esg investing report 2020 - kayne capital

ESG INVESTING REPORT 2020

28 Corporate sustainability

28 Response to COVID-19

29 Diversity, Equity, and Inclusion

30 Kayne Anderson Capital Advisors Foundation

06 Governance & Firm-level policies

06 Firm-level business ethics

07 Firm-level ESG policies

07 Membership

03 Introduction

03 Letter from the Office of the CEO

04 About Kayne Anderson

08 ESG integration

08 ESG goals for 2021

09 Methods

11 Renewables

16 Infrastructure

17 Energy

22 Credit

24 Real estate

26 Growth equity

Table of contents

2020 was undoubtedly an unusual year and caused all of us to reflect on our lives, priorities, and role in society. For Kayne Anderson, this meant assessing how we stay true to our values and philosophy and ensure we are leaders going forward not just in the financial community, but in our broader communities and society.

� Updated our ESG policy and adopted a climate change policy. We updated the guiding principles that oversee our responsible investment practices across a diverse set of strategies. To guide how we account for climate change’s potentially significant consequences for society and industry in our investment strategies we adopted our climate change policy in the first quarter of 2021.

In the coming years, we will build on our recent accomplishments through the continuous improvement of our responsible investing practices. We recognize there is more work to be done and our plans for this year include: continuing to expand ESG data collection and monitoring as well as enhancing/expanding our dialogues and engagement with portfolio companies on ESG material risks. As part of this work, we are also taking active steps to more systematically incorporate diversity and inclusion into our investment processes, as well as our internal culture and practices.

We appreciate the trust our clients have placed in us to be stewards of their capital. We remain committed to delivering value to them and being a responsible corporate citizen. Together with our investors, we look forward to a successful 2021.

Michael LevittChief Executive Officer, Kayne Anderson Capital Advisors

Yes, core to our business is delivering attractive risk-adjusted returns to our investors, but equally important is how we generate those returns and to ensure we are operating in a manner that reflects the best of responsible investing practices and upholds the highest standards of ESG.

In our first Firm-wide ESG report, we commit to hold ourselves accountable through authentic and transparent communications with our stakeholders. In a time that highlights the stark implications and importance of ESG management, we are proud to publish our inaugural ESG investing report.

This report highlights recent milestones in our evolving approach including the following achievements:

� Became a signatory to the United Nations Principles for Responsible Investment. As a signatory we pledge to support the integration of ESG risks and opportunities into our investment decision-making as well as ownership practices. As a signatory we can access tools that enable benchmarking, deepen our understanding of the financial impacts associated with environmental and social issues, and access best practices.

� Strengthened the foundation of our approach to ESG integration. To ensure that our intentions become focused action we institutionalized ESG due diligence across our investment strategies and enhanced our ESG data collection. Paul Blank

Chief Operating Officer, Kayne Anderson Capital Advisors

Albert Rabil IIIManaging Partner and CEO, Kayne Anderson Real Estate

Stay true to our values and philosophy

Kayne Anderson ESG Investing Report 2020 | 03ESG INTEGRATION CORPORATE SUSTAINABILITYGOVERNANCEINTRODUCTION

is embedding the evaluation of environmental, social, and governance-related risks and opportunities into our investment processes with the intention of delivering improved financial performance from a risk-reward perspective.

About this reportThis report, our first Firm-wide communication on responsible investing, covers Kayne Anderson’s current ESG investing philosophy in action, our progress from 2019 to 2020, as well as future plans. As a step towards furthering our transparency and accountability, the report describes in detail how we embed the management of environmental, social, and governance (ESG) issues into investment processes across our strategies. The five case studies in this report reflect the results of our process; they demonstrate how we capture added value by identifying companies that go beyond average industry ESG practices.

Renewables Growth equityInfrastructure / Energy Real estate

Renewable infrastructure

Liquid funds

Private funds

Tech-enabled growth

Credit

Opportunistic equity

Stabilized equity

Opportunistic debt

Sector focusSeniors housing

Medical office

Self storage

Student housing/ multifamily

Energy infrastructure

Liquid funds

Private funds

Private energy

Liquid credit

Middle market direct lending

Opportunistic credit

Specialized real estate debt

Diversified corporate

Infrastructure

in assets is managed by Kayne Anderson$32B

professionals in five core offices across the U.S.350

About Kayne Anderson Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson,” “Kayne” or the “Firm”), founded in 1984, is a leading alternative investment management firm focused on real estate, credit, energy/infrastructure, renewables, and growth equity. As responsible stewards of capital, Kayne’s philosophy includes responsible investment practices to create long-term value for our investors. Kayne manages over $32 billion in assets (as of 12/31/2020) for institutional investors, family offices, high net worth and retail clients, and employs over 350 professionals in five core offices across the U.S.

How we define ESG investingAt Kayne Anderson, responsible investing — also referred to in this report as ESG investing — is rooted in a comprehensive approach to financial materiality that recognizes and seeks to account for how ESG factors affect company, asset, and portfolio performance. In practice, it

Kayne Anderson strategies

Kayne Anderson ESG Investing Report 2020 | 04ESG INTEGRATION CORPORATE SUSTAINABILITYGOVERNANCEINTRODUCTION

2017� Launched first Renewable infrastructure fund2015

� Firm-wide ESG policy established

2016� Energy Private Equity strategy adopts ESG policy addendum

2021� Adopts Climate Change Policy

� Revise Firm-wide ESG policy

� Release inaugural ESG Report

2019� Became UN PRI signatory

� Kayne Anderson Core Real Estate Fund (KACORE) began participating in GRESB

� Growth Equity strategy adopts ESG policy addendum

2018� Hires Director of ESG Strategy

� First ESG symposium for Energy Private Equity portfolio companies

2020� Kayne Anderson Real Estate releases ESG Report

� Energy Income Fund releases ESG Report to limited partners (LPs)

� Liquid Credit and Senior Credit strategies adopt ESG policy addendum

Progression of ESG investing at Kayne Anderson

Kayne Anderson ESG Investing Report 2020 | 05 ESG INTEGRATION CORPORATE SUSTAINABILITYGOVERNANCEINTRODUCTION

Business ethics and compliance The Firm’s code of ethics outlines a standard of business conduct that all employees must adhere to and certify compliance with on a quarterly basis. All employees are also required to attend annual compliance training, which covers a review of the Firm’s code of ethics, including personal securities transactions, material non-public information, insider trading, gifts and entertainment, and conflicts of interest generally.

To ensure accountability and efficacy, on an annual basis we hire an independent party to test our compliance program and evaluate its alignment with best practices. Started in 2014, this assessment can take the form of a mock SEC examination or similar targeted review. Our Executive Committee then reviews the results of this assessment and implements recommendations.

CybersecurityOur investors entrust us with their personal information, and we safeguard these assets with the highest level of care. Our commitment to protecting client privacy is founded in a comprehensive privacy and cybersecurity program. The Firm’s data protection task force is responsible for the oversight of a cybersecurity framework that provides a structured approach to addressing cybersecurity risks. We have recently enhanced a number of capabilities related to multifactor authentication, remote access, penetration testing, data security, and incident management. We have also engaged a third party to conduct a cyber risk assessment of our employees in addition to a number of our portfolio companies.

