ESG Handbook

June 2020
Contents
List of Acronyms ............................................. 3 ESG integration in investment lifecycle 44
3.1 Responsible investment policy .......................... 44
Foreword ....................................................... 5
3.2 ESG resources and leadership............................ 45
Introduction ................................................... 6 3.3 Risk management frameworks .......................... 47
A quickly changing backdrop: ESG from niche to 3.3.1 Introduction ........................................... 47
mainstream 9
3.3.2 Due diligence ......................................... 48
1.1 Growth momentum for ESG integration across
3.3.3 Case studies ........................................... 52
the globe ............................................................. 9
3.4 Value creation & positive impact frameworks .... 55
1.2 Despite lack of documentation, little doubt on
the positive link between ESG and financial 3.4.1 Long-term value framework .................. 55
performance ...................................................... 12 3.4.2 Positive Impact processes ...................... 55
1.3 Investor’s fiduciary duty in an inflationary 3.4.3 Key performance indicators ................... 57
context of soft and hard law developments ..... 17
3.4.4 Case studies ........................................... 59
1.4 Wide adoption of the SDGs and debate around
ESG Standards and tools 64
impact ............................................................... 20
4.1 Infrastructure sector’s initiatives ....................... 66
1.5 Climate change as a global threat to financial
stability and humanity....................................... 25 4.2 Member Insights ................................................ 68
1.6 Generational paradigm shift ............................. 29 4.3 Standards and frameworks ................................ 70
ESG Factors in infrastructure 30 4.4 Tools................................................................... 76
2.1 Environmental considerations .......................... 31 4.4.1 Evaluation tools ..................................... 76
2.1.1 Climate change ...................................... 31 4.4.2 Valuation tools ....................................... 79
2.1.2 Natural resources .................................. 33 4.5 Greenwashing .................................................... 81
2.1.3 Energy efficiency ................................... 34 Annex 1: Definition of Concepts.................... 82
2.1.4 Degradation and pollution .................... 35 Annex 2: Additional Tools & Standards ......... 83
2.1.5 Circular economy................................... 35
Annex 3: EC Action Plan For Financing
2.2 Social considerations ......................................... 37
sustainable Growth ...................................... 85
2.2.1 Occupational Health and Safety ............ 38
2.2.2 Labor and human resources policy ....... 38 Annex 4: ESG Due Diligence Scope Of Work
2.2.3 Community relations and impacts of the
Example ....................................................... 89
infrastructure on the local communities ........... 39 Annex 5: References ..................................... 91
2.3 Corporate governance and business ethics
considerations ................................................... 41

ESG Handbook | 2
 LIST OF ACRONYMS GPIF
GRESB
Government Pension Investment Fund (Japan)
Global Real Estate Sustainability Benchmark
GRI Global Reporting Initiative
ACA Assistant to the Contracting Authority
GSIA Global Sustainable Investment Alliance
ADB Asian Development Bank
HLEG High Level Expert Group
AFD French Development Agency
HQE High Quality Environmental Standard
AFDB African Development Bank
IATA International Air Transport Association
AIMM Anticipated Impact Measurement and monitoring
ICAO International Civil Aviation Organization
AOAC Asset Owner Advisory Council
ICP Infrastructure Cooperation Platform
APRA Australian Prudential Regulation Authority
IEA International Energy Agency
ASSI Aligned Set of Sustainable infrastructure Indicators
IFC International Finance Corporation
AUM Assets Under Management
IGCC Investors Group on Climate Change
Building Research Establishment Environmental
BREAAM IIR International Integrated Reporting
Assessment Method
CAPEX Capital Expenditure ILO International Labor Organization

CDC Caisse des Dépôts et Consignations Group IMP Impact Project Management

CDP Carbon Disclosure Project IPCC Inter Panel on Climate change

The Civil Engineering Environmental QUALity ISCA Infrastructure Sustainability Council of Australia
CEEQUAL
assessment ISO International Standardization Organization
CFA Chartered Financial Analyst ITRCC Indiana Toll Road Concession Company
CFLI Climate Finance Leadership Initiative IWBI International WELL Building Institute
CGDF Corporate Governance Development Framework LBP AM La Banque Postale Asset management
CISL Cambridge Institute of Sustainability Leadership LEED Leadership in Energy and Environmental Design
CPI Climate Policy Initiative LP Limited Partner
DDQ Due Diligence Questionnaire LTIC Long Term Investment Club
DFI Development Financial Institution LTIIA Long Term Infrastructure Investors Association
European Development Bank of Reconstruction and MD&A Management Discussion and Analysis
EBRD
Development
MDB Multilateral Development Bank
EC European Commission
MSCI Morgan Stanley Capital International index
EDES Early Detection and Exclusion System
NCE New Climate Economy
EHS Environmental, Health and Safety
NFRD Non-Financial Reporting Directive
EIB European Investment Bank
ODI Overseas Development Institute
Exploring Natural Capital Opportunities, Risks and
ENCORE Organization for Economic Cooperation and
Exposure OECD
Development
EPIC Embankment Project for Inclusive Capitalism
OHS Occupational Health and Safety
ESG Environmental, Social and Governance
OPEX Operating Expense
ESMP Environmental and Social Management Plans
OPIM Operating Principles for Impact Management
FSI First Sentier Investors
PG&E Pacific Gas & Electric Company
GHG Green House Gas
PPE Political Exposed Person
GIF Global Infrastructure Facility
PPIAF Public Private Infrastructure Advisory Facility
GIH Global Infrastructure Hub
PPP Public Private Partnership
GIIN Global Impact Investing Network
PS Performance Standard
GP General Partner
RBC Royal Bank of Canada

ESG Handbook | 3
RIAA Responsible Investment Association Australasia
RPI Responsible Property Investment
SARS Severe Acute Respiratory Syndrome
SASB Sustainability Accounting Standards Board
SAVi Sustainable Asset Valuation tool
SDG Sustainable Development Goals
SIFs Sustainable Insurance Forum
SPV Special Purpose Vehicle
TCFD Task Force on Climate Change
Transportation Economic Development Impact
TREDIS
System
UN United Nations
UN PRI United Nations Principles for Responsible Investment
United Nations Conference on Trade and
UNCTAD
Development
United Nations Environment Programme Finance
UNEP FI
Initiative
USS Universities Superannuation Scheme
WTP Waste To Power
WWF World Wildlife Fund

ESG Handbook | 4
 FOREWORD
In just a few years, ESG, also known as sustainable or responsible investing, has moved from a slightly idealistic niche-
to front-page, a mainstream dimension for investors, one that strongly influences the performance and resilience of their
investment over time. This is particularly the case in infrastructure, in view of its wide reaching and long-term
consequences for the community. Indeed, in many cases private investors have been not just accompanying the trend
but pioneering evolutions, complementing, or preceding regulatory requirements. A lot of corporates, investors and
operators have embarked on communicating their values and sharing their approaches to the subject. It is thus only
normal that the Long-Term Infrastructure Investors Association would devote a new, enriched edition of its
Handbook to those latest developments. What sets aside this report from other compendiums is the rich variety of
examples and illustrations drawn from our members collective experience, reflecting their specific challenges, the
management practices, and proprietary methodologies they developed to manage and address them. It shows the
appetite and inventiveness at play when it comes to developing bottom up solutions. It also makes a point towards the
need to further consolidate and streamline tools and standards so as to be able to refer to commonly accepted
market practices.
The timing could not be more appropriate as the current sanitary crisis reveals the weaknesses and lack of
resilience of many economic models. So take some time to go through this fascinating opus: I sincerely hope you will find
in it inspiration to act, ever more decisively towards a better and more sustainable world.

Thierry DEAU, LTIIA chairman

Handbook established under the responsibility of Francois BERGERE, Executive Director, LTIIA with the support of Maelle Duquoc,
Edward Luu, Zineb Ami, and Hien Nguyen, EY Climate Change and Sustainability

One of the main interests of this handbook relies on the integration of contributions from LTIIA’s members, which included individual
write-ups and responses to a customized survey. Individual contributions were prepared by :

Allianz GI : J. Atkins | Arpinge: B. Gillio | Blackrock: K. Sherwin | Campbell-Lutyens: J.Wardlaw | CNP-LBPAM: M.Merrilainen | CPI: P.
Negreiros | EDHEC Infra: F.Blanc Brude | First Sentier Investors: R. Element | GPSS: A. Ozawa | GRESB: R.Walters, A.Roberto |
Guggenheim: J.Pass | Infravia: L. Booth / V.Levita |J .Hancock/Manulife: M-C Rendon | Meridiam: T. Deau, S. Youcefi, G. Borduas |
S&P Global: B. Sperling-Tyler | Skandia: H-F Forssmann | STOA: V. Vitiello, M-L. Mazaud | SWEN: I. Combarel | TIIC: J. D Almeida | UN
PRI: S.Whistler, A.Heath.

ESG Handbook | 5
 Now is a time to reflect collectively on the course of action
INTRODUCTION we want to take, rethink and reshape our vision of the
economy. The COVID-19 pandemic reminds us that
sustainable development (defined for the very first time in
Much has changed since the previous edition of the
the famous “Our Common Future” Brundtland Report of
Handbook in 2017, with the integration of Environmental,
1972 as “development that meets the needs of the present
Social and Governance (ESG) into investment decisions
without compromising ability of future generations to meet
transforming from a nice-to-have and niche practice, into a
their own needs”), conciliation of social equity, economic,
key dimension of infrastructure investing. In only three
and environmental factors (“People”, “Profit” and “Planet”),
years, ESG has turned into an imperative mandate for
and more inclusive capitalism, are the way of the future.
investors as part of their fiduciary duty.
The importance of a long-term approach. Capitalism, as an
Last warning from mother Nature? As this Handbook is
economic system in which countries trade and industries
being written, half of the world population is locked down
are driven by private owners for profit maximization, has
in their homes; medical staffs and other workers in critical
proven conducive to the creation of wealth. Yet, this has
occupations are on the front lines; and fear of a global
oftentimes come at the cost of natural capital depletion and
depression is widespread. The COVID-19 pandemic, as any
the inability to provide a fair distribution of income to all. In
crisis, provides an opportunity to reconsider our way of
addition, its short-term focus on financial results is
doing business as usual, and challenges previous
frequently criticized for leading to obsolete and
certainties1. Infrastructure investment, more than ever, will
unsustainable business models lacking resilience to
have its part to play in the recovery, as well as in the shift
disruptive events. Inclusive capitalism, by contrast, is “a
towards a more sustainable social and economic model.
global movement to engage leaders across business,
While all thoughts and efforts are concentrated on the ways government, and civil sectors and encourage them to
and means to save lives and rescue the economy, and as we practice and invest in ways that extend the opportunities
are in the most acute stage of the current coronavirus crisis, and benefits of our economic system to everyone.” 2 Both
we must think about the day after and address longer-term sustainability and inclusive capitalism consider risks and
threats to our living standards and lifestyle. The health crisis opportunities in the long-term, and rest upon the idea that
has revealed serious weaknesses frailties in the governance created value and wealth should be more evenly shared
of many countries. Many political leaders are still climate across society. At the same time, investors are increasingly
skeptics, just like many had been coronavirus skeptics realizing that infrastructure investments are inherently
before their countries became heavily affected. The current correlated with political agendas, whether they are
health crisis could be interpreted as a warning signal from regulated utilities, public-private partnerships (PPPs) or
mother Nature. We all must realize that the worldwide integrating other contractual forms. Infrastructure provides
impact from climate change and loss of biodiversity may be essential public services. This implies a social function that
far greater and more irreversible than what we are living goes beyond that of other companies in fully competitive
through today. markets.
As we move from crisis response to economic recovery, LTIIA’s members – institutional investors in unlisted
through stimulus packages, one can expect that infrastructure, such as pension funds, life insurance
infrastructure spending will play a key role. As it had been companies and their asset managers– have, by definition, a
the case in the aftermath of previous economic crises, long-term view. The likelihood of a downside ESG event
governments running large public debts and deficits and (severe environmental pollution, social unrests, governance
facing unprecedented fiscal challenges may prove less malpractices or misconducts) that can trigger financial
capable of financing assets, thereby relying more on private liabilities – not to mention significant reputational risk –
sector’s resources and expertise to deliver the required grows with a longer hold. Therefore, implementing ESG
infrastructure services. Though temptation will be great to measures when investing in a project becomes even more
consolidate existing activities and employment by important for sustaining financial performance of the
bankrolling quickly the most affected sectors, institutional investment.
investors have a historical role to play to steer the economy
towards a more sustainable and fairer future. Policy makers,
prodded by the civil society and supported by the financial
sector through public consultations, must more than ever
embed long-termism into their decisions to ensure that we
don’t bump from one economic shock into another.

1 Austrian government has attached to its €600m package to

For example, the ban on short-haul domestic air travel on
Austrian Airlines to reduce the environmental impacts of the
routes with rail journey time up to 2.5h as one of the conditions
aviation sector
of the French government’ €7bn support for Air France, or the
conditions (minimum ticket price and increased flight taxes) the 2 Embankment Project for Inclusive Capitalism

ESG Handbook | 6
The case for unlisted infrastructure. Infrastructure and ESG “how”, for institutional investors to be recognized as
dimensions should be natural bedfellows: after all, legitimate actors in the infrastructure business, contributing
infrastructure is about providing essential daily-use services solutions to our common future.
to the community, and thus, underpinning economic and The 2020 LTIIA ESG Handbook is meant to provide members,
social development. In order to ensure a successful
and more broadly the infrastructure investing community,
integration of ESG factors in this key sector, infrastructure
with food for thought, highlighting major ESG trends and
investors should do their share by integrating ESG factors
recent developments to bear in mind when conducting their
within their day-to-day activities and decisions. day-to-day operations. It includes insightful contributions,
One of the key transformative drivers has been the illustrations of best practices and case studies from its
widespread adoption of the United Nation’s Sustainable members (enclosed in green-labelled boxes in the text), as
Development Goals (SDGs) from 2015 on, which provides a well as structured practical guidelines to make further
framework for infrastructure investors to demonstrate the progress towards informed and responsible investments.
genuine impact of infrastructure projects on the real As part of this new edition of the Handbook, we have
economy. conducted a survey among our members. The survey was
When it comes to ESG integration in alternative investment, designed to assess and provide us with an aggregate view of
infrastructure investors lead the way, with 35% of where LTIIA members stand, ESG-wise, in terms of internal
infrastructure investors having an active ESG policy for the organization, Investment & Management Practices and how
asset class3, the highest level across alternative assets such they see the upcoming trends. We have received responses
as private equity, real estate or natural resources. from almost half of our membership, an overall high
Essentially, ESG is seen as a risk-mitigation tool, with the response rate if we factor in the fact that not all members
Governance (G) dimension getting particular attention from (in particular those that are not investors stricto sensu)
the investor’s side. The presence of an active ESG policy, were concerned by the questions selected in the survey.
however, does not necessarily significantly affect Some questions were more relevant to some respondents
investment decisions. Less than 2 out of 5 investors have than to others, depending on the investor status (a few of
ever changed their investment choices due to ESG 4 . them targeting specifically asset owners, as an example),
Furthermore, after having invested in a fund, only 3 out of allowing respondents to skip some if they were not within
10 investors require any kind of ESG reporting from their their corporate scope. Most participating members were
fund managers. Asset/Fund managers, the rest being evenly split between
Still, with changing expectations from Limited Partners (LPs) Asset owners and others (which could be Advisers, Service
providers, Academia/professional associations, or
and the society, and a sustainable and fairer future at stake,
ESG is no longer a “plus” factor and is becoming a requisite Public/Multilateral institutions).
at all stages of the investment lifecycle, from design to
active hands-on management. Figure 1: What is your investor status?

This situation presents our investor community with a

double opportunity: quantitatively, as we are potentially
talking about the biggest global investment opportunity of 60%
our time (according to the Organization for Economic
Cooperation and Development (OECE), about $70 trillion is 50%
50%
needed in infrastructure investment by 2030); and 40%
qualitatively, as investing in non-listed infrastructure assets
30%
through a dedicated vehicle allows a better control by the
20% 28%
investors than a presumably more diluted stake in listed 22%
assets. 10%
This qualitative opportunity should allow institutional 0%
investors to better make their case before public opinions, Asset owner (LP) Fund manager (GP) Other
thus improving the narrative, reinforcing the legitimacy of
private sector participation in infrastructure, and eventually
bolstering their ‘social license’ to own and operate key
collective assets. Yet, notwithstanding the broad
recognition, still too few investors understand what it takes
in practice to invest in infrastructure responsibly. It is
therefore no longer a matter of “whether” or “when”, but

3 Preqin Article of 16th March 2020: ESG will become more 4 Preqin 2020 Global Infra Report
integral in the next 36 months, alternative investors say

ESG Handbook | 7
2020 Members Survey Figure 2: To which extent does the COVID-19 crisis affect your
activities?
To which extent does the COVID-19 crisis affect
your activities?

Beyond the immediate steps required to keep

operations running, ensuring continuity of key
collective services and keeping collaborators safe (shift
to remote work, digitization of administrative
procedures (i.e. contracts, payments) or Regular
distribution of masks & PPE to all employees), several
investors are helping the communities in which they
operate, by making donations of supplies and resources
in some of the hardest hit areas. Most respondents
agree that at this stage, it is still too early to tell how
great the impact of COVID-19 will be on their activities.
Asset owners like CalPERS are updating forecasts to
factor the impact of COVID-19: Asset returns are being
sensitized and stress-tested. InfraVia has performed a
detailed risk analysis for each asset, including people
safety first, business and financial impact. As an
Infrastructure Debt investor, AllianzGI recognize that
there are two key issues at play: (i) the underlying risk
to the performance of the asset itself from the fall-out
of COVID-19, and (ii) the liquidity provided by the equity
buffer and available debt service reserve
accounts/liquidity facilities for what is expected to be a
short- to medium-term disruption. Some fund managers
(TIIC) are considering an extension of the investment
period of their funds currently being loaded. The EIB
backed the creation of a €25 billion Pan-European
guarantee fund in response to COVID-19, enabling it to
scale up its support for European companies with a
focus on SMEs, but not specifically infrastructure
oriented.
Overall the COVID-19 health crisis appears to have
reinforced convictions around responsible investment
practices, especially sustainable infrastructure.
According to J. Wardlaw, Campbell Lutyens, “the COVID-
19 crisis will only serve to accelerate the integration of
ESG considerations into infrastructure investment
decision making. The dramatic improvements in air
pollution levels over the major cities of the world is
really striking. The relevant pressure is not coming from
regulators, but citizens who are also the customers of
fiduciary managers through their pensions and
insurance policies. They are demanding that we do not
return to the ‘status quo ante’. Build Back Better is
resonating.

ESG Handbook | 8
1 A quickly changing backdrop: ESG from niche
to mainstream

The concept of responsible investing is not new ensure a better and more livable world for our
and can find its roots as early as in the 18th children.
century. Responsible investing has been a mirror
of systems of values at given points in time. John 1.1 Growth momentum for ESG
Wesley (1703 – 1791), one of the founders of integration across the globe
methodism, outlined in his sermon on “the use
of money” his basic tenets of social investing:
Statistics from the United Nations’ Principles for
“What is true of ourselves is equally true of our
Responsible Investment (UN PRI), regional Sustainable
neighbor. We should not gain all we can by
Investment Forums (SIFs) and surveys conducted by
causing injury to another, whether to his trade,
investors provide clear evidence of ESG integration gaining
his body or his soul.” Around the same period of
momentum, whether across geographies or asset classes.
history, the Quakers at their 1758 Philadelphia
However, adoption has been unequal across the world,
yearly meeting prohibited their members from
with twice as many Europe-based investors having
participating in and contributing to the slave
ESG/impact frameworks compared to their North America-
trade.
based counterparts (559 vs. 271). Issues related to ESG
In our contemporary world, responsible tend to have more prominent public backing in European
investing is finding a different yet even stronger countries, and on a range of issues around environmental
echo. In facing the challenges of our century, a and social responsibility, the general tone of public
significant number of actors in the investment discourse in Europe is notably more progressive than in
community have committed to embedding North America.
Environmental, Social and Governance (ESG) The number of UN PRI signatories, be they investment
considerations into their day-to-day operations. managers (i.e. organizations that manage or control
In only a couple of decades, ESG integration has investment funds, either on their own account or on behalf
evolved from a “nice-to-have” practice to a of others) or asset owners (i.e. organizations that represent
genuine staple of investment management. the holders of long-term retirement savings, insurance and
While it goes without saying that the road ahead other assets), has been steadily increasing since 2006 (cf.
is still long, investors increasingly acknowledge Figure 3). As PRI signatories, investors commit to reporting
that ESG integration is part of their fiduciary on an annual basis, through a Transparency Report, their
duty. More than just a matter of opinion or efforts to meet six voluntary and aspirational principles.
belief, the existing empirical and academic Despite the UN PRI’s September 2017 decision to
literature has demonstrated that investors have strengthen signatory accountability and delist signatories
vested interests in factoring ESG in their whose progress in implementing the Principles is deemed
investment decisions. Although further and not sufficient, the latest figures show a continuous increase,
asset class-specific evidence is still needed, it is accelerating to 3,000 signatories in spring 2020, with a
now commonly accepted that non-financial and corresponding total of approximately US $90tn of assets
financial performances are strongly correlated under management.
and can be reconciled.
Figure 3: UN PRI signatories’ evolution since 2006

Expectations as to the role the investment

industry can play to take up environmental and
societal challenges of the 21st century are
therefore high. Across all asset classes, the
growth momentum is marked by high demand
for investment vehicles incorporating ESG
topics. It is our collective responsibility to show
that sustainable finance can do its part to

ESG Handbook | 9
The UN PRI 2019 Annual Report indicates that the number assets relative to total managed assets between 2014 and
of signatories incorporating ESG issues continued to 2018 (cf. Figure 8) provides information about the pace of
increase across virtually all asset classes between 2016 and the incorporation of ESG topics in investment processes.
2019 (cf. Figure 4). While the chart does not provide Australia and New Zealand stand out from the rest, with
information as per the extent and depth of ESG integration, sustainably invested assets under management increasing
it brings to light higher barriers to entry in the non-listed / from 16.6% in 2014 to 63.2% in 2018. While Europe has lost
illiquid asset space, where access to non-financial ground between the same period, with about €1 out of 2
information is more difficult. invested sustainably in 2018, the United States and Japan
are lagging with respectively $1 out of 4 and ¥1 out of 5
Figure 4: ESG issues incorporation among UN PRI signatories invested sustainably.
Figure 6: Growth of Sustainable Investing Assets by Region in Local
Currency (2014 – 2018) – GSIA 2018

The UN PRI 2019 Annual Report also indicates an increase Figure 7: Proportion of Global Sustainable Investing Assets by Region
in the number of signatories between 2018 and 2019 in all (2018) – GSIA 2018
geographies (cf. Figure 5).

Figure 5: Change in the number of the UN PRI signatories (2018 – 2019)

– UN PRI 2019 Annual Report

Figure 8: Proportion of Sustainable Investing Assets Relative to Total

Managed Assets (2014 – 2016) - GSIA 2018

Unsurprisingly, Europe and North America concentrate the

highest number of signatories, followed by the Asia-Pacific
region. While figures provided by the UN PRI cover
signatories only, similar positive trends are corroborated
by other studies. The 2018 report (cf. Figure 6) of the
Global Sustainable Investment Alliance provides further
confirmation that ESG has been gaining constant
momentum across the globe, mainly in developed markets.
Furthermore, the proportion of global sustainable
investing assets by region (cf. Figure 7) indicates that
Europe and the United States are the top contributors in
absolute terms. The proportion of sustainable investing

ESG Handbook | 10
A closer look at the depth of ESG integration shows that international norms (42%). Tow out of three use corporate
sustainable investing strategies (cf. Figure 9) tend to engagement as part of their investment strategies.
concentrate on the “low-hanging fruits”, the less
constraining approaches, such as negative / exclusionary Figure 10: Sustainable investing screening still mostly based on
exclusion (2019, GRESB)
screening, ESG integration (NB: to be understood as
discretionary ESG asset selection strategies), norm-based
screening, and corporate engagement / shareholder action.
Figure 9: Global Growth of Sustainable Investing Strategies (2016 -
2018), GSIA

According to the UN PRI’s 2018 annual report, 87% of

But, interestingly, the most significant 2016 to 2018 direct infrastructure investor signatories already consider
growths (assets under management) deal with the most
ESG in their investment decisions; whereas 86% of indirect
stringent sustainable investing strategies: positive / best-
infrastructure investor signatories already consider ESG to
in-class screening and sustainability-themed investing,
some extent in their manager selection, appointment and
both being commonplace approaches adopted mainly by
monitoring. As 50% of Limited Partners (LPs) expect from
collective investment schemes in transferable securities,
General Partners (GPs) that they consider ESG criteria as
and impact / community investing. While investments’
part of their investment decisions, infrastructure investors
positive impact in the listed assets space is yet to be
demonstrated scientifically (or at least generated indirectly have a clear opportunity to contribute to the UN SDGs by
by financing virtuous companies’ balance sheets), common endowing themselves with impact management and
intuition would suggest that long-term investments in monitoring capabilities. Furthermore, according to the
alternative assets are particularly suitable to impact International Finance Corporation (IFC)’s “Creating Impact,
investing strategies. As mentioned above, an the promise of impact investing” report of April 2019,
ownership/oversight logic is presumably easier to private investment fund managers pursuing impact
implement on a project-financing special vehicle (SPV) than investment strategies are targeting infrastructure assets
on an investment in (much bigger) listed corporates, for 62% of their capital.
allowing institutional investors to operationalize their
sustainable development approach more quickly. Again, several surveys provide further confirmation that
ESG is mainstreaming:
GRESB Fund Assessment results in 2019 (following figure)
show results specific to infrastructure and these show a  According to a RBC Global Asset Management survey
similar trend. of 2019, 70% of institutional investors in the UK &
North America use ESG in their decision-making
The FUND1 indicator was modified from last year and now process.
focuses on strategies rather than objectives. 77% of funds
 According to an Invesco survey of 2019 on 139 Chief
reported having a sustainable investment strategy in 2019.
Investment Officers, heads of asset classes and senior
This chart shows the range of strategies applied to each of
portfolio strategists in sovereign funds and central
the funds that reports applying one of more strategies.
banks, managing over US$20 trillion in assets, 60% of
Interestingly, it is not uncommon to employ multiple
sovereign funds were incorporating ESG in 2019 vs. 46%
strategies. Nearly all of these respondents integrate ESG
in 2017, and respectively 20% of central banks
factors in their business strategies (96%). Screening based
incorporating ESG in 2019 vs. 11% in 2017.
on ESG is still mostly based on exclusion (75% of responses),
rather than on positive characteristics (43%) or

ESG Handbook | 11
 According to an Allianz Global Investors survey of 2019 1.2 Despite lack of documentation, little
on 490 institutional investors, 71% of them hope to doubt on the positive link between
manage all their portfolio in an ESG-conscious way by
ESG and financial performance
2030, compared to only 1% today, and 92% indicate
they are familiar with the concepts of impact investing
and ESG integration. In a similar survey of 2018,
focused on retail investors, 75% of respondents are Among the objectives of asset management companies in
interested in sustainable investments, and 20% have the infrastructure sector, several themes are drivers for
discussed the topic of sustainable investments with integrating ESG criteria into asset management:
their financial advisor.
 Optimizing the positive impacts of the projects;
All in all, ESG integration is gaining momentum across the
 Improving asset performance;
globe and across all types of assets, in particular
infrastructure, driven mainly by increasing expectations set  Ensuring its social acceptability
by asset owners to their asset managers, and to a lesser  Reducing its environmental footprint; and
extent by individual retail investors’ growing interest in
 Enabling good long-term management.
sustainable investments.
It is also critical to intervene at the right time and in an
organized manner on the asset, as it may stay in the
portfolio for more than 20 years (Meridiam)

The integration of ESG factors into a company’s strategy

can be both a source of protection and value creation
because these factors are directly linked to:

 Risk management;

 Cost reduction;

 Consideration of new business models; and

 The attractiveness of the company to its stakeholders

(employees, suppliers, customers and investors)

ESG Handbook | 12
 Risk management ESG Impact Valuation. The current state of knowledge
 Avoiding business interruption, cost overrun and does not invalidate the intuitions around the benefits for
withdrawal of operating permits; investors and their clients to supplement traditional
 Avoiding legal risks, significant remedial actions and financial analyses with the inclusion of ESG in the decision-
insurance penalties;
making process. It is commonly and widely accepted that
 Avoiding reputational damage (by managing the value
chain & other E&S issues); and ESG can capture components important for valuations that
 Anticipating regulatory changes that could affect the are not traditionally reported. As enterprise market value
company’s operations (CO2 quotas, declarations, etc.) or is measured based on accounting principles codified in the
even the very prohibition of the use of certain products. 70s, investors now recognize the existence of a “hidden
 ESG directly affects project risk, which in turn may value” and the need to identify weak market signals that
impact loan terms and rates, or result in higher CAPEX
and OPEX affecting the return on investment
may not be captured otherwise (cf. Figure 11).
Cost reduction
Figure 11: Measurement and Disclosure of Company Intangible Value,
 Creation of an action plan to optimize and manage Embankment Project for Inclusive Capitalism
energy and waste;
 Reassessment of the value chain in order to take ESG Market value
criteria into account (optimization of greenhouse gas Intangible value
emissions, reduction in loss of raw materials); and Not measured or
 Definition of responsible purchasing ESG criteria. communicated
New economic models Current focus
of investors Intangible value
 Launch of new products and services addressing new Not measured or
customers, new customer requests for a responsible communicated
offer; Intangible value
Potentially measured
 Identification of new markets investments (positive
and communicated
impact funds, circular economy, climate change); and
 Innovation leverage through eco-design and the social
and solidarity economy.
Attractiveness Current focus Intangible book value Intangible book value
of accounting
 Lever to improve talent engagement and retention profession
through the integration of ESG criteria into the and financial
statements Tangible book value Tangible book value
company’s vision and values;
 Response in line with calls for tender, which increasingly
involve ESG criteria in the selection; Current perspective Long term value
perspective
 Better perception of companies incorporating ESG
criteria into their strategies, which are supposed to be
better managed; and As studies show, an increasing proportion of enterprise
 Investors more inclined to select funds with ESG
market value is linked to intangibles. According to the 2017
performance commitments.
Edelman Trust Barometer, undisclosed intangible rose
annually by 18% since 2011, while the 2019 Global
Reluctance from some investors to fully shift to ESG Intangible Finance Tracker report from the Brand Finance
integration however usually revolves around concerns Institute indicates that the global value of the world’s
about the immediate impact on financial returns, and the undisclosed intangible assets is now at US35.4$ trillion.
debate around correlation – not to mention causality –
between ESG integration and financial performance. The While documentation is still lacking, one can assume that
latter still deserves further academic and empirical the intangible value of infrastructure assets may be as
evidence, especially for the infrastructure asset class, for significant, with green and red flags identified through ESG
which it may still be premature to draw firm conclusions. due diligence assessments driving up or dragging down
final transaction prices when they are measurable and/or
measured. As described by WWF and B Capital Partners,
infrastructure assets can materially impact the surrounding
(environment and society) and vice versa (cf. Figure 12),
while specific ESG factors can be directly linked to financial
indicators (cf. Figure 13).

ESG Handbook | 13
 Figure 12: Impact from and on infrastructure asset

Figure 13: Impact of ESG Factors on Financial Model Items

Guidance note on integrating ESG factors into financial through several proposed metrics for the purpose of
models for infrastructure investments - WWF & B Capital. developing or adjusting the financial forecasts of
The Guidance Note illustrates how the consideration of infrastructure assets affected by these ESG factors.
ESG factors may inform the forecasting of financials, such
as revenues, operating costs and capital expenditure, etc. ESG-integration as a way to mitigate risk: Overall, there is
in the context of assessing an infrastructure asset. Twelve a widely-shared belief, considering existing scientific and
ESG factors have been selected and analyzed in relation to empirical evidence, that ESG-integrated investment
their potential risks and opportunities for infrastructure strategies, on medium or long-term horizons, tend to
assets as they may emerge throughout an asset’s life cycle reduce portfolio risks, do not harm alpha and may even
(development, construction, operation, and generate overperformance against comparable
decommissioning). The analysis relies on the availability of benchmarks. According to the UN PRI’s 2017 Primer on
KPIs and data that can be used to quantify the ESG factors Responsible Investment Infrastructure report (cf. Figure
financial impacts on the infrastructure investment. Each 14), a clear majority of surveyed direct infrastructure
ESG factor is then associated with an item in a basic investor signatories perceive that ESG integration has had
financial model (revenues, OPEX, CAPEX, EBITDA, cash a positive impact on both funds’ financial and ESG
flows, etc.), based on its potential impacts, and quantified performance.

ESG Handbook | 14
Figure 14: Impact of ESG on funds’ financial and ESG performances, UN Infrastructure investors’ views on the performance of ESG
Principles for Responsible Investment, “Primer on Responsible
Funds vs. non-ESG funds seem to be evenly spread to date,
Investment in Infrastructure” (2017)
with no clear majority over whether they perform better or
worse. All in all, the ongoing debate over the correlation
between ESG and financial performance should not deter
laggards to move towards to responsible and impact
investing. Incorporating ESG criteria should not be pursued
because it increases returns over time (even though it may
very well do so), but because that is the right thing to do!
It should not make us forget that:

 ESG is a matter of ethics and corporate culture to

many investors;

 ESG is a matter of resource allocation and

capabilities building.

