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Digging deeper on sustainability

ESG Report 2019

1DIF ESG Report 2019 Contents

Contents

Foreword 2

2018 summary 4

Our alignment to the SDGs 6

01: ESG integration 10

A philosophy to combine quantitative and qualitative factors 13

The DIF ESG path 14

The DIF difference 15

Managing climate risk 15

Reporting on safety in our ESG integration 17

Global snapshot 18

02: Active Ownership 20

2.1: Governance 22

2.2: Safety 24

2.3: Environment 28

2.4: Human capital & community 30

2.5: Climate resilience 32

03: ESG in our corporate culture 34

04: Looking ahead 38

About us

DIF is a leading independent fund management company, founded in 2005.

DIF invests in a wide range of international, high-quality infrastructure projects that generate stable, long-term cash-flows. We currently manage around €5.6 billion of assets across seven investment funds. To date we have invested in and managed over 200 infrastructure and renewable energy projects, with a total asset value in the tens of billion euros.

DIF has a team of 125+ professionals, spread across offices in Amsterdam (Schiphol), Frankfurt, London, Luxembourg, Madrid, Santiago, Sydney and Toronto.

About this report

This is DIF’s second stand-alone responsible investment report. Responsible infrastructure investment is a complex arena and we recognise that we are in the early stages of a challenging journey when it comes to making our investment portfolio truly sustainable.

We trust this report offers insights into our approach to responsible investment, provides specific details of how we are assessing the ESG performance of our assets and expresses our commitment to deliver sustainable returns through access to high-quality infrastructure assets.

This report covers DIF as a company, including our funds under management, and applies to the calendar year 2018.

We would very much welcome feedback from all stakeholders via Frank Siblesz: [email protected] to help us on our journey of continuous improvement.

3DIF ESG Report 2019 Foreword2 Foreword DIF ESG Report 2019

Foreword

It is rewarding to have recognition of the significant focus and hard work that the whole team has put into the topic. This is also a good step in our ambition to be recognised by all our stakeholders – including Limited Partners, employees, investee companies and their users – as one of the leading fund managers for responsible infrastructure investment.

However, in order to have a successful environmental, social and governance (ESG) programme, the motivation and philosophy needs to be more deeply engrained than simply a wish for recognition. At the core of our business, and fundamental to our culture, is the appreciation of the connection between our assets and their “users”.

We believe infrastructure is about delivering a service to the consumer and we always think about the end-user from the very beginning of a project. We understand that the schools and universities in which we invest provide education that can change the lives of children. We see how our renewable energy assets help to reduce greenhouse gas emissions and improve the sustainability of the power supply in our markets. We feel the responsibility for safe driving along our roads as people journey to and from work every day. We also realise that our assets have the opportunity to provide local employment to people.

The connection is not just for today. The design life on some of our assets is over 100 years. So what we are doing now will also impact future generations.

This simple connection between our assets and the positive changes they create for current and future communities underlines the social purpose that drives our organisation and culture.

We have embarked with our investee companies on a journey to improve our impact over time. This does not mean that we will achieve perfection but it does commit us to transparency as an important starting point, of which this report is a key part. It also commits us to action. As well as having the right policies and processes in place on ESG factors, our corporate philosophy is to ensure we are acting on our responsible investment commitments every day and striving to have a positive impact.

We recognise that individual investee companies will move at different speeds and will focus on different initiatives depending on the countries or sectors in which they operate. Our approach is individualized, adaptable and relies on engagement to drive tangible and practical outcomes.

So welcome to the next chapter in our ESG journey, please join us on it. As always, we welcome your feedback and I look forward to continuing this important discussion with you.

Yours sincerely,

Wim Blaasse Managing Partner

Welcome to our second ESG report. We are proud of the significant steps forward we have taken on ESG in the last year; progress that has been recognised by our stakeholders and the UN-supported Principles for Responsible Investment (PRI). Our PRI score has increased from C in 2017, to A/A+ in 2019.

The infrastructure industry increasingly recognises that it must tie its activity closely to a positive social purpose – and that is fundamental to our approach at DIF.

The simple connection between assets and the positive changes they create for current and future communities underlines the social purpose that drives our organisation and culture.

5DIF ESG Report 2019 DIF ESG Report 2019 2018 summary4 2018 summary

2018 summary

Snapshot of how portfolio assets on DIF’s ESG Path have progressed in 20181

355 million cars on our network of roads.

Over 4.5 billion kWh

of renewable energy generated by our

wind and solar assets.

100% of DIF staff have been trained on environmental, social

and governance topics.

An A ranking for our responsible investment strategy and governance, and an A+ on infrastructure, from the UN-supported

Principles for Responsible Investment.

95% have a Health & Safety policy, up from

89% last year.

92% provide Health & Safety

training.

73% of assets have implemented an

environmental policy.

84% of assets now have initiatives to reduce

energy consumption and/or increase renewable

energy usage.

DIF attended Board meetings for 97% of

our assets.

84% have put ESG resources in place,

up from 56% last year.

59% have initiatives for vulnerable users.2

89% of assets have a system for complaints and notifications from

stakeholders.

1 Based on the selection of 40 assets who participated in the DIF ESG Path.2. Applicable to 33 relevant assets.

Read more about governance on page 22

Read more about safety on page 24

Read more about environment on page 28

Read more about human capital and

community on page 30

Over 2 million patients treated by the hospitals and healthcare assets

we fund.

Over 64,000 students have benefited from

our education assets.

Over 5,000 social housing residents

and students provided with homes through our accommodation assets.

DIF ESG Report 2019 7DIF ESG Report 2019 Our contribution to the SDGs6 Our contribution to the SDGs

Putting spotlights on clean energy

DIF-led consortium LuWa is replacing approximately 100,000 street lights with modern LEDs across 2,700 km of roads and interchanges in Belgium’s Walloon region.

The LEDs possess energy-saving dimming capability. Combined with the installation of a remote monitoring management system, the modernisation program will

reduce the energy consumption of the network by 76%. This is equivalent to reducing CO2 emissions by 166,000 tonnes over the life of the project, or put another way, will save greenhouse gases equivalent to over 2,000 tanker trucks’ worth of gasoline.

It will also reduce the light pollution generated by the network.

Our alignment to the SDGs

Our alignment process

This year we worked with leading sustainability consultant ERM to align DIF’s ESG objectives with the SDGs.

