foresight renewable energy income fund · foresight contribution: preserving integrity of land...

FORESIGHT RENEWABLE ENERGY INCOME FUND

Sustainability Framework Full Version

Sustainability Framework2

Contents

Purpose 3

Introduction to Foresight Group 4

Foresight Group’s Approach to Sustainability 6

The Sustainability Framework 8

1. Use of Proceeds 8

2. Selection of Projects and Assets 9

3. Management of Proceeds 12

4. Reporting 13

External Review 14

Definitions 16

Appendix 17

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Foresight Renewable Energy Income Fund (“FREIF” or “Fund”) is an infrastructure private debt fund targeting the provision of an attractive and sustainable income by financing a portfolio of loans to renewable energy infrastructure projects located in Australia. The Fund launched in Australia in August 2019 and will be structured as an unregistered closed-end managed investment scheme in the form of an Australian unit trust (Appendix 1.0). This document is the Fund’s Sustainability Framework that supports the provision of loans that meet the Fund’s Environmental Objective.

Environmental Objective:

To finance loans of sustainable infrastructure projects that combat climate change and contribute towards the global decarbonisation agenda.

Purpose

Sustainable income from renewable energy

infrastructure

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About Foresight Group

Foresight Group is a global infrastructure and renewable energy investment manager with $7.1bn Assets Under Management.We manage funds for some of the toughest institutional investors, family offices, and 28,000 private and high net-worth individuals. We have expanded rapidly in recent years with staff numbers now exceeding 230.

Our investment strategies are underpinned by a strong Environmental, Social & Governance (“ESG”) focus, which increasingly meets the demands of today’s investors.

As the migration from carbon intensive, centralised energy networks to low carbon, decentralised, smart systems continues, we have become a leading investor in renewable energy infrastructure including solar, wind, bioenergy, battery storage, reserve power, and smart meters.

We aim to continue to offer investors attractive and sustainable risk-adjusted returns while having a positive impact on society’s environmental footprint.

That to us is a smarter future.

Notes: 1) £4.1 billion converted to AUD 30/06/2019 at a rate of 1.8055.

190I N F R A S T R U C T U R E

A N D R E N E W A B L E

A S S E T S

I N V E S T E D

I N O V E R

35 year investment track record

28institutional and retail funds

$7.1bnassets under management

offset 916Ktons of CO2 emissions in 2018

2.0GWportfolio capacity of clean energy

72investment professionals

40 engineers & accountants

dedicated asset management team

1 0 O F F I C E S

2 3 7 S T A F F

G L O B A L L Y

providing clean energy to power Melbourne's tram network from our Bannerton Solar Farm


The Shard, London, UK

Head Office with offices in Cambridge, Edinburgh, Guernsey, Manchester, Nottingham, Leicester and Milton Keynes.

South Korea, Seoul We have a key institutional investor base in Seoul and opened our office in early 2018 to support this function.

Foresight Group is a leading renewable energy investor with a strong track record of delivering attractive risk-adjusted returns.

Italy, Rome We were early investors in the Southern European solar market. We began investing in Italy, Spain and Portugal in 2006 and have launched the largest Green Bond Fund in Italy.

Australia, Sydney Since opening our Sydney office in 2016 we have become one of the largest international investors in solar in Australia.

Spain, Madrid We were an early investor in Spanish solar and are expanding our share of subsidy free solar assets across the Iberian Peninsula.

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Foresight Group’s Approach to Sustainability

Foresight’s Sustainability and Environmental, Social and Governance (“ESG”) Committee is responsible for shaping and developing the firm’s approach to sustainability and ESG, ensuring that the concepts are embedded into the frameworks that govern our investment mandates and asset management activities. This is documented in Foresight’s ‘Sustainability and ESG Policy’ and Foresight’s ‘Sustainable Investing in Infrastructure’ paper.