Simply put, the goal of our program is to ensure we employ best practices and act in accordance with legal and regulatory requirements. To this end, our training program is designed to ensure all employees understand their role as it relates to maintaining the privacy of sensitive Firm and client information. We remain dedicated to continually evaluating and improving our process and procedures to ensure that our cybersecurity program aligns with industry best practices.

Governance structureCorporate governance is the primary responsibility of the Firm’s Executive Board which consists of Richard Kayne (Co-Chairman and Founder), Robert Sinnott (Co-Chairman), Terrence Quinn (Vice Chairman), Michael Levitt (Chief Executive Officer), Paul Blank (Chief Operating Officer), Albert Rabil (Managing Partner and CEO, Kayne Anderson Real Estate), and Jarvis Hollingsworth (General Counsel). The Executive Board meets on a regularly scheduled basis to discuss the overall direction of the Firm and investment strategies.

The Firm’s Executive Board has appointed an Office of the CEO which consists of Messrs. Levitt, Blank, and Rabil. The Office of the CEO meets on a regular basis to address management issues, set Firm goals, and coordinate business operations.

The Firm also has several other committees, including an Operating Committee, Valuation Committees for each product, and a Diversity Equity and Inclusion Council which all influence the Firm’s strategic direction and day-to-day operations.

Kayne Anderson is committed to conducting business ethically and in compliance with all applicable laws and regulations. The Firm’s compliance program is overseen by our Chief Compliance Officer and General Counsel. Kayne Anderson’s policies and procedures are intended to promote the highest standards of ethical and professional conduct.

Firm-level business ethics

Kayne Anderson ESG Investing Report 2020 | 06GOVERNANCEINTRODUCTION ESG INTEGRATION CORPORATE SUSTAINABILITY

The industry narrative around responsible investing practices and the materiality of ESG factors has shifted since we first adopted a Firm-level ESG policy in 2015. To reflect this growth in understanding both at the Firm and in the industry, we recently revised the policies that guide how we embed ESG analysis across Kayne Anderson’s diverse strategies and investments.

Adopted a Firm-level ESG policy in 2015 and recently updated guiding principles in 2020 Our updated ESG policy reflects what ESG integration means at Kayne Anderson today. We expand on our governance of ESG risks and opportunities, how materiality underpins our ESG philosophy, the core components of our approach to ESG integration — and our commitment to the Principles for Responsible Investment (PRI). The latest version builds on our belief that embedding the systematic evaluation of ESG factors into our investment process enables the Firm to fulfill commitments to our investors, the communities in which we operate, and society at large. We remain committed to an “Assess-Monitor-Engage” approach that includes ESG integration across the life cycle of an investment.

Adopting a climate change policy based on investment risks and opportunitiesKayne Anderson recognizes the potential business and social impacts driven by climate change and the transition to a low-carbon economy. We invest in the infrastructure needed to support growth in the renewable energy industry while we closely monitor the changing context for our other investments.

Investors too are operating in a new paradigm. Industry organizations from the Financial Stability Board to PRI encourage investors to understand and prepare for this new context as expectations around investor accountability and disclosure increase. To this end, we are working to adapt our responsible investing practices to ensure climate change considerations are embedded into our investment process, with the goal of adding value for our portfolio companies and investors.

Our commitment to transparency and accountability covers our climate impacts and how we account for climate change when assessing investments. In the first quarter of 2021 we adopted our first Firm-wide climate change policy to further guide how we account for climate change’s potentially significant consequences for society and industry in our investment strategies. To help measure and manage the positive and negative climate change impacts of our investments, we have begun and will continue to establish data collection processes for our strategies. This work reflects and informs our understanding of climate change risks and opportunities as it impacts business and the communities in which they operate.

Industry ESG membership strengthens our commitment to transparency and accountability As part of our commitment to ESG integration, in 2019 Kayne Anderson became a signatory to the UN Principles for Responsible Investment (PRI) and we will issue our first PRI report in 2021. We are proud to have joined 2,701 institutional investors, representing more than $103.4 trillion, in committing to integrate ESG risks and opportunities into investment decision-making as well as ownership practices.

Kayne Anderson Real Estate (KA Real Estate) also joined GRESB, the global ESG benchmark for real estate and infrastructure investments, as a participant member and issued our first GRESB report in 2019. Our involvement not only allows us to engage with our peers and clients and gain insights into industry best practices, but also, more importantly, holds us accountable in achieving incremental progress and remaining transparent in our efforts.

Participation in PRI and GRESB entails annual assessments that provide stakeholders with greater visibility into our ESG investment practices and performance.

Kayne Anderson’s Firm-level ESG policies

Kayne Anderson ESG Investing Report 2020 | 07GOVERNANCEINTRODUCTION ESG INTEGRATION CORPORATE SUSTAINABILITY

We will enhance the data needed for material ESG performance metrics through continuous improvement of portfolio monitoring and engagement support efforts. To further our commitment to transparency, we plan to use these metrics in future reporting to LPs.

Increasing transparency to our Limited Partners: 1

We will continue our involvement in GRESB and PRI and remain committed to identify other opportunities that align with our approach and philosophy.

Participating in ESG initiatives:2 Industry collaboration

on ESG integration:3We aim to work with the energy infrastructure and other industries central to our investment strategies to promote greater transparency and support the integration of ESG risk factors.

ESG goals for 2021

Kayne Anderson ESG Investing Report 2020 | 08ESG INTEGRATION INTRODUCTION CORPORATE SUSTAINABILITYGOVERNANCE

Over the past two years, we codified our efforts to ensure responsible investing is embedded across our processes, strategies, and platforms. We hired Kayne Anderson’s first Firm-wide in-house ESG expert to lead the work developing ESG assessment frameworks that strengthen our approach and create consistency.

Materiality underpins Kayne Anderson’s investment philosophy We implement responsible investing practices across our strategies because we believe incorporating ESG evaluations can have a material impact on our investments by mitigating risks, identifying opportunities, and improving valuations. ESG integration is not a one-size-fits-all approach. In order to deliver value, responsible investing needs to be tailored to individual investment philosophies and approaches. Accordingly, we use a range of methods to implement the Firm’s “Assess-Monitor-Engage” philosophy for ESG integration across our strategies. For each strategy we choose the most appropriate ESG integration methods from the list on the following page.

Our progress to date: developing frameworks to strengthen responsible investing practices Our Director of ESG Strategy, informed by 15 years of experience in responsible investing across several asset classes, works with Kayne Anderson’s investment teams to:� Deepen our understanding of sector-specific ESG-related risks and opportunities

� Expand use of ESG metrics and benchmarks as well as support and inform efforts across strategies

� Unify our tailored approaches around key ESG investment themes

� Enhance our engagement tools across strategies

Methods


Stage Goal Methods

Pre-investment Assess Due diligence questionnaires: � Questionnaires guide data collection and risk assessment;

� Utilize a combination of standalone proprietary frameworks, as well as embed ESG considerations into traditional investment due diligence processes; and

� Cover a range of topics, such as cybersecurity, health and safety, and environment in our real estate strategy.

Industry exclusions: � Restrict investments in certain industries where risks are too high or inconsistent with Kayne Anderson’s investment philosophy.

Ownership Monitor Qualitative measures of materiality: � Qualitative developments inform ESG scorecards used for investment analysis and provide insights into portfolio company sustainability commitments and strategy.

Quantitative metrics: � Gathering and tracking ESG metrics help to measure performance, benchmark companies, and establish a baseline to track progress.