That notwithstanding, disclosure of non-financial The View from our members: Meridiam
information is key, and the need for codification and
Being a mission-driven and benefit company
harmonized standards a pressing issue. While regulations
are bound to evolve over time, as is currently the case in
the European Union with a much-anticipated revision of Since its inception fifteen years ago, Meridiam has applied high
the Non-Financial Disclosure Directive, adequate reporting level ESG standards in its investments. In September 2019, it
adopted the new statute in French law of a mission-driven or
and verification by independent third-party bodies are Benefit organization.
already often required by law. Questions do arise with
respect to companies that would not be subject to any “We’ve made this choice for consistency and efficiency
form of non-financial reporting requirement, or that would reasons: being a mission-driven company reinforces our
not report on a voluntary basis. In the non-listed space, alignment with our LPs, as we commit to deliver them both
financial dividends return and non-financial impact through
where reporting obligations may not apply and access to our investments. We seek to go beyond the basic climate
investees’ information is difficult, GPs with an ESG or an change conversation and go for solutions that also address the
impact investment approach have an important role to important issues of sustainable development. The transition to
play in collecting data “at the source”, seeking to improve a mission-driven business is a logical evolution for our team.
Concretely, all our team members have been assigned
their trustworthiness and reliability over time, and
operational objectives, one of which is impact. Their
ultimately reporting them to their LPs in a consistent compensation package is, as such, be partially indexed on this
manner. Overall, lack of transparency and inability to performance indicator, as is the carried interest formula for our
report will be increasingly sanctioned in the future, by both next funds, now be determined around a ‘bonus/malus’ system
regulators and investors. that tracks how well we achieve the non-financial, social and
environmental dividends in our portfolio.

According to EY’s 2019 CEO Imperative Study, calls for The core LPs who have supported us from the very beginning
inclusive and long-term growth are starting to impact precisely because of our focus on ESG have naturally welcomed
the announcement positively, followed by other investors who
investment decisions, as roughly 60 senior institutional had initially been more skeptical.”
investors out of 100 surveyed report that they support
long-term investing to address global challenges, even
when near-term performance may be diminished.
Meanwhile, companies are putting sustainability at the
core of their strategic roadmaps to adapt their business
models to a changing and uncertain world. Out of 200 CEOs
surveyed from the largest companies in the world, more
than two-thirds say that they are likely to take public
stands on politically charged issues related to global
challenges, and 60% of them say they have aligned their
corporate purpose.

ESG Handbook | 15
The View from our members: EDHECinfra / LTIIA The View from our members: Blackrock
Link between better ESG ratings and financial Building resilience and reshaping finance
performance in private infrastructure - EDHECinfra /
LTIIA Research Chair Study (March 2019) – Work in BlackRock is a founding member of the Task Force on
Progress / Preliminary Findings Climate-related Financial Disclosures (TCFD), a signatory
to the UN’s Principles for Responsible Investment, and
recently joined Climate Action 100+. In 2020, BlackRock
A study published in March 2019 drawn from the has joined with France, Germany, and global
EDHECinfra / LTIIA Research Chair finds there is no foundations to establish the Climate Finance
financial penalty or gain (based on Return on Assets) for Partnership, which is one of several public-private
infrastructure firms to implement ESG management and efforts to improve financing mechanisms for
reporting. The study cross-references two unique infrastructure investment.
databases: the ESG scores computed by GRESB In January 2020, in his most recent letter to CEOs, Larry Fink,
Infrastructure since 2016, and the financial metrics of Blackrock’s Founder, Chairman and Chief Executive Officer
the EDHECinfra universe, and shows that once the announced a number of initiatives to place sustainability at the
traditional factors that explain returns are considered, center of its investment approach, including: making
ESG ratings are not correlated with returns. The study is sustainability integral to portfolio construction and risk
at odds with other research that shows that companies management; exiting investments that present a high
sustainability-related risk, such as thermal coal producers;
with better ESG credentials are stronger performers,
launching new investment products that screen fossil fuels;
based on the idea that issues such as poor governance and strengthening commitment to sustainability and
and environmental problems damage profitability. transparency in their investment stewardship activities.
However, the study sponsors agreed this is just a first At the center of these commitments is our investment view
attempt, as they need to better explain the findings and that sustainability-integrated portfolios can provide clients
limitations, and to work out how to improve data better long-term risk-adjusted returns. This view is grounded
collection and methodologies for the future, especially in two core convictions drawn from BlackRock’s research and
as the study covered a relatively short 3-year period. investment insight: first, companies that better manage
sustainability-related issues will be more resilient over the
The study into private infrastructure companies
long-term; and second, we are on the front end of a profound,
emphasizes that a lack of correlation “should not
long-term structural shift in global investor preferences
preclude investors from adopting an ESG approach,” toward sustainability that is not fully priced into the market
importantly finding that there was no negative today and may therefore drive outperformance during a long
detriment to returns either. According to Frédéric Blanc- transition period.
Brude, director at EDHECinfra, “there’s an increasingly
Although the market disruption experienced in the first
large number of investors saying it is a matter of
quarter of 2020 is a short timeframe, it is consistent with the
principle that we do this (…) It’s not something that will resilience of sustainable strategies that has been observed in
stop people choosing ESG.” According to the Global past downturns. During the recent downturn, the Sustainable
Infrastructure Investor Survey Report 2019 survey investment strategies globally proved resilient amid the
published by EDHEC and the Global Infrastructure Hub, market volatility. The environmental, social, and governance
more than a third of 130 large investors said ESG (ESG) scores of companies within sectors shows that ESG
considerations were of overriding concern when scores were material in differentiating between leaders and
investing in infrastructure, even if they came at the laggards across global during this period of severe volatility. If
anything, investor interest in sustainable investing strategies
expense of some performance.
accelerated during this period of crisis.
Still a work in progress: This study highlights that much
Increasing Access to Sustainable Investing to all investors is
further work is needed to understand the link between therefore key: BlackRock will be expanding its range of active
ESG and financial performance, especially long-term strategies focused on sustainability as an investment outcome,
effects. More granularity in future datasets will also including funds focused on the global energy transition, and
allow differentiating the effect of the E, the S and the G impact investing funds that seek to promote positive
in ESG, which may have different and even contrary externalities or limit negative ones.
relationships with firms’ characteristics and Global Energy Transition – BlackRock currently manages $50
performance. billion in solutions that support the transition to a low-carbon
economy, including an industry-leading renewable power
infrastructure business, which invests in the private markets in
wind and solar power; green bond funds.

ESG Handbook | 16
1.3 Investor’s fiduciary duty in an but testimony of the current inflationary context of soft
inflationary context of soft and hard and hard law developments. Figure 15 is a sample of the
existing soft law, which includes, but is not limited to,
law developments
investment principles and reporting standards investors
may inspire from, but also product labels for which
The last two decades have seen an impressive spate of soft applications can be submitted. Likewise, Figure 16
and hard law developments in the responsible investing concentrates on applicable regulations at the EU level, with
space, with the latter inspiring the former in most of the a sample of national rules from France and UK as well,
cases. This surge in voluntary initiatives and binding having direct and indirect implications for the investment
requirements the investment community can take or must community. The present ESG Handbook includes deep
meet has been instrumental to the development of various dives into some of the existing soft and hard laws, and
facets of responsible investing. invites readers to further acquaint themselves (see
Chapter 4).
Both voluntary (cf. Figure 15) and regulatory (cf. Figure 16)
guidelines listed here are not meant to be comprehensive

Figure 15: Examples of soft laws

Main Questionnaires General Standards

Labels

Global Reporting Initiative UN Global Compact | 2000 Equator Principles | 2003 LuxFLAG ESG label | 2014
FNG Siegel Label | 2015
| 1998
Dow Jones Sustainability Indexes |
1998

French Greenfin Label |

UN PRI | 2006 SASB | 2011
French SRI label | 2016 2016

Carbon Disclosure Project Climate Bonds Initiative |

|2002 2012
UN SDG | 2015 LuxFLAG Climate Finance |
IFC Performance Standards Nordic Swan Ecolabel |
2016
| 2006 2017
Ecovadis | 2007
UNEP-FI Positive Impact
Manifesto | 2016
Taskforce on Climate- Operating Principles
Belgian Towards Austrian Label | 2019
related Financial Disclosure for Impact
| 2016 Management | 2019 Sustainability Label | 2019
French Real Estate SRI Label |
Upcoming

ESG Handbook | 17
 Figure 16: Focus on main applicable regulations

Disclosure of 42
environmental and social
items for listed companies
Requirement for retirement plan
(up to certain thresholds)
executives to disclose how they
Art.225 of the
invest to mitigate the impact of Grenelle 2 law
climate change; and
2011 Disclosure of a business model, a
Requirement for pension funds to set non-financial risk mapping
out in their Statement of Investment Pensions EU directive on
Non-Financial analysis, as well as policies, action
Principles on how they take into Scheme Bill
Reporting plans and KPIs to monitor the
account financially-material 2019-2020
2014 identified risks (listed and non-
considerations such as ESG issues
and their approach to stewardship. listed companies, up to certain
Regulatory thresholds)
context

Requirement for life-insurance ART 173

Disclosure of the most significant
Loi PACTE Of the Energy &
contracts with an investment Ecological sources of greenhouse gases
component to have at least one 2019 Transition law emissions (Scope 3) for listed and
2015
labelled unit-linked account (SRI, non-listed companies, up to
EC action plan
Greenfin, Finansol) for financing certain thresholds; and
sustainable
growth- Disclosure of ESG and climate-
2018 -Ongoing related information for asset
Ten action plans to reorient
capital flows towards sustainable, owners and asset managers
mainstreaming sustainability to
risk management and foster EU Green Deal
Objective to reach climate
transparency and long-termism in 2020
neutrality by 2050 through a
financial and economic activity
roadmap with actions to boost
Recent regulation the efficient use of resources by
moving to a clean, circular
economy, restore biodiversity
and cut pollution

As a matter of fact, investors have strong vested interests

2020 Members Survey
in being actively involved in industry-led initiatives,
Which main regulatory evolutions are you currently keeping themselves abreast of market developments and
following? How are you integrating the EU Green Deal broadening collective intelligence, and contributing to the
and EC Action Plan on financing sustainable growth in elaboration of public policies (wherever a stakeholder
your activities? consultation approach is adopted). As gaps between soft
and hard law are meant to be bridged overtime, investors’
All our European based investors are following and planning operational constraints should be considered along the
to integrate EU taxonomy (GRESB plans to provide reporting policy making process. While investors and regulators
on EU Taxonomy eligibility into their reporting in 2020 based agree on the fact that finance can play a great role in the
on their data) and also studying the EC Action and EU Green transition towards a more sustainable economy, they may
deal, as well as their possible national declinations. More
have different views on the modalities.
global evolutions like the NFRD or TCFD, are also followed.

As the volume of soft and hard law increases, doubts that

ESG consideration is an integral part of investors’ fiduciary
duty are disappearing regardless of the legal system in
place. Originating from the common law system, fiduciary
duty refers to legal and ethical responsibilities a person’s
or organization’s (i.e. the fiduciary) must bear when acting
on behalf of a counterparty (i.e. the beneficiary). From a

ESG Handbook | 18
traditional perspective, those who manage people's money According to the UN PRI’s “Fiduciary duty in the 21st
must: century” final report, the bulk of changes in the law relating
to fiduciary duty occurred in the past few years. Between
 Act in the interests of the beneficiaries and do not 2016 and 2020, the UN PRI has found over “730 hard and
serve their own interests; soft-law policy revisions, across some 500 policy
 Demonstrate loyalty, acting in good faith and avoiding instruments, that support, encourage or require investors
conflicts of interests; and to consider long-term value drivers, including ESG issues.”
Ultimately, “investors that fail to incorporate ESG issues are
 Show prudence, acting with due care, skill and failing their fiduciary duties and are increasingly likely to be
diligence, and investing as an ordinary prudent person subject to legal challenge.”
would.
Chances are that investors will no longer be required to
In this respect, pension funds have a fiduciary duty to “comply or explain” in a foreseeable future. However, to
secure the highest possible returns, regardless of sources, further accentuate the positive momentum on ESG,
on behalf of their members, contrary to foundations, investors may need more than stronger legislative
wealth managers and Private institutions, which can have requirements, but incentives such as reduction in capital
more flexibility to sacrifice returns for principles. With ESG charges on infrastructure investments that integrate ESG
becoming an investment norm, covering financially considerations.
material topics, investors, as fiduciaries, are bound to:
The View from our members: First Sentier Investors
 Incorporate ESG issues into investment analysis and
decision-making processes, consistent with their A strong rationale behind ESG integration in
investment time horizons; infrastructure
First Sentier5 Investors (FSI)
 Encourage high standards of ESG performance in the FSI believes that businesses and organizations do not operate
companies or other entities in which they invest; in a vacuum. While ESG considerations apply to all, they are
particularly relevant to infrastructure businesses due to the:
 Understand and incorporate beneficiaries'  Long-term investment horizon and long-life assets;
sustainability-related preferences, regardless of  Need to deliver stable long-term risk-adjusted returns;
whether these preferences are financially material;  Role infrastructure companies have in providing essential
services; and
 Significant positive impact that well-managed
 Support the stability and resilience of the financial
infrastructure companies can have on the environment
system; and and on carbon reduction targets.
In addition, infrastructure companies often operate as
 Report on how they have implemented these monopolies or quasi-monopolies and therefore good ESG
commitments. practice is paramount to the long-term sustainability of the
business. ESG compliance is an essential component of what is
often described as the 'social license to operate' i.e. the
As an element of common law being derived from custom
reputation of the company to its customers, the public and
and judicial precedents (rather than statutes), fiduciary other stakeholders, from whom ongoing support and societal
duty is, by essence, not static. Even though there seems to acceptance is maintained. For example, the affordability for
be, in some jurisdictions such as in the United States, a households of their retail bills for use of necessities such as
propensity by many pension funds and asset managers electricity and water, is front-of-mind for operating utility
businesses and the regulators that govern them. This position
towards a purely financial return maximization duty, the
is repeated across the globe, where those utility companies
extension of the remit of fiduciary duty is increasingly have operations.
considered globally to be in line with the challenges of our
time. In civil law countries, where core principles are
codified, the notion of fiduciary duty is usually translated
into hard law, thereby avoiding legal frictions and barriers
to ESG incorporation.

5First Sentier, formerly known as Colonial First State Global

Asset Management (CFSGAM)

ESG Handbook | 19
 The View from our members: Infravia Capital Partners 1.4 Wide adoption of the SDGs and debate
A strong rationale behind ESG integration in around impact
infrastructure
InfraVia invests in infrastructure assets with a lifecycle Adopted in 2015 as a shared blueprint for peace and
spanning several decades, with the objective to deliver stable prosperity, the 17 UN SDGs provide a framework to guide
and long-term returns to investors. InfraVia Capital Partners global actions, from international cooperation and national
also invests in and accelerates leading high growth companies
governmental policy to corporate strategies and individual
supporting the digitalization of infrastructure and the
economy. behaviors, towards inclusive socioeconomic growth and
 Infrastructure assets provide essential services and preservation of the planet. The universality of the UN SDGs
address environmental issues facing the communities allows them to be the common language for actors across
they serve. Infrastructure assets are key to the economic countries and sectors to coordinate, measure and
development and critical for the preservation of social
demonstrate their contributions to inclusive growth and
inclusion.
sustainable development.
 Late stage technology companies contribute to life
improvement, efficiency increase and sustainability
enhancement by providing communities and Figure 17: The Sustainable Development Goals
corporations with digital solutions that already underpin
smart cities, enable energy transition, catalyze better
health and promote social inclusion and education.
 Investing in a responsible and sustainable way does not
only comply with sustainable development goals, it also
increases the lifetime of the assets and their risk
resilience.
 By developing a responsible and sustainable investment
policy, InfraVia Capital Partners contributes to the
creation of long-term profitability, durability and value
for its investors, public or private sector partners,
entrepreneurs, and the communities involved in the
projects.
Significant discussions have taken place around the 2.5-
trillion-dollar annual financing gap in key Sustainable
Development Goals sectors6, in which a key challenge to be
solved is how to “scale up” additional private sector
investments. With increasing push for sustainability
integration in fiduciary duty, the UN SDGs represent for
institutional investors and asset managers a widely
understood and easily scalable framework to assess and
demonstrate the non-financial impacts of their
investments. At the same time, as a blueprint for long-term
growth, the SDGs encapsulate the macro risks and
opportunities that frame the economic conditions in which
investments take place. Thus, there are material incentives
for long-term investors to embed the UN SDGs in their risk-
return framework from both a risk-management and an
opportunity-driven perspective. A number of investors
have begun to work on integrating SDGs in their ESG
reporting framework and KPI.

The Business Sustainable Development Commission

estimated that integrating the SDGs in core growth
strategies could unlock at least $12 trillion annually in
economic opportunities by 2030. The current COVID-19

6UNCTAD (2018). Scaling up finance for the Sustainable

Development Goals.

ESG Handbook | 20
pandemic also sheds light on the importance of managing
ESG risks, especially those related to social topics, in the
Figure 19: Have you developed an impact strategy?
business strategy as well as potential opportunities for
investors to direct financing towards solutions to help
individuals and businesses cope with difficulties during the
33%
crisis and prepare for recovery after the pandemic. 40%

Impact investments are increasingly mainstreamed as

investors seek new approaches to give purposes to their 0%
investment. Impact investments are also increasingly 27%
meeting investors’ expectations in terms of both financial
Yes
and impact returns.
No but interested
Figure 18: Impact investment performance vs expectation No but not interested
(Source: Global Impact Investment Survey, 2019) In progress

100% 9%
2%
80%
60% 82% 77%
40%
20% The View from our members: STOA
16% 14%
0%
Impact expectations Financial expectations
Why did STOA decide to work on the SDGs?
Outperforming In-line Underperforming
STOA’s mandate is to support socio-economic
development and to tackle climate change in Africa and other
2020 Members Survey developing countries. Our core goals therefore align closely
with several of the SDGs, and the goals themselves provide us
Have you developed an impact strategy? with a framework for assessing how we can align
environmental and social outcomes more effectively, rather
than looking at each issue on a standalone basis.
Respondents are evenly allocated between those who already
have, those that are in the process and those that are We focus on targeted investment choices in infrastructure and
contemplating it and assessing the best alternatives. energy projects: by investing in accessible, functional and
Interestingly, no one dismisses the perspective. clean energy projects in emerging economies, STOA can
contribute to positive climate action and create maximum
Those that already did, often rely on utilizing global impact benefits for local communities (as shown in the diagram
metrics (e.g. from the PRI, GIIN) as a base to develop an impact below). For each investment the organisation defines strategic
scoring process to be used on their projects. Others did so by impact objectives to achieve positive and measurable social
setting up a specific fund or “Green” compartment, like in and environmental outcomes aligned with the SDGs.
2019, SWEN‘s Impact Fund for Transition, a direct impact Figure 20: STOA’s mandate overview
infrastructure fund for green gas energy in Europe, with its
dedicated impact methodology (SWEN ’s global impact
strategy is still being formalized). Among those that do not
currently have an impact strategy, some assess the
environmental impact of their investments and have
developed an Energy Optimization initiative for their portfolio
to improve our environmental footprint (CalPERS). InfraVia
does not manage impact funds but invest in assets that have
sustainable impact strategies, and its approach includes an
impact assessment.

Whilst AllianzGI does have an Impact Investing strategy, its

Infrastructure Debt strategy does not invest with the explicit
purpose of creating ESG impact and does not factor in impact
when deciding to pursue an investment.

ESG Handbook | 21
 The View from our members: Meridiam The View from our members: First Sentier Investors
The SDGs: a universally recognized framework
Meridiam’s 2020 impact report and measurement of its
contribution to the SDGs In 2018 we set ourselves the task of evaluating the UN
Sustainable Development Goals ("SDGs") to understand what
they could bring to each of the businesses within our portfolio.
Founded in 2005 and managed by Thierry Déau (also president of
We concluded that we would embrace SDGs, as they provide
Finance for Tomorrow, the arm of Paris-Europlace dedicated to
a universally recognized, best-in-class framework to define,
sustainable & green Finance), Meridiam is an independent
measure and communicate contributions to sustainable
investment Benefit Corporation under French law and an asset
development.
manager. The firm has 8 billion USD of assets under management
In order to drive their adoption throughout our organization
and 9 offices worldwide. Invested in Europe, the Americas, Africa
and the Middle East in three key sectors: mobility of people and we decided on some guiding principles: that we would
embrace the SDGs at every step of the way, from 'asset
goods, energy transition and environment, and social
selection' through to 'asset management'; and that we would
infrastructure, its 7 investment vehicles total $65 billion in capex.
focus our efforts on actions we can implement, measure and
It published its sustainable development charter and its benchmark rather than 'simply' report.
Environmental, Social and Governance (ESG) policy – as per Article
173 of the French law on disclosure. And for the first time,
Meridiam is reporting in its 2020 Impact Report, the impact of
projects across its entire investment portfolio, using a pioneering
and proprietary framework of assessment against Environment,
Social and Governance targets and Sustainable Development
Goals. The main takeaway is to identify how strongly projects
contribute towards certain SDGs and how others could improve
their performances in that regard. This will ultimately strengthen
Meridiam’s role as a long-term infrastructure asset manager and
create added value at project levels.

Aligning investments with the UN SDGs goes much further than mapping the investment portfolio with the relevant
SDGs. The double materiality of responsible investing, which recognizes both the impact of investment on sustainable
development on the one hand and the financial risks-returns of investment that are associated with sustainability topics on
the other, necessitates a comprehensive strategy that assesses a spectrum of SDGs-related impacts, from negative to positive.
Figure 21 provides an illustration from Responsible Investment Association Australasia (RIAA) of different levels of ESG
integration in investment strategy, and on how it should be integrated in each of these steps to fully meet the impact targets
of the investment.
Figure 21: ESG Investment Strategies Matrix, Responsible Investment Association Australasia (RIAA)

Traditional Responsible & Ethical investment Philanthropy

Investment ESG Negative Positive or Best- Thematic/Sustainability Impact Investing
Integration Screening In-Class -Themed Investments Market Rate Concessionary
(Including (& norms Screening Rate
shareholder based) (& norms based)
engagement
& voting)
FOCUS Limited Consideration Industry Investments Investments that Investments Investments that Grants that
or no & analysis of sectors or that target specifically target that target target social & target positive
regard ESG factors companies companies or sustainability themes, social & environmental social &
for ESG as part of excluded/ industries with e.g.: clean energy, environmental impact and environmental
factors investment divested from better ESG green property impact and deliver below impact with
decision to avoid risk Performance deliver market market rate no financial
making or better align rate financial financial returns return.
with values returns
Impact
Agnostic Avoids harm Benefits stakeholders
Intention
Contributes to solutions
Features
Delivers competitive finanial returns

Manages ESG risks

Pursues ESG opportunities

Intentionality: delivery of impact central to identifying

asset/investment

Impact of investment measured & reported

ESG Handbook | 22
For impact investors, a variety of frameworks and tools to have their impact management system to be
(further presented in Chapter 4) have been and are being certified by an independent third-party.
developed to support the measurement of and reporting
 The SDG Action Manager -
on impacts:
https://www.unglobalcompact.org/take-action/sdg-
action-manager
 The Impact Management Project (IMP), which
provides an impact analysis framework for corporates  LTIIA will work as part of a high-level ‘Brain Trust’7
and investors to assess and identify the most material with several large professional organizations
and additional impact areas associating with their (including GRESB and PRI, both being members of our
strategies. Action circle, and the GIIN) to foster the creation of a
framework, narrative and benchmark for asset
 The UNEP Finance Initiative has published two impact
owners to measure impact of infrastructure assets on
analysis tools to help banks and investors assess the
achieving the UN SDGs.
impact status and possibilities of their clients and
investees, as well as of their overall portfolios. At the end of the day, impact investment boils down to
several key elements:
 The GIIN (Global Impact Investing Network) has
initiated IRIS+, a database of impact indicators that  Intentionality: having targeted impact areas and ESG
are being used by both companies and investors. integration coherent with the investment strategy
 The IFC’s Operating Principles for Impact  Financial viability: ESG topics and targeted impacts
Management (OPIM) provides investors with eight are appropriately priced in the risk-return framework
principles supporting the integration of impact
 Additionality: generating impacts that are additional
management at all investment phases: strategy,
to what would have otherwise happened anyway
investments (from screening to exit), and ownership
phases. A 9th and last principle encourages signatories  Materiality: generating demonstrable impacts with
measurable impact KPIs

Impact investment Intentionality Profitability Additionality Materiality

is a multitiered clearly defined ensuring financial of investment’s impacts are
approach that target impact returns impacts measured via
= + + +
integrates both areas specific indicators
financial and impact
dimensions

The Operating principles for Impact Management (OPIM) is investment 8 . Peer review and feedback is encouraged,
a framework that has been developed by the IFC in and periodic third-party audit is required. The definition
consultation with a group of asset owners, asset managers, of eligibility criteria for project investment decisions and
allocators, development banks and financial institutions to processes to evaluate impact achievement have also to be
evaluate impact management among funds and integrated in the investment frameworks (see sections 3
institutions. The principles have been adopted by 92 and 4 for further details).
signatories (as of March 2020) since its launch in April 2019.
Adhering to the OPIM requires being aligned with nine (9)
Principles supporting the integration of impact
management at all investment phases: strategy,
investments (from screening to exit), and ownership
phases. The principles require investors to assess, address,
monitor and manage potential negative impact of each

7 dedicated impact investing solutions, which will be

Organized by AOAC (Asset Owner Advisory Council)
aligned with the World Bank’s IFC Operating Principles
8
BlackRock recently brought on board a leading impact for Impact Management.
investing team and are committing to launching

ESG Handbook | 23
 SDG themes that are currently most targeted by impact
The View from our members: Meridiam
investors are:
Integrating impact in infrastructure investment
 SDG 1 (No poverty);
According to Meridiam & ENEA consulting, there has  SDG 3 (Good health and well-being);
never been a better & more appropriate time to  SDG 7 (Affordable and clean energy);
integrate impact into infrastructure investment
 SDG 8 (Decent work & economic growth);
strategies and operations, so as to create a more
resilient economy for communities, and future  SDG 10 (Reduced inequality);
generations. Among the main highlights: While SDG 9 is dedicated to Infrastructure, specifically
 Infrastructure is a sustainability and resilience manufacturing infrastructure, the role of quality and
enabler and as such represent interconnected long- accessible infrastructure underlies the achievement of all
term value for the entire stakeholder spectrum. the 17 SDGs, from industrial facilities and transport
 huge amounts of capital need to be deployed in infrastructure, to schools, hospitals, electricity installations,
new infrastructure and revamping of existing ones, water system, and so on.
to support the emergence and deployment of a
An estimated $90 trillion will have been invested in global
sustainable economy. These new investment needs
infrastructures between 2016 and 2030, which is not a
represent promising opportunities assuming they
small amount to raise but can be the opportunity to
can deliver attractive risk-adjusted returns, which
“leapfrog” polluting and unsustainable infrastructure
should be the case as
systems and build robust and resilient installations that are
 . Sustainability matters and risk management have
compatible with long-term sustainable growth 10 . To this
a lot in common when it comes to infrastructure
end, infrastructure investors and asset managers are
investment and are strategic for investors as they
confronted with similar challenges as other responsible
determine the long-term value of these assets. This
and impact investors:
goes beyond the well-known concept of carbon-
intensive stranded assets as even green assets can  How to effectively identify potential opportunities
become stranded if for instance, they do not where their investments will make additional impacts;
address adaptation considerations.
 Societal, market and technological shifts now offer  How best to price the related ESG and impact risks and
a plethora of unprecedented opportunities for asset opportunities;
managers to achieve attractive returns, deploy  How to demonstrate, measure and monitor positive
investments and deliver higher impacts: and negative impacts of their investments in
 Large asset owners’ recent commitments to re- coherence with their strategies. This means SDGs
allocate capital to sustainable activities are creating integration should be done both at the overall
a large demand for sustainable assets. This has led portfolio strategy level as well as during the whole
to an oversubscription of green papers as investors investment cycle, from pre-investment due diligence
anticipate an impact on the long-term value, the to post-deal management, stakeholder engagement,
cost of capital as well as on the “license to operate” reporting, exit due diligence.
of the underlying assets they invest in.
This is just the beginning of a major evolution, paving the
way to a sector-wide transformation, with ESG-SDG
impact assessment becoming a mainstream
requirement for all infrastructure investment.

Thus, the UN SDGs can be a good starting point for impact

investors to identify the most relevant and material
themes to which direct their investments. According to the
Global Impact Investing Network (GIIN)’s 2019 survey9, the

9 GIIN (2019). Annual Impact Investor Survey. 10ODI (2016). Sustainable infrastructure the only way to meet
SDGs and climate targets.

ESG Handbook | 24
1.5 Climate change as a global threat to the cost of action, but about the cost of inaction, which
financial stability and humanity is far greater.”
 Climate Action 100+, an investor initiative,
After decades of unrelenting warnings from coordinated by five partner organizations (Asia
scientists of the Inter Panel on Climate Change (IPCC), there Investor Group on Climate Change; Ceres; Investor
is now a broad consensus over the adverse impact of Group on Climate Change; Institutional Investors
human-linked activities on our planet and the need to take Group on Climate Change and Principles for
up this crucial challenge before it is too late. Mankind has Responsible Investment) was launched in December
its back to the wall and collectively needs to do far more, 2017 at the One Planet Summit to ensure the world’s
as climate change is no longer just about statistics, largest corporate greenhouse gas emitters take
forecasts, curves, charts and graphs, but an inconvenient necessary action on climate change. Two years later,
and now visible truth. The consequences, will affect us all, more than 450 investors with more than USD $40
including the have-nots and the haves, developed and trillion in assets under management have signed on to
developing countries, the whole spectrum of economic the initiative. Blackrock, the world’s largest
agents, the fauna and the flora, etc. investment, with USD $7.4 trillion of asset under
management (as of end of 2019), joined the initiative
While the 1997 Kyoto Protocol had limited effect, in 2020.
hopes have been revived with the milestone 2015 Paris  In March 2018, the European Commission, launched
Agreement, which has set a global objective to hold the
an ambitious and multifaceted Action Plan for
increase in the global average temperature to well below
Financing Sustainable Growth, which now forms one
2°C above pre-industrial levels (and pursue efforts to limit
of the four building blocks of the wider EU
the temperature increase to 1.5°C). Political will and
Sustainability Policy, also known as the EU Green New
actions from all groups of society will be crucial, as most of
Deal. The latter revised upwards the EU 2030
the carbon credit available over the 15-year horizon has objectives to reduce greenhouse gases emissions by
already been used up or committed as at 2020. Beyond the 40% from 1990 levels, reach a 27% share of energy
“usual suspects”, such as NGOs and civil movements led by coming from renewable sources, and improve energy
younger generations, the financial sector, alongside policy efficiency by 30%. Henceforth, sustainable finance is a
makers, has also decided to grab the mantle, as climate key tool to meet a longer-term goal to achieve carbon
change progressively translates into tangible threats for
neutrality by 2050. According to the DG FISMA, 175 to
the economy, putting at risk the stability of the whole
290 billion euros of investments will be needed every
financial system. Since the now-famous speech given by
year to meet the objectives of the Paris agreement.
the Governor of the Bank of England and Chairman of the
Chapter 4, section 1.5, provides further descriptions of
Financial Stability Board11, Mark Carney in September 2015:
both the EC Action Plan and the EU Green New deal.
“Breaking the Tragedy of the Horizon – climate change and
 In January 2019, the Michael Bloomberg-led Climate
financial stability”, much water has flowed under the
Finance Leadership Initiative (CFLI) gathered 6
bridge:
influential financial sector CEOs from AXA, HSBC,
 The financial industry agreed on common definitions Macquarie, Goldman Sachs, Enel and Japan's
and categories of climate-related risks, elaborated by government pension fund (GPIF), formed at the
the Financial Stability Board’s Task Force on Financial- request of UN Secretary-General, António Guterres, to
related Disclosure (TCFD) in 2016 (cf. Figure 22). raise private capital towards tackling climate change.
Linking physical and transition risks with financial
impacts, there is now broad understanding that
climate change will unshakingly lead to higher
insurance losses, asset depreciations, physical
damages or even destructions, changes in resource
and input prices, business and supply chain disruptions,
etc. (cf. Figure 23). Quoting Børge Brende, President
of the World Economic Forum: “It is no longer about

11 horizon-climate-change-and-financial-
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stability.pdf?la=en&hash=7C67E785651862457D99511147C742
/media/boe/files/speech/2015/breaking-the-tragedy-of-the-
4FF5EA0C1A

ESG Handbook | 25
 Figure 22: Categorization of climate risks, I4CE, adapted from TCFD (2016)

Transition Risks Physical Risks

Policy and legal Markets Acute
▪ Increased pricing of GHG emissions ▪ Changing customer behavior ▪ Increase severity of extreme weather
▪ Enhanced emissions-reporting ▪ Uncertainty in market signals events such as cyclones and floods
obligations ▪ Increased cost of raw materials (causing damages on facilities, reduction
▪ Mandates on and regulation of existing or disruption in production capacity…)
products and services
▪ Exposure to litigation
Technology Reputation Chronic
▪ Substitution of existing products and ▪ Shift in consumer preferences ▪ Changes in precipitation patterns and
services with lower emissions options ▪ Stigmatization of sector extreme variability in weather patterns
▪ Unsuccessful investment in new ▪ Increased stakeholder concern or ▪ Rising mean temperatures
technologies negative stakeholder feedback ▪ Rising sea levels
▪ Upfront costs to transition to lower (causing damages on facilities, increased
emissions technology operating costs, impacts to workforce
management and planning, etc.)

