Title: NON-DISCLOSURE AGREEMENT
Author: Kim Gredsted
Last saved by: Kwame Parker
Company: ifu

3 February 2023

RE: Frontier Energy Submission / UK’s strategy towards development finance institutions

We, Frontier Energy, note that the International Development Committee has launched an inquiry on Investment for Development: the UK’s strategy towards development finance institutions, with a focus on how effective British International Investment (BII) has been, or can be, in the delivery of the UK government’s investment, climate, and gender-based goals. Frontier Energy, the umbrella name used for Frontier Investment Management ApS and its subsidiaries and project companies, is a Danish-domiciled investment manager focused exclusively on renewable energy development (wind, solar, and hydropower) in sub-Saharan Africa with BII as a significant investor in its two private equity funds, having invested EUR 22m in Fund I in 2012 (36% of the total fund size) and USD 30m in Fund II in 2017 (13% of the total fund size), and whom we hope and anticipate will invest a significant amount in our third fund which will close towards the end of 2023. BII has always been a dear and important friend to Frontier Energy, without whose initial support in terms of funding and advice, it would have been unlikely that Frontier Energy would be in operation today. In reviewing the scope of the inquiry, we feel that we can shed some light on a subset of the terms of reference, namely:
1)	How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?
2)	What due diligence does BII undertake prior to making investment decisions and how does this compare with best practice?
3)	What current investments does BII hold?
4)	How effectively does BII manage funds following its initial investment?
5)	How does BII evaluate the impact of its investments? 
Prior to a response to the terms of reference above, we share below some additional information on Frontier Energy, its genesis, and where it stands today, in part with BII’s technical and financial assistance. From its beginnings in 2010 as developer, constructor and operator of renewable energy assets, today Frontier manages project assets with a value in excess of USD 1 bn, with the following significant highlights:
•	8 small hydropower assets in Uganda and Rwanda (65 megawatts in total) and 2 solar photovoltaic (PV) assets in Kenya (96 megawatts in total) developed as greenfield projects and now in operation
•	Solar PV and hydropower projects under construction in Sierra Leone and Zimbabwe
•	For the projects in operation, significant development impacts
o	234 new well-paying, permanent jobs created in Africa at the investment manager and project company level
•	Over 30% of all employees are female
o	Electricity generated sufficient to light up over 1 million homes
o	135,000 tons of avoided CO2 annually
o	Numerous community development projects implemented and continuing in Kenya, Uganda, and Rwanda, including:
•	Piped fresh water schemes
•	Bursaries and scholarships
•	Construction of school buildings and equipping of school science labs
•	Economic opportunity creation through e.g. the training of repair mechanics for two-wheeled transport vehicles and seamstresses for sewing of face masks during Covid-19 lock down. 
•	Projected positive financial return on investment for BII once all projects are exited at the end of the investment funds’ lives

