L’ESG du point de vue de l’institutionnel : interview de Kristian Fok, Cbus - Le Magazine des Affaires

L’ESG du point de vue de l’institutionnel : interview de Kristian Fok, Cbus

Kristian Fok, Cbus

Kristian Fok, Cbus

Can you give us a brief overview of Cbus and its commitment to Infrastructure ?

Kristian Fok, Cbus : As Australia’s largest super fund for the building, construction and allied industries we proudly invest in the industries in which our members work creating jobs today and outstanding returns for their retirement tomorrow. As a long-term, patient investor of capital, infrastructure is an attractive asset class for Cbus and has been for more than 20 years. Historically our investments have been in unlisted infrastructure assets managed by third party managers in pooled infrastructure funds. Over the last few years we have made direct investments into a range of infrastructure assets including the Indiana Toll Road in the USA and two large seaports locally in New South Wales, Australia. Over the last few years, we have built capacity in our internal infrastructure team to increase access points for deploying capital in infrastructure through pooled fund investments, co-investments and direct investments. Our direct investment programme will provide opportunities to invest in Australian greenfield infrastructure projects, opportunistic Australian mid-market size brownfield transactions and global brownfield transactions with other large Australian and international institutional investors. Additionally we are able to leverage our experience and success with Cbus Property – a wholly owned subsidiary of Cbus – into infrastructure developments. Cbus Property’s returns have been outstanding – in the 2016/17 Financial year they returned 24.3% compared to an industry average of 12.05% – and since 2006 they have created more than 75,0001 direct jobs. Importantly, investing in infrastructure and being a long-term asset holder interested in improving the value of the assets we hold, provides a broader dividend to our whole economy and society.

Infrastructure PRI’s Infrastructure Advisory Committee was very active as regards ESG. Can you tell me more about your recent work?

K.F : The focus of the PRI IAC IS developing standard due diligence guidelines. This seeks to achieve baseline ESG requirements as part of the overall due diligence process during investment-decision making. Governance has always been a core component of infrastructure due diligence. The guidelines recognise the increasing importance of considering environmental and social factors such as the physical and transition risks of climate change, labour and human rights and material supply chain, which can be overlooked in short-sighted investment decisions. Responsible investment means taking a long-term perspective. As a responsible investor, we consider these factors important because infrastructure is a long-term asset class and we have to make long-term investment decisions to get it right.

ESG matters usually fall in the risk management category. But what about value creation?

K.F : For Cbus, ESG considerations are about value creation. We know that sustainable businesses deliver better outcomes and this benefits our members. Cbus believes that ESG issues are material investment matters and as such should be incorporated in all our investment considerations. We believe this will lead to better risk adjusted returns for members over the long term. For over a decade, Cbus has been at the forefront of encouraging companies to operate sustainably, transparently and with good corporate governance practices. At Cbus, we have a very good understanding of the benefits of ESG to create value through our direct property manager, Cbus Property. They are a leader in green commercial office buildings in Australia and have provided a significant financial contribution to our overall portfolio returns for nearly a decade. Value creation in infrastructure is an emerging opportunity. Some of the infrastructure assets in which we invest are leading this thinking and using ESG as a tool for innovation. Instead of asking, ‘how can I reduce costs in my supply chain?’, they are requesting their suppliers to reduce their carbon intensity of products by up to 50%, and in doing so, have also reduced supply chain costs by around 40%.

At your level, what tools do you use to measure the financial impact of ESG initiatives?

K.F : There are various tools to measure financial impacts of ESG initiatives but there is no one-size fit all for everything. The sheer diversity of asset types adds complexity to measurement. This area is still evolving and we continue to support and encourage standards, such as the Global Real Estate Sustainability Benchmark (GRESB), to enable benchmarking of infrastructure assets as we do in other unlisted assets classes, like property. Measurement is also an area of increasing importance for us to help demonstrate how we meet our fiduciary obligations. The important thing is to work together with our managers and raise awareness in measure impact because – as the saying goes – if it can’t be measured, it can’t be managed.

Do you think the Infrastructure sector could be used as a reference for Private Equity as a whole in relation to ESG best practices?

K.F : These are fundamentally quite different asset classes. Infrastructure assets are typically held for the long-term and they are impacted by long-term effects, like climate change, so managers need to think about the long-term, for instance, by making these assets more resilient to climate change. In Private Equity, companies are held for a relatively shorter term and then either divested or sold through listing on a public securities exchange, so managers don’t have to think of the long-term in the same way as in infrastructure. That said, there are elements that could apply across both such as a strong focus on governance, clear and transparent disclosure and an awareness of relevant ESG issues, such as labour relations or a company’s social licence to operate.

Could your ESG guidelines one day impair the ability of management companies to invest in the most profitable assets?

K.F : ESG guidelines should improve management’s ability to invest in profitable assets, but their profits should be sustainable. As a long-term investor, being aware of the impact of ESG related issues on a company or asset over a longer timeframe is an important consideration in our investment decision making process. We don’t want management companies to make short-sighted decisions. We want them to make smart decisions that stand the test of time. ESG is about being smart.

How do you see ESG evolving over say the next 5 years?

K.F : There will be a much larger focus on human rights and labour standards as we find ways to assess and measure social impacts. The climate change space will evolve rapidly. The sophistication with which we are able to measure transition and physical risks will increase in pace. Investment opportunities in this space will become scalable and standardised, with better risk adjusted returns. Material supply chain will also likely see a shift to the concept of a circular economy. An increasing global population and pressure on resources will drive us to consider how we can maximise the value of products that we already have produced through reuse. The expectation of society will drive us to be more transparent and accountable, not only for generating returns, but also to demonstrate how our investment choices contribute to the broader objectives of society and sustainable development.

This will see frameworks such as the UN Sustainable Development Goals become a common lens for considering the allocation of capital. Measurement will be a core part of bringing this together. As we have seen in France and other parts of European Union, regulation on ESG will increase as a requirement for investors and a key component of meeting fiduciary

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