Figure 23: Linking physical and transition risks to potential financial impacts, Climate Finance Advisors (2019)

ESG Handbook | 26
 In September 2019, an asset owner alliance committee increased public commitments to land use and energy
to carbon neutral (AOAC) portfolios by 2050 was efficiency (cf. Figure 24). According to the study, however,
unveiled at the UN Climate Summit in New York. The action still falls far short of what is needed under a 1.5 ˚C
initiative is said to be the first from the finance sector scenario. Estimates of the investment required to achieve
to explicitly aim to meet the Paris Agreement’s the low-carbon transition range from $1.6 trillion to $3.8
tougher target of keeping global warming to 1.5 trillion annually between 2016 and 2050, for supply-side
degrees Celsius. The same month, several Danish energy system investments alone (IPCC 2018), while the
pension funds announced a green transition pledge Global Commission on Adaptation (GCA 2019) estimates
and committed to invest an additional 47 billion euros adaptation costs of $180 billion annually from 2020 to 2030.
until 2030 to support the green transition. While it is crucial to scale up climate finance, new fossil fuel
 In November 2019, the European Investment Bank investments must be drastically reduced, and existing
announced its decision to no longer invest in fossil fuel investments that lock in high-carbon emission pathways
projects. and lead to potential stranded assets, such as fossil fuel
power generation and supply infrastructure, must be
 In July 2019, French President Emmanuel Macron
phased out (Cf. Figure 25). In this context, CPI recommends
convened at the Elysée 8 investment managers
that scarce public and other concessional financial
accounting together for USD $15 trillion of assets
resources must be used in a more transformative way. This
under management (Blackrock, Amundi, Goldman
will require unprecedented collaboration between
Sachs, BNPP, HSBC, Natixis, State street & Northern
governments, regulators, development banks, and private
trust) to form the “One Planet Sovereign Wealth Fund”
investors to align all financing with climate and sustainable
coalition and support the financing of the eponymous
development goals (SDGs), to identify the business models
fund (launched in 2018).
that can best enable private investment at scale.
 Sustainable finance labels were developed across
Figure 24: Total Global Climate Flows (2013-2018), Climate Policy
Europe over the last years, providing investors with
Initiative
further market incentives to incorporate ESG and
climate-related criteria in their operations and
decisions. Meanwhile, an EU Ecolabel for Financial
Products, targeting at retail investors, is being
developed and expected by Spring 2021 as part of
Action 2 of the EC Action Plan, with the ambitious
objective to further reorient capital towards green and
sustainable investments. Further descriptions can be
found in Chapter 4, section 1.5.
 Since 2017 and France’s decision to impose ESG and
climate-related reporting requirements upon both
asset owners and asset managers, several countries
such as the UK (e.g. pension funds) have followed suit. Figure 25: Global renewables and fossil fuel investment in billion USD
Further reporting requirements are expected at the EU (2015 – 2018), Climate Policy Initiative
level with the EU Disclosure Regulation.
The above climate-related initiatives, soft and hard laws,
are not meant to be comprehensive, yet they indicate that
the fight against climate change is a deep-rooted trend that
contributes to the mainstreaming of sustainable investing.
According to the Climate Policy Initiative (CPI) Global
Landscape of Climate Finance 2019 study12, annual tracked
climate finance in 2017 and 2018 crossed the USD half-
trillion mark for the first time, with a record high of USD
612 billion in 2017, driven particularly by renewable energy
capacity additions in China, the U.S., and India, as well as

12https://climatepolicyinitiative.org/publication/global-
landscape-of-climate-finance-2019/

ESG Handbook | 27
 material other actions become warranted. It is the process of
The View from our members: First Sentier Investors assessing and determining the materiality and appropriate
On Climate Change responses to risks which sit at the heart of discharging the
director duty of due care and diligence:
 Regulator statements also point to the foreseeability of
Environmental legislation and regulation climate risks. In Australia, the Australian Prudential
Legislation and other policy measures to curb emissions are Regulation Authority (‘APRA’), the Australian Securities
being introduced around the world to curb emissions and have and Investments Commission (‘ASIC’) and the Reserve
accelerated in recent years. Since 1997, there has been a 20x Bank of Australia (‘RBA’) have all made increasingly strong
increase in the number of climate change laws and policies. By statements over the last 2 years. “When a central bank, a
the end of 2017, there were over 1,200 climate change laws prudential regulator and a conduct regulator, with barely
and policies across 140 countries, at global, national, state,
a hipster beard or hemp shirt between them, start
local and sectoral levels. Most major economies have started
warning that climate change is a financial risk, it is clear
regulating carbon and related issues like air pollution. Many
approaches have been undertaken with mixed success. Policy that position is now orthodox economic thinking.” - (Geoff
responses include: Carbon pricing (emissions trading or direct Summerhayes, APRA)
taxes); Emissions standards (carbon and other related  In the UK, financial regulators released a joint statement
pollutants e.g. mercury, particulate matter, etc.); Energy on 2 July 2019 stating: “Climate change is one of the
efficiency and renewable energy incentives (renewable energy defining issues of our time. We recognize it presents far-
targets, feed-in tariffs, direct subsides) and Forest and farming
reaching financial risks relevant to our mandates from
programs. Other initiatives including removal of fossil fuel
subsidies, disclosure requirements and changes to approval both physical factors, such as extreme weather events,
processes. Countries that are not providing investment and and transition risks that can arise from the process of
business certainty through low-carbon regulatory frameworks adjustment to a carbon neutral economy. Companies
may be placing their domestic businesses and economies at a should consider the likely consequence of climate change
competitive disadvantage by perpetuating regulatory on their business decisions, in addition to meeting their
uncertainty. responsibility to consider the company’s impact on the
Climate Change is a material and foreseeable business and environment. Financial risks will be minimized by
investment risk achieving an orderly transition and via a collective
response.” – (Joint statement by the Bank of England,
The view that climate change effects may have a direct impact
Financial Conduct Authority, FRS and the Pensions
on business performance is nothing new. The SEC Commission
Regulator)
Guidance on this topic is a decade old: “Legal, technological,
political and scientific developments regarding climate change In October 2016, Australian barrister Noel Hutley SC released
may create new opportunities or risks for registrants. These a memorandum of opinion, on behalf of Minter Ellison, titled
developments may create demand for new products or ‘Climate Change and Directors’ Duties’. The key findings of the
services, or decrease demand for existing products or services opinion included:
(…) These business trends or risks may be required to be
disclosed as risk factors or in MD&A.” (SEC Commission  Climate change risks would be regarded as foreseeable by
Guidance Regarding Disclosure Related to Climate Change, courts, and relevant to a director’s duty of care and
2010. diligence to the extent that those risks intersect with the
interests of the company. For example, by presenting
Recent legal opinions on director and fiduciary duties in
corporate opportunity or risks to the company or its
relation to climate change view these risks as not only
potentially material but also “foreseeable”. This view is business model.
supported by factors including:  Company directors are not legally restricted from
 The increasing certainty of climate science as expressed considering climate change and related economic,
through the Intergovernmental Panel on Climate Change environmental and social sustainability risks, where those
process and various other reports from diverse and risks are, or may be, material to the interests of the
reputable institutions; company.

 The physical impacts from extreme weather and other  Company directors certainly can, and in some cases,
more chronic impacts which are increasingly and more should be considering the impact of climate change risks
confidently being linked to climate change; and on their company – and those directors who fail to do so
at the current time could be found liable for breaching
 The Paris Climate Change Agreement which sets clear
their duty of care and diligence in the future.
goals to limit global warning to “well-below 2°C”
approaching 1.5°C, which as at 25 June 2019 had been In 2019, Mr. Hutley updated his opinion stating that since 2016
ratified by 185 countries. “these matters elevate the standard of care that will be
expected of a reasonable director.” He attributes the
“Not a hipster beard in sight” escalation to five factors: coordinated regulator action,
Critically the foreseeability of the risks makes them changes to financial reporting requirements, investor and
inappropriate to ignore. Where the issue is then found to be community pressure, developments in the science and finally
developments following litigation. In Hutley’s view, “it is likely

ESG Handbook | 28
 to be only a matter of time before we see litigation against a social, political and environmental value14. It is noteworthy,
director who has failed to perceive, disclose or take steps in hence, that preference for sustainable investment, more
relation to a foreseeable climate-related risk that can be
than a signal of investors’ changing attitude, is also
demonstrated to have caused harm to a company.”
reflecting a much more profound shift in what investments
As predicted, we are now seeing such action, and represent for investors: from a financial device to an
internationally it has been underway for some time. A recent
expression of personal values and convictions.
report by the Grantham Institute has found more than 1,300
cases around the world. While the majority remain against
What is considered as a generational paradigm shift in
governments, an increasing number are against companies. In
Australia, there is currently a high-profile legal action brought investment preferences might also initiate momentum for
by a member against his superannuation fund that focuses on a larger paradigm shift in business models and
the fund’s management of climate related risks. management styles. According to a Schroders survey of
2019 (Cf. Figure 26), most people believe that their
individual investment choices can have an impact on
1.6 Generational paradigm shift building a more sustainable future and that all investment
funds, not only specific responsible investments, should
Increasing adoption of ESG is also driven by the general integrate sustainability factors in the investment processes.
changing attitudes towards sustainable development, and The study also found that preference for responsible
in particular the younger generations’ stronger appetite for investment is not only specific to millennial investors but
sustainable investment products. Sustainability has become a shared sentiment across different
considerations are quickly becoming an emblem of generations of investors.
millennials (people born between the early 80s and late
90s), who have been voicing out and calling political and On the other hand, challenges remain in capitalizing on this
business leaders to fulfill their duties towards society and strong momentum to turn responsible investment
the environment. It is no coincidence that one of the preferences into mainstream responsible investment
figureheads in the fight against climate change is a young practices. The supply for responsible financial products,
Swedish student, Greta Thunberg, who was also voted as while constantly increasing, is still found to lag behind the
the 2019 Time’s Person of the Year. assumed demand, particularly in Infrastructure.

Beyond collective activism, millennials are also exerting Figure 26: Importance of sustainability by investors’ age, Schroders

their influence through making conscious lifestyle and

career choices that give priority to sustainability and ethics.
According to the World Economic Forum’s 2017 Global
Shapers survey, “sense of purpose and impact on society”
is the second criterion young people deem most important
when choosing a career opportunity.

Thus, it is no surprise that millennial investors are much

more likely to prefer investment products that
demonstrate their contributions towards sustainable
development over so-called traditional investment
products that emphasize financial returns. As millennial
investors enter their prime earning years, they are
expected to propel growing demands for investment
products with both profits and purpose. A FactSet study
showed that 90% of millennials wanted to direct their
finances toward responsible investments in the next five
years 13 . Likewise, the US Trusts found that 67% of
millennials believed investments were a way to express

13 FactSet (2017). “Vision for the Wealth Management Industry 14 US Trusts (2014). “Insights on Wealth and Worth”.
in the Information Age”.

ESG Handbook | 29
2 ESG Factors in infrastructure

favor certain assets. Taxonomies will keep on

profoundly changing the faces of sustainable finance,
Investing in infrastructure carries specific challenges and for instance through the development of product-level
opportunities with respect to ESG matters. Not having a labels (ongoing development of the EU Ecolabel for
systematic and specific approach to ESG for infrastructure Financial Products), change in green bonds issuance
may lead to significant blind spots which would ultimately requirements (ongoing development of the EU Green
hurt performance over the long run and create damaging Bonds Standards) or evolving asset allocation
reputational issues. The lack of widely accepted quality strategies. Ultimately, investment committees,
standards in infrastructure design and delivery can reduce through clear exclusion policies, shall adequately set
resilience to E&S risks and affect investment outcomes, yet the bar, bearing in mind that certain types of
it should not be a smokescreen for inaction. infrastructure assets are less socially acceptable.

Several parameters are specific to infrastructure and call The View from our members: Allianz Global Investors
for the appropriate level of granularity when considering
ESG factors. The most critical parameters include location, Getting around country risks in infrastructure
type and nature of infrastructure, stage of investment, and investments
expectations from stakeholders.
It is important to assess whether the country where the
 The location of the infrastructure asset, whether in project is domiciled has good governance and strong
developed/OECD or emerging/frontier markets, institutions. For example, when it comes to
entails different types of country risks. While infrastructure deals in Latin America, good governance
infrastructure quality and availability are prerequisites favors working in six countries in the region that have
to countries’ economic and social development, investment-grade credit ratings: Chile, Peru, Mexico,
Colombia, Uruguay and Panama. Governance can be
investors may find themselves bogged down into
further helped by investing in infrastructure projects
unanticipated and complex local situations. The lack of
open and transparent procurement processes.
political stability, weak political institutions, high levels
of counterparty default risk, evolving or frail legislative Since the nature of fixed-income infrastructure as an
landscapes, poor understanding of cultural practices asset class suggests that many projects will be domiciled
in emerging markets, adhering to the highest standards
and low acceptance by local communities, are
of sustainability is especially important. These deals can
examples of project killers or poison pills with lasting
produce higher potential investment returns than
side effects. ESG and credit sovereign analyses, projects with comparable credit ratings in the US, they
supplemented by the investor’s knowledge of the historically have had relatively low defaults and they
location of the infrastructure asset, are therefore also add an ESG benefit to the portfolio. As such, getting
crucial. They often indicate that a thin layer separates sustainability right is more than just doing good: these
risks from opportunities. days, it is good business too.

 The type and nature of the infrastructure asset is of

utmost importance at a time when policy makers seek
 The large number of stakeholders, whose
to clarify through classification systems – or
expectations need to be identified and addressed, is
taxonomies – activities that may be deemed green and
another specificity of infrastructure projects.
socially and governance-wise acceptable. The
Managing only the expectations of the public grantor
European Commission is finalizing an EU-wide green
and the end users is not enough to ensure long-term
taxonomy as part of its Sustainable Finance Action Plan,
success of the project. Approaches should go beyond
which will become pivotal is reorienting capital flows
information dissemination and become more
in Europe, and potentially beyond, towards
participative to proactively engage with communities
sustainable development. This clearly shows a strong
in the whole project’s lifecycle activities. While
political will to achieve a fair transition towards a more
detailed ESG due diligence and the definition and
sustainable economy. While taxonomies are voluntary
implementation of a bespoke roadmap are conducive
and, usually binary, they clearly hint at the need for
to mitigate identified risks, these are not fail-proof:
investors to phase out from, not invest in, or instead

ESG Handbook | 30
 controversies and complaints may always arise the unfolding impact of climate change on our
anytime during the lifecycle of the infrastructure. At environment, and the several extreme climate events
the end of the day, an infrastructure investment needs threatening to affect economic growth, many European
more than just a laudable purpose from the onset, but initiatives have emerged, exemplified by the EU Green New
also permanent attention and care, as the positive and Deal and other regional initiatives (§4.4.1 of this
negative socioeconomic impacts of an infrastructure Handbook).
asset on its stakeholders can be substantial. Delivering
key essential services for the community, in a Within the ESG approach to assess a company’s overall
sustainable, affordable way and with local content is performance, the Environmental factor focuses on how a
probably the best mitigator against political and company performs as a “steward” of nature. As such,
economic risks affecting any investment. environmental criteria tend to evaluate impacts that
business activities have directly on natural resources,
 The stage of the infrastructure project, i.e. brownfield,
indirectly on human health, and the company’s efforts to
yellowfield or greenfield, also determines how risky an
reduce carbon emissions and meet the carbon neutrality
investment is. It is both easier and more cost-effective
objective.
to incorporate environmental considerations
(whether mitigation, adaptation or resilience) upfront, In the context of infrastructure investment and across all
at the design stage, than at a later stage of a project’s phases of the project (from the development to the
lifecycle. Considering ESG issues at the earliest decommissioning phase), infrastructure assets will face
possible stage of the investment process would allow several external (originated outside the asset) and internal
to: (inherent to the asset) environmental factors. In this
 Identify red flags and adjust the pricing model of section of the Handbook, the environmental impacts
the investment; stemming from infrastructure projects will be presented
according to the following categories:
 Adjust the design of the infrastructure to integrate
local constraints and increase social acceptance of  Climate change
the project;
 Natural resources and biodiversity
 Include ESG requirements in the investment
 Energy efficiency
agreement and agree on a bespoke roadmap;
 Degradation and pollution
 Identify potential areas for value creation.
 Circular economy
All things considered, there is no such thing as a “one-size-
fits-all” approach, but key ESG vantage points to consider, 2.1.1 Climate change
ESG standards and tools to pick from, market practices to
inspire from, on a case-by-case basis. The challenge lies in Climate change is playing a significant role in shaping the
finding the adequate balance between the E, S and G future of our economy as global warming is more tangible
criteria considered, leaving aside unconscious biases today through a series of extreme weather events such as
stemming from current topicality. Overall, of the relevance,
floods, melting glaciers and droughts episodes and the rise
quality and depth of ESG integration into the investment
of the Earth’s average surface temperature. As such, both
process will depend on the ability of an investor to uncover
risks and opportunities. This section provides an overview transition and physical climate risks are already impacting
of commonplace E, S and G considerations to ponder over, investors’ decisions, which are increasingly considering the
while illustrating case studies highlighting the idea that assets stranding effect. Constant evolving regulations in
granularity is key. key countries and regions such as the US, China and the EU,
carbon pricing policies and social norms pressure (e.g.
2.1 Environmental considerations fossil fuel divestment) have sparked the emergence of
stranded assets. Defined as unsustainable assets due to
Historically, much attention has been drawn to evolving regulatory environmental norms, suffering from
the ’Environmental dimension of ESG’ by shareholders, unanticipated or premature write-off, potential
investors and investment managers while considering ESG devaluation and converted to liabilities, stranded assets
factors in the investment lifecycle. As presented by Richard are a strong proof of environment-related risks’ effects on
Mattison, CEO of Trucost, “companies’ awareness and the asset’s lifecycle. The most relevant examples are coal
engagement with climate and environmental issues seems powerplants and coal mines stranded by the low carbon
to be increasing rapidly”. With a raising awareness about transition.

ESG Handbook | 31
On the other side, although physical risks associated with
climate change are still underestimated, those risks,
stemming from the environment (flooding, droughts, sea The View from our members: LBPAM, Meridiam,
level rise, heat stress and extreme wind episodes), are Carbone 4, and others
more likely to increase in the upcoming years and are
driving investors to factor them for both immediate and Marketplace 2°C Alignment Tool Development
long-term effects on infrastructure projects.
Several members from LTIIA, including Meridiam and LBPAM
are co-developing, with other investors and Carbone 4, a
The January 2019 bankruptcy of San Francisco-based
methodology to measure the alignment of infrastructure
Pacific Gas & Electric Company, PG&E, marked a business portfolios with a 2°C trajectory and the associated climate risks
milestone: the first case of climate-change bankruptcy. The (physical and transition risks). The methodology will reach full
company announced on January 14, 2019, that it was filing maturity by the end of 2020 and allow users to measure the
alignment of their various funds with a 2°C trajectory, further
for Chapter 11 protection by month end, in response to the
reinforcing their ability to anticipate climate-related risks for
financial challenges associated with the catastrophic their projects and funds.
wildfires that it was liable for in Northern California that
occurred in 2017 and 2018. Citing then an estimated $30
billion in liabilities (roughly triple its market value of $9.12
billion) and 750 lawsuits, the financial (of which insurance The View from our members: S&P and Carbone 4
costs and pecuniary sanctions), legal and reputational
Impact of physical and transition risks: the case of
spillovers from this controversy were still visible as this
Airports, by Standard and Poor’s & Carbone4
Handbook is being written, including a profound overhaul
of PG&E’s governance structure and composition.
Interestingly, long before the 2019 bankruptcy, PG&E’s Carbone 4 feedback:
equipment had already been frequently the cause of major In the actual context and as the COVID-19 death toll continues
wildfires in California: The Wall Street Journal, in an article to rise worldwide, societies keep questioning what could have
published in end of 2019, indicated that the utility been done by governments to better prepare for this
pandemic. Billions of people around the world have
company was “wired to fail”. Going further, and judging by experienced lockdown measures and travel restrictions.
its aggregate ESG ratings, PG&E was doing just fine and did Although these restrictions have sent the financial markets
not flash many warnings. The utility company was even into a free fall, satellite observations have recorded an
supplying in 2017 an 80% share of its mix from GHG-free increase in air quality and a sharp fall of pollution levels around
the world.
sources (renewables, nuclear and hydropower), meeting,
ahead of schedule, California’s 2020 goal of 33% of One of the industries suffering due to the COVID-19 pandemic
electricity coming from renewables. In short, the case of is the one mainly responsible for spreading it at a larger scale.
Consequently, environmental movements such as “the flight
PG&E should be a wake-up call for all. While it has raised shame” have gain momentum in this particular context and
more questions than answers, lessons can be learned: are stirring up an urgency to rethink our use of this
transportation mode. The movement was spurred on by the
 Adaptation and mitigation of climate risks are key.
teenage activist Greta Thunberg to criticize the growing
 Climate risks already have material and lasting impacts footprint of the aviation industry as air travel accounts for
on businesses. about 2.5 percent of global carbon dioxide emissions.

 There is no such thing as a one-size-fits-all approach to Before the COVID crisis, Airports were very highly prized assets
among infrastructure funds. The aviation industry undeniably
ESG, and ticking the box doesn’t suffice. boasts attractive levels of growth, with global traffic doubling
 E, S and G considerations are closely intertwined, and every 15 years. But such assets could also be prime candidates
to fall victim to the stranded asset phenomenon at some point
none should be neglected at the expense of the other.
in the future, the Heathrow airport extension rejection by an
 There is a case for active ESG investing, i.e. building appeal court judge on climate change grounds, being one of
proprietary views on investees and putting a strong the most recent examples (and pandemic-induced lockdown
being another). The aviation industry actually embodies many
emphasis on engagement.
of the issues associated with climate change. Indeed, the
savings made as a result of energy efficiency (around 1% a year
according to the ICAO) and the potential for introducing
biofuel replacements will be nowhere near sufficient to offset
the 5% annual increase in traffic in order to be compatible with
the Paris Agreement. This being the case, it is vital that this
growth in traffic levels also decreases if the industry’s
decarbonization targets are to be met. The IEA's 2Ds scenario

ESG Handbook | 32
 compatible with limiting global warming to 2°C anticipates a which sets a key legal precedent, said the government had
circa 2.6% p.a. growth in traffic (1.2% p.a. in the EU), as wrongly ignored its international climate change
opposed to the current rate of 4.7%. With assumed energy
commitments under the Paris Agreement. This court
efficiency savings twice as ambitious as those stated by the
ICAO, and a very optimistic level of biofuel penetration to decision, the first ever to refer to the Paris accord to
boot, it could be argued that the levels of growth suggested by determine the legality of a national investment decision,
the IEA are, in fact, on the high side to ensure that industry has vital wider implications for keeping climate change at
practices can continue despite climate pressure. the heart of all planning decisions.
Thus, the challenge to comply with the Paris Agreement whilst
at the same time have an emissions potential that exceeds the 2.1.2 Natural resources
carbon budget available will unavoidably lead to the
emergence of stranded assets. That said, if emissions are not
limited, the latter will inevitably emerge as consequences of a Expected public and private investment of $90 trillion in
rapid rate of global warming, which will in turn lead to major projects between now and 2030 will double the
increasing levels of damage where physical assets, such as amount of infrastructure projects globally and will have
networks, ports, power stations, etc., included in undoubtedly significant impacts on natural systems,
infrastructure asset portfolios are concerned. Stranded assets
can therefore come about because of both transition risks and
habitat and biodiversity. Infrastructure projects related to
physical risks. Ultimately, whilst some assets will suddenly natural resource exploitation, such as dams, windfarms
need to be shut down, a very large number of infrastructure and solar PV panels, can cause major disruptions on the
assets could experience a loss in value or profitability because project’s land perimeter and on the surrounding areas if
of climate, or more broadly environmental risks. What we are
inherent risks aren’t assessed at early stages of the project.
dealing with here is a continuum of risk with financial
consequences that will vary in severity depending on the asset Land use and water management are the main factors to
in question. evaluate natural resources exposure through
S&P feedback:
infrastructure projects development:

Environmental risks for airports are average, as the bulk of  Land use and biodiversity: Infrastructure projects can
exposure is indirectly stemming from airlines which are at
long-term risk of rising costs to meet emissions regulation.
have induced impacts on biodiversity and ecosystem
Still, airports are directly exposed because of climate change services as construction projects open-up previously
impacts on their current and future infrastructure. Extreme inaccessible areas to human activity. Thus, many tools
weather events, insurable or not, can disrupt airport have been developed to help investors and financial
operations causing delays, rerouting, and cancelations and
institutions identify biodiversity-related risks and
affect financial performance. Albeit the disruptions tend to be
short term, the severity and frequency of weather events dependencies and assess impacts on the natural
seems to be increasing. A more structural risk with prolonged capital. Tools like ENCORE (Exploring Natural Capital
impact is the rise of sea levels, as this may affect many airport Opportunities, Risks and Exposure) developed by the
facilities located near coasts Natural Capital Finance Alliance and the UN
Airports own exposure to regulation affecting greenhouse gas Environment and the global biodiversity tool
emission is limited, as their operational and energy developed by the CDC (the Caisse des Dépôts Group)
production, and aircraft landing and take-off cycle together
help investors identify the correlation between
correspond to about 2% of total emissions in the aviation
sector. environmental degradation and business financial
risks.
Land use (environmental permits and studies, adverse impact
on biodiversity) can be a key risk factor for expansions,
extensions, and new developments. Bird deflector installed on transmission lines

As homes to airlines, airports also need to consider air quality

(e.g. sulfur and nitrogen oxides, and particulate matters) in the
operational and surrounding area. An airport's environmental
exposure also extends to the substantial road traffic it attracts
(and now, pandemic-induced lockdown).

Regarding airports, it is interesting to note a ground-

breaking milestone, in February 2020, with the decision
from the London Court of Appeal (UK Supreme Court)
ruling that the British government’s decision to expand
Heathrow (1st European airport and 7th worldwide) was
“unlawful”, on climate change grounds. The judgment,

ESG Handbook | 33
FOCUS: The ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) Tool

ENCORE is a web-based and freely accessible tool that helps global banks, investors and insurance firms assess environmental
degradation risks and explore natural capital risks. ENCORE is based on current environmental data and covers 167 economic sectors
and 21 ecosystem services. The tool also helps financial institutions identify projects material dependencies on nature and their impacts
on business profitability.

protection, clean water and water storage are also

FOCUS: The Caisse des Dépôts et Consignations (CDC)
natural ecosystem services that can be disrupted
Biodiversity Score
during the construction phase and that must be
addressed at this phase.
Built to support and measure the companies and
financial institutions commitment in favor of
biodiversity, the CDC Global Biodiversity Score (GBS) 2.1.3 Energy efficiency
assesses the impacts of business activities and scores
biodiversity footprint through a single reference Energy production and use account for an average of two-
indicator along their value chain. The tool was thirds of all anthropogenic GHG emissions, mainly because
developed with the support of 30 companies and of the combustion of fossil fuels (according to the IEA,
financial institutions that are members of CDC 2017). Looking through the lens of institutional investors,
Biodiversity Business Club (Club B4B+) and with energy use and greenhouse gas emissions represent
collaboration with academics and Non-Governmental
material issues in the ESG evaluation process as the asset’s
organizations.
position regarding the sector-average carbon intensity is a
significant indicator of its overall energy performance.
 Water: Institutional investors usually consider water
management issues at the top three of environmental Thus, by adopting a bottom-up approach, the analysis of
considerations while assessing ESG factors according the total energy use, and mid- to long-term projection in
to the RBC Global Asset Management Responsible accordance with the reference scenarios (2°C, below 2°C
Investment Survey, as water pollution and scarcity and 1.5°C scenarios) are topics that need to be addressed
represent a worldwide economic and environmental to inform investors on projects’ energy intensity and GHG
threat. In spring 2018, a major developed metropolis, emissions. The low-carbon transition will require an
Cape Town, came very close to municipal water failure unprecedented transformation of the infrastructure
for the first time in modern history, a crisis labelled system as the sector represents one of the most energy-
“Day Zero” by local officials and brought on by three intensive and difficult-to-decarbonize. Existing energy and
consecutive years of anemic rainfall. Water-related transport infrastructure are mostly not aligned with long-
disclosures on water withdrawals, consumption, term climate risks mitigation strategies as 60% of GHG
discharges and water stress regions are key factors to emissions are linked to existing infrastructure (according to
evaluate long-term risks and opportunities of an the New Climate Economy Report, (NCE,2016) and
investment portfolio. When it comes to understanding Intergovernmental Panel on Climate Change (IPCC, 2014)).
water risks, it is important to assess to what extent The shift is urgent, if we are to meet the Paris agreement.
water issues are material to the investment. Flood

ESG Handbook | 34
Such energy efficiency schemes can be combined with 2.1.5 Circular economy
social considerations, as illustrated in schemes targeting
low income households, thus keeping down overall energy In the linear economy, raw natural resources are taken,
consumption and reducing the need for expensive peak- transformed into products and get disposed of. On the
power. other hand, according to the World Economic Forum’s
definition, “a circular economy is an industrial system that
To achieve such an orientation from the power sector, the is restorative or regenerative by intention and design. It
business model for utilities will need to change, evolving replaces the end-of-life concept with restoration, shifts
from energy vendors to energy service providers, the latter towards the use of renewable energy, eliminates the use
including help to consumers seeking to use less energy of toxic chemicals, which impair reuse and return to the
through improvements in energy efficiency. Utilities will biosphere, and aims for the elimination of waste through
need to shift towards selling ‘negawatts’ as opposed to the superior design of materials, products, systems, and
‘megawatts’, a reversal of their traditional retailing role business models.”
and one which requires decoupling energy sales from
revenues and thus recasting the incentives built into their In a context of resource depletion, the design, construction,
current business model. This approach is built into the ISO operation / maintenance / use and end-of-life phases of an
standard 50007. infrastructure project may encapsulate such principles.
Integration of sustainable practices and the principles of
Figure 27: Low-carbon, Climate-resilient infrastructure and the SDGs
circular economy upfront, in the design as well as in
operation/maintenance phases of infrastructure projects
offer multiple benefits. It may:

 Extend their life span;

 Reduce potential liabilities and risks of harming both
people and the environment;
 Increase their market and financial valuation;
 Diminish the operational and dismantling costs.
Life-Cycle Assessments (LCAs) can be instrumental to
2.1.4 Degradation and pollution calculate the environmental and social impacts of an
infrastructure asset over its lifetime. They may cover:
In addition to climate related risks and natural resources
preservation, screening potential infrastructure  The choice and sourcing of raw materials at the design
investments involves identifying degradation and pollution phase that have a lower environmental footprint (e.g.
factors, as well as assessing waste management strategies reduced energy, water, volatile organic compounds
to evaluate the asset’s environmental impact and better emissions and material use; use of recyclable /
capture mid- and long-term returns for investors. renewable materials; use of conflict-free minerals; use
of eco-labelled materials; reduction of hazardous
Diverse impacts can occur in all phases of the project substances and toxic materials; etc.)
(design, construction, operation/maintenance/use and
end of life) and may concern a range of pollution factors  A more sustainable operation and maintenance phase
(contaminated lands, on and off-site, toxic emissions, air (e.g. reduction and savings of emissions, energy, water
pollution, leakages and oil spills, noise pollution, visual and waste; increased durability; increased safety for
pollution etc.) and waste factors (waste generation, users and workers; etc.)
hazardous and non-hazardous waste storage and disposal  A responsible end of life management (e.g. disposal,
and waste recycling) to be addressed. Such factors can recovery, biodegradation, etc.)
have concrete impacts on the infrastructure asset’s
financial valuation, as investors need to evaluate the costs
associated with relevant remediation actions.

