impact report

ECONOMIC IMPACT AND ESG REPORTING

ISIF monitors compliance with its economic impact objectives at the Irish Portfolio company level and the portfolio level. Every February and August, investee companies fill out an impact survey, with data such as revenues, employment, and exports. In addition, each year, ISIF compiles an annual control report that measures the performance of all Irish Portfolio companies against financial and impact targets. Once exiting investments, ISIF does not exercise any further active impact monitoring.

ISIF publishes an annual and semiannual economic impact report with detailed metrics on ISIF’s capital allocation and contribution to economic activity and employment. Table 10.5 provides a summary of these metrics. Initially, the focus was on fund-level portfolio metrics for publication; however, as the report has evolved, the reporting now takes account of sector-specific metrics that cannot be consolidated at the fund level (for example, megawatts of renewable energy, number of new housing units, and number of alternative SME financing platforms). The collection, verification, and reporting of economic impact data can be challenging given that it is a relatively new concept for investees to report on.

ESg criteria are applied in ISIF investment activities, and measurement of some noneconomic impacts over the entire Discretionary Portfolio has commenced (although these are not yet published at the time of writing). ISIF has developed an ESg assessment framework focused on identifying material ESg risks, guiding due diligence, and monitoring key performance indicators through the investment life, in the Irish Portfolio. The framework is based on guidance from both the European Bank for Reconstruction and Development and the Sustainability Accounting Standards Board, combined with asset class–specific

TABLE 10.5 Comprehensive sample of metrics disclosed in ISIF’s economic impact report

AREA METRICS

Capital • Discretionary Portfolio size • Capital committed • Capital committed by co-investors and multiplier • Market value of capital invested • Split of capital invested by region (Dublin and ex-Dublin) • Capital committed by strategy (Enabling Ireland, Growing Ireland, Leading Edge Ireland) and, for each, by subsector • List of new investments during period and ticket sizes • Fund returns • List of portfolio companies of investee funds Employment • Total employment supported by Irish Portfolio companies and projects • Total wage bill • Split of employment by region (Dublin and ex-Dublin) Economic activity • GVA • Allocation of GVA by region • Exports generated by portfolio companies • Strategy-specific metrics, for instance: – Enabling Ireland: MW of renewable energy installed, tons of waste processed, housing units completed – Growing Ireland: number of SMEs backed – Leading Edge Ireland: VC funds invested in and ticket sizes – Case studies

Sources: ISIF 2017, 2018a. Note: GVA = gross value added; ISIF = Ireland Strategic Investment Fund; MW = megawatt; SMEs = small and medium enterprises; VC = venture capital.

tools based on the UNPRI. ISIF applies some exclusion criteria and has developed two carbon monitoring tools to estimate greenhouse gas emissions across the Irish Portfolio and to calculate carbon savings from its renewable and alternative energy investments.

ISIF aims to be a leading proponent of responsible investment in Ireland, by adhering to both the Santiago Principles and the UNPRI. As required by the UNPRI, ISIF reports annually on implementation of the principles; in July 2018 its UNPRI results were scored above median. ISIF is also a signatory of the Carbon Disclosure Project (CDP), a framework for investors to encourage companies to disclose their greenhouse gas emissions. ISIF promotes responsible investment in Ireland through forums such as CDP Ireland and the Sustainable Investment Forum Ireland. The NTMA has experience as a responsible investor in global markets (dating back to its time as manager of the NPRF) and translates that experience into the domestic investment landscape. This includes active ownership, wide-ranging portfolio ESg analysis to include carbon footprinting, and alignment with the Sustainable Development goals.

ISIF has an investment exclusionary strategy with respect to cluster munitions and antipersonnel mines,14 coal production and processing, and tobacco manufacturing. In addition to this strategy, the Fossil Fuel Divestment Act 2018 provides for the divestment by ISIF from fossil fuel undertakings (effectively, companies that derive more than 20 percent of their revenues from the exploration, extraction, or refinement of fossil fuels) within a practicable timeframe.

FINANCIAL DISCLOSURE AND RISK POLICIES

NTMA is required to prepare annual financial statements and an annual report, including with respect to ISIF’s financial performance, which are laid before the Irish Parliament. NTMA is accountable to the Public Accounts Committee in accordance with the NTMA Act 1990. Section 49 of the act details that, for a given year, ISIF-related disclosures must include the following: the investment strategy pursued, the investment return achieved, a valuation of ISIF’s net assets, a detailed list of the assets at the end of the year, the investment management and custodianship arrangements, an assessment on a regional basis of the impact of ISIF’s investments on economic activity and employment, and an assessment on a regional basis of the distribution of the investments made by ISIF. ISIF’s financial accounts are published annually in the NTMA annual report. The accounts show the breakdown of ISIF assets, at year-end market value, for the Directed, Discretionary, Irish, and global Portfolios. The income statement shows capital gains (or losses), dividend and interest income, and ISIF’s operating expenses. The accounts also list all securities held. ISIF publishes voting decisions with respect to equity investments across the global Portfolio on its website.

As a state agency, NTMA’s accounts are audited by the Comptroller and Auditor general. ISIF’s activities are also audited by the NTMA Internal Audit function.

ISIF has adopted a Portfolio Diversification Framework for the Irish Portfolio, setting maximum exposure limits by sector and risk category.15 Sectors include food and agriculture, energy, financial services, health care, infrastructure, information technology, and real estate. Risk is scored from 1 to 5 depending on the type of instrument and layer of the capital structure, as detailed in table 10.6. In addition, maturity, competitiveness, leverage, and downside protection