The United Nations (“UN”) Sustainable Development Goals (“SDGs”) represent a key driver of Foresight’s investment and corporate activities. The UN SDGs are a list of seventeen goals that seek to mobilise the international community to bring about an end to poverty and to protect the planet. Through its investment in sustainable infrastructure, Foresight sees itself as contributing most comprehensively to the following five:

Goal 3 Ensure healthy lives and promote well-being for all at all ages.

Foresight Contribution: Reducing pollution through the reduction of emitted greenhouse gases by the installation and management of clean, low-carbon energy generation assets.

Goal 7 Ensure access to affordable, reliable, sustainable and modern energy.

Foresight Contribution: Driving a reduced reliance on fossil fuels by investment in utility-scale, renewable energy generation assets.

Goal 9 Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.

Foresight Contribution: Future-proofing energy systems by investment in de-centralised, interconnected generation assets, using the latest technologies to maximise electrical output.

Goal 13 Take urgent action to combat climate change and its impacts.

Foresight Contribution: Demonstrating commitment to the 2015 Paris Agreement and contributing to the globally supported decarbonisation agenda through investment in low-carbon, renewable energy assets.

Goal 15 Sustainably manage forests, combat desertification, halt and reverse land degradation, halt biodiversity loss.

Foresight Contribution: Preserving integrity of land through investment in low-impact and low-polluting technologies and the introduction of environmental initiatives through active asset management, supporting biodiversity and the ecosystem.

Foresight Group (“Foresight”) believes that ‘sustainability’ is a mode of thinking that is applied by making viable and supportable decisions that will offer continued, long-term societal and environmental benefits. The Brundtland Commission’s report, "Our Common Future" (1987) contains the most frequently cited definition of ‘sustainable development’, which is useful in this regard.

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Sustainable development is development that meets

the needs of the present without compromising the ability of future generations to meet their own needs.Brundtland definition of ‘sustainable development’,

“Our Common Future” 1987.

Foresight also aligns itself with several other external sustainability and ESG focused organisations, which all guide Foresight’s group-wide approach, some of which require annual reporting.

These include:

• Climate Bonds Initiative (“CBI”);

• GRESB;

• Living Wage Foundation;

• Principles for Responsible Investment (“PRI”);

• Responsible Investment Association

Australasia ("RIAA");

• Solar Trade Association;

• UN Global Compact;

• UK Sustainable Investment and Finance

Association; and,

• Women in Finance Charter.

Note 1) The Responsible Investment Certification Program does not constitute financial product advice. Neither the certification symbol nor RIAA recommends to any person that any financial product is a suitable investment or that returns are guaranteed. Appropriate professional advice should be sought prior to making an investment decision. RIAA does not hold an Australian Financial Services Licence.

Foresight Renewable Energy Income Fund has been certified by Responsible Investment Association Australasia ("RIAA") according to the strict operational and disclosure practices required under the Responsible Investment Certification Program1. See www.responsibleinvestment.org for details.


The Sustainability Framework

1. Use of Proceeds

1.1. The proceeds of the Fund will be solely earmarked to finance or refinance construction stage or operational projects and assets (“projects”) that deliver positive environmental benefits, support the Fund’s Environmental Objective and align with and contribute to the UN SDGs.

All the projects that the Fund lends to will either align with the Climate Bonds Taxonomy2 and comply with the Sector Criteria3 (where available) as defined in CBI’s Climate Bonds Standard (“CBS”) v 2.1 or qualify as eligible projects under the 2018 International Capital Market Association’s (“ICMA’s”) Green Bond Principles (“GBP”)4 . The Investment Manager (“IM”) envisages that for any projects where CBI Sector Criteria exist that the underlying loans to those projects will qualify for CBI certification. If CBI has not yet defined Sector Criteria (e.g.

energy efficiency), then the projects must be eligible under ICMA's GBP and will still be subject to robust internal ESG and sustainability practices that are aligned with the spirit of the CBS.