As part of this process we conducted a high-level review of the 40 assets participating in our ESG Path. We examined how these assets interact with each SDG goal, and mapped this against DIF’s five ESG focus areas, our internal operations and targets.

We identified seven priority SDGs which our work most directly contributes to. We also looked at how our own business and corporate culture aligns with the SDGs.

Outcomes

We are fortunate to be able to see directly how our assets, encouraged by DIF’s responsible investment activities, are helping contribute to our seven priority SDGs. There are snapshot examples of these contributions on the next page.

As part of our vision to fulfil our social purpose and be an industry leader in responsible infrastructure investment we have aligned our work with the global efforts to achieve the UN’s 17 Sustainable Development Goals (SDGs).

166,000 tonnesreduction in C02 emissions

Ensure healthy lives and promote well-being for all at all ages

Our investments in nine hospitals and healthcare facilities treated over two million patients last year and enable improved health outcomes around the world. We also encourage assets in other sectors to contribute to better health and wellbeing initiatives. For example, Chrysalis social housing project is sponsoring a charity training programme to improve mental health in the UK.

Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

By building and operating schools and universities we improve access to and quality of education for young people. The 13 schools and education facilities we financed provided education to over 64,000 students in 2018. By supporting and sharing best practices on training we also empower other assets to contribute to this Sustainable Development Goal.

Ensure availability and sustainable management of water and sanitation for all

All of our investments in water and wastewater infrastructure are geared toward providing safe, clean water and sanitation facilities. For example, Tideway is currently building a major new sewer to protect London’s River Thames from millions of tonnes of sewage. Affinity Water supplies on average 900 million litres of water a day to over 3.6 million people.

Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation

Building resilient infrastructure is what we do. As well as seeing direct ESG improvements for those assets on our ESG Path, we also encourage our investees to not only adopt responsible policies and process themselves but also to encourage their suppliers to do likewise. We help foster sustainable innovation by cross-fertilising best practice ideas across assets in similar themes.

Reduce inequality within and among countries

We ask all our assets to consider how they can be accessible and inclusive for all. This includes asking public transport or road schemes to make provisions for vulnerable or disadvantaged users, and encouraging utilities such as water providers to offer discount tariffs for those on low incomes. Our four social housing assets also contribute to this SDG by providing quality accommodation at low cost to more than 3,000 people last year.

Our contributions

in 2018

Make cities and human settlements inclusive, safe, resilient and sustainable

Our investments in public transport, street lighting and waste-to-energy projects all provide people-centred improvements to cities and regions. For example, our network of over 20 road highways has increased connectivity between cities, with additional capacity for 355 million new cars. We also encourage assets to contribute to local communities through charitable projects. The A150 in France has dedicated 1% of its investment value to support the local communities

Ensure access to affordable, reliable, sustainable and modern energy for all

We invest in several renewable energy assets that are increasing the supply of sustainable energy. Last year our wind and solar assets generated more than 4.5 billion kWh of energy, equivalent to 7.3 million barrels of oil. Beyond this however, we also encourage all our assets to explore the potential for greater use of renewable energy sources including solar panels on roads and green energy for public transport.

Moving cities through economical, eco-friendly transportation

DIF’s Tram Liege project involves the financing, design, building, and maintenance of a tram line stretching 11.7 km through the heart of the Belgian city of Liege. The project will include the construction of 21 stations, a maintenance depot and two park-and-ride facilities.

The tramline will significantly improve the quality of public transport within the city of Liege, by providing passengers with a rapid, public transit alternative.

11DIF ESG Report 2019 01 ESG Integration

ESG Integration

That is, they must be designed to be long-lasting. That makes the consideration of ESG factors such as climate risk, access to water, or community relations, a critical part of delivering them successfully.

That is why in 2017, DIF adopted ESG as a strategic priority to be integrated into all areas of our investment decision-making. We have now completed the implementation of this strategy and made considerable progress. Some of the ways responsible investment is integrated into our core processes include:

• Investment principles: A central part of our investment principles is a belief that good ESG performance, including proactive management of ESG factors by our assets, will not only protect but also enhance the value of our assets.

• Investment strategy: ESG factors such as climate change or the real-world impacts of accelerating urbanisation form fundamental building blocks in our investment strategy. They create enormous opportunity, in areas such as the low-carbon transition, and drive the need for enhanced and improved infrastructure. Thus issues from climate to community tend to be significant factors in the investment decisions we make.

• Governance: DIF has implemented strong governance oversight for ESG issues throughout all aspects of the investment cycle from initial screening through to exits. We have a Board approved ESG policy (available on our website), with its implementation overseen by DIF’s ESG Committee, that includes Managing Partner Wim Blaasse. We also have a dedicated Head of ESG to drive progress and implementation. We set annual ESG objectives for the organisation as a whole (monitored on a quarterly basis by the ESG committee) and individual ESG objectives for each asset manager and the Head of ESG (monitored every 6 months as part of the performance review cycle). The fulfilment of annual objectives influences the variable pay of employees.

• New ESG Screening tool: Last year we enhanced our ESG management practices with the launch of a screening tool. This helps to identify, at an early stage, any ESG issues, such as labour rights or poor environmental standards, that should affect a decision on a potential new investment. The tool ensures we set specific ESG due diligence objectives if needed, and that these topics are being reported in the Investment Committee paper. Based on the ESG screening, DIF decided not to pursue several investments in 2018 including opportunities in assets related to fossil fuels, and in countries with serious issues around human rights or fraud.

Infrastructure projects that DIF funds – from schools to sewers, hospitals to highways – must be sustainable in the most literal sense.01

Columbus container platform, Netherlands

13DIF ESG Report 2019 01 ESG Integration

DIF has implemented strong governance oversight for ESG issues throughout all aspects of the investment cycle from initial screening through to exits.

When evolving our approach to ESG integration there were two clear potential pitfalls we wanted to avoid:

1. We did not want to make our ESG activity a box-ticking exercise that created a stream of ESG data for its own sake, but which was ultimately of little value. We were determined to anchor our efforts in meaningful two-way dialogue with our assets that ensures we understand and act on specific sustainability issues.

2. We did not want to focus solely on environmental issues. We were very clear that we needed a broad approach that looked at all potential ESG areas of relevance and which was flexible to change and adaptation over time.