Engage Dialogues: � Preferred tool to drive improved management of ESG risks.

� Parameters dictated by level of influence available as defined by investment, strategy, and level of holding (e.g., majority ownership in a private company provides greater influence than less concentrated holdings in public securities).

� May include regular meetings with management, fund-organized ESG conferences for portfolio companies, or participation through Boards of Directors in our private equity strategies.

Proxy voting: � Our proxy voting guidelines seek to protect and promote the economic value of our clients’ investments.

� Our policy communicates our approach to ESG factors and expectations for directors.

Assess-Monitor-Engage approach to ESG integration


STRATEGY: Kayne Anderson has invested in renewable infrastructure since 2013. Today we manage over $1.5 billion in renewable assets in two distinct strategies. With a long and successful history investing in energy that leverages industry innovation, we see opportunities for our strategies to meet the growing interest in renewable energy investment solutions.

“Energy transition” is a term used to describe the energy sector’s shift to a more sustainable mix of lower carbon and renewable energy sources. The goal of this transition — which is being pursued on a global basis — is to reduce carbon and limit the impact of climate change. Accomplishing this goal will require increased energy efficiency and the implementation of lower carbon and zero-carbon energy sources. Kayne Anderson believes energy transition is one of the most compelling trends within the energy industry and expects the push for more sustainable energy sources to have a profound impact on the energy infrastructure sector for many decades to come. We are very excited about the prospects for renewable infrastructure companies in the coming years, and the expected change in the global energy mix provides a powerful macro tailwind for investors in these companies. We also believe renewable energy plays an important role in stimulating economic growth and employment opportunities, reducing air pollution, stabilizing energy prices, promoting national energy independence, and helping to avoid the impacts of climate change.

Given Kayne’s long-standing history in energy infrastructure, we believe the Firm is well positioned to capitalize on this emerging “mega trend” while also having a positive impact on climate change.

Renewable investing in public marketsOur liquid strategy approach to the integration of ESG risks into our investment process closely mirrors the “Assess-Monitor-Engage” framework that is employed by our energy infrastructure strategy. In addition, to qualify for inclusion in our liquid renewable infrastructure strategy, portfolio companies must demonstrate evidence of the following to drive the advancement of renewable infrastructure:

� A clear business strategy that commits to a decarbonized energy mix and promotes renewable energy infrastructure development

� An explicit commitment to phase out any existing coal assets and not to pursue any further coal developments

Renewables


In September 2015, the UN General Assembly adopted 17 Sustainable Development Goals (SDGs) as part of its 2030 Agenda for Sustainable Development. Since then, companies have been assessing their role in contributing to this shared global agenda. We believe renewable infrastructure has a critical role in advancing the SDGs; 50% of the portfolio companies in Kayne’s liquid renewable strategy have made explicit board-level commitments to advancing specific UN SDGs. Our portfolio companies contribute to Goal 7: Affordable and Clean Energy, Goal 8: Decent Work and Economic Growth, and Goal 13: Climate Action.

Impact: Alignment with the United Nations Sustainable Development Goals (SDGs)

1https://www.seia.org/initiatives/siting-permitting-land-use-utility-scale-solar | 2As a result of the infrastructure investments made by the listed companies.

Renewable investing in private marketsKayne’s private strategy invests in renewable infrastructure, with an initial focus on utility-scale solar projects across the U.S. Currently, the strategy owns a portfolio of late-stage, utility-scale solar projects in Michigan and North Carolina, representing generating capacity of over 150 megawatts of direct current (MWdc), and a minority equity stake in a solar development company. Additionally, Kayne’s private strategy has committed to provide junior capital for construction financings across a portfolio of 26 utility-scale solar projects in North and South Carolina with a combined capacity of over 2 gigawatts direct current (GWdc).

While utility-scale solar projects are inherently beneficial in addressing climate change once they are operational, all projects must adhere to stringent federal, state, and local regulations to minimize the project’s impact on the environment. Securing the necessary approvals from regulators in order to begin construction is an extensive process that can take several years. A number of critical issues, such as land use, access to transmission, water rights, and securing a location is just the first step in the process. Developers are also required to submit comprehensive project construction plans, conduct several environmental assessments, and develop environmental mitigation strategies.1 Successful developers must also be adept at stakeholder engagement to avoid additional regulatory hurdles or community opposition. We believe selecting the right developer-partner is critical

to managing the maze of regulatory requirements, the financial success of our projects, and ESG performance. As a result, our development partner due diligence includes a number of factors, including ESG attributes (e.g., a firm’s community relations track record, operational practices and experience with rigorous environmental procedures), as well as alignment with Kayne’s values.

Business performance of investments drives decarbonizationInvestment in renewable infrastructure is a key component to address climate change. Renewable energy infrastructure inherently has a positive environmental impact as a replacement for carbon-intensive energy sources. We estimate that our proprietary defined global renewable infrastructure universe accounts for 710 million tons of CO2 emissions avoided annually.2 This will grow rapidly as these companies continue to bring new renewable assets online in coming years. Our current and planned projects for our private renewable strategy will generate an estimated 170 billion KWH of electricity during the forecasted project lives, which represents annual greenhouse gas (GHG) emission reductions equal to 1.7 million tons of coal burned. Looking forward, we will continue to explore additional metrics to monitor the impact of our renewable investments.

For more on Kayne’s renewable infrastructure strategy, see www.kaynecapital.com/ESG.

In Kayne’s Renewable & Energy Infrastructure business, we consider engagement with management teams a fundamental part of our investment process. The insights we develop from this dialogue informs our decision-making throughout the lifecycle of an investment.

“

” — J.C. Frey, Managing Partner, Renewables & Energy Infrastructure


https://www.seia.org/initiatives/siting-permitting-land-use-utility-scale-solar

https://www.kaynecapital.com/ESG

Atlantica, a listed sustainable infrastructure company, owns and manages renewable energy, efficient natural gas transmission and transportation infrastructures, as well as water assets in North America, South America and EMEA.

Enhancing climate solutions and minimizing climate impacts Atlantica’s core commitments to grow through renewable assets and operate these assets in a sustainable manner are reflected in its overall business strategy, management systems, and disclosure. The intention to continue primarily as a sustainable infrastructure company is exemplified in its policy to maintain 80% of the revenue base in low-carbon footprint assets (i.e., renewables, transportation and transmission infrastructures, and water assets). In 2019, Atlantica’s portfolio of sustainable infrastructure assets avoided 4.7 million tons of CO2 in 2019.3

The company is targeting a 10% reduction in the rate of GHG emissions per unit of energy generated by 2030 as part of its corporate commitment to address climate impacts. To support progress against this target, Atlantica instituted monetary employee incentives for

Comprehensive ESG risk management by a “renewables enabler”Approximately 75% of the company’s 2019 revenues were generated by renewable energy assets including solar and wind, and 88% of revenues came from low-carbon footprint assets. Atlantica is representative of the type of company we seek to invest in across Kayne’s liquid renewable infrastructure strategy. These companies will benefit from several multi-decade tailwinds that we believe will allow us to earn attractive returns for our investors while also having a positive environmental impact.

