Impact and ESRG frameworks

Infra Bank in Focus

Impact and ESRG frameworks

17 May 2023


Shailaja Annamraju, Deputy Chief Economist

Shailaja Annamraju headshot

Iliana Lazarova, Head of ESRG

Iliana Lazarova headshot

As a policy bank deploying public funds, UKIB covers a broad waterfront – clean energy, waste, transport, digital and water, as well as emerging areas, such as natural capital. The Bank’s twin missions are about helping tackle climate change and support regional and local economic growth across the UK. And wherever we invest, it is essential that we have a positive impact, and are mindful of how we can contribute to wider benefits to society, the environment, and the world around us.

To help ensure we can be transparent and credible in meeting these objectives, we are today publishing our Impact Framework and our Environmental, Social, Resilience and Governance (ESRG) Framework. There are strong synergies between the two as deploying them can strengthen the expected impact of our investments by managing risks and enabling opportunities.

Publishing these today is also about showing how our thinking on Impact and ESRG has evolved, and in some places, like in our initial set of metrics, it may get refined through further testing and engagement. Our approach has benefited from discussions with peers from other public finance institutions and international institutions, who generously gave their time to pass on lessons learnt from their own experience.

Our Impact Framework

Ultimately, all our investments should be impactful, and the kind of well-designed infrastructure we were created to finance should contribute to local economic opportunity and help tackle climate change (our triple bottom line). It is important that we empower the Bank to build an investment portfolio in pursuit of this and select and shape investments that maximise our impact.

The Impact Framework we are publishing today is therefore designed with this in mind – underpinned by the principles of learning and feedback, proportionality, credibility and transparency, and a focus on being consistent and evidence based.

It is worth noting that infrastructure investments are just one part of the wider infrastructure investment and finance eco-system driving progress towards our strategic objectives – and the framework is designed to enable us to identify our contribution, without overstating our impact, but equally being clear and confident about where we are adding value.

The framework has three key elements.

First, the building block of the framework is how we think about the ways in which we would expect our investments to result in positive outcomes. This is explained through our impact pathways, a tried and tested approach showing how our inputs and activities can deliver the additional financing and infrastructure investment required to achieve net zero and improve economic opportunity and productivity across the UK.

Second, we have identified a preliminary suite of metrics that we believe will allow us to measure what we most care about as a policy bank, and that gives us the choice and flexibility to be pragmatic and proportionate in how we monitor the performance of individual investments and track progress across the whole portfolio over time. These are neither exhaustive nor definitive at this stage. We plan to work with organisations such as the ONS, and relevant government departments to develop some of these further, and may add to, or drop some of these, over time.

Third, our framework includes a plan for how we will monitor and evaluate our impact over time. This is crucial as it will allow us to learn about the progress we are making and shape our investments accordingly. We will start by commissioning an interim evaluation that outlines the key evaluation questions pertinent to the Bank, and the most credible methodologies to evaluate impact and assess the extent to which we are on track. And our combined approach to impact and additionality – allows us to gauge what the expected impact of an investment is, and how much of that is down to the Bank being needed in an investment.

Our ESRG Framework

Our ESRG framework will help us communicate to the market and our peers how UKIB manages any materially important ESRG risks and opportunities in our portfolio. It reflects how UKIB is different to other financial institutions in that we have £22bn of capital to invest to support specific objectives and we are building new infrastructure assets without needing to manage a legacy portfolio.

Our Framework consists of four elements.

First, a set of principles that help us communicate to the markets, our partners and peers, our expectations around governance, strategy, risk management, reporting and the aspects of ESG that are unique to us, as an infrastructure investor in the UK.

Second, clarifying what is financially or strategically material to us and how we think about ESRG risks and opportunities. As a Bank with a mandate to help sectors, projects and technologies develop, we need flexibility to respond to different stages of development in our projects and partners.

Third, embedding ESRG considerations throughout all the Bank’s processes and hard wiring them into our decision making. This reflects the fact that we are a learning organisation and we want to ensure that our Investment Committee – which makes our investment decisions - is also driving our ESRG decisions.

Fourth, recognising that ESG is continually developing, by creating a tool to summarise the current standards set by sectors. The finance sector and UK Government are developing the expectations around ESG investing and reporting. We will continue to engage with Government and others, to ensure that our ESRG approach is agile and responsive, taking account of the latest policy developments.

UKIB’s ESRG approach also includes the screening of all investments for climate change related risks. We expect our partners and projects to consider physical and transition risks in financing and construction in line with recommendations of the Taskforce on Climate-related Financial Disclosure. We will be disclosing our climate related financial risk.

Future developments…

These frameworks are designed to be enduring and flexible, and they are foundations for the Bank. But they are not the end of the story for us on either impact or ESRG. We will learn from applying these frameworks, we will engage with external experts and our peers, and our evaluation will enable us to refine them over time.

This has been a journey of hearts and minds in the Bank and beyond and it has been inspiring leading it as well as a great opportunity for all involved.