This strategy has led us to identify five focus areas which, based on both our own experiences and feedback from our stakeholders, are the ones most critical to our range of assets (see figure 1, above).

The two practical foundation stones of our approach to ESG integration are the annual DIF ESG Survey and the DIF ESG path.

These two elements combine to provide us with a methodology that is practical, measurable, repeatable and evidence-based.

A philosophy to combine quantitative and qualitative factors

SafetyIncluding the health & safety of workers

and surrounding communities

Human capital & community Including issues of training,

diversity, labour rights, local employment and

charitable giving

Environment Including energy savings, waste,

biodiversity and water

GovernanceIncluding issues of board

independence and conflicts of interest management of

ESG, bribery and corruption and cybersecurity

Climate resilience

Including climate risk management and

preparation for extreme

weather events

The DIF ESG survey

For two consecutive years we have worked with leading sustainability consultancy firm ERM to undertake a comprehensive survey with our largest individual assets. This is a detailed exercise that aims to accurately assess ESG performance for both individual assets and the wider portfolio. It also serves as a channel of communication with our investees.

The questions asked focus on our five focus areas of governance, safety, environment, human capital & community and, as of this year, climate resilience. The questions and detailed set of indicators in the survey are based on our many years of experience in the sector and in thematic clusters of assets such as roads or social infrastructure.

The questionnaire was composed of circa 40 questions, and this year we also added a new module for new assets participating in the survey to further understand how they are prepared for and affected by climate change.

Our initial ESG survey in 2017 reached out to 26 assets with a collective value of over €1 billion, and set a baseline from which we could create goals and KPIs. In 2018 we enlarged the selection of investees responding to the survey to 40 assets with a collective value of over €3 billion.

Our approach means we can marry the robust, quantitative data provided by the survey with the qualitative benefits of our bespoke engagement with our assets.

ESG Survey

Figure 1: Our five focus areas

14 01 ESG Integration DIF ESG Report 2019 15DIF ESG Report 2019 01 ESG Integration

Our vision is to be seen by our investors, investees and employees as an industry leader in responsible investment and in 2017 we set a corporate goal to obtain an overall score of A+ in the key parts of the PRI assessment by 2020. We are highly encouraged by the fact that in the PRI’s most recent assessment, published in 2019, we were given a score of A for strategy and governance and an A+ for our infrastructure module.

Managing climate risk

One of the most important news stories of 2018 was the warning from the UN Intergovernmental Panel on Climate Change (IPCC) that we only have 12 years to put in place the solutions that will stop irreversible climate change. At DIF we are committed to understanding the impact climate change can have on our investments, to managing the risks and opportunities it presents and to work where we can to minimise our negative climate impacts.

Climate change is of particular relevance to our sector. Infrastructure projects tend to have long-term time horizons, and are often large in scale with a significant footprint. So it is critical that we take account of how changes such as more climate-related regulation, or increased levels of flooding, might affect our assets over the long term, and what contribution our assets can make to climate change mitigation.

One of the ways we have done this in 2018 is to add a set of questions to our ESG Survey to assess how new assets surveyed this year are managing climate risks. The exercise showed us that a significant number of assets are not building climate resilience into their planning, which is something we will aim to improve on in the year ahead.

To help reduce our exposures to climate risk, we monitor for energy efficiency and climate-related innovations and share them as appropriate across the portfolio. For example, the A63 highway in southwest France has built “Wattway” solar panels, into the surface of the road.

As explored in Chapter 3, DIF also measured the carbon footprint of our organisation for the first time.

A climate of opportunity

There is significant opportunity for DIF from climate change too. As the world transitions to a low carbon economy, renewable energy will increasingly be relied on for power. Approximately 15% of our total portfolio is in renewable energy assets including solar and wind farms in Australia, Canada, the USA, and Europe.

Meeting Western governments’ ambitious emissions reduction goals will also require a rapid expansion of sustainable transport and waste management assets – such as our Liege Tram or Avertas waste-to- energy facility.

The DIF difference

It’s fair to say that the increasingly material importance of ESG factors means many infrastructure investors now take ESG seriously. But we are confident that our comprehensive approach makes DIF stand out from the crowd. Three areas, for example, that we believe sets us apart from peers include:

• Sharing best practice: We use the information we gather in our engagements, including the DIF ESG survey to identify leading practices in areas such as health and safety (H&S), LED light technology and community engagement and cross fertilise them across our portfolio. For example, our internal ‘ESG Path’ activity highlighted almost 40 examples of best practices in areas from employment diversity to biodiversity.

• ESG training: 100% of DIF staff were trained on ESG topics during 2018. Additional specific training was also provided to DIF’s asset management, origination and exit teams (representing ca. 70% of the company) in relation to our new ESG Screening tool, the ESG Survey and expectations that DIF has from its assets. All asset managers also have quarterly H&S training.

• Responsibility in our corporate culture: As explored in Chapter 3 of this report, we also want a deep understanding of ESG issues to be embedded in our own day to day corporate culture. This includes our dedicated support for charities where we can best use our staff’s professional skills to support the provision of sustainable communities.

From education to the environment, our philosophy is that we can drive real change as responsible investors through active and tailored engagement with our assets.

Central to our delivery of change is our ‘ESG Path’. This means we work with the assets that participate in the annual DIF ESG survey to set bespoke targets to improve sustainability challenges specific to them. The targets are agreed mutually between us and the assets and we monitor and support the investee throughout the year as action is implemented.

Managing these tailored paths for each asset keeps our ESG activity streamlined and action-oriented.

By providing our assets with bespoke paths we can monitor progress and effect change across the portfolio – as demonstrated in Figure 2 below. Across the portfolio in 2018 we have seen real improvements, especially in safety and environmental management – which were two key areas of focus for our engagement in 2017. On environment, we have seen overall improvement in areas such as energy consumption monitoring, energy saving initiatives and renewable energy use. On safety objectives, we now expect these assets to reach almost 100% of best practices implementation by 2020.

Each asset’s individual ESG Path includes:

• A framework for action including defined objectives, the activities that need to be implemented and related timeframes (defined by the asset).

• Suggestions for best practices implemented by other assets where appropriate.

• A flexible and focused approach: with priorities and the level of engagement requested varying based on the maturity of the asset and the sector.