RENEWABLE INFRASTRUCTURE | ATLANTICA SUSTAINABLE INFRASTRUCTURE

emissions reduction initiatives and for implementing measures to position the company as a climate change leader. Atlantica plans to introduce new climate-related monetary rewards in the future. In addition, the company implemented a “maximum use of gas” policy that reduces gas consumption at assets providing an annual savings of $200,000.

reduction target by 203010%

of CO2 was avoided in 20194.7MT

CASE STUDY

3Calculated considering GHG emissions Scope 1 and 2 and energy generation of their power generation assets, both electric and thermal energy. The GHG Equivalences Calculator uses the Avoided Emissions and Generation Tool (AVERT) U.S. national weighted average CO2 marginal emissions rate to convert reductions of Kilowatt-hours into avoided units of carbon dioxide emissions. Source: Page 11 of 2019 ESG report.


ESG governance extends to social factorsAtlantica has been recognized in ESG ratings and rankings for its strong management of material ESG risks facing the company.4 Established governance measures guide the risk management of ESG factors; this includes board oversight of ESG-related issues — a best practice for public companies.

In 2019, Atlantica’s Board of Directors approved the addition of several new corporate ESG policies covering diversity & inclusion, biodiversity, and community relations. To ensure implementation of these policies, the company established supporting processes. For example, Atlantica tracks alignment with its new diversity & inclusion policy and established a clear line of responsibility for monitoring company performance. Atlantica also assesses performance against key social metrics. To manage supply chain risks, Atlantica evaluates key suppliers on environment, fair labor and human rights, ethics, and sustainable procurement. Focused efforts to improve risk management have delivered tangible benefits for Atlantica; for example, the Firm’s strong health and safety management has led to lower incident rates than found in most of the sector.

Future growth opportunities for “renewable enablers” Atlantica expects to be well positioned during the global transition to a low-carbon economy; the company predicts the expected market growth for renewable sources will also be complemented with investments in “renewable enablers” (i.e., transmission and storage) over the next 10–20 years. Atlantica expects to benefit from their transition plans through growth grounded in sustainable infrastructure investments, as well as through its ownership of transmission lines.

Atlantica expects to be well positioned during the global transition to a low-carbon economy; the company predicts the expected market growth for renewable sources will also be complemented with investments in “renewable enablers” (i.e., transmission and storage) over the next 10–20 years.

4Sustainalytics ranked the company 1st out of 442 utilities and 58th of 12,228 companies (top 0.5%) based on their ESG risk framework.


In addition to meeting rigorous environmental regulatory requirements as described for all utility-scale solar projects, KROP faced new operational challenges when the World Health Organization declared the COVID-19 outbreak a pandemic on March 11, 2020. While production risk was managed through flexibility and proactive problem-solving, on-time delivery of major parts was at risk. Recognizing this challenge, our team worked closely with our developer-partner to evaluate and identify solutions. KROP’s developer-partner coordinated with various equipment suppliers, particularly those located in Asia to continually review and verify shipment schedules and the viability of shipments and delivery dates.

Furthermore, KROP engaged an independent engineer to review communication with the manufacturers of major equipment and the schedules of deliveries to port and then to site from various locations throughout the world. KROP’s developer-partner also had to manage additional safety protocols that adjusted for the new operating environment. As such, new COVID-19 jobsite practices that leaned

Kayne’s proactive risk management and flexibility helped guide a utility-scale solar project during the pandemic and ensure it maintained maximum environmental and financial benefit.In December 2019, Kayne Renewable Opportunities Partners (“KROP”) acquired a 112 MW DC late-stage development solar project (the “Harts Mill” project) located in Tarboro, Edgecombe County, North Carolina. To meet a compressed construction schedule, KROP partnered with a developer-partner to complete the final stages of development.

PRIVATE RENEWABLE INFRASTRUCTURE | HARTS MILL

heavily on CDC recommendations were put in place for site employees, as well as subcontractors during construction. These included measures such as adapting operations to limit in-person interactions, promoting sanitation practices, and other safety measures. Despite these many challenges, Harts Mill commenced commercial operation on December 30, 2020.

Of note, the modules and racking equipment used in the Harts Mill project maximizes environmental and financial benefit. The project uses bifacial solar panels with single axis tracking — a combination that researchers from the Solar Energy Research Institute of Singapore (SERIES) have determined reaches the lowest levelized cost of energy (LCOE) at over 90% of land sites.5 Bifacial solar panels can generate up to 30% more solar energy than the monofacial solar cells used in majority of existing PV solar systems6 and single-axis tracking systems have the advantage of following the path of the sun in comparison to fixed-tilt installations. This increase in efficiency creates both financial and climate benefits.

CASE STUDY

5“Researchers from the Solar Energy Research Institute of Singapore have concluded that bifacial installations with single axis tracking can increase energy yield by 35%,” Single-axis bifacial PV offers lowest LCOE in 93.1% of world’s land area. PV Magazine: June 5, 2020. | 6“According to Wood Mackenzie Consultancy, bifacial modules will account for 17% of the global market for solar panels in 2024.” Bifacial modules: there are two sides to every solar panel. Will Porter, PE. Accessed on January 12, 2021.


STRATEGY: Kayne Anderson is among the most respected investors in energy infrastructure, with a strong, long-term track record. We invest across the capital structure in the core strategic energy infrastructure assets that remain essential to the U.S. economy in every market environment.

In 2016, Kayne Anderson’s energy infrastructure strategy started to formally incorporate ESG risks and opportunities assessments into its fundamental equity investment process. This process has evolved into a systematic evaluation that captures our belief that a company’s ability to manage ESG risks and opportunities has an impact on operational, reputational, and financial performance.

Energy infrastructure companies face a number of potentially material ESG risks. For example, the successful completion of new projects often requires successful stakeholder engagement with regulatory agencies and local communities. Shortfalls may result in costly delays as well as increase operational, regulatory, and legal risks.

Pre-investment ESG assessment of energy infrastructure companiesWhen initiating coverage of a company, Kayne Anderson uses a proprietary ESG scorecard to identify material ESG risks and assess company management of these issues. We recently enhanced our scorecard to reflect the progression of our approach to ESG integration and the growing availability of ESG-related disclosures from public energy infrastructure companies. In addition, we also monitor ratings by third-party ESG service providers.

Our scores reflect our view of corporate commitments and corporate progress on the management of material risks across individual environmental, social, and governance themes. Company events and changes in disclosure can prompt updates to scores. Our view

of a company’s ESG risks will influence whether a company is held in the portfolios; a poor ESG scorecard may lead us to avoid a portfolio position.

We engage with companies in our investable universe throughout the lifecycle of our investments and during the course of ownership, we have regular conversations with our portfolio companies to gain financial and ESG performance updates. Direct access to company management teams enables our analysts to gain valuable insight into management’s actions and views that inform our investment decisions.

Integrating ESG into investment monitoringActive monitoring of our portfolio companies is a core component of our investment process. Our analysts track a wide range of events, including ESG developments and in particular, ESG-related controversies. Company events and changes in disclosure can prompt updates to scores. In the event a specific risk arises that could impact our investment in a company, our research team uses our ESG controversy assessment. This assessment is a standardized tool that our analysts use to flag and follow up on specific events. These controversies are discussed with portfolio managers and are tracked to their conclusion. ESG controversies may lead us to reduce the weight of a portfolio position or to exit the position entirely.

