VH Global Energy Infrastructure | ESG

Investment Objective

The Company’s investment objective is to generate stable returns, principally in the form of income distributions, by investing in a diversified portfolio of global sustainable energy infrastructure. This deployment will occur predominantly in countries that are members of the EU, OECD, OECD Key Partner countries or OECD Accession countries. The Company’s investments in sustainable energy infrastructure seek to make an impact by supporting the attainment and pursuit of key SDGs where energy and energy infrastructure investments are a direct contributor to the acceleration of the energy transition (the “Sustainability Objective”).

Investment Policy for achieving the Company’s Sustainability Objective

The Company’s investments in sustainable energy infrastructure must be investments in sustainable energy infrastructure that support the attainment and pursuit of the Sustainable Development Goals (SDGs) where energy and energy infrastructure investments are a direct contributor and contribute to the acceleration of the energy transition; and investments that can be categorised into one or more of the four “Investment Pathways” that guide the Company’s investment strategy. These Investment Pathways are: 

•     Addressing Climate Change
•     Energy Access
•     Energy Efficiency 
•     Market Liberalisation.

Investment Universe

The Company’s investments must fall into one or a combination of the following categories (the “Investment Universe”) that support the energy transition and combating climate change and air pollution: 

• power, heat and green gas producing assets reliant on, but not limited to, wind, solar, biomass, natural gas and hydropower technologies; 
• production and refinement of fuels derived from biomass sources if they meet the carbon intensity requirements;   
• energy storage infrastructure such as containment and non-processing facilities for liquid and gas fuel sources, power storage utilising battery or gravity-based technologies; energy transportation infrastructure such as pipelines, interconnectors and micro-distribution grids; 
• distributed energy sources (heat, power, gas & steam) which are produced close to where it will be used, rather than at a large, centralised plant elsewhere, delivered through a centralised grid infrastructure; and/or 
• equipment that is installed at the premises or on site, directly connected to the premises including but not limited to combined heat and power (CHP) units, combined cooling, heat, and power (CCHP) plant schemes, HVAC units, lighting equipment, biomass boilers and steam raising boilers (including IP steam processors), in each case, either already operating or in construction.

The Investment Universe is updated on a periodic basis to ensure the capture of new or emergent technologies fitting into one of the asset classes in the Investment Universe, once they have established a verifiable proven status.

All (100%) of the investments entered into by the Fund must be aligned with the Sustainability Objective. No investments will be made in extraction projects for fossil fuels or minerals

The SDGs are the blueprint for the Company’s sustainability-focused investment strategy. The 17 SDGs were adopted by all UN Member States in 2015, and together they address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. The 17 SDGs are all interconnected, and the UN Member States committed in 2015 to “leave no-one behind” and implement fully the 2030 Agenda for Sustainable Development. (source: The United Nations Website).

According to the International Energy Agency (the “IEA”), the SDGs that are directly impacted by energy are: the achievement of universal access to energy (SDG 7), the reduction of the severe health impacts of air pollution (part of SDG 3) and tackling climate change (SDG 13). The IEA’s Sustainable Development Scenario provides a pathway for a major transformation of the global energy system, showing how the world can deliver on these three SDGs simultaneously.

Three further SDGs have been identified by the Investment Manager, Victory Hill Capital Partners LLP ("Victory Hill"), as they relate to capital investment in infrastructure. These are related to the promotion of decent working environments and economic growth, industry, innovation and infrastructure as well as partnerships (SDGs 8, 9, 17).

Together, these targets translate to the need for the global community to invest its attention, talent, and resources to help solve the challenge posed by sustainability. A keyway to achieve this, is to harness private capital participation with the support of public policy.

Victory Hill starts with sustainability and then looks for investments.

• Each investment is assessed and scored against the Investment Manager's 6 core SDGs and Investment Pathways (as highlighted above).
• Once independently verified, the investment will be assessed for any material breach of any of the other 11 SDGs.
• Both of these stages are conducted by an independent impact consultant, and only once they have been verified that the investment team proceeds with the investment.

How ENRG’s investments will achieve the Sustainability Objective

Vision and Outcome

Climate change and air pollution are the environmental issues the Company’s investments aim to impact.

The Company seeks to achieve this by investing in a diversified portfolio of global sustainable energy infrastructure assets that support the attainment and pursuit of the SDGs where energy and energy infrastructure investments are a direct contributor and contribute to the acceleration of the energy transition.

Investment beliefs 

The world is in energy transition and there are supportive regulatory frameworks and market demand for clean, low carbon and renewable energy which enables access to capital for the Company to deploy into sustainable energy infrastructure assets. 

Global energy demand is growing with electricity and electrification to play an increasingly important role.