Safety

Environment

Governance

Human capital & community

2017 (results before DIF engagement) 2018 (one year engagement) 2020 (targeted outcome)

Figure 2: ESG Performance of initial 26 assets surveyed in 2017

Note that this diagram does not include the ‘climate resilience’ focus area as this was only added in 2018.

100%

80%

60%

40%

20%

0%

The DIF ESG path

16 01 ESG Integration 17DIF ESG Report 2019 DIF ESG Report 2019 01 ESG Integration

Safety is a key issue for the infrastructure sector. Projects tend to be complex and involve large machinery and moving hazards. That is why safety is consistently cited by our assets as one of the most important ESG priorities.

Unfortunately, it is the case that with over 130 assets in our portfolio, safety incidents do occur and we believe it is vital that we both take steps to reduce the number of incidents each year and that we are transparent about how we disclose these incidents. That is why we report quarterly against a set of safety indicators on H&S.

Every three months all DIF Asset Managers must attend a Quarterly H&S Call to report any incidents, and discuss the remedial measures taken and required. DIF also has an Emergency Protocol in place to ensure that if there is a serious accident it is raised with our highest authority (DIF’s Board), and that we will fully support police, H&S or other enforcing authorities in any investigations.

Our quarterly H&S calls in 2018 involved a wide range of issues from dealing with road safety to dealing with low-level health outbreaks, and from picking up litter to cleaning up oil spills.

Another significant occurrence was the case of drug and alcohol misuse at our Bungala solar project in Australia. Remedial measures have included an increase in random testing and the introduction of pre-employment drug tests. We have also implemented a review of drug use in assets based in geographies such as Canada that have recently legalised cannabis.

This reporting discipline helps us ensure that each individual asset learns from any mistakes that occur and that any corrective measures implemented can also be applied to other relevant projects in order to prevent future incidents from occurring.

Reporting on safety in our ESG integration

Remedial action on the safety of road-related structures

DIF has a small stake in Autostrade per l’ltatia (ASPI), the company responsible for the Morandi bridge in Genoa Italy, which tragically collapsed in 2018 leading to the death of 43 people.

As a responsible investor and to reconfirm our governance and oversight of the structural risks across our portfolio, DIF launched a company-wide review of the potential risk of such an incident occurring in all of the structures in our road projects including bridges, tunnels and other related structures. The project also assessed whether appropriate mitigation measures are in place.

The review process has been undertaken with the help of engineering specialist Arup, as technical adviser. All related assets have been asked to complete a technical questionnaire, provide information and respond to questions on a follow up call. The review has included over 7,000 km of lane length and 4,275 road structures on over 20 road concessions globally.

Our aim is to ensure there is an appropriate asset monitoring regime which assess structural risk appropriately from country to country and is based on the

structure type, environment, inspection, condition and consequences.

Javier Falero, Director at DIF comments, “A key output of the review is to ensure that individual project companies are either monitoring or maintaining their structures appropriately. Of the 4,275 structures, six (0.1%) showed that immediate action was deemed to be necessary. DIF is working with the relevant technical managers at project company level to ensure that the necessary remedial steps are taken and is satisfied with progress.”

Turning waste into wattage

DIF has invested in two waste-to-energy (WtE) facilities, which divert waste from landfills and provide energy recovery.

The Avertas WtE plant will process 400 kt of household commercial and industrial waste from the Perth metro area in Australia. The facility will use the residual waste to generate 36 MW of base load energy, while also recovering and recycling metals and reusing the remaining ash residue as construction materials.

In Ireland, DIF’s Dublin WtE facility will prevent about 600 kt of waste from being sent to landfill, while more than half of the project’s energy generation is renewable. Total electricity generation capacity will be over 68MW. The facility is forecast to avoid 192 kt CO2 equivalent (CO2e) per year, reducing greenhouse gases and helping Ireland to play its part in the transition to a low carbon future.

19DIF ESG Report 2019 Global snapshot18 Global snapshot DIF ESG Report 2019

Global snapshot

Germany: The Netz West project will be refurbishing 90 passenger carriages to provide more sustainable public transport between Hamburg and the Island of Sylt.

Australia: Power utility Synergy has a portfolio consisting of two wind farms and a solar farm. Upon completion the projects will contribute 256 MW of renewable energy.

Philippines: Through our charitable donations we are supporting the Stiftung Solarenergie project which uses solar power to provide clean energy to more than 1,150 students across eight isolated communities. The schools have also experienced an 80% reduction in the use of heavily-polluting kerosene lanterns.

Spain: Our portfolio of metro stations in Barcelona and transportation hubs in Madrid have given citizens in the country’s two largest cities a green alternative in commuting, significantly cutting CO2 emissions.

Netherlands: DIF has entered into agreements with three experienced international container asset operators. Moving freight by ship offers the lowest quantity of CO2 emissions on a per unit basis, as sea freight emits between 10–40 grams of CO2 per metric ton of freight per km of transportation, which is close to half than even rail freight.

United Kingdom: The Thames Tideway Tunnel project will tackle the discharge of untreated sewage into the tidal River Thames while also increasing the capacity in the sewerage network servicing Thames Water’s 9 million customers.

Canada: DIF’s redevelopment of the Etobicoke General Hospital in Toronto, Ontario added 250,000 square feet to the existing facility. Each year, the hospital handles over 85,000 emergency department visits, delivers more than 2,800 babies, and performs more than 20,000 surgeries.

USA: DIF’s wind farms in the state of Idaho provide a source of clean, renewable energy, diversifying the energy mix.

Ireland: In consultation with the Irish Wheelchair Association, Eurolink is to provide a freephone line for disabled drivers using the M3 and M4 Motorways in case of difficulty or emergency.

Portugal: Our Norte Litoral toll road is piloting an ultrasound system to avoid and reduce the number of injured animals crossing the road.

20 02 Active ownership 21DIF ESG Report 2019 DIF ESG Report 2019 02 Active ownership

Active Ownership

That’s why we listen to those on the ground and at site to fully understand their challenges and see how we best can support them and improve our approach for each asset type.

Last year, was the second time that we reached out to our assets with the DIF ESG survey, and the first year of results for those on our ESG Path. We also added a fifth focus area: climate resilience. In the following chapter, we convey some of the results of this questionnaire, alongside comments on current performance and examining the future challenges we face in each area.

Active ownership is at the heart of DIF’s core values and we are firmly committed to engaging with our assets to help them manage ESG risks and opportunities over time. It is a critical part of our ambition to be an industry-leader among infrastructure funds in ESG.

