Management report to Council - City of Melbourne · 2. Sustainable Melbourne Fund – Yearly...

Attachments: 1. Supporting Attachment 2. Sustainable Melbourne Fund – Yearly Operational Report 30 June 2015

Management report to Council Agenda item 6.9 Sustainable Melbourne Fund: full year performance results to 30 June 2015 Council Presenter: Kate Vinot Director City Strategy and Place Phu Nguyen Chief Financial Officer

23 February 2016

Purpose and background

1. The purpose of this report is to present the financial and operational performance results for the full year ended 30 June 2015 of the Sustainable Melbourne Fund (SMF).

2. Council established SMF on 17 April 2002 to support Council’s environmental objectives through strategic investment in external entities. SMF is administered by a board of independent trustees. Council provided $5 million to establish the SMF, which is expected to be financially self-sustaining. Council is the sole beneficiary and unit holder of SMF. Council also resolved to provide a grant of $500,000 to SMF in the 2010–11 financial year to develop administrative processes around the use of Environmental Upgrade Agreements (EUAs) which was funded by Sustainability Victoria.

3. SMF operates under governance provisions as defined in a Project Charter and a Trust Deed. The charter defines Key Performance Indicators (KPIs). Council has also established an additional KPI for the SMF in relation to services it is providing Council to administer EUAs.

4. SMF is required by the Charter to provide an annual report to Council (Attachment 2). The Trustees have resolved to also provide quarterly reporting to Councillors which have been provided throughout the year.

Key issues

5. SMF earned gross income of $386,286 for the 2014 -2015 financial year, this represented a decline of $11,081 over 2013-2014 result. The net asset value of SMF as at 30 June 2015 was $5,802,531 compared to $6,034,696 as at 30 June 2014 reflecting a decline of $232,162.

6. After deducting expenses an increased loss of $54,073 was incurred. The net loss resulted in a net return of minus 3.8% compared to minus 2.9% achieved in 2014, a decline of 0.9%.

7. SMF received an unqualified audit report from the Victorian Auditor General’s Office.

8. SMF's key operational activities and achievements are outlined in the attached report.

Recommendation from management

9. That the Council accepts the performance report for 2014-15 of the Sustainable Melbourne Fund as detailed in the Annual Report.

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Attachment 1 Agenda item 6.9

Council 23 February 2016

1

Supporting Attachment

Legal

1. No direct legal issues arise from the recommendation in the report.

Finance

2. The financial implications are discussed throughout the report and attachment.

3. SMF Key Performance Indicators are as follows:

3.1 A triennial rate of financial return of no less than the rate of inflation.

3.2 Delivery of environmental benefits in at least one of the following categories: water conservation and quality, renewable energy and energy efficiency, sustainable transport or waste minimisation.

3.3 Delivery of social benefits in at least one of the following categories: businesses in the municipality; residents in the municipality and the wider community of Melbourne, or visitors to the municipality.

3.4 Provision of alternate alliance and development opportunities in line with above KPIs.

3.5 Commercial success of services provided to sustainable initiatives (eg EUAs).

Conflict of interest

4. No member of Council staff, or other person engaged under a contract, involved in advising on or preparing this report has declared a direct or indirect interest in relation to the matter of the report.

Stakeholder consultation

5. Consultation with the SMF management was undertaken in preparation of this report.

Relation to Council policy

6. The SMF is an initiative of the Council.

Environmental sustainability

7. The Charter of the SMF requires it to consider the social benefits and allow it to invest in projects that will deliver environmental benefits in water consumption and quality, renewable energy and energy efficiency, clean and efficient transport and waste minimisation.

8. The environmental sustainability benefits are detailed in the Annual Report.

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SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-20152

Annual Report 2014-2015


Annual Report 2014-20152014-2015

ANNUAL REPORT

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haneis

Text Box

Attachment 2 Agenda item 6.9 Council 23 February 2016

OUR VISION, OUR VALUES

CHAIRMAN’S AND CEO’S MESSAGE

HIGHLIGHTS

OUR ORGANISATION

FINANCIAL STATEMENTS

SUSTAINABLE MELBOURNE FUND (SMF) HAS BEEN A DRIVING FORCE IN MARKET BASED SUSTAINABILITY

SOLUTIONS FOR THIRTEEN YEARS. SMF HAS DEMONSTRATED THAT INVESTING IN SUSTAINABILITY IS AN EFFICIENT WAY FOR BUSINESSES TO GENERATE

CAPITAL GROWTH WHILST ALSO DELIVERING POSITIVE ENVIRONMENTAL OUTCOMES.

