Sustainable Finance Disclosure Regulations

RNS Number : 6293R

BBGI Global Infrastructure S.A.

10 March 2021

 

10 March 2021

BBGI Global Infrastructure S.A.

(the "Company")

Disclosures for the Sustainable Finance Disclosure Regulation (SFDR)

BBGI Global Infrastructure S.A. (LSE ticker: BBGI), the global infrastructure investment company, hereby shares its disclosures for the SFDR.

These disclosures are made for the purposes of Articles 3, 4, 5, 6, 7(2), 8 and 10 of EU Regulation 2019/2088, known as the Sustainable Finance Disclosure Regulation or SFDR.^[i]  They are made by BBGI Global Infrastructure S.A. (the Company), being a société d'investissement à capital variable.  The Company is an internally-managed alternative investment fund under the EU Alternative Investment Funds Managers Directive 2011/61/EU.

1.  DISCLOSURE ON SUSTAINABILITY RISKS (ARTICLE 6(1) OF SFDR)

Article 6(1) of SFDR requires the Company to make certain disclosures on the subject of sustainability risk. This means "an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of a relevant investment". For this purpose, the following points are noted. The terms ESG and sustainability are used as interchangeable in this disclosure.

1.1  Manner in which sustainability risks are integrated into investment decisions

The Company is required to describe the manner in which sustainability risks are integrated into its investment decisions. This may be described as follows:

(a)  Through a robust internal due diligence process, we seek to ensure that we identify and give appropriate consideration to all relevant and material risks before making an investment decision.

(b)  This includes sustainability risk, otherwise known as ESG (environment, social, governance) risk.  In this regard, we are conscious of the increasing importance being placed on ESG risks by investors, regulators, governments and other stakeholders, with climate change in particular being regarded as a fundamental issue. We therefore ensure that we give appropriate consideration to ESG risks in our due diligence process, considering these risks alongside more traditional financial criteria to understand when financially material sustainability risks might have a meaningful impact, and if so, the extent of the potential impacts on the investment's value and performance.

(c)  It should be noted, however, that ESG risk is considered in the round. In other words, we consider sustainability risk alongside all other relevant factors, taking a holistic approach.

(d)  By way of a summary, the following is noted:

(i)  Key relevant information is gathered as part of the due diligence process. This information facilitates the Management Board's understanding as to the extent of the sustainability risks and how these risks should be considered - i.e. what are the main risks, how they are monitored, managed and mitigated in practice, and (overall) how sustainability risks may affect performance or returns/value.  We conduct a detailed analysis of the information provided to form a view as to the material ESG risks that could arise for the Company if it were to proceed with the investment proposal, and the impact on potential returns and performance. 

(ii)  Where applicable, we review internal policies and procedures of the target company to enable us take a view as to the robustness of the internal frameworks. As part of this process we assess the target against some key governance areas such as, but not limited to, the soundness of management structures, employee relations and remuneration of staff (if any), codes of conduct, tax compliance, anti-slavery, anti-discrimination, cyber security, health and safety, and whistle-blowing among other areas.

(iii)  We may engage external third parties to conduct technical due diligence on certain investment opportunities where appropriate; e.g. if the investment is proposed in a company exposed to environmental risk, we may commission a site assessment to consider the environmental condition of any relevant land, to consider specific environmental risks (e.g. exposure to the risk of floods, cyclones, rising sea levels, extreme weather events, etc), and/or to consider energy efficiency issues.

(iv)  Where available, we will check available ESG ratings and scores obtained from independent ratings agencies; e.g. BREEAM or LEED.

(v)  Beyond this, we will use and consider other relevant sources of information, including publicly available studies and other resources that may contain an analysis of environmental issues or risks relating to the location of the relevant asset (see examples in 1.1(d)(iii) above).

