IMPACT REPORT - Hannon Armstrong
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2020 I M PA C T R E P O R T
TA B L E O F C O N T E N T S
03 WHO WE ARE
04 ABOUT THIS REPORT
06 LETTER FROM THE CEO
08 INVESTMENT SPOTLIGHTS
10 2020 HIGHLIGHTS
12 PRINCIPLES OF GOVERNANCE
20 PLANET
29 PEOPLE
35 PROSPERITY
40 APPENDIX
Front Cover: Natalya Lyoda (Director - Portfolio Management, Hannon Armstrong)
overlooking California’s Yosemite National Park during the 2020 wildfires.
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T
WHO WE ARE
Climate Positive Investors
Based in Annapolis, Maryland, Hannon Armstrong (NYSE: HASI) is the first
U.S. public company solely dedicated to investments in climate solutions,
providing capital to leading companies in energy efficiency, renewable
energy, and other sustainable infrastructure markets. With more than $7 billion
in managed assets, Hannon Armstrong’s core purpose is to make climate
positive investments with superior risk-adjusted returns.
Investment Strategy
Our vision is that every investment should improve our climate future, which is
why our first investment screen requires that all prospective investments either
reduce carbon emissions or provide other tangible environmental benefits,
such as reducing water consumption.
Our Impact
5.2 million 4 billion
Cumulative metric tons of carbon dioxide (CO2) Cumulative gallons of water saved annually
avoided annually through our investments, from our investments, the equivalent to
the equivalent to eliminating emissions from eliminating the annual water consumption
nearly 600,000 average U.S. homes every year of nearly 80,000 U.S. homes every year
>200,000 >170,000 >1.9 million
Quality jobs created by School children supported by our energy Veterans served by hospitals and other
our investments in 48 states efficiency upgrades to educational facilities that received energy efficiency
facilities funded by our investments upgrades funded by our investments
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ABOUT THIS REPORT
At Hannon Armstrong, we have historically and consistently aspired UN Sustainable Development Goals (SDGs), our 2020 Impact
to be a leader in transparent reporting on financially material and Report has been designed around the four pillars of the common
comparable ESG metrics. metrics for consistent reporting of sustainable value creation as
developed by the World Economic Forum’s International Business
In fact, we were the first U.S. public company to report the
Council: Principles of Governance, Planet, People, and Prosperity.
avoided emissions resulting from our investments - a disclosure
most financial service companies and asset managers still neglect Further, for the eighth consecutive year, we have disclosed the
to provide - and one of the first to commit to the recommendations avoided emissions resulting from each of our investments (see our
of the Task Force on Climate-related Financial Disclosures (TCFD) Sustainability Report Card on page 27) while also continuing to
and also incorporate TCFD reporting into our SEC filings. As advocate for standardized reporting of this metric by all financial
many stakeholders, investors, and companies have noted, service companies and asset managers through our membership in
however, the current lack of global standardized reporting metrics the Partnership for Carbon Accounting Financials (PCAF).
regarding the material aspects of ESG stands in stark contrast
We hope our comprehensive reporting on these and many other
to the well-established standards that exist for reporting on
recommended metrics helps to drive transparency and alignment
financial performance.
among companies, investors, and all other stakeholders – with the
To help reduce fragmentation and accelerate progress toward a ultimate goal of building a more sustainable and inclusive global
generally accepted ESG reporting standard in alignment with the economy.
Sustainable Development Goals
Through this report, our CEO Jeff Eckel reaffirms his support of Hannon Armstrong’s ongoing commitment to these goals of the United Nations
Global Compact. In addition, the report constitutes Hannon Armstrong’s “Communication on Progress” (COP1) under the UN Global Compact.
AFFORDABLE AND CLEAN ENERGY
As a leading investor in climate positive energy infrastructure assets in the United States, we provide
solutions to enable the deployment of more reliable, resilient, and affordable clean energy. In 2020,
our financing of community solar promoted the accessibility and adoption of clean energy for a diverse
array of communities, typically at a discount to retail rates. The community solar model, already available
in most U.S. states, provides customers with equal access to the benefits of clean energy, regardless of
the physical structure or ownership status of their residence.
DECENT WORK AND ECONOMIC GROWTH
Industries related to the clean energy economy continue to experience steady growth in
the United States and create new employment opportunities. We estimate our investments support
over 200,000 jobs across 48 U.S. states. Our financial and volunteer support of GRID Alternatives,
a nonprofit that supports networking and skills development opportunities especially for traditionally
marginalized communities, further demonstrates our commitment to high quality jobs in the sector.
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A bout T his R eport
INDUSTRY, INNOVATION AND INFRASTRUCTURE
We invest in infrastructure that reduces dependence on vulnerable grid-connected energy and
enhances the reliable supply of distributed clean energy. In 2020, our energy efficiency investments
modernized aging infrastructure for residential, retail, industrial, and government customers. Improved
performance across these sectors saves money, reduces carbon emissions, and enhances local
infrastructure resilience. In addition, integrating proven battery energy storage systems into our projects
allows for the deployment of intermittent renewable resources during off-peak hours.
SUSTAINABLE CITIES AND COMMUNITIES
Our investments in energy efficiency, renewable energy, seismic retrofits, and stormwater mitigation
improve the sustainability of cities and communities. To provide these services to underserved markets,
we actively leverage commercial property assessed clean energy (C-PACE) financing programs.
In 2020, the expansion of our distributed solar investments brought commercial and industrial solar
to cities across the United States.
CLIMATE ACTION
Climate action is the central pillar of our business model. Since our initial public offering in 2013,
we have invested approximately $9 billion in climate solutions. To advance climate policy, our
advocacy in 2020 included bipartisan lobbying of lawmakers to support meaningful climate
legislation and carbon pricing. Our investment thesis attests to the business case for climate solutions.
Investment in Tinkers Creek Stream
Stabilization & Restoration Project located
in Prince George's County, Maryland.
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LETTER FROM THE CEO
In last year’s letter, which was published
before the outbreak of COVID-19,
I focused on questions owners of
capital must ask themselves if we are
to seriously address the climate crisis
– particularly, how efficiently capital
is being deployed to reduce carbon.
