Doric Nimrod Air Three | ESG

DORIC NIMROD AIR THREE LIMITED

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

The Board recognises that Responsible Investment and the associated ESG considerations can have a significant impact on investment activity in terms of raising funds, identifying investment opportunities and long-term value creation for Shareholders. This report sets out our policy and approach to ensuring that the level of engagement on ESG matters is commensurate to the size, nature and complexity of the business.

This policy seeks to address ESG matters on two levels; firstly, with regard to the Company itself and secondly, in relation to the Assets which the Group owns. The direct and practical management of the Company seeks to uphold ESG standards where possible and applicable. This is greatly influenced by the nature of the Group’s activities and the legal structure of the associated leases.

The Company

The Company is a self-managed Guernsey company incorporated on 29 March 2012. Its shares were admitted to trading on the SFS of the London Stock Exchange’s Main Market on 2 July 2013.

The Company is under the control of its Board of Directors on behalf of Shareholders. All Directors are independent and non-executive. The Board are responsible for reviewing the business affairs of the Company in accordance with the Articles and have overall responsibility for the Company’s activities including all business decisions, review of performance and authorisation of distributions.

The Company has delegated the following activities to its appointed service providers;

• Asset Management – Amedeo
• Liaison Agents – Amedeo Services (UK) Limited
• Corporate and Shareholder Adviser – Nimrod
• Secretary and Administrator – JTC
• Registrar – JTC Registrars Limited (formerly Anson Registrars Limited)

The Company has no executive directors or employees and no physical office premises. The Company’s business is carried out in a series of meetings held in the offices of its administrator JTC, in Guernsey, the Company’s place of incorporation.

Subject to any travel restrictions imposed, the Directors are required to travel in the fulfilment of their duties. Where circumstances allow, travel is kept to a minimum. The Directors are required to travel to Guernsey on at least a quarterly basis for Board and other committee meetings, and to the UK to visit Shareholders and service providers as and when required. Regular dialogue with the Asset Lessee is maintained via the Asset Manager.

The Company consequently has a limited physical footprint and therefore its environmental impact is considered to be low.

The Modern Slavery Act

Due to the nature of the Company’s business, being a company that does not offer goods or services to customers, the Board considers there are no relevant disclosures with regard to modern slavery in relation to the Company’s own operations. The Board considers the Company’s supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in this regard.

The Assets

The principal activity of the Company is to acquire, lease and then sell aircraft. The Company has a wholly-owned subsidiary, DNA Alpha (together the “Group”). The Group owns four Airbus A380 aircraft which are leased for twelve years to Emirates (the “Lessee”), the national carrier owned by The Investment Corporation of Dubai based in Dubai, United Arab Emirates.

The Group’s own operational influence in the fields of climate change, air quality, and resource efficiency is minimal. The nature of the lease with the Lessee means that control over the usage of the Asset rests with the Lessee. The Group has leased the Assets for a term of twelve years, with fixed lease rentals for the duration, to the Lessee. The Lessee bears all costs (including for maintenance, repairs and insurance) relating to the aircraft during the lifetime of the lease. This would include any modifications or modernisations related to ESG requirements as mandated by regulatory agencies. However, in all other respects, the influence of the Group over the Lessee with regard to voluntary ESG concerns is limited due to existing quiet enjoyment arrangements between the Group and the Lessee.

The Airbus A380 is the world’s largest commercial passenger aircraft. It is the first and only aircraft with two full-length passenger decks, giving it a maximum capacity of up to 853 passengers. In a typical three-class configuration (First, Business and Economy Class), the Airbus A380 has capacity for approximately 525 passengers. Additionally, developments with respect to the aircraft’s aerodynamics, control elements and flight systems, coupled with the use of advanced, lightweight composite materials make the A380 an attractive and efficient aircraft. In comparison with other modern long-range passenger aircraft of the same category (the so-called Very Large Aircraft segment), the Airbus A380 consumes less fuel per passenger, using approx. three litres of kerosene per 100 passenger kilometers, when equipped with Engine Alliance engines. Furthermore, the A380 offers an efficient way to capture traffic at the most concentrated airports and times by giving airlines the ability to consolidate routes, thereby increasing seat capacity while creating economies of scale.

The most critical environmental issue related to aircraft operations is greenhouse gas (“GHG”) emissions generated from fossil energy consumption. Air transportation is one of the most energy and carbon dioxide intensive modes of transport, whether measured per passenger kilometer or per hour in transit. According to the United Nations’ Intergovernmental Panel on Climate Change (“IPCC”), the aviation industry currently produces approx. 2 - 2.5 per cent of all carbon dioxide emissions and is forecast to increase its share of global man-made carbon dioxide emissions to approx. 3 per cent by 2050 given the rapid growth of aviation in recent years.

