Actis Japan: Transforming infrastructure in Asia to build a better tomorrow
Asia is where the future lies: the region is home to 60% of the world’s population, generates nearly half of global GDP and two thirds of economic growth. But this comes at a cost, with Asia being a huge user of thermal fuels, often delivered through old-fashioned and inefficient infrastructure, and responsible for more than 50% of worldwide carbon emissions.
At Actis, we see our role as investing behind solutions to that challenge, which is why in March 2022 we opened our 19th global office in Tokyo, adding to our network of Asian locations that stretches from Mumbai and New Delhi to Hong Kong, Shanghai, Singapore and Seoul.
Taking advantage of our global network, as well as the senior team we have assembled locally, we expect to commit almost US$500 million to onshore renewables in Japan over the next 4-5 years and will also look at opportunities in Taiwan and South Korea. These investments will predominantly be deployed through our flagship energy infrastructure business, where we build out power generation and distribution businesses that further the energy transition, such as renewables.
To give just one illustration, Taiwan, South Korea and Japan are all investing heavily in offshore wind with a combined national generation target of 37 Gigawatts by 2030. Offshore wind farms, which are based on sophisticated and rapidly evolving technology; require extensive domestic and even regional supply chains; carefully crafted pricing mechanisms; and experienced operational management, are exactly the type of long-life infrastructure assets that Actis specialises in.
We have a long track history which has allowed us to call upon unrivalled experience across energy, infrastructure and real estate assets. Over the past two decades we have raised some US$24 billion – around ¥3 trillion. We are a truly global firm and we have invested it in 50 countries from Latin America to Africa, Europe and Asia, covering some 85% of the world’s population. We have made almost 90 investments in wind and solar projects over that period and currently manage around 80 portfolio companies.
The Actis edge
Size, however, is not how we primarily measure ourselves. We are builders and operators, not just financiers, we have an industrialist mindset and we believe it is precisely this that makes Actis different: we seek an operational ‘edge’ through leveraging our experience, taking advantage of economies of scale and sharing best practices across our global portfolio. Our operational know-how and pragmatic industrialist mindset are integral levers in delivering superior financial returns.
More specifically, the leadership team of 15 in our energy business has over 200 years of experience and we have a dedicated 12-strong ‘Operations & Value Creation’ team that works on all our deals alongside the individual investment teams. Having operated in some of the world’s most challenging markets, they can engage authentically with the managers at portfolio companies and help them craft strategy as well as improve relationships with stakeholders, from customers to regulators to local communities.
Actis generally takes full control of its investments, purchasing 100% wherever possible and often rebranding the new company. We then audit and review operations, scan for industry risks, identify talent and make use of our global buying power to reduce costs.
Above all, we share best practices: there is a yearly meeting in London where all the management teams of the portfolio companies come together to exchange views and discuss successes they have had and challenges they have faced. This unleashes tremendous energy – they are still talking to each other as they board the plane back home. This is the Actis edge in practice.
The What and Why of Sustainability…
Sustainability is at the core of everything that Actis does. We combine a top-down resolution to only invest in sustainable sectors with a bottom-up ambition to turn each of our portfolio companies into a sustainability leader in its industry.
The first element of this distinctive dual approach is relatively straightforward. Using the Actis Transition Tool developed for this purpose, our investment teams screen every potential transaction to see if it provides a potential solution to one (or more) of the UN’s Sustainable Development Goals (SDGs).
Businesses that are clearly net-zero aligned, such as renewables, battery storage or electricity transmission, are labelled green and qualify as suitable investments assuming they pass our regular financial and ESG due diligence. High-carbon emitters, such as coal power stations, that are at risk of becoming stranded assets, are simply not in our investable universe.
The trickier part is assessing the deals in the middle, which we call ‘olive’ because they are between green and brown: say a steel works, chemical factory or an oil pipeline. If such a facility can either be transitioned to have a role in the net zero economy (through investment or operational improvement); or will be a necessary part of our infrastructure for the next 10-15 years and can be managed in a low-carbon way during this time, then we are very much interested.
In fact, we see such ‘smart olive’ infrastructure as precisely the kind of asset where Actis can add real value. And there is a strong commercial imperative to do so since investing in sustainability adds value, allowing us to command a premium when we come to exit – ‘values drive value’, as we like to say.
