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SDCL Energy Efficiency Income Trust plc

SDCL Energy Efficiency Income Trust Plc Annual Report and Audited Financial Statements for the year ended 31 March 2023

www.seeitplc.com

Annual Report and Audited Financial Statements

For the year ended 31 March 2023

SDCL ENERGY EFFICIENCY

INCOME TRUST PLC

1. Highlights and Overview

1.1 Summary of the year to 31 March 2023 1

1.2 Chair’s Statement 2

1.3 Company Overview 6

1.4 Investment Proposition 8

1.5 SEEIT Business Model 10

2. Strategic Report: The Company and

Portfolio Review

2.1 Overview 13

2.2 The Investment Manager’s Report 14

2.3 Financial Review and Valuation Update 23

2.4 Portfolio Summary 33

2.5 Company Key Performance Indicators 54

2.6 Stakeholders and Section 172 55

3. Strategic Report: ESG and Risk

3.1 Environmental, Social and Governance

(“ESG”) 58

3.2 Risk Management Framework 68

3.3 Viability Statement 73

4. Board and Governance

4.1 Investment Policy and Approach 75

4.2 Board of Directors 76

4.3 Report of the Directors 78

4.4 Corporate Governance Statement 83

4.5 Nomination Committee Report 95

4.6 Audit and Risk Committee Report 97

4.7 Directors’ Remuneration Report 103

4.8 Statement of Directors’ Responsibilities 109

5. Financial Statements

5.1 Independent Auditor’s Report 111

5.2 Financial Statements 119

5.3 Notes to the Financial Statements 123

Additional Information

Company Information 146

Key Company Data 147

SFDR Periodic Disclosure 148

Glossary 154

Glossary of Financial Alternative Performance

Measures 156

Table of Contents

Pictured: Baseload Capital site

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 1

1. HIGHLIGHTS AND OVERVIEW

1.1 Summary of the Year to 31 March 2023

INVESTING IN ENERGY EFFICIENCY

SDCL Energy Efficiency Income Trust plc (“SEEIT”), managed by Sustainable Development Capital

LLP (“SDCL”), is a constituent of the FTSE 250 index and the first UK listed company of its kind to

invest exclusively in the energy efficiency sector.

Recognising that most energy is lost in the energy system, SEEIT targets energy efficiency

investments that reduce wastage in the supply, demand and distribution of energy. These

solutions in turn reduce carbon emissions and costs and can strengthen energy security, the grid

and the energy market as a whole.

Servicing over 50,000 buildings across its portfolio, SEEIT’s project investments provide a range

of essential energy services, focused on contracts with essential industries in the United States,

Europe, the UK and other select markets with attractive risk-adjusted returns.

6.24p

Target dividend

of 6.24p per share for the year to

March 2024, a 4% year-on-year

increase

1,202,528

tCO2

Carbon Savings

of 1,202,528 tCO

(March 2022:

1,060,617

tCO

) from Company’s

portfolio

101.5p

Net Asset Value (“NAV”)

per share

(APM)

of 101.5p as at 31 March 2023

(31 March 2022: 108.4p), which

includes a reduction of 7.3p

from 70bps increase in weighted

average unlevered discount rate

in the year

6.0p

Aggregate dividends

(APM)

of 6.0p per share declared for the

year ended 31 March 2023, in line

with target (March 2022: 5.62p)

£18.6m

Loss before tax

of £18.6 million for year to 31

March 2023 (31 March 2022:

Profit of £79.8 million), includes

unrealised loss of £81 million from

discount rate increases

The target dividend stated above by the Company is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company

Per SEEIT’s ESG Report, November 2022

APM

Alternative Performance Measure: See Glossary Of Financial Alternative Performance Measures for further details for APM’s used throughout this report.

£84m

Investment cash inflow

from the portfolio

(APM)

of £85 million, up 31% on

a portfolio basis

(APM)

(2022:

£65million)

1.2x

Dividend cash cover

(APM)

of 1.2x for the year to 31 March

2023 (March 2022: 1.2x)

£1,100m

Portfolio valuation

(APM)

of £1,100 million as at 31 March

2023, up from £913 million at 31

March 2022

c.£240m

Investment

of c.£240 million in new

and organic investments

and existing commitments

during the year and a further

c.£30million invested since the

year end

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

1.2 Chair’s Statement

On behalf of the Board, I am pleased to present the annual report and financial

statements (the “Annual Report”) for the SDCL Energy Efficiency Income Trust

plc (“SEEIT” or “the Company”) for the year ended 31 March 2023.

