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The response from AMP Capital

AMP Capital provided partial responses to our questions.

  1. Do you measure the carbon footprint of your infrastructure portfolio? And do you measure your footprint at the GP level?

Yes. Our Infrastructure portfolios participate in the annual GRESB Infrastructure Assessments which includes measuring and reporting on carbon emissions (e.g. scope 1, 2 and 3, emissions avoided, on-site offsets, offsets purchased, net [greenhouse gas] emissions) and carbon intensities, targets, activities, sources and scope. AMP Capital’s majority shareholder AMP Group has been carbon neutral across its global operations, which includes AMP Capital, since 2013. Furthermore, AMP Group records its energy and emissions reductions through the Carbon Disclosure Project (CDP) scoring A- in 2019.

  1. Do you have any fossil-fuelled energy generation/transmission assets in your infrastructure portfolio? If so, what percentage of your portfolio do they represent?

Invenergy AMPCI Thermal Power is a 50/50 joint venture between Invenergy Clean Power and AMP Capital, formed to hold the natural gas-fired power generation business of Invenergy LLC. On a per unit basis of energy output, natural gas-fired generation emits approximately 50 percent less carbon dioxide compared to coal fired generation. The environmental benefits of gas-fired power are amplified in the context of the markets in which these assets operate, given there are numerous expected coal-fired power plant retirements in [the] coming years.

Our investment with Invenergy supports the transition away from oil and coal to cleaner energy solutions. The US power market is undergoing enormous change. With the continued influx of renewables, combined with ongoing coal (and nuclear) retirements, the US electric grid needs firm, dependable supply. Natural gas-fired generation is a suitable solution because it provides firm capacity, is flexible in dispatch, and has half the CO2 emissions of coal-fired generation. Further, the abundance and low cost of natural gas in the US allows gas-fired generation to be competitive on an economic basis with both coal and nuclear power. Gas-fired power supports and complements the continued growth of renewable energy, ensuring affordable and reliable energy is available to consumers.

  1. Do you have any energy-transition assets in your portfolio? If so, what percentage of your portfolio do they comprise?

Yes, we have a number of energy transition assets in our portfolio across a number of jurisdictions and funds.

Adven provides essential energy solutions to industrial and commercial facilities in Finland, Sweden and Estonia, including traditionally energy-intensive heating and cooling, as well as district heating networks in some localities. Central to its business is energy efficiency.

District heating networks are a highly energy efficient and green heating option. Adven operations use non-fossil fuel energy sources including geothermal energy or geoenergy and biomass. Geoenergy offers an ecological, stable and financially sensible heating and cooling solution. Adven also has a unit, Adven Recovery, which uses closed water cycles to increase energy efficiency and reduce the use of raw materials for industrial users.

In Australia last year we acquired a 50% interest in the largest Wind Farm in the Southern Hemisphere, Macarthur Wind Farm which comprises 140 wind turbines capable of generating 420 MW of energy – enough to power the equivalent of 181,000 Australian homes every year.

Recognising that Australia is at the leading edge of residential and commercial rooftop solar and battery expansion, AMP Capital in conjunction with the Commonwealth Science and Industrial Research Organisation (CSIRO) formed a cleantech company Evergen. Evergen uses AI and algorithms to optimise the operation of the solar/battery/grid for individual energy consumers, can manage a fleet of distributed energy resources to support the network, and participate in the energy market, contributing to the retirement of coal power.

Powerco, the largest electricity distributer in New Zealand, has designed an off-grid energy supply unit called Base Power, which combines solar PV with battery supported by a diesel generator. As an alternative to the traditional poles and lines, Base Power is a Remote Area Power Supply (RAPS) or Stand-Alone Power Supply (SAPS) that uses a renewable energy source [set up] remotely on the property without the need to be connected to the network power supply.

Powerco installed a grid-scale battery and diesel generator to support electricity supply to the coastal community at Whangamata, New Zealand in the event of a power cut. Whangamata is supplied by a single 33,000 voltage line that runs through some rugged terrain and historically has experienced damage from severe weather, tree falling and several other asset failures. The battery can supply the CBD area during peak business hours for a period of 1-2 hours and when paired with the generator, could maintain that supply indefinitely as long as the diesel tank is kept fuelled.