All projects that the Fund lends to must:

1. Meet the Fund’s Environmental Objective;

2. Align with and contribute to the UN SDGs; and,

3. Comply with the Sector Criteria, if certified by CBI; or,

4. Qualify as eligible projects under ICMA’s GBP.

1.2. The IM has identified the below eligible project categories that the Fund may consider allocating proceeds to (this may be expanded over time):

Climate Bonds Initiative Taxonomy Categories

ICMA Eligible Project Categories

Sample Eligible Projects UN SDG Contribution

Solar5 Renewable Energy

a) Onshore solar projects;

b) Co-located onshore solar and battery storage projects

Wind6 Renewable Energy

a) Onshore solar projects;

b) Co-located onshore solar and battery storage projects

Bioenergy7 Renewable Energy

a) Biogas;

b) Biofuel;

c) Biomass

Waste Management8 Pollution Prevention and Control

a) Waste to energy projects

Electricity Transmission and Distribution Grids

Energy Efficiency

a) Energy storage;

b) District heating;

c) Smart grids

2 https://www.climatebonds.net/standard/taxonomy3 https://www.climatebonds.net/standard/sector-criteria4 https://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/5 Certifiable under the Climate Bonds Taxonomy at the time of publication6 Certifiable under the Climate Bonds Taxonomy at the time of publication7 Certifiable under the Climate Bonds Taxonomy at the time of publication8 Projects must comply with the waste hierarchy to be eligible (i.e. they must use residual waste that it is impossible, impractical or uneconomic to recycle and would otherwise be going to landfill).

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2. Selection of Projects and Assets

2.1. The IM will originate a pipeline of projects and document how each meets the eligibility criteria in 1.1. The pipeline will be added to during the Fund’s deployment period as the IM identifies new lending opportunities. An initial screening process will identify the most appropriate projects from the pipeline for the Fund’s mandate. Projects that pass this stage will enter a thorough due diligence process. Please refer to the 'Investment Process' section of the Fund's Information Memorandum for further details.

2.2. As part of the due diligence process and to ensure that the Fund’s Environmental Objective is met, the IM will use Foresight’s proprietary Sustainability Evaluation Criteria to assess eligible projects. This consists of five key themes that we believe cover the key areas of sustainability and therefore ESG:

Sustainable Development Contribution;

Environmental Footprint;

Social Engagement;

Governance; and,

Third-party Interactions.

Projects will be assigned a rating from one (lowest) to five (highest) for each of the individual factors considered under each of the five criteria. The project’s score will be benchmarked against a minimum threshold for that asset class, which has been set by Foresight’s Infrastructure Team, with input from external advisors and consultants where necessary. The IM will use counterparty due diligence questionnaires and advisor reports to gather information to complete the scoring.

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2

3

4

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Affordable, clean energy

Industry, innovation and infrastructure

Climate actionBoard composition and project sponsor

Anti-bribery and anti-corruption

Foresight’s Sustainability Evaluation Criteria are explained in more detail below:

Sustainable Development Contribution

Due to the Fund’s Environmental Objective each of the Fund’s loans must contribute to UN SDGs and to the global shift towards a decarbonised economy.

Factors considered include:

1 Governance

While infrastructure project companies often do not have employees, it is important to evaluate their wider governance framework.

Each of the Fund’s loans will be assessed as being compliant with relevant laws and regulations, and whether best-practice policies have been adopted by the project company board. Factors considered include:

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Life on land (promotion of biodiversity)

Emissions, effluents and waste

Climate change resilience

Environmental Footprint

Separate to the globally-focused considerations of the UN SDGs, it is also necessary to consider the localised

environmental impact of the Fund’s loans. This includes an assessment of factors such as emissions, effects on biodiversity, noise and light pollution and an analysis of the long-term climate resilience of the project. Factors considered include:

2

Social Engagement

Foresight is conscious of its role both in the local communities in which its projects operate and in its role as an employer and corporate

citizen. To maintain its ‘social licence to operate’, the IM will assess the impact of each of the Fund’s loans on local stakeholders at each stage of the project’s lifecycle. Factors considered include:

