26 th May 2016 Assessing Green Impact and Green Risk

2 Content 1.Introduction 2.Assessing Green Impact 3.Assessing Green Risk 4.Reporting

1. Introduction

4 Our approach GIB targets commercially viable investments which also demonstrate a significant “Green Impact" Our vision: Green and ProfitableOur task: crowding-in capital Fully commercial green and profitable integrated business model

5 Maximising green impact We are required to invest in projects that deliver ‘green impact’. We define ‘green impact’ through five measures – our ‘green purposes’. Promote environmental sustainability Reduce greenhouse gas emissions Increase natural resource efficiency Our green purposes are embedded into our DNA. Our investments must target and return positive green impact. PurposesPrinciples & PoliciesProcess

6 Integrating green in our investment process We have developed a framework to mainstream green investment. Our ‘Green Investment Principles’ are an integral part of our investment process Principle 1 Positive contribution to a recognised green purpose Principle 2 Reduction of global greenhouse gas emissions Principle 3 Enduring green impact Principle 4 Clear and firm investment criteria Principle 5 Robust green impact evaluation Principle 6 Effective covenants, monitoring and engagement Principle 7 Transparent reporting The Green Investment Principles are implemented through our Green and Responsible Investment Policies PurposesPrinciples & PoliciesProcess

7 The practical application of our policies The processes and tools we use to assess, monitor and report on the Green Impact of our projects are set out in GIB’s Green Investment Handbook A summary of the Green Investment Handbook is available on our website PurposesPrinciples & PoliciesProcess The Green Investment Handbook is our manual, setting out and explaining the practical tools we use day-in, day-out

2. Assessing Green Impact

9 Introduction Why introduce Green Ratings? –As investors we have found no quantitative scale to measure the ‘Green-ness’ of investments –We believe our five Green Purposes provide a good framework to analyse investments –We have developed a rating scale, akin to that offered on credit, around this framework –This will enable improved side-by-side green comparison across different investments –This will also enable more systematic monitoring of deal performance Development of a rating methodology –The ratings approach is based on a combination of existing proven techniques, including Environmental Impact Assessment, Life Cycle Analysis and Carbon Footprinting –The ratings methodology has been developed in consultation with key stakeholders and experts Green Ratings follow our ‘assess, monitor and report’ methodology –During their lifetime investments are reassessed and potentially re-rated (up or down) in light of additional information Next steps –Our goal is to bring green reporting into line with general financial reporting –Standardisation of green criteria is key to attracting new capital in the sector –We want to engage with other investors to build on our system so it can be used more widely Proven quantified Green Impact of investments

10 Ratings Output: the DART Board The output of the ratings is the DART Board – Deal Assessment Rating Tool Each project’s Green Ratings are presented on the DART Board showing performance (A+ to E) against the 5 Green Purposes To date, we have found this to be a useful and simple tool to present the forecast (and actual when operational) green performance, backed up by the robust assess, monitor and report methodology Intuitive and comparable output

11 Quantitative footprinting GIB assesses the greenhouse gas (GHG) savings of a project relative to a transparently defined baseline, expressed in tonnes of carbon dioxide equivalent – t CO 2 e The whole lifetime GHG savings of a project are assessed, and therefore must take into account foreseeable future changes to the baseline, e.g. a decarbonising electricity grid The rating is normalised to the size of the investment, i.e. tonnes CO 2 e avoided per £ invested For natural resource efficiency we are developing a life cycle assessment tool to determine the net avoided natural resource consumption arising from green infrastructure projects Transparent and comparable green impact metrics

12 Standardising GHG reporting for investments GIB is working with a group of International Financial Institutions (IFIs) to develop a harmonised approach to determining the GHG savings of the climate mitigation projects in which they invest. At the 2015 Paris COP the IFI Working Group released three methodology documents detailing proposed approaches to GHG accounting for renewable energy, energy efficiency, and transport projects.renewable energyenergy efficiencytransport We are at the forefront of a global initiative to harmonise carbon accounting