Renewable sources of energy, led by solar and wind technologies, are more cost effective, and specifically the power sector can expect increasing supply to stem from renewable sources, ending a dominance of fossil fuels.

Impact

The desired change and impact on combatting climate change and air pollution (the “Impact”) is expected to be achieved by the Company’s investment in, and management of, sustainable energy infrastructure assets that support reduction or displacement of air emissions from conventional energy sources.

The Investment Universe comprises asset categories that have been pre-identified as having a positive impact on combatting climate change and air pollution by directly contributing to the acceleration of the energy transition, and therefore an investment in any such asset is expected to enable the Company to achieve its Sustainability Objective.

The asset categories in the Investment Universe have been chosen as they directly contribute to the acceleration of the energy transition, and therefore support the reduction or displacement of air emissions. The Investment Universe will be reviewed and updated periodically with emergent technologies and regulations.

If a potential investment does not fall within the Investment Universe, then the Company will not make such investment. Assessing assets under this framework supports driving the Impact. 

Victory Hill also manages the Company’s sustainable energy infrastructure assets through its engagement and stewardship activities with asset operators. This includes monitoring asset operators’ compliance with their contractual arrangements with ENRG. On an ongoing basis, Victory Hill collects performance data in relation to KPIs (defined below) and certain other performance metrics from the asset operators (monthly) and has regular (bi-weekly/monthly) calls with operating partners to track progress against such KPIs (defined below) and performance metrics. These engagement and stewardship activities enable Victory Hill to support the Company’s achievement of the Sustainability Objective and delivery of the Impact.   

Impact Measurement

Once the Company is invested in an asset, its performance against the Sustainability Objective is measured through monthly data collection directly from the asset operator and disclosed externally annually using the following key performance indicators (“KPIs”). All infrastructure assets have defined performance criteria. A substantial part of the portfolio consists of construction assets, acknowledging that the energy transition necessitates both new and replacement energy generation capacity. The portfolio's inclusion of construction assets creates an additive effect, where each asset contributes incrementally to the overall growth and value, amplifying the portfolio's total impact. Baseline KPIs are calculated annually and updated to reflect new acquisitions and completed construction projects.

Victory Hill has a dedicated data management team responsible for maintaining data infrastructure to house ENRG quantitative data, collection and analysis. Data in relation to KPIs are collected monthly directly from the asset operating partner. The KPIs are tracked by the portfolio risk and valuation committee quarterly. The KPI data is also verified through a third party limited assurance engagement annually to International Standard on Assurance Engagements assurance standards. 

Additionally, emissions impact of energy generation assets is calculated using life cycle assessment (“LCA”). This looks at all embodied emissions from raw material extraction, manufacturing and transportation, installation, operation and maintenance to end of life disposal and recycling. LCA provides a full picture of an asset’s environmental impact and enables quantification of how renewable assets reduce GHG emissions over their lifetime in comparison to conventional energy generation, demonstrating their net benefits.

The life cycle-embodied-emissions are updated annually based on the asset’s performance data. Each asset has expected generation/fuel flow thresholds, and performance against this is part of the annual assessment of the operator’s and the asset’s performance, which demonstrates the Company’s and individual asset’s progress to achieving the Impact and therefore the Sustainability Objective. 

The Company publishes other metrics to assess the performance of the portfolio beyond achieving the Sustainability Objective in the Annual Report, and such metrics are audited annually under a limited assurance engagement.

Victory Hill’s approach to managing the Company's energy infrastructure assets is focussed on meeting the Sustainability Objective, driving continuous improvement and creating sustainable value and impact. 

ENRG intends to hold investments until the end of asset life, typically over 25 years depending on technology and asset type. As such, ENRG takes a long term and life cycle view of asset management. 

Victory Hill’s asset management activities are focussed on both value preservation and long-term sustainable value creation and optimisation, reflecting investors’ long-term investment horizon. Responsible investment practices and comprehensive consideration of environmental, social and governance (“ESG”) factors at all stages of the investment life cycle are important aspects of this long-term approach. ESG issues present opportunities as well as risks and are therefore integrated into both value preservation and value creation initiatives

ENRG’s asset programmes are managed by third party operators through an operating agreement which includes requirements for meeting fund sustainability criteria and drive impact. Specific actions can include enhancing corporate governance and improving environmental performance of its operator partners through direct engagement, and, if required, implementing escalation measures. To achieve this, Victory Hill incorporates international standards such as the UN principles of Responsible Investment, UN Global Compact Principles and the UK Stewardship Code in its investment management approach. The sustainability criteria for assets and their operators require alignment with universal principles of human rights, environment and anti-corruption. More detail is available in Victory Hill's sustainability policy and stewardship reports in the above links. 

