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ESG Policy
Overview
NextEnergy Solar Fund Limited (“NESF”) (LEI: 213800ZPHCBDDSQH5447) is a listed solar investment fund, managed by NextEnergy Capital Group. NESF is currently active both in the acquisition of solar PV assets on the secondary market, as well as investing in solar PV assets that are under development (that is, at the stage of origination, project planning or construction) when acquired.
NESF’s investment strategy is focused on investing in solar energy infrastructure assets primarily located in the UK (both in the form of acquisitions on the secondary market and investments in new developments). Further information on NESF’s Investment Strategy can be found on the NESF website[1] and in the NESF annual report. [2]
Extent to which investments are environmentally sustainable
NESF considers that its investments substantially contribute to the environmental objective of climate change mitigation. NESF’s investment processes seek to avoid significant harm to other environmental objectives and NESF’s activities are carried out in compliance with other safeguards, such as human rights and international labour considerations, through compliance with UK national standards.
NESF’s integration of ESG factors, including its development activities, is currently driven by compliance with national and local UK environmental and planning regulation and solar industry best practice. However, NESF is in the process of integrating the Sustainable Investment Policy’s methodologies into the NESF investment decision-making processes, to further enhance and strengthen the existing consideration of ESG factors.
NESF has only engaged in one new secondary market acquisitions since the introduction of the Sustainable Investment Policy in September 2019 but has engaged in a range of development activities.
Sustainable investment objective
NESF is committed to supporting the UK governmental ambitions of bringing greenhouse gas emissions to net zero by 2050.
NESF currently invests in solar assets, and thereby seeks to substantially contribute to the environmental objective of climate change mitigation, within the meaning of the EU Taxonomy Regulation.[3]
No significant harm to sustainable investment objective
NESF is conscious that while investments in solar PV energy make a positive contribution to mitigate climate change, to ensure that such investments are sustainable, it is equally important that NESF avoids, to the extent possible, significant harm to other social and environmental objectives and factors and ensures that its investments are carried out in accordance with certain minimum safeguards. Other environmental objectives include climate change adaption, sustainable use and
protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.
Specifically, for economic activities in solar PV energy generation to be sustainable within the meaning of the EU Taxonomy Regulation, potential significant harms to other environmental objectives include potential impacts on ecosystems and biodiversity, potential increased negative effects on current and expected climate, and potential impacts from the production and end-of life management of the PV systems and its components.
NESF’s due-diligence and investment decision-making processes (guided by the planning application process in the UK) therefore seek to ensure that any risks of significant harms to other environmental objectives are avoided to the greatest extent possible (among other considerations, such as seeking to ensure its investments are carried out in accordance with other safeguards, relating in particular to human rights matters):
Protection and restoration of biodiversity and ecosystems: NESF has developed a Biodiversity Strategy that encompasses an ‘above and beyond’ approach to biodiversity, which is to be introduced on certain sites (known as Exemplar Sites). An Exemplar Site consists of site-specific measures to enhance the native flora and fauna situated near or on the solar farm. These sites have also had new biodiversity management plans developed to aid the management and promotion of a biodiversity net gain over the plant’s lifetime. More details are explained below and are also discussed on NESF’s website.[4]
A committed biodiversity budget is incorporated into the financial profile for each new investment.
Development Activities: The first stage of any development investment seeks to ensure that the location is suitable. Projects are only developed in areas where impacts on biodiversity and the community are either avoided or minimised. In accordance with national planning requirements, NESF conducts a comprehensive range of surveys to assess potential risks to the biodiversity and ecosystem of a given site, including ecology and habitat surveys. NESF, at the pre-planning stage, prepares an ecology masterplan and biodiversity proposal for the mitigation of any risks identified.
Identified impacts are mitigated during the development, design, construction and operation phases, through the implementation of planning conditions (as may imposed by the relevant local council) as well as additional biodiversity measures and contractual obligations identified during the due-diligence process. During this process, NESF uses national and local data sets, so as to identify and avoid sensitive areas and comply with UK government guidelines.
Mitigation measures to be implemented during the construction phase are detailed in a landscape and environmental management plan for the site, which forms the basis of the contractors’ work during construction and is subsequently adopted by the operational team post construction, for continued monitoring and management. All planning conditions imposed under the planning consent will form part of the contractors’ obligations.