This financial year has been

characterised by global economic

instability, driven by high power

prices, high inflation, rising interest

rates and energy price volatility in

the wake of Russia’s invasion of

Ukraine. Government interventions

in energy markets responded to this

environment with varying degrees

of success. An energy crisis was

followed by a liquidity and banking

crisis as inflation, interest rates

and bond yields rose quickly in the

second half of the year, accompanied

by recessionary concerns in major

markets where the Company is active.

A low interest rate, low inflation

environment is unlikely to return in

the short term.

Higher risk-free rates, and higher costs

of capital, have fed through into the

market valuations of all income-oriented

investment companies listed on the

London Stock Exchange. Generally,

share prices moved from a premium to

a discount to net asset value across the

listed infrastructure sector.

The Board and the Investment

Manager have reflected the higher

interest rate environment in the

Company’s valuation assumptions

at the year end. SEEIT’s NAV per

share declined to 101.5p in the year

to 31 March 2023 and the Company

recorded a loss before tax of £18.6

million, largely as a result of increases

in discount rates applied in the

valuation but including certain project

specific adjustments described in

Section 2.3, Financial Review and

Valuation Update.

The Company owns a large, diversified

portfolio of energy-efficiency assets,

which provide several opportunities

for future growth. Our assets reduce

energy wastage and are focussed on

providing essential energy services

often to essential industries. The range

of technologies in SEEIT’s portfolio

creates opportunity to provide a wide

variety of energy solutions to end

users, helping them cut costs; reduce

their carbon footprint; and improve

resilience.

One consequence of the tragic

Ukraine war and its impact on energy

markets has been a growing focus by

governments and corporates on how

to save energy. We believe that energy

efficiency should be considered

one of the three main “pillars” of

infrastructure investment, alongside

but distinct from (i) renewable energy

and (ii) social and other infrastructure.

More detail on what distinguishes

energy efficiency is in Section 1.4,

Investment Proposition.

Portfolio and Financial

Performance

The portfolio, as a whole, generated

sufficient cash to comfortably cover

the Company’s dividends paid in the

year.

During this financial year, levels of

volatility in global energy markets not

seen for many years, and regulatory

responses to them, created both

short-term and “one-off” setbacks for

some of SEEIT’s investments.

Tony Roper

Chair of SEEIT

2 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 3

Both SEEIT Oliva and Värtan Gas

were materially impacted by higher

fuel costs combined with regulatory

changes that have since been

updated or appealed. At the same

time, some investments, such as

Primary Energy, Värtan Gas, Onyx

and Future Energy Solutions, faced

specific operational challenges.

Details in relation to the operational

performance of specific projects

and asset management initiatives

undertaken during the year are outlined

in Section 2.4, Portfolio Summary.

While SEEIT’s portfolio is positively

correlated to inflation over the

medium to long term, in the short

term, increases in labour costs

impacted returns on certain

investments. Although most of the

debt financing at the project level

in SEEIT’s portfolio was secured on

fixed terms or hedged at relatively

attractive terms, rising interest

rates increased some project-level

borrowing costs.

Notwithstanding these challenges,

several investments have also

made progress, with for example

RED-Rochester, Onyx and EVN all

The Company continues to pursue a

low-gearing

(APM)

strategy relative to the

wider infrastructure peer group, with

consolidated outstanding debt across

the Group representing approximately

32% of NAV as at 31 March 2023, in

line with the Company’s medium-term

structural gearing

(APM)

target of 35%. We

do not have any near-term refinancing

risk. Further details in relation to the

Company’s existing leverage can be

found in Section 2.3, Financial Review

and Valuation Update.

As we are more focused on value

enhancement from the Company’s

existing portfolio and our organic

pipeline than on sourcing new

investments, our existing liquidity is

considered sufficient for the

foreseeable future.

presenting opportunities to deliver

additional long-term value.