AT SMF INNOVATION IS INGRAINED IN OUR DNA AND

AS THE FIRST FUND OF ITS KIND IN AUSTRALIA WE AIM TO SET THE BENCHMARK IN THE DEVELOPMENT

OF SUSTAINABLE SOLUTIONS FOR VICTORIAN BUSINESSES. AS THE ONLY FUND IN AUSTRALIA

PROVIDING THIRD PARTY ADMINISTRATION ON ENVIRONMENTAL UPGRADE AGREEMENTS (EUAS) WE

ARE PREPARING TO EXPAND OUR OFFERING AS THE REVISED EUA LEGISLATION IS ROLLED OUT ACROSS

VICTORIA AND AUSTRALIA.

WE PRIDE OURSELVES ON OUR WEALTH OF EXPERIENCE AND WE ARE FOCUSED ON CONTINUING TO DEVELOP OUR EXPERTISE IN THE CREATION AND

IMPLEMENTATION OF THE EUA MODEL AND OTHER INNOVATIVE PRODUCTS.

Our Philosophy 5

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9

16

7

5

6

9

15

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8

6

10

18

Investments

Environmental Upgrade Agreements

Engagement and Education

Case Study

Our Governance

Our Leadership

Financial Summary

Financials


CONTENTS

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OUR VISION, OUR VALUESThe overarching goal of SMF is to extend the eco city goals of Melbourne City Council. SMF uses its financial capacity, independent structure, broad mandate and local market knowledge to drive financial innovation in the development of sustainable solutions for Victorian businesses.

SMF values innovation, efficiency, leadership and in being engaged in the community of renewable energy and energy efficiency advocates.

The projects that SMF have enabled through access to capital - whether it is through the use of an EUA or through direct investment - have resulted in beneficial social, environmental and economic outcomes. Through job creation, increased worker productivity, community enabled solar powered neighbourhoods and reduction in energy costs and lowering greenhouse emissions for businesses and consumers, SMF has made a powerful impact on the communities in the City of Melbourne.

OUR PHILOSOPHYSMF believes that targeted development and application of technology, coupled with the sharing of knowledge and information creates economic, social and environmental benefits.

Our primary focus is on urban areas, in which there is the greatest potential to realise economic growth and mitigate the negative effects of climate change.

SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-2015 5

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diversification of the loan portfolio into the transport(electric vehicles) market23%

EUA enabling legislation introduced into Parliament

STATE-WIDE $823,885 100% growth in loans

transacted compared to FY 2013-2014 83,278.4t CO2-e carbon

abatement over total projects’ lives

in loans pending contractual close$1.2

MILLION

opportunities for EUAs lay in commercial scale rooftop mounted solar projects, and that there was demand for a more streamlined, simple and commoditised product. Consequently, the SMF Solar Finance EUA product was developed to meet the small scale solar market’s requirements.

As the need for alternative financing options increased and the knowledge of EUAs expanded over the year, SMF began corresponding with several companies regarding becoming accredited SMF installers. In conjunction with the engineering firm AECOM and Ashurst lawyers a due diligence framework was developed to ensure that the installers were satisfactorily skilled, accredited and financially sound. As of 30 June 2015 two installers are accredited and trained on the details of EUAs and it is expected several more will be accredited in the coming financial year.

The expansion of the EUA marketplace was significantly improved, with EUA enabling legislation being introduced into the Victorian Parliament on two occasions, by both sides of politics. The legislation’s progress was delayed due to the State Government election , however passage of the legislation is now expected in the first quarter of the 2015–2016 financial year with bi partisan support. The legislation will allow Councils across Victoria to offer EUAs to their municipality.

ENGAGEMENT AND EDUCATION2014–2015 saw a focus on engaging with Victorian State Government and interested parties to expand the EUA legislation statewide. As mentioned above the legislation has been introduced into State Parliament. In preparation for the change in legislation, SMF met with individual councils to educate each council on the merits of providing EUAs in their municipality and the potential for SMF to provide third party adminstration services for their EUAs. Discussions were also held with SMF accredited installers regarding potential EUA projects across Victoria.

ENVIRONMENTAL UPGRADE AGREEMENTSSMF successfully implemented two EUAs for North Melbourne Cooking Space for $41,500 and Covertel for $22,385, both with full tenant pass through. These EUAs were for solar systems less than 30kW, confirming to the market that EUAs are applicable for smaller projects. A concentrated marketing campaign within the City of Melbourne resulted in twenty nine EUA quotes and six projects with a value of $2.3 million in the pipeline for the 2015–2016 financial year.

