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Will ESG momentum continue to rise in 2022 and beyond?

By Shinae Haidley
from AMP Capital's Infrastructure investment team

2021 was the year to act on environmental, social and governance (ESG) issues in investing. But has it peaked, and will the momentum continue in 2022 and beyond? Our view is that we will continue to see momentum grow, as investors demand better transparency and accelerated change.

Over the past decade, ESG has transitioned from an initial compliance exercise, to an emerging niche interest area for investors, and now becoming a strategic priority for many local and global investment houses1.

Today, infrastructure managers bear an increasing responsibility to support their investors’ ESG objectives, to allocate capital thoughtfully and create societal outcomes for communities that their assets operate in.

This is consistent with calls from the United Nations (UN) for the private sector to help resolve the world’s most pressing issues, rather than exacerbate them2. For example, financial institutions were encouraged to decarbonise their portfolios through the implementation of climate transition plans and investee company engagement in the lead up to COP263. While divesting ‘dirty’ assets would be an easier alternative, this is thought to have minimal impact on their corporate behaviour and impedes the achievement of global climate goals4.

As an early signatory to the UN Principles for Responsible Investment, AMP Capital has prioritised engagement on ESG issues since 2007. Creating value for investors through the sustainable growth of investee companies is typically achieved through advocating for ESG outcomes through board representation, CEO and senior management dialogue, strong relationships, and contractual arrangements with third-party operators.

As investors seek greater transparency around these activities, they have turned to investment managers’ participation in international reporting frameworks to validate ESG credentials.

When the Global Real Estate Sustainability Benchmark (GRESB) proposed to expand its scope to include infrastructure in 2015, AMP Capital worked collaboratively with other leading organisations to develop the new global infrastructure standard. The co-founders were eager to promote sustainability best practices for infrastructure funds, investee companies and assets worldwide.

Participation in the GRESB Infrastructure Benchmark is increasing year-on-year, with the gross asset value reporting to GRESB increasing by more than 50 per cent since 2019, covering $343 billion at the fund level and $738 billion at the asset level in 20215.

Three AMP Capital infrastructure funds and 22 assets participated in the GRESB Infrastructure Assessments in 2021. AMP Capital achieved an average fund score of 84 out of a possible 100 points and an average asset score of 77 out of a possible 100 points. These results surpassed the global fund average score of 77 and the global asset average score of 726.

Building on its strong track record, eight AMP Capital infrastructure entities, were awarded 5-star GRESB ratings and were recognised for their place in the top 20 per cent of infrastructure participants.

Increased engagement with standardised benchmarks demonstrates a strong industry commitment to ESG transparency and collaborative action. Using GRESB, as well as internal metrics, AMP Capital can measure how assets are performing against ESG benchmarks relative to its peers.

But the GRESB framework allows for much more than benchmarking. It facilitates greater collaboration between asset managers, operators and investors, it provides a set of parameters for interested parties to work together and it enables regular forums for discussions of best practice in ESG.

Through active asset management, AMP Capital seeks to influence the strategic and operational direction of our assets and elevate ESG best practice internally.

Members of the infrastructure team regularly support and facilitate the development of sustainability strategies at our investee companies. As asset managers in social infrastructure, it is increasingly important to build policies that are reflective of the communities our assets serve.

Reaching a key milestone in its Inclusion and Diversity Strategy, AMP Capital’s investee company Endeavour Energy recently developed its first Reconciliation Action Plan (RAP), endorsed by Reconciliation Australia in late 20217.

Endeavour Energy acknowledges that as an essential services provider operating in high-growth regions of New South Wales, it is well-positioned to deliver impactful and sustainable actions towards reconciliation.

The RAP is designed to contribute towards the five dimensions of reconciliation: race relations, equality and equity, institutional integrity, unity, and historical acceptance. AMP Capital is a proud champion of the RAP through its membership on the Endeavour Energy board and is committed to promoting reconciliation through both companies’ spheres of influence.

AMP Capital has also been a strong supporter of its New Zealand-based electricity and gas distribution company, Powerco, on a journey to reach inclusion and diversity targets set out in its FY21 Sustainability Reference Report8.

Recognising that women are still underrepresented at the management level and acknowledging that transparent reporting is a vital initial step to closing the equality gap, Powerco has grown female representation in the executive team from 36 per cent to 43 per cent since March 20219.

The proportion of female leaders is now approximately equal to male leaders in the investee company, with AMP Capital actively supporting this improvement through the appointment of two senior female leaders to the executive management team in the same year.

With evidence linking gender and racial diversity to enhanced business performance and ESG outcomes10, it is imperative for AMP Capital to continue collaborating with investee companies on this topic, amongst many others.

For over 30 years, AMP Capital has developed expertise in a broad range of infrastructure sectors and observed a number of investment trends come and go. ESG however, is here to stay.

Infrastructure investing is now, and will continue to be, about leaving an investee company better than how you found it.

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Shinae Haidley, Analyst
  • Infrastructure
  • Institutional Edition
  • Opinion
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While every care has been taken in the preparation of this information, neither National Mutual Funds Management Ltd (ABN 32 006 787 720, AFSL 234652) (NMFM) nor any other member of the AMP Group makes any 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 email has been prepared for the purpose of providing general information, without taking account of any of your objectives, financial situation or needs. You should, before making any investment decisions, consider the appropriateness of the information in this email, and seek professional advice, having regard to your objectives, financial situation and needs.

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