The Investment Manager is focused

on outperforming the Company’s

return target. In an environment

characterised by a higher cost

of capital, and given the upside

performance potential from the

portfolio, we remain confident that

the Company can meet or exceed its

stated target net total return of 7-8%

per annum

from its IPO price over

the medium to long term.

Capital Structure

The Company secured successfully

the equity capital it needed through

a £135 million fundraise conducted

in September 2022, shortly before

capital markets effectively closed.

We are grateful for the support that

shareholders have given SEEIT since

its inception.

This fundraise, along with the existing

revolving credit facility (“RCF”),

underpin the capital position of the

Company, allowing it to manage

liquidity, invest in growth across

existing portfolio projects and, as

suitable opportunities arise, make

attractive new investments.

Pictured: On.Energy site

3 Net of fees and expenses by reference to the IPO Share Price of 100.0 pence per share

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

4 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Investment Activity

The Investment Manager has been

focused on initiatives within the

existing portfolio, which involves

identifying sources of additional

revenue, reducing costs or investing

incremental capital for accretive

returns. Planning and implementation

of these initiatives takes time, and

while some value enhancement

activity has been recognised in our

current valuation of the portfolio, the

majority will not be recognised until its

implementation is proven.

During the year, SEEIT invested c.£121

million into six new investments

and commitments and a further

c.£119 million into organic follow-on

investments and commitments across

16 existing portfolio projects. Since the

year end, a further two new investments

of c.£4 million, plus a further £26 million

in follow-on investments across four

existing portfolio projects have been

made. Details of these investments

are provided in Section 2.4, Portfolio

Summary.

The Investment Manager continues to

focus on new opportunities associated

with our existing portfolio (the

“organic” pipeline) typically at rates

of return above our stated investment

objectives, as opposed to acquisitions

of new projects in the market.

Opportunities for capital growth could

also include utilising the capacity the

Company has to increase selectively

its exposure to construction and

development phase investments.

SEEIT generally approaches

investment opportunities with the

intention to acquire and improve

assets and will thus typically hold

an investment to the extent that it is

consistent with total return targets

and until value has been optimised.

The Company will contemplate

disposing of assets opportunistically

or via targeted sales where it

considers that doing so would

deliver value to shareholders. SEEIT

materially exited one investment

during the financial year, through

early repayment of its loan to the

Biotown green gas project in the

United States at a return above

expected return for this investment.

Disposals of less strategic or smaller

projects, where a third party could

derive greater value, are being

evaluated.

Dividends

In line with previous guidance, in

June 2023 the Company announced

its fourth interim dividend for the

year ended 31 March 2023 of 1.50p

per share, providing an aggregate

dividend of 6.00p per share declared

for the year ended 31 March 2023,

which was fully covered by net cash

income.

Based on our assessment of current

cashflow forecasts, the Company is

announcing new dividend guidance

of 6.24p per share for the year to

31 March 2024 (an increase of 4%)

and as before, targeting progressive

dividend growth thereafter.

Share Price and Buyback

Programme

As noted above, rising interest rates

had a major impact on the valuation of

listed infrastructure since September

2022, compounded by a dislocation in

markets where demand from buyers

did not match pressure from sellers,

particularly those needing to raise

liquidity to manage redemptions.

We do not believe that SEEIT’s recent

trading price reflects the value of the

portfolio or its total return prospects

and took proactive steps to address

this.

On 3 April 2023, the Company

announced a share buyback

programme in response to the

discount at which its share price

traded relative to its reported NAV per

(APM)

. As at the date of this report,

the Company has deployed c.£14

million of the £20 million total buyback

allocation.

Corporate Governance and

Stakeholder Engagement

The Company held its Annual General

Meeting (“AGM”) on 12 September

2022, at which all resolutions were

duly passed by shareholders. The

Articles of the Company provide

that a continuation vote be put

to shareholders at the first AGM

following the fourth anniversary (which

falls in the current year) of initial

admission and, if passed, at every third

AGM thereafter.