I believe those questions, paired with
my 2018 letter advocating for a carbon
fee and dividend plan, form a powerful
combination of ideas to accelerate
the adoption of climate solutions.
For the last fifty years, many companies
have closely adhered to the Friedman
Doctrine, named after the Nobel
As a pioneer in climate Dear Stakeholders:
Prize-winning economist, who argued
solutions investing, 2020 was an exceptional year that a company’s sole purpose is to
of growth and impact at generate profits for shareholders. But
we are proud of the
Hannon Armstrong. Notwithstanding for today’s workforce and an increasing
Environmental, Social the pandemic, we posted record number of investors, this doctrine is not
and Governance (“ESG”) Distributable Earnings, transaction only unambitious and unattractive, it is
wholly inadequate. With a mission of
reputation we have built. volumes, and carbon mitigation
investing exclusively in climate solutions
impact. At the same time, we grew
since we became a public company,
as an organization, in part,
Hannon Armstrong embodies a broader
by recognizing how the needs
ethos – one that recognizes our role as
of the community intersect with
a responsible corporate citizen while
investing in climate solutions.
continuing to produce outstanding
2020 was also a year of tragedy, financial results. Undoubtedly, 2020
as the pandemic took its unspeakable also broadened our ambition to find
toll on the health and livelihoods ways to incorporate social justice
of millions while several incidents into our business.
highlighted the urgent need for social As a pioneer in climate solutions investing,
justice. However, it was also the year we are proud of the Environmental,
when climate change went mainstream. Social and Governance (“ESG”)
06 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T
L E T T E R from the C E O
reputation we have built. Yet 2020 material aspects of our human capital indeed since our public debut in 2013.
has shown we can and must do more activities. As a result of these efforts, Last year, we achieved not only record
to expand our leadership role in both we expect to benefit from material and financial results, but also the highest
our local community and nationwide. ongoing changes in the diversity of our carbon reductions. Our 2020
As part of our response to the staff. You will also notice enhanced investments will reduce five times more
pandemic, we focused on the health disclosures on human capital in our carbon than our investments in 2019,
and well-being of our team and also 2020 Form 10‑K. Over time, we will and with a CarbonCount® of 1.03,
made significant corporate donations continually provide you the data to 2020 has turned out to be the most
to local organizations addressing hold us accountable for progress on efficient use of capital to reduce carbon
critical issues of homelessness, hunger this front. in our history as a public company.
and domestic violence. As the year
With the Biden administration, we have While I thank you for investing in
progressed, team discussions focused
continued our political engagement Hannon Armstrong, we all should
on how we can do more. As a result of
to build support for the enactment of thank the professionals at Hannon
these efforts, we created the Hannon
economy-wide carbon pricing, ideally Armstrong, including our Board of
Armstrong Foundation to identify the
in the form of a fee and dividend. Directors, who executed in 2020
intersection of climate change and
We believe the dividend should under the most difficult circumstances
social justice and determine how
be structured to eliminate the cost and yet had enough passion to help
best to engage with our community.
impacts on lower income families this company grow in its awareness of
This flowed from an organic expression
and to advance environmental justice. how it can contribute to social justice in
of shared values that fits naturally
This market-based solution has the addition to positively affecting climate
within our culture of fierce curiosity
potential both to accelerate climate change. I am inspired and honored
and rigor about outcomes in climate
solutions at the pace required and to to work alongside this team every day,
investing. We have declared an initial
improve economic and social equity so but never more than in 2020.
“Social Dividend” to the Foundation of
that disadvantaged communities are not Respectfully,
$1 million. I look forward to reporting
left behind in the transition to a cleaner,
on the Foundation’s activities in next
healthier, and fairer economy.
year’s letter.
Conclusion
The social aspect of ESG has
also come front and center in our Our investment thesis is simple: in a
recruitment, hiring and training world increasingly defined by climate Jeffrey W. Eckel
efforts. While change takes time, change, we will earn superior risk- Chairman & CEO
we have used 2020 to develop a adjusted returns making only climate April 2021
human capital management strategy positive investments. We have
designed to improve data collection, significantly outperformed virtually all
establish reporting metrics, and broader market and peer group indices
enhance transparency related to the in the last year, the last five years, and
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INVESTMENT SPOTLIGHTS
GRID-CONNECTED
BEHIND-THE-METER BEHIND-THE-METER
$
663m
$
115m $
93m
CARBONCOUNT®: 1.06
Preferred equity investment with
Clearway Energy in a 2.0 GW
CARBONCOUNT®: TBD1 portfolio of contracted, grid- CARBONCOUNT®: 0.27
connected wind, solar, and
Preferred equity investment in a solar-plus storage projects, Preferred equity investment with
Public-Private Partnership (P3) located across four states, with ENGIE in a 78 MW distributed
with the University of Iowa to predominantly investment grade generation portfolio of contracted,
operate, maintain, and upgrade counterparties and a weighted community and commercial &
university energy and water average contract life of 14 years. industrial (C&I) solar projects,
utilities in support of low-carbon Our first grid-connected solar- including those with co-located
campus sustainability objectives. plus-storage investment brings storage, located across multiple
Backed by 50 years of contracted continued programmatic deal flow states and with a weighted
cashflows with an investment with a large, ambitious partner average 24-year fixed price
grade counterparty, the investment focused on the U.S. market. contract life. The unique investment
represents a further expansion structure leverages tax equity
into the sizable higher education financing to bring efficiency to a
P3 market. As upgrades are forward flow of projects.
implemented, we anticipate the
CarbonCount® of this investment
to be meaningfully positive.
1) To be determined.
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I N V E S T M E N T S potlights
MANAGED ASSETS
With Managed Assets across the U.S. that support >13 gigawatts (GW) of renewables, and 292 energy efficiency investments, we
benefit from significant technological, geographic, and resource diversity.
292 4.4GW 0.8GW 2.3 GW 5.6GW
Energy Efficiency Investments of Wind of Grid-Connected Solar of Distributed Solar Wind and Solar Land
Behind-the-Meter Grid Connected Sustainable
Infrastructure
Investment in “Rosamond Central,”
a 192 MW utility-scale solar project
located in Kern County, California.