…and How we create Sustainability Leaders
As for how we do it investment by investment, the key is to turn our mission into simple, clear commitments that can be applied systematically. For example, we will always establish a sustainability sub-committee to the board of each portfolio company and appoint a head of sustainability. We always implement international standards, invest in local communities, establish company-wide risk controls and training and conduct an external review of the board’s effectiveness.
What we have learned over the course of many years of applying this ‘playbook’ is that it changes the mindset of people both at Actis centrally and at the companies we manage, as risks are reclassified as opportunities: rising greenhouse gas emissions compel the world to invest more in net-zero technologies; extreme weather events and rising sea levels will prompt the construction of climate-resilient infrastructure and smarter buildings.
In our daily work, this translates into a relentless focus on communicating and sharing knowledge and best practice. We have already referred to the annual offsite in London but throughout the year there are training sessions, workshops and masterclasses. We give our management teams access to world-class ESG experts on everything from sustainability reporting to biodiversity. We have written a series of practical handbooks that can be used for guidance. Even our CSR programmes through “Actis Acts” are designed to complement investment activity with a focus on local communities.
Moreover, the central Sustainability Team as well as the appropriate Actis partner or partners get involved in the companies they oversee, sitting on boards and committees and providing a sounding board for local management. All of this contributes measurably and meaningfully to performance.
‘If you can’t see her…’
We apply the same commitment and focus to another critical area: inclusion & diversity. While we acknowledge that we are a work in in progress and not where we want to be yet in this respect, we strive every day to create a more diverse and inclusive workforce out of the conviction that this will unlock better performance.
This means our strategy is intentional and authentic and the people at Actis centrally and in our portfolio companies recognise it as such. The tone from the top – and indeed change at the top – is crucial to drive cultural change: ‘if you can’t see her, you can’t be her’.
As a result, we are making progress: 30% of our partners and directors are now female and last year, half of our new intake at Actis was too. Some of our companies do even better, with almost half the management teams at two recent investments, BTE in South Africa and Atlas in Latin America, being women.
Having focused on female representation initially, we are now moving to improving our employment of people with disability and tackling the issue of gender more holistically under the precept of ‘bring your whole self to work’. We have built I&D criteria into our due diligence and screening processes and set up mentoring programmes, mental health sessions and a Global I&D committee.
Making a real impact
When it comes to investing their money, we understand that our Limited Partners and potential clients have many options. We believe Actis, with its focus on sustainable energy and infrastructure, is a different kind of asset manager; and we have described our distinctive approach to sustainability, inclusion and diversity.
Nevertheless, at a time when ‘greenwashing’ is a term that is widely bandied about and some are even downplaying or de-emphasizing their environmental credentials or ‘greenhushing’, we understand that it is important to be able to assess our ESG performance in numbers as well as words.
For that purpose, we have since 2018 developed the Actis Impact Score (AIS), a proprietary measurement system that allows us to quantify and report on an investment’s positive ESG impacts and contribution to the SDGs. The AIS has been independently assured by PwC (1) and is aligned with the Operating Principles for Impact Management developed by the International Finance Corporation, an arm of the World Bank (2).
The AIS uses a robust methodology to measure (up to) five impacts of an investment, from the emissions it avoids to the jobs it creates or the economic boost it conveys. These are scored on how wide and deep their impact is, whether it would have happened anyway (in other words, without the involvement of Actis); and given a multiplier depending on whether the impact results from the investment’s core activity. The total impact score can then be calculated and measured, much like a financial return to see how much value has been added over the life of the investment.
It is true that right now, the AIS for an individual investment can only be properly compared to other Actis investments and many of our peers have developed their own ratings. But we believe that the methodology developed by the Impact Management Project (3), on which our score is based, will become increasingly widely adopted, allowing a more apples-to-apples comparison across different managers. This will be another step forward as we continue to make sustainable investments in the quest to create a better tomorrow.
We thank you for reading this and for your interest in Actis. If you have further questions, please contact:
Jun Ohashi <JOhashi@act.is>
Sarah Kim <skim@act.is>
1.https://www.act.is/wp-content/uploads/2022/05/actis-signed-limited-assurance-report-f19.pdf
- https://www.act.is/wp-content/uploads/2022/05/Actis-IFC-Disclosure-Statement-April-2022.pdf
3.https://impactmanagementproject.com/