Environmental, Social, & Corporate Governance
This Environmental, Social, and Corporate Governance policy sets out the principles that guide ETIC when making renewable energy investments, and subsequently overseeing those investments until the time when they are divested
Values / Vision / Mission
ETIC is an investment advisory firm incorporated in France focusing on renewable energy investments in Europe. The founding partners share a common vision of being a leader in the energy transition and helping accelerate the deployment of renewable energy in developed markets. The founders share four core values which form the foundation for everything that ETIC intends to achieve. These are: Commitment, integrity, transparency, and unity of Purpose.
ETIC’s Vision is that by 2030:
- Most investment capital is redirected towards a sustainable and inclusive economy
- Renewable energy overtakes fossil fuel as the most competitively priced source of power
- The energy transition prevails in the fight against global warming
Based on the core Values and with the aim of achieving the Vision, ETIC’s Mission is described as follows:
- Provide innovative financing solutions to renewable energy independent power producers
- Deploy capital efficiently by an optimal balance between annual distributions and equity multiple at exit
- Invest in renewable projects using both minority and majority preferred equity approach
Whatever the role within the Company, individual and collective behaviour makes a statement about ETIC and its values. Staff are ambassadors and are expected to be exemplary in their conduct. Core values should be reflected in every action that is undertaken
The disclosure or SFDR Regulation
ETIC is committed to respecting the European “Disclosure” Regulation No 2019/2088 of the European Parliament and of the Council of November, 27th 2019 on sustainability-related disclosure in the financial services sector.
Energy Transition Europe fund is classified “Article 9” under the new European Disclosure Regulation.
In the context of sustainability risks and the application of Environmental, Social and Governance principles, ETIC aims to achieve greater transparency, both in qualitative and quantitative terms, with regard to the remuneration policy applicable to its employees
ETIC places great emphasis on promoting a safe and healthy work environment, one that favours diversity and equality, enables Staff to achieve a proper life balance, and one that is free from conflict of interest and any form of harassment.
The goal is to provide all Staff with a favourable environment where individual talent and creativity can be used effectively in the pursuit of corporate objectives.
ETIC believes in the adage “doing well by doing good”. The premise behind shared value creation is that the competitiveness of a firm and the prosperity of all stakeholders are mutually dependant. Or in other words, by being responsible in the way in which value is shared, overall value of the firm will be enhanced. It is a relatively new concept but one in which ETIC has placed a strong belief.
Value created by ETIC will be shared in four main ways. Firstly, ETIC aims to deliver returns to investors that equal or exceed that which was promised. Secondly, ETIC aims to create value for its shareholders through increasing enterprise valuation over time. Thirdly, ETIC aims to provide competitive remuneration to its Staff, and offer the ability to share in the long-term value creation ofo ETIC through shares in a mutual fund
ESG and Financial Performance
ETIC neither develops projects nor funds the development of projects. ETIC’s primary role is therefore to screen for ESG issues during initial due diligence, oversee carefully ESG management during construction and commissioning, and report faithfully to investors on all ESG matters throughout the life of these investments.
As an investment advisory firm, ETIC intends to manage power portfolios with the aim of generating long-term risk-adjusted returns that meet or exceed target return promised to investors. Portfolio performance can be impacted both positively and negatively by ESG factors. ETIC believes that (i) “protection of the environmental and a fundamental respect for all human beings provide the essential guarantees for the sustainability of new projects, and (ii) “every person deserves the chance to live a healthy and productive life”.
ETIC has a real desire to make a positive difference in the world. Helping increase the deployment of renewable energy globally is a high ideal and will contribute towards the reduction in greenhouse gases. But even beyond these specific investment-related positive impacts, ETIC will always consider the needs of the populations in the areas surrounding investee companies. This will be done by eliminating or mitigating potential negative impacts. This approach is also one of the best ways to ensure financial sustainability for investors.
Stewardship
ETIC commits to its investors that it will take all necessary steps to ensure that renewable energy projects are developed, built, and operated in a manner that is socially responsible and reflects sound environmental management practices.
ETIC recognize the importance of climate change, biodiversity, and human rights, and believes that any negative impacts on project-affected ecosystems and communities should be avoided where possible. Where these impacts are unavoidable, they should be assessed in a careful manner with the goal of minimising and or off-setting them.
As an investment advisor, ETIC is afforded an unequalled opportunity to promote responsible environmental and social management and the protection of human rights. This can be achieved by undertaking thorough evaluation and due diligence and through the monitoring of assets in its portfolios in accordance with the principles and procedures set forth in this policy.
Stakeholders
Renewable Energy project stakeholders include (i) the signatories of key project contracts and financing documentation, and (ii) all persons that are not contractually part of the project but who are impacted in some way by the project.
- Contractual Parties – This could include inter alia (i) a sovereign Government, (ii) the off-taker, which could be the State and/or a State entity, or alternatively a private company, (ii) the sponsors (i.e. developer of the project), (iii) investors, (iv) the engineering, procurement, and construction (“EPC”) contractor, (v) the operations and maintenance (“O&M”) contractor, and (vi) the financing parties.
- Non-Contracting Parties – This could include inter alia (i) regional and local Governments, (ii) local communities (usually represented by persons chosen specifically for the task or by village chiefs and elders), and (iii) non-governmental organisations (“NGO”) that may have a long-standing involvement in the area near the project site such as environmental protection, improvement in social welfare, or preservation of cultural heritage.