1) States that feature multiple colors from the legend indicate Managed Assets from two or more markets.
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2020 HIGHLIGHTS
$1.9b 2m MT1 of incremental >$900m
invested in climate annual reductions in issued in green
solutions carbon emissions bonds
Highest recorded Expanded DEIJ2 Internal management
annual CarbonCount disclosures realignment enhanced
in company history in SEC filing DEIJ in C-suite
Joined Partnership Expanded Board $1m Social Dividend declared
for Carbon Accounting with appointments of Clay to capitalize newly launched
Financials (PCAF) Armbrister and Nancy Floyd Hannon Armstrong Foundation
2 0 2 0 - 2 0 2 1 AWA R D S E S G R AT I N G S
Capital Finance International
Best ESG Sustainable Investment Strategy – USA: Hannon Armstrong
Low Risk
Climate Change Business Journal (CCBJ)
Top 6 Percentile in Global Universe
th
CCBJ Business Achievement Award: Hannon Armstrong and ENGIE
Environment + Energy Leader Awards
Top Project of the Year Award: Ameresco and Hannon Armstrong
ESG CORPORATE RATING
Financial Times
The Americas’ Fastest Growing Companies 2020: Hannon Armstrong
A
Top 10 Percentile in Industry
th
Institutional Investor
ll-America Executive Team “Most Honored” small-cap companies list;
A
B
#1 rankings in Best CEO, CFO, IR, and Financially Material ESG Top
Top 10
th percentile
10th Percentile
Disclosure: Hannon Armstrong
Real Leaders Top Impact Companies
#21 on the Real Leaders® Top 150 Impact Companies List
Smart Energy Decisions Innovation Awards
nergy Storage & Microgrids Award: Ameresco, U.S. Marine Corps
E Outperformer
and Hannon Armstrong Top 10th-30th Percentile
1) Metric Tons
2) Diversity, Equity, Inclusion, and Justice
10 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T2020 HIGHLIGHTS
PROVEN TRACK RECORD
Our ESG Journey
Invested $1.9b in climate solutions
Recorded highest annual CarbonCount in company history
2m MT of incremental annual reductions in carbon emissions
Issued >$900m in green bonds
Joined Partnership for Carbon Accounting Financials (PCAF)
Enhanced DEIJ with Board appointments, internal management
2020
realignment, and expanded SEC filing disclosures
Declared Social Dividend of $1m to capitalize newly
launched Hannon Armstrong Foundation
Appointed Teresa M. Brenner Lead Independent Director
Inaugural $500m corporate unsecured green bond issuance
2019
Joined the UNGC’s Business Ambition for 1.5°C:
Our OnlyFuture Campaign
Formalized Board oversight of ESG strategies, activities,
policies, and communications
Implemented TCFD recommendations and integrated into SEC filings 2018
Achieved 100% renewable energy procurement target
Became a signatory to the UN Global Compact (UNGC)
One of first U.S. public companies to commit to Task Force
on Climate-Related Financial Disclosures (TCFD)
2017
First U.S. public company to sign the “We Are Still In” declaration
in support of climate action to meet the Paris Agreement
Recognized by Climate Bonds Initiative
as Green Bonds Pioneer
2016
2015 Issued first rated HASI Sustainable Yield Bond (SYB) for real estate
assets
Published first Sustainability Report Card 2014
First U.S. public company focused on climate positive investing
Launched CarbonCount scoring tool
2013
First HASI SYB issued for energy efficiency assets
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GOVERNANCE
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STRATEGIC ESG I N T E G R AT I O N
For over 30 years, Hannon Armstrong has placed sustainability water consumption. As a result, since our IPO in 2013, we have
and, more specifically, deploying capital to drive climate positive invested $9 billion in assets that have cumulatively avoided over
investments at the core of our business model. In fact, our initial 5 million metric tons of carbon emissions and saved over 4 billion
investment screen mandates that any proposed investment either gallons of water on an annual basis – all while generating superior
reduce or at least have a neutral impact on carbon emissions or risk-adjusted returns for our shareholders.
provide other tangible environmental benefits, such as reducing
BOARD OF DIRECTORS
JEFFREY W. ECKEL MICHAEL T. ECKHART SIMONE F. LAGOMARSINO RICHARD J. OSBORNE
Chairman Member, Finance and Member, Audit Committee Chair, Compensation Committee
Risk Committee Member, Finance and Member, Audit Committee
TERESA M. BRENNER Member, Nominating, Risk Committee Financial Expert
Lead Independent Director Governance, and Corporate Financial Expert
Chair, Nominating, Governance Responsibility Committee STEVEN G. OSGOOD
and Corporate Responsibility CHARLES M. O’NEIL Chair, Audit Committee
Committee NANCY C. FLOYD Chair, Finance and Member, Compensation
Member, Compensation Member, Audit Committee Risk Committee Committee
Committee Member, Finance and Member, Nominating, Financial Expert
Risk Committee Governance, and Corporate
CLARENCE D. ARMBRISTER Financial Expert Responsibility Committee
Member, Nominating,
Governance, and Corporate
Responsibility Committee
LEADERSHIP TEAM
JEFFREY W. ECKEL KATHERINE McGREGOR DENT MARC T. PANGBURN ROBERT L. JOHNSON
Chairman Senior Vice President Executive Vice President Senior Vice President
Chief Executive Officer Chief Human Resources Officer Co-Chief Investment Officer
JEFFREY Z. MARTIN
JEFFREY A. LIPSON DANIEL K. McMAHON, CFA NATHANIEL J. ROSE, CFA Senior Vice President
Chief Operating Officer Executive Vice President Executive Vice President Chief Technology Officer
Chief Financial Officer Portfolio Management Co-Chief Investment Officer
CHARLES W. MELKO, CPA
STEVEN L. CHUSLO SUSAN D. NICKEY RICHARD R. SANTOROSKI Senior Vice President
Executive Vice President Executive Vice President Executive Vice President Treasurer
Chief Legal Officer Chief Client Officer Chief Analytics Officer Chief Accounting Officer
J. BRENDAN HERRON
Executive Vice President
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Roles and Responsibilities
Nominating, Governance
and Corporate Responsibility Committee
of the Board of Directors
Chairman and CEO
ESG Committee
ESG Staff Committee Leader
Investor Relations and ESG Strategy I Finance I Accounting I Investments
Legal I Human Resources I Communications I Portfolio Management
ROLE RESPONSIBILITIES
Board of Directors Formal adoption of new ESG policies and oversight of implementation
Nominating, Governance
Recommendation of new ESG policies and oversight of implementation
& Corporate Responsibility Committee
Allocation, prioritization and oversight of staff and company resources dedicated to the implementation of
Chairman and CEO
ESG initiatives
ESG Staff Committee Leader Direct report to the Chairman and CEO responsible for setting performance milestones and delegating responsibilities
Development of ESG strategy, execution of initiatives, and integration into engagement with ESG rating agencies
Investor Relations and ESG Strategy
and debt and equity investors
Legal Review of ESG disclosures and ensuring validation of adherence to ESG policies
Finance Execution of green bond issuances
Human Resources Cultivation of commitment to diversity and inclusion principles and employee and community engagement initiatives
Accounting Tracking, verifying, and reporting ESG metrics in public financial filings
Communications Fostering and maintaining authentic and strategic stakeholder relationships
Investments CarbonCount® assessments and monitoring of climate-related investment risks and opportunities
Portfolio Management Assessment of portfolio exposure to climate-related risks and opportunities
“Since our founding, we have embedded an unshakeable commitment to ESG into our business
model and operations. We believe our demonstration of this commitment has driven our ability
to generate superior risk-adjusted returns for shareholders and continues to serve as a model
for others in our industry.”