(vi)  Once all relevant information has been compiled and assessed, an investment committee paper is prepared. This paper includes a final recommendation supported by a summary of the findings from the various due diligence workstreams including the outcome of the ESG due diligence. If any third party reports have been obtained, these are summarised. The paper includes a dedicated section headed "Sustainability Risks", which includes a summary and analysis of the relevant issues.

(vii)  If a decision is made to proceed, a monitoring, management and engagement strategy will be put in place to ensure relevant risks, including sustainability risks, are monitored, managed and mitigated to the extent possible.

(e)  Sustainability risk is potentially relevant to the Company having regard to the types of investments that may be made in accordance with our investment policy and objectives. In particular, the Company is exposed to the sustainability risks referred to in the section of the Prospectus entitled "Risk Factors", including in particular under the headers "Environmental Liabilities", "Termination of Project Agreements", "Major Events" and "Corrupt Gifts".

(f)  The impacts following the occurrence of a sustainability risk may be numerous and may vary depending on the nature of the specific sustainability risk, together with the region and asset class concerned. In general, where a sustainability risk crystallises in respect of an investment, there could be a negative impact on, or even entire loss of, its value, whether on a temporary or permanent basis.

1.2  Assessment of likely impacts of sustainability risks on returns

The Company is required to describe the results of its assessment of the likely impacts of sustainability risks on the returns of the Company.  In particular, where our sustainability risk assessment leads to the conclusion that those risks are relevant, it is required to disclose the extent to which those sustainability risks might impact the performance of the Company.  For this purpose, the following points are noted:

(a)  The Company's conclusion is that it cannot rule out the risk that one or more sustainability risks may crystallise, and as a result, have a negative impact on the value of the Company, and therefore returns and performance.  It also cannot rule out the risk that the potential impact could be material.

(b)  However, the Company has a robust approach in place to seek to mitigate the impact of sustainability risk on its returns, including (among other things) by integrating the consideration of such risks into its investment decision-making process, and through monitoring and management where relevant, in each case, as described above. 

2.  Disclosure on environmental and/or social characteristics (Article 8(1) of SFDR)

Article 8(1) of SFDR requires that certain disclosures be made where a financial product promotes environmental and/or social characteristics.  It is also necessary for the companies in which investments are made to follow good governance practices. The Company takes the view that it falls within the scope of Article 8 and therefore confirms as follows.

2.1  What environmental and/or social characteristics are promoted by the Company?

(a)  Our investment strategy delivers the Company's purpose to provide responsible capital required to build and maintain the developed world's social infrastructure. The investment policy is to invest in essential social infrastructure projects that have been developed predominantly under the Public Private Partnerships (PPP) or similar procurement models. By way of background:

(b)  Between now and 2030, it is estimated that around £5 trillion of investment is required every year to support the development and growth of the world's infrastructure needs. Central and local governments, however, typically do not have enough capital, technical skills or human resources to always fulfil this growing demand for investment.

(c)  The availability-based PPP model is an established procurement method whereby responsible capital provided by private sector investors such as the Company helps to fill the infrastructure spending gap in order to deliver essential public services for communities and users.

(d)  We report regularly on our responsible investment activities each year:

(i)  The Company publishes a detailed standalone ESG Report which covers the environmental, social and governance aspects of BBGI. The Company is a hands-on steward of critical social infrastructure investments such as hospitals, schools, blue light[ii] and justice facilities, and transport projects. The company has a global footprint and owns assets in Australia, Canada, Germany, Netherlands, Norway, the UK and the US.  The Company is committed to good governance, investing responsibly, and being a good long-term custodian of critical infrastructure assets. We understand the value of maintaining a disciplined focus and we aim to be an industry leader in responsible infrastructure investment which is essential to creating long-term benefits for all of our stakeholders.

(ii)  The Company submits a Public Signatory Report to the UN PRI. The Public Signatory Report is available on the following link: https://www.unpri.org/signatory-directory/bbgi-global-infrastructure-sa-/4166.article .