ESG Handbook | 35
 Focus on the Brisbane airport
The View from our members: First Sentier Investors
Environmental Management of Airports - The case of Brisbane Airport is Australia’s third-largest airport by
Brisbane passenger volume, handling approximately 24 million
passengers annually.
For First Sentier Investors, Australian airports
demonstrate leadership in environmental management, Since its privatization in 1997, passenger growth at
especially regarding climate change. Both Brisbane and Brisbane Airport has more than doubled. To meet this
Adelaide Airports have multi-faceted approaches to growing demand, billions of dollars’ worth of
these important issues and share some key infrastructure is being developed at the airport.
characteristics:
Foremost of these is the 3300m new runway.
 Rated as ‘Level 3 – Optimization’ in Airports Council Highlighting the long lead times for large scale
International Carbon Accreditation: This infrastructure assets, the runway has been in
accreditation acknowledges not only the efforts construction for eight years and in planning for decades.
being performed by the business itself but also its After much work and billions of dollars invested by the
ability to influence other key stakeholders (e.g.
airport’s institutional investor base, including First
tenant businesses) in positive climate outcomes.
Sentier Investors, the runway should open to new traffic
 Significant investment in embedded solar PV as part in mid-2020.
of the business overall energy management and
emissions reduction strategy: The roof of an airport In the design of the project, the airport must prioritize
may be an ideal candidate for solar PV installations,
safety, and then must also balance considerations
with thousands of square meters of unimpeded
around noise, operational standards, cost, and
roof space available for solar harvesting. These
programs have a proven business case for environmental factors. Brisbane is one of Australia’s
diversifying the energy supply, reducing energy largest airports in terms of land area and is based on a
costs, as well as achieving meaningful emissions low-lying coastal site susceptible to flooding events. The
reductions. key climate change impacts modelled regarding the
 Supporting the protection of flora and fauna with runway are sea level rises, storm surge and
dedicated biodiversity or conservation zones: With local/regional flood events. This deliberate
airports occupying large land areas and subject to consideration of potential climate change impacts led to
developments along with the cities that surround the resilient design approach in relation to runway
them, having dedicated biodiversity zones ensures height. An increased runway height comes at materially
a level of protection for the local area. increased upfront costs but helps to ensure the long-
term resilience of this long-life asset, that will serve the
 Implementing coordinated waste management Queensland community for decades to come.
programs amongst all the airport food and
beverage tenants: This may include circular Figure 28: Brisbane Airport runway’ height illustration
economy initiatives such as transforming food
waste into fertilizer through dehydration or
facilitating the use of compostable service ware to
minimize dry landfill.
 Water efficiency: with the use of recycled water
and storm water harvesting for non-human contact
purposes, such as toilet flushing and irrigation
needs.
 Commitment to transparency: through published
integrated reporting, or standalone sustainability
reports, in accordance with GRI standards, as well
as publicly available Master Planning documents.

ESG Handbook | 36
2.2 Social considerations Figure 29: Labor standard review in E&S due diligence for fund
management (CDC)

The UN PRI has noted that, while environmental and social

assessments have long been a common practice in major
infrastructure projects, these have often been conducted
as part of a “tick-the-box” measure to ensure compliance
with the relevant regulations rather than a thorough
assessment of the project’s potential environmental and
social risks and impacts15. This is particularly the case for
social topics. For example, a CDC (UK) (study has found that
the effectiveness of labor standard is not always
thoroughly assessed in investment funds’ E&S due
diligence (cf. Figure 29)16. Furthermore, while the impacts
of environmental risks can often be measured through
quantitative indicators, such as GHG emissions, energy
consumption, water discharge, social risks are often
assessed through qualitative indicators - for example, the
presence of a human resource policy or stakeholder
engagement activities. Therefore, as much as social risks
can have important potential impacts on an infrastructure
project, these impacts are not always immediately tangible
and thus, can be more difficult to quantify, except in highly
controversial incidents or in cases of litigations and
regulatory fines. However, investors and companies need
to recognize not only the potential negative externalities
beyond regulatory costs of social issues such as health and
safety, worker relations and community relations, but also The types of social issues that are material for
evaluate the positive externalities of these issues in the infrastructure investment and their impacts on the
long term. Therefore, a careful and comprehensive investment process may vary among different
assessment of all relevant social topics is imperative to fully infrastructure sectors. Nevertheless, many cross-cutting
integrate the material social issues in the infrastructure social topics are relevant for most categories of
project valuation as well as to develop effective action infrastructure investment and should be carefully assessed
plans to manage these issues. This, in turn, will reduce the and managed during the entire investment lifecycle.
risks of financial costs from potential incidents and
controversies, high turnover rates, loss of social license to These include, among others:
operate, and enhance the infrastructure’s potential
positive social impacts.  Occupational Health and Safety (OHS) during the
infrastructure design, construction / maintenance /
use, and operation;
 Labor and human resources policy, including labor
rights, labor standards, and adequate policy to attract
and retain talent;
 Impacts of the infrastructure project, from
development to operation, on the local communities.

15UNPRI (2019). Building the conversation around social issues in 16CDC, Environmental and social due diligence: mitigating risks,
infrastructure investing. identifying opportunities.

ESG Handbook | 37
2.2.1 Occupational Health and Safety progress. Frequent training sessions are also conducted for
employees and to share best practices.
Occupational Health and Safety is an important Cultivating a safety culture was found to “not only have a
consideration for companies in all sectors and is a positive impact on employee morale and a company’s
reputation, but also on productivity and cost savings (through
particularly material issue for those operating in sectors
a reduction in lost time from injuries, for example)”.
related to infrastructure development, operation and Furthermore, for a company operating in road infrastructure,
maintenance. customer safety / road safety is also a material issue ITRCC
leveraged technological application through using fiber optic
Having a comprehensive Occupational Health and Safety cables in its Intelligent Transport System, which helps monitor
traffic and facilitate improved incident response and weather
policy in place that provides for a clear governance
management. This contributed to reduce accident rate and
structure, appropriate security measures, mandatory improve road safety conditions.
training and awareness programs (e.g. road safety,
behavioral safety), an effective incident and near-miss
response management and evaluation system, as well as 2.2.2 Labor and human resources policy
monetary and non-monetary incentives to improve
performance, is an essential requirement for infrastructure Labor standards
companies. Such measures should cover not only own Basic labor rights have been codified in numerous
employees, but also contracted workers and any third- international conventions, including the International
party such as the end beneficiaries of the infrastructure. Labor Organization Conventions and the UN Conventions
on the Protection of the Rights of Migrant Workers. The
Inadequate Occupational Health and Safety policy main areas covered by these international standards
implementation can result in severe injuries, casualties as include fair and equal treatment of workers, abolition of
well as asset loss and damages, which in turn can lead to forced labor and protection of the rights of people in
significant operational costs due to resource and time loss, vulnerable groups, such as children, migrant workers,
lower reputation among business partners, loss of clients, contracted workers, supporting workers right to collective
or potential fines and litigations. Accidents can also have bargaining and freedom of association, and promoting
negative impacts on the workforce as they can cause low positive employer-employee relationship. At the national
morale, which in the longer term may decrease level, countries also have their respective regulations
productivity or increase employee turnover rate. covering working conditions and workers’ rights. On the
Alternatively, an effective Occupational Health and Safety other hand, grey areas still exist where the relevant local
policy and governance structure play a key role in not only regulations are not fully aligned with international
mitigating these risks, but also reinforcing a virtuous circle standards or where labor regulations are not strictly
of quality health and safety practices, good working enforced. Uncertainty also remains in respect of business
conditions and high operational efficiency. It is an labor policy towards contracted workers and labor right
employer’s ultimate responsibility to maximize the well- protection in the supply chain, as there have been little
being at work of its workers and third parties, and adopt a disclosure or documented monitoring of these issues by
zero-tolerance policy with respect to safety matters. companies. Thus, one of the main drivers of promoting
labor rights and labor standards in recent years has been
FOCUS: UN PRI the push for enhanced disclosure regarding the conditions
of the workforce in the company’s own operations as well
Positive impacts of health and safety management in a as in the supply chain. These disclosures include provisions
road infrastructure investment related to remuneration, equal opportunities and fair and
equal treatment for different groups of workers.
IFM Investors acquired ITR Concession Company (ITRCC),
which is responsible for the operation, maintenance and repair Since labor rights is an area that is often regulated by
of the Indiana Toll Road (ITR) in Northern Indiana, US. national laws in many countries, the most frequently
Following the acquisition of ITRCC in 2015, a three-year
strategy was initiated, including a Safety-First Plan and various
assessed risks related to labor rights are associated with
initiatives to address the existing flaws in occupational safety financial costs from regulatory fines and legal proceedings
practices. New safety initiatives were placed under the due to non-compliance issues, and investors’ approach
oversight of the CEO, with monthly safety report addressed to towards these topics has been to ensure their investee
the Board, and safety committees were created to effectively
companies’ compliance with the relevant national and
implement safety measures. The health and safety strategy is
reviewed and results followed up annually to measure local regulations during pre-investment due diligence. On
the other hand, investors should recognize that protecting

ESG Handbook | 38
workers’ rights and improving working conditions for all
FOCUS: CDC (UK) E&S Guidance on Labor Standards
worker groups can bring about important intangible values
such as good morale and high employee engagement rate,
Part of CDC’s ESG Toolkit for Fund Managers, the E&S
which over time can translate into lower turnover rate, guidance on labor standards provides a concrete
improved business continuity and reduced operational overview of the existing relevant international
disruption cost, better business reputation and higher standards and national regulations on key labor right
talent attraction rate. This is especially relevant for topics, including the ILO Conventions, the IFC
infrastructure construction, operation and maintenance Performance Standards on Labor and Working
sectors, where physical work is common and working Conditions, the UK Modern Slavery Act. The guidance
conditions can be irregular. also provides specific advice for fund managers on the
issues to look out for and key criteria in assessing labor
Responsible investors, who recognize the long-term practices that are listed in an E&S Checklist.
benefits of these intangible values related to upholding
high labor standards, are increasingly taking a more 2.2.3 Community relations and impacts of
proactive approach by engaging with their investee the infrastructure on the local
companies during the investment phase to encourage
communities
transparency and best practices in labor right protection.
Human capital development Community relations is one of the most material social
issues for infrastructure investment as infrastructure
Human capital is a key element in the operation of a development and operation often have direct impacts on
company. Building a strong human capital base, through the inhabitants of and near the area where the
adequate policies to attract and retain talents as well as to infrastructure project is located. First, infrastructure
enable employees to develop relevant skillsets and development and maintenance are associated with land
competence, can facilitate companies in implementing access requirement, which often involves land acquisition
their corporate strategy in an efficient and innovative way and, in many cases, local community resettlement.
and, thus, maintaining competitive advantages. Resettlement is considered involuntary when affected
Talent attraction and retention is not only a question of persons or communities do not have the right to refuse
implementing an appropriate and well-balanced land acquisition or restrictions on land use that result in
compensation framework that recognizes the physical or economic displacement 17 . If not managed
contributions and achievements by employees. Creating a carefully, this can have adverse impacts on the local
conducive and enabling working environment also plays an activities and livelihood, especially in regions where land
important role in maintaining a positive relation between ownership right was previously generational and thus not
a company and its employees. This involves both ensuring legally protected. Land acquisition for infrastructure
high-quality physical working conditions as well as building projects can also impact the local communities due to
an empowering and effective working culture. reduced access to other resources and facilities.
Furthermore, infrastructure construction and operation
Creating opportunities and encouraging employees to can impact the local daily life as this may cause air pollution,
learn new skills and develop their competences also water pollution, increased noise level. Involuntary
contributes to improve talent attraction and retention and resettlement, excessive disruption of the local activities, or
employee motivation. Furthermore, this helps to ensure inadequate compensation for the local communities are
that employees have the adequate and appropriate skillset among the reasons for local unrests against infrastructure
to not only execute the company’s business strategy but projects, which may eventually turn into significant
also develop the potential to innovate. Companies should conflicts and controversies. These may incur important
have a comprehensive approach in order to identify skill delay and large additional costs to the infrastructure
gaps, assess employees’ learning needs, and develop cross- project and, in some cases, even result in loss of the
cutting systems to enable learning and knowledge-sharing infrastructure company’s social license to operate.
across the company. On the other hand, infrastructure investment can also
bring important benefits to the local populations by
implementing a local content strategy. Local content refers

17IFC Performance Standard 5 on Land Acquisition and

Involuntary Resettlement

ESG Handbook | 39
to the extent to which local populations and companies can
participate in the workforce and supply chains of a given
industry. Initially a focus area in sectors that require The View from our members: S&P
technical sophistication to manage natural resources—
namely extractive industries such as mining, oil, and gas, Social risks for Airports
the concept of local content has been adopted by other
Social risks for airports are, in our view, the most important
industrial and infrastructure sectors.
ESG factor and above average compared to other business
Developing a local content strategy at the early stage of the sectors. Airports facilitate public mobility and drive economic
development of their catchment areas; those located in
infrastructure investment can create social and
industrial, lower scale suburbs act as a key manpower
commercial benefits that facilitate economic development employer for local communities and deprived workforce.
and industrial growth and, at the same time, contribute to However, airports located near highly populated areas attract
sustainable development at regional and local areas in the increasing opposition of local communities to congestion,
project’s country, through: noise, and worsening air quality resulting from airports
operations.
 Workforce development: employment and training of Because airports are focal points given their strategic location
local workforce (basic education, language training, and high-profile role, these issues have been gaining the
attention of the media, businesses, investors, governments,
practical experience, scholarship schemes, etc.);
and regulators, and approvals for developments requiring new
 Investments in supplier development: developing and land can be hard to achieve in some jurisdictions where the
government responds to vocal communities. Airports need to
procuring supplies & services locally
skillfully manage a range of stakeholders, for instance by
Both the potential negative and positive impacts of involving governments and communities in planning, as well as
in balancing short-term challenges and long-term needs,
infrastructure projects need to be carefully assessed by
economic versus environmental and lifestyle benefits. The
investors during the due diligence phase to evaluate the latter may involve proactive policies, such as penalizing tariffs
full spectrum of impacts that the infrastructure is likely to for polluting aircraft (within the boundary set out in the
have on the local populations. While the government often concession agreement) and limiting flight slots during nights
plays the central role in land acquisition and resettlement and weekends, which can lessen community and regulatory
discord. More remote external community risks include
process, companies involved in the infrastructure project geopolitical tensions, social unrest and health-related events.
can facilitate its effective implementation by complying Epidemics, such as SARS and the recent Corona virus, can lead
with the relevant regulatory provisions and through to severe impacts on travel, albeit generally short-lived (so far
consultations and engagements with the local assumed up to 3 months). In addition, social demonstrations
are a relevant risk factor, because airports are focal points
communities. Investors should ensure that the
given their strategic location and high profile.
infrastructure company is, at the minimum, following the
regulatory procedures and engaging the local community A key medium to long-term social risk factor relates to
changing customer behavior, as travelers become increasingly
to manage potential impacts. environmentally conscious and because of the difficulty
Infrastructure investors often identify and manage the decarbonizing air traffic. This is forecast by IATA to be growing
4% per year and to double by 2037, fueled by mobility trends,
social risks of their investments through pre-investment and the lower cost of flying. While increasing awareness of
E&S due diligence, which is gradually becoming a standard climate impact of flying is prevalent to more affluent an
practice. Nevertheless, social issues should also be environmentally conscious (for example "flygskam," or flight-
managed proactively during the investment and operation shaming, in Sweden) rather than developing regions, a key
area to monitor is whether governments increase “green”
phases through meaningful stakeholder engagement that
taxes on aviation, in turn raising flight prices. This is
involves key stakeholders affected by the infrastructure, particularly important for airlines, but also for airports building
from local and national government, to the investee major capacity extensions to cope with projected long-term
companies, their workers and suppliers, as well as the local growth.
populations. Stakeholder engagement is the basis for Finally, safety management is also a risk since passenger and
building strong, constructive, and responsive relationships cargo security is essential to performance, including reducing
that are essential for the successful management of a the risk of terrorist or drone attacks, or bird strikes. Airports
typically have prescriptive policies and procedures governing
project's environmental and social impacts.
employees and contractors, and are increasingly engaged in
customer and user education.

ESG Handbook | 40
2.3 Corporate governance and business Alternatively, infrastructure investors in non-listed
ethics considerations companies can promote responsible investment practices
by leveraging the specificities of the governance structure
in private infrastructure investment. As private
The business case for integrating corporate governance
infrastructure investors have more proximity to the
and business ethics consideration in infrastructure management of the infrastructure projects or assets, they
investment is supported by compelling evidence. can actively engage the fund managers or their co-
Corporate Governance investors in the special-purpose vehicle (SPV) to frequently
assess and report on material E&S issues related to the
From a general business perspective, good corporate infrastructure project or asset management, as well as
governance makes good business sense, as a company’s implement and monitor action plans to address material
management plays a key role in driving and implementing E&S risks.
its core business strategy, which in turn is a determining
factor in the company’s operation and output, and
FOCUS: The Corporate Governance Development
ultimately its value creation. Therefore, investors have
Framework (CGDF)
strong incentives in ensuring a good quality of
management and corporate governance structure in their The CGDF, an initiative by 9 Development Finance Institutions’
investee companies, and it is no exception for (DFIs) including the IFC, CDC Group, ADB, Proparco, is a
infrastructure investment. Infrastructure projects with common approach on how to address corporate governance
inadequate governance often result in cost overruns, risks and opportunities in DFIs’ investment operations, but are
also relevant for corporate governance assessment in all other
delays, underutilization and accelerated deterioration due types of investment as well as for due diligence in fund
to poor maintenance 18 . In addition to financial management. Based on the IFC’s Corporate Governance
considerations, strong corporate governance quality also Methodology, the CGDF provides a common platform for
plays an important role in the effective management of evaluating and enhancing governance practices in investee
companies. Multiple tools are available for investors and fund
environmental and social issues in infrastructure
managers, including:
construction, operation and maintenance, and of
sustainability considerations more generally.  A Corporate Governance Questionnaire that can serve as
a general framework for corporate governance due
Investors in listed infrastructure companies can apply diligence. The questionnaire lists key governance risks
traditional corporate governance indicators to assess the and the corresponding specific issues to be assessed.
governance quality of their investee companies, such as:
 A Progression Matrix that describes 4 level of maturity in
corporate governance practices, according to 5 main
 Board independence; corporate governance areas. This matrix can be used as a
best practice standard to assess investee companies’
 Board diversity (e.g. in terms of gender, nationality, maturity and areas for improvement during corporate
expertise, age, etc.); governance due diligence.
 Board track record and performance (e.g. direct or
 A specific toolkit designed to assess corporate
indirect involvement of some directors in past governance risks in SMEs.
controversies; time commitment of the directors;
average tenure);
Ethics and business integrity
 Separation between the Chair and CEO roles, or
appointment of a lead independent director;
Ensuring ethical business practices is important to the
 Protection of minority shareholders’ rights; operation of companies in any sector, including
infrastructure. In addition, companies operating in
 Oversight of financial and non-financial risks by the
infrastructure related sectors can be susceptible to the
Executive Committee and sub-committees of the
risks of corruption and bribery, for example in the form of
board;
facilitation payments or expensive gifts to win government
 Executive compensation. concession for infrastructure projects. Violations of ethical
or business integrity requirements can result in heavy

18OECD (2019). 4th OECD Forum on Governance of

Infrastructure. http://www.oecd.org/gov/oecd-forum-on-
governance-of-infrastructure-2019.htm

ESG Handbook | 41
penalty, costly legal proceedings, operational disruption,
FOCUS : Odebrecht’s corruption scandal
and severe reputational damage.
Odebrecht is a Brazilian construction and engineering
Standard industry practices and regulation such as the so-
company with operations throughout Latin America.
called “Sapin 2” anticorruption law in France or the UK The company was investigated as part of Brazil’s 2014
Anti-Bribery Act require companies to implement “Operation Car Wash” investigation into corruption and
overarching codes of conduct that provides both guidelines bribery allegations involving several Brazilian companies
with respect to ethical and compliance behaviors, as well including Petrobras.
as disciplinary measures in case of violation. Such codes of
Odebrecht was charged with paying bribes in exchange
conduct should also specify the company’s minimum for contracts in Brazil as well as other Latin American
ethical requirements towards its clients, business partners, countries. In 2016, Odebrecht agreed to pay a leniency
contractors, and suppliers. Furthermore, whistleblowing / fine of $2.6bn to Brazil, the United States, and
grievance mechanisms with anonymous escalation Switzerland, which was described as the world’s largest
procedures are becoming commonplace to report and leniency deal at the time. The company filed for
investigate suspicious behavior. Finally, training programs bankruptcy protection in 2019, citing a debt amount of
on business ethics, and more particularly on corruption, over $20bn, making it the biggest debt protection
are becoming mandatory for all employees. process in Brazil’s history.
As a result of multiple judiciary processes linked to
In Europe, the European Commission maintains a public list Odebrecht in and outside Brazil, procurement and
of companies, organizations and individuals (“financial attribution of a number of infrastructure projects in
operators”) that are excluded from contracts financed by several Latin American markets were suspended or in
the EU budget or have been sanctioned for grave some cases cancelled, resulting in the decrease or
professional misconduct, criminal activities, or significant deferral of key investments.
deficiencies in complying with their obligations. This
database is managed under the Early Detection and
Exclusion System (EDES), which was established by the The View from our members: S&P
Commission with an objective to protect the EU's financial Governance risks in transportation infrastructure
interests against unreliable persons and entities applying
for EU funds or having concluded legal commitments with Governance risks stem from the way the managements
the Commission and other EU bodies. The grounds for respond to changes in policies and laws, and fulfil their
exclusion by the EDES are established under Article 136(1) social, legal or moral responsibilities. These include a
of the Financial Regulation, namely: general respect to the rule of law, internal controls, risk
management and corporate governance practices. It is
 Bankruptcy and insolvency situations; also tracking environmental impact and disclosing
publicly on regular basis. The report includes an analysis
 Non-payment of taxes or social security contributions; of ESG factors for a selection of companies operating in
different infrastructure subsectors: airports, mass
 Grave professional misconduct; transit, ports, railroads, roads, and waterways (see
below).
 Fraud, corruption, participation in a criminal Waterways: Canal of Panama Authority (ACP)
organization, etc.;
Governance is a key factor for ACP’s credit quality. The
entity’s legal setup and articles of incorporation, the
 Serious breach of contract;
Constitution of Panama, and international treaties
provide a framework that allow the rating on ACP to be
 Irregularity; two notches higher than on the Republic of Panama.
According to the Constitution, ACP is a legally
 Entities created with the intent to circumvent fiscal, autonomous entity with a transparent structure of
social or other legal obligations. corporate governance and track record of autonomous
business decision-making. In our view, several
governance factors reduce, and will continue to do so,
the government’s control of ACP.
Environmental and social issues are also relevant,
mostly regarding water treatment. The conservation of
natural resources is an essential element in ACP’s

ESG Handbook | 42
 strategy. It contemplates, along with other priorities,
The View from our members: SWEN Capital Partners
guaranteeing the quantity and quality of water that’s
key for consumption for the local population but also On Reputational risk
key for the sustainability of the business in the long
term, given that vessels transit through the canal
depend on the resource’s reliability. Therefore, the SWEN Capital Partners is an investment management
company has taken measures to secure resource firm driven by the objective of creating sustainable value
availability, as seen in the 18 innovative water-savings through the full integration of environmental, social, or
basins incorporated with the new set of locks that governance (ESG) criteria into administrative and
recycle 60% of the water used per lockage, saving 7% investment action. In 2019, SWEN Capital Partners
more water than the original locks. For the next two to launched SWEN Impact Fund for Transition, the first
three years, we expect ACP to prioritize investments direct impact infrastructure fund dedicated to green gas
related to the execution of the contracts with the energy in Europe.
Ministry of the Environment. These consists of the The ESG controversy monitoring system approach was
studies and development of the conceptual designs for introduced in 2017 by SWEN Capital Partners in order to
multipurpose reservoirs that are expected to be manage its reputational risks, as well as the ones from
financed at the government level, and that have as its clients, give reactivity to its asset classes through real-
ultimate goal of contributing to the water availability. time monitoring, and gain active knowledge about the
ACP’s solid finances enable the entity to absorb positive and negative factors linked to SWEN Capital
additional capital expenditures without weakening its Partners' portfolio that might not be addressed in a
credit metrics. general financial reporting. SWEN Capital Partners'
controversy monitoring system covers its direct
investments as well as the largest portfolio companies
The topics explored in this section are by no means an
within the underlying funds using a transparency
exhaustive list of the material E, S and G considerations in
approach. This monitoring is conducted as part of the
infrastructure investment. The specific issues and the due diligence process and throughout post investment
degree and scale of their impacts may vary significantly period.
among different types of infrastructure projects as well as
their locations. While it is often argued that certain ESG
considerations can be difficult to quantify, due to their
complex and multi-dimensional nature, and thus difficult
to be evaluated in the investment’s pricing structure, long-
term and responsible investors should recognize the
additional intangible values of ESG considerations such as
reputation and social license to operate, which can have
much more long-lasting impacts on a company’s operation.
For example, corporate reputational damages can have
adverse consequences on a company’s business – negative
reputation can result in the company having difficulty in
gaining new clients and maintaining business relationships
with current clients and partners as well as difficulty in
attracting or retaining talents. Very often, controversies
related to ESG topics and inadequate management of ESG
issues are associated with high reputational risk for
companies. The new generation of millennial investors and
general public also highly value a company’s contribution
to sustainable development. Therefore, corporate
reputation now goes hand-in-hand with a company’s
ability to manage its material ESG issues effectively and to
demonstrate its value creation through contribution to
long-term development. A growing number of investors
have started to develop expertise and internal capacity to
assess these topics.

ESG Handbook | 43
3 ESG integration in investment lifecycle

3.1 Responsible investment policy

The View from our members: First Sentier
A responsible investment policy at corporate level aims to Embeddding ESGs and SDGs
explain and describe an investor’s overall approach and
philosophy with respect to ESG integration across its We embrace ESG and SDGs throughout the investment
investment lifecycle. cycle. We aim to embed ESG and SDG principles to all
aspects of our investment lifecycle:
According to the UN PRI, a responsible investment  Investment decisions: All new investment decisions
corporate policy must cover the following aspects: are subject to rigorous due diligence. This due
diligence process will include an in-depth analysis of
 The organization’s definition of ESG and/or
understanding and quantifying where possible the
responsible investment and its relation to investments;
relevant ESG risks and opportunities.
 The investment objectives that take ESG factors/real
 Ongoing asset management of existing
economy influence into account;
investments: Once an infrastructure business is
 The time horizon of the investment; acquired, the team undertakes ongoing active asset
 The governance structure of organizational ESG management to enhance performance and
responsibilities; effectively manage risk. Specialist fund managers
and asset managers in the Infrastructure
 The ESG incorporation approaches;
Investments team meet regularly with
 The active ownership approaches; infrastructure business management teams to
discuss various matters, including ESG issues. In
 Reporting activities; and
addition, we seek to ensure that management
 Climate change considerations. provides an appropriate level of information to the
Board to ensure risks are managed and
Additional information deemed relevant to provide in a
opportunities are realized.
responsible investment policy includes:
 Valuations: Appropriate management of ESG
 The asset coverage; considerations is undertaken as part of the ongoing
valuation of infrastructure businesses. The
 An exclusion policy;
methodologies used for the valuation of our
 A public support to the TCFD, which shall translate into infrastructure assets typically include forecast
adequate reporting practices (governance, strategy, periods in excess of 20 years. Initiatives that will
objectives, metrics); and contribute to targets within the SDGs are captured
 Evidence of procedures that embed impact, with clear in the long-term business plans. This long-term
references to investment frameworks such as the IFC’s forecasting approach means that long term ESG
Operating Principles for Impact Management. issues are inevitably captured in the current
valuation of each infrastructure asset. ESG issues
A responsible investment policy shall be a public document. are also captured by the independent valuer.
However, this does not prevent investors from Notably, when we select valuation experts to
documenting internal procedures. These internal appoint to our independent valuation panel, their
documents should be auditable (independent verification ability to include ESG factors as part of their
against OPIM). valuation is a key consideration in making the
appointment.

ESG Handbook | 44
3.2 ESG resources and leadership cycle, and participating in external initiatives or collaborative
engagements.”

3.2.1 Organizational issues

As ESG issues are getting further integrated in the strategy 2020 Members Survey
and management of infrastructure assets, GPs and LPs are How are your ESG staff resources organized?
equipping themselves internally with teams and tools to
manage the ESG performance of their assets. Depending Close to half of the survey participants have their ESG staff
on the size, maturity, and approach chosen, this resources organized along asset or investment project, with
sectorial themes and E, S or G dimensions coming respectively
integration can be more of less profound, distributed
second or third. The geographic/regional dimension comes
across the staff and committees. last, at 7% only.

One respondent highlighted the implementation benefits for

2020 Members Survey implementation of having ESG matters addressed at the
Is there a dedicated staff in-charge of ESG in your portfolio/project level by a dedicated team composed of the
structure? Investment and Management teams as “both the asset
manager and owner generally seat on the project/SPV board
Figure 30: Is there a
No 6% with a controlling majority stake in the portfolio as an active
dedicated staff in-charge Yes 94% hands-on investor”. When the deployment of the ESG strategy
of ESG in your structure? is ensured internally by a dedicated ESG team, this ESG
0% 50% 100% strategy is applied by the management “for the emergence of
a corporate culture focused on responsible investment”
The vast majority of LTIIA’s responding members have a (SWEN Capital).
specific, dedicated ESG team. These range from 1 or 2 people,
often supported by external advisors on an ad-hoc basis, to Others respondents (GPSS) highlight the fact that it is their
15 or more in larger organizations (Asset Owners). A small “finance team that centralizes all ESG matters both on the
minority of respondents specified that the absence of operational and corporate side: once ESG matters have been
dedicated ESG staff was due to the fact that “the entire team identified, the finance team works together with other
participate in the effort”. concerned teams to collect, monitor and report data”. Among
those that do not have any dedicated and specialized person
At a large Insurance group-backed asset manager (Allianz GI), on the topic, the emphasis is on the “versatility regarding the
the ESG team is split in two: ESG theme: We have several people who have ESG as a
constant concern in the analysis of projects and in their day-
 The Global ESG Integration & Solutions team; and
to-day management” (TIIC).
 The Global ESG/SRI Research & Engagement team, which
is responsible for ESG research and proprietary Figure 31: How are your ESG staff resources organized?
sustainable investment methodology.
NB:Multiple answers allowed
Within their Infrastructure Debt team, there is no staff
dedicated to ESG: Instead, ESG risk identification and
management is a joint responsibility of the investment and
asset management team members. As a debt investor, Allianz
GI does not engage external advisers directly, but typically
receive an information package including due diligence reports
from independent consultants on the company in which an
investment is contemplated.
Another global asset management arm of a main Financial
Corporation (Manulife IM) has established a “governance
structure to oversee its teams’ sustainable investing activities.
This structure comprises various committees and working
groups across the various asset classes at appropriate levels;
the infrastructure team has ESG representatives who are
members of the Private Markets Sustainable Investing
Working Group.
The governance structure is supported by staff who specialize
in sustainable investing and support the implementation of the
corresponding strategy through activities and projects, such as
preparing annual business plans, identifying and developing
sustainable investing best practices, supporting investment
teams to develop tools and methodologies to adopt these
sustainable investing best practices across the investment life

ESG Handbook | 45
The View from our members: Meridiam The View from our members: Allianz Global Investors
Resorting to consultants
Organizing for dialogue around ESG
 SPV board leadership - The GP is a member of the A key characteristic of infrastructure debt investments
SPV’s board of directors and ensures that matters is the ability to negotiate covenants aimed at ensuring
are discussed at board meetings. the integrity of the investment through its life.

 Context of consortium partnerships. The For example, deals in certain emerging economies might
consortium undertakes to comply with the ESG need certain explicit covenants, such as demanding that
all parties adhere to minimum social and environmental
commitments and to share the information that
standards set out in the IFC PS on Environmental and
will enable the asset manager to carry out its
Social Sustainability and in the Equator Principles.
monitoring and reporting activities during the Projects may also need specific covenants related to
construction and operating phases. Prior to the environmental considerations, construction permitting
establishment of partnerships document examples and post-closing remediation monitoring.
are provided to explain the future required
These days often require retaining an outside
information (SDG ESG questionnaire, major classes
independent consultant to conduct environmental
of subjects, etc.). reviews and to ensure that sensitive details are taken
 Environmental and Social Management Plans. care of appropriately, whether that’s acquiring land or
Environmental and social commitments are finding an alternative habitat for wildlife.
typically already included in the obligations of the
developers since the Environmental and Social
Management Plans (ESMP), with are very detailed 3.2.2 Team objectives and incentives
(up to 30 plans) are included in the project
contracts.
2020 Members Survey
 Audit practices - The Assistant to the Contracting
Are ESG criteria integrated in performance assessment
Authority (ACA) ensures that the work is carried
and compensation (bonus/carried interest) for the staff
out and an audit schedule is also typically drawn up
(investor/manager/investee)?
with the lenders to verify the application.
 Monitoring committee – Emerging market focus. With almost 3 Yes out of 5, the trend seems clearly to be
The creation of a monitoring committee for an toward greater integration of ESG in performance and
compensation, with one respondent (CALPERS) stating: “While
infrastructure construction project in the emerging
managers don't have any ESG-linked compensation, they may
markets brings together several stakeholders: do in the future”, and another one (Skandia): “No; however,
representatives of communities, women, territory ESG is definitely part of the qualitative assessment”.
managers (local authorities), and representatives Also: “ESG excellence is one of the metrics that is now
of the SPV. It serves as an information conveyor considered for calculating bonus compensation of the
belt and makes it possible to develop procedures investment team. ESG is also increasingly included as a
to enable transparent hiring of people from the meaningful component of the Long-Term Incentive Plans of
executives of portfolio companies”.
communities. Applications are then submitted to
the prefecture office, the right place to direct But for some (Manulife), it is still mostly about “the
applicants and to ensure a fair process with a compensation of the ESG team, which is linked to the
achievement of specific ESG goals.
transparent and open assessment of applications.
The establishment of such a committee in the Peri- Figure 32: Are ESG criteria integrated in performance assessment
and compensation (bonus/carried interest) for the staff
urban region is generally accepted by all, including (investor/manager/investee)?
the authorities.