TERESA M. BRENNER,
Lead Independent Director.
Chair, Nominating, Governance and Corporate Responsibility Committee
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MANAGEMENT APPROACH
Internally managed, the business affairs of our company are Finance and Risk Committee, and Nominating, Governance and
conducted by our officers and employees under the direction of Corporate Responsibility Committee (NGCR). In 2018, the Board
our President & CEO with the oversight of our Board. Our Board formalized its oversight of ESG strategies, activities, policies and
members – eight of whom are Independent – are elected annually by communications through the NGCR, further demonstrating our
our stockholders and participate in at least one of the following four steadfast commitment to such matters.
standing committees: Audit Committee, Compensation Committee,
ESG GOVERNANCE
We recognize the importance of understanding, evaluating, and our strategies, activities, and policies including our Sustainability
monitoring ESG-related opportunities and risks as part of our vision Investment Policy, Environmental Policies, and Human Rights and
and strategy. The NGCR is responsible for periodically reviewing Human Capital Management Policies.
BOARD DIVERSITY
Hannon Armstrong values the benefits that diversity can bring to With our new Board members and our previously announced
its Board. For purposes of Board composition, diversity includes, leadership realignment, we are well positioned to best serve our
but is not limited to, subject matter expertise, business experience, clients, investors, and employees in delivering on our climate
education background, relevant skills, age, gender, and ethnicity. positive investing vision.
As our company grows, it is important to expand the number
of members of our Board of Directors and their respective
competencies and diversity. In 2021, we welcomed two new 89% Independent Board Members
Board members, Clay Armbrister, President of Johnson C. Smith
University and Nancy Floyd, founder of one of the first clean energy 33% Women Board Members
venture capital platforms.
11% Racial or Ethnic Minority Board Members
E T H I C A L B E H AV I O R
We expect the highest legal, moral, and ethical standards of We also expect our business partners to comply with our Business
honesty, integrity and fairness to be implemented across all of our Partner Code of Conduct, which outlines the expected practices
affairs. Our Code of Business Conduct and Ethics details the ethical of our agents, distributors, dealers, contractors, intermediaries,
and legal standards of behavior and business activities that are joint venture partners, and suppliers in the areas of ethical business
required of all our directors, officers and employees, and each of practices, environmental responsibility, human rights, labor, and
them receive training on these policies on an annual basis. health and safety.
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WHISTLEBLOWER POLICY
We maintain a confidential hotline for reporting potential violations More details can be found in the Code of Business Conduct
and concerns relating to our Code of Business Conduct and Ethics and Ethics available on our website at:
as well as our policies addressing our accounting and auditing https://investors.hannonarmstrong.com/govdocs
controls. All reports are taken seriously, and, when appropriate, we
will fully investigate each allegation and take appropriate action. In
2020, we received no reports on our whistleblower hotline.
E X E C U T I V E C O M P E N S AT I O N
We have designed our executive compensation program to be For 2020, the total compensation of Jeffrey Eckel, our President
aligned with the interests of stockholders, focused on sustainable & CEO of $3,998,495 was approximately 17 times the total
long-term growth, and to attract and maintain effective executives compensation of the median employee whose compensation was
in a competitive market for talent. A portion of all executive calculated in the same manner and was $238,711. Please refer to
compensation is linked to our success in overall corporate our most recent Proxy Statement for more detail.
performance in executing our business strategy, aspects of which
include investments in climate change solutions. In this way, executive
compensation is linked, in part, to our progress in advancing
environmental as well as other related social and governance
17x1 CEO to Median Employee Pay
initiatives. In addition, we monitor the relationship between the
compensation of our executive officers and the compensation of
our non-managerial employees.
CYBERSECURITY
Cybersecurity and cyber resilience are critical to the well-being redundantly safeguard our data and business assets from cyber
of our organization. As cyber risks continue to grow globally, our threats and provide for business continuity. This forward-thinking
cybersecurity and training programs continue to adapt and evolve. design helped to support our resilience and growth amidst the
Addressing these threats while upholding our principles of governance, COVID-19 pandemic by enabling our team to transition to virtual
controls, and transparency is a priority for our cybersecurity program. work on day one.
Through the Finance and Risk Committee, our Board of Directors
Protecting against social engineering attack vectors by fostering
along with our Leadership Team collectively provide oversight of our
a culture of cybersecurity awareness is an important part of our
information technology and cybersecurity program, which is led by
security program. We use a combination of instructor-led training,
the Chief Technology Officer and supported by a skilled and high
quarterly training modules, and ongoing testing to keep our team
performing team of technology professionals.
well informed of emerging and relevant threats. Our cybersecurity
Our IT infrastructure reflects a modern best-of-breed technology team takes every attempt to infiltrate our IT infrastructure seriously
stack that utilizes highly respected services and top niche vendors. and reports all attacks to authorities and relevant service providers.