1.2 Chair’s Statement

continued

4 The target dividend stated above is based on a projection by the Investment Manager and should not be treated as a profit forecast for the Company

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 5

Investment companies undertake

continuation votes alongside share

buybacks as a means, inter alia, for

discount control. Share buybacks can

be an effective means of managing

short-term dislocations between price

and value. Continuation votes provide

investors with the ability to mitigate

any long-term fundamental problems

with value itself.

The Board recognises the importance

of this mechanism for shareholders and

believes that there is no fundamental

concern with the Company’s

prospects and our ability to deliver

value for shareholders. Despite the

current macroeconomic situation,

we believe the Company is well

positioned, with substantial scale and

a diversified portfolio able to deliver

attractive returns. Further details of

the Company’s first continuation vote

will be provided to shareholders in the

notice of the 2023 AGM.

The Investment Manager hosted a

Capital Markets Day on 14 March

2023 at the London Stock Exchange.

The event explained the key market

drivers for energy efficiency and

provided greater insight into some of

the Company’s larger holdings.

The Board was pleased to visit SEEIT

Oliva in Spain during the year and was

able to engage directly with members

of the management and operations

teams at one of SEEIT’s larger portfolio

of investments to understand the key

risks and growth drivers of the

projects concerned.

The Investment Manager has

remained selective in making

new investments and continues

to evaluate organic and inorganic

investments that can deliver

attractive risk-adjusted returns for

investors. The Company remains well

capitalised, with a strong balance

sheet and low levels of gearing

(APM)

relative to the infrastructure

investment company sector.

The Board recognises the current

challenges facing UK-listed investment

companies, and is working with the

Investment Manager to ensure that

SEEIT manages and adapts to the

current market dislocation evident

across the sector. Our objective

is to provide top quartile levels of

disclosure to help investors better

understand current performance

and the long-term prospects of

SEEIT, which we expect will evolve.

I would like to thank personally all

our shareholders for their continued

support of the Company, and I look

forward to continued engagement in

the year ahead.

Tony Roper

Chair

Over the past few months, I have

met with some of SEEIT’s larger

shareholders to discuss their

expectations and collect feedback

on the performance of the Company.

These meetings have been helpful

in shaping the Company’s disclosure

in this Annual Report, which we

have revised and expanded, both

at Company level and at project

level for our larger investments.

The Investment Manager and I

look forward to continuing regular

dialogue with investors going forward.

Outlook

SEEIT is well positioned to be

able to unlock long-term growth

opportunities from its established and

diversified portfolio of investments.

Energy efficient technology is a

critical part of the energy transition

because its implementation is

typically much quicker and cheaper

compared with the time and cost

to develop new sources of energy

generation.

More and more private and public

sector counterparties are focused on

meeting carbon targets; enhancing

energy security and resilience; and

seeking to better manage energy

price volatility. Demand for on-site

generation, efficient distribution, and

demand-side reduction solutions

continues to grow substantially.

Pictured: Sustainable Living Innovations site

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

1.3 Company Overview

SDCL Energy Efficiency Income Trust plc

(“the Company” or “SEEIT”)

SDCL Energy Efficiency Income Trust plc (“the Company”

or “SEEIT”) is the first listed company in the UK to invest

exclusively in the energy efficiency sector. The Company’s

objective is to generate an attractive total return for

investors, comprising stable dividend income and capital

preservation, with the opportunity for capital growth.

The Company’s current portfolio comprises assets across

the United Kingdom, Europe, North America and Asia.

The Company is a FTSE 250, closed-ended investment

company incorporated in England and Wales that was

admitted to the Official List and to trading on the London

Stock Exchange’s Main Market on 11 December 2018.

Sustainable Development Capital LLP

(“SDCL” or “Investment Manager”)

Sustainable Development Capital LLP (“SDCL” or

“Investment Manager”) is a London-based investment

firm with a proven track record of investment in energy

efficiency and decentralised energy generation projects

in the United Kingdom, Europe, North America and Asia.

SDCL was established in 2007 and has a team of over 50

professionals across offices in London, Dublin, New York

and Singapore.