100% 56%
44%
0%
Yes
No

ESG Handbook | 46
 Figure 33: Have you set internal ESG goals and how
does it translate in your daily activities (ex: carbon
2020 Members Survey emissions in relation to your travels, etc.)?

Have you set internal ESG goals and how does it

75%
translate in your daily activities (ex: carbon emissions in 80%
relation to your travels, etc.)? 60%
40% 25%
3 out of 4 respondents have set internal ESG goals, as for 20%
instance GPSS: ”We recently implemented an ESG
0%
materiality framework that lists all material issues along
Yes No
with related SDGs, our ambitions and concrete targets in
the future years“ or Skandia: “documented in policies
and our sustainability report; we have for instance a
travel policy, that is followed up in numbers and subject
for goals and targets” - probably alluding to the 3.3 Risk management frameworks
importance of “Flygskam” in their national environment!
Some have adopted plans (Total Fund Governance &
Sustainability Strategic Plan or Optimization Program 3.3.1 Introduction
Energy for CALPERS; ISR Guide for CNP); other have
annual targets (InfraVia, for the implementation of its Valuing the positive impact of an asset or fund is key but
sustainability charter & gender equality charter). the proper management of the negative impacts is an
Some focus on internal operating mode, committing to indispensable prerequisite, as highlighted in the following
offset all travel emissions (First Sentier), or reduce references:
waste through adopting a plastic free policy (Arpinge).
Manulife prioritizes working on its processes
(Alignment with industry standards such as GRESB and
PRI, identification and management of ESG incidents,
reporting to include any material ESG considerations).
Goals can be related to actions such as training (in the
process of becoming a new funding partner of the NEC
initiative -Net Environmental Contribution-, SWEN
provides its employees in 2020 with dedicated trainings
on environmental impacts on 15 economic activities by
the founders of the initiative) or outputs/outcomes
(setting a specific allocation for “green assets”).
Large structures have embarked on ambitious goals.
Allianz GI committed, at the UN Climate Change Summit
in New York-sept’19 to make all its assets climate-
neutral by 2050 and is currently in the process of
elaborating a methodology to calculate the carbon
footprint of each company in which it invests (as part of
its net zero systematic approach)
EIB agreed on November 2019 on a new energy lending
policy through increased support for low or zero carbon
technology, to meet a 32% renewable energy share
throughout the EU by 2030 and vowed to align all
financing activities with the goals of the Paris Agreement
from the end of 2020, and to end financing for fossil fuel
energy projects from the end of 2021 ).
The standards related to impact investing state that
impact investors should “first do no harm.” An important
strategy for both achieving positive impact and avoiding
unintended negative consequences is to seek out and
listen to one’s intended beneficiaries and other

ESG Handbook | 47
stakeholders. Avoiding unintended consequences can also management and propose a corrective action plan
be a strategy to reduce investment risk, a key motivation based on a reference framework and an adjustment to
for the use of ESG criteria in evaluating investments. the valuation where necessary.
The ESG team must work with the various due diligence
The number of regulations that require financial
teams in order to take into account the corrective actions
institutions to better manage their potential negative
identified during the due diligence in the valuation of the
impacts is increasing everywhere, especially in the EU. In a
company (financial due diligence) and the protections in
report of 572 pages, the European Commission suggests
the sales contract (legal due diligence).
the due diligence requirements through the supply chain
to identify, prevent, mitigate and account for abuses of
The due diligence formats will be adapted to the size of the
human rights and environmental damages (Study on due
assets/companies in the process. Depending on the
diligence requirements through the supply chain, January
context of the target (particularly the risk level) and the
2020).
acquisition (type of investment, competition, access to
management, deadlines, etc.), due diligence may take
The reference to “positive impact” in investment funds is
different forms and cover a greater or lesser number of
more and more used and popular. However, NGOs (and
issues.
soon investors) are fearing an “impact washing”. There
could be no positive impact without the proper
 Interviews using simplified or in-depth analysis grid
management of negative impact. Failing to demonstrate
handled by the investment teams;
that negative impacts are properly managed would make
the claim of positive impacts pointless.  ESG audits carried out internally by the GP;
 ESG due diligence assignments entrusted to external
3.3.2 Due diligence service providers,

Due diligence activities constitute an essential step in the  Assignments sometimes carried out in two phases:
investment process. the main purpose of acquisition due reporting initially red flags and then in more details if
diligence is to limit the risks inherent in any deal. They the due diligence carried out on the other
make it possible to carry out a real diagnosis of the target workstreams of the study have not identified any
that will enable the acquirer to validate the letter of intent issues likely to interrupt the negotiations;
and to negotiate guarantees or corrective actions after the  Completion of analysis of media, social networks and
acquisition, or on the contrary to review the valuation of employer review site. These help to identify ESG issues
investment thesis when major risks are identified. Buy-side specific to the target company, and to carry out
due diligence generally includes several steps: relevant benchmarks in relation to a selection of
competitors. They can support the identification of
 The equity investor must explain the scope of the controversies, weak signals that may reveal more
planned due diligence work to the seller at the significant problems (in particular on human rights
preliminary stages of the deal; issues – International Labor Organization (lLO), forced
 An initial due diligence will then generally be carried labor, excessive working hours, child labor,
out internally in order to structure the available discrimination, freedom of association, etc.).
information and validate the investment thesis; and
 An extensive external due diligence will finally
potentially confirm the information shared by

ESG Handbook | 48
 Example of check list in the context of the siting an oil & gas terminal

Red: high risk / Orange: medium risk / Green: low risk

ESG Handbook | 49
Depending on the results and the importance given to the level of materiality of the sector's non-financial issues,
ESG dimension in the buyer’s investment policy, due regulatory and reputational risks, etc.);
diligence may be a barrier to investment.
 Identifying the priority ESG challenges specific to the
asset/company and which present risks and/or
2020 Members Survey opportunities;
Negative screening: Can ESG be a deal breaker in an  Assessing the asset/company's ESG maturity level on
otherwise attractive deal? each of the ESG priority issues; and
 Building action plans to be implemented post-
A strong majority of respondents agree that ESG can be
a deal breaker, with several listing examples of sub- acquisition in order to limit risks and/or seize
sectors off-limits for ESG motives. Energy/climate-linked opportunities. These action plans typically present a
exclusions are the most frequently mentioned. If coal clear summary of the issues, corrective actions and key
seems to be excluded by most members, other fossil fuel functions to be mobilized, whether or not
projects are less often mentioned. subcontracting is necessary, and an estimate of the
As illustrations: Skandia declined 6-7 co-investments in investments and operational costs to be incurred over
fossil energy (oil, pipelines); CalPERS would consider several years.
“nuclear power plant or oil drilling operations that can An example of a work program is included in appendix.
significantly affect the environment” to be deal
Typically, the analysis of the asset/company’s ESG
breakers; SWEN excludes shale gas; FSI declined “an
performance mainly involves:
opportunity to invest in a particular port due to its high
exposure to coal and similarly declined an investment
opportunity in gas-related infrastructure due to its  Understanding the asset/company’s organizational
hydrocarbon exposure”. (allocated resources, policies, procedures,
management systems, risk management, emergency
Just one respondent strayed from this strong E focus to
response, internal control plans, internal audit) and
state that “most often: governance is an issue”. A
financial management practices (investment plans,
majority of respondents affirm having renounced
pursuing, or dropped deals for ESG reasons over the last CAPEX, OPEX) with respect to the subjects;
three years. Others “have not had any occurrence” yet.  Analyzing compliance and operational risks based on
Figure 34: Negative screening: Can ESG be a deal a regulatory framework and best practices defined
breaker in an otherwise attractive deal? upstream from the project;
 Understanding the asset/company's degree of
exposure to:
12%
 Pollution risks related to historical or existing
activities; and

88%  Physical risks associated with climate change

 Understanding the company and stakeholder social
culture and assessing regulatory compliance related
Yes No to employer relations and direct and indirect
workers' health and safety; and
 Understanding the negative impacts of the asset /
company's activities on the environment and
ESG due diligence on the acquisition involves a general communities, actions taken to address them, and
overview of the risk areas on ESG issues and, less positive contributions made. This aspect of the
systematically (depending on the management company's analysis and consideration of stakeholders is an
approach and the context of the work), on opportunities essential point because it will make it possible to
and impacts. It meets four main objectives: understand the executive(s)' values, their anchoring in
the society and therefore their ability to create value.
 Assessing the ESG context specific to the business
sector of the asset/company being assessed
(underlying trends, competition, inherent sector risks,

ESG Handbook | 50
FOCUS: Emerging market’s due diligence specificities 2020 Members Survey

 The ESG due diligence report is often focused on E, S, G dimensions relative weighting in your decision-
environment and social (E&S) topics and making process?
governance issues are often addressed as part of
legal due diligence. A selection of background While equal weighting at 65% is the majority approach
checks and the identification of beneficial owners (“ Initially there was more weighting to E, but in the last
years the weight has shifted to S and G and it is now
are recommended. Given the difficulty of accessing
balanced“), a closer look at responses shows that this
information in these geographies, it should be
may actually vary according to assets (CALPERS: “For
noted that this type of exercise nevertheless example, energy assets will have higher "E" weighting
requires more effort than in developed markets. while a prison or an airport may be higher on the "S"
 The specifications of the E&S due diligence are category”) or the sector (S&P). As stated by several
generally very comprehensive to address regulatory respondents, Materiality of ESG factors will vary
according to certain factors such as size and type of
gaps, lack of application of existing regulations, and
asset, region, operational environment, and the stage
increased requirements of the Development of the project cycle.
Financial Institutions (DFIs – AfDB, CDC, EIB, IFC,
Figure 35: E, S, G dimensions relative weighting (out of 100%) in
etc.). DFI reference frameworks partially offset the your decision-making process?
lack of regulation. These standards (sectoral and
thematic) are used to frame the work and have
become an obligation for GPs that have
development banks among their investors.
 The gender issue, driven by the DFls, (in particular
with the Iaunch of the 2X challenge in 2018 by the
G7 DFI) is increasingly being considered 2020 Members Survey
 Since access to electricity is sometimes lacking To which extent do asset owners get involved in the
(end-of-day production stoppage to allow asset ESG due diligence activities?
electricity to be supplied to local populations) this
issue is almost systematically assessed. Most asset owners are somehow involved in ESG Due Diligence
activities, with just 14% leaving full responsibility to their asset
 The involvement of local consultants familiar with managers (presumably when they have previously ascertained
local customs and dialects is essential for their ESG credentials). But, as stated by Manulife: “The
consultations. infrastructure team does not manage the day-to-day
operations of the underlying businesses and relies on capable
 Consultation with local authorities is frequent, management teams to monitor and raise ESG issues, as
whereas in Europe this practice is almost non- applicable”. As for Skandia: “this differs according to the
timeline and channel of the investment: for a fund (limited
existent. This can be explained by the 1) greater
scope) or a co-investment (detailed Scope)”.
proximity of local authorities on the continent, 2)
Figure 36: For Asset Owners: To which extent do you get involved in
shortcomings of certain regulations, 3) access to
the asset ESG due diligence activities? (NB: Multiple answers
more online public information in developed allowed)
countries, and 4) generally longer duration of due
diligence phases in the emerging market 43% 14%
geographies given the lower competition of the 57%
acquisition market.
57%
Full hands-on to Asset Managers

Involved in investment committee

Conduct separate ESG Due Diligence - Limited

Scope
Conduct separate ESG Due Diligence - Detailed
Scope

ESG Handbook | 51
3.3.3 Case studies portfolio management team measures how each investment
contributed to the reduction of carbon emissions on an annual
basis.
The View from our members: Campbell Lutyens ACP makes equity investments in both renewables and other
infrastructure sectors. What is often overlooked when
ESG as a selection criterion of asset managers?
discussing sustainable investments are less common
approaches to ensuring a sustainable future. Whilst increasing
ESG benchmarking data of the kind that GRESB produces access to renewable energy is a sustainable investment, so is
has some important behavioral consequences: no supporting existing infrastructure to be less carbon intensive.
manager wants to be bottom of their peer group and As such, leading the transition of existing infrastructure, such
everyone would like the ‘virtue signaling’ of being No.1 as gas transportation grids, to be repurposed into transferring
or at least top quartile. I think GRESB is growing fast and hydrogen or biogas helps build a more sustainable future just
GRESB scores on past investments may become as much.
selection criteria in the future. Maybe there are too As a debt investor in infrastructure, AllianzGI considers ESG to
many factors at play within E, S and G to ever prove the be a sub-set of credit risk and integrates ESG factors into its
case definitively such that ESG becomes a ‘positive’ investment analysis and decision making. Whilst an
decision making tool. But for the moment for many, it is investment will not be made for positive ESG impact reasons,
a ‘negative’ screening out tool.” any negative ESG impacts need to be addressed and
sufficiently mitigated before investing. In principle, AllianzGI
considers that a company with better control over its ESG risks
has lower credit risks, and therefore a lower probability of
The View from our members: ALLIANZ Global default.
Investors Although a debt investor has less control over the operations
of its assets compared to an equity investor, there are several
ESG approach in Infrastructure equity investment ways debt can support equity to be more sustainable. For an
investment with identified ESG risks, AllianzGI looks to set
Allianz Global Investors (AllianzGI) makes infrastructure conditions precedent to funding and/or covenants related to
investments across both debt and equity, currently managing the remediation of such risks, and the investment is only made
over €35bn of infrastructure assets altogether. In both asset once those ESG risks are deemed sufficiently mitigated. For
classes, AllianzGI continuously assesses the ESG credentials of example, deals in certain emerging economies might need
its assets, both at the point of investment and during certain explicit covenants, such as demanding that all parties
ownership. ESG is not classified as a separate topic, but rather adhere to minimum social and environmental standards set
it is embedded in the risk profile of the asset, possibly out in the IFC PS on Environmental and Social Sustainability
becoming the paramount risk factor thereafter. and the Equator Principles. Projects may also need specific
covenants related to environmental considerations,
As an equity investor in infrastructure, Allianz Capital Partners construction permitting and post-closing remediation
(ACP), a company of AllianzGI, carries out an internal ESG monitoring. These investments often require retaining an
screening to determine the ESG “health” of every newly outside independent consultant to conduct environmental
identified direct infrastructure investment opportunity. The reviews and to ensure that sensitive details are taken care of
evaluation reflects the views of ESG Committees within the appropriately, for example, whether acquiring land or finding
wider Allianz Group and considers fundamental issues such as an alternative habitat for wildlife.
environmental contamination (ground, water and air,
including CO2 emission levels), social impact (including AllianzGI seeks to be the sole or majority lender to the
resettlement, mistreatment of people and human rights) and infrastructure companies that it finances, meaning that it
governance (ethical and business compliance). If no key issues usually has a direct relationship with the management or
are flagged, the investment opportunity passes to a secondary sponsor and can actively engage with them regarding ESG
due diligence stage where internal scrutiny is supplemented matters. Where it does not hold the majority of the debt, it
by external advice to assist in further evaluating ESG invests alongside investors who share similar credit and ESG
performance and the materiality of any risks. Based on this views and it still negotiates covenants that entitle it to have
information, ACP considers the human and financial impact of direct access to management and the project. Generally,
ESG risk covering severity levels, resulting impact, potential investments where it does not hold a majority of the debt are
liability, probability of occurrence and remedy mature operational projects which require fewer decisions
implementation. including on ESG matters.

Whilst the definition of infrastructure typically includes AllianzGI makes debt investments in infrastructure in both
renewable power generation projects, AllianzGI also has an developed and emerging markets. With respect to the latter,
Infrastructure Equity team that is dedicated to green energy the usual approach is to partner with entities with a track-
assets. The investment team has created a tailored checklist record of managing such risks, such as development finance
based on the UN Sustainable Development Goals which is used institutions. For example, AllianzGI established one of the first
to assess all investments as part of the due diligence process. IFC partnership funds through which AllianzGI invests in IFC-
In case of a negative contribution, the Investment Committee originated and managed infrastructure loan assets.
discusses what measures can be taken in order to mitigate
such negative effect or otherwise the potential investment is
cancelled. Once an investment has been entered into, the

ESG Handbook | 52
The View from our members: Meridiam The View from our members: STOA
Investment Assessment Conditions & Criteria View on Impact and risks

During the investment phase, Meridiam relies on a set of more STOA -a subsidiary of the Caisse des dépôts (CDC) and the
than 45 ESG conditions and criteria to analyze all investments, French Development Agency (AFD), was set up in 2017 to
without distinction by sector of activity or asset class. Projects finance infrastructure capital in developing countries. It is the
that do not meet certain thresholds on working conditions and equity instrument in the French public international financing
social protection of workers, compliance with regulations, system (AFD, Proparco, BPI, Treasury) to accompany
environmental or social practices, and/or carbon intensity are companies on major infrastructure projects in emerging and
excluded from the list of investment opportunities. These developing countries, whether it is energy, transport,
thresholds are developed based on international standards telecommunications, environment (water, waste...) or social
such as those of the IFC, the World Bank, or the EIB and (education, health...).
integrated into Meridiam’s framework. This ESG analysis
We know Emerging markets present a number of
framework is used to identify the ESG issues and risks that are
environmental, social and governance (ESG) challenges. This is
associated with investments and to determine the risk level of
why assessing these ESG risks is as important to us as analyzing
each criteria and the implementation modalities for projects
the financial performance of an investment opportunity. By
that will allow these issues to be effectively taken into account.
governance risks, we mean the risks of corruption, money
Case Study: Hydroelectric power plant development project laundering, terrorist financing, tax evasion and risks associated
– Environment risk & attractiveness with our interlocutors in these countries, who may be
politically exposed persons (PPE), linked to corrupt or
 ESG criteria were integrated from the feasibility stage of
dictatorial regimes, whose origin of fortune is doubtful. When
the project.
there is any doubt about any of these risks, we do thorough
 As the chosen site is characterized by rich biodiversity, research, we call on specialized firms, and if there is any doubt,
the decision, in line with Meridiam's recommendation, the decision not to invest is made. Taking these issues into
was taken to have the size of the project and therefore account is essential to contribute to balanced and sustainable
the plant's installed capacity reduced. development in the countries where we invest, and there is of
 Detailed studies were carried out and an ambitious course no question, given our shareholders, that we take any
biodiversity action plan was prepared during a year and reputational risk.
then implemented. The studies made it possible to avoid STOA resorts to IFC Performance standards to assess and
negative impacts and delays in the schedule (and manage ESG risks for all projects subject to potential
therefore financial consequences). investments on developing markets (together with SURE as it
 A significant emphasis was placed on the choice of the is very similar to IFC performance standards). GRESB is used
developer, which was based on competition and took into for IESG reporting indicators. Our E&S head visits the High E&S
account the distribution of jobs between expatriates and risks (category A) project sites during the ES Due Diligence
local staff. phase and systematically monitors the project in construction
to make sure the IFC Performance Standards are followed.
 As ESG criteria were taken into account, it was not
necessary to demonstrate the project’s relevance to We view ESG ratings as a good tool for evaluating companies’
investors, the project was not called into question, resiliency and performance. However, the rating agencies
subsequent pitfalls were avoided, and the natural should have a harmonized way by asset classes in rating
environment was properly taken into account. companies. Often ESG scores do not match up across agencies.
Case Study: Senegal solar power project - Social issues ESG Ratings should not be the only one assessing the
company’s performance. Indeed, proactive KPIs are most of
 One of the main challenges was the integration into a
the time never reported, such as “number of training given”,
rural environment characterized by the presence of small
“number of toolbox talk provided”, “number of near misses
villages. The signing of a social agreement with the
reported” etc. Proactive KPIs show that a robust system is in
communities affected by the project was therefore
place to improve EHS management of companies. This should
decisive.
also be assessed.
 A participatory approach, consultation, and ongoing
dialogue was established with communities and Also, the data are often declarative and not verified by a third
stakeholders. A compensation protocol was also party. Third party verification by a qualified consultant is key
developed and implemented to take into account the in providing robustness in ESG Ratings.
displacement of agricultural activities.
 In this type of case, the management company's
relationship with the communities is similar to that of
institutional banks.

ESG Handbook | 53
The View from our members: ARPINGE The View from our members: SWEN Capital Partners
A strong rationale behind ESG integration in A strong rationale behind ESG integration in
infrastructure infrastructure

Arpinge is an Italian based private and institutional investment SWEN Capital Partners is an investment management firm
company, operating in the infrastructure. Rather than a fund, driven by the objective of creating sustainable value through
it is an innovative project, set up by three pension funds the full integration of environmental, social, or governance
(“Founding Shareholders”), representing the professions (ESG) criteria into administrative and investment action. In
active in the Infrastructural and Real Estate sectors: Architects, 2019, SWEN Capital Partners launched SWEN Impact Fund for
Industrial and Professional Engineers, and Surveyors. It aims to Transition, the first direct impact infrastructure fund
involve private institutional and social security funds in the real dedicated to green gas energy in Europe.
economy, in order to overcome the gap of eligible projects for
SWEN Capital Partners' ESG commitment is expressed in
by creating growth opportunities through «bankable», and
diverse ways. As a PRI signatory, SWEN Capital Partners has
«sustainable» projects.
deployed an active and rigorous responsible investment
The company mainly invests in renewable energies, energy approach for integrating ESG criteria, formalized since 2012
efficiency, and mobility. Social and urban infrastructures may and currently applied to all investments. Furthermore, SWEN
be involved within the strategy to respond to the community Capital Partners owns an unparalleled extra-financial private
needs and to promote a local sustainable development. The equity database composed of more than 250 000 ESG data
company is active in the promotion of the SDGs with a focus points collected for the last seven years, which is used to
on SDGs 3 – 4 – 7 – 8 – 9 – 10 – 11 – 12 – 13. calculate private equity ESG benchmarks, analyze ESG track
record and produce exhaustive ESG reporting for its funds.
The ESG strategies that the company has adopted in order to
Moreover, SWEN Capital Partners has in place a mechanism
carry out the objectives listed above are:
for detecting controversies, an ambitious and high-standard
 Negative screening: the controversial sectors Excluded by Climate Strategy, and active partnerships with all its
the company are as follows: Alcohol, Fossil fuels, Nuclear stakeholders.
Energy, Tobacco, Carbon, Dangerous chemical products,
SWEN CP is innovative and sophisticated in its approach as a
armaments, Gambling
Responsible Investor in private markets that is strongly
 ESG integration committed to the path of transition to a low carbon world.
 Thematic investment (focus on energy transition) Notably, in 2019, through the process of implementation of
the TCFD recommendations, SWEN Capital Partners decided to
On engagement and voting, the company started a dialogue adopt and deploy of the “Net Environmental Contribution”
with its counterparts, by formulating proposals for concrete (NEC), a metric that goes beyond carbon and captures real
actions to be put in place to promote ESG elements that environmental footprint of investments based on a multi-
contribute to the sustainability of portfolio investments in the criteria approach (climate, resources & waste, biodiversity,
long term. The company is currently working on the water, air quality).
implementation of an ESG analytical framework designed as a
strategic portfolio management tool, directing investment
choices towards deal with impact. It allows to determine the
composition of the portfolio, the compliance of each macro-
category, and optimize the portfolio performance, setting for
each macro-category growth or reduction targets.

ESG Handbook | 54
3.4 Value creation & positive impact Figure 37: Long Term Value (LTV) framework – EPIC

frameworks
Context

3.4.1 Long-term value framework Stakeholders

Stakeholder outcomes
The definition of a conceptual framework around long-
term value (LTV) is a basic element for measuring,
comparing and communicating on the value created with
investors and stakeholders. In order to be effective, this Outcome
framework must: metrics

 Be defined in a clear context; Value Value

creation protection
 Be at the heart of the company’s purpose, strategy and
business model Strategic assets

Governance
 Factor in material subjects for the stakeholders; and
(1) The framework recognizes the need for companies to create and
 Be simple to understand, ensured and secured, while protect value, beyond purely financial criteria. The following three
being comprehensive across the value definition value categories provide a perspective on value creation in addition
to financial value:
scope.
 Human value: the value a company creates through the
employment and development of people in terms of culture,
By taking these objectives into account, the EPIC,
engagement, leadership, know-how and skills;
Embankment Project for Inclusive Capitalism, has defined
 Consumer value: The functional or emotional value a
and proposed the use of the LTV framework introduced
company creates through goods and services to meet
and illustrated below. The framework defines a logic to consumer needs, including innovation (e.g. product quality
enable the determination and assessment of parameters and image); and
relevant to the creation of sustainable value for a business.  Societal value: the value created through the company's
It includes several steps: relations with all external stakeholders, including the
environmental, social and economic impacts along the value
 Analyzing the context in which the company operates; chain {e.g. resource efficiency, health and well-being, job
creation)

 Examining the company's purpose in this context; (2) The existence of indicators is necessary to measure the company’s
ability to achieve stakeholder outcomes in a consistent and
transparent way, including associated strategic capabilities. Metrics
 Reviewing the company's strategy and governance;
measuring the “health” of a company’s strategic capabilities allows
to assess which capabilities should be invested in to ensure that
 Assessing the company's positioning to achieve its stakeholder outcomes will continue to be delivered, as well as to
objectives; ensure financial performance. The parameters can be classified into
three categories:

 Structuring stakeholders’ outcomes by value  Common metrics;

categories and exploring value creation a protection  Industry-specific metrics; and
lever further (1);
 Company-specific metrics.
 Analyzing strategic capabilities through value levers
(the most valuable, rare, inimitable, non-replaceable 3.4.2 Positive Impact processes
resources that create a competitive advantage); and
To be a credible newcomer in impact investing, it is
 Determining relevant, consistent and transparent necessary to align the approach with best standards,
indicators (2) for long-term value. including the most recent impact standard, that builds on
all others: the Operating Principles for Impact
Management (OPIM). As illustrated below, being aligned
with these Principles will imply integrating impact at all
investment stages: strategy, investments (from screening
to exit), and portfolio management.

ESG Handbook | 55
The Framework shall also stipulate the eligibility criteria of the projects to be invested in and the way to evaluate their success.

Strategic intent Origination & Structuring Portfolio Management Impact & Exit

1. Define strategic impact 3. Establish the Manager’s 6. Monitor the progress of each 7. Conduct exits considering
objective(s), consistent contribution to the investment in achieving the effect on sustained
with the investment achievement of impact. impact against expectations impact.
strategy. and respond appropriately.
4. Assess the expected impact 8. Review, document, and
2. Manage strategic impact of each investment, based improve decisions and
on a portfolio basis. on a systematic approach. processes based on the
achievement of impact
5. Assess, address, monitor,
and lessons learned.
and manage potential
negative impacts of each
investment

Independent Verification

9. Publicly disclose alignment with the Principles and provide regular independent verification of the alignment

The preparation of a positive impact framework that aligns operations with both the fund’s strategy and the best standards
typically requires the need to: 1) Perform a gap analysis against the main standards (OPIM; Principles for Positive Impact
Finance (IFC); Impact Management Project (UNEP-FI); ESG guidance for PE firms (PRI, France Invest, etc.)); and to 2) Build a
benchmark of practices by local and international peers. A sound Impact Framework, which would allow an alignment with
the OPIM, would require answering the following questions (non-exhaustive list – provided for investees adaptable to assets
via their SPVs):

Strategy 1. How do you identify the impact objectives, channels and establish the narrative?
2. What are your strategic impact objectives and how are they integrated into your investment strategy?
3. What goals are addressed? Are they aligned with recognized frameworks?
4. How do you assess direct and systemic impacts?
5. How do you measure the additionality of your investments?
6. How do you choose your indicators?
7. How does your strategy evolve over time and how do you incorporate learnings into your processes?
8. How do you maximize impact of your investments through other channels (building partnerships, knowledge
sharing)?
Governance 1. How do you manage impact achievement on a portfolio basis?
2. What incentives facilitate the achievement of the targeted impacts? (incentives for the investee, for the
impact team internally)
3. How are the incentives formally integrated in the pay scheme of your teams? Do you use bonus scorecards?
4. How do you build on experience to improve investment decisions and management processes?
5. How are responsibilities for the final investment decision defined regarding impact/ESG matters?
6. Who is in charge of data collection and quality? How do you control data quality?
7. How do you ensure that the necessary resources are available for impact-related monitoring of investments?
Qualification & 1. What are the eligibility criteria regarding your investments? How is impact included in your
assessment screening/decision process?
phase
2. Ex-ante, how do you assess and quantify the intended positive impacts? How is this formalized?
3. How do you identify and assess potential negative impacts?
4. What is the Impact due diligence process? When is a site visit required?
5. What is the timeline for agreeing on impact related indicators and targets with the potential investee?

ESG Handbook | 56
 6. How are your commitments with the investee formalized? What should be included in the legal agreement
/ side-letter regarding impact? What other tools / guidance do you provide to the investee (reporting
template, etc.)?
Monitoring & 1. What controls are in place to ensure that commitments with investees are fulfilled?
portfolio
2. When is a site visit required during monitoring phase?
management
3. How do you manage impact achievement on portfolio basis?
4. How do you work with your investees to maximize the positive impacts? How do you engage with your
investees?
5. How do you work with your investees to avoid (or mitigate and manage) the potential negative impacts?
Exit phase 1. How do you ensure that impact performance will be maintained after exit?
2. How are exits analyzed and how do they feed into the evolution of your strategy and future investment
strategy?
Reporting 1. What is your overall approach regarding data collection and reporting?
process
2. How often do you report on impact-related results of your investments?
& data reliability
3. What are the indicators that are published at portfolio level?
4. How are these results taken into account / analyzed at a strategic level?
5. How do you ensure data availability and reliability?
6. How do you help your investees to have better data quality and more robust reporting processes?

In addition to the OPIM, the IFC is currently developing an 3.4.3 Key performance indicators
Anticipated Impact Measurement and Monitoring (AIMM)
system tool. Such tool aims to enable the IFC and the The definition and use of quantitative and qualitative
investing community to estimate the expected indicators are essential for managing the impacts of a
development impact of their investments—allowing to set company or a project throughout the terms of its
ambitious yet achievable targets, and to select projects investment.
with the greatest potential for financial sustainability and
development impact. Among the available impact-related indicators those that
are the most relevant to the fund’s Impact Strategy should
Besides enabling the assessment of project-level outcomes, be identified. They can be categorized against the following
the AIMM system will allow the analysis of the systemic typology:
effects on the overall market. It looks at how a project
affects its stakeholders and examines the broader effects  Means (very) short-term - Investment, Advisory
on the economy and society, including how projects
 Outcomes short-term - Achievements (e.g. number of
promote objectives that underpin efforts to create
schools built)
markets—by promoting competitiveness, resilience,
integration within and across markets, inclusiveness, and  Effects medium-term - Specific objective(s) (e.g.
sustainability. number of children attending school)
 Impacts (very) long-term - General objective(s) (e.g.
Underpinning the AIMM system will be a set of frameworks
improvement of national school enrolment rate)
for analysis by sector. Each framework will outline the
relevant set of project outcomes and market-creating Key sources for impact indicators:
benchmarks, as well as IFC’s detailed rating methodology
for each sector. IFC is currently developing and will roll out
25 unique sectoral frameworks. Feedback is currently
being collected from stakeholders on these frameworks
(frameworks’ brief currently available include:
Telecom/Media/Technology, Airports, Ports, and Roads).

ESG Handbook | 57
Focusing on the first dimensions of the IMP framework (see Finally, this set of indicators need to be analysed to identify
below: What and Who), indicators will be defined based on the relevant questions to answer and available public
the following inherent characteristics: sources to address the last three dimensions of the IMP
framework (see below: How much, Contribution and Risk):
 Cross-cutting to the SDGs and industries listed in the
Impact Strategy (for this reason, a single indicator may  Baseline of the current situation;
require various methodologies to cover all
 Scale, depth duration, likelihood of the impact; and
industries/technologies);
 Depth and duration of the investment contribution.
 Impacts and effects rather than outcomes; and
 Specific, Measurable, Achievable, Relevant and Time-
bound (SMART) – in particular, there is a need to
select indicators for which data collection is
realistically feasible.

An illustration of the process that can be used to identify relevant indicators is provided in the figure below.

Figure 38: Examples of how the process could look like for an SDG (here, “Affordable & clean energy”)

As Investisseurs & Partenaires states in its 13th Africa lesson, "It is difficult to assess the impact ex ante just as it is imperative
to combine different measurement tools to better understand it and know how to optimize it. I&P has established a continuous
process to improve its impact measurement and management practices over the years. Experience has indeed shown us that
it is necessary not only to combine quantitative tools (annual collection of cross-functional indicators, qualitative tools (in-
depth study on the ground with a given company), as well as a portfolio approach and on individualized approach per company
that depends on its geographical , sectoral and market context, in an attempt to best assess the positive and negative impacts
of our investments and thereby manage them optimally."

