Manager integration

Responsible Investment Philosophy:

Responsible investment (RI) is an umbrella term used to describe a broad range of approaches that can be used to incorporate ESG considerations into the investment process. RI is also sometimes referred to as sustainable investment. PH&N views ESG integration as systematically incorporating ESG factors into investment processes with the goal to identify potential risks and opportunities and improve long term, risk-adjusted returns.

Their approach to RI is comprised of three pillars and PH&N takes specific actions under each of these pillars to deliver investment returns without undue risk of loss.

• Fully integrated ESG: All investment teams integrate relevant ESG factors into their investment processes.
• Active Stewardship: PH&N conveys its views through thoughtful proxy voting, engagement with issuers and regulatory bodies, and collaboration with other like-minded investors.
• Client-driven solutions and reporting: PH&N aligns solutions with client demand and provide transparent and meaningful reporting.

Integration in the Investment Process:

Rather than applying a top-down ESG investment screen, PH&N teams assesses the risks and opportunities associated with issuers’ ESG practices throughout the due diligence process. A team’s main goal is to understand the impact of such practices on the company’s overall sustainability and credit quality. The teams employ a wide range of resources to expand their insight of pertinent ESG information, including management and rating agency engagement, as well as third-party research. PH&N does not force themselves to look for ESG factors in order to fulfill an arbitrary requirement, but instead, believe it is prudent and vital to look at a corporate bond in its entirety. This research naturally includes ESG considerations to the extent that they reflect the quality and value proposition of an investment.

 

Grand Renewable Solar Case Study:

The Grand Renewable Solar (GRS) project is the second largest operating solar facility in Canada with 100 megawatts of capacity. It is located on 1,000 acres of long-term leased land in Haldimand County, Ontario. The project reached commercial operations in March 2015. GRS issued over $600M in senior secured bonds that mature in 2035. The issuer has proven solar technology with useful lives that extend beyond the maturity of the bonds.

The power generated by GRS is 100% contracted under a Power Purchase Agreement with Ontario’s Independent Electricity System Operator (IESO). IESO is a not-for-profit entity created by the Electricity Act, 1998 (Ontario) to oversee the Ontario electricity market. It is rated A (high) and Aa2 by DBRS and Moody’s, respectively.

PH&N’s investment team liked the project’s robust fundamentals, resilient debt service coverage metrics, and strong support from the Ontario government. The team also views the positive ESG feature of GRS as a renewable energy supplier as a credit enhancement. High credit worthiness of IESO as the payment counterparty is an important risk mitigant. This combination of factors led the team to invest in the GRS bond issue.

Responsible Investment Philosophy:

BlackRock Real Assets recognizes the environmental, social and economic impacts of our investments and believe that a robust, integrated approach to sustainable investing is essential in preserving and enhancing the value of the firm’s assets throughout their investment lifecycle. Given the long term and physical nature of BlackRock’s real assets investments, it considers effective environmental, social and corporate governance (ESG) assessment and management to be a fundamental component of risk management.

BlackRock has been providing investors with pure-play renewable energy and climate infrastructure investment opportunities since 2011. Its investment thesis is built upon the transition to a zero-carbon economy and it recognizes the increasing global aspirations to reach net zero emissions by 2050 will only further accelerate this transition.

Additionally, BlackRock is advancing its approach to measuring, monitoring, and managing climate impacts at the individual project-level and across its portfolios. Over the past two years the firm has significantly enhanced its impact measurement framework, specifically focusing on its approach to measuring and reporting greenhouse gas emissions across our investments. BlackRock incorporates an analysis of these impacts, in addition to broader social and environmental impacts, into each stage of its investment process across sourcing, due diligence, investment approval, and asset ownership and management.

 

Integration in the Investment Process:

When evaluating investments, ESG risks and opportunities (which may have a material impact throughout the investment life cycle) are fully considered alongside traditional investment approaches by GRP’s investment management team. While taking into account the varying nature of our investments, BlackRock’s approach to integrating ESG within its investment processes is outlined below:

Sourcing and Screening:

• Initial ESG assessments are performed to help identify any ESG “deal breakers” or any issues that require more extensive due diligence.
• Analysis helps inform decisions on whether to progress the investment opportunity or not.
• This may include activities such as desktop reviews of key project documentation, including planning permission conditions and Environmental Impact Assessments. For greenfield projects, ESG considerations are factored into the design process and project planning.

