The response from IFM Investors

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

In 2017, IFM Investors undertook the first carbon footprint assessment of the assets held in IFM Investors Australian Infrastructure portfolio and the IFM Investors Global Infrastructure portfolio.

We publish these reports publicly and they can be found on the IFM Investors website.

Currently, we do not measure our carbon footprint at a GP level. However, we do publish an annual Response Business Report that provides considerable detail and insight on how we seek to deliver competitive returns to investors in a considered and responsible way that focuses on mitigating ESG-based investment risk and aligning stakeholder and public interests.

The IFM Investors 2019 Responsible Business Report is publicly available.

Responsible investment considerations are embedded and integrated across all IFM Investors’ strategies. Our Responsible Investment Charter and Environmental, Social & Governance Policy are publicly available on our website and govern our decision making.

Our approach to climate change management (as publicly stated on our website) is:

• Climate change poses a systemic risk with potential to negatively impact the environmental, social and economic stability of every country
• Climate change presents significant risks and opportunities that can alter the risk/return profile of assets for investors and asset managers
• The Paris Agreement will help map a pathway to a safer climate to maintain economic prosperity. We support the Paris Agreement goal to limit the global average temperature to 2°C above pre-industrial levels.
• We must diligently consider the impact of our investments on climate change and vice versa to support markets’ long-term growth and prosperity.

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

In November 2016, IFM Investors purchased Ausgrid, one of Australia’s largest electricity transmission infrastructure assets, as part of its Australian infrastructure portfolio

Ausgrid distributes electricity to power more than 4 million customers and users in the Sydney, Central Coast and Hunter regions of New South Wales, Australia.

It is one of IFM’s key investments in the Australian portfolio.

Additional info

In August 2019, IFM Investors announced the Australian Infrastructure Carbon Reduction Initiative.

During 2019, we worked closely with our major Australian infrastructure assets and their co-owners to commit to emissions reduction targets and pathways.

The initiative covers Australian assets that collectively contribute over 90 per cent of the portfolio emissions. More information and details of the emissions reductions targets is available on our website.

By 2030, Ausgrid is aiming to cut annual emissions, from a base year of 2017, by more than 150,000 tonnes, or 17% of its annual emissions output. Ausgrid’s carbon reduction initiatives include:

• Upgrading its vehicle fleet to more energy-efficient vehicles
• Improving the energy efficiency of its property portfolio and communications technology
• Installing up to 4MW of solar PV across 20 sites
• Investing in technology to monitor and manage energy use and enable more solar energy use
• Investigating improved management of SF6 (sulphur hexafluoride) emissions
• Upgrading more than 60% of 260,000 streetlights to energy-efficient LEDs

In 2020 and beyond we are looking to roll out the experience of the Australian Infrastructure Carbon Reduction Initiative across our global infrastructure assets.

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

In terms of specific renewable energy investments, no.

IFM Investors carefully target core infrastructure assets in developed markets and currently have interests in 32 investments across Australia, North America and Europe.

Across our portfolios, we do not avoid assets with “ESG exposures”, but rather actively integrate proactive ESG management into our ownership approach.

This is where we have focused – to invest in “behind the metre” renewable energy projects at our assets (as per the example with Ausgrid, above).

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

Yes, refer to the answer to Question 2 for details on the Australian Infrastructure Carbon Reduction Initiative, which we launched in August 2019.

More information and details of the initiative and its emissions reductions targets are available on our website.

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

The seven major Australian infrastructure assets participating in the initiative, which represent approximately 90% of the portfolio’s emissions, have set targets ranging between 8 and 25% by 2024 and between 17 and 100% by 2030.

These targets will see the portfolio’s annual emissions reduced by more than 200,000 tonnes CO2 equivalent by 2030 – the same as removing almost 70,000 cars from the road. It will prevent millions of tonnes of carbon entering the environment over the life of these assets.

A summary table of the asset targets is publicly available on our website. It is also attached with this response for your reference.

This initiative received industry recognition in 2019:

• Winner of the Investor Group on Climate Change (IGCC) award for ‘Outstanding Initiative by an Asset Manager’
• Shortlisted for the 2019 PRI Awards’ ‘Real World Impact Initiative of the Year’.

In 2020 we have commenced a similar carbon emissions reduction and energy-efficiency initiative with major assets in our global infrastructure.

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

Safety is integral to our approach.

IFM Investors is passionate about the occupational health and safety of staff, consumers, clients and communities who use and rely on our infrastructure assets.

As part of our due diligence into prospective assets we explicitly consider a range of supply chain risks and potential issues, in particular regarding labour safety and human rights.

One example of how we do this is through our Responsible Contractor Policy, which is designed to guide the selection of independent contractors, including all operating company managers and their employees, and their subcontractors.

Further, IFM Investors is committed to preventing acts of modern slavery and human trafficking from occurring within our business and our supply chain, and impose high standards on our suppliers.

