Integrating sustainability into value creation

2023 was an unprecedented year for Ancala. We closed two funds and deployed over €600m to grow critical infrastructure companies, a record amount for Ancala in one year. This was against the backdrop of a subdued fundraising environment, higher inflation, and interest rates, supply chain disruption and an increasing focus on energy security.

The natural world continues to change and adapt to the impact of consumption. Over the last year, we have witnessed increases in the average air and ocean temperatures. The rises have been coupled with low levels of ice observed at the poles of our planet. While the El Niño climate pattern – where temperatures typically increase – may have exacerbated these events, human activity is still contributing to climate change. Many countries with warmer climates have begun to impose restrictions on water use to help protect supplies.

While governments recognise the importance of the energy transition, the speed at which economies can transition to renewable energy has been slower than anticipated. The cost of decarbonisation is also prompting many countries to pause or renege on previous net zero commitments.

Despite these factors, I’m encouraged global investment in the energy transition reached $1.8 trillion in 2023, up 17% on the previous year and a new record¹. I’m also proud of the increasing impact Ancala is having through our investment activity and working with our portfolio companies to deliver sustainability improvement programmes which align with value creation. To date, we have invested almost €1bn in companies and projects related to renewable energy, energy transition and decarbonisation.

A strategy that performs

We are grateful for the continued trust our investors have shown in Ancala’s proven and differentiated strategy. Last year, we reached the final close of our third flagship co-mingled fund, our largest single fundraise to date, with total commitments of €1.4bn, exceeding our €1.2bn target. We also closed the £551m Ancala Essential Growth Infrastructure Fund to support the expansion plans of three of our existing portfolio companies, supporting the energy transition and addressing the impacts of climate change.

Our portfolio continues to perform and deliver above expectations on returns and cash yield to investors. The performance is testament to the agile and collaborative approach that our portfolio companies take to adapt to the market environment, working closely with the Ancala team.

Alongside our Industry Partners, Ancala continues to provide our portfolio companies with the capital and expertise required to deliver on their value creation plans. On average, our portfolio firms have grown revenues by more than 65% since we first invested. In 2023, we deployed more than €600m into new investments and existing portfolio companies.

Prioritising areas which deliver the most impact

We recognise that we invest in infrastructure companies that are part of the fabric of their local communities and environments, and we take this responsibility very seriously. It is a key driver behind our commitment to support a more sustainable future.

ESG is incorporated throughout the investment lifecycle and we have been a UNPRI signatory since 2018. Our portfolio companies are actively engaged on ESG improvement. We work closely with them to identify and prioritise the areas where they can deliver the most impact.

This year, we have enhanced our approach to ESG assessment, monitoring and reporting to further guide our decision making when it comes to sustainability improvement strategies.

We have quantified ESG risks through the introduction of new data collection and reporting software and a climate change scenario modelling platform, which you can read about later in this report. In response to the changing regulatory landscape, we have also updated the ESG Action Plans for our portfolio companies. These have been accompanied by specific guidelines on how to implement elements of the Action Plans, including the development of transition or decarbonisation plans and the quantification of Scope 3 emissions.

In our latest UNPRI assessment, we achieved a 5-star rating across the Policy, Governance Strategy and Infrastructure categories and a 4-star rating on the Confidence Building Measures category. The scores evidence the high quality of our processes and procedures when it comes to assessment and implementation of ESG measures.

Opportunities to decarbonise

Across our portfolio, we are constantly exploring where we can find opportunities to decarbonise and enhance sustainability. Our comprehensive approach has led to the installation of solar photovoltaics and the introduction of water leakage reduction measures and energy efficiency improvements in buildings and equipment. In addition, the development of decarbonisation strategies, the trial of low-carbon fuels (e.g, Hydrogenated Vegetable Oil) and the achievement of ISO14064:2018 certifications have been significant milestones within the portfolio. Many companies are also progressing opportunities created by the energy transition.

In this report, we highlight some of the transformative sustainability developments across our portfolio such as the construction of the world’s largest decarbonised heating from wastewater solution for a commercial building. We also cover the improvements LNG terminal Dragon LNG made towards decarbonising its operations and developing industry-leading initiatives to encourage further decarbonisation. The sale of our stake in the business to energy storage specialist VTTI earlier this year showcases the positive returns that can be delivered alongside sustainability improvements.

Infrastructure investment requires extensive collaboration to deliver the right outcomes for all stakeholders. Our portfolio companies are finding solutions to some of the world’s most pressing sustainability challenges, and we are actively enabling them to achieve this. I look forward to seeing what our portfolio companies achieve over the coming year as we continue to pursue sustainability improvements alongside their value creation plans.

Spence’s foreword introduces Ancala’s 2023 ESG Report. You can read the full report, here.

References

1 – BloombergNEF’s Energy Transition Investment Trends 2024