The inclusion of sustainability as a core part of our investment process significantly contributes to our goal of delivering infrastructure-like returns to investors while mitigating investment risk. Additionally, it enhances investment support to companies with strong sustainability practices.
As global listed infrastructure specialists, our investment philosophy includes the delivery of infrastructure-like returns to investors while mitigating investment risk wherever possible. Our infrastructure investment team believes that sustainability factors are an important aspect of company performance and incorporate these factors as part of our standard investment appraisal process.
Sustainability is often referred to as environmental, social and governance (ESG), but for our specialist infrastructure investment team, it also includes other factors, such as disruption. As such, we do not defer sustainability analysis to a dedicated ESG analyst; rather, all investment team members are involved in assessing sustainability factors. Our process combines input from our in-depth sector knowledge, our communications with company management and non-executive directors as well as our network of industry experts, and various third-party sources, such as ESG risk report provider Sustainalytics, into a proprietary sustainability scorecard.
Our infrastructure investment team incorporates sustainability analysis into the investment process via three main pillars.
When considering the sustainability investment elements of infrastructure-related companies, we do not explicitly exclude companies that exhibit poor sustainability characteristics. Instead, we assess the sustainability risk and opportunities associated with each Company in its investment universe. We integrate these considerations into the investment process via valuation cash flow scenarios and into the Company’s required return or hurdle rate. Companies exhibiting poor sustainability characteristics have a higher cost of capital and therefore, a lower chance of being included in portfolios (or vice versa). Currently, the sustainability research process considers approximately 25 factors, and these are applied by infrastructure subsector. These factors broadly include:
Governance factors: include the governance structure of the Company, management incentives, and our alignment (as a minority shareholder) with the management, board and other major shareholders of the Company
Social factors: include a company’s approach to community relations, occupational safety and health, and reliability and pricing of services
Environmental factors: include a company’s environmental practices, GHG emissions and energy efficiency initiatives