Active ownershipWe consider proxy voting part of our fiduciary duty. It also serves as an important vehicle to communicate our views on a wide range of issues to boards and management. This year, we revised our proxy voting policy to increase the specificity, coverage, and scope of ESG issues in our guidelines. Aligned with our commitment to transparency — our proxy voting policy and philosophy is publicly available and can be found here.

We additionally use Kayne Anderson’s influence, when necessary, to interact with companies on ESG issues as part of our responsibility as managers. One example of this engagement process is proactive dialogue with management teams when we see issues that present risk. In years past, this has meant proactively engaging with companies when we see governance issues that impact the rights of shareholders. More recently, this has included encouraging companies to strengthen disclosures of environmental, social, and corporate governance information. In other situations, we have given companies greater visibility into Kayne Anderson’s ESG integration and process.

We find engagement with industry associations to be an effective tool to drive change. Earlier this year, we engaged with the Energy Infrastructure Council (EIC) regarding efforts to enhance ESG reporting standards and promote greater standardization for energy infrastructure companies through our support for the development of a dedicated reporting framework.

For more information, see our whitepaper: “ESG in Energy Infrastructure.”

Infrastructure




STRATEGY: Kayne Anderson has engaged in private energy investing since 1992. Our private energy platform partners with high-quality management teams to acquire large, traditional energy assets as well as early-stage middle-market assets with niche opportunities. Our investments in large-scale producing assets offer attractive risk-adjusted returns via current income and capital appreciation potential. For investments in early-stage assets we leverage our extensive transactional experience to structure tailored solutions for each opportunity and apply our engineering and technical insights as well as business planning, corporate finance, and capital market expertise to support performance.

The formalized responsible investing practices in our private energy strategies began in 2016 with the development of an ESG policy addendum to outline our procedures and portfolio company requirements. ESG integration efforts to date focused on strengthening the processes needed to understand and evaluate a company’s progress on ESG issues.

Assessing risks during due diligence When assessing potential investments, we use a dedicated due diligence questionnaire to capture the company’s capacity, capability, ability, and resources to successfully manage ESG risks. We then apply a framework to evaluate material risks, such as environmental health and safety (EHS), cybersecurity and social license to operate. Any material ESG risks identified in the due diligence phase are presented to the investment committee for consideration.

Leveraging majority ownership during monitoring In our private energy strategies, we have influence and access when it comes to company management through our position as majority owners and as members of boards of directors. As such, we require

portfolio companies to both annually certify their responses to the strategy’s ESG due diligence questionnaires and note any material changes. We also require portfolio companies to provide updates on their ESG initiatives at their quarterly board of directors meetings. In an effort to hold portfolio companies accountable for ESG performance, a combination of quantitative and qualitative ESG-related metrics is included in management compensation frameworks.

Data collection is also a vital component of the strategy’s monitoring of ESG performance. We require portfolio companies to report ESG metrics quarterly to our board of directors as part of our oversight and accountability. Last year, we conducted a review of the metrics we have historically collected to ensure that we are effectively monitoring performance in accordance with changing regulatory, reputational, and operational risks. We expanded the range of ESG metrics gathered to include resource use and GHG emissions as a result of this review. These additional metrics will ensure we focus on continuous improvements and support our efforts to provide robust ESG reporting to LPs.

EngagementOn an annual basis we bring portfolio company management teams together at an ESG conference to share best practices and discuss current and emerging ESG risks. In 2020, we held a virtual ESG event to provide portfolio companies with an update on Kayne Anderson’s responsible investment activities, an overview of diversity initiatives at our Firm and a discussion of limited partner expectations on diversity. Presentations by external experts offered insights on relevant market and regulatory ESG trends. In previous years, the ESG conference included sessions on cyber risk, emissions management, water management, and industry ESG partnerships.

Energy


HRM Resources III (“HRM”) is a Denver, Colorado-based exploration and production company. HRM focuses on the acquisition and development of long-lived oil and gas properties in the Rocky Mountain and Mid-Continent regions. The company operates properties in the Greater Green River Basin of Northwest Colorado and Southwest Wyoming and has extensive experience operating in the heavily-regulated environment of federal acreage.

CASE STUDY

Staying ahead of expectations and regulation ENERGY PRIVATE EQUITY | HRM RESOURCES III

Striving for an open, accountable, and transparent approach to stakeholder engagement is a cornerstone of HRM’s corporate philosophy. To this end, the company works to build collaborative partnerships with local regulatory authorities, communities, and investors.

A collaborative approach to stakeholder engagementPrior to commencing operations at a site, HRM’s management proactively approaches regulators to introduce the company’s operating philosophy and environmental approach. HRM also reaches out to landowners and their tenants at the outset of a project to establish open lines of communication, providing landowners with the mobile phone number of HRM’s CEO in case any concerns arise. These dialogues continue throughout the life of a project. Similarly, HRM actively requests investor participation in weekly management meetings. HRM has found that the investor insights provided at these meetings improve their capacity for risk management.


Operating to the strictest industry standards and beyondHRM is built on the belief that the leading edge of regulation will show up in energy basins around the country over time. When defining environmental practices, the company stays ahead of the industry by drawing on the team’s experience operating in Colorado, the most heavily regulated state for oil and gas operators. Operating practices established by HRM years ago are now gaining traction among operators in the Permian Basin and other producing regions.

HRM’s pipeline safety practices go beyond the current rules and regulations in Wyoming and Colorado. To prevent accidents, the company implements procedures that can avert tragedies like the Firestone Colorado Explosion. Every flowline undergoes pressure tests to evaluate its integrity and to identify potential weaknesses before HRM turns on wells. In-use flowlines are tested every fall and spring, even though there are no current government requirements for flowline testing on location in Wyoming.

While the industry norm is to run annual leak assessments, HRM runs its leak detection and repair (LDAR) program multiple times a year and across a larger area than required by regulation. These assessments are key to reducing fugitive emissions. To ensure that potential

problems are mitigated quickly, HRM takes a “boots on the ground” approach with well operators visiting sites every day, if possible. Visually inspecting and listening for leaks during a walking survey can ensure any issues discovered are dealt with immediately. In an industry where remote telemetry operations are standard, HRM is one of the few operators to establish in-person surveillance for LDAR. In order to identify and address facilities that need to be sealed, HRM uses the systematic emissions control methodology in addition to running a constant emissions monitoring system (CEMS)7 to reduce air emissions.

An independent third party performs all LDAR survey audits for HRM with a forward looking infrared (FLIR) camera on a semi-annual basis, even though regulation requires only an annual survey. The company plans to audit all wells on a quarterly basis in the near future.

ResultsHRM’s strategy of staying ahead of environmental regulations and stakeholder expectations provides positive benefits for the company. Being considered a standard-setter in the industry creates access to transactions that are otherwise unavailable. Additionally, the credibility and trust established with regulatory bodies have enabled HRM to provide input into the benchmarking of industry operations.

7Continuous emission monitoring systems (CEMS) monitor the concentration or emission rate of emissions from industrial processes.

To ensure that potential problems are mitigated quickly, HRM takes a “boots on the ground” approach with well operators visiting sites every day, if possible.


Terra Energy Partners (Terra), currently the largest oil and natural gas exploration and production operator in the Piceance Basin of northwest Colorado, was formed in 2015 and acquired assets from WPX Energy in 2016. At the time of acquisition, the assets had approximately 2 trillion cubic feet of gas equivalent (Tcfe) of proved develop producing reserves.8 Terra has maintained an active drilling program since the acquisition and brought approximately 400 wells online. For this asset, the operating team supplemented legacy ESG processes and facilities for a proactive approach to mitigating environmental impacts.