A6 Highway, Netherlands

02Lone Valley Solar Park, US

22 02 Active ownership DIF ESG Report 2019

2.1 Governance

Our approach

We believe that our assets should embed strong ESG management at the corporate level.

While governance requirements for each asset are case specific, some of the central elements that we monitor are the ESG policies that the project management has in place, how breaches of policy are reported and managed, and whether specific resources are in place to manage ESG issues.

Performance in 2018

This year’s survey showed high levels of engagement with our assets. Regular attendance of a DIF representative at Board of Director meetings was reported for 97% of the assets (compare to 96% last year) with visits to 95% of the assets, compared to 82% last year.

In total 84% of the assets now have specific resources to manage ESG factors in place, a notable increase from 56% last year, which demonstrates the trend towards better ESG management by the assets.

Looking only at the assets who participated in last year’s survey the commitments made on transparency and ethical behaviour for 2019 mean that:

• 96% will have policies or procedures regarding ethical procurement, anti-bribery, fraud and corruption. Compared to 88% in 2018.

• 88% will implement training on anti-bribery, fraud and corruption. Compared to 48% in 2018.

• 76% will have an anonymous system to notify unethical business practices (e.g. whistleblowing). Compared to 64% in 2018.

A snapshot of emerging good practices among our assets include:

• Our A6 West road project conducts Safety Walks with shareholders before Board of Directors meetings and has developed a webinar on anticorruption to ensure that the personnel managing the asset is made aware of business ethics expectations;

• Our Thames Tideway Tunnel project ensures all new employees have to sign up to the ethical behaviours policy and are given an essential reading list which their line manager is to check they have read within the first few months of their arrival

We have set new targets in all areas of governance for next year and will continue to work across challenging areas.

Creating a hub for anti-corruption training

DIF investment 48%

DIF member on board Yes

DIF fund DIF III

Year of investment 2014

As part of a set of public-private partnership (PPP) investments in Spain we invest in the Avenida de AmericaTransportation Hub, one of the key bus terminals in Madrid.

In order to ensure full compliance with Spanish law, our Avenida de America holding contracted a company specialising in providing Anti-Bribery and Corruption training, to ensure all employees received appropriate training concerning practices to avoid an incidence of bribery or corruption.

The modules were adapted to the different roles of the personnel working on the asset, including the CFO and technical director at the corporate level.

The training was provided through an online platform and included an exam at the end of it. The system reports when an answer provided is not compliant with Spanish Law or the management company’s Code of Conduct.

The feedback we received has been that the process has helped root out risks of non-compliant behaviour at the project.


2.2 Safety

Our approach

We believe that safety on the ground is a pre-requisite for safe and stable long-term returns.

Safety tends to be the top ESG priority for many of our assets as safety risks are omnipresent in infrastructure, a work environment where large machinery, chemicals, and unstable, slippery, elevated locations are often the norm. It is therefore of the upmost importance to DIF that our assets manage these risks so workers and users know they can return home safely to their families at the end of the day.

As part of our active ownership on this issue we use our ESG survey to monitor for H&S policies, audit systems such as accident reporting, and also behavioural areas such as training.

Our aim is to encourage our assets to go beyond policy statements and ensure they use practical tools such as near miss reporting and mentoring and training of subcontractors to improve safety performance.

Performance in 2018

Unfortunately there was a fatality at our Bungala asset in Australia in February 2018. A full investigation was commissioned by DIF including an on-site review of the asset’s H&S policies, procedures and management arrangements – particularly in relation to subcontractors. Since the tragedy, remedial actions have included the introduction of new H&S measures and training to prevent such an incident re-occuring.

H&S is well integrated, with 94% of assets having a specific H&S policy in place, up from 89% last year. H&S audits are regularly performed for 80% of the assets.

It is also encouraging that H&S training is provided for 91% of the assets, an increase from 85% last year. However, we note that for 30% of the assets, training is not provided to all employees or contractors – an area targeted for improvement in the next year.

For roads assets, 91% have an accident reporting process in place (compared to 86% last year), and two out of three (66%) have implemented voluntary initiatives to improve users’ safety.

Looking only at the assets who participated in last year’s survey the commitments made on putting sound H&S management systems in place in 2019 mean that:

• 100% will have a H&S policy and management system in place, which is frequently reviewed and communicated to all personnel. Compared to 96% in 2018.

• 100% will have a monthly accident reporting system in place. Compared to 92% in 2018.

• 92% will perform H&S audits on the asset for third party, or trained internal, resources. Compared to 75% in 2018.

See chapter one of this report for our specific safety reporting from each asset.


• American Roads have introduced several initiatives to improve safety awareness at the company such as events to celebrate zero incident achievement, and distribution of a Safety Calendar with reminders and tips for a safe workplace to all employees.

• The A63 highway project in southwest France invested in an innovative technology to improve road user safety. They have distributed sets of glasses which include sensors to prevent drowsiness while driving. They have been distributed to local partners including local authorities, logistics companies and other road users, and have been well received by these stakeholders.

As we move forward, we will continue to prioritise robust H&S policies and practices, closely monitoring our assets and incorporate best in class practices. A key challenge for next year will be to ensure that sound policies are translated into practice on the ground, as well as encouraging more assets to extend H&S policies and procedures to cover contractors and sub-contractors in all projects.

Embedding the ‘right way’ for safety in London’s super sewer

DIF has been an investor in the Thames Tideway Tunnel since 2015. Known as London’s ‘super sewer’, the 25km-long tunnel up to 65m below ground, provides a new sewer to protect London’s residents and waterways from sewage seeping into the tidal section of the River Thames.

A project of such scale requires industry best practice to be embedded throughout all operations and Tideway’s leadership team have from the outset aimed to go beyond the traditional PowerPoint and toolbox briefings on safety and adopt an innovative approach to genuinely engage workers and increase awareness of H&S.

This has included the embedding of a Health and Safety Performance Index (HSPI) to manage the safety performance of contractors.

The HSPI of a selection of 13 leading indicators of good H&S management by contractors, evaluated and reported monthly to allow for timely targeted improvements to be made. Leading indicators, as opposed to retrospective lagging indicators (such as lost time injuries) help facilitate a preventative approach to H&S management.