(e)  The Company continues to align its investment portfolio to contribute to selected UN's Sustainable Development Goals (SDGs), recognising the important role that investors can play in helping to meet global sustainable development priorities.

(f)  The Company is also a signatory to the UN Global Compact which is the world's largest corporate sustainability initiative.  The UN Global Compact is a call to companies to align strategies and operations with universal principles on human rights, labour, environment and anti-corruption and take actions that advance societal goals. The Company reports against the UN Global Compact 10 Ten Principles. https://www.unglobalcompact.org/what-is-gc/participants/140271-BBGI-SICAV-SA

(g)  The Company's aim is to invest responsibly. Its philosophy on responsible investment can be summarised as follows:

(i)  The Company's investment focus is in essential social infrastructure such as schools, healthcare, blue light and justice facilities and transport, procured using availability-based investment models.

(ii)  Stewardship, strong corporate citizenship and sustainable growth guide our business decisions.

(iii)  We have implemented a robust framework to integrate ESG into all aspects of our investment cycle, from initial screening through to end of investment life. ESG outcomes also affect the variable compensation paid to our identified staff.

(iv)  We are active owners and incorporate ESG issues into our ownership policies and practices.

(v)  We seek appropriate disclosure on ESG issues by the entities in which we invest.

These practices are mandatory under the Company's internal policies and procedures.

2.2  How are those characteristics met?

(a)  The Company will invest predominantly in infrastructure projects whose revenue streams are public sector or government-backed, meaning at least 75% of the portfolio value.

(b)  The Company's policies and procedures require compliance with the practices referred to above; for example, a due diligence process that includes a consideration of relevant environmental, social and governance factors before a decision is made to proceed with a particular investment.

2.3  What policies do we use to assess the good governance practices of investee companies?

We have policies and procedures in place to obtain a reasonable degree of comfort that relevant portfolio companies have and maintain good governance practices, as follows:

(a)  We ask to see internal policies and procedures to enable us take a view as to the robustness of the internal approach to governance; in particular, considering governance matters such as the soundness of management structures, employee relations and remuneration of staff (if any), tax compliance, anti-slavery, anti-discrimination, cyber security, health and safety, remuneration and whistle-blowing.

(b)  We consider governance issues in our due diligence process, used before making an investment, and will not make an investment unless we are able to form a positive view.

(c)  If a decision is made to proceed, an oversight and engagement strategy is put in place to ensure the position on governance is monitored and maintained, including reporting and regular meetings with the board and/or executive management team, and regular reviews of the environmental, social and ethical policies that the investee companies have in place and their adherence to these policies in the delivery of their services.

(d)  The Company also seeks to have, in the vast majority of cases, at least one appointed Company board representative on each investee company. The Company's appointed director at the investee company's board level then reports back to the Company and to the Company's management board at least on a monthly basis on areas such as governance at the investee company level.

2.4  Additional product-specific information

More product-specific information can be found on the Company's website at www.bb-gi.com.

3.  New SFDR regime on principal adverse impacts or PAI (Article 7(2) of SFDR)

The Company currently takes a number of ESG factors into account when considering a new investment and in terms of the monitoring and oversight of existing investments, as summarised above.  This includes AML and CTF assessments.

The Company therefore welcomes the new regime being introduced by SFDR, to require certain disclosures to be made by firms that consider the principal adverse impacts (PAI) of investment decisions on sustainability factors.  "Sustainability factors" are defined by SFDR as environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

This is in line with the Company's overall philosophy and approach as regards responsible investing, and accordingly, the Company is fully supportive of this initiative.

It is therefore pleased to confirm that:

(a)  it is working towards updating its current policies and procedures to reflect the detailed new regime; and

(b)  the intention of the Company is to be fully compliant with this new regime on or before 30 June 2021.