Following review of EUAs and feedback from involved parties, it was established that large commercial

SMF continued to grow its loan portfolio, with zero loan impairments. Littil (Cherry Energy) received vendor finance for $500,000 in February 2015. Accounts receivable finance was provided for Vehicle Ecology for $260,000, also in February 2015. A further $1.2 million in vendor finance is pending subject to contractual close as of 30 June 2015.

A focus during the second half of the financial year was to progress investments in the pipeline. As of 30 June 2015 there are four investment projects with a value of $5.7 million that are expected to come into fruition in the next financial year.

INVESTMENTS

HIGHLIGHTS

Figure 1: Investments per Financial Year

The South Australian State Government introduced EUA enabling legislation into State Parliament in February 2015. SMF has been engaged with South Australian stakeholders from Local and State Governments, the Property Council, Business S.A, Local Government Association and local projects developers regarding the legislation and project opportunities. The Bill remains in Parliament for debate at 30 June 2015.

Once again SMF were asked to participate in the Emissions Reduction Fund Technical Working Group, the results of which assist the Clean Energy Regulator to develop methodologies for technology in the built environment, and evaluate and modify their program to work in conjunction with existing government schemes. SMF registered a project under the Aggregated Small Energy Users method for Billcap and Simply Energy.

SMF were active with assistance in planning, creating and reviewing the Better Building Finance website in a joint initiative with ClimateWorks and Monash University and funded by the Commonwealth Department of Industry . This website provides a simple, business-friendly resource for building owners, tenants and service providers that allows them to compare the advantages of using EUAs over traditional financing options for building upgrades. SMF will take over the ownership and maintenance of the Better Building Finance website in the 2015–2016 financial year.

Regular presentations were made throughout the year at over twenty industry, peer and client events including the All Energy Conference and Clean Energy Council. Education sessions were held with accredited solar installers regarding the specific details of an EUA, the type of potential clients that are applicable for an EUA and the likely changes in legislation.

Dolla

rs (

$)

Num

ber o

f Loa

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Financial Year

Loans Placed (RHS) Number of Loans

3,000 000

2,500 000

2,000 000

1,500 000

1,000 000

500, 000

2014/2015

2013/2014

2012/2013

2011/2012

2010/2011

2009/2010

2008/2009

2007/2008

2006/2007

7

6

5

4

3

2

1

0

VEHICLE ECOLOGY Vehicle Ecology is the exclusive importer and distributor for Oceania of Alke electric utility vehicles. Alke electric vehicles are suitable for inner city waste collection and high density environments due to their narrow design. Switching from diesel vehicles to fully electric vehicles allows Vehicle Ecology’s clients to increase their fuel efficiency and environmental gains, especially given the braking intensity in inner city environments.

SMF enabled Vehicle Ecology to achieve their initial sales by creating a bespoke loan structure with a low interest rate to meet their needs; allowing them to purchase the initial and subsequent vehicles and grow their business.

Vehicle Ecology now has return clientele and multiple sales across the Local Government and private sector in the pipeline across Victoria, New South Wales, ACT, Queensland and Western Australia. The vehicle is the first vehicle of its kind to receive stringent Australia-wide ADR compliance certification allowing them to expand their marketplace.

SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-20156 SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-2015 7

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BOARD OF TRUSTEES

INVESTMENTSUB-COMMITEE

GOVERNANCE AND AUDIT

SUB-COMMITEE

CHIEF EXECUTIVE

OUR GOVERNANCESMF is governed by a Board of Trustees, comprising of a Chair and Trustees, each bringing a variety of expertise to complement the goals of the Fund and to provide strategic direction to management. The Board is also supported by an Investment Sub-committee and a Governance and Audit Sub-committee, both overseeing the delivery of strategic outcomes for the Board. Board meetings are held bi-monthly.

The Sub-committees comprise of various Board members, formed for the purpose of discussing specific issues on behalf of the Board. After the Sub-committees complete their work, the issues are returned to the full Board for consideration based on the Sub-committee’s recommendation and for a final decision. Sub-committee meetings are held when required.

OUR ORGANISATION

with total project costs of $8 million). These projects will form the basis of our growth for the next year and have a potential carbon abatement of 1,200tCO2-e. The total loans of $823,885 delivered for the financial year provided a significant, 100% increase on the previous year. A further $1.2 million in loans are pending contractual close at 30 June 2015. All of this was achieved within a challenging environment that included delays to the growth of the EUA marketplace associated with a change in State Government; political uncertainty surrounding the Renewable Energy Target; and pressure from a general lack in confidence across many sectors of the economy. The delivery of SMF’s loans also demonstrated the flexibility of SMF’s loan products, with financing structures adapted to suit an individual client’s needs. The creation of SMF Solar Finance is further evidence of SMF’s ability to recognise market needs and deliver an effective solution.