We deploy a multi-layered security and backup approach to
1) Compared to an average of 320x (by sales) for the largest 350 companies according to the Economic Policy Institute (2019).
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STOCKHOLDER ENGAGEMENT
We believe that engaging with investors is fundamental to good In 2020, we met with over 300 investors,
governance and essential to maintaining our industry-leading
practices. Throughout the year, we seek opportunities to connect
representing at least 42% of our shares
with our investors and to respond to their inquiries and observation outstanding as of the end of the year.
in order to gain and share valuable insights into current and
emerging business and governance trends.
To enable the Board to consider direct stockholder feedback,
Board members are updated on these conversations with investors
and the chairperson of our NGCR participates directly in some of
these conversations.
For Your Reference
For additional information on our ESG strategy, policies,
and initiatives (including the below documents),
please visit investors.hannonarmstrong.com and
www.hannonarmstrong.com/ESG.
• Annual Report
• Proxy Statement
• Sustainability Investment Policy
• Environmental Policies
• Human Rights & Human Capital Management Policies
• Code of Business Conduct and Ethics
• Business Partner Code of Conduct
• Environmental Metrics
• Sustainability Report Card
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M E M B E R S H I P G R O U P A F F I L I AT I O N S
Hannon Armstrong participates in several councils and trade leadership position at several of these organizations, including
associations. Through these associations, we seek to advance the American Clean Power Association, American Council on
unified efforts on climate action, sustainable investing, and Renewable Energy, Alliance to Save Energy, Ceres, and the
clean energy. A Hannon Armstrong executive serves on a board National Association of Energy Service Companies.
• Association of Defense Communities • Clean Energy Leadership Institute
• American Clean Power Association ACP • Climate Leadership Council
• American Council on Renewable Energy ACORE • Ecological Restoration Business Association
• Alliance to Save Energy • National Association of Energy Service Companies
• Association for Governmental Leasing and Finance • National Association of Corporate Directors
• Business Climate Leaders • National Council for Public-Private Partnerships
• Ceres • U.S. Green Building Council
CHARTERS AND PLEDGES
PLEDGES CHARTERS
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POLICY ENGAGEMENT
While Hannon Armstrong has long engaged in public policy
debates on climate and energy issues, we have significantly POLICY MISSION:
increased our policy engagement over the past two years. To be Hannon Armstrong advocates for policies that will
a corporate climate leader, we believe our company needs to harness private capital investment to address the climate
meaningfully engage on policy. Our lobbying efforts are designed crisis – creating jobs and boosting the economy through
to educate policymakers (e.g., in-person and virtual meetings, trade an accelerated build-out of sustainable and resilient
association initiatives, direct responses to Congressional bills and infrastructure.
reports, and sign-on letters).
Our advocacy efforts cover a range of issues, but we have primarily POLICY PRIORITIES:
focused on climate change and the need for an economy-wide
rice Carbon: Put a price on carbon to correct
➜P
price on carbon.
the failure of the market to account for the costs of
Additionally in 2020, our employees relaunched our Political Action unmitigated pollution
Committee, the Hannon Armstrong Climate Solutions PAC. Through rive Demand: Increase demand for climate
➜D
the PAC, we support candidates and policies that are conducive to positive projects via renewable energy and energy
our climate positive growth objectives. efficiency standards
➜ Boost Investment: Facilitate private investment in
climate change mitigation and resilient infrastructure
projects through federal programs, agency
procurement mandates, public-private partnerships,
and other policy instruments
odernize the Grid: Establish a national electric grid
➜M
that is reliable, secure, and clean
educe Regulatory Barriers: Remove barriers to entry
➜R
for clean energy through regulatory, permitting and
siting reform
romote Democracy Reforms: Build a healthier,
➜P
more responsive democracy to facilitate ambitious
climate action with a focus on enacting campaign
finance reform, protecting & expanding voting rights,
& strengthening federal ethics laws
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T | 19PLANET 20 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T
PLANET
TCFD ASSESSMENT
In 2018, under the direction of our Board Our President and CEO is responsible Employee incentive
and in accordance with the Task Force for overseeing the implementation of our
compensation is linked to our
on Climate-Related Financial Disclosures environmental initiatives and for prioritizing
(TCFD), we became one of the first public internal resources committed to the progress in advancing our
companies to adopt TCFD to increase advancement of our ESG objectives. An climate positive mission.
the analytical rigor and transparency internal cross-functional ESG Committee
Hannon Armstrong’s investments have
associated with our environmental impacts. is tasked with implementing our ESG
verifiable quantified impacts that address
strategies and policies.
By being at the forefront of climate-related or mitigate the effects of climate change
disclosures, we believe we will be able to A portion of all employee compensation is as we believe the opportunities and
more prudently manage emerging risks and linked to the success in overall corporate risks associated with such investments
proactively develop strategies to generate performance in executing our business are material to our stakeholders.
attractive risk-adjusted returns for our strategy, which is focused on investing in Our Sustainability Investment Policy sets
shareholders. climate change solutions. forth the underwriting criteria for our
The TCFD was established by the Financial As a result, employee incentive investments, which include processes for
Stability Board with the goal of developing compensation is linked to progress in evaluating opportunities and risks uniquely
voluntary, consistent, climate-related advancing our ESG initiatives. related to environmental matters. To pass
financial disclosures that would be useful to For additional information regarding our sustainability screen, a proposed
all relevant stakeholders. our governance structure and ESG best investment must either reduce carbon
practices, please see our 2020 Form emissions or produce other tangible
The recommendations of the TCFD are
10-K item 1 – Business – Environmental environmental benefits such as reducing
focused on four thematic areas representing
and Social Responsibility and Corporate water consumption.
core operational pillars, including:
(1) governance; (2) strategy; (3) risk Governance and our proxy statement for Further discussion of our investment strategy
management; and (4) metrics and targets. our 2021 annual meeting. is presented in our 2020 Form 10-K,
We believe that our core principles are in in Item 1 – Business – Investment Strategy.
substantial alignment with the goals and Strategy Starting in 2018, we formalized policies
objectives contemplated in TCFD’s thematic that minimize the impacts of our business
With scientific consensus that climate operations on climate change including
areas of focus, and we address each of
warming trends are driven by human purchasing 100% of our electricity from
them in our management efforts, decision-
activities and result in extreme weather renewable energy sources. In addition, we
making processes, as well as our public
events, we believe our firm is well committed to and then achieved reducing
disclosures, including our 2020 Form 10-K.
positioned to generate attractive risk- waste generation 10% by the end of
adjusted returns by investing in and 2020 (versus a 2017 baseline) through
Governance managing a portfolio of investments that increasing the collection and processing
reduce climate-altering carbon emissions. of recyclable waste.
