Organisation name: Lighthouse Infrastructure
Signatory type: Investment Manager
Assets under management: US$394 million
Region of operation: Australia
Lighthouse Infrastructure is an independent Australian fund manager, focusing on renewable energy and social infrastructure investments. Our goal is to generate competitive returns alongside positive social and/or environmental outcomes.
Why we do it
Our investment philosophy is underpinned by the belief that returns for investors in real assets will be maximised over the long term if the environmental, social and economic utility of those assets is sustained. We seek out investments that:
- provide mutual benefits to both users and investors,
- make efficient use of scarce natural resources,
- care for the environment, and
- provide access to services in a fair and efficient manner.
We believe this philosophy effectively mitigates risks and, when combined with active management of opportunities, can generate sustainable value over long-term periods (i.e. seven or more years).
How we integrate ESG factors into our investment process
We currently manage two investment funds: 1) The Lighthouse Solar Fund, a closed-end fund which predominantly invests in utility-scale solar farms in North Queensland, Australia; and 2) The Lighthouse Infrastructure Fund Trust (LIFT), an open-end fund with a mandate to invest in socially responsible, sustainable infrastructure assets predominantly within Australia.
Sustainability is at the core of LIFT’s investment strategy and acts as an initial screen for any potential investments. An opportunity’s high-level alignment with the Sustainable Development Goals (SDGs) is used to help guide this investment selection process. Investments that meet our criteria are then subjected to an extensive due diligence process, which incorporates analysis and consideration of a range of financial, environmental, social, governance and other factors to determine the suitability of the investment.
In addition to our internal investment process, Lighthouse also places significant value in achieving operator- and/or investment partner-alignment, and over time has developed and refined its thinking on how best to establish these partnerships. We align with ESG outcomes by applying a relationship philosophy that outlines the key aspects that we seek to achieve through partnerships with originators, developers and advisers.
These key aspects include ESG considerations such as:
- What is the partner’s approach to environmental management and measurement of the impact of the project on key stakeholders?
- Is the project sustainable and productive and does it provide a fairly priced benefit to society over the term of the asset’s life?
- Will the partner maintain appropriate safety standards during the construction and operational phases?
- Does the partner maintain appropriate governance and act in a transparent and accountable way with project stakeholders?
Once partnerships are established in connection with an investment opportunity, we establish and formalise the specific sustainability parameters that are appropriate to the investment through our assessment, due diligence and investment process, as outlined above.
Finally, we implement a detailed asset management strategy with our key relationship partners to set, monitor and achieve ESG key performance indicators. This involves collecting relevant data, measuring outcomes and driving further innovation to improve ESG outcomes. We implement this strategy both during construction and the operating phase of the asset.
Example: Specialist Disability Accommodation Investment, Australia
Hunter Residences Project - Background
In 2013, the Australian Federal Government launched the National Disability Insurance Scheme (NDIS). The scheme envisaged the introduction of institutional capital to fund the development and construction of homes throughout Australia designed specifically for people with disability, under the Specialist Disability Accommodation (SDA) framework.
The Hunter Residences Project (the Project) was announced by the New South Wales (NSW) State Government in October 2015. The state government sought expressions of interest from the private sector to finance, construct and manage new group home accommodation for people with disability who were living in state care. In 2017, Lighthouse was approached by a consortium of for-purpose entities to fund the Hunter Residences Project.
The project has, to date, delivered 65 new purpose-built, community-integrated homes within a flexible care model, providing choices to 325 people living with disability.
Key sustainability aspects that were developed for the Project
Through our participation in the Project from an early stage, we were influential in establishing the sustainability criteria and expectations of the Project.
Capital was provided by LIFT through facilities that recognise and allow for sustainable investment. We created an innovative finance structure that improved risk-adjusted returns for investors whilst ensuring alignment with key stakeholders, most importantly the residents and their carers. Specifically, the structure excluded external bank leverage and incorporated long-dated investments, with no refinancing or liquidity requirements for more than 20 years.
We challenged the consortium to undertake a range of environmental sustainability initiatives as part of the design and building construction and phases. To that effect, we:
- Communicated our environmental sustainability requirements early on in negotiations, indeed before agreeing to join the consortium as funding partner;
- Led the management teams to deliver and to report against a range of environmental efficiency measures;
- Challenged the consortium to achieve a higher average National Housing Energy Rating Scheme (NatHERS) rating than was required by legislation; and
- Provided additional sustainability funding to enable achievement of this improved rating.
The primary objective of the Project was to improve life outcomes for people with disability by moving them out of institutional settings and into a home-like environment with high levels of personalised care and opportunities to participate in the life of the community. The Project therefore has a strong focus on social sustainability, alongside the potential to generate competitive investment returns.
The homes were built using the design and operating frameworks of the Australian government’s NDIS. This process included significant consultation with tenants and their families/guardians.
Some of the benefits flowing from social sustainability measures include:
- Producing higher occupancy rates due to better ongoing tenant satisfaction;
- Reducing regulatory risk by aligning investment success with the objectives of external stakeholders, including government and the community;
- Allowing many residents, who have often been separated from family for decades in sub-optimal state-owned institutions, to move back to neighbourhoods where they enjoy the support of their families and friends;
- Attracting a diverse range of employees, who are motivated by the opportunity to provide care services in a modern environment supported by good design and a safe working environment.
As a testimony to the success of the Project, one resident who was non-verbal for decades in an institutional setting, spoke in the first week of moving into one of the new living units. His first words: “New home.”
As considered in “Getting Real about Islamic Finance” by Dr Larry Beeferman and Dr Allan Wain, Harvard Law School (2016)
Specialist Disability Accommodation – Decision Paper on Pricing and Payments (1 June 2016)
NSW Department of Communities and Justice / Development and Facilities Management of Disability Housing to Replace Hunter Residences Large Residential Centres - FACS.15.104