On an ongoing basis, Victory Hill collects performance data in relation to the KPIs and certain other performance metrics from the asset operating partners (monthly) and has regular (bi-weekly/monthly calls) with operating partners to track progress against KPIs and other performance metrics.  

Victory Hill’s also agrees a sustainability action plan with operators annually with implementation monitored. This enables Victory Hill to track performance and progress, and take appropriate action in accordance with its escalation plan. For example, the AIFM monitors and evaluates asset operating partners’ performance through the metrics, which include the KPIs. This enables Victory Hill to assess the appropriate stewardship action it should take to ensure that asset operating partners’ performance either improves or continues to be aligned with the Sustainability Objective. Stewardship actions enable Victory Hill to provide operational sustainability impact, as well as assisting ENRG in achieving the Sustainability Objective. 

The sustainable energy assets are managed by third party operators, which Victory Hill monitors through the relevant operating agreements with such operators. Such operating agreements outline the relevant operator's obligations to adhere to Victory Hill's requirements and ENRG’s Sustainability Objective mandate, including regular provision of ESG reports and ongoing commitment to sustainability objectives. As part of this agreement, Victory Hill engages with each asset operator on an agreed annual sustainability action plan. Engagement and actions depend on the maturity of operating partners’ internal governance frameworks and the stage of construction and/or operation. The purpose of this process is to ensure the Sustainability Objective is achieved.

 Victory Hill has established processes to monitor the performance of each asset and its operator to ensure alignment with strategic and operational objectives, as well as escalation procedures for assets that underperform. In cases where performance deviates from expectations on the Sustainability Objective and KPIs, the investment team of Victory Hill takes the lead on investigating the cause of underperformance. This may lead to a remediation plan for the asset with escalating actions that can range from more frequent engagement, additional capital expenditure, performance related operator penalties, operating agreement termination, to divestment of the asset.

Engagement with operators to discuss remediation and improvements is Victory Hill’s preferred action. Developing strong partnerships with operators is an important facet of the investment programme. A defined process has been developed by Victory Hill, should issues require escalation.

VH Global Energy Infrastructure was awarded the Green Economy Mark once it had listed on the Main Market of London Stock Exchange.

The LSE’s Green Economy classification identifies those companies and funds listed on the Main Market and AIM that generate between 50% and 100% of total annual revenues from products and services that contribute to the global green economy.

The 50%+ threshold for the Mark recognises businesses who have a material revenue contribution from the Green Economy. In this way it includes but also looks beyond ‘pure-play’ green or clean technology companies to highlight those of all sizes, across all industries, driving the transition to a sustainable, low carbon economy.

Victory Hill is committed to responsible investing and incorporates best practice approaches at all stages of the investment lifecycle. We believe that our responsible investment practices represent an important part of our fiduciary responsibilities and our ability to deliver attractive risk-adjusted returns over the long term.

Victory Hill’s asset management activities are focussed around both value preservation and sustainable value creation, reflecting our investors’ long-term investment horizon. Responsible investment practices and comprehensive consideration of ESG factors at all stages of the investment lifecycle are a critical aspect of this long-term approach. ESG issues present opportunities as well as risks and are therefore integrated into both value preservation and value creation initiatives.

Victory Hill recognises that the infrastructure investments we make and manage on behalf of our clients can have a material impact on the environment and the societies and stakeholders associated with those assets. We are committed to conducting our business in a manner that protects the environment, health and safety of our employees, customers and the international communities in which we operate. We operate on the principle that we can make quality business decisions while conserving and enhancing resources for future generations.

Victory Hill Capital Partners LLP ("Victory Hill") is authorised and regulated by the Financial Conduct Authority (FRN 961570).                   

Victory Hill is based in London and was founded in May 2020 by an experienced team of energy financiers that spun-out of a large established global project finance banking group. The team has participated in more than $200bn in transaction values across 91 conventional and renewable energy-related transactions in over 30 jurisdictions worldwide. 

The Victory Hill team deploys its experience across different financial disciplines in order to assess investments holistically from multiple points of view. The firm pursues operational stability and well-designed corporate governance to generate sustainable positive returns for investors. It focuses on supporting and accelerating the energy transition and the attainment of the UN sustainable development goals.

Victory Hill is a signatory of the United Nations Principles for Responsible Investing (UN PRI), the United Nations Global Compact (UN GC), Net Zero Asset Managers Initiative (NZAMI), a member of the Global Impact Investing Network (GIIN) and is a formal supporter of the Financial Stability Board's Task-Force on Climate-related Disclosures (TCFD).

More information on the investment advisor can be found here: www.victory-hill.com

https://www.globalenergyinfrastructure.co.uk/disclaimer