NextEnergy Solar Fund : NESF TCFD Report 2023

NextEnergy Solar Fund

TCFD Report

for the year ended 31 March 2023

NextEnergy Solar Fund | TCFD | March 2023

Task Force on Climate-related Financial Disclosures ("TCFD")

The challenge posed by climate change necessitates a complete transformation of the way the world produces and consumes energy. In August 2021, the United Nations' Intergovernmental Panel on Climate Change ("IPCC") published its Sixth Assessment Report, which stated "global warming of 1.5˚C and 2˚C (before pre-industrial levels) will be exceeded during the 21st century unless deep reductions in CO2 and other greenhouse gas emissions occur in the coming decades". This was further reinforced by the IPCC's AR6 Synthesis Report, released in March 2023. The transition to a low-carbon economy is central to making meaningful reductions in global greenhouse gas concentrations, minimising long-term climate change impacts, and enabling a development trajectory that is sustainable on a global scale. This is reinforced by the UK government's recent commitment to 70GW of installed solar capacity by 2035.

NextEnergy Solar Fund ("NESF") sees renewable energy as having a crucial role to play in the low-carbon transition and in providing economic opportunities that support governmental mandates such as the EU and UK net-zero target by 2050.

To be a leader in ESG and responsible investment, accountability is paramount. The Investment Adviser has continued to deliver transparent reporting and enhanced existing disclosures, reporting on the Company's impact and contribution to the Sustainable Development Goals and an ESG disclosures document to confirm compliance with EU SDFR, particularly Article 9, as well as fund- level EU SFDR Principle Adverse Indicators and Green Impact Reports, which disclose our contribution to climate mitigation.

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The Company endeavours to communicate progress as we expand our low-carbon businesses capabilities, develop our policy engagements, build on our climate risk management strategies, expand our core ESG metrics, and pursue engagements with investors, stakeholders, and the wider solar industry in order to collectively address the climate challenge and promote the transition to a low-carbon economy.

Introduction

NESF and NextEnergy Capital recognise that climate impacts should no longer be considered non-financial and have been an official supporter of the goals of the TCFD since September 2019. TCFD was established in 2015 with the aim of developing a comprehensive and uniform framework for climate reporting, enabling investors and other stakeholders to assess the companies' climaterelated financial risk. These risks may be categorised as follows:

• Physical Risk: These are risks related to the changes to the physical environment from the impacts of climate change in terms of intensity/frequency of extreme events (acute risks) and longer-term changes in climate (chronic risks)
• Transition Risk: Moving towards a low carbon economy will entail political, technological, legal, market and social changes that can create risks and opportunities to existing businesses and their underlying revenue streams

The Investment Adviser has been a leader within its sector for integrating considerations on climate throughout its organisation and within its decision-making processes. For the year ended 31 March 2023, the Company responded to the 11 recommendations set out by TCFD, with the ambition of continually expanding and evolving its implementation

NextEnergy Solar Fund | TCFD | March 2023

and reporting in line with TCFD recommendations into future reports.

Governance

1. The Board oversees climate-related risks and opportunities
2. The Investment Manager assesses and manages climaterelated risks and opportunities

Board

The NESF board has overall responsibility for NESF's performance and management. Understanding climate risk management processes is critical to the Board. ESG matters are more important than ever to investors, stakeholders, and society. Tracking progress and reporting changes in climate risk throughout the NESF value chain is a crucial step in tackling climate change, driving accountability, and ultimately delivering a sustainable future for generations to come. Climate considerations and progress updates are discussed during ESG Committee meetings and quarterly meetings with the Investment Manager. During such meetings risks related to climate change are discussed. The Governance Framework in the Governance section of the Annual Report sets out the board and committee structure, as well as the chair and responsibilities of the ESG Committee.

Investment Manager/Adviser

The Investment Manager and Investment Adviser realise that the integration of a climate and ESG strategy into NESF's governance structures is imperative to effectively identify and manage potential risks. Under the leadership of NextEnergy Capital's CEO, climate-related matters have been integrated into the corporate Sustainability Framework, which is based on three pillars - Climate Change, Biodiversity and Human Rights. Continuing this emphasis

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on business principles, the NextEnergy Capital ESG team has developed a Climate Change Position Statement, which was first published in March 2021. The Statement sets the ambitions, the reference standards, and the practice that the Manager adopts when dealing with climate-related risks and opportunities. The Manager's commitment to minimising both physical and transitional climate risks is evident not only in the nature of the business as a leading solar investment manager, but also in the activities undertaken by the individual departments of the business. The CEO and senior management of the Investment Adviser are responsible for actioning NESF's climate ambitions, while the Head of ESG is responsible for the strategy execution and for updating the NESF Board and Investment Committee members on recent climate- related activities and progress. The Head of ESG is a member of the NextEnergy Group Risk Committee which meets quarterly. The risk register includes climate-related risks and other ESG risks. The implementation of ESG and climate strategy is facilitated by a Sustainability Framework, which draws on SDGs as the structure by which risks are identified, managed, and reported across on a broad range of ESG issues that encompasses climate change and beyond.

NextEnergy Capital coordinates stewardship practices amongst senior management with an external public affairs agency. This partnership enables NextEnergy Capital, as an Investment Manager, to work closely with the government and its advisers to highlight the benefits of solar as an asset class, and an important part of the energy mix. In addition, NEC has participated in panel sessions on the natural capital value of solar farms and has contributed to the Department for Environment, Food and Rural Affairs ("DEFRA") consultation on biodiversity net gain. The

NextEnergy Solar Fund | TCFD | March 2023

Investment Adviser is also a member of the Institutional Investor Group on Climate Change ("IIGCC") and is currently participating in the Working Groups for the Paris Alignment Investment Initiative. The Head of ESG also sits on the board of Solar Energy UK ("SEUK") and was recently appointed chair of the SEUK Supply Chain Working Group that is tasked with setting auditable ESG standards and a traceability programme for improving transparency and business ethics in the global solar supply.