ETIC considers it important for every sponsor and investee company to have established appropriate relations with all project stakeholders, whether contracting parties or non-contracting parties. ETIC investment directors will assess the quality of these relationships during the pre-investment due diligence phase, and any perceived shortcomings will be reported to the project sponsor and to the Project Committee. Attention will be given to addressing any issues prior to making an investment.
Focus Areas
In dealing with project stakeholders, ETIC has found through experience that there are six broad areas that will systematically rise to the forefront and receive careful attention both during the project due diligence phase as well as during the construction and operations phases. ETIC’s Investment Guidelines provide specific actions that must be taken to ensure that issues are cleared or otherwise satisfactorily mitigated. In the case of the latter, residual issues will be closely monitored and included in reporting requirements.
- Environment – The project company and key stakeholders must comply with applicable local laws and international standards regarding assessment and mitigation of environmental impacts created by the project. In addition, where there is associated infrastructure (e.g. roads or transmission lines which may be built by the off-taker but not financed within the scope of the project), ETIC will also ensure that full compliance with environmental laws and related international standards has been achieved.
- Human Rights – The project company and key stakeholders must respect human rights as enshrined in the Universal Declaration on Human Rights (the UDHR Declaration”). Projects must take steps to ensure that operations do not have negative human rights impacts on community members and workers. All attempts will be made to mitigate and remediate any adverse impact that might occur.
- Labour Rights – The project company and key stakeholders will ensure that operations conform to applicable labour law and the ILO Declaration on Fundamental Principles and Rights at Work (the “ILO Declaration”).
ESG Policies
Stakeholders
ETIC will use a fact and risk-based approach in assessing how to integrate ESG concerns into the assessment process for potential investments. ESG concerns and responses to these may hinge on a variety of factors, including geography, investment stage, governance/control, and many other situation-specific considerations. Expectations with regards to the standard of care for addressing these concerns are set out within the ETIC Investment Procedures and will form part of the decision-making process used by the Project Committee.
The result is that all relevant factors and corrective or mitigating actions will be considered in the context of each particular investment. With respect to international standards, the baseline for investments in non-OECD countries would include the Equator Principles and the IFC Performance Standards. Many of the well-known regional development banks also have their own internal system for managing environmental and social risks, and where these institutions provide debt financing, their systems may be used by ETIC as baselines. This could include, for example: The African Development Bank’s “Integrated Safeguards System”; the Asian Development Bank’s “Environmentally Sustainable Growth Policy”; and the Inter-American Development Bank’s “Environmental and Social Policy”.
Investment Phase
Project development that properly address environmental and social issues and that is carried out in full compliance with local laws and in accordance with international best practice stands the greatest chance of achieving success. On the other hand, failure to abide by local law and to follow international best practices can result in irreparable consequences which may only become apparent after a project is in the construction or operation phase.
Project development that properly address environmental and social issues and that is carried out in full compliance with local laws and in accordance with international best practice stands the greatest chance of achieving success. On the other hand, failure to abide by local law and to follow international best practices can result in irreparable consequences which may only become apparent after a project is in the construction or operation phase.
Clearly, ESG factors form an essential part of the risk-return analysis of any investment. ETIC approaches this issue through a two-pronged approach. Firstly, ETIC will only partner with the most reputable developers that have ESG policies and procedures that are consistent with those of ETIC. In all cases, the Shareholder’s Agreement signed with the project Sponsor will contain ESG prescriptions and reporting obligations.
Secondly, ETIC will assess ESG factors during the due diligence phase for each potential investment. ETIC investment staff are fully experienced and capable of identifying the risk signals of underlying ESG problems that may only manifest themselves during the construction and/or operations phases. The Investment Procedures provide guidelines on reporting these to the Project Committee and necessary investigation will be carried out in view of implementing mitigating measures.
Asset Management Phase
ETIC commits to its investors that it will report consistently and in full transparency on 5 key indicators for each investee company. These indicators are:
- New Connections – ETIC mainly invests in projects that generate sustainable, reliable, and affordable electricity. If applicable, ETIC will monitor and report on the number of new connects that are enabled through the investment.
- Greenhous Gas (“GHG”) Reductions – By its very nature, renewable energy systems help reduce atmospheric emissions that contribute to climate change. ETIC will monitor and report on the annual reduction in CO2 emissions (tonnes C02 per year).
- Health, Safety, Environment, and Security (“HSES”) – Safety is the operational priority and the goal is to make safety an integral part of the culture in every investee company. ETIC will monitor and report on the implementation of HSES procedures and measures aimed at protecting the environment and upholding an exemplary conduct that will ensure the project will remain a valued member of the local community.
- Corporate Social Responsibility (“CSR”) – ETIC will encourage sponsor and investee companies to provide initial and ongoing training to its staff and will monitor and report on such initiatives. ETIC will also report on the amount of CSR spending as a percentage of sponsor or investee company net profit.
- Corporate Governance – This refers to alignment of sponsor and investee company ethics policy with that of ETIC’s policy. It also includes implementation of compliance training by the sponsor. ETIC will strive to be a catalyst for good governance in all of its partnership arrangements and at the level of each investment and will report on these matters.