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

IFM Investors believes climate change poses a significant investment risk to its infrastructure portfolios, with the potential to impact value over the short, medium and long term.

We believe a transition to a lower-carbon economy will, over time, be essential for combatting the challenge of climate change.

Accordingly, we are establishing appropriate governance and strategic processes to effectively identify and manage climate change risks and opportunities across all of our investments through their lifecycle.

In 2019 we commissioned an independent consultant to undertake portfolio risk assessment work to understand the potential impact of climate change, including:

• Transition risks stemming from changes in policy, law, markets, technology and prices
• Physical risks stemming from the direct impact of climate change on our physical environment, such as resource availability or disruptions and damage from changes in extreme weather event frequency and/or severity

Pre-existing climate scenarios (including a 2° scenario) were selected and used to inform the assessments.

We are currently undertaking detailed analysis of the findings and will look to publish an overview of our methodology and findings for investors in 2020.

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

Presently, we are focused on emissions reduction at our infrastructure assets because we believe the carbon footprint of these assets represent the greatest area of materiality IFM Investors.

We currently measure and offset our corporate travel-related carbon emissions and are exploring extending this to measure and offset our operational energy use at the corporate level.

5. How resilient is your infrastructure portfolio to climate change?

• Do you have any assets that are particularly exposed to climate change?

IFM Investors believes climate change poses a significant investment risk to its infrastructure portfolios, with the potential to impact value over the short, medium and long term.

The physical impacts of climate change will be an overarching, complex issue that is likely to affect all sectors of the economy.

As such, we believe a transition to a lower-carbon economy will, over time, be essential for combating the increasing challenge of climate change, and that it is important to establish appropriate governance and strategic processes to effectively identify and manage climate change risks and opportunities across all of our investments through their lifecycle.

In 2019 we commissioned an independent consultant to undertake portfolio risk assessment work to understand the potential impact of climate change, including:

• Transition risks stemming from changes in policy, law, markets, technology and prices
• Physical risks stemming from the direct impact of climate change on our physical environment, such as resource availability or disruptions and damage from changes in extreme weather event frequency and/or severity.

Pre-existing climate scenarios (including a 2° scenario) were selected and used to inform the assessments.

We are currently undertaking detailed analysis of the findings and will look to publish an overview of our methodology and findings for investors in 2020.

• Does your portfolio require climate-adaptation measures, and, if so, what is the projected capex spend?

Details of projected capex spend are considered proprietary.

• Have you already spent capex making your portfolio more climate-resilient? And if so, how much?

Details of projected capex spend are considered proprietary.

One example of how IFM Investors is acting on climate change is through the Australian Infrastructure Carbon Reduction Initiative, which we announced in August 2019. Please refer to previous answers for more details on the initiative.

• Also, will this spend impact the project returns of your infrastructure portfolio?

Details of projected capex spend are considered proprietary.

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

We divest assets opportunistically and, typically, based on a wide range of considerations.

One example – in which we declined to invest into – in which we are happy to discuss (on a de-identified basis) relates an opportunity to purchase an interest in a refined product pipeline and its expansion project in 2017.

At the time, the deal team identified a collection of risks around climate change, labour, marine environment, and land access rights for indigenous people that were individually moderate, but collectively unfavourable.

The deal team sought early guidance from the IFM Investment Committee.

The feedback was that the ESG risks – and therefore business risks – were unfavourable for investors and the transaction was not pursued.

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

IFM Investors believes climate change poses a significant investment risk to its infrastructure portfolios, with the potential to impact value over the short, medium and long term.

As such, we believe a transition to a lower-carbon economy will, over time, be essential for combating the increasing challenge of climate change, and that it is important to establish appropriate governance and strategic processes to effectively identify and manage climate change risks and opportunities across all of our investments through their lifecycle.

7. 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?

IFM Investors invests patiently and strategically, with returns measured across decades. We target core infrastructure assets with reliable revenue streams that have a link to inflation and/or participate in economic growth. We focus efforts on acquiring assets in countries with established regulatory environments and strong rule-of-law.

Specifically, regarding ESG and responsible investment, these are considered integral to IFM’s infrastructure strategies and are one of the means we seek to protect and enhance the return profile of our assets.

We believe that an integrated responsible and sustainable approach is essential to driving improved long-term asset value, and for delivering competitive returns to our investors and their beneficiaries.

Our infrastructure responsible investment strategy is twofold:

• We assess responsible investment factors and their impact on new investments that we enter into
• We aim to improve the performance of investee companies across a range of responsible investment factors.

It is important to note, however, that IFM Investors does not avoid assets with “ESG exposures”, but rather actively integrate proactive ESG management into our ownership approach.

Nonetheless, IFM Investors will avoid infrastructure investments in activities that are misaligned to a “sustainable” future, or where engagement is unlikely to achieve a positive outcome.