The Aviation Industry

Despite aviation’s important role in local and global economic development, the aviation industry faces the challenge of meeting long term strong growth in passenger demand while simultaneously reducing its environmental impacts. In addition to GHG emissions, these environmental impacts could also include noise and nuisance, as well as water pollution (due to aircraft de-icing, cleaning, and other chemical-heavy aircraft operations).

To address these growing environmental concerns, IATA has defined environmental goals, namely:

1. to improve fuel efficiency by 1.5 per cent per annum by 2020;
2. to cap emissions from aviation at the 2020 levels through carbon dioxide-neutral growth; and
3. to reduce net carbon dioxide emissions from aviation by 50 per cent by 2050, relative to 2005 figures.

In pursuit of these goals, IATA has defined a strategy based on a four-pillar approach:

1. improved technology, including sustainable low-carbon dioxide fuels;
2. more efficient aircraft operations;
3. infrastructure improvements, including air traffic management systems; and
4. a single global market-based measure, to fill the remaining emissions gap.

Further information can be found on the IATA website: https://www.iata.org/en/policy/environment/.

There are a number of technological developments in the aviation industry aimed at both increasing aircraft efficiency and reducing carbon dioxide emissions. Some developments, such as drop-in power fuels like biofuels that can be used in today's aircraft and engines without modification, are already commercially available and are expected to increase in prominence once initial costs can be reduced through scale. Evolutionary concepts, such as the second-generation geared turbo fan engine could become widely commercially available in the medium-term. Revolutionary concepts, such as piston compressors, steam injection and electric propulsion, represent the greatest potential improvements, but will most likely not be commercially available until the 2050s, based on current forecasts.

As these technological developments progress, the aviation industry is taking additional measures to curb its environmental impact while maintaining its commitment to local and global economic development. Initiatives, such as the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), as established by the International Civil Aviation Organization (“ICAO”) in October 2016, aim to offset airline carbon dioxide emissions and allow for carbon dioxide-neutral growth from 2020. Additionally, the aviation industry is able to participate in other carbon dioxide emissions trading markets, such as the European Union Emission Trading Scheme (“EU ETS”).

Furthermore, a number of states currently levy passenger taxes on air tickets over and above infrastructure charges and there are a number of proposals for additional environmental taxes to be imposed on the aviation industry. However, as IATA notes, the income generated from an environmental tax is usually seen as general revenue by governments, thus it can be used to fund any variety of public sector programs and initiatives. As such, IATA takes the position that, while the overall goal of an environmental tax is laudable, it has distortionary effects on jobs and the economy, while at the same time not effectively incentivising the development or use of newer and greener technology. The effects of any newly introduced environmental taxes on the aviation industry will have to be monitored. The aviation industry plays a critical role in local and global economic development, contributing to approx. 72 million jobs worldwide according to IATA estimates for 2020.

ICAO have used the United Nations’ Sustainable Development Goals (“SDG”) as a basis to identify the contributions the aviation industry is making to sustainable development. For further information and the full working paper on aviation’s contributions towards the United Nations’ 2030 agenda for sustainable development from ICAO’s 40th session please refer to the ICAO website: https://www.icao.int/Meetings/A40/Documents/WP/wp_189_en.pdf

Concerning the role of aircraft in sustainable development, aircraft Assets are likely to contribute to at least five of the SDG. Specifically, airlines are able to utilize aircraft in a manner consistent with the achievement of the following targets:

1. SDG 5: Aviation is working to achieve gender balance across the sector. In Europe, aviation is the most gender-balanced of all transport modes with 41 per cent female employees. More work is still needed to encourage balance in technical and executive roles;
2. SDG 8.1: Devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products;
3. SDG 9.1: Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human wellbeing, with a focus on affordable and equitable access for all;
4. SDG 12.2: Achieve sustainable management and efficient use of natural resources productions; and
5. SDG 13: Invest in the transition to net-zero carbon dioxide energy, energy efficiency and the reduction of GHG emissions from transport operations.

Detailed information on the SDG can be found on the United Nations website: https://sustainabledevelopment.un.org/.

Emirates, the Lessee, is committed to efforts to reduce resource consumption while also investing in wildlife conservation and protection. This includes participation in CORSIA as well as internal initiatives.

For further information on Emirates’ environmental policy and initiatives, please visit the Emirates website where annual environmental reports are also available:

https://www.emirates.com/english/about-us/our-planet/

In the context of the Assets and the associated lease, the Board are committed to responsible decision making throughout the lifecycle of the Group. The Board is in continuous dialogue with its service providers and regularly reviews processes to guarantee transparency and accountability. The Board will continue to monitor the sustainability efforts of the industry and the Lessee and keep Shareholders abreast of developments.