Infrastructure policy guidelines At AMP Capital Investors Limited (AMP Capital), we recognise that environmental, social and governance () issues can impact the long-term performance of our investment portfolios. issues are considered across the full scope of our investment process; from the identification of new opportunities and in active management throughout the lifecycle of an asset.
in the Infrastructure asset class As a pioneer in the asset class and an early signatory to the Principles for Responsible (PRI)*, the AMP Capital Infrastructure team has a sophisticated understanding of -related risks and opportunities across a diverse portfolio of infrastructure sectors in both developed and emerging markets. We consider issues as a core component of our mainstream investment process, as demonstrated by the explicit protocols relating to the Infrastructure investment team s decision making, asset management and reporting activities. The purpose of this document is to provide further detail of our process, controls and initiatives that demonstrate our long standing commitment to the key principles of responsible investment in the Infrastructure asset class. Additional information can also be found at www.ampcapital.com.au/esg Determining materiality of issues When considering the key issues likely to impact our infrastructure investment portfolios, we assess the physical location of a facility or service, environmental impacts and constraints, community and social implications, the dynamics of the sector or industry in which they operate and the business practices of related counterparties. Furthermore, we consider the scope of governance arrangements in place to protect the long-term interest of investors. While the materiality of specific issues will vary greatly between each investment given its unique characteristics and the contractual arrangements between counterparties, common considerations include environmental legislation, biodiversity, occupational health and safety, community safety, stakeholder management, community grievances, board composition, shareholder rights, succession planning, audit processes and sustainability considerations. Our philosophy When investing in infrastructure assets, we view issues in the same way we do any other investment risks, i.e. those risks which have the potential to impact on the performance of an asset. Underpinning this view are five key tenets: 1. Aligning our approach to with our fiduciary duty to act in the best interests of our clients 2. Incorporating considerations into our investment analysis and decision making, active ownership practices and ongoing reporting activities 3. Ensuring a balanced view of broad investment issues and risks that may impact long-term returns (as opposed to adopting specific positive or negative screens common to many socially responsible or ethical funds) 4. Applying our policy across each of the investment portfolios and regions in which we invest 5. Ensuring each member of the Infrastructure team is accountable for integration in accordance with our policy.
analysis & decision making When originating new investment opportunities, we apply both a qualitative and quantitative approach in identifying and assessing the risks, opportunities and potential impacts of issues. As illustrated below, issues are considered in the very early stages of investment analysis and addressed throughout the investment approval process. 1 2 3 4 5 6 Manager Preliminary due diligence Concept paper Detailed due diligence paper Sign -off & funding Completion Consideration Identify any deal deal breakers Identify issues to be considered in detailed due diligence Comprehensive due diligence of factors Explicit strategy for management of issues Supporting documentation Sustainability Manager Input through peer review process Provides resources & support Peer review process Approval Process committee committee completion pack Stage 1 Identify opportunities and preliminary due diligence The first stage of assessment considers the industry, business and financial risks of the transaction as well as any deal breakers that may prevent concept approval of the opportunity (eg. non-compliance with environmental legislation or untenable governance arrangements). Stage 2 Concept paper An investment concept paper is prepared for the Committee and provides a list of material issues to be explored during detailed due diligence. The peer review process prior to Committee approval allows the & Sustainability Manager to engage in further dialogue on any additional considerations or resources that may enhance investment analysis. Should the Infrastructure Committee question the desirability of the project or determine that key issues have not been sufficiently explored, further preliminary due diligence will be required prior to concept approval. Stage 3 Detailed due diligence Following concept approval, an investment opportunity is taken through an exhaustive process of analysis. Detailed financial modelling of the transaction will include quantifiable risks (e.g. the impact of an Emissions Trading Scheme). Given the complex nature of infrastructure transactions, AMP Capital may appoint external advisors where supplementary specialist skills and technical knowledge are required (e.g. Engineering and environmental consultants are typically appointed to asses pertinent environmental and social issues). Due diligence is also conducted on prospective contractors and operators to ensure appropriate policy is considered down the supply chain. Stage 4 paper If the outcome of the due diligence process is positive, a detailed investment paper is prepared that summarises all significant risks associated with the investment. For material risks, an explicit management strategy must be included in the investment paper with appropriate pricing incorporated into investment economics. The investment paper will again undergo a detailed peer review process prior to its submission to the Infrastructure Committee. Stage 6 Completion paper Subsequent to financial close, the completion paper requires that an investment pack (consisting of all due diligence research and data room materials, in addition to internal approvals and documentation associated with the transaction) be composed and retained for future reference by asset managers. The investment completion paper must be submitted to the Infrastructure Committee within 28 days of transaction completion. On completion of the investment process described above, the investment will transition to the asset management team.
