Due to the nature of our investments, we are convinced that contribution to Sustainable Development Goal #13 "Climate Action" is one where we can have significant impact.
  • Building and construction works impact. New build and maintenance capex are a vital part of any investment consideration in "real assets" such as infrastructure, whether it be a new greenfield development, or maintenance capital works on existing assets. When investing in growth project extensions or replacement of assets, we challenge our management teams to assess alternative solutions with respect to their environmental impact.

Following acquisition, we encourage all our portfolio companies to actively manage and reduce the impact they have on the environment. For example:

  • A gas network increasing the proportion of biogas that is transported via their pipelines
  • Two ferry companies converting their vessels to be hybrid or fully battery-powered
  • A district heating business increasing the proportion of renewable feedstock (e.g. biomass or geothermal wells) to generate heat
  • An Australian water utility investing in additional treatment plant to deal with hotter, drier weather and increased demand for recycled water.


The consideration of the conditions of our workforce and labour relations is another important part of our investment process. This is particularly true for infrastructure businesses as many were previously under government/public ownership and many of the front line jobs are done by engineers that need a lot of training and continuous refreshing of their qualifications.   

Health and Safety is always on the top of our agenda; it is a vital consideration for investment in infrastructure assets, due to the often risky nature of the work involved. Our focus will include the health and safety of direct staff, sub-contractors (as many activities are often outsourced), as well as health and safety of users and stakeholders of our public-access infrastructure.

Our investment assessments include an analysis of the company's current safety performance as well as areas for improvement as relevant. This is also consistent with another of our SDG priorities, Sustainable Development Goal #3 "Good Health and Wellbeing" and Sustainable Development Goal #8, “Decent Work”.

Furthermore, well balanced social plans, fair agreement with unions and growth potential which gives everybody an opportunity are a frequent consideration in the development of a business plan when acquiring a company. We support diversity, equality and representation throughout the organisation, this includes Board, executive management and operational levels. Frequently our companies provide apprenticeship programmes, schools for technicians and courses for engineers. We clearly see how our efforts can make contributions to two further SDGs which are Sustainable Development Goal #4 "Quality Education" where our businesses can contribute by encouraging staff development and continuous training and development; and Sustainable Development #5 "Gender Equality" where our businesses can contribute toward equality of remuneration and representation.

The social license to operate is invaluable for long-term custodians of infrastructure assets. As we like to say, 'infrastructure businesses are owned by investors but belong to the community'. For example, a new runway is about to open at one of our airport investments; managing the community engagement around issues like aircraft noise and airport access, as well as community and economic benefit, are being carefully managed.


Optimal Board composition, including independence of selected non-executive Board members (for example, we have a preference for an independent chair) is important for good governance. For example, one of our small parking businesses has experienced growth recently which allowed the appointment of a new director; we used this opportunity to appoint an independent director with complimentary Board skills. Wherever possible we also seek to increase the number of female executives and other non-executives in our management teams and company Boards.

As part of our strategy to acquire significant or controlling stakes in portfolio companies we also review the existing corporate governance and either seek relevant influence through the shareholders' agreement, which will give us rights with respect to Board composition or even full control over corporate governance.

We implement and review compensation packages to ensure proper alignment of interest between executive management, external Board members and shareholders, using independent specialised advisors and we implement governance rules and codes according to good corporate governance guidelines, such as UK corporate governance code or other relevant codes, such as the ASX Corporate Governance Principles and Recommendations in Australia. We also include our own governance check list as part of our regular asset management reviews.

We also seek to maintain good quality interactions with the relevant regulators and public bodies, compliance with all laws and regulations and adoption of voluntary best practice standards.

INF 08. Types of ESG information considered in investment selection

08.1. Indicate what type of ESG information your organisation typically considers during your infrastructure investment selection process.

          Our own comparative data

08.2. Additional information.

All of the above sets of ESG relevant metrics and benchmarks are typically considered as part of our investment process. For example, from a potential target company we will seek workplace safety metrics, diversity statistics and emissions data, as well as qualitative and quantitative information around its governance framework and environmental compliance. We will then compare these to historical trends, future forecasts, other similar investee companies in our portfolio, as well as other industry, sector, or country benchmarks. We can then assess this analysis in the context of codes and standards, such as IFC Guidelines, Global Reporting Initiative, ISO standards, or the UN SDGs. As noted above, we often appoint specialist external advisors to our acquisition projects, and their engagement and advice helps to form our investment views.

