11.4 Marguerite’s ESG assessment throughout the investment process

precondition for attracting qualified professionals. Fee levels are confidential, but Marguerite’s management confirmed that they reflect the typical private equity combination of management fees (at the lower end of the typical range for infrastructure funds) and share of carried interest.

ECONOMIC IMPACT AND ESG REPORTING

Marguerite applies the ESG criteria of the EIB and other public sponsors, and also endorses international ESG principles such as the UNPRI and the Equator Principles. ESG factors are fully integrated in every phase of investment analysis and decision-making, as detailed in table 11.4. Some sponsors require disclosure of ESG and impact metrics, such as renewable generation capacity installed and carbon dioxide savings.

EIB requires that all its investee funds measure the economic rates of return of their investments and comply with minimum return thresholds. Marguerite I guidelines therefore were based on EIB guidelines and requirements from the other sponsors.6

FINANCIAL DISCLOSURE

As is typical for private equity funds, Marguerite’s financial disclosure is limited to the funds’ investors, not the broader public. Such disclosure includes quarterly and annual portfolio performance reports, with portfolio valuation conducted internally. Marguerite funds are audited by Deloitte according to the International Financial Reporting Standards. Public disclosure is limited to a list and description of fund investments and press releases published on Marguerite’s website and updated as new transactions are announced.

TABLE 11.4 Marguerite’s ESG assessment throughout the investment process

DEAL PHASE ESG IMPLEMENTATION

Project screening • Potential investments are screened according to their social and environmental risks and have to meet minimum thresholds of economic return (in addition to financial returns).

Due diligence • Marguerite estimates an economic rate of return and only proceeds with investments delivering a positive result in this respect. • Obligations to comply with environmental laws and regulations and to prohibit corruption are captured in project contracts (concession agreements, permits, construction contracts, operations contracts, and so on). • ESG considerations are included in the detailed investment proposal submitted to the Investment Committee.

Asset management • An environmental and social officer was appointed to ensure ongoing compliance. • There is active ownership at the portfolio company level through board participation. • ESG risks identified during due diligence are carefully monitored throughout the holding period. • Environmental and social action plans reflecting the outcome of due diligence are implemented by the management teams of portfolio projects and companies.

Source: Marguerite 2018. Note: ESG = environmental, social, and governance.

NOTES

1. For societé en commandite spéciale. 2. Société d’investissement à capital variable/specialized investment fund. A SICAv is a collective investment scheme common in several western European countries. Throughout this case study, the acronym SIF, when used in the expression SICAv/SIF, refers to specialized investment fund under Luxembourg legislation. 3. Commission de Surveillance du Secteur Financier. 4. The fund (Marguerite I) has a management board comprising representatives of the core sponsors (six), Marguerite Adviser (two), and three independent members. Investment decisions are made by a subcommittee of the management board comprising the independent members and the representatives of Marguerite Adviser. In addition, the management board has approval or veto rights over certain investment decisions (for example, those exceeding certain size thresholds). Marguerite Adviser plays a purely advisory role. 5. Although many offshore wind farms were built before the time of Marguerite’s investments, they were funded by utilities or with bank debt, not by financial investors. 6. For reference, see EIB (2013), applied by the European Investment Bank to its entire investment portfolio. Note that Marguerite II follows a more traditional fund market approach in that guidelines or requirements from sponsors are documented via side letters.

REFERENCES

EIB (European Investment Bank). 2013. “The Economic Appraisal of Investment Projects at the

EIB.” Projects Directorate, EIB, Luxembourg. PwC. 2016. “The Luxembourg Special Partnership: A Multi-Purpose Solution for the Real

Estate Industry.” PwC. https://www.pwc.lu/en/real-estate/docs/pwc-re-lux-special -partnership.pdf.

12 Case Study—National Investment and Infrastructure Fund: A Collaborative Model to Mobilize Foreign Investment*

When we look for international operating partners, we seek those who know the business, know India, are willing to commit to India for the long term and have a demonstrated track record of good governance. —Sujoy Bose, CEO, National Investment and Infrastructure Fund

BACKGROUND AND MISSION

The key objective for setting up the National Investment and Infrastructure Fund (NIIF) was to catalyze foreign institutional equity capital for Indian infrastructure sector and related businesses. The launch of NIIF was announced in February 2015 by the government of India during the 2015–16 budget presentation. NIIF secured a capital commitment of about US$3 billion from the government.

Following the budgetary announcement of NIIF, the government held extensive consultations with relevant market participants in the funds industry (including sovereign and pension funds) to finalize the optimal structure for NIIF. Further, a global search process was carried out to shortlist and identify the CEO of NIIF, who came on board in October 2016.

Government capital in NIIF is allocated across three funds—the Master Fund, the Fund of Funds, and the Strategic Opportunities Fund (together referred to as NIIF)—all managed by the same investment manager (NIIF Limited) and governed by certain select core principles:

• The government would be a minority investor in each fund, with a stake of 49 percent, and the rest of the capital would be provided by commercial investors. • Each fund invests on a fully commercial basis. • The decision-making of each fund is carried out by its respective investment committee comprising NIIF management and in some cases independent professionals, with sole power over investment decisions. The investment committee(s) would not have government or investor representation, in line with global best practices in the fund management industry.

*Research for this case study was completed between 2018 and 2019. The text reflects the circumstances at that time.