Responsible investment strategies include:
- Screening (negative/positive): e.g. sector exclusions, best-in-class investing
- Thematic investing: e.g. renewables, green bonds, social infrastructure
- Integrating ESG: e.g. factoring flooding/drought models into valuation methodologies
- Engagement: investor stewardship through direct (shareholder) engagement and through director appointments to the board
Example: Community engagement at Sapphire Wind Farm
Based in New South Wales, Australia, Sapphire Wind Farm had a planned production capacity of 270 megawatts. As the project took shape, the board formalised a Community Engagement Approach to secure a social licence to operate. The initiative’s expressed objective is to “extend opportunities for the local community to be meaningfully involved in and empowered by our renewable energy projects, and to leave a lasting legacy within the community.”
The project team initiated this strategy to ensure public support and full transparency over the expected 18 month construction period. Due to neglected or mismanaged community engagement at other infrastructure projects across the world, permits have been denied, construction delayed and reputations damaged by negative press coverage harming future business.
The engagement programme consists of four pillars: partnering with contractors on a range of innovative legacy projects during construction; identifying and delivering such projects; assessing local community interest in directly investing in the wind farm; and establishing a benefit fund to support longer-term community initiatives. So far, Sapphire Wind Farm has engaged directly with over 10,000 members of the community.
Example: community impact and risk in construction
The Dakota Access Pipeline sparked significant controversy when the Standing Rock Sioux tribe filed a lawsuit claiming that it threatened the tribe’s water supplies and cultural sites. As a result of the US President’s executive order, the pipeline opened to commercial service on 1 June 2017. However, a June ruling by a US District Judge stated that the constructor had failed to adequately consider the pipeline’s impacts on and risks to the Standing Rock tribe. The ruling and legal dispute have resulted in uncertainty about the costs, delays and continuity of the pipeline’s operations via its current route.
Example: far-sighted investment in stormwater treatment at port of Brisbane
The Port of Brisbane made a $1m investment in an Offsite Stormwater Treatment Project. The environmental health of the Brisbane River at the port, and the surrounding Moreton Bay, is under threat from high levels of sediment. A major source of this sediment is erosion in creeks and rivers 100 kilometres (km) upstream from the port.
The first stage of the project involved restoring nearly 1 km of badly eroded creek bank which was adjacent to horticultural land. This was achieved through, for instance, bank stabilisation, installation of grade-controlled structures, and replanting 4,000 native trees and grasses. The project has delivered excellent environmental outcomes. In the first year alone, the project prevented 4,800 tonnes of sediment (equivalent to 250 truckloads of dirt) from entering the creek and the Brisbane River. Over time, as the vegetation matures, the bank will become more resilient.
The project benefits both the environment and the port’s operations because these activities are likely to reduce the port’s maintenance dredging requirements.
Example: commercial viability and climate risk
Environmental groups have warned that the Adani Central Queensland railway project in Australia will not be commercially viable due to climate change. This railway is planned as a link between the company’s proposed thermal coal mine and the Abbot Point Coal terminal. The groups claim that a federal loan to the project is a substantial risk to taxpayers if it receives public financing.
Example: Sonnedix and the value of investing in resilience
Sonnedix, a solar power company owned by institutional investors advised by JP Morgan Asset Management, decided to build a new solar power plant at Salinas in Puerto Rico to a standard well above the commonly used 100 year storm standard. While requiring more initial capital expenditure, the plant has proved more resilient than other local plants to extreme weather. The 2017 hurricanes that hit Puerto Rico damaged less than 0.5% of the Salinas plant’s 175,000 solar panels. This meant it could continue to power the area (subject to grid availability or microgrid creation) in the aftermath of the hurricane.
Primer on responsible investment in infrastructure
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Infrastructure responsible investment strategies