With over 15 years of sector experience in energy

efficiency, SDCL has specialist origination, project

development, execution, ESG, asset management and

portfolio management teams with support from finance,

compliance and risk. Since 2012, the Group has raised

over £2 billion in capital commitments, including seven

funds, all exclusively focused on energy efficiency.

6 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 7

Project SPV Project SPV

Corporate

Investments

Project SPV

(includes

senior debt

investments)

Fund AdministratorInvestment Manager

SEEIT Board

Pictured: FES Lighting site

SEEIT Management

The Company has been established in the United Kingdom as an investment trust to provide shareholders

with access to investment into energy efficiency infrastructure investments. The Company has an independent

Board of Directors and has appointed SDCL as Investment Manager to manage the investments on its behalf.

The Company makes its investments via its sole direct subsidiary and main investment vehicle, SEEIT Holdco

Limited (“SEEIT Holdco” or “Holdco”).

The Investment Manager controls the actions of Holdco and its direct and indirect subsidiaries manage the existing

investments that Holdco has directly or indirectly invested in. Holdco typically invests in project special purpose

vehicles (“SPVs”), which provide energy efficiency solutions to counterparties through long-term contracts with a

fixed lifespan. An SPV – and by implication the portfolio of investments as a whole – therefore normally has a limited

lifetime over which it provides target returns to Holdco and ultimately the Company. These SPVs are structured so

that they can be sold in an active secondary market for energy efficiency assets although each of the investments

will also have been assessed individually to ensure appropriate alternative exit strategies are in place.

SEEIT Holdco

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Low Gearing

Strategy

Aiding net zero

transition

Cashflows

underpinned by

contracts

Creditworthy

counterparties

A diversified,

mostly operational

portfolio

Total Return

Opportunity

1.4 Investment Proposition

Investment

Objectives

Generate an attractive

total return for investors,

comprising stable

dividend income and

capital preservation,

with the opportunity for

capital growth.

• Well diversified by geography, technology,

project and counterparty

• Exposure to construction and

development stage assets limited to 35%

of GAV

• Scale of portfolio provides pipeline of

follow-on investments

• Asset management initiatives can

generate incremental cashflows

from long-term accretive investment

opportunities

• First LSE listed company to

invest exclusively in energy

efficiency projects

• Government policies highlight

role of energy efficiency in

mitigating climate change

• Sustainability considerations

integrated into all processes

and operations

• Operational investments have an underlying contract for energy services

• Targeting to limit and manage exposure to merchant power pricing over

medium to long term, mitigating risk where possible

• Targeting to limit and manage exposure to counterparty demand risk and

regulatory risk over medium to long term, mitigating risk where possible

• High proportion of investment grade counterparties

• Medium-term gearing

(APM)

target of 35% of NAV

• Gearing

(APM)

limit of 65% of NAV available for short-term funding

of new investments

5 Cashflows are derived from a combination of existing contracts, future growth assumed from existing contracts and extended or new contracts in the future

– see Section 2.3 for further details

8 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Pictured: Baseload Capital's site

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 9

Energy efficiency is considered the third pillar of infrastructure investment, alongside but distinct

from renewable energy infrastructure and social and other infrastructure. It can be distinguished

from other classes of infrastructure in part due to the operational features associated with energy

efficiency assets. In addition, energy efficiency investments usually benefit from relatively low levels

of exposure to energy price fluctuations and policy factors such as price caps, which can affect

traditional renewable energy infrastructure assets from time to time.

Energy Efficiency: The Third Pillar of Infrastructure Investment

Energy

Efficiency

Social and other

infrastructure

Renewables

Emerging investment

class

Established investment

class

Growing investment

class

CHP Units, lighting

projects, behind-the-

meter, etc

PFI/PPP, hospitals,

toll roads, utilities,

broadband, schools, etc

Grid-connected wind

farms, solar farms, etc

Commercial and

industrial or government

entities

Public sector entity Utilities

Counterparty credit Political / regulatory Subsidy / energy pricing

Short: Within 18 months

and often within 3-6

months

Long: 2+ years,

sometimes extending to

several years

Medium: 1-2+ years

Important, particularly

in short term

Not directly tied to

energy transition

Important

Heritage

Assets / Technology

Typical counterparty

Key risk

Role in energy transition

Typical construction periods

Comparing Types of Infrastructure

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

1.5 SEEIT Business Model

SEEIT invests in a portfolio of energy efficiency assets and platforms designed to

deliver a total return underpinned by long-term contracted cashflows that cover

a growing dividend. SEEIT assesses investment opportunities based on defined

characteristics that apply to projects across its portfolio. A project must typically:

1) fit the definition of an energy efficiency investment;

2) have, or will follow, a specified contractual structure with a suitable counterparty or counterparties; and

3) have the potential to generate accretive returns through asset management and follow-on investments.