Our Board is responsible for the formal
Further, with increasing weather-related
adoption of our ESG policies, including We also operate a composting program
events affecting certain of our markets,
oversight of climate-related opportunities for food waste and mandate that carbon-
we see similar investment opportunities
and risks. intensive beef and pork dishes are not
in infrastructure assets that mitigate the
At least once each quarter, the Board’s impact of and increase our resiliency served at corporate events.
Nominating, Governance, and Corporate to these extreme weather events and
Responsibility Committee reviews climate change.
disclosures on progress toward our climate-
related initiatives to external stakeholders.
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T | 21PLANET
Risk Management
Climate Risk Managementregional wind regimes. We also monitor
disruptions. The Board’s Finance
We discuss our environmental risk
and Risk Committee
As infrastructure projects are subjectlarge to environmental
scale weather events that could management in more detail reviews
in our 2020
forces, many
As infrastructure assets
projects in our portfolio
are subject to are negatively
exposed to assetspolicies
climate
impact and guidelines with
in our portfolio Formrespect
10-K, to
in our
Item risk
7 – assessments
Management’s
change
environmental related
forces, manyrisks,
assetsincluding
in our floods,
with wildfires,
the goal of and and management,
implementing, together including thoseand
Discussion that address
Analysis certain
of Financial
hurricanes. Our due diligence process seeks with to appropriately
our project environmental
partners, appropriate risks. Condition and Results of Operations
portfolio are exposed to climate change
mitigate these risks by relying on independent
safety subject matter
procedures and other – Factors
threat our environmental
We discuss Impacting our
risk management in Operating
more detail
related risks, including floods, wildfires,
experts to conduct engineering and weather analyses
mitigation and in our 2019 Form 10-K, inResults
measures. Item 7––Impact of
Management’s climate change on
Discussion
and hurricanes. Our due diligence process
insurance reviews. our future operations.
and Analysis of Financial Condition and Results of Operations
seeks to appropriately mitigate these We have also focused on improving the
After a transaction closes, we continue to monitor the – Factors Impacting our Operating Results – Impact of climate
risks by relying on independent subject resiliency of our business operations by
environmental risks to which our portfolio is exposed. We change on our future operations.
implementing cloud-based information
We monitor large scale
matter experts to conduct engineering and
periodically analyze the impact of seasonal climate trends weather events that could
weather analyses and andinsurance reviews. technology systems to allow our employees
nmental disruptions. on
The the portfolio,
Board’s Finance including
Risk Committeedrought,
reviews El Niño/La Niña phases,
o climate policies and guidelines with respect to our risk assessments
and changes in regional wind regimes.
to work from remote
We also monitor large
locations in the damage assets in our
es, and andAfter a transaction
management, closes,
including those we
thatcontinue to
address certain We monitor large scale weather
event of weather or other workplace
opriately monitor the
environmental scale weather events that could negatively impact assets in
risks.environmental risks to which portfolio with the goal of
ct matter We our
discuss
our portfolio
our environmental
with the goal
risk management
of implementing,
in more detail
disruptions.
together
The Board’s
with our events
Finance and Riskthat could damage assets
implementing appropriate
portfolio is exposed. We periodically Committeeand reviews
yses and project
in our 2019 Form 10-K, inpartners, appropriate
Item 7 – Management’s safety procedures
Discussion otherpolicies and guidelines
in our portfolio with the goal
analyze the
and Analysis ofthreat impact
Financial of seasonal
Condition and
mitigation
climate
Results of Operations
measures. with respect to our risk assessments and safety procedures and threat
itor the trendsImpacting
– Factors on theour portfolio,
Operating including drought,
Results – Impact of climate of implementing
management, including those that address appropriate
mitigation measures.
sed. We change on our Wefuturehave also focused on improving the resiliency of our
operations.
e trends
El Niño/La Niña phases, and changes in
business operations by implementing cloud-based information
certain environmental risks. safety procedures and threat
a phases,
tor large
technology systems to allow our employees to work from mitigation measures.
We monitor large scale weather
remote locations in the event of weather or other workplace
assets in
with our events that could damage assets
nd other in our portfolio with the goal
of implementing appropriate
y of our
ormation
safety procedures and threat
ork from mitigation measures.
orkplace
“Transparent disclosure of a company’s comprehensive environmental impact is
s combined with our “Ouressential
environmental focusclimate
to addressing combined withThe
change. ourconsistent application of a global
ESG reporting into leadership in integrating ESG reporting into
reporting framework will be necessary to positively impact corporate behavior,
ights why TCFD is ourand
financial filings highlights why TCFD is
ork for us.” we believe our disclosures are a model for accomplishing this goal.”
the appropriate framework for us.”
CHUCK MELKO, Chief Accounting Officer.
CHU CK MEL KO ,
Chief Accounting Officer
-12-
-12-
22 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R TPLANET
T C F D S C E N A R I O A N A LY S I S
In implementing TCFD and assessing the opportunities and risks related to climate change, we have considered the objectives of
the Paris Agreement, which aims to hold the global average temperature to well below 2 degrees Celsius above pre-industrial
levels and to work to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels. In the following analysis,
we have illustrated potential impacts to our investment portfolio as of December 31, 2020, from the physical impacts of climate
change and the transition to a low-carbon economy.