SMF’s reputation as an industry leader was cemented with our contribution to over twenty events, on-going engagement with local government and the development of the Better Building Finance website. This leadership will be enhanced next year with SMF controlling the Better Building Finance website and with the expected expanded state-wide EUA legislation.

SMF also continued to develop strong relationships with local Councils, service providers, and project developers in preparation for the state-wide EUA legislation. These relationships will assist in the commercial achievements of the Fund once the legislation is passed.

In August 2014 the Board welcomed Nathan Blackburne as a Trustee and a member of the Investment Sub-committee. Nathan’s strong and valuable experience in property development, governance and strategy has broadened and strengthened the Board’s ability to engage the property sector.

On behalf of the Trustees and management we thank the City of Melbourne for its continued support and encouragement. We look forward to converting the significant progress made this year and delivering a broad range of projects across a wider market in the next financial year.

On behalf of the Trustees of the Sustainable Melbourne Fund we are pleased to present the 2014-2015 annual report.

The past year has seen SMF make solid progress in delivering our objective of developing the EUA model; contributing to local government legislation development to offer EUAs state-wide; and ensuring our portfolio of loans and investments grow, are commercially viable and provide positive environmental outcomes. The loan portfolio has diversified to a wider range of renewable energy and energy efficiency technologies, with development work focused on new loan structures that enable projects to be financed.

SMF is well placed to meet both its profitability and sustainability objectives within the coming years. Restructuring the organisation and governance of the Fund in 2015-2016 will better place it to operate efficiently in extending the Eco City visions of the City of Melbourne into the business and communities we all live and work within.

To be a self-sustaining business, SMF has adopted a strategy to develop its origination efforts and place a growing capital base into the EUA marketplace to demonstrate the commercial opportunities of this finance structure. Blending these investments into a portfolio of other finance products and services enables other sectors of the economy to unlock the commercial opportunities of renewable energy and energy efficiency, which also enable SMF to be a warehouse of innovation and leadership.

SMF’s leadership, being at the forefront of development of the EUA product and marketplace, led us to focus upon the development of commoditized offerings targeting renewable energy and lighting upgrades. SMF further targeted businesses with suitable energy demand profiles, costs and appetite for solar in their business. Having targeted larger scale commercial opportunities SMF responded to the changing political and business circumstances to deliver the newly launched SMF Solar Finance product. In the coming years, as the marketplace for EUAs expand SMF is targeting an ambitious pipeline of opportunities to demonstrate where and how EUAs can work effectively and efficiently in the marketplace.

Active discussions with businesses and solar installers were held throughout the year, with a total of ten projects in the pipeline (six EUAs and four investments

CHAIRMAN’S AND CEO’S MESSAGE


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OUR LEADERSHIP

CHAIR, SUSTAINABLE MELBOURNE FUND AND GOVERNANCE AND AUDIT SUBCOMMITTEE

Robert is a senior partner with the international law firm, Ashurst. His practice involves energy and resources, environment and government (including governance and probity) matters. He is currently the Practice Head of the firm’s environmental law practice and is the Practice Head of the firm’s South East Asian Utilities Practice (gas, electricity, water, renewables and waste).

He is recognised both nationally and internationally as a leading environmental law practitioner. Robert is a former board member of the firm and was the managing partner of the Melbourne office from 2000-2003. Outside of the law, Robert has a number of interests and roles:• Chairman of the Sustainable Melbourne

Fund

• Former Chairman of the Human Rights Law Centre and former Board member of Public Interest Law Clearing House – Justice Connect

• Visiting fellow at the University of Melbourne –teaching from time to time in the Master’s program environmental and water resources law

• Former Chairman of Diving Victoria and current board member of Diving Australia

• Former board member of the Melbourne Football Club and current Chairman of the Red and Blue Foundation (the fund raising arm of the Melbourne Football Club)

Robert is a graduate of Monash University having been awarded a Bachelor of Science and Bachelor of Laws degrees in 1981 and 1983 respectively.

DEPUTY CHAIR, SUSTAINABLE MELBOURNE FUND AND CHAIR, INVESTMENT SUBCOMMITTEE

Brett Lazarides is a professional independent director within institutional investment, superannuation and private markets, who specialises in direct infrastructure and unlisted assets.

Brett’s other fiduciary roles currently include Independent Director and Investment Committee Chairman for Combined Super and nominee director on the Board of Hobart International Airport.

