Case study by CDC Infrastructure
CDC Infrastructure is a wholly owned subsidiary of Caisse des Dépôts, a public group signatory of the PRI whose strategy is based on long-term investment and public interest concerns. Our social and environmental responsibility is at stake in all our investment decisions and we are held accountable for it by our sole shareholder.
The environmental impact assessment tool helps us to:
- pilot asset allocation: for example, balance the portfolio in favour of low-carbon asset;
- select between two similar projects based on their environmental impact;
- communicate and discuss with external project partners (industry and investors) through specific and concrete requests;
- suggest appropriate additional compensatory measures to improve the project’s environmental impact;
- secure long-term returns on our investments.
ESG integration processIn 2010, CDC started developing a tool for evaluating environmental data for greenfield investments by comparison to a benchmark. As an investor in all types of major infrastructure development projects in France, such as high-speed railways, highways, bridges, and offshore wind farms, we needed a systematic way of considering the environmental impacts of our infrastructure investments. The tool was commissioned by the Caisse des Dépôts Strategy Department, and codeveloped and shared with all CDC Group entities involved in infrastructure. The tool facilitates internal dialogue between Caisse des Dépôts’ teams and helps us communicate more clearly with external project partners and other investors. We use the tool in the three main stages of the investment process:
1. Responding to a call for tender and selecting project partners
When we consider submitting a proposal, we use the tool to assess the project’s environmental impact. The tool covers around 15 questions.
“Integrating this analytical tool into our investment decision processes constitutes a new step in our responsible investment commitment and enables us to communicate our requirements to our investment partners.”
Frédérique Savel (Investment Director) CDC Infrastructure
|Water||Quantitative and qualitative protection (surface and underground water)||Is the project located in a flood zone?
Is it located in an area where the resource is limited?
|Biodiversity||Protection of ecosystems and species
Protection of environmental continuity
|Is the project located in protected zones?
Are vulnerable or endangered species present in the project zone?
|Energy||Energy savings and potential for renewable energy
Are there renewable energy sources available for the project?
|Does the asset require new sources of energy for operation?|
|Greenhouse gases||Reduction of greenhouse gas emissions||What greenhouse gas emissions are prevented by the project, compared to initial situation? (Traffic studies on these topics are generally available before project launch)|
For each potential investment, questions are ranked according to three categories: necessary, important, and supplementary.At the end of 2009, PGGM took part in the Mercer project on climate change scenarios. Leading institutional investors and experts investigated how climate change could be included into strategic asset allocation and affect asset class performance, including infrastructure. The project shows that policymakers play a crucial role in managing climate change and the need for engagement as part of ESG integration.
- If the majority of answers are negative in respect to these environmental criteria, our board of directors may decide not submit a proposal. Note however that that the environmental criteria form only one aspect of a decision – many other investment criteria are considered.
- In the case of an arbitrage between two investments due to limited equity availability, environmental criteria will play a role in selecting which project to finance.
Once we have selected a project and identified the environmental impacts that need to be managed, we choose project partners that have the capacity to deal with these issues. We then create a group agreement that includes principles for avoiding, reducing or compensating for environmental impacts. The principles are then included in the response to the call for tender.
2. Defining actions to mitigate and monitor environmental risks
The next step is to understand how the environmental issues identified become significant risks for the project. From there, we can define the actions needed to mitigate and monitor the identified risks. We request input from experts and present a detailed environmental management and sustainable development plan for the construction and operation phases of the project.
Examples of actions for a high-speed railway:
- analysis of biodiversity specific issues such as flora inventories, hydro-biological data collection for waterways and fish ecosystem, molluscs, land mammals, frogs, insects and avian life assessment;
- hypotheses and results of carbon footprint calculations;
- solar plant feasibility studies;
- protection of water resources during construction.
3. Monitoring commitments as a shareholder in the project company
Once the group has been awarded the contract, we become investors in the special purpose vehicle, or project company, and play an active role in its governance. We are therefore prepared to control and monitor the commitments made in the tender phase.
We use the information and experiences gained during the project to further develop the environmental impact analysis tool.