Risks and Opportunities
PHYSICAL
Given the assessments of the United Nations’ Intergovernmental Panel on Climate Change (IPCC) and other leading climate research
organizations regarding the probability of limiting the global temperature increase to 1.5 Celsius and likely serious climatic impacts even
with aggressive emissions reduction initiatives, we believe our investment portfolio will be impacted by physical risks regardless of the actions
taken. We assume the types of risks to which our investment portfolio is exposed are similar under either Scenario 1 or 2 (albeit at varying
degrees of severity).
FLOODING STORMS E X T R E M E H E AT WILDFIRES SEA LEVEL RISE
AND DROUGHT
TRANSITIONAL
A transition to a low-carbon economy may entail changes in market regulations, legal and regulatory frameworks, and reputational risks
and technology. The impact of these changes will vary by scenario. In Scenario 1, sufficient globally coordinated action is taken to limit the
global temperature increase to 1.5 degrees Celsius above pre-industrial levels. In Scenario 2, global action is insufficient to prevent global
temperatures from increasing more than 2 degrees Celsius above pre-industrial levels.
Additional information, including highlights of quantitative impacts, can be found in our 2020 Form 10-K in Item 1A. Risk Factors and Item 7
– Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors Impacting our Operating Results –
Impacts of climate change on our future operations.
MARKET R E G U L AT O R Y LEGAL R E P U TAT I O N TECHNOLOGY
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T | 23PLANET
TCFD Scenario 1
Sufficient globally coordinated action is taken to limit the global temperature increase to 1.5 degrees Celsius above pre-industrial levels.
PHYSICAL TRANSITIONAL1
• Higher REC Prices
PORTFOLIO IMPACT
• Physical Asset Damage • Higher Energy Prices
• Reduced Power Generation Capacity • Greater Cost Competitiveness of Climate Positive Technologies
• Accelerated Operational Performance Degradation • More Attractive Growth in Total Addressable Market
• Natural Resource Price Volatility • Greater Quantity of High-Quality Investment Prospects
• Degraded Competitor and Counterparty Creditworthiness
BOTTOM LINE IMPACT
• Higher Operational Costs • Increased Investment Volumes
• Higher Insurance Premiums • Higher Variable Cash Flows
• Reduced and More Variable Cash Flows • Lower Operational and Insurance Costs
• Increased Counterparty Default Risk • Higher Asset and Portfolio Level Debt Coverage Ratios
• Reduced Debt Capacity • Higher Long-Term Returns
• Diminished Long-Term Returns • Higher EPS Growth Potential
•S
trengthen Climate Risk Considerations
STRATEGIC RESPONSE
in Underwriting Process •O
ptimize Investment Monetization
• Implement Proactive Operational Maintenance and Debt Financing Strategy
and Extreme Weather Protection Procedures • Optimize Investment Pricing Strategies
• Procure Insurance Coverages • Optimize EPS/DPS Growth and Payout Ratios
•A
ugment Geographic and Technological Portfolio • Expand Climate Positive Investment Universe
Diversity Through Investment Pipeline
1) A transition to a low-carbon economy may entail changes in market regulations, legal and regulatory frameworks, reputational risks, and technology. The impact of these changes will
vary by scenario.
24 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R TPLANET
TCFD Scenario 2
Global action is insufficient to prevent global temperatures from increasing more than 2 degrees Celsius above pre-industrial levels.
PHYSICAL TRANSITIONAL1
• Greater Power Grid Instability
PORTFOLIO IMPACT
• Physical Asset Damage • Higher Power Prices Driven by Extreme Climate
• Reduced Power Generation Capacity Driven Disruptions
• Accelerated Operational Performance Degradation •G
reater Commodity and Natural Resource Price
• Natural Resource Price Volatility Levels and Volatility
• Increased Demand for Climate Positive Investments
BOTTOM LINE IMPACT
• Higher Operational Costs
• Higher Insurance Premiums
• Reduced and More Variable Cash Flows • Increased Investment Volumes
• Increased Counterparty Default Risk • Higher Long-Term Financial Returns
• Reduced Debt Capacity
• Diminished Long-Term Returns
•S
trengthen Climate Risk Considerations
STRATEGIC RESPONSE
in Underwriting Process
• Implement Proactive Operational Maintenance • Optimize
Asset Monetization Strategy,
and Extreme Weather Protection Procedures Risk Management and Underwriting Processes
• Procure Insurance Coverages • Optimize Investment Pricing Strategy
•A
ugment Geographic and Technological Portfolio
Diversity Through Investment Pipeline
1) A transition to a low-carbon economy may entail changes in market regulations, legal and regulatory frameworks, reputational risks, and technology. The impact of these changes will
vary by scenario.
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T | 25PLANET
T C F D M E T R I C S A N D TA R G E T S
In assessing our operational and financial performance, we calculate the environmental profile of our business operations and
infrastructure investments using a combination of well-established reporting protocols and proprietary tools for measuring carbon
emissions and water savings.
Climate Positive Impact Over Time
Carbon Reduction Water Savings
Cumulative metric tons of CO2 avoided annually Cumulative gallons of water saved annually
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
(1.8m)
(2.3m)
(2.8m) (2.1b)
(3.2m)
(2.7b)
(3.0b)
(3.4b)
(5.2m)
Balance Sheet Portfolio Off Balance Sheet
(4.0b)
2020: 1.03 2020: 303
SCOPE 1 Emissions from operations that are owned or controlled Goal 3 Performance 3 Verification 4
by a reporting company.
Indirect Emissions 0 MT 0 MT APEX
Emissions from the generation of purchased or acquired
SCOPE 2 energy such as electricity, steam, and heating and cooling, Goal 3 Performance 3 Verification 4
consumed by a reporting company, but excluding the impact
Indirect Emissions of the purchase of renewable energy credits.
0 MT 0 MT APEX
All other indirect emissions that occur in the value chain of a
SCOPE 3 reporting company, including both upstream and downstream Goal 3 Performance 3 Verification 4
emissions, but excluding the emissions avoided as a result of
Indirect Emissions our investments. (~2.0 million of CO2 in 2020)
0 MTPLANET
S U S TA I N A B I L I T Y R E P O R T C A R D
The eighth annual edition of our Sustainability Report card discloses the CarbonCount® associated with each investment.