Brett has 29 years’ experience in the financial services industry, spanning Insolvency practice at Ernst & Young; investment banking/project & structured finance at National Australia Bank; funds management, as Head of Infrastructure for both National Asset Management & Perpetual Limited; and Head of Infrastructure & Private Equity for UniSuper’s $2.4 billion Alternative Assets portfolio.

Brett is a Chartered Accountant, holds a Diploma in Applied Finance & Investment and is a fellow of both the Financial Services Institute of Australasia and the Australian Institute of Company Directors.

ROBERT JAMIESON BRETT LAZARIDES

OUR LEADERSHIP


OUR LEADERSHIP




Fund











ROBERT JAMIESON BRETT LAZARIDES


OUR LEADERSHIP




Fund











ROBERT JAMIESON BRETT LAZARIDESROBERT JAMIESON BRETT LAZARIDESCHAIR, SUSTAINABLE MELBOURNE FUND AND GOVERNANCE AND AUDIT SUBCOMMITTEE


He is recognised both nationally and internationally as a leading environmental law practitioner. Robert is a former board member of the firm and was the managing partner of the Melbourne office from 2000-2003. Outside of the law, Robert has a number of interests and roles:

• Chairman of the Sustainable Melbourne Fund

• Former Chairman of the Human Rights Law Centre and former Board member of PILCH (Public Interest Law Clearing House) – Justice Connect

• Visiting fellow at the University of Melbourne – teaching from time to time in the Master’s program environmental and water resources law










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LIZA MAIMONE ANNA SKARBEKTRUSTEE, SUSTAINABLE MELBOURNE FUND AND MEMBER, GOVERNANCE AND AUDIT SUB COMMITTEE

Liza Maimone is a Sustainability and Climate Change partner of PricewaterhouseCoopers Australia (PwC), PwC Australia’s Consulting People & Offices Leader and PwC Australia’s Canberra Office Managing Partner.

Liza has over 20 years’ experience in providing advisory and assurance services in the area of climate change, sustainability strategy and reporting, and safety and environmental risk management, with a focus in the energy and resource sector.

Prior to professional services, Liza worked with a global engineering firm and a global oil and gas company. Liza is a chemical engineer with post graduate qualifications in energy and resources law and is a registered Greenhouse and Energy Auditor (Clean Energy Regulator).

Liza is a member of PwC Australia’s Consulting Leadership team and a member of PwC’s Global Sustainability Governance Board. Liza is also a director of the Melbourne International Jazz Festival, the Melbourne School of Engineering Foundation Board and an advisory member of the Finance & Audit Committee of the Australian Conservation Foundation. She holds various professional memberships.

TRUSTEE, SUSTAINABLE MELBOURNE FUND AND MEMBER, INVESTMENT SUB COMMITTEE

Anna has been Executive Director of ClimateWorks Australia since its inception in 2009, leading the organisation’s work in analysing emissions reduction opportunities and partnering with business and government in unblocking barriers to their implementation.

Anna is a also director of the Clean Energy Finance Corporation, a trustee of the Sustainable Melbourne Fund, a member of the Australian Government’s Energy White Paper Reference Panel and the Grattan Institute’s Energy Program Reference Panel. She is a former director of the Carbon Market Institute and of the Linking Melbourne Authority. She was a member of the Australian Government’s Land Sector Carbon and Biodiversity Board and NGO Roundtable on Climate Change.

Anna is an experienced investment banker, policy adviser and qualified lawyer. Before ClimateWorks she was working in London’s carbon markets as Vice President of Advisory with Climate Change Capital, a specialist investment manager and advisor dedicated to raising and deploying capital for low carbon activities. Anna’s prior career in Australia included senior policy adviser to the Victorian Deputy Premier, investment banker in Macquarie Bank’s energy and utilities team, and solicitor with the national corporate law firm Mallesons Stephen Jaques. She also served on the board of The Big Issue and the board of Amnesty International Australia for six years in roles including National Treasurer and Victorian President.

She holds First Class Honours Degrees in Commerce and Law from Monash University and is a graduate member of the Australian Institute of Company Directors.

TONY ARNEL NATHAN BLACKBURNETRUSTEE, SUSTAINABLE MELBOURNE FUND AND MEMBER, GOVERNANCE AND AUDIT SUB COMMITTEE

Tony Arnel is the Global Director of Sustainability for Norman Disney & Young (NDY) an international engineering consultancy. NDY works across a range of market sector including buildings, transport, utilities and defence.

Tony is the former Victorian Building and Plumbing Commissioner. As well as being a founding Director and Chair of the Green Building Council of Australia, he is also the former Chair of the World Green Building Council. He is currently the President of the Energy Efficiency Council and Deputy Chair of the Deakin University School of Engineering Board. He is also a member of the Strategic Council of the Climate Institute.

