Case study by ICG, Oceinde Communications
Give a brief overview of your innovative approach to ESG incorporation, its coverage within your firm and why you decided to undertake this approach.
ICG decided to build on its already robust ESG Framework by developing a Sustainable Framework to apply to its new infrastructure strategy. The strategy focuses on the less competitive mid-market segment, capitalising on the team’s experience sourcing deals with European corporates and creating operational value.
This was a multi-team initiative, strongly endorsed by ICG’s CEO and CIO, involving senior management, the investment team, the firm’s responsible investing officer, and ESG Committee members.
The team decided to select the UN Sustainable Development Goals (SDGs) as an overarching framework for its sustainability approach. And, as a result, ICG’s infrastructure strategy now contributes to the following SDGs: 7 (Affordable and Clean Energy), 9 (Industry, Innovation and Infrastructure), 11 (Sustainable Cities and Communities) and 12 (Responsible Consumption and Production).
ICG’s Sustainable Framework includes the following:
- Adding high-carbon emitting industries, such as coal oil and gas, to ICG’s exclusion list, as well as nuclear.
- Enlarging ICG’s Screening Checklist to specifically identify how a potential investment’s core activities could positively contribute to the SDG during due diligence.
- Engagement with management teams to establish ESG KPIs and targets along with mapping of the company’s core activities to the relevant SDG targets.
- A carbon footprint analysis of the portfolio along with annual fund-specific ESG reporting to investors.
- Participation in annual GRESB Infrastructure assessments.
How does this approach stand out in the market? Why is it unique?
ICG is one of the very few generalist investors within the European infrastructure market that has explicitly excluded oil and gas as part of its sustainable approach.
From the outset, ICG decided to be a ‘green generalist’. It recognized the potential of the strategy to generate positive social, environmental and economic impacts and to contribute meaningfully to achieving the SDGs. ICG assesses the direct contribution of these assets’ core activities to the relevant SDGs, which are monitored and quantified annually using key metrics. These metrics rely heavily on the Global Impact Investing Network’s IRIS+ taxonomy and the Impact Management Project. Extensive engagement with management is key, along with incentivising management to achieve specific ESG targets.
As testament to investor demand for its sustainable financial products, the EIB approved a significant investment (min. €75m) in the strategy as part of its new green policy.
Give a practical example of how you have applied your approach to an investment (security/issuer/sector/asset class/portfolio), including any challenges faced and how you adapted to them.
The practical application of ICG’s framework has been a learning curve. For example, considerable time was spent assessing an asset in the shipping industry, as the lower carbon footprint (compared to alternative forms of transport) was compelling. However, the company generated a very small amount of revenue from the transportation of coal (c. 3%) along with fuel and gas (c.1%). ICG reviewed the EU taxonomy for Sustainable Finance, which provided clear guidance on sustainable investing in Inland Waterway transport, and the qualifying criteria. These required substantial GHG emission reduction, ideally zero emissions, or dedicated vessels using advanced biofuels.
Further investigation revealed that the company was in the process of phasing-out coal transportation and had terminated three major contracts in the previous 12 months. In addition, the company had developed a ‘green shipping programme’ that was actively exploring green technologies (electric propulsion, hydrogen fuel cell, LNG powered engines) and had set ambitious GHG reduction targets.
ICG’s investment would support this green transition in the longer term along with near-term fleet modernisation and training ships’ captains in ecological operating - improving energy efficiency and contributing to SDG 7 and SDG 9.
Although the investment adhered to ICG’s Sustainable Framework, the deal did not progress.
What were the outcomes of this initiative for the investment and how have you measured its success? What have you learned from this approach that can be applied more broadly?
This approach has proved it is possible to take a traditional asset class and apply a ‘green generalist’ Sustainable Framework that maximises the fund’s contribution to achieving the SDGs. The strategy deliberately focuses on just four SDGs, for maximum impact. ICG also developed a process to map how each asset contributes to the SDGs through the use of key metrics.
For example, ICG’s investment in Ocea, a leading French energy and water metering business, contributes directly to SDG 7 and SDG 6. And ICG is monitoring access to metering, cost and energy/water savings, along with corresponding GHG emissions that have been avoided. The company is also investing in electric vehicle charging stations and, again, ICG are tracking the impact in terms of access, usage and GHG emissions that have been avoided.
Oceinde Communications, a business telecommunications company in the French territory of Reunion Island, was the first to offer unlimited data at a very accessible tariff, contributing to SDG 9.
Key metrics include the total and new number of poor and rural households serviced annually. Investment in the new submarine cable will significantly increase capacity and connectivity to the mainland, contributing to GDP growth (SDG 1 and SDG 11). And the use of fibre supports SDG 7, by improving energy efficiency, as fibre uses up to 12 times less energy than traditional copper DSL cable. And ICG can quantify the energy saved and corresponding GHG emissions avoided annually.
In developing and implementing its Sustainable Framework for its infrastructure strategy, ICG realised the framework could be relatively easily replicated, with some minor modifications, to new and existing strategies. This will improve the accessibility of sustainable financial products targeting the SDGs. ICG has since successfully applied its Sustainable Framework to a newly launched real-estate strategy.