ESG Handbook | 58
3.4.4 Case studies

The View from our members: CNP Assurances SA & LBPAM

CNP Assurances SA invests in infrastructure debt together with La Banque Postale Asset Management through multi-
investor discretionary funds as well as through dedicated accounts.

ESG being one of overarching principles for all CNP’s investments, it is also fully integrated in selection and detailed
analyses of all the potential investments together with LBPAM. A dedicated SRI team works alongside with LBPAM’s
investment teams in evaluating all investment opportunities, and ESG aspects for a major part of all files presented to
investment committees of both, LBPAM and CNP:

Socially Responsible Investment (SRI) and ESG are fundamental to LBPAM infrastructure debt strategies, in line with
LBPAM's goal to achieve 100% ESG management by 2020. The Infrastructure Debt Team has been a pioneer in ESG and
started to embed ESG analysis in its investment process as soon as 2016. In 2018, our rating grid was enhanced to reflect
LBPAM’s proprietary methodology called GREaT. This methodology relies on four pillars: quality of corporate Governance,
management of natural and human Resources, contribution to the Energy and economic transition, and support to local
development of Territories. The latter, being specific to LBPAM’s DNA, puts the emphasis on the role of infrastructure as
regards to local employment and access to basic services for livelihoods.

This methodology is used by the Infrastructure Debt Team in order to provide an extra financial analysis and a scoring for
each transaction. LBPAM Investment Managers conduct this extra financial analysis based on available Due Diligence but
also through ad hoc Q&A process with the company, its advisors and its Sponsors.

The ESG Team comments and confirms the scoring scale prepared by the Infrastructure Investment Managers. The GREaT
scoring is presented at the Investment Committee and is therefore taken into account in the final investment decision.

Figure 39: ESG integration throughout the investment process

Throughout the holding period, CNP is provided with an annual ESG reporting as it is an investor in the LBPAM
infrastructure funds. The ESG reporting includes the following information:

 The "GREaT" profile of each transaction

 The carbon footprint of the projects in the portfolio provided by Carbone 4

The social and economic impact of the projects (employment creation and GDP impact).

ESG Handbook | 59
The View from our members: InfraVia Capital Partners
aligning investments with the UN SDG

In 2019 InfraVia Capital Partners has decided to review and enhance its sustainability charter taking a step forward by including impact
considerations. InfraVia Capital Partners is committed to aligning its investments with the Unites Nations’ Sustainable Development
Goals (SDGs), and recognizes the SDGs as the set of common goals allowing asset owners, investors and portfolio companies to outline
sustainability priorities and to speak a common language.
InfraVia Capital Partners recognizes that infrastructure assets and tech companies have both positive and negative externalities. A
twofold sustainability approach is defined (i) Measure and disclose positive and negative externalities, (ii) Act to mitigate negative
impacts and scale-up positive impacts. In this context, the firm uses the SDGs to define a set of baseline priority sustainability standards
for all its investments regardless of the sector, and to conduct a sector-based materiality approach.
InfraVia is committed to implementing its sustainability charter across the investment cycle, from investment selection to divestment,
and to support its portfolio companies in implementing their sustainability strategies. Five transversal SDGs have been chosen by InfraVia
to represent its sustainability priorities and are used to analyze the impact of its portfolio on key topics. InfraVia is convinced that all
portfolio companies can take actions on those transversal sustainability areas and is committed to providing support for a continuous
implementation.
A case illustrating this approach implemented at portfolio company Celeste is shown below. Celeste is a French digital infrastructure
B2B platform providing high-speed connectivity to SMEs, large enterprises and the public sector. It is fully committed to promoting
sustainable development and adopted selected UN SDGs since its creation.
Selected SDG
Company Contribution Case Study - CELESTE (www.celeste.fr)
#5 - Promotion of gender equality, equal treatment, diversity
All employees must actively ensure that there is no discrimination of any kind in the workplace in order to meet standards of equality,
ethics and responsibility
#8 - Contribution to economic growth, job creation, social inclusion, health and safety
Celeste’s activity has a direct impact on employment, economic growth and productivity. Celeste focuses on employees’ health and
safety, and quality catering service, skills reinforcement with training modules, with the objective to strive for the highest employee
and client satisfaction.
#9 - Development of reliable, sustainable and resilient infrastructure
Thanks to an active R&D CAPEX program, Celeste’s clients benefit from a robust innovative infrastructure. Celeste’s program features
its own patented data center designed to optimize its power consumption with air-based free cooling system.

#10 - Reduce inequalities (within Celeste SDG pillars only)

Celeste works for local development and general interest through its contribution to the socio-economic development of the regions,
or by taking part in public interest initiatives. Managerial choices integrate social diversity and openness to students and seniors.
#13 - Fight against climate change to strengthen resilience and adaptive capacity to climate-related hazards, and to limit GHG
emissions.
Celeste contributes to environmental preservation by limiting all sorts of pollution to the greatest extent possible and by deploying
an environmental protection approach. The main issues identified are energy consumption, equipment recycling and waste
management. Celeste’s patented data center free cooling process reduces energy consumption by 35%, enabling the company to
enter the green internet. Resources are monitored to limit electricity consumption; biodegradable materials are prioritized; electric
vehicles usage is promoted; rail is the preferred option for business trips; premises are built in wood and waste management systems
are in place.
#16 - Responsible governing bodies, encouraging transparency and accountability, and supporting business ethics, anti-corruption,
data-protection and cybersecurity strategies
Celeste’s governance structure integrates an ethical and social responsibility approach. An ethic charter has been developed with
key principles around employee personal responsibility, respect of the law, clients and suppliers relations (fairness, honesty, courtesy
and professionalism), respect for competition, fight against corruption, political neutrality, transparency and communication,
promotion of social dialogue, and protection of assets including cybersecurity.
In addition to the transversal approach, InfraVia has defined an exposure map which covers additional SDGs, relevant to the
infrastructure/technology sectors. SDG 10 (social inclusion), SDG 11 (smart cities), SDG 7 (renewable energies), SDG 4 (quality
education), SDG 15 (life on land), SDG 14 (biodiversity preservation), SDG 3 (better health) have been defined as additional priority goals
InfraVia also recognizes the materiality of climate change for infrastructure investments, as a risk factor and in terms of impact. In this
context, its climate strategy consists in three main priorities (i) assessing and addressing climate-related risks to ensure the viability of
the investments in the long-term, (ii) recognizing the potential environmental impact and deploying initiatives to mitigate the negative
impacts, and (iii) allocating capital to finance low-carbon alternatives and optimized energy solutions (e.g. renewable energies, urban
transport, energy efficiency).

ESG Handbook | 60
The View from our members: Meridiam
Integrating SDGs in strategy
Resilient “Provide resilient
Meridiam details in its ESG policy its infrastructure and infrastructure and
approach and integration of the United Sustainable Cities develop sustainable
Nations Sustainable Development Goals cities”
Clean and affordable “Accelerate energy
(UN-SDGs) framework into its business energy transition”
model and sustainable strategy. It has
reinforced its sustainability strategy by
Climate strategy “Avoid emissions and
defining 5 pillars based on the SDGs most
reduce them”
relevant to its role as a long-term
infrastructure asset developer, investor
and manager. These 5 pillars, presented in Decent work, “Promote good work
inclusion and gender conditions, inclusion,
the table below, set the long-term key diversity and gender
measurable objectives of Meridiam’s long- equality”
term sustainability strategy. Biodiversity Protect and enhance
biodiversity”

In order to work towards achieving these 5 objectives,

Meridiam has developed a variety of tools used
throughout the various phases of a project, from the
identification of opportunities to the asset
management phase. During the asset management
phase, Meridiam benefits from its tailor-made
ESG/SDG questionnaire to measure the impact of its
activities across its portfolio. The questionnaires are
customized for each project and composed of a set of
key performance indicators derived and adapted from
the original SDG framework.
2020 marks the first time that Meridiam translates the
results from these questionnaires into a graph that
illustrates the project’s contribution to the SDGs
relevant to its activity. These graphs can display results
at a project level, for each type of infrastructure asset
(energy, mobility or social type projects), at a fund level
and for Meridiam’s global portfolio (see opposite
example). The main takeaway is to identify how
strongly projects contribute towards certain SDGs and
how others could improve their performances in that
regard. This will ultimately strengthen Meridiam’s role
as a long-term infrastructure asset manager and create
added value at project levels.

Case Study: Kinguele hydroelectric station

Meridiam has signed in 2019 the concession contract with the Government of Gabon (GoG) for the 34-MW run-of-the-river Kinguele
Aval hydropower plant. Located on the Mbei River, 100 km East from Libreville, the Kinguele Aval Hydropower Project will deliver about
13% of the electricity needs of Libreville the capital city of Gabon. This power plant will contribute to replace thermal power capacities
and will save more than 150,000 tons of CO2 emissions per year. This 33-year concession project includes the construction of a gravity
concrete weir, a power plant, a stilling basin and a substation. Construction is scheduled to start in the second quarter of 2020, with
commissioning scheduled for the end of 2023. During the construction period, 800 direct jobs will be created on site. During the
operation phase, twenty Gabonese professionals will be responsible for the operation of the hydroelectric power plant.

ESG Handbook | 61
 A comprehensive Environmental and Social Impact Assessment in line with IFC performance standards reportedly confirmed low
impact on fauna and flora and that no population will need to be resettled. Nevertheless, concrete actions will be implemented to the
benefit of the environment and the social communities:

 A biodiversity action plan is programmed to protect or rebuild habitats of endangered species with positive net gain and financial
support for research in botany and fish studies.

 Rural electrification will also be addressed with the connection of the village of Andock Foula located 3 km from the site and
currently without electricity.

 Hospital staff and patients will be provided with new and modern equipment to ensure effective treatment of populations and
workers on site.

 A fund will be set up to support local initiatives and assist local communities in developing sustainable activities.

Meridiam will own 60% of the Kinguele Hydropower project company with its partner FGIS (the sovereign wealth fund of Gabon)
owning 40%. The c.€150 million Kinguélé Aval project is 75% financed by leading development banks in Africa and around the world.

This project directly contributes to some of the United Nations Sustainable Development Goals (UNSDGs): building a resilient
infrastructure, promote inclusive and sustainable industrialization that benefits all and foster innovation (SDG 9); provide affordable
and clean energy (SDG7), and promotion of decent work and economic growth for all (SDG8).

Meridiam is currently developing and financing 14 projects in Africa, with a strong focus on renewable energy.

The View from our members: STOA

Impact policy

While looking for market returns - the condition of the credibility and sustainability of our fund - STOA is also an impact
fund. In April 2019, we were one of the first signatories to the Operating Principles for Impact Management, to reaffirm
our commitment as a long-term investor.
Our ambition is to establish long-term partnerships in strategic sectors to meet the needs of people in critical
infrastructure in emerging markets, thereby fostering the development of sustainable and resilient economies. Achieving
the United Nations SDGs is at the heart of the activity, and the impacts of each project we fund are assessed according to
the SDGs, including country economic development, the number of job creations, and also the climate. Our climate
commitment is based on three pillars: promoting low-carbon trajectories - 30% of our investments are spent on climate-
benefit projects - financing climate-resilient projects, and redirecting financial flows to catalyze investment for climate
co-benefit projects in developing countries. To expand access to reliable, low-carbon and affordable energy, renewable
energy and energy efficiency projects are preferred. In particular, we refuse to invest in coal-fired energy projects.
The objective of STOA’s impact policy is to integrate SDG considerations at each stage of the investment cycle: the goals
are embedded in the philosophy of the approach, implemented through an impact-centred screening and investment
decision methodology, and monitored using SDG indicators at both a project and portfolio level.
At a strategic level, STOA targets 30% of the funds on projects with inherent climate benefit (i.e. infrastructure or energy
projects that provide lower carbon solutions/options than typical alternatives), in support of SDG 13 on Climate Action;
and 50% of funds on bridging the infrastructure gap in Africa (in line with SDG 9 on Industry, Innovation and
Infrastructure). Other indicators such as job creation, in line with SDG 8 on Decent Work and Economic Growth, and the
share of women in management positions, in support of SDG 5 on Gender Equality, are also fundamental to all the projects
that STOA invests in.
These goals are then integrated into STOA’s global impact scoring tool, which in turn forms an essential part STOA’s due
diligence process. Through its application STOA can identify a project’s potential outcomes, and thereby select projects
that contribute positively to the SDGs for the portfolio. Any project STOA selects must fall into at least one of three pre-
defined outcome areas: Accessible, Functional and Clean. As part of this process STOA has used the SDG Index [1] as a
reference in assessing the project’s potential and the country’s needs. For instance, when evaluating a potential project

[1] www.SDGindex.org

ESG Handbook | 62
against SDG 13 on Climate Action, its carbon footprint and potential for GHG emission mitigation are evaluated to identify
high GHG emission projects that would be incompatible with the country’s low-carbon trajectory.

After this initial screening, each outcome

area is scored between 0 and 3 using the
following criteria:

High Impact – High country need (top-right) - Projects with high potential to improve the infrastructure service in a
country with high need for such a service score 3 points;
Low impact – High country need (top-left) - Projects with low potential to improve the infrastructure service in a country
with high need for such a service score 2 points;
High Impact – Low country need (bottom-right) - Projects with high potential to improve the infrastructure service in a
country with low need for such a service score 1 point; and
Low impact – Low country need (bottom-left) - Projects with low potential to improve the infrastructure service in a
country with low need for such a service score 0 points.
These scores are then submitted to the board alongside other financial and ESG due diligence materials as part of the
final decision-making process for an investment.
Finally, once a project is in STOA’s portfolio, the ESG Team and Financial team collect outcomes-related data – for
example, on employment, general economic activity, and carbon emissions, and considering both direct and indirect
outcomes - from the project on an annual basis. STOA records the data in the impact tool, which automatically generates
a Project scorecard and updates the Portfolio dashboard. The ESG Team uses this information for monitoring purposes
and as input for STOA’s Annual Impact Report.
Case Study: 420 MW hydro dam project, Nachtigal, in Cameroon under construction since February 2019
Since 2018, alongside Électricité de France (EDF), the Cameroonian State, the International Finance Corporation (IFC) and Africa 50,
STOA has been investing in the construction of a large hydroelectric dam in Cameroon. The project, led by the Cameroonian company
Nachtigal Hydro Power Company (NHPC), aims to develop the supply of electricity in the country. The objective is to build and operate
a 420-megawatt hydroelectric dam in Nachtigal, a village located 65 kilometers from the capital Yaoundé.
When it is commissioned - planned for 2023 - the Nachtigal dam will be the largest dam developed on the African continent in project
funding. It meets the demand for increased electricity in Cameroon while generating energy at a competitive cost. This low-carbon
solution will also play a decisive role in the country's energy transition. Ultimately, nearly 850 kilotons of CO2 could be avoided each
year on a national scale.
The environmental and social risks of the project are mitigated through an ambitious management system. This includes, in particular,
a local economic development action plan and measures dedicated to biodiversity and social issues setting out IFC performance
standards: protecting but also avoiding, reducing and compensating for the negative impacts of the project during the construction
and development phases.
With the support of IFC and specialized NGOs, NHPC trained its staff in the prevention of gender-based violence. In 2019, 29% of the
company's employees are women, making it a flagship project on this subject in the world of infrastructure.

ESG Handbook | 63
4 ESG Standards and tools

Investment professionals need actionable and “Do-no-harm” approach, i.e. preservationist analyses of
practical standards. While ESG has become a buzzword in whether or not to build, what and where to build. By
recent years, proving itself as a thriving and mainstreaming contrast, accounting tools and project rating systems tend
investment practice, the variety of definitions is a to focus more on the “how to” dimension, i.e. how to
significant problem for market participants as they often develop, build, maintain and operate an asset in a
mean different things by ESG, which can lead to sustainable manner. Infrastructure accounting or rating
inefficiency in the investment process and lack of tools thus do not overlap with regulatory prescriptions but
transparency. If anything, the market is currently getting complement and “pick up” where the regulators left off,
even more fragmented as new and different guidelines covering management practices and performance
emerge around green loans, sustainability or SDG-linked indicators of assets already in operation or approved for
products. The multiplicity of frameworks and tools implies construction stage. Yet, there is a risk for the industry that
the need to separate what matters to investors from the if it doesn’t adjust its practices quickly enough, public
noise. It also requires asset managers to adopt a common regulators may soon step in and dive deeper into
language and to adapt their reporting practices accordingly management practices.
when communicating their performance to their asset
owners and other stakeholders. There is, hence, a clear It will most likely take some time before the
need for a coordinated framework at the global level, or at infrastructure investor community converges towards a
least to align the various existing tools. consistent and internationally adopted body of rules. After
all, it took decades for the accounting standards to be
Surveys and consultations of the investor community refined and adopted globally. And ESG matters applied to
repeatedly point out the following expectations and infrastructure are presumably more diverse and qualitative,
recommendations: hence more difficult to reflect and encapsulate than
monetary transactions.
 Encourage a common understanding of ESG criteria
and frameworks, against a background of the Several tools have been developed to facilitate ESG
increasing number of definitions and standards; assessments during the investment lifecycles and many of
them are widely recognized and commonly used by
 Provide guidance and promote the ability of investors
institutional investors.
to measure and compare sustainability and ESG
performance in infrastructure investment, through
 ESG Accountability Tools (Framework standards):
better infrastructure project data disclosure;
Frameworks are adopted by institutional investors,
 Eventually, the market will winnow out and a number asset managers, developers, designers and public-
of standards, by sector, investment style or business- sector sponsors to manage assets’ sustainability
model, will emerge as best-in-class. Meanwhile, one performance through a set of criteria. ESG
has to live with a fragmented landscape. frameworks typically address investment and risk
management, as well as reporting.
Overall, ESG integration and the associated reporting
 ESG Rating Tools cover online platforms,
practices should be based on standards, guidelines and
questionnaires, applications and software used to
assessment tools that aim to contribute to transparent
support the main users (investors, governments,
communication and to provide consistent and relevant
procuring entities…) in their infrastructure project’s
information on impact performance at both individual
ESG assessments. The outputs of these tools are
asset and portfolio levels.
typically qualitative or quantitative evaluations of
Compared to other sectors, the adoption of ESG projects addressed ESG risk and performance levels.
standards and tools in the infrastructure sector is still a ESG Tools can be classified into two categories:
nascent practice. Even though the infrastructure investor evaluation and valuation tools.
community is arguably already familiar with impact Frameworks and tools presented in this section are
assessment requirements from regulators to ensure intended to promote guidance on relevant criteria in ESG
compliance with environmental or social standards, analysis and capture best practices through screening and
supervisory controls have generally been focusing on a

ESG Handbook | 64
peer benchmarking. However, as in other sectors, rating
The View from our members: Campbell Lutyens
(screening) standards and accountability tool standards
come with their share of trade-offs between criteria Do asset owners routinely adopt sustainability
measuring environmental performance and those screening standards and, if so, which ones?
integrating management practices.
All infrastructure asset owners have ESG policies. The
Management practices, often entailing secondary impacts relevant issues are now: How do you measure and
on environmental performance, are considered as more aggregate ESG metrics across a range of reports by
objective and easily verifiable assuming a global objective different managers? What are you going to do with this
in the sustainable project performance. Thus, many of the information once you have it?
identified standards and tools focusing originally on
The UN SDGs are universally accepted and underpin
environmental performance indicators have evolved to most, if not all, ESG policies. There is no reason why this
integrate a management practice approach to achieve the should be exclusively for infrastructure as an asset class.
right balance in the project scoring between the E, S, and G What is lacking is a universally accepted measuring
dimensions. toolkit that map to the relevant SDGs. As the FT Moral
Money newsletter put it, “There is a scramble underway
ESG frameworks and tools can also be categorized based
for ESG data providers”. MSCI, the London Stock
on: Exchange Group, Nasdaq, S&P Global Ratings and others
 Their intended user – ESG frameworks and tools are have all bought ESG research outfits. Signing up to the
adopted by corporate and institutional financial UN Principles for Responsible Investment used to be
entirely voluntary and self-regulating but reporting on
investors, asset managers, operators, professional
TCFD recommendations is now mandatory for PRI
service providers (architects, engineers, construction
signatories although they can still choose whether to
firms, developers), lenders, public sector entities make their disclosures public or keep them private!
(governments and public institutions) and civil society BlackRock, the largest asset manager in the world, has
organizations. called on companies to disclose ESG date according to
the TCFD (Task Force on Climate Related Financial
 The project phase – ESG frameworks and tools are
Disclosures established by the Financial Stability Board)
adopted throughout the project’s investment
recommendations and SASB (Sustainability Accounting
lifecycles to structure investment strategies and Standards Board). Perhaps this will emerge as the
communications; market standard for ESG disclosures?”
 The Sectors – ESG frameworks and tools have been
developed to address all classes of investments or
specific sectors and sub-sectors in order to address
their specificities; and
 The topics of assessment – Specific guidelines have
been, for instance, developed to address biodiversity
and climate change matters.
This section of the Handbook intends to provide a
structured presentation of existing and most commonly
adopted standards and tools. In addition, and within the
limits of this exercise, the methodologies used to measure
or report on sustainability, the perimeters of use19 (topics,
sectors, sub-sectors, geographies, etc.) of these tools and
feedbacks from users have been included to direct the
reader to the information most relevant to his or her areas
of interest.

19 Links to the corresponding websites for more detailed

information are included whenever possible

ESG Handbook | 65
4.1 Infrastructure sector’s initiatives because they are useful, socially acceptable and financially
viable (at least from a cost-recovery perspective to ensure
adequate maintenance, which conditions the other two pillars
Since the last version of the Handbook published in 2017, of value). The first task is to develop an intellectual and
the ESG metrics landscape has significantly evolved but still technical framework to document the links between the ESG
need standardization to: characteristics of infrastructure companies and their three
different pillars of value. A second, transversal perspective is
to look at Environment, Social and Governance characteristics
 increase trust in the information communicated as families of risks and impacts. Impacts (i.e. growth creation,
(presence of numerous in-house and tailored tools, improvement in living conditions, safeguarding resources,
lack of verification, risk of greenwashing, etc.); and protecting the environment etc.) and risks (i.e. climate change,
likelihood of penal regulation etc.) posed by ESG issues to
 support the valuation of assets with considerations infrastructure companies directly determine the usefulness,
going beyond direct financial matters. social acceptability and financial viability of infrastructure
assets. This second dimension distinguishing between impacts
Against this background, collaborative initiatives are and risks is where ESG and investment management meet. But
emerging to develop guidance towards the definition of it can only be documented properly in relation with the above
common metrics and consistent reporting of sustainable theory of value of infrastructure assets, otherwise it is not
clear why certain data points should matter more than others,
value creation. The need to align financial interests with if at all. The intersection of a theory of value with a
long-term value creation, which was already at the core of framework to capture information on risks and impacts is the
infrastructure investments due to the long durations of cornerstone that defines the materiality of ESG for
investments, is gaining traction across stakeholders and infrastructure. This intellectual foundation is often what is
missing in ESG standards and reporting. Over the years,
becomes a strategic pillar to be addressed by investors.
several tools and standards have been developed to support
Among the ongoing initiatives in the infrastructure at the the incorporation of ESG metrics into infrastructure asset
infrastructure level, the following are worth mentioning: analysis.
But there is still much heterogeneity in the way ESG is defined,
 EDHECinfra measured, reported and scored. Further, the metrics captured
are often biased, focusing mostly on reporting some kind of
 G20-OECD Infrastructure Data Initiative (IDI); impact while shedding little light on the risks that arise from
 ASSI initiative and the MDB Infrastructure Cooperation ESG. Specifically, 93% of reviewed metrics focus impacts while
only 7% capture risks. Outcomes from EDHECinfra’s current
Platform; ESG research program (sponsored by Natixis) are planned to
 Along with Industry initiative (CFA Asset Owners include:
Advisory Council Initiative) or FAST-Infra (“Finance to  A taxonomy of ESG impacts and risks relevant for
Accelerate the Sustainable Transition-Infrastructure”) infrastructure companies, mapping each component back
to a theory of infrastructure value (usefulness, social
and corporate approaches
acceptability and financial viability).
The View from our members: Understanding ESG to  An ESG meta-standard: a database that maps and
recognize value in infrastructure investments by categorizes 700 metrics reviewed in line with the
EDHECinfra taxonomy (metrics issued from the review of 17
commonly used tools, standards, and guiding
frameworks). The meta-standard is structured in a
There is growing recognition in the industry and academic field
manner allowing the mapping of data to reviewed
alike that an effective analysis of ESG is key to understanding
measures, making the meta-standard ‘inter-operational’
the value of an infrastructure company. But in order to
within all existing ESG tools and standards.
understand why ESG matters for infrastructure, we first need
to understand why infrastructure has value. A series of scalable data collection projects using deep-
learning techniques to create a global, coherent and consistent
The ambition of the research on ESG at EDHECinfra20 is to map
data feed of asset specific characteristics that can inform the
a well-defined set of measurable and robust ESG
assessment of the ESG impacts and risks, populate standards
characteristics and metrics to a “general theory” of the value
and explain how ESG drives value in infrastructure companies.
of infrastructure investments. Only then can ESG play its part
in the investment decisions investors have to make. Anticipated publication date: mid-2020
Infrastructure assets have social, economic and financial
value. In other words, infrastructure assets have value

20 EDHECinfra, along with other academic research institutions,

Created in 2015, EDHECinfra is an independent research
not-for-profits and trade associations, is an Honorary Member of
organisation delivering unique index data and analytics
LTIIA. LTIIA, along with its original founders (Meridiam and
measuring the risk-adjusted performance of unlisted
Campbell-Lutyens), has provided consistent financial and data-
infrastructure investments. As a contributor to the development
input support to EDHECinfra since its creation.
of infrastructure investments, while not Institutional investor,

ESG Handbook | 66
 a critical part of the ASSI is to ensure that the sustainability
Infrastructure DATA Initiative (IDI): OECD and indicators are investment-relevant through consultations with
Multilaterals private sector investors and financiers. The harmonized
indicators should capture the market view of core indicators
The Global Infrastructure Hub (GIH), the European Investment that must be addressed and, if material, embedded in
Bank (EIB), the Long-Term Infrastructure Investors Association upstream project preparation and development
(LTIIA), the Long-term Investors Club (LTIC) and the OECD
The scope of the ASSI currently does not include a data
combined their efforts to launch in 2017 the “Infrastructure
repository to collect information on those indicators, but that
Data Initiative” at the G20/OECD Task Force Workshop.
would be a natural next step to complement these efforts. A
This initiative’s main role is to trigger data collection for first draft set of indicators is being reviewed, with a view to
infrastructure projects in order to allow a better publish it by end-2020/early 2021.
understanding and control of relevant data to be integrated to
existing and future infrastructure investment standards. The
quality of ESG data helps build reliable metrics to assess the The IIGCC & COP21 - 2 degrees alignment
overall performance project and adjust second-order gains
and trade-offs.
European asset owners are coming together to develop a
The initiative is built through: common understanding of what it means for portfolios to be
aligned with the climate change goals agreed at a UN-
 A benchmark of financial performance: benchmark of
convened gathering in Paris in December 2015. The project,
most common metrics in infrastructure equity and debt
launched by the Institutional Investors Group on Climate
investment;
Change (IIGCC) is being steered by a committee initially
 Economic and impact analysis: assess social and comprising Nordic and UK pension investors.
environmental considerations integration in
infrastructure projects;
 ESG performance: ESG data sourcing scan among tool The CFA Asset Owners Advisory Council Initiative
providers of anterior relevant projects.
At the same time, the MDB Infrastructure Cooperation Building on previous work and industry best practice
Platform (ICP) - see below - has engaged into stock-taking of knowledge, GRESB, the CFA Society and University of
leading existing initiatives via a survey covering the main Cambridge Institute of Sustainability Leadership (CISL) and
public, and private actor, with a full progress report to be Africa investor (Ai) in consultation with industry colleagues,
shared with G20-IWG members in the second half of 2020. are exploring the potential appetite for development of a
framework for measuring SDG impact in the infrastructure
asset class.
PPIAF (Public-Private Infrastructure Advisory Facility): In 2018, the CFA Society New York launched the CFA Global
Aligned set of sustainable infrastructure indicators Asset Owner’s Advisory Council (AOAC), to bring members
perspectives from the most influential asset owners and local
(ASSI initiative)
market decision makers. The AOAC convenes decision making
Asset Owners from across the CFA’s global network of
Led by the Public-Private Infrastructure Advisory Facility Societies, representing over $60 trillion of assets under
(PPIAF) of the World Bank, and coordinated by the Global management and advisement.
Infrastructure Basel Foundation (GIB), with the collaboration
of the Global Infrastructure Facility (GIF), as well as the review To address the challenge of bringing assistance to asset
of several World Bank Group departments, together with the owners in measuring impact, the AOAC, approached GRESB,
European Development Bank for Reconstruction and CISL and AI as technical partners to investigate the creation of
Development (EBRD). Envision, CEEQUAL and GRESB have a framework, narrative and benchmark to measure impact of
partnered too. infrastructure assets on delivery of the SDG’s and ESG and
promote adoption amongst their respective asset owner
The ultimate goal is to help improve the mobilization of private networks.
capital towards the delivery of sustainable and resilient
infrastructure projects on a global scale, with a particular The onslaught of COVID-19 has shone a light on the need to
emphasis on emerging markets and developing economies. It rapidly scale long term investment into building resilient
focuses on the ESG aspects of sustainability. The ASSI will not infrastructure to mitigate future pandemics. As a result,
represent a new additional “standard”, but build on surging interest in ESG and the SDGs creates urgency for asset
collaboration between leading international sustainability owners to define, measure and defend the value case for
standard setters– GIB (SuRe®), BRE (CEEQUAL/BREEAM), ISI institutional investors to pursue ESG compliant investments
(EnvisionTM), ISCA Ratings and GRESB – (GIB, CEEQUAL, ISI, and contribute to the SDGs.
ISCA and GRESB) to develop a harmonized set of [25-30]
sustainability indicators that infrastructure projects should
incorporate in their lifecycles to deliver sustainable outcomes.
Based on this bottom-up approach from the standard setter
market, the sustainability indicators are to be consistent with
finance development partners’ sustainability criteria. Further,

ESG Handbook | 67
The View from our members: Guggenheim
4.2 Member Insights
Sustainability Quotient (SQ)
2020 Members Survey
Guggenheim Investments is the global asset management and
investment advisory division of Guggenheim Partners, with Which standards and tools are you using in your ESG
more than $250 billion in total assets across fixed income, processes? Please provide your opinion on their key
equity, and alternative strategies (including infrastructure).
advantages and disadvantages.
Guggenheim has developed the Sustainability Quotient (SQ), a
Framework for Sustainable Development for institutional Most respondents resort simultaneously to several standards
investors to use when considering an investment in and tools available on the market while some have developed
sustainable infrastructure According to the SQ, each their own tools (GRESB, S&P).
development project must be engineered to contain the
following four key attributes before capital is committed. SDGs, UNPRI (on the private equity side), and GRESB (for Infra
& Real estate) tools are widely mentioned, while Allianz
1. Financial return: Potential benefits include attractive specifically refers to Equator Principles and the IFC’s E&S
risk-adjusted returns, low correlation to other asset Performance Standards when investing in Emerging markets.
classes, stable cash yield, long-lived physical assets, Manulife IM participates - beyond global tools like GRESB,
barriers to entry for competitors, and a measure of SASB or PRI - in various sustainability initiatives, industry
inflation protection. associations and working groups, along regional lines.
2. Good governance: All developments must adhere to the
Where the impact strategy is concerned, other
laws and regulations of their local jurisdictions and must
complementary tools can be resorted to: beyond SASB, MSCI,
be transparent, demonstrably free of conflict and
and the SDGs, SWEN has used tools from the GIIN, the IMP,
corruption, and fully compliant with the investment
the SDGs and the impact commissions of the FIR (Forum pour
regulatory regime of the investor base. The governance
l’Investissement Responsable) and France Invest; for its
criteria include ethical and accurate accounting, audit and
internal controversy monitoring of its portfolio companies
disclosure practices.
(Reputational risk), it uses Worldcheck, OFI’s SRI team, and
3. Social lmpact: Factoring in social impact can help Google Alerts.
perpetuate economically productive activities that can
continue to benefit long term investors even after the
initial project has completed its effective lifespan, at the
same time insulating potentially vulnerable communities
from the devastation of poor planning. 2020 Members Survey
4. Environmental soundness: It is vital that an analysis of Have you developed your own proprietary ESG tools?
soundness is carefully integrated at inception & draws on
the expertise of partners who specialize in different Figure 40: Have you developed your own proprietary ESG tools?
aspects of the entire matrix of environmental soundness.
Guggenheim partnered with the World Wildlife Fund to 80%
commission a report by the Stanford Global Projects Center
that identified and analyzed the various metrics used to assess 60% 71%
the sustainability of infrastructure investments.
40%
The 95-page report, “State of the Practice: Sustainability
Standards for Infrastructure Investors”, provides a practical 29%
20%
guide for the practice of infrastructure sustainability, and is a
key resource for investors who want to develop a 0%
differentiated approach to the impact of their investments. Yes No
The report reveals that rating and accounting tool developers
for the industry will likely continue to evolve their offerings, More than 2/3 of respondents have, with a wide variety of
while pioneering investors in the industry will likely continue patterns adopted, from bespoke questionnaire and check lists
to experiment with different tools. to databases and qualitative references.
The key to the success of these efforts depends on the Skandia process mainly relies on inhouse competence and
convergence over time of comprehensive, standardized proprietary methodologies, partly supported by external
reporting of sustainable investment metrics. data/analysis providers (when access to data is available)
above). Our assessment in generally qualitative/holistic rather
than quantitative. CALPERS is developing a climate mapping
tool to assess certain environmental risks (drought, flooding,
etc.) of assets, and has an ESG Consideration Matrix, used in
underwriting infrastructure assets.
InfraVia developed its own questionnaire of over hundred data
points, to be completed by all portfolio companies, allowing to

ESG Handbook | 68
collect, compare, monitor, analyze and consolidate extra-  Contextualize impacts depending on the type of
financial information across the portfolio. geographies you invest in.
SWEN also developed its own internal tools including Extra  Develop relevant and detailed KPIs at the asset level.
financial database recording 7 years of ESG data of its portfolio  Set objectives and benchmark yourself.
companies through ESG surveys and carbon footprint
 Design an “impact roadmap” to achieve these objectives
assessments and controversy monitoring, enabling it to
and implement it Adapt methodologies, tools and
monitor benchmarks for those indicators and track them over
procedures to manage impact throughout the life of the
time. It also worked to harmonize an ESG questionnaire with
fund.
other actors last year.
 Make performance assessment and reporting tools user-
The EIB’s Environmental and Social Standards are grouped friendly and visual – which does not mean “simple” nor
across ten themes, which make up the standards that “fully standardized” – for all your stakeholders.
investments financed by the EIB must meet. For some
investors, like Arpinge, the work is still ongoing, with a ESG-  Onboard stakeholders and make it part of your value
compliance scorecard for the pre-assessment phase, we proposition to align interests.
developed to evaluate if the investment is ESG compliant, and  Be transparent and ready to be challenged.
proxies being developed for the ex ante and ex post evaluation
 Once you have integrated impact at the right level, you
of the impacts. Others (Manulife) focused on developing their
can explore further synergies with your financial and
own ESG checklist, based on external research and data
investment strategy.
Among those who didn’t go that route of proprietary ESG
There is inevitably more work ahead. Below are some
tools, some, like Allianz, do not believe these are relevant to
considerations to keep moving things forward:
the private debt asset class for infrastructure, in which
investments are bespoke and cannot be adequately assessed  Push for the development of ambitious and robust
through standardized ESG metrics. Some asset owners like methodologies and impact strategies, even if this
CNP rely their asset managers which have developed their own represents an immediate investment.
ESG tools, e.g. LBP AM.  Challenge, complete and improve existing data.
No respondent mentioned resorting to deep learning/artificial  Development of innovative financial mechanisms would
Intelligence practices. help to align the interests of stakeholders and share the
delta of value created or add value to strategies aiming at
optimizing long-term environmental and social impacts.
 Accelerate research on the correlations between impact
The View from our members: Meridiam (& ENEA) and "risk/return".
 Train all stakeholders on impact.
impact- measuring tool
While much effort will be needed over time, we are convinced,
Over the last 4 years Meridiam and ENEA Consulting have based on our practitioners’ experience, that new approaches
collaborated, both on identifying and de-risking new and standards can be implemented to go beyond current
investment opportunities - in the low carbon transition field - practices to assess and monitor positive impacts of
and on designing a unique “impact” framework for Meridiam infrastructure.
that supports its investment thesis in sustainable
infrastructure.
We need collectively to make sure that new frameworks &
developments such as UN SDGs, the European taxonomy, or
large asset owners’ recent commitments to re-allocate capital
to sustainable activities like the UN-convened Net-Zero Asset
Owner Alliance are moving in the right direction from an
environmental and social standpoint. This means having
adequate tools to measure and monitor impact. Here are
some lessons we can share after two years of intense research,
collaboration and implementation efforts to integrate
“impact” in a concrete and ambitious way into the real life of
Meridiam’s activities:
 Consider a holistic framework to cover all type of impacts
and avoid shortcuts. Be more granular on what is the
most important (concept of materiality). Adapting efforts
to actual materiality is mandatory.
 Do not remain at the surface as the devil is often in the
detail and outcomes may be counterintuitive. Being
granular and project specific on what truly matters (e.g.
looking at behaviors, supply chain, externalities) is
essential.