Active ownership and asset management The ongoing consideration of issues is firmly embedded in our asset management approach by way of key internal investment protocols and -specific initiatives, as discussed below: 1 2 3 Semi-annual 4 5 Asset 6 Quarterly 7 Board representation Our tendency to hold large equity stakes typically provides a high level of transparency and influence over investee companies through Board representation and direct access to senior management. Through leveraging these positions, we have the ability to monitor and influence various aspects of performance across our investment portfolios asset audits Comprehensive reviews of issues (on an asset-specific basis) seek to identify improvements to risk management practices and potential opportunities for improved investment profitability. The findings of asset audits flow directly into budgeting processes, business plans and longer term strategic propositions. investment valuations Our semi-annual valuation process includes review of issues and initiatives likely to impact near and far term valuation portfolio surveys Focusing on specific topics of interest for comparison across our global portfolio, resulting in a deeper understanding of best practice sector-specific and regional approaches to investment themes management forums Sharing lessons and examples of best practice across our global portfolio of infrastructure assets client reporting The progress of initiatives is regularly disseminated through quarterly client reporting. The Infrastructure division also publishes regular communications and thought leadership pieces relating to issues. Unified House Collaboration with internal resources (in Property and Listed Assets) to benefit our global infrastructure portfolio
Proprietary tools and resources The integration of issues through our investment process is supported by a number of proprietary tools and resources, including: Dedicated internal resources In July 2010, the Infrastructure division appointed a dedicated & Sustainability Manager to facilitate ongoing implementation. This appointment has resulted in an increased focus of, the development of proprietary tools and tailored training programmes for specific members of the investment team. AMP Capital s Head of Research, Infrastructure provides team members with regular updates and analysis on important related topics such as the implications of emission targets for investors, and renewable energy generation portfolio optimisation. Proprietary tools The Infrastructure team utilises a number of proprietary tools to enhance the management of issues throughout the investment process. A comprehensive checklist enables the team to address key issues during the due diligence process and validates the underlying strength of our risk management practices. Infrastructure s toolbox was developed in 2010 to address the need for specialist knowledge, which is further discussed in the adjacent box. Training programmes and asset management initiatives In addition to formal induction training that is provided to all new Infrastructure staff, training and professional development opportunities are regularly conducted to address a broad range of topical and asset specific issues. Recent examples include: > > Climate Change plan and Carbon Tax analysis, consisting of extensive internal dialogue, modelling and research, resulting in asset management initiatives for impacted assets. Research analysis and outcomes were also shared with a broad range of clients via fund reporting, a published thought leadership piece and a range of investor presentations. > > The PPP sector project was an initiative focused on a newly acquired portfolio of Australian PPP assets. The project comprised a bespoke sector workshop and asset audit process for all assets within the portfolio, the findings of which were then used to create asset specific asset management plans. A subsequently composed research paper articulating our approach to risk mitigation in the PPP sector was published and distributed to clients > > A Carbon management project was undertaken for a specific asset within Infrastructure portfolio, demonstrating the strong engagement and influence with investee companies. The key drivers of this initiative were to establish environmental reporting obligations, opportunities for improved governance relating to carbon risks and identification of potential cost controls relating to the energy intensity of its operations. Infrastructure Toolbox The Infrastructure Toolbox was designed to address the need for specialist knowledge relating to multifaceted factors across a diverse range of subsectors and regions of the global investment landscape. The Toolbox comprises a collection of internationally recognised best practice guidelines and sector/ issue specific resources, designed to assist the Infrastructure investment team in dealing with environmental, social and governance issues of varying materiality. The Toolbox is organised into sector, region and environmental, social and governance specific sections to provide intuitive navigation to resources of relevance. Sources of information include: > > Internationally recognised best practice codes and guidelines > > specific frameworks and checklists (both external and proprietary resources) > > Contemporary thought leadership and research papers > > In-house proprietary research and insights > > Government, regulator and community stakeholder portals > > On-line training resources The Toolbox s resources supplement existing investment policies and are utilised throughout investment decision making and ongoing asset management activities, such as: > > due diligence of new investment opportunities > > completing internal audits for existing assets > > assessing the practices of an investee company s supply chain > > integrating practices in strategic planning and operations > > managing specific issues that arise as a Board Director To ensure the Toolbox continues to provide access to the most relevant and contemporary resources, continuous refinement of the available resources is essential. Each new due diligence process, internal asset audit or active management activity typically unearths new resources that can be of benefit across our global portfolio of assets or be earmarked for future use when considering new investment opportunities. It is this continuous refinement that ensures coverage of a comprehensive range of related issues and reflects the increasing sophistication of consideration and integration techniques, not to mention changing industry trends and standards, regulatory requirements and social sensitivities.
Contact us If you would like to know more about how AMP Capital can help you, please visit ampcapital.com, or contact: Alison Cunniffe & Sustainability Manager Infrastructure T: +61 2 9257 1412 E: alison.cunniffe@ampcapital.com Important note While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591) (AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. All information contained in this document, unless otherwise specified, is current at the date of publication (August 2012) and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changing after the date.