3Good health and well-being

Local economic impact

Local social impact

Community engagement

Decommissioning

Counterparty due diligence

Supply chain process and sustainability

Counterparty and ESG performance

Reputational risk

Third Party Interactions

We believe that diligent procurement not only helps to de-risk the delivery and the operation of a project but that it also enables Foresight

to take a more holistic approach to a project’s overall sustainability. In line with this belief, we will assess the key counterparties in the project’s supply chain and will evaluate and score them in line with our Sustainability Evaluation Criteria wherever relevant. Factors considered include:

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Indicative Solar AssetForesight Group Minimum Threshold

Indicative Australian Solar Asset:

Local economic impact

Community engagement

Local social impact

Affordable, clean energy

Industry, Innovation and Infrastructure

Climate action

Life on land (promotion of biodiversity)

Emissions, effluents and waste

Climate change resilience

Good health and well-beingDecommissioning

Anti-bribery and corruption

Board composition & project sponsor

Counterparty due diligence

Supply chain process and sustainability

Counterparty ESG performance

Reputational Risk

Sustainable Development Contribution

Environmental Footprint

Social Engagement

Governance

Third Party Interactions

4

5

3

2

1

0

The key output from the evaluation will be a ‘Sustainability Web’ that will act as a visual representation of the project’s sustainability performance. An example of this for an indicative Australian solar asset is shown below:



2.3. The IM will write a Credit Paper for each of the projects that passes the due diligence process. Should a project score below the minimum threshold in the Sustainability Evaluation Criteria it will be noted within the Credit Paper, which may lead to mitigation strategies or recommendations as a condition of Credit Committee approval. If no effective mitigation strategy can be implemented, Credit Committee approval may not be granted, and the loan may not proceed. The Credit Paper must be signed off by Foresight’s Credit Committee for the IM to have the authority to execute the loan.

2.4. A list of projects that the Fund lends to will be published in the Fund’s portfolio allocation on Foresight’s website: foresightgroupau.com

3. Management of Proceeds

3.1. Investments into the Fund will be held in a subscription account by the trustee for each Investor until their application is approved, at which point units in the Fund will be issued and the money will be transferred to a dedicated Fund bank account held in the trustee’s name. The trustee will reconcile the bank account monthly.

3.2. When a Borrower requests a drawdown from the Fund they will provide the IM with invoices that show what the proceeds will be used for and/or produce a certificate, signed by an independent certifier acting on behalf of the Fund, confirming that any construction related milestones have been met. A Director of the Borrower will also need to declare that it is not in breach of any material aspect of the facility agreement. The Fund will not process any drawdown until this evidence has been obtained.

3.3. The Borrower may drawdown the loan from the Fund in instalments and as a result the Fund’s bank account may contain a balance of unallocated proceeds. This balance shall be:

1. Held in temporary investment instruments that are cash, or cash equivalent instruments, within a Treasury function; or

2. Held in temporary investment instruments that do not include greenhouse gas intensive projects which are inconsistent with the delivery of a low carbon and climate resilient economy; or

3. Applied to temporarily reduce indebtedness of a revolving nature before being redrawn for investments or disbursements to Nominated Projects & Assets.

In the unlikely instance that a project finance loan is repaid early, either the proceeds will be held in the Fund’s bank account until redeployment or will be redistributed to Investors. Should the IM elect to manage unallocated proceeds by placing them in temporary investment instruments this will be reported in the Fund Fact Sheet.

3.4. Borrowers will make income and principal repayments to the Fund’s bank account quarterly. This capital will be distributed to Investors in line with the process set out in the Fund’s Information Memorandum. The Fund will not facilitate redemptions from Investors until the end of the Fund’s life.

3.5. An earmarking process will be used to manage and account for funding to the projects and enable an estimation of the share of the proceeds of the Fund being used for financing and refinancing.