In the interim, the Company will use the option provided by SFDR of temporarily "opting out" of this regime (i.e. it will not consider the adverse impacts of investment decisions on sustainability factors, as prescribed by Article 4 of SFDR).

This is being done simply to ensure that the Company has additional time to ensure the framework it puts in place is carefully considered, and "tailor made" for the specific types of investments that the Company conducts.

4.  Disclosure on METHODOLOGIES (Article 10(1)(B) of SFDR)

 The Company is required by Article 10(1)(b) to publish on its website "information on the methodologies used to assess, measure and monitor its environmental or social characteristics, including its data sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure the environmental or social characteristics.  For this purpose, the following is noted:

(a)  Methodologies - The Company's investment strategy is to provide responsible capital required to build and maintain the developed world's social infrastructure. To demonstrate how we deliver social value, we have aligned our investment strategy with the UN's Sustainable Development Goals (SDGs). The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. At its heart are the 17 SDGs, which are an urgent call for action by all countries in a global partnership to improve among other things health and education, reduce inequality, and spur economic growth - all while tackling climate change and working to preserve our oceans and forests. As BBGI is an investor in essential social infrastructure the Company will use the SDG methodology to assess, measure and monitor its performance against selected focus SDGs (Focus SDGs).

(b)  Data sources - See the data sources referred to in paragraphs 1 and 2 above.

(c)  Screening criteria for the underlying assets - All investments must at least offer benefits to stakeholders and have a significant positive impact on one or more Focus SDGs.

(d)  Sustainability indicators - The Company will use the Focus SDGs to measure whether it achieves the required "social" characteristics. To illustrate this, the Company confirms its view that its current portfolio of social infrastructure investments currently offers benefits to stakeholders and has a positive impact on the following SDGs.

(i)  SDG 3: The Company has investments in 41 hospitals and health facilities in Australia, Canada and the UK.

(ii)  SDG 4: The Company has investments in 34 schools and colleges in Germany and the UK.

(iii)  SDG 9: The Company's investment strategy generally helps to deliver this target by developing quality, reliable, sustainable and resilient infrastructure to support economic development and human well-being, with a focus on affordable and equitable access for all.

(iv)  SDG 11: The Company has investments in 17 essential transportation projects in Canada, the Netherlands, Norway, the UK and the US.

(v)  SDG 16: The Company has investments in four police facilities and four justice facilities and a strong governance structure in place in relation to non-discriminatory policies.

It should be noted, however, that regulatory expectations and market practice in respect of Article 10(1)(b) of SFDR are not yet clear, and are expected to evolve over the coming weeks and months.  The Company therefore reserves its right to periodically update its position on these matters via its website.

5.  Information on Remuneration Policies (Article 5 of SFDR)

In terms of Article 5 of SFDR, the Company is required to:

(a)  include in its remuneration policies information on how those policies are consistent with the integration of sustainability risks - as noted above, this means "an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment"; and

(b)  publish that information on its websites. 

The disclosure in this paragraph comprises such information. 

5.2  Sustainability risk

The Company appreciates the desire of regulators to ensure firms take into account all current and future risks when making decisions pertaining to variable remuneration, including sustainability risk where relevant. 

We believe that our remuneration policies and procedures represent a robust approach to this issue.  For example:

(a)  variable compensation is linked to, among other things, the following:

(i)  sustainability factors aligned with Company policy and strategy. These factors promote sound and effective risk management on various subjects including sustainability risk, and ensure that compensation is linked to risk-adjusted performance;

(ii)  we differentiate individual compensation based on quantitative and qualitative criteria, such as delivering on financial and growth targets, maintaining a sound governance structure, regulatory compliance and performance including in respect of ESG factors, to reflect employees' contributions;

(b)  the evaluation of variable compensation takes into consideration long-term performance as well as the current and future risks associated with that performance and the lifetime of the assets under management;

(c)  a meaningful portion of any variable compensation for identified staff is provided in the form of equity, with deferred vesting, to link long-term shareholder value creation to the interests of management and enhance alignment with risk outcomes.  This also results in encouraging relevant staff to avoid an unduly short-term approach.