In order to comprehensively distribute lessons learned and safety and environmental alerts to all site-based staff, the project team have also developed an online incident management system. ‘Rightway in Delivery’ utilises a recognition and reward programme to effectively promote, encourage and share best practice, while also reinforcing pride in its robust safety culture. They select both monthly and quarterly winners to recognise staff contributions to building an industry-leading culture of H&S.

DIF investment 11%


DIF fund DIF III & DIF IV


26 02 Active ownership DIF ESG Report 2019 27DIF ESG Report 2019 02 Active ownership

Sector spotlight: roads

Approximately 16% of assets in our portfolio are road assets, including projects in southern Europe, Germany, Netherlands and USA.

At DIF, we believe we have an important role to play in sharing sustainability best practice across assets in the same sector, and roads is an asset class where we believe considerable cross-pollination is possible.

That is why in 2018 we organised a conference in Amsterdam focused on ESG activities in road projects, inviting project teams from our road assets across the world. It was well attended with nearly 20 companies represented, including DIF’s investee companies, other experts in the sector and fellow shareholders.

Some of the best practices we are sharing across our focus areas include:

Governance

• Introducing an ombudsperson process to provide a specific communications channel for potential whistleblowing. As introduced at our Algarve roads project in Portugal.

Safety

• Choosing to reconstruct rather than renew older bridges to improve safety, as on the A6 West road in Germany.

• Using technology such as ‘Connected glasses’ to prevent drowsiness, as is being done on the A63 road in France.

Environment

• Tracking energy consumption and introducing energy saving measures such as streetlight dimming as on the M50 in Ireland.

• Innovative initiatives to limit biodiversity impact including: converting waste from vegetation cutting into usable biomass products (Aragon), sheep grazing (A6 west) and using natural ways to fight against invasive species (A150).

Human capital & community

• Organising charity collections for local children and disability associations by the M3/M4 road projects in Ireland.

• Helping the long-term unemployed back to work through, for example a ‘Social Return to Work plan’ as implemented during the construction of the A1 and A6 roads in the Netherlands.

We believe we have an important role to play in sharing sustainability best practice across assets in the same sector, and roads is an asset class where we believe considerable cross-pollination is possible.

Supporting innovation such as ‘Connected glasses’ to combat drowsiness

Figure 3: Performance of the road sector across ESG issues in our ESG Survey

Governance

SafetyHuman capital & community

Environment

0%

100%


2.3 Environment

Our approach

We have a wide array of ‘green’ assets such as wind and solar farms along with waste-to-energy facilities in our portfolio. But our contribution to a better environment goes far beyond these assets. Encouraging strong environmental management is an increasingly important part of our ESG activity across our entire portfolio.

Our engagement topics include those related to each asset’s energy mix, use of technology and management of climate risks and opportunities. Similarly, we seek to future proof our assets against emerging environmental legislation by utilising technology and innovation to achieve both energy savings and cuts to bottom line costs.

Performance in 2018

An environmental policy has been implemented for 72% of assets.

We have seen considerable overall improvements in environmental performance among the 26 assets participating in the initial 2017 ESG survey (see Figure 2, p.14). This includes performance on energy saving initiatives and renewable energy use.

However a notable finding was also that three in every four assets (75%) monitor and report on energy, compared to 89% last year. This tells us that there is a lack of monitoring in the new assets surveyed this year. In total, 48% of the assets have considered or implemented energy saving initiatives, which is again lower than last year (61%) due to relatively poor performance among the new assets.

The relatively poor performance among the new assets on energy reporting and energy saving initiatives will be an area of focus for DIF in 2019.

Looking only at the assets who participated in last year’s survey the commitments made on improving energy efficiency in 2019 mean that:

• 96% will collect and report energy consumption data covering all energy sources (electricity, gas, fuel etc.), compared to 92% in 2018.

• 84% will have initiatives in place to reduce energy consumptions and/or increase the use of energy, compared to 68% in 2018.


• The Northwest Parkway project in the US, between Denver and Colorado has minimised the spread of granular material such as grit during snow events to prevent airborne pollution.

• DIF’s Liège Tram project in Belgium will provide sustainable, green public transport. An estimated 50ha of Liege city will be entirely tram-centric and will help to achieve the Zero Carbon Administrative City (ZCAC) target set for 2022.

Looking ahead to next year we aim to build on our growth in waste recycling schemes by encouraging assets to purchase more energy from renewable sources.

On the road to wildlife recovery in Germany

DIF investment 50%


DIF fund DIF IV


The A6 West highway in Germany – a 50km stretch of federal highway connecting Rauenberg and Weinsberg in Baden-Württemberg now sources all of its electricity from renewable sources including for traffic signs, lighting and rest areas.

Most of the milled asphalt of the old carriageway has been recycled and reused in the asphalt base layer under the new tarmac.

Sheep graze the (fenced) lawn around rain retention basins – artificial lakes which help manage stormwater runoff and prevent flooding.

As part of upgrades to the highway, we are creating a 40,000 sq metre wildlife sanctuary a few kilometres from the motorway near Offenau. Equivalent to four football fields, this will provide a new habitat for insects, birds, amphibians and other creatures.

A hive of sustainable activity in Worcester

DIF investment 100%


DIF fund DIF III


DIF acquired a stake in The Hive, Europe’s first joint university and public library. The Hive contains a quarter of a million books and receives over a million visitors per year. With such high numbers, small changes to sustainability practices can make a big difference.

For example, last year the Special Purpose Vehicle we invest in supported the Hive café to reduce waste from disposable cups by investing in a ‘keep cup’ scheme, offering free refills for those using reusable cups. Within two months the initiative cut disposable cup waste by 35%.

Disposable coffee cups and packaging have now also been removed from the canteen at Worcester County Hall, taking over 14,000 disposable cups out of the waste stream.

There are further plans to expand this initiative at The Hive by replacing any remaining single use plastics with compostable alternatives.


2.4 Human capital & community

Our approach

We recognise the importance of far-sighted human capital management in the success of our assets.

Some of the topics on which we engage in this area include how our assets manage relations with local communities, whether they promote equality of opportunity and whether they take account of the needs of vulnerable users. We believe that this approach is not just the right thing to do, it also positively impacts the value of our investments.

Performance in 2018

Our survey showed that 89% of assets now have a well maintained and used collection system for complaints and notifications from stakeholders.