13 Qualitative assessment We use a combination of environmental studies submitted to support planning – including Environmental Statements or non-statutory environmental assessments – independent environmental advice, planning responses, policies and operational data to understand impacts on the natural environment and biodiversity This allows us to score performance against a range of criteria The aggregate of those scores provides the natural environment and biodiversity ratings Established methods and project data used to score against defined criteria

14 Promotion of environmental sustainability This Green Purpose is a measure of the wider sustainability aspects of a project, and includes green aspects – especially secondary or indirect effects – not covered by the other Green Purposes A semi-quantitative framework method has been designed for rating investments The criteria for rating an investment’s contribution to the promotion of environmental sustainability have been taken from wider sustainability indicators which consider the ability of investments and projects to accelerate the transition to a greener economy Semi-quantitative measurement of secondary / indirect effects and impacts

3. Assessing Green Risk

16 What is Green Risk? The risk that a project may not deliver the forecast Green Impact The formal green risk assessment framework is also a useful method to include risks associated with non-carbon related aspects such as non-compliance with investment criteria and other environmental and social issues associated with a specific project. Generic Green Risks include but are not limited to: Lower Green Impact than assumed forecast Green Investment Policy non-compliance Responsible Investment Policy non-compliance Equator Principles non-compliance Contaminated land liability Planning Consent Conditions / adequacy / breach / non-compliance Environmental Permit adequacy Environmental, Health and Safety incidents Management policy and systems adequacy Management capacity and capability Counter-party / stakeholder / community reputational impact

17 Green risk: Integrated within Investment and Risk Committees Material green risks identified during this process can be mitigated in an action plan Material risks and mitigation can be included in any post-financial close monitoring Risks are presented on a basis consistent with other risks faced by the bank

4. Reporting

19 The concept of a green profit and loss and green balance sheet was created by the bank in order to present our green results. We call them our green impact statements. Our green profit and loss presents the actual green impact generated by our operating assets. Our green balance sheet presents the forecast lifetime green impact. The results are presented in our annual report in the same format as our financials and are subject to assurance. We currently present 5 metrics: Reduction of greenhouse gas emissions Generation of renewable energy Energy demand reduction Recycling of materials Avoidance of waste to landfill We take the green performance of our investments equally as seriously as we take the financial performance. What gets measured gets managed

20 Green profit & loss, balance sheet example Emission reductions ‘profit and loss’ 2014/15: Actuals from operating assets in ktCO 2 e for year ending 31 March 2015 Emission reductions ‘balance sheet’ 2014/15: Forecast lifetime reductions for entire portfolio in ktCO 2 e at 31 March 2015 Actual and forecast Green Impact is subject to three years of rigorous assurance

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22 Contact details Headquarters Atria One, Level Morrison Street Edinburgh EH3 8EX UK Tel: +44 (0) London office Millbank Tower Millbank London SW1P 4QP UK Tel: +44 (0) DISCLAIMER: The information in this document and any accompanying material (“The Document”) is confidential and commercially sensitive. This Document is provided to each recipient on a confidential basis solely for information purposes only. No reliance can be placed on this Document by any recipient or any other person. This Document and its contents are confidential to the person to whom it is delivered and must not be reproduced or distributed, either in whole or in part, nor its contents disclosed by such persons to any other person without the prior written consent of UK Green Investment Bank plc. Except as required by law, neither UK Green Investment Bank Plc nor any of its connected persons accepts any liability or responsibility for the accuracy or completeness of, or makes any representation or warranty, express or implied, with respect to the information contained in this Document or on which this Document is based or any other information or representations supplied to the recipient. UK Green Investment Bank Plc will not act and has not acted as your legal, tax, accounting or investment adviser. This Document does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any investment and UK Green Investment Bank Plc does not arrange investments for/introduce parties as a result of sharing the information set out in this Document. Registered office: Atria One, Level 7, 144 Morrison Street, Edinburgh, EH3 8EX. Registered in Scotland under registered number: SC UK Green Investment Bank plc is wholly owned by HM Government. The company is not authorised or regulated by the Financial Conduct Authority or the Prudential Regulation Authority. A wholly owned subsidiary, UK Green Investment Bank Financial Services Limited, is authorised and regulated by the Financial Conduct Authority. All green impact data correct as at 31/3/15