ESG Handbook | 69
4.3 Standards and frameworks Equator Principles (EP):
https://equator-principles.com/
Standards have been developed globally to provide The Equator Principles (EP) are a benchmark set of
guidelines on: standards applicable to developing economy projects and
providing guidance to environmental and social risks
 Investment and risk management frameworks; and management to support risk decision-making for large
infrastructure projects. Set by the IFC and developed upon
 Reporting frameworks.
the IFC performance standards, the EPs have been adopted
Asset owners and managers have many standards to pick to date by 104 financial institutions called EPFI (Equator
from, in relation to ESG, based on their specific objectives, Principles Financial Institutions) in 38 countries. The latest
which range from socially responsible investment, update of the principles is dated November 2019 for an
sustainable investment to impact investment. Most official application starting July 2020.
commonly used standards are presented in this section and
a more exhaustive list and a few additional descriptions are
presented just below and in Appendix. Listing of Equator Principles (EP4, July 2020)
1. Review and Categorization
Frameworks 2. Environmental and Social Assessment

Equator Principles (EP) | Principles for Responsible 3. Applicable Environmental and Social Standards
Investment (PRI) | IFC environmental and social
4. Environmental and Social Management System and
Performance Standards | Commonwealth Development
Equator Principles Action Plan
Corporation (CDC) Toolkit
5. Stakeholder Engagement
UN Sustainable Development Goals | OPIM (Operating
Principles for Impact Management) | IMP | IRIS+| HIPSO | 6. Grievance Mechanism
GIIN | UNEP FI Corporate Impact Analysis Tool
7. Independent Review

Sustainability Accounting Standards Board (SASB) | Global 8. Covenants

Reporting Initiative (GRI) | International Integrated
Reporting Framework (IIR) | EU Taxonomy 9. Independent Monitoring and Reporting

10. Reporting and Transparency

UNEP FI: Responsible Property Investment | LEED | BREEAM
| HQE | WELL Certification | BiodiverCity label | SuRE
UN Principles for Responsible Investment (PRI):
ISO 14007 | 14008 | 9001 | 14001 | 18001 | 45001
https://www.unpri.org/
Ratings
The UN Principles of Responsible Investment cover a set of
Arabesque | Bloomberg ESG Performance Scores | CDP investment actions aiming to support investors in ESG
Climate, Water & Forests Scores | Covalence | CSRHub | integration into investment practice. In 2005, the UN took
Ecovadis CSR Rating | Ethos | GRESB | TFSE Russel's ESG the initiative to unite the world’s largest institutional
Rating | Inrate | ISS Quality Score | ISS-Oekom Corporate investors in order to set up a common framework for
Rating | MSCI ESG Ratings | Resprisk | SAM Corporate
Sustainability Assessment | Sustanalytics' ESG Risk Ratings | incorporating environmental, social and governance
Thomson Reuters ESG Scores | Vigeo Eiris Sustainability factors, supported by sectoral experts. The PRI’s objective
Rating is to lead investors in their pursuit of long-term value and
to enhance alignment throughout the investment chain. As
Screening Tools of March 2020, the global number of PRI signatories
exceeded 2300 among asset owners, investment managers
427 | CEEQUAL | Envision | GIIRS | ISCA Ratings | Trucost
and service providers.
ESG Analysis

Valuation tools
The 6 principles for responsible investment
SAVi | Autocase | TREDIS | Zofnass 1. Incorporate ESG issues into investment analysis and
decision-making processes.

ESG Handbook | 70
2. To be active owners and incorporate ESG issues into our IFC environmental and social Performance
ownership policies and practices.
Standards
3. Seek appropriate disclosure on ESG issues by the https://www.ifc.org/
investees 'entities.
The IFC performance Standards is a project screening
4. Promote acceptance and implementation of the framework that aims to assess environmental and social
Principles within the investment industry. risk management throughout a project’s lifecycle.
5. Work together to enhance effectiveness in Published in 2012, the standards provide guidance to
implementing the Principles. identify and mitigate social and environmental risks using
a methodological approach. The IFC framework comprises
6. Report on each activity and progress towards
implementing the Principles. 8 performance standards that investors must meet during
the project’s investment lifecycle (cf. dedicated summary
sheet), general EHS guidelines (Environmental,
Occupational Health and Safety, Community Health and
The view from our members: The UN PRI and Safety, Construction and Decommissioning) and specific
infrastructure investment sectoral guidelines (Agribusiness/Food Production,
Chemicals, Forestry, General Manufacturing,
The Principles for Responsible Investment is the world’s Infrastructure, Mining, Oil and Gas and Power).
leading proponent of responsible investment. It works to
understand the investment implications of environmental, EIB’s environmental and social standards
social and governance (ESG) factors and to support its
international network of investor signatories in incorporating https://www.eib.org/
these factors into their investment and ownership decisions. The European Investment Bank is a public institution driven
The organisation now has over 3,000 signatories around the by the European Union that promotes sustainable
world, representing approximately $90tn in assets under development and inclusive growth and ensures that
management.
environmental and social requirements are integrated in
Each year signatories report to the PRI on their integration of the definition, preparation and implementation of all
responsible investment into their investment processes. In operations financed by the EIB. The EIB has developed the
2019, 113 signatories reported on the infrastructure module
of the Reporting and Assessment framework; these signatories environmental and social standards that apply to all
scored a median A grade for their responses (based on a scale operations likely to have material suspected or identified
from E to A+, where A+ is the highest grade, and E the lowest). environmental and social impacts and risks. The standards,
The PRI has a dedicated infrastructure workstream to provide originally introduced in 2010, aim to underpin alignments
tools and support knowledge sharing and education on with the Bank’s environmental and social principles
responsible investment in infrastructure. Current publications throughout activities undertaken by the borrowers and the
include the Primer on Responsible Investment in project promoters. Across ten thematic areas, the
Infrastructure and the Responsible Investment DDQ for
Infrastructure. More recently, it has undertaken a series of standards provide guidance to assess, manage and cover a
initiatives looking at the role of infrastructure in the large scope of environmental and social impacts
achievement of the Sustainable Development Goals (SDGs), throughout the project’s lifecycle.
including an analysis of the role of the SDGs in countries’
national infrastructure strategies, and a review of current
practices on the SDGs by infrastructure investors.
UN Sustainable Development Goals
https://sustainabledevelopment.un.org/
More broadly, the PRI supports the investment community,
The SDGs build on decades of work by countries and the
including infrastructure investors, through its work on a range
of policy and ESG issues. On the policy front, the organisation UN:
has played a significant role in the development and delivery
of the EU’s Sustainable Finance Taxonomy, as well as  In June 1992, at the Earth Summit in Rio de Janeiro,
undertaking detailed studies on the consideration of ESG Brazil, more than 178 countries adopted Agenda 21, a
factors as part of investors’ fiduciary duty, and the legal
plan of action to build a global partnership for
framework for investors to consider sustainability impact in
their decision-making. Similarly, the PRI also leads and sustainable development to improve human lives and
supports a wide range of work on the investor role on issues protect the environment.
such as climate change, human rights and labour rights, and
sustainable land use.  In September 2000, UN Member States unanimously
adopted the Millennium Declaration at the Millennium
Summit, leading to the elaboration of eight Millennium
Development Goals (MDGs) to reduce extreme
poverty by 2015.

ESG Handbook | 71
 At the United Nations Conference on Sustainable
Development in Rio de Janeiro, Brazil, in June 2012, UN
Member States adopted the outcome document "The
Future We Want" in which they decided, inter alia, to
launch a process to develop a set of SDGs.
 In January 2015, the UN General Assembly began the
negotiation process on the post-2015 development
agenda. The process culminated in the subsequent
adoption of the 2030 Agenda for Sustainable
Development, with 17 SDGs at its core, at the UN
Sustainable Development Summit in September 2015.
As a shared blueprint for peace and prosperity, the 17 UN
SDGs provide a universal framework to guide global
IRIS+ (developed by Global Impact Investing
actions, from international cooperation and national
governmental policy to corporate strategies and
Network)
individual behavior, towards inclusive socioeconomic https://iris.thegiin.org/
growth and preservation of the planet. IRIS+ is an impact framework developed by the Global
Impact Investing network (GIIN) addressing impact
measurement, management and optimization in order to
set up guidance to impact investors. IRIS+ offers thematic
taxonomy for relevant impact themes and facilitate the use
of best-in class data through core metric sets in impact
investing. It is intended to be a frame of reference to
investors seeking better comprehension and mastery of
social, governance and environmental factors integration
in the investment decisions.

UNEP FI: Responsible Property Investment

Operating Principles for Impact Management
https://www.unepfi.org/investment/property
(OPIM) Responsible Property Investment (RPI) is a framework
https://www.impactprinciples.org/ launched by the UNEP FI Property Working Group to
The Operating Principles for Impact Management (OPIM) is support environmental, social and governance issues
a framework developed by the IFC in consultation with a integration as part of real estate investment decision-
group of asset owners, asset managers, allocators, making process. The RPI principles consider the long-term
development banks and financial institutions to evaluate objectives of property investment compared to other asset
impact management among funds and institutions. The classes. According to the RPI best practice report produced
principles have been adopted by 101 signatories (as of June by the Property Working Group (PWG), integrating RPI
2020) since its launch in April 2019. principles can be applied to asset allocation, portfolio
management and asset management strategies.
Adhering to the OPIM requires being aligned with 9
Principles supporting the integration of impact
UNEP FI Corporate Impact Analysis Tool
management at all investment phases: strategy,
https://www.unepfi.org/corporate-impact-tool/
investments (from screening to exit), and ownership
The UNEP FI has also developed in 2020 a new impact tool.
phases. The definition of eligibility criteria for project
The Corporate Impact analysis tool provides banks and
investment decisions and processes to evaluate impact
investors with an analysis of companies’ impacts across
achievement have also to be integrated in the investment
different sectors and countries. The impact analysis tool
frameworks.
will help its portfolio managers assess and monitor impact
risks and opportunities and meet impact targets. The tool
has been developed by the Impact Initiative working group
made up of banks, investors and service providers during a
12-month development period. The analysis provided by

ESG Handbook | 72
the corporate impact analysis tool is divided into three
E&S topics
parts:
Overview of environmental and social topics (18 topics
 Identification of significant impact areas, based on identified)
the company’s sector, geography and activity;
Sector profiles
 Assessment of the company’s impact performance
and impact management capabilities; Guides to typical ESG risks and opportunities in a range of
industries (16 sectors identified)
 Monitoring of the company’s significant impact areas,
performance and management capabilities over time. Business integrity
Sustainability Accounting Standards Board Advice about anti-corruption, anti-money laundering,
(SASB) corporate governance, economic sanctions and
https://www.sasb.org/ whistleblowing
The Sustainability Accounting Standards Board (SASB) is
Business case
one the industry-specific frameworks launched in 2018.
The set of standards define accounting metrics aiming to A business case for ESG integration: identifying operational
identify and asses financially-material sustainability topics efficiencies and new markets and preparing bigger exists.
and ensure an efficient disclosure of ESG factors through
the investment lifecycle. The standards apply to 79
industries in 11 sectors and disclose industries ESG topics Impact Management Project (IMP)
across a materiality map. The mapping is achieved at sector https://impactmanagementproject.com/
level and industry level and covers potential issues The Impact Management Project (IMP) is a forum of
affecting the financial performance of an industrial organizations that addresses impact measurement,
company. reporting and monitoring issues. The IMP provides an
impact analysis framework for corporates and investors to
Commonwealth Development Corporation (CDC) assess and identify the most material and additional impact
Toolkit areas associating with their strategies
https://toolkit.cdcgroup.com/
The British Development Finance Institution (DFI) CDC,
owned by the UK government’s Department for
International Development, has developed a toolkit in
2006 intended to enable fund managers implement CDC’s
Investment code on Environmental, social and governance
issues. The toolkit includes reference materials and sector-
specific feedbacks to allow analysis and management at
fund level and help increase fund managers awareness of
ESG opportunities and risks throughout the investment
lifecycle. Structured around 6 key areas, the CDC toolkit
provides practical guidance on how fund managers and
institutional investors take into consideration CDC
requirements to ensure that the businesses in which CDC’s
capital is invested comply with these requirements.

Investment cycle

Guidance on integrating ESG considerations into the

investment cycle of a PE fund
Global Reporting Initiative (GRI)
Management systems
https://www.globalreporting.org/
Good practice to design and implement ESG policies and GRI is one of the most widely adopted sustainability report
procedures for fund managers framework (according to globalreporting.org, out of the
250 world’s largest corporations, 74% provide ESG

ESG Handbook | 73
information to the market through the GRI reporting). This are critical for the decarbonization of the real economy and
reporting framework enables corporations (businesses, support the transition to a climate-resilient economy. As an
governments and organizations) to disclose their economic, example, essential transportation infrastructures like
environmental and social impact. The framework helps seaports and airports are not yet covered.
organizations towards their reporting process of relevant
ESG issues from identification using universal standards (see description in Annex 3 below)
and topic-specific standards to final report disclosure.
Certifications and labels
EU taxonomy of sustainable activities
As investors are assuming more responsibility of their
The just adopted taxonomy, to be implemented from funding impact on the environment and the society and are
December 2021 onward, is part of the European integrating non-financial factors to their investment
Commission’s Sustainable Finance policy. The decisions, companies tend to gain investors’ traction
corresponding Action Plan has 3 objectives: though certifications that are becoming a critical
differentiator regarding ESG integration.
 Reorient capital flows towards sustainable investment;
 Manage financial risks stemming from climate, In addition to the GRESB (https://gresb.com/) standard,
environmental & social issues; and other worldwide accepted certification systems have
 Foster transparency and long termism in financial & emerged in the last decade. In this section, we will present
economic activity. the most popular ones:

Essentially, the EU Taxonomy is a list of economic activities  LEED

with relevant performance criteria for their contribution to https://www.usgbc.org/leed
six environmental objectives, while meeting minimum stands for leadership in Energy and Environmental
social safeguards. It is not a rating of good or bad Design is one of the most widely adopted green
investment entities. building rating system in the world. LEED is run by the
non-profit US Green Building Council and has certified
Under the Taxonomy regulation, institutional investors and more than 13.8 billion square feet of building space.
asset managers marketing investment products as LEED provides a framework for cost-saving and highly
environmentally sustainable would need to explain efficient green buildings and rates buildings and
whether, and how, they have used the Taxonomy criteria. construction projects to verify if the structure
Investors could state that they are seeking to invest in complies with an environmentally friendly building
Taxonomy-eligible activities or disclose their own qualification. LEED buildings are structures that create
preferred approach to determine that their investment is less emissions and pollution and that moderate energy
environmentally sustainable. consumptions.
 BREEAM
The philosophy of the EU Taxonomy is therefore fully
https://www.breeam.com/
aligned with other frameworks such as the United Nations
(Building Research Establishment Environmental
SDGs and would probably benefit from being further
Assessment Method) is a leading buildings’
articulated to them. Whilst the SDGs offer a more holistic
environmental assessment certification system that
approach, the EU Taxonomy brings value to the SDGs
was conceived by the BRE group and first used in 1990.
framework by defining minimum requirements in terms of
116000 buildings have been certified against the
current practices and future environmental performance.
BREEAM schemes (BREEAM courts, Ecohomes,
healthcare, education, offices, prisons, etc.). The
However, the EU Taxonomy is based on a business activity
BREEAM certification is organized in different chapters
classification (NACE) which does not factor differences of
to cover the building environmental evaluation
infrastructure assets against corporate activities.
(management, health and wellbeing, energy,
Infrastructure assets have specificities compared to other
transport, water, materials, waste, land use and
assets that should be considered in the compliance criteria
ecology, pollution, innovation).
defined in the EU Taxonomy.
 HQE (High Quality Environmental standard)
And many sectors are not covered by the EU Taxonomy, https://www.behqe.com/
since not considered sustainable enough, although they

ESG Handbook | 74
 HQE is the French certification standard for green
buildings based on the principles of sustainable
development founded in 2004. It aims to limit short-
term and long-term environmental impacts of a
construction and/or rehabilitation project. The HQE is
inspired by the high energy performance label adding
a health, hydrological and a vegetal dimension. The
process for obtaining the certification can be carried
out by the HQE association, a French association
recognized as a public utility in 2004.
 WELL Certification
https://www.wellcertified.com/
WELL Certification is a score-based system for
measuring, certifying and monitoring the building’s
environmental performance built on the LEED
certification system. WELL is administrated by the
international WELL Building Institute (IWBI) and allows
construction projects and/or buildings scoring in each
of the seven categories on one of the three levels:
Silver, Gold and Platinum.
 BiodiverCity
http://cibi-biodivercity.com/en/biodivercity/
BiodiverCity is the first international label that aims to
evaluate and promote urban construction and
renovation projects that incorporate biodiversity to
improve the well-being of users. The BiodiverCity tool
evaluates the ecological performance of buildings
based on 4 pillars: The first two pillars measure the
commitment to biodiversity integration while pillars 3
and 4 assess the ecological benefits and the benefits
to users. The tool scores the building’s performance
given a grade from A to E.
 SuRe® (The Standard for Sustainable and Resilient
Infrastructure)
https://sure-standard.org/
SuRe is a certification standard developed in 2015 by
the Global Infrastructure Basel Foundation (GIB) and
the French investment bank, Natixis, to assess and
integrate ESG performance in infrastructure projects.
SuRe® is an ISEAL member and is applicable globally
with a focus on emerging markets through its 61 ESG
criteria classified in 14 themes. SuRe® certifies projects
to Bronze, Silver, and Gold awarding levels and can be
implemented during all the project’s investment
lifecycle in order to leverage the project’s acceptability
and mitigate ESG risks. SuRe® can be adopted at any
stage in the infrastructure lifecycle from planning and
design to construction and operation.

ESG Handbook | 75
4.4 Tools
 S&P
4.4.1 Evaluation tools https://www.spglobal.com/en/
S&P SP Indicative list of ESG Solutions & tools used

Evaluation tools use scoring techniques upon input data

and/or market scanning.

Focus on agency rating initiatives

Since the financial market is paying growing attention to

sustainability performance, environmental, social and
governance (ESG) rating agencies industry has grown
considerably in the last decade. ESG rating agencies play a
significant role in measuring corporate performance and
are considered as a key reference for investors,
shareholders, governments and companies in business
scrutiny and corporate sustainable performance.

ESG rating agencies have developed a set of screening

criteria to determine the sustainability performance of a  MSCI ESG Research
corporate activity overtime. In order to highlight the https://www.msci.com/research/esg-research
evolving role of rating agencies, we have selected below MSCI ESG Research is an American finance company
the most representative ESG rating agencies in the headquartered in New York and a global provider of
European and the US sustainable and responsible multi-asset portfolio analysis tools. Supporting 6000
investment market: institutional clients through its 23 locations worldwide,
MSCI has published the MSCI principles of sustainable
 VigeoEiris investing to support investors in improving ESG
http://vigeo-eiris.com/ integration across the investment value chain. MSCI
VigeoEiris is an international rating and research has also set up a rating tool: MSCI ESG Ratings that rate
agency founded in 2002 and based in Paris that companies on a ‘AAA’ to ‘CCC’ scale regarding their
assesses companies and international organizations exposure to industry-specific ESG risks and their ability
integration of ESG factors and sustainability to manage these risks. Recently, through the
performance against 38 ESG issues in 6 topics acquisition of the startup Carbon Delta, MSCI ESG
(environment, human rights, human resources, Ratings platform has integrated the so called Climate
community involvement, business behavior and VaR. Climate VaR represents the estimation of the
corporate governance). VigeoEiris was created from impact of climate change on a company’s net present
the merger in 2015 of two historical leaders: the rating value as a way to assess the potential financial
agency Vigeo and the Ethical Investment Research sensitivity to climate risks and opportunities, i.e.: what
Service EIRIS in 2015. would be the potential financial impact of different
climate scenarios (1.5°, 2°, 3°of warming) on a
company’s valuation?
 CDP
https://www.cdp.net/en
CDP is a non-profit organization based in the UK that
supports investors, companies, cities, states and
regions in environmental impacts disclosure through a
sector specific approach. In 2019, 8400 companies and
920 cities, states and regions disclosed through CDP
scoring methodology. Scores are calculated against a
standardized methodology on an A to D scale through
4 programs: climate change, water security, forests
and cities. CDP has also launched a “Carbon Action”

ESG Handbook | 76
 initiative to encourage investors managing carbon Ecovadis model covers non-financial management
emissions and energy efficiency. systems including Environmental, Labor & Human
rights, Ethics and Sustainable Procurement impacts
 ISS ESG
and provides a 0 to 100 score and medals (Bronze,
https://www.issgovernance.com/esg/ silver, gold) when applicable. Ecovadis has rated
ISS ESG is the ESG rating branch of the Institutional 50,000 organizations worldwide in 2019.
Shareholder Services (ISS) group, which was created
following the acquisition of the German ESG research  CEEQUAL (The Civil Engineering Environmental
agency Oekom Research by ISS. ISS ESG corporate QUALity assessment)
rating methodology analyzes companies’ non-financial https://www.ceequal.com/
performance based on a set of 100 environmental and CEEQUAL is an international rating system and one of
social criteria, one third of which are sector specific. the BREEAM sustainability schemes launched in 2003
Besides corporate ESG ratings, ISS ESG solution offers that allows public-sector actors (government
a set of responsible investment solutions including departments and agencies, local and regional
industry and country ratings, portfolio analysis, authorities) and private-sector clients (infrastructure
sustainability impact services, green bond services, project developers, designers and asset operators) to
climate risk and engagement services. assign an assessment score (percentage out of 100%)
and a rating (excellent, very good, good and pass scale)
to projects in Infrastructure, civil engineering, public
 RepRisk
spaces and landscaping sectors. This rating tool allows
https://www.reprisk.com/
its users to ensure embedding ESG criteria into
RepRisk is an ESG screening provider that combines
projects investment lifecycle and enhance the
media scanning, third-parties resources analysis and
cost/benefice management related to non-financial
machine learning to assess companies and
issues. CEEQUAL underwent a recent merger with the
infrastructure projects performance based upon their
BREEAM infrastructure proprietary tool (Pilot)to
exposure to ESG risks. RepRisk assigns an Index, an
create an aligned new version of CEEQUAL (2018). The
ESG-related reputational risk’s exposure score and a
user-provided data allows an assessment of ESG
Rating (ranking from AAA: lowest risk exposure to D:
overall performance against criteria arranged in nine
highest risk exposure) to companies through screening
sections. Data is verified following the completion of
over 80,000 information sources daily and by covering
the assessment by a CEEQUAL verifier.
10 years of the company history. RepRisk covers 34
sectors and allows companies to have an in-depth
 ISCA ratings
analysis of governance, social and environmental
https://www.isca.org.au/is_ratings
factors through a quantitative and a qualitative
The IS rating schemes refer to infrastructure-specific
screening of 28 main ESG issues in addition to specific
project screening tools developed in 2012 by the
and sector-related ESG thematic issues.
Infrastructure Sustainability Council of Australia and
 Sustainalytics tailored for a local use in New Zealand and Australia.
https://www.sustainalytics.com/ ISCA currently offers four rating phases: planning,
is an ESG rating agency headquartered in Amsterdam, design, as-built and operations. The different ISCA
Netherlands that assesses more than 4000 companies schemes are applied by Sustainability Accredited
ESG performance using sector-specific indicators. The Professionals (ISAP).
Sustainalytics rating model includes at least 70
indicators that are sector-weighed. In 2011,  IS rating Scheme is a project screening system
Sustainalytics formed a research partnership with intended to allow its users to evaluate the
Sustinvest, a South Korean company and the Chinese sustainability performance of infrastructure
company SynTao. projects, programs, networks and assets through
the assessment of governance, economic, social
 Ecovadis and environmental factors. The evaluation allows
https://ecovadis.com/ scoring the project against a matrix of credits
Ecovadis is a rating platform that offers a wide range classified in categories to cover ESG topics. The
of solutions including assessment of corporate social total score is a sum of the points associated to
responsibility and sustainable procurement, risk each of the categories evaluated. The IS rating has
monitoring and mapping, plans and pricing. the delivered since its launch 63 infrastructure

ESG Handbook | 77
 projects certifications and can be applied across utilities, power generation, renewable power,
the planning, design, construction and operational transport, data infrastructure) and social infrastructure
phases of projects. (schooling and medical/ care institutions).
GRESB Infrastructure Fund Assessment
 IS Operation scheme is an assessment framework The Fund Assessment consists of a Management Component,
intended for evaluating risk-return of called the Management Component – Infrastructure Fund, this
infrastructure projects, benchmarking and is aligned with the Management Component in the Asset
Assessment. The Component addresses ESG management and
integrating a transparent approach to
investment processes and is structured into five aspects:
sustainability governance and sustainability risks
 Leadership
and opportunities during the operation and
maintenance phases. The evaluation is based on 6  Policies
sustainability criteria: management and  Reporting
governance, using resources, emissions, pollution
 Risk Management
and waste, ecology, people, and place and
innovation and can be conducted by infrastructure  Stakeholder Engagement
projects teams, developers, operators and public Additionally, the fund’s underlying assets may participate in
authorities. The IS operation scheme rating is the complimentary Infrastructure Asset Assessment, with the
scores of the fund’s underlying assets informing the fund’s
applicable to existing projects in different asset
Performance Component Score. While the participation of
classes but doesn’t allow a sub-sector specific underlying assets is not required, funds participating with at
approach. least 25% of assets will receive an overall GRESB Score and be
allocated to a corresponding peer group.
 IS international Scheme – Pilot is a rating GRESB Infrastructure Asset Assessment
framework tailored to address the needs of both The Infrastructure Asset Assessment assesses ESG
developed and developing economies outside of performance at the asset level for infrastructure asset
Australia and New Zealand. It is intended to operators, fund managers and investors that invest directly in
infrastructure. The Assessment into separate Management
support the achievement and the optimization of and Performance Components. The Management Component
sustainable outcomes over the long-term in measures the entity’s strategy and leadership management,
infrastructure projects. The framework complies policies and processes, risk management and stakeholder
with planning, design and construction phases, is engagement approach, comprising of information collected at
the organizational level. The Performance Component
based on the same assessment methodology as
measures the entity’s performance, comprising of information
the IS operation scheme and covers comparable collected at the asset level. It is suitable for any infrastructure
sustainability criteria. company with operational assets.
The Management Component is structured into 5 aspects
(same as those for the fund assessment)
The Performance Component is structured into 12 aspects:
The View from our members: GRESB Infrastructure Implementation | Output & Impact | Health & Safety| Energy
| Greenhouse Gas Emissions | Air Pollution | Water | Waste |
There are two complementary GRESB Infrastructure Biodiversity & Habitat | Employees | Customers |
Assessments: a Fund Assessment and an Asset Certifications & Awards.
Assessment. Additionally, the Resilience Module is an
optional supplement to the GRESB Infrastructure
Assessments.
The Assessments offer high-quality ESG data and
advanced analytical tools to benchmark ESG
performance, identify areas for improvement and
engage with investors.
GRESB was established in 2009 by APG, PGGM and USS
with the University of Maastricht, initially for Real
estate, and is one now of the most relevant frameworks
adopted by investors regarding portfolio ESG
performance tracking for real assets (used by over 100
institutional investors, with USD 22 trillion assets under
management). The assessments are applicable to all
infrastructure subsectors whether economic (Energy
and water resources, environmental services, network

ESG Handbook | 78
 show that a robust system is in place to improve EHS
The View from our members: GPSS feedback on
management of companies. This should also be
implementing the GRESB standard
assessed.