Due Diligence:

• ESG risk assessments are undertaken for all new investments. This may include the use of proprietary ESG Questionnaires, reviews from external consultants and site visits.
• BlackRock aims to identify and quantify the financial impacts of material ESG risks and integrate these into our valuation models as appropriate.
• This may include the identification of the counterparty who BlackRock believe is best placed to manage the relevant ESG risk, and due diligence on the lead sponsor when it is investing as a debt provider.

Investment Committee Approval:

• Material ESG risks and opportunities are recorded throughout the investment process and, where appropriate, discussed with the relevant Investment Committee.
• Recommendations will be made using a reasonable and considered professional judgment based on the information and data available.
• BlackRock Real Assets will not invest if the relevant Investment Committee determines that any ESG risks cannot be sufficiently quantified or mitigated. 

 

Project Lotus Case Study:

Project Lotus is a preferred equity investment in a leading residential solar company aiming to build roughly 900 MW of assets over the next several years. As part of the due diligence and investment in Lotus, BlackRock’s investment team noted the following:

• The nature of residential solar projects typically poses much lower risks to protected species and water pollution in comparison to large-scale renewable projects;
• This company is active in the residential solar industry and uses existing home rooftops to site its renewable energy projects, limiting the impact on land and local wildlife; and
• Residential solar allows the consumer to generate clean energy and a direct saving on utilities to regular homeowners.

Responsible Investment Philosophy:

Active Impact invests in early stage climate tech solutions that can solve the most urgent environmental solutions. It maintains that it can achieve venture scale profits by investing exclusively in companies that make a significant positive impact on greenhouse gas emissions or waste. As a Certified B Corp Active Impact looks beyond ESG or Responsible Investment risks/practices in an endeavour to only invest in operations that are as impactful as the product.

 

Impact Integration in the Investment Process:

The first screen Active Impact uses in its investment process is  to analyze whether a company fits its impact mandate within one of the following four climate verticals: clean energy & transportation, smart infrastructure, sustainable food & water and circular & sharing economy. During the diligence process we dig deeply into the product's impact today and future potential. Post investment, every portfolio company reports environmental impact key performance indicators quarterly. This data is used on aggregate to measure the impact of the fund and also at the portfolio company level to inform active support. Annually, diversity is measured internally and at the portfolio company level.

 

Encycle Case Study:

Encycle is a software technology company that focuses on helping commercial and industrial customers dramatically improve the efficiency of their HVAC systems using artificial intelligence-based services. Encycle’s impact potential is significant, with the ability to displace megatonnes of CO2 by its operations at scale. Encycles technology enables commercial buildings to save 10-30% on their HVAC energy costs — a major savings of energy, emissions and costs.

Responsible Investment Philosophy:

Raven considers ESG to be important for the following reasons:

• ESG factors are key in determining risk and return, as well as impact risks;
• Helps improve our investees’ financial and operational performance. More efficient and cost-effective operations can, for instance, be achieved by reducing waste, emissions and effluents;
• Helps prepare our portfolio companies to become strong ESG performers by the time of exit, and with a preference for exits to ESG-aligned buyers;
• Helps us identify appropriate risk mitigation strategies for risks identified and/or anticipated;
• Helps us avoid ESG-related reputational risk, while at the same time enhances our brand value and reputation as an ESG-aligned investor; and
• Speeds up the disclosure process when closing legal transaction documents, avoiding last-minute disclosures regarding ESG risks.

 

Impact Integration in the Investment Process:

Raven has a binary impact screen where each investment opportunity must meet, or exceed, an Indigenous impact threshold comprised of factors including ownership, governance, management, supply chain, intended beneficiaries, cultural integrity, environmental footprint and gender equality.

 

One Feather Case Study:

Indigenous Peoples are still disenfranchised and challenged in proving their identity which is needed for everyday tasks like banking, voting and updating status cards. Raven’s investment supports OneFeather’s growth and addresses the challenges above as the company is a national leader in Indigenous banking solutions, a truth center for digital Indigenous sovereign identity, community engagement and voting services.

Through tradition, innovation and technology, OneFeather has added 28,323 members in 2020 and 40,645 First Nations members voted in 2020 through OneFeather’s platform.

The disclosure of OneFeather’s case is aligned with The First Nations Principles of OACP (Ownership, control, access and possession), which establish how First Nations’ data and information will be collected, protected, used or shared.

Please click here to see Raven’s most recent Impact Report for more information.