As part of our regular investment selection and assessment process, we consider the full range of ESG issues and this usually commences with an assessment of the target business' available data. This data can then be supplemented by additional due diligence and research. This is also combined with the wealth of stored information from many and varied due diligence undertakings as an investor in unlisted infrastructure since 1994.

Our specialist external advisors will often provide additional asset or sector specific information (for example, in the investment selection process for a potential airport investment, we considered its framework and process for potential contamination from de-icing procedures against the relevant IFC Guidelines). All of this combines for a robust benchmarking assessment, which is a very useful component of judging investment performance and ultimately success.

Our internal experts from the Responsible Investment team can often provide country level benchmarking and assessment and, combined with the investment team, benchmarking and compliance against standards (e.g. ISO, IFC). We also like to consider if the target business currently produces sustainability reporting (whether in accordance with the Global Reporting Initiative or otherwise).

Engagement with relevant stakeholders, even in the early stages of a potential acquisition opportunity, is important. For example, in our considerations when assessing regulated businesses, we strive to personally meet with the relevant regulators to discuss the asset, the business, and the sector with a view to understand the regulator's targets and regulatory plans for that sector. We aim for all our portfolio companies to be leaders in ESG practices. Where relevant we seek to implement internationally recognised standards, such as ISO 9001 (quality management), ISO 14001 (environmental management), ISO 50001 (energy management), ISO 55001 (asset management), ISO 45001 (occupational health and safety) and OHSAS 18001 (occupational health and safety) or similar accreditations across our assets. Where appropriate we also implement ISO 17025 (testing and calibration), ISO 22301 (business continuity) and ISO 27001 (information security management). These standards can form useful benchmarks against which to assess new investment opportunities.

Being the manager of a large portfolio of infrastructure assets helps when assessing our own comparative data. For example, in our recent acquisition of a ferries business, we were able to directly compare data to the existing ferries business that is owned by one of the funds; or in another recent bid in the renewable generation space, we are able to make direct comparisons to our existing wind generation portfolio. The same was true for the acquisition of a second district heating company were we could leverage on experience from the acquisition of the first company. These learnings and comparisons can be made between businesses in the same industry (as per the ferries example just mentioned) but can also be made across industries in the infrastructure sub-sectors, which can often lead to improvements in best practice.

INF 09. ESG issues impact in selection process

09.1. Indicate if ESG issues impacted your infrastructure investment selection processes during the reporting year.

09.2. Indicate how ESG issues impacted your infrastructure investment deal structuring processes during the reporting year.

09.3. Additional information.

As a long term investor it is imperative that we invest into infrastructure businesses that have regard to their environmental impact, improve health and safety, engage with community and follow best practise governance. These are the key principles followed when we invest into a new infrastructure businesses. In the last twelve months we participated in various transactional processes where ESG issues played an important role in our decision whether to invest or not. Examples of ESG issues influencing investment selection and deal structuring include:

  • The outlook for recycled water demand, particularly in the face of climate change, helped identify value creation opportunities, and in turn influenced the price offered for a new acquisition of a recycled water treatment plant
  • A potential investment in port infrastructure was ultimately abandoned due to the port’s coal exposure and our negative long-term view around coal
  • During 2019, one of our infrastructure businesses entered into a pioneering sustainability-linked bank loan – a first for that industry sector – which provides for direct margin reductions upon verified (externally assessed) ESG improvements
  • An acquisition project required certain deal structuring to alleviate concerns around lessening of competition in the sector, which in turn influences price offered
  • A potential investment in gas distribution was informed by our long-term view of gas demand, particularly in response to the market and regulatory impacts (transition impacts) of climate change
  • Debt providers on a recent acquisition required the agreement and consent of the government water monopoly
  • Debt providers on a new acquisition in distributed energy required due diligence around the market outlook for gas
  • The project for the potential acquisition of a North American opportunity required deal structuring and pricing considerations around issues of international sanctions