Localized efforts to mitigate air emissions from operationsSolar panels at the well pads and other renewable sources provide approximately one-half of all electricity used by Terra’s field operations in the Piceance Basin. Terra also created a local partnership to limit the amount of operational emissions released into the atmosphere; Terra sells recovered CO2 from a treatment plant to a local business as a feedstock for their production of sodium bicarbonate (baking soda).

Natural resource management and conservation efforts support a license to operate

Operating a natural gas exploration & production asset in Colorado on federal acreage requires consideration of stakeholders, conservation interests, regulations, and regulatory oversight, as well as local water rights. Successful engagement is critical to retaining a license to operate. As a result, Terra has been proactive in managing wildlife conservation, emissions reductions, and water management. Coupled with a credible reputation for environmental management in sensitive areas, these efforts have expanded opportunities for Terra.

ENERGY PRIVATE EQUITY | TERRA ENERGY PARTNERS

Supporting prudent water useWater supply and use is an issue of public concern in Colorado. As the state’s water supply decreases, stakeholder concerns around the oil and gas industry’s use of regional water grows. To support prudent use of local water resources for its operations, Terra implements:

� Processes to reduce operations’ freshwater use, avoid water draw-down, and reduce the need for fluid containing pits. For example, for well completions, the Firm sources water from its closed-loop drilling systems, water management facilities, and water line infrastructure in the Anvil Points and Grand Valley areas.

� Baseline groundwater monitoring prior to and following all drilling to ensure that produced fluids and hydrocarbons from the operations have not migrated into freshwater sources.

CASE STUDY

8https://www.prnewswire.com/news-releases/terra-energy-partners-llc-agrees-to-acquire-piceance-basin-assets-from-wpx-energy-300217133.html


https://www.prnewswire.com/news-releases/terra-energy-partners-llc-agrees-to-acquire-piceance-basin-assets-from-wpx-energy-300217133.html

Wildlife management efforts are key to operating on conservation sitesThe Piceance Basin of Colorado is a unique wildlife habitat with key birthing and nesting sites for the once endangered American peregrine falcon and for golden eagles, as well as critical winter habitats for big game.9 Terra’s use of pad drilling minimizes its operational footprint in the area, thereby reducing impacts to wildlife and stakeholders in the region. To further minimize impacts on local wildlife, Terra implements ecological planning and habitat conservation measures during the company’s development of natural gas operations in the Piceance Basin. The company’s efforts enable a year-round drilling program instead of being limited to specific seasons. Terra’s operations also avoid potential impacts to big game’s winter range by planning drilling and completion work outside the winter months. The company often partners with regulatory agencies for environmental conservation efforts, and for this asset Terra worked closely with Colorado Parks & Wildlife. 9https://eplanning.blm.gov/public_projects/nepa/94458/156365/191433/DOI-BLM-CO-N040-2018-0033-EA.jb.pdf

To further minimize impacts on local wildlife, Terra implements ecological planning and habitat conservation measures during the company’s development of natural gas operations in the Piceance Basin.


https://eplanning.blm.gov/public_projects/nepa/94458/156365/191433/DOI-BLM-CO-N040-2018-0033-EA.jb.pdf

STRATEGY: Kayne Anderson has an integrated credit platform that invests across multiple areas of credit including liquid credit, middle market credit, opportunistic credit, and specialized real estate debt. In our middle market credit strategy, we target senior secured investments in middle market companies across a broad range of industries. Our liquid credit investments are oriented toward strong absolute returns, with a focus on current income, in markets that require specialized knowledge and sourcing advantages, and a strong emphasis on the preservation of capital. A primary focus is in CLO10 management, based on our deep understanding of CLO structures and how to manage loans within those structures.

Recent industry research indicates that ESG integration into credit strategies can correlate to investment performance. To support our belief that ESG performance impacts cash flows and the ability to pay interest to debt holders, over the past year we codified and expanded our practices for ESG integration in our credit strategies. The middle market and liquid credit investment committees consider and evaluate ESG risk factors as part of the investment decision-making process and through the life of the investment.

Established ESG questionnaire and ratings framework in 2020In the first quarter of 2020, we began to implement an ESG due diligence questionnaire and proprietary ratings framework for all middle market and liquid credit investments. Designed to identify ESG risks, this process provides analysts with insights that improve their understanding of issuer or borrower risks. The questionnaire uses the Sustainability Accounting Standards Board’s (SASB) industry materiality maps as a starting point to identify the main ESG risks. To assess how these risks are managed, the questionnaire also considers sustainability-related commitments, programs, and performance from the underlying issuer. Analysts consult with our Director of ESG Strategy as needed to discuss potential risks and conduct additional due diligence. Each potential investment ultimately receives an ESG rating that is included in investment committee memos.

10Collateralized Loan Obligation.

Credit


SASB’s materiality maps as an investor toolSASB’s materiality maps identify the industry-specific ESG factors that are most likely to be financially material for company performance. The standards underlying the maps were developed through a six- year process of research coupled with extensive corporate and investor engagement. We believe these standards are instrumental to understanding the scope of ESG factors for potential assessment during due diligence.

Examples of our approach in practiceWhen evaluating a plastic company for our middle market credit strategy, Kayne Anderson determined that the environmental benefits produced by the company’s core operations enhanced its appeal as a debt investment. As a vertically integrated collector, processor, and manufacturer of recycled plastic products, the company’s goods are used in agricultural, industrial, and consumer end-markets. The company’s products diverted more than 1 billion pounds of plastic from landfills since its founding.

Restricted industriesKayne Anderson generally prefers direct engagement with companies to address material risks, rather than make blanket exclusions. However, we recognize that engagement alone cannot address the inherent ESG risks of certain industries. Both private and liquid credit strategies have ESG policy addendums that identify industries where we do not, and historically have not, invested. Currently, our exclusion list for credit strategies includes adult entertainment, alcohol, controversial weapons, firearms, genetic engineering, and tobacco. In identifying industries or securities for exclusion, Kayne also considers factors such as the legality of the investment across jurisdictions, as well as alignment with international treaties or conventions, and potential sanctions by the EU, U.S., or the UN Security Council.

Tracking data to understand ESG governance Last year we began to gather board-level independence and diversity metrics for issuers and borrowers in our credit strategies to inform our understanding of governance at portfolio companies. We chose readily accessible and comparable metrics that can be benchmarked and measured across a portfolio. We are continuously working to identify additional ESG metrics that we can track across deals.

We also began to map when investments in our credit strategies fall into the following sectors: education, healthcare, renewable energy, energy efficiency, water efficiency/conservation, and sustainable agriculture. The goal is to meet client interest in understanding how the portfolios align with industries that create positive externalities for society. We have also begun to track the industries and sectors covered in these strategies to provide clients with an understanding of how the portfolios’ makeup correlates to impact-related business strategies.


Real estate

STRATEGY: Since 2007, Kayne Anderson Real Estate has invested in alternative real estate sectors including medical office, high-quality, private pay seniors housing assets, high-end off-campus student housing, and self-storage.

