20    Infrastructure Investor    •    November 2019
Analysis  
K E Y N O T E  
I N T E R V I E W
Emma Howell of Hermes Infrastructure discusses the critical 
importance of transparent ESG reporting 
Q
What are your views on 
the correlation between 
responsible investment practices and 
long-term stakeholder value?
A responsible investment approach is essen­
tial to delivering sustainable, risk-adjusted 
outperformance over the long term. Our par­
ent institution’s ESG heritage dates back to 
the early 1990s, with a demonstrable record 
in responsibility and a pioneering engage­
ment service. Since Hermes Infrastructure’s 
establishment in 2011, we have continued to 
build on these strong foundations. 
The public-service nature of infrastruc­
ture assets demands the highest standards of 
ESG are adhered to. The long-term nature 
of the assets, the wide range of stakeholders 
involved, including large workforces, as well 
as the interaction with the natural environ­
ment, all mean that a portfolio company’s 
approach to tackling ESG matters will im­
pact the prospects and long-term value of 
that business. We place a strong emphasis 
on governance, because we really believe 
having a robust governance framework bet­
ter equips a company to positively address 
its environmental and social responsibilities. 
As an infrastructure manager, we have a very 
clear responsibility to our investors, to so­
ciety and to the businesses we invest in, to 
ensure that these issues are addressed in a 
sustainable way. 
Q
Is sustainable infrastructure 
investment primarily about 
tackling climate change?
Over the past few years, the ESG debate 
has been somewhat redirected towards the 
climate change crisis. While this has risked 
lowering the priority of other aspects of 
ESG, it has actually led to several concrete, 
easy-to-implement actions across the indus­
try, with clear and immediate benefits. In our 
portfolio, this has led to a change in energy 
mix and consumption patterns and improved 
waste optimisation strategies, benefiting the 
environment and cutting costs. 
There is, however, still a lot to do on the 
social aspects of ESG. Issues can be quite 
localised, making it more challenging to 
develop a common language around how 
best to bring these considerations togeth­
er beyond simple compliance with health 
and safety or other legal and regulatory re­
quirements. In our portfolio, we have been 
active in promoting diversity and inclusion 
and looked to expand the more traditional 
definitions of health and safety by review­
ing mental health processes and practices in 
each of our investee businesses.
Q
Who, or what, is driving 
infrastructure’s increased focus 
on sustainable investment and ESG in 
particular?
SPONSOR
HERMES INFRASTRUCTURE
You can’t manage what 
you can’t measure

November 2019    •    Sustainable Investing  21
Analysis
Over the past decade, we have witnessed 
a step change in the industry’s approach 
towards ESG. There has been a tectonic 
shift in societal attitudes and increasing ev­
idence-based recognition of the impacts of 
climate change have brought responsibility 
and sustainability very much into the main­
stream. With an increasing number of mil­
lennials entering the workforce and investor 
universe, greater importance is also being 
ascribed to making a positive contribution 
to society through the workplace. Political 
and regulatory scrutiny has also reinforced 
the link between ESG practices and invest­
ment performance, while legal changes have 
also had an impact; for instance, the require­
ment for public pension scheme trustees to 
consider financially material environmental, 
social and governance matters, including cli­
mate change, as part of their fiduciary duties. 
With the increased importance attached to 
ESG, LP sophistication has grown and we 
find that LPs are now driving an agenda that 
was previously more manager-led. 
Q
How does that manifest itself 
in terms of how LPs approach 
due diligence in this area? What 
questions are they asking?
Investor attitudes towards ESG have defi­
nitely evolved, consistent with society’s 
increasing sophistication towards sustaina­
bility practices. Investors want to see more 
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“Increasing evidence-
based recognition 
of the impacts of 
climate change have 
brought responsibility 
and sustainability 
very much into the 
mainstream”
everyone’s priority list as well as increased 
disclosure requirements and growing im­
portance being placed on ESG benchmark­
ing and validation tools. 
Q
What tools are available and 
what level of standardisation is 
realistically achievable?
There is no shortage of ESG frameworks to 
choose from. In fact, the problem is more 
deciding which one to adopt. As well as the 
United Nations-backed Principles for Re­
sponsible Investment, there is the Global 
Reporting Initiative, the Sustainability Ac­
counting Standards Board and the Glob­
al Real Estate Sustainability Benchmark, 
among others. 
Many companies also report against 
the UN’s Sustainable Development Goals, 
while others report based on industry man­
dated standards. The irony is that most of 
these frameworks are trying to address the 
same need for harmonisation, but the indus­
try has yet to reach an agreement on which 
one everybody should use. 