Endeavour Energy also has a grid-scale battery for a new residential estate at West Dapto near Wollongong, Australia. It augments the grid during peak demand and may delay the need for major capital expenditure in traditional network infrastructure until such time [as] the electricity demand justifies the investment.

Finally, safety and support vessels [provider] ESVAGT has a business focused on providing services to offshore energy firms, and the energy transition has meant that their business has shifted from a focus on offshore oil services, to offshore wind.

  1. Have you implemented or do you have plans to implement emissions-reduction targets across your infrastructure portfolio?

Managing our businesses to be efficient and reducing emissions is a key tenet of our active asset management philosophy. Climate change is also assessed through GRESB ESG performance benchmarking of our flagship infrastructure funds, informing fund and asset management strategies relating to energy efficiency, carbon reductions, resilience, and the consideration fostering investment opportunities in low carbon technologies as well as renewable energy assets.

  • Could you provide details on those targets, including how much CO2 you are offsetting and how you will go about doing it?

Each asset has its own objectives and targets. The approach is tailored to industry, jurisdiction and stage of the investment cycle.

  • Do you seek to also influence the supply chain your portfolio companies work with?

Supply chain management is part of our active asset management approach, and we have worked with our businesses to implement Anti bribery, Anti Modern Slavery, Anti Human Trafficking policies, not only where these are statutory requirements but also where we identify particular sector or supply chain risks. The next step for us is setting suitable benchmarks of environmental factors for our portfolio companies’ procurement policies. We have ensured our expectations regarding the ‘S’ and the ‘G’ of ESG are incorporated in their procurement policies; our next challenge is addressing the ‘E’, which can be a more complex challenge to address.

  • Will you be relying on data gathering and/or technology to ‘green’ your portfolio?

Our portfolio assets will continue to participate in the GRESB Infrastructure Fund Assessments and Asset Assessments to gather annual data and benchmark our investments globally and across [their] peers.

Clearly what gets measured gets managed. We consider aspiring to having strong ESG metrics to be essential to the process of creating resilient businesses that are sustainable for the long term.

Technology has [the] potential to improve the performance of assets across wide areas of application and is likely to play a critical role in understanding ESG performance in real time in the future.

For some time AMP Capital has focused on the potential of technology and the application of data science to improve the operating and financial performance of our investments. More recently as socially responsible investors, we’ve been exploring whether we can utilise these tools to also assist in reducing our carbon footprint – for example, on portfolio investments with a substantial real estate footprint, examining whether we can meaningfully meet the site’s energy requirements by installing on-site solar panels and battery storage. Additionally, analytical tools can help us to better understand the pattern of a site’s energy demand throughout the day with a view to enabling us to transfer as much of this load to periods outside of peak demand for electricity on the grid.

UK rolling stock leasing business Angel Trains is at the forefront of innovation in alternative fuel sources, such as hydrive battery propulsion, leading to efficiencies that will reduce pollution and limit fuel use without the need to invest in expensive overhead line infrastructure.

  • Are you reducing emissions at the GP level, by, for example, rationing travel or offsetting it?

AMP Group reduces emissions through office and energy efficiency upgrades and offsets its scope 1, 2 and 3 emissions, including air travel, base building emissions, waste, transmission and distribution, and outsourced IT and business processes (including AMP Capital activities). AMP Group has been carbon neutral for its own operations, including business air travel since 2013.

  1. How resilient is your infrastructure portfolio to climate change?
  • Do you have any assets that are particularly exposed to climate change?

We are living in a world of greater climate extremes. Our analysis of climate risks and opportunities in the investment process generally includes consideration of carbon regulation, direct and indirect costs, geographic exposure to climate policy, capacity of businesses and assets to adapt and manage risks, and any transitional governmental assistance programs.