Tony is a Life Fellow of the Australian Institute of Architects and a Fellow of the Australian Institute of Company Directors. He is past Chairman and Director of the Melbourne International Comedy Festival-Australia’s largest arts festival.


Nathan Blackburne is an experienced property industry professional who is currently in a senior executive position with Cedar Woods Properties Ltd, an ASX 300 company with a strong track record for financial performance and leading, large scale property developments.

Nathan is State Manager for both Victoria and Queensland. He established the Victorian operation and has been running it for over 12 years and has recently taken on the Queensland role as well where he is in the early stages of building a portfolio of projects for the company.

Nathan has over 20 years’ experience in various sectors of the property industry including valuations, asset management, commercial leasing and property development. Having established and run both the Victorian and Queensland offices Nathan has strong background in general management and systems development.

In addition to strong property industry networks, Nathan brings with him the corporate governance and strategy development experience having worked with a top ASX listed company for many years.

Nathan has a Bachelor of Business degree in Property from Curtin University in Western Australia and is a member of the Australian Institute of Company Directors and graduate of their Company Directors’ course.






































































TRUSTEE, SUSTAINABLE MELBOURNE FUND AND MEMBER, GOVERNANCE AND AUDIT SUB COMMITTEE




TRUSTEE, SUSTAINABLE MELBOURNE FUND AND MEMBER, GOVERNANCE AND AUDIT SUB COMMITTEE










TONY ARNELANNA SKARBEK LIZA MAIMONE NATHAN BLACKBURNE


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FINANCIAL STATEMENTS



Brett Thomas is a senior industry executive with over 35 years of experience in the Australian energy and infrastructure market including 15 years working in the development and delivery of large-scale renewable energy generation.

He is the Managing Director of The SABBLE Group, which provides specialist strategic, commercial and investment advice to private investors, governments and Company Boards; and partners with organisations to acquire, develop, finance, build and operate utility-scale renewable energy projects. He is also a Director of Overland Sun Farming Company, an organisation that is focused on the development and delivery of utility-scale solar energy plants. Brett previously led the establishment and growth of Spanish group Acciona in Australia where he was founding CEO and Managing Director of Group operations and the Renewable Energy business line for Australia Asia Pacific. Under his leadership, Acciona completed major investments in the energy, water and infrastructure sectors. He has also held senior roles in sectors including banking; water; civil infrastructure; energy, greenhouse and environmental management; and engineering.

Brett has held a number of industry positions including founding member of the Westpac Sustainability Index advisory panel, corporate council member of the European Australian Business Council (EABC), member of the industry advisory panel for the University of London (UCL) School of Energy & Resources, and member and Director of the Clean Energy Council (CEC). He has held various directorships of corporate and asset companies.

CHIEF EXECUTIVE

Scott was appointed as Chief Executive of Sustainable Melbourne Fund in July 2010. He has more than 15 years of professional, management and leadership experience and drives a highly skilled team in delivering positive environmental and commercial outcomes in the built environment with his innovative approaches.

Prior to this, Scott was the inaugural Australian Country Director of the Clinton Climate Initiative (CCI), where his expertise led the development of CCI’s activities in Australia, working collaboratively with governments of all levels and the finance industry.

Scott made a significant contribution to the establishment of Environmental Upgrade Agreements (EUAs) in Australia, the Victorian Greener Government Buildings program; and development of the CCI clean energy team based out of Australia.

Scott has a wealth of previous experience as a senior executive consultant providing strategic and commercial advisory services to a range of clients capturing the commercial opportunities available through energy efficiency, renewable energy and other environmental challenges and is well regarded as a leader in the field.

BRETT THOMAS SCOTT BOCSKAY





Brett has held a number of industry positions including founding member of the Westpac Sustainability Index advisory panel, corporate council member of the European Australian Business Council (EABC), member of the industry advisory panel for the University of London (UCL) School of Energy & Resources, and member and Director of the Clean Energy Council (CEC). He has held various directorships of corporate and asset companies.