CarbonCount® is an award-winning tool that evaluates the efficiency with which capital is employed to reduce greenhouse
gases by estimating the carbon dioxide (“CO2”) emissions avoided annually per $1,000 of investment.
H A N N O N A R M S T R O N G I S U S TA I N A B I L I T Y R E P O R T C A R D 2 0 2 0
MARKET REGION CARBONCOUNT® MARKET REGION CARBONCOUNT®
BTM National 2.89 BTM Midwest 0.28
BTM National 2.87 BTM West 0.28
BTM National 2.86 BTM West 0.24
BTM National 2.85 BTM South 0.24
BTM National 2.85 BTM West 0.23
BTM National 2.84 BTM National 0.20
GC National 2.02 BTM National 0.18
BTM South 1.90 BTM South 0.17
GC West 1.79 BTM Northeast 0.13
GC National 1.66 BTM South 0.07
GC National 1.41 BTM Midwest 0.05
BTM National 1.35 BTM Midwest 0.03
GC West 1.25 BTM South 0.03
GC West 0.85 BTM South 0.03
GC West 0.74 BTM National 0.02
BTM Midwest 0.71 BTM West 0.01
GC West 0.65 BTM West 0.01
GC West 0.63 BTM West 0.01
GC West 0.61 BTM Midwest 0.00
BTM Midwest 0.51 SI South 0.00
GC West 0.46 BTM West 0.00
BTM National 0.40 SI South 0.00
BTM National 0.40 BTM National 0.00
BTM South 0.36 BTM National 0.00
BTM South 0.31 BTM National 0.00
BTM Midwest 0.30 SI West 0.00
BTM South 0.29 BTM National 0.00
2.0m 1.03 576m
T O TA L
Metric Tons of CO2 Avoided CarbonCount® Gallons of Water Saved
BTM = Behind-the-Meter, which includes energy efficiency, distributed solar, and storage investments.
GC= Grid-Connected, which includes solar land and onshore wind investments.
SI = Sustainable Infrastructure, which includes clean water, ecological restoration, and other resiliency investments.
* Investments in seismic retrofits provide resiliency in the event of an earthquake. A secondary benefit of such retrofits includes the preservation of carbon embedded in the built environment.
CarbonCount® is a scoring tool that evaluates investments in U.S.-based, energy efficiency and renewable energy projects to determine estimated CO2 emissions avoided annually per $1,000 of investment.
Estimated carbon savings are calculated using the estimated kilowatt hours (“kWh”), gallons of fuel oil, million British thermal units (“MMBtus”) of natural gas and gallons of water saved as appropriate,
for each project. The energy savings are converted into an estimate of metric tons of CO2 equivalent emissions based upon the project’s location and the corresponding emissions factor data from
the U.S. Government and International Energy Administration. Portfolios of projects are represented on an aggregate basis.
Estimated water savings are calculated as the sum of the direct annual estimated water savings from energy efficiency measures such as low flow water fixtures and the annual indirect water savings
associated with the annual kWh generated and saved by our investments. The annual kWh of electricity generated and saved by our investments are multiplied by the amount of water withdrawn
and not returned to local water systems based upon the project’s location and the existing grid electricity generating units in that region. Indirect water savings is estimated using data prepared by
the U.S. Government’s Energy Information Administration and the Union of Concerned Scientists.
H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R T | 27PLANET
GREEN BONDS
Overview
At Hannon Armstrong, we are committed to ensuring all debt we issue is dedicated to eligible green projects. Typically, for corporate
unsecured debt we pursue independent verification. Since 2013, we have raised approximately $5.5 billion of green debt, including
securitizations and non-recourse and corporate issuances. Hannon Armstrong is a proud member of the Nasdaq Sustainable Bond Network.
Green Debt Issuances
Sustainable Yield Bonds SYBs
Off Balance Sheet on B/S
$0.7b
Securitizations typically of public
sector receivables and managed off
balance sheet
SYBs Corporate
off B/S
Green Debt Green
Sustainable Yield Bond $3.2b ~$5.5b1 Bonds
$1.6b2
On Balance Sheet
Non-recourse, asset-backed debt
managed on balance sheet
Corporate Green Bonds
Senior unsecured or convertible bonds .
issued as corporate obligations
1) From 2013 IPO through12/31/2020.
2) ICMA’s Green Bond Principles applicable to corporate unsecured
green bonds and convertible green bonds due 2023 but not
necessarily to convertible green bonds due 2022.
Corporate Green Bond Series3
INDEPENDENT COUPON CONVERSION
SECURITY NAME VERIFIER CUSIP MATURITY DATE ISSUED VOLUME RATE PREMIUM BOND TYPE RATINGS CarbonCount®4
Senior S&P: BB+
HASI-GRB-001 Ernst and Young 418751 AA1 7/15/2024 $500,000,000 5.25% N/A 0.25
Unsecured Fitch: BB+
Senior S&P: BB+
HASI-GRB-002 Ernst and Young 418751 AB9 4/15/2025 $400,000,000 6.00% N/A 2.01
Unsecured Fitch: BB+
Senior S&P: BB+
HASI-GRB-003 Ernst and Young 418751 AD5 9/15/2030 $375,000,000 3.75% N/A 0.35
Unsecured Fitch: BB+
Convertible
S&P: BB+
HASI-GRB-004 Ernst and Young 41068X AD2 8/15/2023 $143,750,000 0.00% 27.5% Senior 0.29
Fitch: BB+
Unsecured
3) Excludes convertible green bonds due 2022.
4) This is the CarbonCount® metric resulting from the allocation of the net proceeds from this offering to specific Eligible Green Projects. CarbonCount® is the ratio of the estimated first year
of metric tons of carbon emissions avoided (or that will be avoided) by the investment divided by the capital to be invested to understand the impact the investment is expected to have on
climate change. In this calculation, we use emissions factor data, expressed on a CO2 equivalent basis, from the U.S. Government or the International Energy Administration to estimate
a project’s energy production or savings to compute an estimate of metric tons of carbon emissions that will be avoided. In addition to carbon, we also consider other environmental
attributes, such as water use reduction, stormwater remediation benefits, or stream restoration benefits.
28 | H A N N O N A R M S T R O N G | 202 0 I M PA C T R E P O R TYou can also read