However only 50% of assets have a proper system in place to ensure minimum wage to all employees and contractors, and only 59% implement vulnerable user initiatives to address

issues such as access for disabled users. Both areas that can be improved – especially among the new assets in the 2018 survey.

Looking only at the assets who participated in last year’s survey we met internal targets for encouraging assets to have a positive impact on our people and local communities including:

• 50% have a system to verify that all workers receive the minimum wage.

• 89% have a system to collect notifications or complaints from stakeholders.


• After consultation with the Irish Wheelchair Association, our asset Eurolink launched a new service for disabled drivers using both the M3 and M4 Motorways in Ireland. The service provides a free phone line for users to contact in case of difficulty or emergency.

• The A150 road project in France voluntarily helped install a path with education assets dedicated to explaining the features and importance of local features such as a wetland. The path is widely used by children and other residents.

• Our renewable energy project in Wadlow, UK has had an annual community fund allocation every year since it became operational with the fund allocation for 2018 reaching £57,000. That is being distributed to projects chosen by a panel of local residents.

Looking ahead, more focus is needed in 2019 on both initiatives for vulnerable users and systems to verify minimum wage payments. It is encouraging that many of the assets have initiatives to support local employment, to engage with local communities and to contribute to local charities. We will continue to support such initiatives in the year to come, and encourage more assets to do so.

Engaging with local communities on renewable energy

DIF investment 71%


DIF fund DIF IV


Wind energy is an important part of the shift to a low carbon economy, but it also has to be accepted by the communities that house the turbines.

Engagement with the local communities in which we work is a hallmark of DIF, including encouraging open and accessible mechanisms for concerns or grievances to be raised. In Idaho in 2018 we hosted a local charter school for tours of one of our Anemoi wind farms to learn about wind energy.

Three separate tours of seventh and eighth graders, who are all learning in their classes about the different sources of renewable energy and their benefits, visited the site.

Keeping open doors of communication with the communities where we work is central to our business operations.

And in case anyone asks… it takes eight teenagers to hug a wind turbine.

Bringing pedal power to the Casa de Santa Isabel of Faro

Employees of Via do Infante A22 Motorway in Portugal teamed up to bring holiday cheer last December to the Casa de Santa Isabel of Faro, a foster home for children and young women aged 3 to 18.

The staff compiled bike parts and then teamed up to build bicycles to give to the children and youth. Not only did the project provide some new wheels to be used for getting around Faro, it also helped establish new friendships and strengthen the community.

DIF investment 49%


DIF fund DIF IV


Rockland Wind Farm, US


2.5 Climate resilience

Our approach

Accelerating climate change is likely to lead to outcomes such as more extreme weather events, that could have significant adverse impacts on our assets. That is why in 2018 we introduced a fifth area to our ESG Survey, applied to assets new to the questionnaire this year. This aimed to help us understand the level of maturity that asset managers had in managing such climate risks.

The ambition for 2018 was also to set a baseline to help identify how to better include climate change risks into DIF’s ESG path.

Performance in 2018

In total, 42% of assets had put in place initiatives to reduce the impact of extreme weather or extreme nature events on their project. However it is noticeable that most asset managers had adopted a reactive approach and only implemented these activities once such an event occurred.

It is also significant that while half of the asset managers considered climate change risks to some extent but only one integrated risks related to natural disasters into its core business risk assessment framework.

These findings suggest that climate resilience is not seen as a pressing issue for most assets and that DIF should engage, focused on those with enhanced ESG management, to ensure that exposure to climate risk is properly assessed and managed.

A snapshot of emerging good practices among our assets includes:

• In their formal business risk assessment, American Roads assess categorised natural disasters such as hurricanes and flooding as high severity and likelihood, implying temporary road closure and loss of revenue. Mitigation measures they have put in place include an insurance contract that reflects these potential impacts and the development of disaster and recovery plans.

Looking ahead, our first survey on climate resilience tells us that a significant number of assets are not building climate resilience into their planning. We will therefore support our assets in the further consideration of this topic and the development of climate risk plans as appropriate.

Making every drop of water matter

DIF investment 27%


DIF fund DIF IV & DIF V


In a warmer world, with a global population reaching 8.5 billion in 2030, preserving water and using it efficiently is becoming an important part of climate resilience.

Affinity Water is the United Kingdom’s largest water only supply company by revenue and population served. It supplies on average 900 million litres of water a day to over 3.6 million people, serving 1.5 million homes and business, while operating 98 water treatment works in southeast England.

Climate change and growing global populations are putting increasing pressure on drinking water and DIF has sought to raise awareness to improve water saving practices among our assets.

In this context, Affinity launched the ‘Why Not Water’ campaign in 2018, which is a call to action for four changes:

1. Mandatory water efficiency labelling on all goods.2. Rights for tenants to request that their landlords install

water saving measures so that they are able to enjoy water efficient homes.

3. Domestic water efficiency by ensuring fixtures and fittings meet standard requirements through mandatory certification.

4. Every Local Plan in a severely water stressed area should include the target of 110 litres per person per day.

As part of the campaign, Affinity installed an eight-tonne ice block outside St. Albans Cathedral. The ice block represents what our water consumption looks like – 8,000 litres of water – which is what the average family of four use every two weeks. MPs and other water companies have now signed up to the Why Not Water campaign.

Affinity Water, UK

34 03 ESG in our corporate culture 35DIF ESG Report 2019 DIF ESG Report 2019 03 ESG in our corporate culture

DIF and the community

At DIF, we strongly value being a good neighbour and giving back to local communities. As part of this we have identified and offered our support to several charities where our staff’s professional skills can help disadvantaged young people access education or employment.

That’s why we have become a partner to the Giving Back Foundation, which connects students from underprivileged backgrounds with positive role models to help them find their feet as the first people in their family to attend university. In 2017/2018 more than 230 students enrolled in the programme.

Other charities benefiting from our support including The Prince’s Trust, a UK charity supporting young people aged 13–30 into work, education and training; and Article 1, a France-based charity to improve access to the labour market.

Promoting diversity

At DIF we are firm believers that a diverse workplace generates different viewpoints and outlooks that leads to better, more holistic decisions made.