For more details see Kayne Anderson Real Estate’s ESG Report

The integration of ESG considerations is part of Kayne Anderson Real Estate’s DNA and is consistent with how we operate our properties. One of our primary advantages in this respect is our best-in-class operating partners who share the same values as we do.

“

”— Al Rabil, Managing Partner and CEO, Kayne Anderson Real Estate

Due diligence Ownership practices Development

� Environment: Due diligence assessments identify ESG liabilities, potential physical risk from climate change, as well as address the capabilities of service providers.

� Social: Factors assessed include accessibility — a key concern for seniors housing (e.g., interview tenants to understand their needs and desire for improvements).

� Governance: Seek to work with operating partners whose values align with Kayne Anderson’s values.

� Three core practices: � Operating efficiency � Utility monitoring � Partner engagement

� Reduce environmental impact: Operating efficiency and utility monitoring practices seek to reduce property-level costs through energy efficiency, water conservation and waste reduction measures in operations and construction.

� Partner engagement: Collaborate with operating partners aligned with Firm’s principles and share ESG practices. Established Code of Conduct for operating partners.

� Identify opportunities in new construction and major renovation projects (e.g., energy efficiency measures such as HVAC equipment and automation systems, LED lighting fixtures, high-efficiency water fixtures, occupancy sensors, natural lighting maximization, repurposed building materials, and health and wellness facilities).

To create long-term value for investors, Kayne’s real estate strategies embed ESG practices throughout the life cycle of investments. Our efforts help lower the overall operating cost of investments while reducing the impact on the environment. We integrate ESG considerations across all three key stages of the real estate investment cycle through the following methods:




Nearly $9 million was invested in capital improvements that directly provide environmental and social benefits. Resource efficiency features include a 50% more efficient upgraded HVAC system to minimize long-term operational costs, LED lighting in communal areas, low-flow plumbing fixtures, and integrated native and drought-resistant landscaping. The building also includes a fitness center and indoor pool to encourage overall health and wellness for residents.

The project minimized the construction material used, waste generated, transportation required, and Scope 3 GHG emissions emitted by using the existing landmark structure, including its electrical components and interiors.

For more details see Kayne Anderson Real Estate’s ESG Report.

Developing seniors housing with ESG benefits in mind

KA Real Estate redeveloped the landmark 16-story Leverich Towers Hotel in Brooklyn into a seniors housing complex with 275 units — 204 assisted living, 42 memory care, and 29 independent living — along with 50,000 square-feet of amenities. The location ranks high on accessibility with a Walk Score of 98 and a Transit Score of 100.11

REAL ESTATE | THE WATERMARK AT BROOKLYN HEIGHTS

more efficient upgraded HVAC systems50%

was invested in capital improvements$9M

CASE STUDY

11https://www.walkscore.com/score/25-clark-st-brooklyn-ny-11201



https://www.walkscore.com/score/25-clark-st-brooklyn-ny-11201

STRATEGY: Kayne Partners, the growth equity strategy of Kayne Anderson, provides the capital as well as management and industry expertise needed to help promising companies achieve their growth potential. We focus on six core industries where our principals have prior investment experience and existing relationships, including healthcare information technology, supply chain & organization, media & telecommunications, security & compliance, financial technology, and business process outsourcing & automation.

Importance of due diligence to ESG integration Kayne Partners utilizes a dedicated ESG-due diligence questionnaire that seeks information regarding policies, programs, and performance across a range of material ESG risks, such as human capital, cyber, and board structure. As part of our diligence, ESG metrics are also collected and evaluated to assess the company’s capacity, capability, ability, and resources to successfully manage ESG risks. To further support future reporting efforts, monitoring and engagement with portfolio companies, Kayne Partners will annually request updated ESG metrics from all portfolio companies.

Restricted industriesOur growth equity strategy established a restricted industries policy in 2019 to clarify where we do not, and historically have not, invested. The restricted industries policy currently prohibits investments in adult entertainment, alcohol, controversial weapons, firearms, genetic engineering, and tobacco.

Engagement: Integrating ESG issues into the biennial summitAs part of our engagement strategy, Kayne Partners hosts a biennial summit, where external speakers are invited to present on a range of issues to portfolio companies and members of the Kayne Partners investment team. Material ESG topics, such as cybersecurity and human capital management are frequent agenda items. Kayne Partners has also hosted trainings for portfolio companies. For example, in the fall of 2020, Kayne Partners organized an interactive inclusive leadership and unconscious bias training for members of the investment team and portfolio companies.

In all of the high-growth companies we invest in, human capital management is critical to the success of the business. To us, human capital means investing in your employees by fostering professional growth, maintaining strong connectivity with your employees and taking meaningful action to support and encourage a diverse workforce.

“

”— Nishita Cummings, Managing Partner and Co-Head, Growth Equity

Growth equity


Spatial Networks is the creator of Fulcrum, a geospatial data collection and analysis platform. Fulcrum enables customers without coding expertise to build mobile applications that improve information gathering by field operations. Fulcrum’s vision is to reduce the time, cost, and risk associated with data collection, workflow automation, and analytics. Spatial received $22.5 million in growth equity from Kayne Anderson Capital Advisors.

Improved data collection benefits ESG initiativesStreamlining data collection through Fulcrum enhanced the capacity and impact of social and environmental initiatives ranging from climate change solutions to social services. For example, a minefield-clearing initiative in Cambodia used Fulcrum’s application to significantly reduce the need for manual data entry. With the updated approach easing the burden on limited resources, the organization could more easily evaluate the impact of efforts such as risk education campaigns.

Better data in, better ideas out Establishing accurate baselines to evaluate social and environmental impacts requires data quality and the ability to analyze collected information. The International Dark Sky Association (“IDA”) used Fulcrum to determine the impact of light pollution on sea turtles’ nesting and hatching habits. IDA collected baseline measurements of night sky quality with Fulcrum instead of relying on manual notes. This increased the accuracy of location data with geo-tagging records and improved data sharing. Based on the results, IDA was able to determine the baseline measurements of night sky quality and identify coastal lighting retrofit solutions for the Florida Department of Environmental Protection (DEP) and Fish and Wildlife Conservation Commission.

Access to data solutions can strengthen environmental and social initiativesFulcrum has helped social and environmental nonprofit organizations and businesses to increase data accessibility.

GROWTH EQUITY | SPATIAL NETWORKS

Precise geospatial data can also help with planning, strategy development, and outreach by social initiatives. Fulcrum’s geo-pinning feature enabled Rhode Island Community Development Corporation workers to expand outreach and increase the services available for their homeless clients. More precise information combined with timely data sharing improved the effectiveness of their staff’s street outreach. Fulcrum’s application also had a tangible impact on the client’s efficiency by collectively saving them 30 hours a week across six employees. The organization was also able to demonstrate its reach and impact to funders through enhanced reporting.

Counting the previously unaccountedOur society has begun to unpack the systemic reasons behind how and why Black, Indigenous People and People of Color often face inequity. Improved data collection technology and practices can play an important in role addressing underrepresentation in institutional decision-making. Fulcrum’s application can aid efforts to increase access and representation. For instance, the platform has been used for the Dakota Native American Housing and Census Project’s household mapping and needs assessments on Native American reservations to improve the population data underpinning funding allocations for each tribe as authorized by the Native American Housing Assistance and Self-Determination Act (NAHASDA).