The push for standardisation is also 
hindered by the challenges of a highly frag­
mented asset class. The informativeness of 
fund-level reporting is somewhat diluted by 
sector-specific nuances, which mean ESG 
considerations that are extremely relevant 
to one asset, are not as relevant to another. 
Where there has been success in creating 
evidence of integration in our processes, 
thought leadership, active engagement lead­
ing to improved performance and transpar­
ent reporting of outcomes. Investors have 
now gone way beyond a simple box-ticking 
exercise, driven by a genuine passion for sus­
tainability considerations. Sustainability now 
needs to be part of a manager’s DNA. In fact, 
we believe that sustainability will ultimately 
become as important as financial returns in 
driving LP allocations. 
Q
What changes have you seen in 
terms of ESG reporting?
The tracking of ESG metrics has moved 
away from a pure monitoring approach to 
becoming a key feature of strategic and oper­
ational company decision making. Over the 
years, we have observed an increase in the 
breadth, depth and quality of ESG report­
ing, as well as increased focus on quantita­
tive, rather than just qualitative, information. 
We believe you can’t manage what you 
can’t measure, so we have encouraged our 
portfolio companies to invest in resourc­
es to focus more on measurement of ESG 
metrics, which has enhanced the quality and 
consistency of reporting. Several of our in­
vestee companies are now publishing their 
own annual sustainability reports. 
This evolution has been driven by more 
active engagement from LPs and asset man­
agers as ESG has risen to the top tier of

Analysis  
22    Infrastructure Investor    •    November 2019
“We believe that 
sustainability will 
ultimately become as 
important as financial 
returns in driving 
LP allocations” 
standardisation is in a common understand­
ing of an ESG value set, with responsibili­
ty and sustainability principles now being 
broadly aligned. The PRI has played an in­
strumental role in this process. The harmo­
nisation of reporting frameworks is the next 
step on this journey and is critical to being 
able to effectively and objectively bench­
mark performance and driving continuous 
improvement. 
Q
What other challenges, beyond 
standardisation, remain in 
place regarding the measuring and 
reporting of ESG performance?
Resourcing can be a challenge. Companies 
may not have the capacity or the budget to 
dedicate resources to ESG reporting, which 
can be quite onerous. In addition, robust 
ESG data is, in many cases, only available 
annually, making it challenging to report on 
progress more frequently. 
Culture and context also play a role. 
There will inevitably be differences in the 
way companies and investors approach 
ESG. Some may be country specific; certain 
jurisdictions seem to place less relevance on 
ESG factors than others. Company and sec­
tor specific factors also add complexity. For 
example, a regulated company is already re­
quired to publicly disclose a range of ESG 
data. These challenges show that the in­
frastructure industry is on a journey when 
it comes to implementing and reporting on 
ESG practices. As a manager, our role is to 
continue making meaningful contributions 
to industry wide initiatives such as GRESB 
and the PRI, whilst also actively engaging 
with our portfolio companies.
Q
How far has the industry come 
in terms of improving its ESG or 
sustainability credentials?
Compared with 10 years ago, ESG is now 
a two-way conversation, front and centre of 
our interactions with investors, co-share­
holders and portfolio companies. The focus 
is as much on concrete, measurable, short-
term actions as it is on longer term goals. 
This has driven a refinement of in­
vestment strategies and risk management 
frameworks, as well as changes to re­
cruitment practice and team composition 
amongst many managers and companies. 
The ongoing legitimacy debate around pri­
vate investment in public infrastructure, and 
the requirement for a social licence to oper­
ate has further reinforced a commitment to 
ESG considerations and, most importantly, 
the desire for substantive action.
This is most visible in the quest for ESG 
measurement and reporting, which initia­
tives such as the PRI and GRESB have pos­
itively contributed to. At portfolio company 
level, those frameworks are useful for driv­
ing change and identifying areas for year-
on-year improvement. 
Whilst we are pleased at how far the in­
dustry has come, there is a long road ahead. 
We see two short-term priorities. First, in­
vestors and fund managers must engage to 
define a common coding system to standard­
ise reporting, recognising the collective ad­
vantage that would drive. Second, we should 
expand the ESG conversation beyond the 
realm of holistic risk management systems 
to grasping more of the opportunities which 
will inevitably foster financial innovation and 
new products coming to market. n
Q
How would you characterise your approach to ESG?
At Hermes Infrastructure, we have carefully assembled a team where all 
members embrace the societal and environmental impact of infrastructure and 
contribute to a culture where sustainability is front and centre of everything we 
do. ESG is deeply embedded in our strategy and fully integrated in our processes 
throughout the investment lifecycle. As part of our reporting toolkit we undertake 
several important initiatives including UN PRI, GRESB, portfolio company 
engagement and KPI monitoring. Additionally, this year we will launch our 
inaugural Responsible Investment report.