Cleaner and More

Efficient Supply

Generate energy close to or at the

point of use, reducing transmission

and distribution losses.

Point of Use /

Demand Reduction

Help to manage or reduce the demand

for energy at the point of use through

energy-efficient technology and

initiatives.

10 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Energy Efficiency Investment: All of SEEIT’s investments fall into one or more of three

energy efficiency categories.

Green Energy

Distribution

Connect supply with demand in the

most efficient way through green

energy distribution, utilising green

fuels.

Portfolio of geothermal

power plants across

multiple regions

District energy system

providing C&I utility services

over 1,200 acre Eastman

Business Park in the US

Energy efficiency retrofit

at one of Ireland’s

largest public hospitals

Operating renewables

portfolio of

predominantly solar

PV projects across 70

sites in the UK

5 cogeneration

projects for steel

industry in the US

Fast electric vehicle

charging stations for

operators in the UK

Developer and

operator of energy

storage projects,

headquartered in

the US

9 cogeneration

projects for olive

industry in Spain

Energy efficient data

centre immersion

cooling technology

provider

Manufacturer of

energy efficient

motor systems

Stockholm’s gas grid, c.78%

biogas, with over 50,000

customers

Cleaner and

More Efficient

Supply

Point of Use

/ Demand

Reduction

Green Energy

Distribution

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 11 SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 11

Year 0Year 1Year 2Year 3Year 4Year 10 Year 15

Underwriting Case:NAV plus distributionsOpportunity foraccretive upside

Onboarding,Planning,

Identifying value

accretive Opportunities

Acquisition

IllustrativeProject NAVOverTime

Cost reductions and

efficiency improvements

Investment in higher-return

projects or new revenue

streams

Unlocking platform value

Potential for Upside to Total Return: The Investment Manager also targets investments with

the ability to generate accretive upside over the medium to long term. This can be through

asset management initiatives or follow-on investment into development-stage opportunities.

Drivers of Total Return

Net cashflows

PPA/service

agreement payment

End User

Services

Revenue

Heat, Power, other Energy

Delivery and Services,

Lighting, EV charging service

provided by SEEIT

SEEIT Asset:

Lighting, Cogeneration,

Solar, etc

SEEIT Asset:

Costs

Fixed overheads

(where applicable)

Fuel costs

(typically pass through)

Variable costs

(where applicable)

Contractual Structure: SEEIT’s operational projects typically have predominantly long-term

contracted cashflows and fixed costs, delivering energy efficiency services directly to the end user.

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

STRATEGIC REPORT:

THE COMPANY AND

PORTFOLIO REVIEW

Pictured: UU Solar site

12 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

2.1 Overview

Why Invest in

Energy Efficiency

Key characteristics of

the energy efficiency

investment proposition

include some, or all, of

the following:

• behind-the-meter projects with identifiable end users and counterparties;

• quick to integrate and install, lowering construction risk;

• results in carbon emissions reductions and helps to improve energy security

and reliability, while cutting energy costs for end users;

• predominantly contracted cashflows, with managed exposure to merchant

power pricing;

• nature of operational projects and relationships with counterparties creates

opportunity to improve total return through asset management initiatives,

expansion of services for customers and management of costs; and

• low gearing relative to other forms of infrastructure investment.

Market Landscape

A challenging

macroeconomic

environment has hurt

asset values across

the listed infrastructure

space in the short term

due to:

• sharply rising interest and discount rates;

• extreme volatility in energy prices and commodity prices;

• high levels of inflation, driving labour, construction and operational costs; and

• Delay in supply chain and planning capacity.