  • Does your portfolio require climate-adaptation measures, and, if so, what is the projected capex spend?
  • Have you already spent capex making your portfolio more climate-resilient? And if so, how much? Also, will this spend impact the projected returns of your infrastructure portfolio?

In terms of lessening the carbon impact of our assets, there are many asset-level initiatives that we invest in. London Luton Airport [has] begun a new trial to see drivers of electric vehicles benefit from reduced drop-off and pick up charges as part of the airport’s efforts to encourage use of sustainable transport methods and investing in rail links to the airport is a significant part of our plans for the airport.

Melbourne Airport is highly regarded from a sustainability perspective, with a number of policies and programs including:

  • Target 20% reduction in annual grid electricity consumption by 2020;
  • Increasing renewable energy capacity through the construction of a solar energy array at Melbourne Airport (expected to be operational in 2020);
  • LED lighting and energy efficient appliances; and
  • Commissioning a Tri-Gen facility (natural gas) to limit exposure to the grid and provide a cleaner source of electricity.

In terms of the resilience of our assets to potential environmental changes, a number of assets within our infrastructure portfolios have started to report information through the GRESB Infrastructure resilience module.

  • Have you ever divested an asset due to climate-change considerations?

On two counts we do not expect this would be necessary for our investment strategy: our investment horizon is in line with our fund lifecycles (not a buy and hold approach), and as we factor ESG considerations into our investment process, the assets we invest in are sustainable for (at least) our investment period.

  1. Could climate change adversely impact the valuation of your infrastructure portfolio?

Environmental factors are already integrated in our investment process, and our thorough ESG analysis is an integral part of our due diligence. As long-term investors, we assess and price future risks including environmental risks, so to a large extent these are already factored into our assessments. Our analysis of climate risks and opportunities may include consideration of carbon regulation, direct and indirect costs, geographic exposure to climate policy, capacity of businesses and assets to adapt and manage risks, and any transitional governmental assistance programs that may be in place. This information enhances our investment teams’ understanding of:

  • Potential impact to valuations arising from governmental policies aimed at reducing greenhouse gas emissions, which can impact companies and their value chains within a portfolio;
  • Impact on company valuations in emissions intensive sectors from policies to reduce greenhouse gas emissions or which may lead to reduced market demand for products as new low carbon alternatives become available;
  • Impact upon company and asset valuations from long term physical climate change risks.
  1. Have you adopted a strategy for future assets you will be investing in? For example, investing less in fossil fuel-based assets and more or only in clean energy?

A key tenet of AMP Capital’s investment philosophy is to invest in assets which are compliant with the energy transition, and accordingly we are assessing a range of attractive investment opportunities that are consistent with this theme. In addition to a robust cash yield we seek to offer our investors capital growth. To engender capital growth, an investment needs to have enduring long-term value beyond the fund’s investment horizon.  In the current political and social environment, an investment must be sustainable in order to be considered to have enduring value.

In terms of examples of investment themes that we are following, the outsourced energy solutions market is experiencing a rapid growth phase in the Nordic region. For instance in Finland, where regulation and government policy is driving the requirement for heavy users of energy to procure their power from more sustainable, renewable energy-based generation facilities, replacing older less environmentally friendly facilities. Our portfolio company in Finland, Adven, is well placed to capitalise on this trend through its Industrial Energy Solutions business.

In both North and Central America, there is significant demand for new gas-fired thermal generation plants to assist in the region’s transition away from coal and oil fired power plants, which are significant carbon emitters. Over the medium to long-term, as the region transitions more towards renewables and storage, gas will act as a necessary ‘bridge’ to a zero carbon future by providing firm power and helping to ensure the stability of the electricity system. Through AMP Capital’s investment into Invenergy, our North American team will leverage these market dynamics to find investable opportunities that are commensurate with this necessary step in the energy transition.

Battery storage is also an emerging sector and an area of key interest. Batteries will play a crucial role in helping to support the large-scale deployment of renewables by firstly enabling the storage and transfer of unutilised renewable energy to periods of high demand, and secondarily by providing near instantaneous power to assist in stabilising the voltage and frequency of the electricity grid, thereby helping to safeguard the security of supply.