GPSS group is a Japan-based renewable energy group of Also, the data are often declarative and not verified by a
companies which constructs, operates and maintains third party. Third party verification by a qualified
solar, geothermal, wind, biogas and small-hydroelectric consultant is key in providing robustness in ESG Ratings.
power plants. GPSS Group combines the expertise of
each operating company with five sustainable power
4.4.2 Valuation tools
sources (solar, wind, hydroelectric, geothermal, biogas
and WTP(Waste-To-Power)) to achieve business
development that demonstrates group synergies.  SAVi (Sustainable Asset Valuation)
https://www.iisd.org/project/SAVi-sustainable-asset-
As a company, GPSS aims at a sustainable approach of valuation
business and prioritizes community impact and SAVi is a tool that has been launched by the
collective growth. By applying the GRESB standard in International Institute for Sustainable Development
2019, it has launched a process to implement core ESG (IISD) in 2018.SAVi allows its users among
benchmarks into the companies’ operations. governments and investors to assess infrastructure
assets performance through a selection of ESG criteria
GPSS has also identified 3 areas of focus in ESG
and externalities. The tool covers ESG impacts of a
compliance during the GRESB review:
variety of infrastructure sectors: Roads, buildings,
 GRESB has been a key reference for GPSS to discern energy projects and wastewater projects and includes
existing and missing data and to Identify and over 200 built-in externalities (related to regulatory
measure companies ‘vulnerabilities: “we are constraints, market risks and social impacts). SAVi is
currently collecting data regarding companies adopted during all phases of the investment lifecycle
‘emission scopes for the GHG protocol as well as given its ability to monetize various risks through
putting together existing documentation on ESG project financing modelling and incorporate
related matters such as environmental assessments externalities costs.
regarding project sites”.
 TREDIS (Transportation Economic Development
 Identify the lack of metric tools: GPSS implemented Impact System)
a software to collect and organize data to better https://tredis.com/
measure its ESG impact. Ultimately, GPSS will be TREDIS is an impact assessment tool adopted by
able to set targets and monitor sustainable governments and project developers to assess
outcomes on the long term. transportation projects’ financial impact in the
planning, construction and operation phases. TREDIS
 Adopt sustainability screening standards to assess
set of criteria helps its users conduct benefit-cost
strategic partners ‘ESG maturity: GPSS will fine-tune
its sustainability policy and integrate strategic analysis, economic and financial impact analysis and
partners ESG assessments in contracts clauses. economic development impact. TREDIS is a
transportation sector dedicated tool and have been
used by governments planners in the U.S, Canada and
Australia. TREDIS will also allow through an up-coming
The View from our members: STOA update some new features such as the capture of
ESG Ratings social benefits (E.g. public health improvements from
active transportation).
We view ESG ratings as a good tool for evaluating
companies’ resiliency and performance. However, the
rating agencies should have a harmonized way by asset  Autocase
classes in rating companies. Often ESG scores do not https://autocase.com/
match up across agencies. Autocase is a cost-benefit analysis tool that helps
ESG Ratings should not be the only one in assessing the conduct ESG valuation through assessing the
company’s performance. Indeed, proactive KPIs are monetary value of environmental, social and
most of the time never reported, such as “number of governance criteria of a sustainable infrastructure
training given”, “number of toolbox talk provided”, project. Autocase complies with all stages of a
“number of near misses reported” etc. Proactive KPIs project’s lifecycle: development, construction,

ESG Handbook | 79
 operation and post-operation phases and enables an
economic analysis modeling to compare different
approaches using environmental metrics: air pollution,
carbon emissions, economic metrics: productivity and
social metrics: workers health and absenteeism.
Autocase is a cloud-based tool linking the evaluation
tool Envision to a visualization software and can be
used by project planners, designers and asset owners.
 Zofnass Economic Process tool
http://economictool.zofnass.org/
Zofnass is an online tool developed by the Zofnass
program at Harvard University offering a
quantification of sustainability impact during the
development and the construction of an
infrastructure’s projects. Zofnass is based on the
evaluation tool Envision rating system. The
externalities’ assessment is achieved against five set of
criteria: quality of life, leadership, resource allocation,
natural world and climate and risk and covers different
infrastructure’s sectors: energy, food, landscape,
transportation, waste, water and communication.
Zofnass allows its user to draw an economic analysis
modeling and to monetize ESG metrics through a cost-
benefit analysis.
We are currently going through a healthy trial and error of
guidelines, standards, etc. put forth from different
standpoints, by a variety of participants, including
professional associations, consultants, asset managers,
ratings agencies and index providers. Eventually, the
sooner the better, the market should coalesce around a
few best-in-class standards, adopted at a global level and
per sector.

ESG Handbook | 80
4.5 Greenwashing assess and verify the adequacy of investors’
“responsible behaviour” (PRI is a self-declaration);
The welcome rise in sustainability means more investors  Enhance international cooperation on ESG matters.
are using ESG in their daily activities. However, many are
claiming to be more sustainable when they are in fact only
making token gestures towards sustainability. This
phenomenon is known as greenwashing, i.e. behavior or
activities that make people believe that a company is doing
more to protect the environment (and by extension social
& governance) than it really is. This make-believe approach
encompasses:

 Strategies that rely on simple exclusions. There should

be more to sustainable investing than just a negative ****************************************
screening; and
 A lack of active ownership approach towards investee
companies. Truly sustainable investors will use voting
and engagement to encourage their asset managers to
become more sustainable.
Combating the greenwashing phenomenon is only possible
through the development of a culture of sustainability and
responsibility, including through the support of targeted
actions at intergovernmental level. Specifically, it is
necessary to:

At a financial market level:

 Promote a better understanding to raise awareness in

the market and to enable market players to take into
account and monitor ESG matters;
 Promote/Request disclosure of relevant information
(cf. TCFD);
 Promote the dissemination of a harmonized
taxonomy facilitating the identification of sustainable
investments;
 Promote the dissemination of standardized KPIs to
facilitate ESG valuations and monitoring in the
medium and long term.

At a regulatory level:

 Definition and implementation of standard ESG

guidelines and harmonized ESG KPIs;
 Implementation of fiscal incentives to promote and
support sustainable investments;
 Identification and implementation of an
international/national regulatory body committed to

ESG Handbook | 81
 ANNEX 1: DEFINITION OF CONCEPTS
The title of this Handbook refers to ESG (environmental, social and governance), the umbrella term for the
components of sustainable and responsible finance, referring to the 3 main factors at play. But there are several terms used
indifferently to describe the universe of sustainable finance, largely overlapping even though each has its own nuances.

Sustainable finance: Any financial service that integrates ESG criteria into investment & operating process for the long-term
benefit of shareholders & Stakeholders. Sustainable finance concerns the whole value chain in the finance sector. Responsible
investment is a subset of sustainable finance.

Sustainable or Responsible investment: covers the various responses of investors to complex, real-world issues often
grouped together under the heading of ‘ESG’ are known as responsible investment. Responsible investment explicitly
acknowledges the relevance to the investor of ESG factors. It recognizes that long-term sustainable performance is
dependent on stable, well-functioning social, environmental and economic systems. This can also be construed as investment
that combines financial and extra-financial value creation.

Also used: ethical investment, socially responsible investment, green investment.

Green investment: refers to approaches that seek to invest capital in environmental assets, hence a narrower scope than
ESG or Sustainability investment. Green bonds in particular are targeted to support climate-related or environmental projects.

Impact investing: Investments with a clear intent to generate a measurable positive social and environmental impact
alongside some financial return. Impact investments target financial returns that range from below market to risk-adjusted
market rate.

Philanthropy: When there’s no expectation of financial return beyond the extra-financial performance sought for the
investment.

Alternative Assets: An alternative asset is an investment in any asset class that cannot be categorized as stocks, bonds and
cash. Alternative assets include a wide range of investment classes: antiques, precious metals, rare stamps, coins, private
shares in start-ups, over-the counter contracts and so on. Alternative assets fall often into two categories: the first one
represents vehicles that invest in non-traditional assets such as infrastructure, real estate and private equity. The second
category involves investment strategies that invest in traditional assets using unconventional methods, such as short-selling
and leverage.

ESG Handbook | 82
 ANNEX 2: ADDITIONAL TOOLS & STANDARDS
guidance to disclose environmental information and
assesses organizations dependencies on natural resources.
2.1 Additional Standards and Frameworks In October 2019, the ISO organization issued this
framework to allow organizations express quantitatively
The G20 Principles for Quality Infrastructure and qualitatively their environmental footprint-related
costs and benefits and document its impacts in monetary
Investment (QII)
and non-monetary forms.
https://www.mof.go.jp/
At the 2019 G20 summit in Tokyo, emphasis was put on
ISO14008: Monetary valuation of
quality infrastructure investment as the way to closing the
infrastructure gap. 5 of the 6 principles articulated refer environmental impacts
explicitly to ESG/ sustainability issues: https://www.iso.org/
The ISO 14008 standard provides organizations with
 Principle 1: Maximizing the positive impact of standardized methods to monetize environmental impacts
infrastructure to achieve sustainable growth and and aspects. The latter includes use of natural resources,
development impacts on human health and impacts on built and natural
environment. This standard complements the ISO14007
 Principle 3: Integrating Environmental Considerations standard’s approach to help better understand
in Infrastructure Investments organizations’ dependencies on the environment.

 Principle 4: Building Resilience against Natural

Disasters and Other Risks
2.2 Additional Evaluation Tools:
 Principle 5: Integrating Social Considerations in
Infrastructure Investment 427 (Four Twenty-Seven)
http://427mt.com/
 Principle 6: Strengthening Infrastructure Governance 427 is a climate risk data firm majority-owned by the
Moody’s corporation that assesses physical risks
While Principle 2: Raising Economic Efficiency in View of associated to climate change. 427 supports clients’
Life-Cycle Cost is also linked through issues like investment strategies and financial institutions’ and
affordability to the broader theme of economic corporations’ climate risk disclosures through scoring
sustainability models. 427 also offers an analytical method (exposure to
floods, hurricane-force winds, sea level rise, water stress
International Integrated Reporting Framework and heat stress) to assess climate hazards across multiple
(IIR) real estate sites and infrastructure projects.
https://integratedreporting.org/ Trucost SDG evaluation tool
International Integrated Reporting Framework (IIR) is a https://www.trucost.com/
reporting framework developed by the International Trucost part of S&P global, is a consulting firm founded in
Integrated Reporting Council (IIRC) that enables companies 2000 specialized in climate change risks, resource
to extend their reporting to other “capitals” than the constraints, and ESG factors assessment. Trucost is one of
financial capital: Manufactured, Intellectual, Human, Social the market leaders in carbon and environmental data and
and Relationship and Natural. This principle-based risk analysis. To help companies align their strategies with
framework underpins value creation through the six the SDGs, Trucost has elaborated the SDG evaluation tool.
capitals identified by the IIRC for existing and upcoming The tool assesses a company’s performance in embedding
projects. SDGs across the value chain. The tool allows companies to
determine applicable SDGs to its business operations and
ISO14007: Determining costs and benefits developed products, identify business opportunities
https://www.iso.org/standard/ aligned with SDGs and report on its activities.
The standard ISO14007 helps organizations identify
environmental impacts’ costs and benefits, provides

ESG Handbook | 83
Carbon Delta
https://www.carbon-delta.com/
Carbon Delta Founded in 2015, develops carbon ratings to
measure climate change impacts on companies. The main
topics covered by the evaluation are: climate change, legal
regulations and technological opportunities. The sector-
based Carbon delta model also offers the companies the
possibility of peer benchmarking to weigh and assess their
position in addressing climate change risks. Carbon Delta
has developed a partnership with the Independent Credit
View (I-CV) to integrate analytical methods in its carbon
rating methodology. Carbon Delta was acquired in 2019 by
MSCI.

Envision
http://www.envision-group.com/en/
Envision is a rating system developed in 2015 by the
Institute for Sustainable Infrastructure (ISI) along with the
Envision Leadership Circle members and adopted by
infrastructure project teams, financial institutions and
public authorities. The tool aims to compare sustainability
practices regarding infrastructure assets and includes five
categories organizing 64 sustainability criteria: Quality of
life, leadership, resource allocation, natural world and
climate and resilience and allows an evaluation of a
project’s performance in each category. The tool allows
three projects ‘certification levels: Bronze, Silver, Gold, and
Platinum. The rating consists of a scoring system up to five
levels regarding the five applicable categories criteria.
Envision can also be adopted during different phases of the
project’s investment lifecycle phases (development and
design, commissioning, construction and operation).

GIIRS
https://b-analytics.net/giirs-funds
GIIRS (Global Impact Investment Rating System) is a rating
tool that helps investors measure and manage impacts
across funds policies and practices. The GIIRS rating
includes three parts: an impact business model rating,
operations ratings and fund manager’s assessment. Once
the GIIRS rating is completed, it can publicly be shared with
stakeholders. The fund overall impact business model is
assessed against silver, gold or platinum medals while the
operation rating is achieved using a five stars scale. Other
specific criteria (community, customers, environment,
workers and governance) are also rated during the
assessment process. The fund manager assessment is
carried-out through a 60-item questionnaire covering
impact targets, investment criteria and portfolio
management.

ESG Handbook | 84
 ANNEX 3: EC SUSTAINABLE ACTION PLAN

Focus on Action 1: Establishing an EU

classification system for sustainable activities

In order to reorient capital flows towards sustainable

investment, the EC’s DG FISMA (Directorate General for
financial stability and capital markets), alongside the
Technical Expert Group (TEG) on sustainable finance and
the Platform on Sustainable Finance (to be established),
are developing a common and unified classification system
at EU level to identify economic activities which can be
considered as green. The EU Taxonomy will take the form
of a list, established on the basis of homogeneous,
scientific, ambitious and transparent criteria, in line with
EU and international climate objectives.

The EU Taxonomy is a foundation stone of the EC Action

Plan for financing growth, as it will allow:

 The financial industry to determine how sustainable

their investments are;
 To stimulate both the supply and demand for
sustainable financial products, particularly for retail
investors, while limiting risks of green washing; and
 To put companies with significant shares of their
revenues, OPEX and/or CAPEX associated with
taxonomy-compliant economic activities
A given economic activity shall meet the following
requirements to be considered as green (cf. Figure 41):

 Be either considered as “low-carbon”, “transitioning”

or “enabling”
 “Substantially” contribute to at least one of the
following six environmental objectives (assessed via
technical screening criteria): “climate change
mitigation”; “climate change adaptation”; “circular
economy”; “sustainable use of water and marine
resources”; “pollution prevention”; “healthy
ecosystem”;
 “Do not significant harm” any of the other
environmental objectives
 Do not violate any of the minimum social safeguards

ESG Handbook | 85
 Figure 41: Low-carbon, transition and enabling activities as per the EU Taxonomy

As this Handbook is being written:

 The Taxonomy Regulation21 has just been approved by both the Council and the EU Parliament (December 2019)
 The Taxonomy Regulation requires companies that are already subject to the EU Non-Financial Reporting Directive (to
be amended) to publish their taxonomy-compliant green revenues, OPEX and CAPEX
 The TEG has just published its final technical report 22(March 2020, including a technical annex23).
 Only two of the six environmental objectives (climate change adaptation and climate change mitigation) have been
covered by the TEG (cf. Figure 42).
 THE Platform on Sustainable Finance is expected to take over the development of the EU taxonomy.
 The implementation of the EU Taxonomy is expected for December 2021 (two objectives) and December 2022 (all six
objectives).

21https://data.consilium.europa.eu/doc/document/ST-14970-2019-ADD-1/en/pdf

22https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/200309-sustainable-finance-teg-

final-report-taxonomy_en.pdf
23https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/200309-sustainable-finance-teg-

final-report-taxonomy-annexes_en.pdf

ESG Handbook | 86
Figure 42: Activities covered by the EU Taxonomy for climate mitigation (as at publication of the March 2020 TEG technical report)

Figure 43: Process for applying the taxonomy

ESG Handbook | 87
Focus on Action 2: Creating standards and labels the renewed sustainable finance strategy, taking place
for green financial products from March to May 2020.

Concomitantly to the development of the EU Taxonomy, Focus on Action 7 (Clarifying institutional

and as part of Action 2, the EC is also working on the investors and asset managers’ duties to
development of an EU Ecolabel for Retail Financial
integrate ESG and increased disclosure) and
Products (expected for Spring 2021) covering UCITS funds,
certain retail Alternative Investment Funds (RAIFs), Action 5 (Developing sustainability in
insurance products with an investment component, as well benchmarks)
as fixed-term and savings deposit accounts. Criteria have
As part of Action 7 of the EC Sustainable Finance Action
been proposed in two consecutive technical reports
Plan, Regulation (EU) 2019/2088 of the European
published by the EC’s Joint Research Center (JRC), and
Parliament and of the Council of on sustainability-related
include, but are not limited to,
to disclosures in the financial services sector was published
 Taxonomy-compliant green revenues thresholds (for on 9 December 2019 in the Official Journal of the European
equity); Union26.
 EU-Green Bond Standard-compliant green thresholds The Disclosure Regulation seeks to achieve more
(for projects); transparency on how financial market participants and
 Activity exclusions for different types of financial advisers consider sustainability risks in their investment
products and asset classes (e.g. equity funds, bond decisions and insurance or investment advice. A
funds, funds of funds, feeder funds, listed asset classes, sustainability risk is defined as an environmental, social or
unit-linked insurance products, green fixed-term and governance event or condition that, if it occurs, could have
savings deposit accounts, etc.). a negative material impact on the value of an investment.

In line with the EU Ecolabel Regulation, the objective of the The Disclosure Regulation lays down harmonised rules
EU Ecolabel for Retail Financial Products is primarily to applicable as of March 2021 to all financial market
encourage individual investors select best-in-class financial participants, including notably AIFMs, UCITs management
products demonstrating environmental excellence. As such, companies, investment firms, insurance and credit
the JRC proved reluctant in incorporating professional institutions providing portfolio management, as well as to
funds. financial advisers providing investment and/or insurance
advice. It requires that the entities concerned disclose in
Likewise, as part of action 2, the EC has requested the TEG
pre-contractual documents as well as on their website a
to prepare a report on an EU Green Bond Standard (EU-
series of information.
GBS), building on current best practices. As this Handbook
is being written, the TEG has published in June 2019 a first The Regulation (EU) 2019/2089 of the European
report on EU-GBS 24 , proposing that the EC creates a Parliament and of the Council of 27 November 2019
voluntary, non-legislative EU GBS to enhance the amending Regulation (EU) 2016/1011 about EU Climate
effectiveness, transparency, comparability and credibility Transition Benchmarks, EU Paris-aligned Benchmarks and
of the green bond market and to encourage the market sustainability-related disclosures for benchmarks has also
participants to issue and invest in EU green bonds. Building been published on 9 December 2019 in the Official
on the recommendations of the June 2019 report, the TEG Journal of the European Union27. Following the LIBOR
published on 9 March 2020 their usability guide for the EU scandal, the EU Benchmarks Regulation aims to address
Green Bond Standard 25 . This guide offers market actors concerns about the accuracy and integrity of indices used
guidance on the use of the proposed standard and the set- as benchmarks in financial markets. It is expected to be
up of a market-based registration scheme for external followed by other European Union Regulations and/or
verifiers. Directives related to environmental, social and corporate
The EC is exploring the possibility of a legislative initiative governance (ESG) principles and that will amend the
for an EU-GBS in the context of the public consultation on UCITS, AIFMD, MiFID, IDD and Solvency Directives

24https://ec.europa.eu/info/files/190618-sustainable-finance- 26 https://eur-lex.europa.eu/eli/reg/2019/2088/oj
teg-report-green-bond-standard_en 27 https://eur-lex.europa.eu/eli/reg/2019/2089/oj
25https://ec.europa.eu/info/files/200309-sustainable-finance-
teg-green-bond-standard-usability-guide_en

ESG Handbook | 88
 ANNEX 4: ESG DUE DILIGENCE SCOPE OF WORK
EXAMPLE
Note: Extract from GRESB ESG Due Diligence Tool

ESG Risk & Opportunity Assessment Governance

Audit committee structure/independence
ESG Issue Board composition
Environmental
Board ESG oversight
Air pollution
Bribery and corruption
Biodiversity and habitat Compensation committee
Climate/climate change adaptation structure/independence
Contaminated land Conflicts of interest
Energy Cybersecurity
Greenhouse gas emissions Data protection and privacy
Hazardous substances Delegating authority
Light pollution Executive compensation
Material sourcing and resource efficiency Fraud
Noise pollution Independence of board chair
Resilience to catastrophe/disaster Lobbying activities
Waste Political contributions
Water outflows/discharges Shareholder rights
Water inflows/withdrawals Whistleblower protection
Social Resilience
Child labor Transition risk factor 1
Community development Transition risk factor 2
Customer satisfaction Transition risk factor 3
Employee engagement Physical risk factor 1
Forced or compulsory labor Physical risk factor 2
Freedom of association Physical risk factor 3
Health and safety: community Social risk factor 1
Health and safety: contractors Social risk factor 2
Health and safety: employees Social risk factor 3
Health and safety: supply chain
Health and safety: users
Inclusion and diversity
Labor standards and working conditions
Local employment
Social enterprise partnering
Stakeholder relations

ESG Handbook | 89
Management Summary Resilience Summary

Assessment criteria Assessment criteria

ESG Leadership Governance
ESG Materiality Assessment Climate risk and resilience designated
employee and/or a team
ESG leadership commitments Systematic process for communication and
ESG objectives review of resilience-related information
ESG designated employee(s) responsible for Strategy
implementation Resilience-related business strategies
Senior decision-maker for ESG issues implemented
Personnel ESG performance targets Systematic process to incorporate climate risk
and resilience
ESG Policies in place Assessment of potential financial impacts of
Environmental policy climate-related risks
Social policy Risk Management
Systematic process to assess the entity's
Governance policy exposure to climate-related transition risk
ESG Reporting Systematic process to assess the entity's
exposure to physical climate risks?
Disclosure of ESG actions/compliance
Systematic process to assess the entity's
Third-party review of ESG disclosure exposure to social risks
Communication process for ESG incidents Resilience Measurement
ESG-related misconduct, penalties, incidents or Resilience-related targets or goals
accidents Tracking of climate risk and/or resilience-
ESG Risk Management related performance metrics
Alignment with, or accreditation to, ESG-related
management standards
Environmental risk assessment Note: The tool also includes a “Performance
Summary” including an exhaustive list of
Social risk assessment
general, environmental, and social indicators.
Governance risk assessment
Environmental monitoring
Social monitoring
Governance monitoring
Stakeholder Engagement
Stakeholder engagement program
Supply chain engagement program
Stakeholder grievance process
Stakeholder grievance monitoring

ESG Handbook | 90
 Infrastructure finance in the Developing World
ANNEX 5: (Marshall Brown, Yongsung Kim and Mattia Romani, G-
24 and Global Green Growth Institute, 2019)
REFERENCES
EU Taxonomy - TEG Report (Technical Expert Group,
Benchmarking infrastructure assets on ESG European Commission, 2019)
performance (UN PRI, 2018)
EU Green bond standards - TEG Report (Technical
Firing the starting gun on the SDGs infrastructure Expert Group, European Commission, 2019)
investing (UN PRI, 2017)
Sovereign Blue Bond Issuance: Frequently Asked
PRI launches infrastructure due diligence questionnaire Questions (The World Bank, 2019)
(UN PRI, 2018)
Blue bonds: Next investing wave (Morgan Stanley, 2019)
Primer on responsible investment in infrastructure (UN
PRI, 2018) Real Estate Funds: The ISR Label (Arnaud Dewachter,
ASPIM, 2017)
PRI-Awards 2019 Case study Australian infrastructure
sustainability project (UN PRI, 2019) Environmental and social framework (Asian
Infrastructure Investment Bank, 2016)
Infrastructure as an Asset Class: Investment Strategy,
Sustainability, Project Finance and PPP (Barbara The financial performance of real impact assets (Jessica
Weber, Mirjam Staub-Bisang, Hans Wilhelm Alfen, June Matthews, Kristine Leary, Cambridge Associates, Abhilash
2016) Mudaliar, Aliana Pineiro, Hannah Dithrich, Global
Impact Investing Network, 2017)
Core infrastructure's growing role in institutional
portfolios (JP Morgan, 2017) The water challenge: preserving a global resource
(Zachary Sadow, Daniel F. Ford, Mark Lewis, Rose-Lynn
The SDG investment case report (UN PRI, 2017) Armstrong, Barclays, 2017)

Public-private Infrastructure Advisory facility annual Special report ESG - The Metrics Jigsaw (IPE, 2019)
report (PPIAF, 2019)
Financial sector and climate change 2019 Review (Maria
Sustainable real estate investment: Implementing the Scolan, Climate Chance Association & Finance for
Paris climate agreement report (UN PRI, 2016) Tomorrow, 2019)

Integrating ESG factors into financial models for Valuing Sustainability in Infrastructure Investments:
infrastructure investments (Britta Rendlen, WWF and Market Status, Barriers and Opportunities (Will Sloan,
Dr.Barbara Weber, B Capital Partners, 2019) Kathryn Wright, Jon Crowe, Jamie Daudon, and Liz
Hanson, WWF Switzerland & Cadmus Group, 2019)
Building a bridge to sustainable infrastructure report
(Mercer, Inter-American Development Bank, 2017) Sustainable development charter (Meridiam, 2018)

Building sustainable, inclusive transportation systems The road less traveled: sustainable investing with
report (PwC, 2017) infrastructure debt (Paul David & Juana Galindez,
Allianz Global Investors, 2019)
Sustainable infrastructure and finance (Hans-Peter
Egler, GIB, Raul Frazao, Research Associate, GIB, 2016) Task Force on climate-related Financial Disclosures:
Status Report (Task Force on climate-related Financial
An integrated perspective on the future of mobility (Eric Disclosures & the Financial Stability Board, 2019)
Hannon, Colin McKerracher, Itamar Orlandi, and Surya
Ramkumar, McKinsey, 2016) Climate financing for infrastructure Investment (Cities
Climate Change Finance Leadership Alliance, 2019)
Driving sustainable development through better
infrastructure (Amar Bhattacharya, Jeremy Oppenheim, CCFLA 2.0 Strategy (Cities Climate Change Finance
and Nicholas Stern, Brookings, 2015) Leadership Alliance, 2019)

ESG Handbook | 91
ESG funding skyrocketed in 2018. Blackrock and CCFLA Steering committee elections, Research
Vanguard continue to grow socially conscious investment Organisations, NGOs (Cities Climate Change Finance
vehicles (Chief Investment Officer, 2019) Leadership Alliance, 2019)

Sustainable Investment skeptics are becoming believers CCFLA Brochure (Cities Climate Change Finance
(Chief Investment Officer, 2019) Leadership Alliance, 2019)

Institutional Investor Study (Schroders, 2019) « Macron réunit le gratin de la finance internationale
pour le climat » (Les Echos, 2019)
Chart of the week: The growing influence of the PRI
(Nick Reeve, IPE, 2019) State of the Practice: Sustainability Standards for
Infrastructure Investors (Michael Bennon, Dr. Rajiv
Who's doing what in ESG (IPE, 2018) Sharman Global Projects Center, Guggenheim, WWF,
2018)
The numbers that are changing the world (KPMG, 2019)
ESG investing: Poor scores. Climate change has made
Sustainable Investing in Infrastructure (Foresight Group, ESG a force in investing (The Economist, 2019)
2018)
PRI signatories must report climate change risks from
Resilience report (GRESB, 2018) 2020 (Elizabeth Pfeuti, IPE, 2019)

GRESB Instructure Results (GRESB, 2019) ESG principles guide 70% of institutional investors
(Chief Investment Officer, 2019)
ESG and SDGs should be more than just an afterthought
(Meridiam, 2019) ESG in infrastructure (EMPEA, 2016)

The UN SDG: A touchstone for today's responsible ESG: Greenwashing under scrutiny (Susanna Rust, IPE,
investors (Columbia ThreadNeedle Investments, 2018) 2019)

ESG in infrastructure: Benchmark blues (René ESG investing does not cost more, research shows (Frank
Lavanchy, IPE Real Assets, 2020) Van Alphen, IPE, 2019)

ESG Handbook - 2nd Edition (Long-Terme Infrastructure Reputational risk drives ESG at pension funds more than
Association, 2017) at other investors (Susanna Rust, IPE, 2019)

Raising the bar - Impact Investing in a changing world Into the mainstream: ESG at the tipping point (State
(Nuveen, 2019) Street Global Advisors, 2019)

Redefining Sustainable Business: Management for a A world of insight: Customer stewardship and the
rapidly changing world (Aron Cramer, Dunstan Allison- institutional investor (National Australia Bank, 2019)
Hope, Alison Taylor, Beth Richmond, and Charlotte
Bancilhon, Business for Social Responsibility, 2018) Incorporating ESG factors into fixed income investment
(Georg Inderst and Fiona Stewart, GPIF / World Bank /
ESG Reporting and Financial Performance: The Case of IFC, 2018)
Infrastructure (Silvia Garcia Moraleja, Tim Whittaker,
EDHEC Infrastructure Institute Singapore, 2019) « ESG et acteurs de l’infrastructure : des intentions…à
l’action ! » (SWEN Capital Partners, 2018)
ESG Guide – Private Equity, a key player for sustainable
development, Current Situation, vision and guide for Infrastructures: A key asset category for the climate
action (France Invest & PwC, 2019) (Carbon 4, 2019)

IDBG Framework for planning, preparing sustainable EIB to phase out fossil fuel financing by 2021 (The
infrastructure (Tomas Serebrisky, Graham Watkins, Guardian, 2019)
Maria Cecilia Ramirez, Hendrik Meller, Giovanni Leo
Frisari, Rahissa Melo, Andreas Georgou lias, IDB, 2018) Climate resilience is set to make or break businesses
(World Economic Forum, 2020)

ESG Handbook | 92
Larry Fink's Annual CEO letter (Blackrock, 2020) WEF Global Risks Report (World Economic Forum,
2019)
BlackRock teams up with France and Germany to form
Climate Finance Partnership (Business Insider, 2019) Sustainability Signals: The Individual Investor
Perspective (Morgan Stanley, 2017)
Breaking the Tragedy of the Horizon (Mark Carney, Bank
of England, 2015) Developing better dams: A primer on strategic
approaches to large water infrastructure (WWF, 2017)
Bloomberg, AXA, HSBC, Macquarie CEOs launch
climate finance drive (Michael Holder, Business Insider, Global Real Assets Outlook (Blackrock, 2020)
2019)
Real Assets Sustainable Investing (Blackrock, 2019)
Financing the low carbon future (Climate Finance
Leadership Initiative, 2019) Responsible Investment in Private Equity: case studies
(UNEP FI, 2009)
EU considering sustainable investing as fiduciary duty
for investors (Susanna Rust, IPE, 2017) Environmental and social due diligence: mitigating risks,
identifying opportunities (CDC group, 2016)
EU policy makers achieve political agreement on investor
disclosures and ESG (UNEP FI, 2019) Using environmental matters to create deal value (BBJ
Group, 2017)
Fiduciary duty in the 21th century (UNEP FI, 2019)
OECD Getting infrastructure right (OECD, 2016)
UK new ESG pension rules: four measures to ensure
their success (Rachel Fixsen, UNEP FI, 2019) ESG in Private Equity: How to Write a Responsible
Investment Policy (BSR, 2019)
Global Statement on Investor obligations and duties
(UNEP FI, 2019) The Limited Partners Responsible Investment due
diligence questionnaire (UN PRI, 2015)
« 173 nuances de reporting » (Novethic, 2018)
PPP introduction and key issues, PPP knowledge Lab
« Bilan de l'application de l'article 173 » (French
Government, 2019) PRI endorses French Private Equity initiative at climate
finance day (UN PRI, 2018)
Stewardship activity report (GPIF, 2019)
How have investors meet their ESG and Climate
Guidance on core indicators for entity reporting on reporting requirements under article 173-VI (EY, 2017)
contribution towards implementation of the Sustainable
Development Goals (United Nations Conference on Trade Are your climate disclosures revealing the true risks of
and Development, 2019) your business? (EY, 2019)

Infrastructure Assessment Indicators (GRESB, 2019) Sustainable investing: The millennial investor (EY, 2017)

2019 Infrastructure Asset Assessment (GRESB, 2019) What are the main challenges of the sustainable
infrastructure sector today? (EY, 2017)
Infrastructure Materiality Assessment tool (GRESB,
2019) Why SDGs should be in your business plan (EY, 2019)

Carbon 4 insights - How to monitor physical climate FMO ESG Toolkit-Impact management project (FMO
change risks (Carbon4, 2020) Entrepreneurial Development Bank, 2020)

The critical role of infrastructure for the SDGs (Sarah Infrastructure debt investment (Schroders, 2017)
Murray, Martin Koehring, The Economist, 2019)
Project Finance Glossary, Global Trade Funding
Global Investor Study: Are people compelled to invest
sustainably? (Schroders, 2019) Understanding the “E” in the ESG (S&P Global, 2019)

ESG Handbook | 93
Stranded Assets: A climate Risk Challenge (Ben
Caldecott, Elizabeth Harnett, Theodor Cojoianu, Irem
Kok, and Alexander Pfeiffer, Inter-American Development
Bank, 2016)

Stranded Assets (Carbon Tracker, 2017)

Sustainable infrastructure needs to look beyond climate

change (Delfin Ganapin, WWF-International, 2018)

Environmental Issues Associated with Infrastructure

Development (Working Group on Environmental Auditing
WGEA, 2013)

Global Biodiversity Score: a tool to establish and

measure corporate and financial commitments for
biodiversity (Joshua Berger, Rose Choukroun, Antoine
Vallier, Club B4B+)

Investing in Climate, Investing in Growth (OECD, 2017)

The Greenhouse Gas Protocol, A corporate Accounting

and Reporting Standard (World Business Council for
Sustainable Development & World Resources Institute)

Six key ESG issues in energy credits (Frances Pang,

ROBECO, 2017)

Global Landscape of Climate Finance (Barbara Buchner,

Alex Clark, Angela Falconer, Rob Macquarie, Chavi
Meattle, Rowena Tolentino, Cooper Wetherbee, Climate
Policy Initiative, 2019)

ESG Handbook | 94