Asset Manager

Climate risks are assessed during each pre- acquisition and development phase through a screening questionnaire. When potential risks are identified, the ESG team, together with the investment team and, where relevant, external advisers, undertake a further risk assessment and agree upon the necessary mitigation measures to manage and minimise the impacts. Usually, an action plan that includes these mitigation measures is put forward and presented to the Investment Committee for approval. The action plan is then negotiated with contractors, including Engineering, Procurement, and Construction ("EPC") and Operations and Maintenance ("O&M"), and then handed over to the asset manager of NESF, WiseEnergy. The Asset Manager oversees the implementation of these measures, including biodiversity management, land management, community engagement, and health and safety, amongst others. Reports on any progress towards these plans on a regular basis and, in addition, will measure and manage several selected KPIs based on the SDGs and the EU SFDR and Taxonomy Regulatory Technical Standards which have been identified as material to NESF's business and operations.

Strategy

1. Describe the climate-related risks and opportunities the organisation has

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identified over the short, medium and long term

1. Describe the impact of climate-related risks and opportunities on the organisation's businesses, strategy, and financial planning
2. Describe the resilience of the organisation's strategy, taking into consideration different future climate scenarios, including a 2°C or lower scenario

Climate-Related Risks and Opportunities

The Company understands that climate change poses risks and opportunities across all asset investments and can interact with multiple stakeholders. Through its commitment to providing clean energy, the Company is well- placed to help curb global carbon emissions, support biodiversity and maintain or improve land quality. Conversely, there are risks associated with such a transition and the potential physical consequences associated with rising temperatures.

The table below covers the key risks and opportunities, identified by NESF, faced over the short, medium and long term.

NextEnergy Solar Fund | TCFD | March 2023

Term		Risk Type		Risks		Opportunities
Short		Physical				Increased irradiation should enhance the energy yield from the
		The short-term risks are limited in severity as climate
< 5 years					portfolio. Coupled with storage this could represent a positive cash flow
			change risks are expected to develop over the medium
					opportunity. Short-term planning and monitoring of the actual climate

	to long term. Observed weather events to date suggest
		pathway will enable the portfolio to be positioned for resilience to
	that the short term would see a continuation and slight
		future physical risks. Adaption can take many forms and there are
	increase in extreme weather events (flash floods and
		opportunities to enhance resilience whilst also improving biodiversity,
	heat waves). These have the potential to interrupt cash
		which in turn helps to mitigate climate change. Early mitigation actions,
	flows and damage assets. There is an expectation that
		such as those described in the risk section, can provide a competitive
	higher irradiance, whilst increasing yield, will increase
		advantage vs organisations who do not take action (ensuring robust
	wear and degradation of parts, shortening useful life
		spare part supply chains, securing access to parts and ensuring ongoing
	and increasing failure rates. To mitigate, this requires a
		operation of plants).
	maturation of the spare parts strategy and other
	investments in asset health as well as strategic
	assessment of relationships with key component
	manufacturers, installers, and maintenance providers.

Transition	Government policy in jurisdictions the portfolio is exposed to,
	is to achieve net zero by 2050. This can primarily be
	considered an opportunity, but these policies will cause
	significant disruption to the energy mix and that can present
	a risk to power prices.

Renewable energy is clearly a vital component of meeting government net zero policies. The increase in demand for clean energy is the primary transition opportunity for the portfolio and future development.

				These risks are dependent on which climate pathway
Medium		Physical			The primary opportunity that climate change presents for the portfolio
5-10 years				develops but potential risks include:		is an expected increase in electricity demand. Industrial cooling, in
						particular, can be linked to physical climate change and will increase

	Water stress - Italian assets exposed to extreme annual
		electricity demand. This is in addition to further demands through the
	water stress, cleaning panels becomes difficult, efficiency
		transition opportunities (eg electric cars).
	drops and power output declines.
		There are innovations, such as agrivoltaics1, that can develop into
	Flooding - UK assets are exposed to a heightened risk of
		opportunities depending on asset-specificmicro-climates. Raising
	flooding with the potential damage assets and restrict
		panels provides adaption to flood risk and presents an
	access to sites for maintenance.
		agriculture/biodiversity opportunity beneath them. In hotter climates
	Temperature - Italian assets exposed to rising		the shade presents an opportunity for crop growth which wouldn't
		otherwise be possible and evaporation from the crops cools the panels.
	temperatures and an increase in days with +35⁰C,
	reducing efficiency and power output declines.		The interplay with transition opportunity will also develop as physical
			climate change impacts become more observable, they will spur
			increased policy reaction and create transition opportunities (eg an
			increase in clean energy demand).

Transition	There is a high degree of ambition in some transitional
	policies and as the implementation deadlines move closer
	there is a risk that policies are delayed. This may mean
	expected increases in demand for renewable electricity do
	not occur.

Government policy across a range of sectors will take effect in this period. In the UK, the Government has adopted a policy of transitioning to electric vehicles by banning the sale of new fossil fuel cars (excluding hybrids) by 2030. They have also banned the installation of gas boilers in new build homes from 2025, promoting low-carbon alternatives. They are also promoting the uptake of low carbon alternatives to gas boilers in homes, (such as heat pumps), with the government setting a target of 600,000 installations per year by 2028. The impact of this is an increase on overall clean electricity demand, especially when coupled with net zero policy, instigating a significant shift to renewables. This will create an opportunity for clean energy generation and storage.

1 What's agrivoltaic farming? Growing crops under solar panels | World Economic Forum (weforum.org)

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