Secondary-Market Acquisitions: For secondary market acquisitions, NESF considers whether planning consent was granted and thereby seeks to ensure that any risks to biodiversity and ecosystems were adequately considered in line with national regulation. Moreover, NESF ensures that mitigation measures previously identified in the planning process have been suitably implemented by the O&M Contractor and otherwise pass responsibility to Wise Energy for continued monitoring and management of any outstanding or newly identified mitigation measures.
Climate change adaption: In the context of development activities, NESF identifies climate-related risks, such as areas at risk of flooding according to the Environment Agency’s datasets, during the pre-investment phase. NESF seeks to avoid areas at risk of flooding or other extreme events and conducts modelling to ensure that the project design minimises any negative flood risk and include mitigation measures. All sites are designed using a 100-year flood protection to account for projected climate-induced risks. Depending on the potential risks identified during the due -diligence, a climate-related physical risk assessment for climate-induced risks other than flooding could be conducted during the pre-acquisition phase.
Transition to a circular economy: NESF has developed module framework agreements to identify and select reputable manufacturers with a proven track record of high-quality products that are manufactured for high durability, easy dismantling, refurbishment and recycling. Where possible, biodegradable or recyclable materials are sourced.
Other safeguards
Moreover, NESF ensures that NESF’s activities are carried out in compliance with other safeguards, relating in particular to human rights matters, guided by the United Nations Declaration of Human Rights. NESF works with counterparties to ensure that they abide by human rights related principles and may incorporate contractual protections into agreements with sellers and EPC Contractors, requiring confirmation of their respect of human rights matters, anti-slavery, anti-corruption and anti-bribery in the conduct of their business (among other factors). NESF is in the process of adopting NEC’s supplier due-diligence questionnaire to evaluate suppliers’ commitment and capacity to identify, manage and report on labour and human rights related risks.
Sustainability risks are identified and managed through a range of technical, legal and financial due-diligence, including surveys to determine the environmental and community impact of potential development activities, as well as the integration of social and human rights compliance obligations into contracts with counterparties. NESF is additionally informed by the Solar Trade Association’s ten commitments for solar farms[5] to help guide the considerations of relevant ESG risks and opportunities.
NESF conducts extensive due-diligence on any potential investment. The format and content of such due-diligence exercise varies depending on the type of the investment (i.e., whether it is a new development or a secondary market acquisition), the location of the site, the value thereof and the national and local legal and regulatory requirements.
Development Activities
For development investments in the UK, analyses are carried out on the proposed location for the asset and any impacts identified during that process is mitigated during the development, design, construction and operation phase through the implementation of planning conditions and any additional biodiversity measures deemed necessary.
In the context of proposed development activities, NESF commissions a range of surveys to assess the viability and suitability of the location and the project; these assessments include environmental impact assessments (within the meaning of the UK planning process and where applicable), flood risk assessments, land grading surveys, topographical surveys, tree surveys, archaeological surveys and heritage surveys, depending on the relevant site. Any results are submitted as part of the planning application and impacts (if any) are incorporated into the design and overall project proposal together with a landscaping and ecology masterplan which sets out the tailored biodiversity enhancement scheme for the site. Identified impacts are mitigated during the development, design, construction and operation, through the implementation of the planning conditions, additional biodiversity measures and community engagement, and contractual obligations by NESF. Where an impact cannot be mitigated appropriately, the investment does not go ahead.
Secondary-Market Acquisitions
In the context of an acquisition of an existing UK solar asset, a standard process is followed involving legal and compliance, technical, financial and tax due-diligence, carried out by relevant advisors to highlight any relevant corporate, property, planning, environmental or other related issues. Moreover, the investment team reviews the due-diligence carried out by the team and its advisors at the time of the site’s initial development.
Any due-diligence for secondary market acquisitions includes a review of whether planning permission was granted at the time of development and the extent to which any conditions to such planning (if applicable) have been implemented.
All NESF’s proposed secondary market acquisitions and matured development opportunities are presented to the investment committee, the investment manager and the NESF Board for approval. Any key risks identified during the due-diligence and screening processes are presented in a risk matrix, including, where relevant mitigation strategies. As mentioned, NESF is in the process of further enhancing these assessments through the integration of NEC’s sustainability framework into the NESF investment decision-making process.