Notwithstanding these headwinds, energy efficiency is expected to benefit over

the medium to long term from policy tailwinds supporting investment in the

sector.

Further detail on the market landscape and policy tailwinds for energy

efficiency can be found in Section 2.2, The Investment Manager’s Report.

Asset Management

Initiatives

Focus on unlocking

additional value from

the existing portfolio.

Examples include:

• short-term accretive project investments, together with a long-term

investment plan to optimise performance and asset life across the RED-

Rochester portfolio;

• investment in project development, including at EVN as well as the newer, low

carbon solutions represented by Turntide (energy efficient motors), Iceotope

(data centre cooling); and

• working closely with new management at Onyx to progress the development

pipeline.

Further detail on the Company’s asset management function can be found

in Section 2.2, The Investment Manager’s Report.

Portfolio

Performance,

Pipeline and Exit

Strategy

During the year, headwinds from the macroeconomic environment as well

as short-term operational challenges at certain projects impacted on the

Company’s portfolio valuation.

However, The Investment Manager was able to unlock long-term value in certain

projects. A detailed summary of the portfolio performance is outlined in Section

2.4, Portfolio Summary.

Focus during the year has been on value enhancement from the Company’s

existing portfolio and organic pipeline.

The Investment Manager continues to evaluate exit opportunities for certain

investments where it believes more value could be delivered to shareholders

versus holding the assets to maturity in line with its typical investment strategy.

Further detail on the portfolio performance in the year is outlined in Section

2.4, Portfolio Summary and the Company’s pipeline and strategy in relation

to disposals in Section 2.2, The Investment Manager’s Report.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 13

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

OVERVIEW

Market Landscape and Macroeconomic Factors

In the current landscape, energy efficiency is providing essential solutions to

a growing list of global issues.

THE PROBLEM:

Market Backdrop/Overview

THE SOLUTION:

Importance of Energy

Efficiency

Net-Zero Energy Security Energy Prices

The Intergovernmental Panel on Climate Change

(IPCC) published its most recent synthesis report in

March 2023, warning that the world is approaching

“irreversible” levels of global heating and emphasising

that it is “now or never” to limit warming. Reaching net

zero greenhouse gas (“GHG”) emissions over the next

few decades will be critical to avoid the worst impacts

of climate change, such as more frequent and intense

heatwaves, droughts, floods, and storms.

Following Russia’s invasion of Ukraine, the global energy

landscape changed dramatically, with high prices and

supply chain disruptions highlighting the energy security

risks associated with relying on polluting fuels supplied

by a few major external producers. Extreme weather

conditions such as hurricanes, heatwaves and wildfires

are also posing challenges to energy infrastructure,

leading to power outages and supply chain disruptions.

Additionally, the introduction of variable renewable energy

generation is posing structural changes in the generation

profile of electricity systems, potentially impacting the

grid’s ability to provide a reliable energy supply, unless

and to the extent it is balanced by alternative generation,

storage and demand reduction.

Energy commodity prices hit multi-decade highs

in most countries following the pandemic and the

Russia-Ukraine war, remaining unstable ever since.

Average gas prices increased in 2022 to the highest

on Eurostat’s record, from €7.8 per 100 kWh in 2021

to €11.4 per 100 kWh, while the USA consumers paid

14.3% more for electricity in 2022 than in 2021.

High energy prices have led to inflation and slowed

economic growth, impacting energy-intensive

industries, transportation costs and consumers.

Energy efficiency is critical to reducing GHG emissions

by reducing energy demand and waste. According

to the International Energy Agency (“IEA”), energy

efficiency represents more than 40% of the emissions

abatement needed by 2040. Energy efficiency

initiatives in multiple sectors, including industry,

buildings, appliances and transport, are prioritised in

the IEA’s Net Zero Emissions by 2050 (NZE) scenario

due to their easy implementation and high scalability.

These measures are anticipated to play a prominent

role in reducing energy demand and its related

emissions from now to 2030.

Energy efficiency plays a crucial role in addressing

energy security concerns that arise due to

geopolitical conflicts, extreme weather events

and infrastructure constraints. By reducing energy

consumption and dependence on fossil fuels,

countries can reduce their vulnerability to supply

disruptions caused by conflicts or infrastructure

failures.