CHIEF EXECUTIVE





BRETT THOMAS SCOTT BOCSKAYCHIEF EXECUTIVE








Brett has held a number of industry positions including founding member of the Westpac Sustainability Index advisory panel, corporate council member of the European Australian Business Council (EABC), member of the industry advisory panel for the University of London (UCL) School of Energy & Resources, and member and Director of the Clean Energy Council (CEC). He has held various directorships of corporate and asset companies

BRETT THOMAS SCOTT BOCKSAY


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SMF continues to pursue an investment strategy that focuses on low risk projects that provide strong commercial and environmental returns. As such, the year focused heavily on undertaking development work for the SMF Solar Finance product, resulting from the identification that investment in solar is the most commercially viable opportunity, provides strong environmental returns and is the product that is most preferred by the market. This market will be substantially increased following the impending state-wide EUA legislation, and as such will be targeted by SMF in the coming years. The performance of the Fund reflected this development phase, with an underlying mprovement of $0.062 million for the financial year.

A substantial growth market during the year was flexible financing products for clients, with the initial offering of a vendor financing mechanism resulting in $500,000 of loans being executed and a further $1 million pending contractual close at 30 June 2015. This financing product is flexible to the client’s needs - allowing for them to draw fund amounts after they have successfully installed products for their clients. To address the opportunity cost associated with allocating money under this mechanism SMF charges commitment fees on the undrawn amount. Furthermore, to support SMF’s low risk investment strategy, loans under this mechanism are credit enhanced with directors’ guarantees and registered charges over assets of companies and projects.

Figure 2: Loan portfolio (total capital base) as at 30 June 20

A total of $0.83 million was invested across four projects, bringing the total of open projects to twelve. These cover energy efficiency (lighting, boilers and chillers, variable speed drives and building), renewable energy, technology (smart meter data collection) and transport (electric vehicles) markets. An additional $1.2 million is pending contractual close at 30 June 2015. SMF facilitated the import of electric utility vehicles into Australia with loans to Vehicle Ecology, representing 23% of the loan portfolio (Figure 3). This

is structured as a revolving accounts recievable facility that will allow for additional vehicles to be imported (see Vehicle Ecology case study). The delay in placing the loans reduced forecast income from such investments however the future reporting period should reflect a higher income from these loans.

As of 30 June 2015 SMF have supported projects that are expected to reduce carbon by 83,278.4tCO2-e* over the ten year period of the life of the projects. This includes 49,108.4tCO2-e* of carbon reduction for SMF financed projects and 34,170tCO2-e* for National Australia Bank financed projects (facilitated by SMF).

*To obtain these figures, SMF has modeled the positive environmental benefit our investments deliver over the life of the projects. Projects seeking major retrofit upgrades to buildings are required to submit Australian Standard Level II energy audits detailing energy and carbon savings anticipated from the project. These estimated savings have been used to project overall project life savings with the project life being defined by qualified engineers.

In cases where audits were not a requirement, modeling was conducted internally using established factors such as solar generation hours per day (3.6 hours as per the Clean Energy Council estimate for the Melbourne area), assumed operational hours (10 hours for commercial premises over 250 business days of the year) and the Victorian State Emissions Factor of 1.35tCO2-e/MWh. Due to the type of technology associated with the transport loans and the fluidness of the projected savings, the projected savings were based on the fuel swap from petrol to electric with RACV State average of 600km/p.a. for commercial vehicles assumed.

Figure 3: Diversity of loan Loan

During the twelve month period, the fund experienced an upward trend in loan weighted average interest rates and widening of the average interest rate spread (Figure 4). This loan weighted average interest rate is a measure of the interest rates the fund has

FINANCIAL SUMMARYbeen able to lend to projects weighted against the outstanding loans held by the Fund and is represented by the blue vertical bars with the scale noted on the left hand axis. The fund’s average interest rate spread has experienced widening due to the fund’s ability to recycle lower interest rates loans into higher yields and is represented by the green line with the scale noted on the right-hand scale. The growth in new loans towards the end of 2014-2015 has resulted in less money being held in low interest rate term deposits.

Figure 4: Loan investment spreads and weighted portfolio returns

The portfolio of term deposits remained sizable over the majority of the reporting period with between 8% and 29% of the portfolio representing committed but undrawn capital. These allocations earned additional commitment fees on top of a declining weighted average return from such deposits (Figure 5).

Figure 5. Term Deposit Portfolio and Weighted Average Returns

INCOMESMF earned a gross income of $0.386 million for the 2014-2015 financial year, representing a net decline in income of 2.87% from the previous reporting period. Income from both the cash portfolio (-5.07%) and the loan portfolio (-23.72%) were down from the previous period. This is attributable to underlying deterioration of the rate of return from the term deposit portfolio and a delay in placing loans. These declines were almost entirely offset by income associated with SMF’s consulting fees for the development of the Better Building Finance website.