Industry wide, the financial services sector is still lagging in gender diversity at the senior level and this is also the case for DIF. We are taking active steps to address this and are identifying any barriers for women to transition to more senior roles. Currently almost a third (31%) of all DIF employees are female.2

Taking a responsible approach is not just something we ask of our assets. It is also important to our own corporate identity and DIF’s culture. It is part of our commitment to ‘Do what we say we are going to do’.

From a practical perspective, this translates into active support for our staff volunteering in local charities and those that require their expertise. We also encourage staff diversity and reducing our own environmental impact - including measuring our carbon footprint for the first time this year.

I have had a number of meetings with my mentee in which we really got to know each other. Hamza is a first-year fiscal law student at Rotterdam University and lives in Utrecht. We mostly meet in Utrecht and have already established a valuable relationship allowing us to discuss freely all sorts of matters relating to studying, cross-cultural matters and relationships which is not only useful and enriching for him but equally for me.

Engel Koolhaas, DIF Senior Director who is volunteering his time and expertise with the Giving Back Foundation

2 As of 31 December 2018

03ESG in our corporate culture

36 03 ESG in our corporate culture DIF ESG Report 2019

Walking our talk on the environment

In 2019 we measured DIF’s carbon footprint for the first time. We found that we were responsible for approximately 1,400 tonnes of CO2e, which, as shown in Figure 4, was mainly generated by Scope 3 emissions (indirect emissions such as those caused by business travel). We were only able to assess Scope 2 emissions (indirect emissions such as our consumption of purchased electricity) and Scope 3 emissions because data gaps still need to be filled to assess Scope 1 emissions (direct emissions generated by a source that we own).

While we consider all options to reduce our CO2 footprint we are conscious that business travel is essential to the way DIF operates and its long-term success and resilience. Therefore we are exploring options to offset our CO2 footprint by investing in carbon offset schemes that provide funding to projects that help to minimize climate change.

We also encourage all our offices to recycle waste and to implement energy saving initiatives both within the office and through charitable work.

One of the ways staff at our Paris office is doing this is by volunteering with Synergie Solaire, an endowment fund with a mission to develop renewable energy solutions for economic, social and environmental humanitarian projects in the developing world. This includes a project to provide solar electrification to eight isolated communities in the Philippines. This project has benefited more than 1,150 students, with the solar PV system, now powering the electricity in classrooms for the entire school day. The project also cuts down on pollution. The schools have seen an 80% reduction in the use of kerosene lanterns.

In Germany our team actively support ‘Frankfurter Tafel’ a foodbank organisation providing cheap food to the poorest in society, utilising food waste that is still good for consumption. DIF Frankfurt employees each spend two days supporting this initiative.

Scope 2 9%

Figure 4: DIF’s carbon footprint in 2018

Scope 3 91%

Supporting projects like Synergie Solaire and Frankfurter Tafel through our charitable giving

It is very valuable to me and the Frankfurt team to assist the Frankfurter Tafel helping both people in need and reducing food waste

Henrik Luerssen, Senior Director, Frankfurt office

94% business travel 6% employee commuting

CO2

e

39DIF ESG Report 2019 04 Looking ahead

Looking ahead

Looking ahead: 5 minutes with Frank Siblesz, Head of ESG

Q. What is next for DIF in the ESG space?

A: We have established an ESG strategy, policy and tools already. But looking ahead it is about using those processes and outcomes to make a real difference and drive change. For example, tailoring the investment strategy of our new funds around some of the SDGs including related KPIs.

We are setting specific KPIs for individual assets on sustainability and it is now our challenge to ensure we provide the support they need to ensure these goals are met.

Finally, ESG is a fast-moving landscape and we must continue to analyse emerging issues and work together with our assets to find solutions and stay ahead of the curve.

Q: Where do you see the wider ESG space evolving, especially in infrastructure?

A: There are many topics emerging, with adaptation to and mitigation of climate change being the most obvious. Another is the growing need to articulate the social purpose of infrastructure assets. But, while we keep our strategy under review, it is important to DIF that

we are not too distracted by the issue of the day. We must stick to those ESG issues most core to our portfolio and drive real improvements there. These are our five focus areas of safety, environment, governance, human capital & community, and climate resilience.

Q: What are areas of weakness your ESG team has identified and how do you plan to address them this year?

A: We have a large and diverse portfolio, so that is a challenge. For instance, only 40 of 140 assets were reached by our ESG survey.

It is a real challenge to find the balance between an approach that is comprehensive enough for our requirements but which is not too onerous on our assets. Our engagement must empower assets to take action and drive improvement from within, rather than stifle innovation through restrictive shareholder directives.

We also need both a quantitative and qualitative approach. This needs to go beyond just a survey and giving a score. We must engage with all our assets. All our assets have indicated they are happy to participate in the journey and understand our conclusions. But the assets have so many topics on their plate, we can’t just mine data. We need engagement so they know what we need from them and are fully committed to delivering results.

Q. What specific challenges do you face for next year?

A: As we look ahead to next year, one of the biggest challenges we face is working in new geographies and sectors, such as Latin America. Of course, we face new challenges in each region

we work in and so, in the case of Latin America, we ensured that issues of child labour were captured by our new ESG screening tool.

It is imperative that we are continuously improving and evolving. That’s why following up on last year’s activities, new, more ambitious objectives have been set for the current year such as increasing the use of our ESG Screening tool and ESG due diligence guidance. We are also focused on increasing the number of projects participating in our ESG survey, while also following up and improving plans for projects that already participated last year. We also must continue to provide requisite ESG training for all DIF staff.

After our successful organisation of our road projects conference bringing together our assets to share best practices, we want to build upon this momentum and seize our role as a catalyser of ESG initiatives between projects.

We are also wary that some of our assets face ‘survey fatigue’ as more and more organisations request salient sustainability information from them and we will work hard to keep motivation levels both at DIF and our assets high as we work to continually improve performance.

And finally, as charity involvement is very dear to DIF, we aim to roll out more DIF charity initiatives that we will support both financially and with time allowance granted for DIF employees to be give back to local communities.

The need to fulfil DIF’s social purpose remains a challenge every day, and next year we also hope to achieve our corporate ambition of A+ scores across the PRI assessment.

Dublin waste-to-energy facility

04

41DIF ESG Report 2019 04 Looking ahead

DIF-led consortium LuWa is replacing approximately 100,000 street lights with modern LEDs across 2,700 km of roads and interchanges in Belgium’s Walloon region.

42 04 Looking ahead DIF ESG Report 2019

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