3.6. The IM will comply with the following requirements for CBI certified loans:

1. The expected net proceeds of the Fund shall be no greater than the debt obligation to the proposed projects, or the fair market value of the intended loans to be distributed from the Fund.

2. Projects will not be nominated to other Climate Bonds, funds or mandates unless it can be demonstrated that distinct portions of the projects are being funded by different Climate Bonds or that the existing Climate Bond is being refinanced via another Climate Bond.

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Item Frequency

Sustainability Framework At the issuance of the first project finance loan by the Fund

Pre-Issuance Verification Report At the issuance of the first project finance loan by the Fund

Fund Fact Sheet Quarterly following the issuance of the first project finance loan by the Fund

Post-Issuance Verification Report At the end of each year that the Fund makes a CBI qualifying project finance loan

Key Impact Indicator Report Annually for all outstanding project finance loans issued by the Fund

4. Reporting

4.1. The IM will publish the below reports on Foresight’s website at foresightgroupau.com/

On an annual basis the Carbon Trust will undertake a review of the Fund’s performance against a set of defined key impact indicators (“KII”), consistent with the guidance maintained and developed by ICMA’s GBP Impact Reporting Working Groups. On a sampling basis the Carbon Trust will review the performance of the Fund’s loans against the KII and will provide a statement of the results.

*Reporting on KII will be subject to the Fund lending to an energy efficiency project

**Reporting on KII will be subject to the Fund lending to a waste management project

UN SDG Key Impact Indicator

Annual GHG emissions reduced/avoided in tonnes of CO2 equivalent (tCO2e)

Annual energy savings in MWh/GWh (electricity) and GJ/TJ (other energy savings)*

Tonnes of non-recyclable waste diverted from landfill**

Annual renewable energy generation in MWh (electricity) and GJ (other energy)

Annual energy generation from non-recyclable waste in energy/emission-efficient waste to energy facilities in MWh/GWh (electricity) and GJ/TJ (other energy)**

Capacity of renewable energy plant(s) financed by the Fund

Number of Australian households powered

Annual savings of Tonnes of Oil Equivalent (TOE) and Tonnes of Coal Equivalent (TCE)

This below table documents the KII that the Fund’s loans will be reported on annually.



External Review

The IM has appointed the Carbon Trust as the Verifier that will verify that the Fund’s Sustainability Framework and that each of the Fund’s loans (where applicable) comply with the CBS. This will be completed in accordance with the Programmatic Certification method as outlined below.

Foresight Renewable Energy Income Fund Asset Pool

Climate Bonds Initiative Programmatic Cerification Process

Foresight Renewable Energy Income Fund Project Finance

Climate Bonds Initiative Programmatic Cerification Process

1

Project ONE Pre-issuance Verification

Climate Bonds Initiative

Certification

2 3

Post-issuance Verification

4

Annual Verification

6

Loan One

Project TWO Loan Two

Project THREE Loan Three

Project FOUR Loan Four

Project FIVE Loan Five

Project SIX Loan Six

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5

5

5

5

The IM will identify a large pipeline of projects that could be suitable for loans from the Fund and that meet the eligibility criteria in 1.1. The IM will choose projects from this pipeline to make loans to.

When the IM has identified the first project that it wishes to make a loan to, the Carbon Trust, as the Verifier, will assess the compliance of the eligible project against the Fund’s Sustainability Framework and the requirements of the CBS via a Pre-Issuance assurance report.

The Pre-Issuance assurance report will be submitted to CBI who will certify the first loan.

Once the first loan has been made, the IM will complete Post-Issuance Verification for the first loan via a Post-Issuance assurance report produced by the Carbon Trust. This ensures that the Fund’s internal compliance framework is in place.

When the Fund makes any subsequent loans under the Sustainability Framework, the IM will not need to engage the Carbon Trust.

At the end of every year that the Fund makes a CBI qualifying loan the Carbon Trust will produce a Post-Issuance assurance report for the loans made in that year in aggregate.