Monitoring Sustainable Investment Objectives
NESF seeks to ensure that its investments continue to contribute to the objective of climate change mitigation throughout their lifetime.
Additionally, during the lifetime of an asset, NESF works with NEC’s asset management arm, Wise Energy to work on and monitor ESG factors such as GHG emission reduction associated with energy generation, biodiversity and land management, and community engagement:
(i) Biodiversity: Wise Energy manages various initiatives on behalf of NESF to improve the biodiversity across a range of UK sites. In this context, Wise engages and manages specialist consultants and monitor and analysis biodiversity annual surveys.
NESF works with NEC’s dedicated biodiversity team to ensure that land management and native fauna and flora are considered throughout the investment and ownership phases. A set of proven biodiversity solutions are included within planning-controlled site proposals. NESF has additionally consulted biodiversity specialist companies to design and implement bespoke and effective measures that develop, repair and connect local wildlife, habitats and ecosystems. At present, these measures have been implemented across a number of NESF’s sites and further roll-out is on-going.
Biodiversity enhancement: NEC, alongside Wise Energy, has developed a biodiversity strategy which includes site-specific measures to enhance the native flora and fauna situated near or on the relevant solar plan. Such sites (known as ‘Exemplar Sites’) will also have ‘Biodiversity Management Plans’ (BMPs) developed to aid in the management and promotion of a net gain in the biodiversity of a plant over the plant’s lifetime. Such measures are in place several sites in NESF’s portfolio, which have been identified as having met all planning conditions and where there is an active relationship with landowners.[6] NEC is in the process of establishing a mechanism to measure the impact of the BMPs annually.
Separately NESF and Wise Energy have developed the so-called ‘Universal Biodiversity Management Plan’, which will allow non-site-specific biodiversity measures to be introduced throughout the entirety of NESF’s portfolio over time. Each site may then also be subject to further, site-specific measures, all with the aim of achieving a net biodiversity gain across the portfolio through, for example, the installation of measures such as wildflower planting, bird/bat boxes and bug hotels.
(ii) Carbon emissions: Wise Energy provides NESF with the amount of electricity generated by the NESF portfolio annually. These figures are used to calculate the level of CO2e emissions avoided through renewable energy generation by the NEC ESG Team and the Green Investment Group.
NEC is additionally in the process of implementing further KPIs for Wise Energy to monitor during the lifetime of each of NESF’s assets. These will seek to be aligned with the European Union’s Sustainable Finance Disclosure Regulation [7] and the accompanying regulatory technical standards (once finalised and in force).
Community and stakeholder engagement form part of NESF’s investment strategy. Engagement with the community occurs pre-, during and post-planning consent having been obtained. For example, the Universal Biodiversity Management Plan, seeks to improve local community and stakeholder engagement and education on the benefits of transforming solar plants into ecosystem-friendly assets.
NESF additionally engages with local parishes and councils during the pre-acquisition phase to ensure the suitability of site proposals and, where possible, incorporates community feedback into the planning proposal. In the past, this has included changes to the specific land use (the loss of agricultural land due to land development), site design, landscaping strategy and its implementation. As an example of this, following consultation with the local community of an NESF site, land take was reduced, and a “green corridor” introduced to enhance and integrate the site within its natural setting. A community benefit fund is incorporated into the financial profile for each new investment.
More generally, NESF recognises the importance of maintaining a high standard of business conduct and a strong and constructive relationship with NESF’s key stakeholders to deliver its strategic objectives over time.
[1] See https://www.nextenergysolarfund.com/about-us/investment-objective/.
[2] See NESF Annual Report dated 31 March 2020. NESF’s annual reports are available on its website: https://www.nextenergysolarfund.com/investor-relations/.
[3] Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088, OJ L 198, 22.6.2020, p. 13-42.
[4] See https://www.nextenergysolarfund.com/esg/sustainable-investing/biodiversity/
[5] Solar Trade Association, Solar Farms: 10 Commitments. Available at: https://www.solar-trade.org.uk/wp-content/uploads/2015/03/STA-Revised-1… (Last accessed 05 March 2021).
[6] A list of sites affected can be found in NESF’s Annual Report on p.41. As at March 2020, five sites had these measures implemented and a further three sites were subject to implementation throughout 2021.
[7] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector, OJ L 317, 9.12.2019, p.1-16.