In response to the selected terms of reference, from Frontier Energy’s perspective:
1)	How effective are the governance structure and internal oversight mechanisms of BII (e.g., oversight over direct investments, fund investments, BII controlled companies)?
BII is a 36% investor in Frontier Energy’s first fund and a 13% investor in its larger second fund. While Frontier Energy’s response to the question above will not shed light on the internal oversight mechanisms of BII, it is hoped that this response will shed some light on how BII provides oversight of its investments in Frontier Energy’s funds. Frontier Energy is required to supply BII, as a limited partner in its funds, with quarterly financial and project progress reports and annual audited financial reports. As a larger investor in Frontier’s funds, BII participates in Frontier’s bi-annual investor board meetings and generally BII chairs these meetings. Investor board meetings cover Frontier Energy investment strategy and focus, discussions of challenges and mitigants with respect to environmental, social and governance (ESG) issues, senior staffing and personnel issues, and optimal ways of exiting investments, amongst other issues. At least one investor board meeting each year involves a physical investor trip to a Frontier project asset under development, construction or operation, and BII has always attended these site visits. We find BII to be a helpful and effective partner in terms of providing oversight and sharing best practices in reporting and governance from their experiences with other investments in multiple sectors across the continent. In particular BII has provided support at the fund management level for adopting the latest ESG standards into Frontier’s policies and has also continuously provided training on ESG related issues to Frontier staff including both management level staff and Community Liaison Officers who are recruited from local communities. 
2)	What due diligence does BII undertake prior to making investment decisions and how does this compare with best practice?
With respect to BII’s investments in Frontier Energy, we can say that BII’s approach to due diligence prior to its investment decisions has been very rigorous and in line with those of other highly regarded development finance institutions. Note that in addition to being an investor in Frontier Energy’s funds, BII is also (i) a co-investor (i.e. a direct investor alongside Frontier Energy) in a series of 50-megawatt (in aggregate) solar PV plants in Sierra Leone, which are currently under construction; and (ii) the mandated lead arranger of the project finance debt on a 50-megawatt Frontier-developed wind farm in Kenya. Frontier Energy has therefore interacted with BII both as direct equity investor in, indirect equity investor in, and lender to Frontier-led power project investments. BII has undertaken the following prior to its Frontier-related fund investments:
•	Desktop review of Frontier Energy marketing material and private placement memoranda
•	Interviews with most Frontier Energy employees, including investment directors, environmental & social (E&S) managers, and technical managers
•	Physical site due diligence trips to selected project assets, including interviews of select project company staff and project-affected community members
•	Review of Frontier Energy employee policy and ESG policies
•	Interviews of investment committee members
•	Review of historical returns and project financial model, including an examination of pipeline projects
Additionally, for BII’s direct equity and debt investments, BII has participated in site due diligence visits, a review of the Engineering, Procurement and Construction (EPC) and operations and maintenance (O&M) arrangements, and has been an active participant in the drafting and implementation of the Environmental & Social Impact Assessments (ESIAs) for projects in which they are involved; for these workstreams, BII has used a combination of internal teams and the appropriate experienced external legal, technical, and ESG consultants. Frontier Energy considers BII’s due diligence approach to be in line with best practices.

3)	What current investments does BII hold?

BII was an anchor investor in Frontier’s first fund, the DI Frontier Energy & Carbon Fund K/S and an investor in Frontier’s second fund, Frontier Energy II Alpha K/S. As discussed in other responses, the funds invest in the development and construction of wind, solar, and hydropower assets in sub-Saharan Africa. The funds are structured as private equity funds. It is anticipated that BII will be an investor in Frontier Energy’s third fund, with a target first closing in late 2023.

4)	How effectively does BII manage funds following its initial investment?

From Frontier Energy’s perspective, we consider BII to be an effective manager of its investments in our funds. BII sits on Frontier’s Investor Board, which is made up of the largest investors in our funds and meets twice a year to receive updates on fund performance and future fund plans, and to discuss and give feedback and direction on our funds’ challenges and opportunities. Sharing relevant experiences on investments in other projects on the continent is a key part of the Investor Board dialogue. The Investor Board also resolves issues around real or potential conflicts of interest. Additionally, the Investor Board generally accompanies Frontier Energy on an annual site visit to select Frontier Energy projects; in the past year, Frontier Energy hosted the Investor Board on a visit to two of its Uganda hydropower assets and two of its Kenyan solar projects. 

5)	How does BII evaluate the impact of its investments? 

In the limited partnership agreements executed between Frontier Energy and BII – along with Frontier Energy’s other (mainly DFI) limited partners – Frontier is required to adhere to a host of ESG standards, including the IFC Performance Standards, the EIB Social Safeguards, the Equator Principles, and the United Nations Global Compact. BII strictly monitors the implementation and adherence to these requirements at the fund level and the project level, and all projects must have completed a satisfactory Environmental and Social Impact Assessment prior to substantial investments being made. Frontier Energy is also required to produce an annual ESG report that is shared with BII. BII also actively assists in the implementation of best practices in ESG and was instrumental in Frontier Energy’s structuring and execution of a Free, Prior, and Informed Consent (“FPIC”) Agreement – considered the highest standard of community engagement under the IFC Performance Standards – with the project-affected community of one of Frontier Energy’s wind power projects, and this has been critical to securing broad community support while delivering tangible on-the-ground benefits. In terms of quantifiable impact of Frontier Energy’s funds, all of which have direct and/or indirect BII support, please see the metrics detailed in the introduction to this inquiry response.

|Frontier Investment Management Africa Ltd| The Pavilion, 6^th Floor, Lower Kabete Road|
| P.O. Box 20802 - 00202 Nairobi, Kenya| Tel: +254 20 4214000| www.frontier.dk|