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3

4

5

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Australia is poised for incredible growth in the renewables market and Foresight Renewable

Energy Income Fund is well-positioned to capture these growth opportunities on behalf of its investors. Our team holds unparalleled knowledge and experience in this sector, covering all aspects of asset management, from debt structuring to renewable energy optimisation.Nigel Aitchison Head of Infrastructure, Foresight Group


Insurance Options GuideDefinitions

Borrower: A third-party owner of a renewable energy asset that the Fund lends to.

Carbon Trust: The Carbon Trust is a mission driven organisation with a mission to accelerate the move to a sustainable, low carbon economy. The Carbon Trust is conducting pre-issuance and post-issuance assurance of eligible loans against Climate Bonds Standard version 2.1.

Climate Bonds Initiative: An international, investor-focused, not-for-profit organisation working to mobilise the global debt market for climate change solutions.

Climate Bonds Standard: The requirements and eligibility criteria for certification from Climate Bonds Initiative, based on Climate Bonds Standard version 2.1.

Climate Bonds Taxonomy: A framework developed by Climate Bonds Initiative that determines climate-aligned assets and projects that qualify for certification. The Taxonomy is based on the latest climate science and has been developed through an extensive multi-stakeholder approach, leveraging the work of the technical and industry working groups of Climate Bonds Initiative.

Credit Committee: An internal board at Foresight that reviews and approves Credit Papers.

Credit Paper: A report submitted to Foresight’s Credit Committee that outlines the project, the debt terms and the due diligence required by Foresight Group Australia Pty Ltd to be comfortable with the investment’s risk return profile. Credit Papers are confidential and will not be made publicly available.

International Capital Market Association Green Bond Principles: Voluntary process guidelines developed by the International Capital Market Association that recommend transparency and disclosure and promote integrity in the development of the green bond market.

Investment Manager: Foresight Group Australia Pty Ltd.

Investors: Australian wholesale or sophisticated clients as defined in the Corporations Act 2001 (Cth), as amended from time to time, that invest in the Fund.

Post-Issuance Verification: The second stage of Climate Bonds Initiative verification process, which happens after the Fund starts to finance loans. The Verifier completes a Post-Issuance assurance report verifying that the Investment Manager has followed its plans and allocated the funds appropriately as stated in the Pre-Issuance Verification.

Pre-Issuance Verification: The first stage of Climate Bonds Initiative verification process, which happens before the Fund has launched. Under Programmatic Certification the Verifier will verify that the Sustainability Framework and that the first loan complies with the Climate Bonds Standard via a Pre-Issuance assurance report. This report will be submitted to Climate Bonds Initiative who will certify the Sustainability Framework and the first loan.

Responsible Investment Association Australasia: An organisation that champions responsible investing and a sustainable financial system in Australia and New Zealand. RIAA operates the Responsible Investment Certification Program.

Sector Criteria: Technical criteria specific to each asset within the Climate Bonds Taxonomy that have been developed by Climate Bonds

Initiative in consultation with industry working groups.

United Nation’s Sustainable Development Goals: A list of seventeen goals set by the United Nations General Assembly in 2015 for 2030 that seek to mobilise the international community to bring about an end to poverty and to protect the planet.

Verifier: A third-party that verifies to the market that the Fund’s Sustainability Framework and the underlying loans are compliant with the Climate Bonds Standard. The verifier must be approved by Climate Bonds Initiative.

In this Sustainability Framework the following defined words and phrases are used:

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$

AUSTRALIAN WHOLESALE INVESTORS

Units & DistributionsInvest

Interest & Principal RepaymentsLoans

Project Co. 1 Project Co. 5Project Co. 2 Project Co. 3 Project Co. 4 Project Co. 6

Interest &PrincipalRepayments

Senior Ranking Security

FREIF

17

Appendix 1.0 – Foresight Renewable Energy Income Fund Structure

Appendix

Foresight Group LLP

Level 35, One International Tower

100 Barangaroo Avenue

Sydney NSW

2000

foresightgroupau.com

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