EXPENDITURE Overall expenditure grew by 6.95% when compared to the 2013-2014 reporting year. The majority of expenditure growth was associated with the legal fees, staff salaries and consultants’ fees related to the development work undertaken for the SMF Solar Finance product. During the year turnover of SMF staff also contributed to the 7.89% growth in wages expenditure due to the overlap between outgoing and incoming staff. However, total salary costs to the business have declined over the last four reporting periods by 29%, resulting from a transition from development of the EUA business model to increasing client origination and transactional efficiencies. The number of staff is expected to remain static for the next financial year unless new revenue streams create a requirement.

SUMMARYLoans approved and placed during the reporting period exceeded expectations, however a delay in placing these loans resulted in less income being generated from such investments. When compared to the previous reporting period, the headline deficit grew, how ever when acounting for development costs the underlying performance of the fund improved by 34% from the previous financial year.

Revenue from loans is expected to grow in the next financial year as a result of placing the remainder of the Fund’s available capital. Revenue is also anticipated from assisting Local Governments to offer EUAs. This income stream will replace the income earned in the 2014-2015 financial year from the Better Buildings website development.

Full investment of the Fund is targeted for the third quarter of the 2015–2016 financial year, with the potential for additional capital that will enable additional and larger loans while still maintaining current proft margins.

Cash

($M

)

Wei

ghte

d In

tere

st R

ate

(%)

Term Deposit Amount and Weighted Interest Rate

5.00%

4.50%

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%Jul-14

Nov-14

May-14

Sep-14

Mar-14

Jan-14

Month

Aug-14

Dec-14

Jun-14

Oct-14

Apr-14

Feb-14

4.00%

3.50%

0.04

0.03

0.03

0.02

0.01

0.01

0.00

0.05

0.04

0.02

Capital Available for Lending (SM) Allocated Loan Capital

Mandate Cash Reserve (SM) Term Deposit Weighted Avg. Interest

9.50%

9.00%

8.5%

8.00%

7.50%

7.00%Jul -14 Sep - 14 Nov - 14 Jan - 15 Mar - 15 May

Month

Inte

rest

Rat

e (%

)

Inte

rest

Rat

e (%

) M

argi

n

8.00%

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%

Loan Weighted Avg. Interest LHS Average Interest Weight

Loan Weighted Average Interest Rate

Energy Efficiency

66%

23%

6%

5%

Renewable Energy

Technology

Transport

Available Capital

Secured Debt

Credit Enhanced

Unsecured Debt

Other/Allocated

Cash Reserves

1% 46%

12%

17%

15%

9%


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SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-2015 7

Interest received - cash and cash equivalents 151,686 159,311

Interest received - sustainable project loans receivable 115,145 142,457

Application fee 7,100 12,600

Consultants fees 49,330 32,722

Travel 3,866 5,949

Other revenue 112,355 82,999

9,417 8,021Administrative costs

Accounting fees 36,788 34,218

Bank charges 2,361 35

(Deficit) for the year (232,162) (178,089)

TOTAL REVENUE 386,286 397,367

5,900 5,600 Audit fees

618,448 575,456Total expenses

Advertising & marketing 24,962 70,310

Conference fees 535 -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR (232,162) (178,089)

REVENUE

50,923 18,486 Legal costs

EXPENSES

434,366 400,115Employee benefits

STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 30 JUNE 2015

2015 $ 2014 $ 2015 $ 2014 $

Cash and cash equivalents 1,797,789 1,837,869

Other financial assets 2,300,000 2,700,000

Trade and other receivables 981,589 1,185,062

Trade and other payables 47,482 38,293

Total Non-Current Liabilities 14,322 13,668

NON-CURRENT ASSETS

TOTAL CURRENT ASSETS 5,079,378 5,722,931

NON-CURRENT LIABILITIES

Provisions 9,583 13,827

TOTAL LIABILITIES 71,387 65,788

Accumulated (deficits) (772,943) (540,781)

Trade and other receivables 794,540 377,550

14,322 13,668 Provisions

EQUITY

Total Current Liabilities 57,065 52,120

NET ASSETS 5,802,531 6,034,693

Contributed equity 6,575,474 6,575,474

TOTAL EQUITY 5,802,531 6,034,693

CURRENT ASSETS

ASSETS

CURRENT LIABILITIES

794,540 377,550

TOTAL ASSETS 5,873,918 6,100,481

LIABILITIES

STATEMENT OF FINANCIAL POSITIONAS AT 30 JUNE 2015

18 SUSTAINABLE MELBOURNE FUND ANNUAL REPORT 2014-2015 19

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Annual Report 2014-2015SUSTAINABLE MELBOURNE FUND

Level 2, 200 Little Collins StMelbourne Victoria 3000sustainablemelbournefund.com.au


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