To the extent sustainability risks are or become material risk inputs, they are therefore integrated into our approach in the same way as other more traditional risks such as market risk, credit risk and operational risk.  This aligns with a relevant policy objective underlying SFDR, which refers to "the remuneration policies of [relevant firms], that promote sound and effective risk management with respect to sustainability risks whereas the structure of remuneration does not encourage excessive risk ‐ taking with respect to sustainability risks and is linked to risk ‐ adjusted performance" (recital 22, SFDR).

5.3  Review and monitoring

The Company recognises that ESG is the subject of increasing focus by investors, regulators, governments and other stakeholders, and can have a real impact on the value of investments over the long term.  The Company therefore proposes to keep the matters set out in this paragraph under review, bearing in mind that ESG is an evolving landscape. This paragraph is therefore likely to be reviewed and updated periodically over time. 

6.  OTHER DISCLOSURES FOR SFDR

The Company is required to publish certain other information for the purposes of SFDR.  This is covered as follows:

(a)  The Company is required by Article 3(1) of SFDR to publish on its website information about its policies on the integration of sustainability risks in its investment decision ‐ making process. This information is set out in paragraph 1.1 above.

(b)  The Company is required by Article 4(1) of SFDR to publish and maintain on its website, where it does not consider adverse impacts of investment decisions on sustainability factors, clear reasons for why it does not do so, including, where relevant, information as to whether and when it intends to consider such adverse impacts.  This information is included in paragraph 3 above.

(c)  As noted above, the Company takes the view that it falls within the scope of Article 8 of SFDR (i.e. that, in general terms, it promotes environmental or social characteristics), and is therefore required by Article 10 of SFDR to publish and maintain on its website the following information (as relevant):

(i)  a description of the relevant environmental or social characteristics - this is included in paragraph 2.1 above;

(ii)  information on the methodologies used to assess, measure and monitor the relevant environmental or social characteristics, including its data sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure the environmental or social characteristics - this is included in paragraph 4 above;

(iii)  the information referred to in Article 8 - this is included in paragraph 2 above;

(iv)  the information referred to in Article 11 - in due course, this will require certain information to be included in our periodic reports for the purposes of SFDR, and will therefore be inserted into this document or otherwise published on our website in due course.

A copy of these disclosures is also available to view on the Company's website at www.bb-gi.com   * . 

For further information, please contact:

BBGI Management Team   [phone]

Duncan Ball

Frank Schramm

NOTES

BBGI Global Infrastructure S.A. (BBGI) is a responsible infrastructure investment company and a constituent of the FTSE 250 that invests in and actively manages for the long-term a globally diversified, low-risk portfolio of essential social infrastructure investments.

BBGI is committed to delivering stable and predictable cash flows with progressive long-term dividend growth and attractive, sustainable, returns for shareholders. BBGI has a proactive approach to preserving and enhancing the value of its investments, and to delivering well maintained social infrastructure for communities and end users, whilst serving society by supporting local communities.

All of BBGI's investments are availability-based and supported by secure public sector-backed contracted revenues, with inflation-protection characteristics, that is paid so long as the assets are available for use.

BBGI's investment portfolio is over 99% operational with all its investments located across highly rated investment grade countries with stable, well developed operating environments.

BBGI's in-house management team is incentivised by shareholder returns and consistently maintains low comparative ongoing charges to shareholders.

Further information about BBGI is available on its website at www.bb-gi.com *.

The Company's LEI: 529900CV0RWCOP5YHK95

Any reference to the Company or BBGI refers also to its subsidiaries (where applicable).

* Neither the Company's website nor the content of any website accessible from hyperlinks on its website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

 

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[i] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector.

[ii] Blue light infrastructure represents our investments in fire and police stations.

 

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