CASE STUDY


Like most of society, we are adapting to operating in an unprecedented situation, the COVID-19 pandemic.

The safety and well-being of our employees is paramount to the Firm. Our human resources department implemented a number of initiatives to ensure the safety of our staff in day-to-day operations remotely, as we, like most businesses, continue to operate under a work from home policy since mid-March 2020. From the beginning of the pandemic, we took steps to provide employees with safety resources, information, and education. For example, we partnered with our healthcare concierge vendor to provide employees access to a COVID-19 care portal and periodic “Ask the Expert” webinars to address questions about COVID-19. Recognizing the significant impact to our local communities, the Kayne Anderson Capital Advisors Foundation has focused its employee matching program in 2020 on donations to organizations helping mitigate the impacts of increasing unemployment, food insecurity, and reduced access to healthcare.

Addressing COVID-19 at the asset level: KA Real Estate’s actions to protect senior housing staff and residentsSince March 2020, the KA Real Estate team has been working diligently with all our senior housing operators to take steps that protect staff and residents during the COVID-19 pandemic. The team’s actions — establishing best practices, procuring personal protective equipment (“PPE”) and testing kits, and working closely with local and state health departments to reduce the impact of the virus at our assets were based on the Center for Disease Control (“CDC”)’s recommended protocols for senior housing.

Promoting behaviors that reduce spread

� Extensive screening for all residents, staff, and essential personnel entering the building.

� Continued delivery of on-site services to encourage residents to remain at the buildings.

� All incoming residents require clearance from a doctor certifying they are healthy prior to move-in and must initially quarantine in units.

� Enhanced signage to encourage sanitization upon arrival and throughout their visit.

� Availability of PPE (gloves, gowns, masks, and eye protection) for residents and employees.

Maintaining healthy environments in common areas

� Frequent disinfection of all common and high touch areas; placement of hand hygiene kiosks at multiple locations throughout each property.

Maintaining healthy operations

� Increased professional cleaning of property common areas.

� With the exception of end-of-life situations, all visitors prohibited during this time.

� Enhanced in-room dining and reduced capacity in dining venues.

� More frequent communication with residents and their families regarding the virus.

� Employee training on proper hygiene practices during this time.

� Procurement of emergency food and supplies to support potential supply-chain issues.

� Enhanced training to identify suspected cases and clear communication plans to notify public health agencies.

Procurement/purchasing

� Kayne Anderson Real Estate has led group purchasing efforts to procure significant amounts of PPE for all assets in our portfolio as well as additional stockpiles for our operators.

� Established testing supply chain: Relationship with a regional testing lab company, obtained access to swab test kits and rapid test kits.

Response to COVID-19 Kayne Real Estate’s aligning actions with CDC recommendations:

Kayne Anderson ESG Investing Report 2020 | 28CORPORATE SUSTAINABILITYESG INTEGRATION GOVERNANCEINTRODUCTION

We are committed to fostering, cultivating, and preserving a diverse workplace and a culture of inclusion. Our business policies, practices, and behaviors promote diversity and equal opportunity to create an environment where individual differences are valued, and all employees have the opportunity to realize their potential and contribute to Kayne Anderson’s success. At the Firm-wide level, we have implemented several efforts in line with best practices.

Looking forwardWhile we are proud of the progress we have made, we are committed to continuous improvement. We believe it is important to engage our employees, portfolio companies, and investors to ensure that our practices throughout all levels of the organization reflect a thoughtful and impactful approach to actively promoting inclusion and diversity.

To this end, we are committed to building on a foundational understanding of best practices to ensure our efforts are effective as we roll out our future planned DE&I initiatives. Currently the Firm is working towards creating a benchmark and assessment framework with a relevant baseline and consistent repeatable metrics and we expect to report on our progress to our investors going forward.

We believe there is value in attracting and retaining employees with a variety of backgrounds, knowledge, experiences, and abilities. Diversity contributes to our business success and we strongly believe that a range of perspectives benefits employees, clients, and other stakeholders.

Diversity, Equity, and Inclusion effort Implementation at Kayne Anderson:

Governance & Oversight

As a firm, we endeavor to go above and beyond implementing harassment and discrimination policies. Our General Counsel chairs an internal Diversity, Equity, and Inclusion (DE&I) Council that establishes the Firm’s DE&I strategy, monitors best practices, champions internal initiatives, and serves as vehicle for employee engagement.

The first step taken by our DE&I Council was to establish a number of employee affinity groups to support our employees and foster a culture in which individual differences are valued.

The DE&I Council has also formed a number of sub-committees to lead a variety of internal initiatives. These sub-committees include training, recruiting, community outreach, supplier/vendor relationships, and benchmarking.

Training Throughout 2020, a number of DE&I or unconscious bias training sessions were held. This included the following:� Members of our Executive Committee, portfolio managers, and department heads participated in inclusive leadership training

� Executive management teams within our growth private equity portfolio attended an inclusive leadership training

� All members of our real estate business participated in a two-day intensive DE&I training

� Our private energy strategy’s 2020 annual ESG conference for executive management teams included a dedicated session on DE&I

These trainings have been supplemented with additional resources and events including the following:� Firm-wide communications providing anti-racism resources to promote employee education and awareness

� Firm-wide Town Hall calls have included several guest speakers (including institutional investors) sharing their experiences with DE&I

Recruitment We have made the integration of DE&I in our recruitment practices a priority and have begun identifying women- and minority-owned recruiters to help us identify a more diverse pool of candidates.

Partnerships and Community Outreach

We have implemented concrete steps to support organizations that promote equality, education, financial literacy, and social change in minority communities. These efforts include:� Partnering with nationally recognized organizations to support a diverse intern pool. Our internship program targets ~33% diverse candidates (women/minorities). We had over 50% for our 2019 program.

� Our real estate business is a Founding Sponsor of the Private Equity Women Investor Network


Direct grantsOur direct grants provide financial support to employee-recommended nonprofits. The Foundation seeks to have a meaningful impact by focusing on nonprofit organizations that our employees are passionate about supporting with both financial resources and time. Funding priorities include nonprofit organizations that help society’s most disadvantaged — whether it be economically, physically, educationally, or socially. In the past the foundation has funded nonprofit initiatives to help homeless and incarcerated individuals find employment, financial literacy programs and mentorship organizations. To ensure our grantmaking decisions have input from all the regions in which we operate, representatives from all core offices sit on the distribution committee.

The Kayne Anderson Capital Advisors Foundation, established in 2011, supports our community through a three-pronged strategy built on employee-driven charitable giving and direct support.

Employee matching programThe foundation provides up to $5,000 annually per household in matching donations to eligible nonprofits. Employee participation in 2020 was 97%.

Employee volunteerismTo foster volunteerism by employees in their local communities, Kayne Anderson established a policy to provide employees with 24 hours for volunteering out of the office — outside of paid time off. Employee volunteering: 3,405 hours.

employee participation in matching program 202097%

Kayne Anderson Capital Advisors Foundation

Direct grants

Employee matching program

Employee volunteerism

Three- pronged strategy


Kayne Anderson1800 Avenue of the StarsThird FloorLos Angeles, CA 90067

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To contact us:

(310) 282-7900

To contact client relations:

(310) 284-5591

Website:

Kaynecapital.com

We value your feedback on our ESG initiatives and welcome your comments on this report. You may contact us at:

[email protected]

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