Furthermore, energy efficiency measures such as

demand response programmes and energy storage

technologies help to tackle the energy security risks

posed by ageing infrastructure and renewable energy

capacity additions.

Energy efficiency is a vital solution to increased

energy prices as the solutions reduce demand

for energy and therefore reliance on fossil fuels,

minimising the impact of price fluctuations.

For example, energy-efficient building retrofits can

reduce heating and cooling costs, which can provide

relief to households and businesses struggling to pay

their energy bills. Energy-efficient transport solutions

such as electric vehicles can also help to reduce fuel

costs and mitigate the impact of rising energy prices

on consumers.

2.2 The Investment Manager's Report

Pictured: RED-Rochester site

14 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Net-Zero Energy Security Energy Prices

The Intergovernmental Panel on Climate Change

(IPCC) published its most recent synthesis report in

March 2023, warning that the world is approaching

“irreversible” levels of global heating and emphasising

that it is “now or never” to limit warming. Reaching net

zero greenhouse gas (“GHG”) emissions over the next

few decades will be critical to avoid the worst impacts

of climate change, such as more frequent and intense

heatwaves, droughts, floods, and storms.

Following Russia’s invasion of Ukraine, the global energy

landscape changed dramatically, with high prices and

supply chain disruptions highlighting the energy security

risks associated with relying on polluting fuels supplied

by a few major external producers. Extreme weather

conditions such as hurricanes, heatwaves and wildfires

are also posing challenges to energy infrastructure,

leading to power outages and supply chain disruptions.

Additionally, the introduction of variable renewable energy

generation is posing structural changes in the generation

profile of electricity systems, potentially impacting the

grid’s ability to provide a reliable energy supply, unless

and to the extent it is balanced by alternative generation,

storage and demand reduction.

Energy commodity prices hit multi-decade highs

in most countries following the pandemic and the

Russia-Ukraine war, remaining unstable ever since.

Average gas prices increased in 2022 to the highest

on Eurostat’s record, from €7.8 per 100 kWh in 2021

to €11.4 per 100 kWh, while the USA consumers paid

14.3% more for electricity in 2022 than in 2021.

High energy prices have led to inflation and slowed

economic growth, impacting energy-intensive

industries, transportation costs and consumers.

Energy efficiency is critical to reducing GHG emissions

by reducing energy demand and waste. According

to the International Energy Agency (“IEA”), energy

efficiency represents more than 40% of the emissions

abatement needed by 2040. Energy efficiency

initiatives in multiple sectors, including industry,

buildings, appliances and transport, are prioritised in

the IEA’s Net Zero Emissions by 2050 (NZE) scenario

due to their easy implementation and high scalability.

These measures are anticipated to play a prominent

role in reducing energy demand and its related

emissions from now to 2030.

Energy efficiency plays a crucial role in addressing

energy security concerns that arise due to

geopolitical conflicts, extreme weather events

and infrastructure constraints. By reducing energy

consumption and dependence on fossil fuels,

countries can reduce their vulnerability to supply

disruptions caused by conflicts or infrastructure

failures.

Furthermore, energy efficiency measures such as

demand response programmes and energy storage

technologies help to tackle the energy security risks

posed by ageing infrastructure and renewable energy

capacity additions.

Energy efficiency is a vital solution to increased

energy prices as the solutions reduce demand

for energy and therefore reliance on fossil fuels,

minimising the impact of price fluctuations.

For example, energy-efficient building retrofits can

reduce heating and cooling costs, which can provide

relief to households and businesses struggling to pay

their energy bills. Energy-efficient transport solutions

such as electric vehicles can also help to reduce fuel

costs and mitigate the impact of rising energy prices

on consumers.

GOVERNANCE

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 15

OVERVIEW

STRATEGIC REPORT

2.2 The Investment Manager’s Report

continued

Inflation and Discount Rates

Global inflation rates underwent

significant volatility during the financial

year, although economic indications

suggest we have now seen the peak of

the cycle. The 2022 calendar year saw

8.8% global inflation per the IMF.

Central banks around the world have

responded to the spikes in inflation

by raising interest rates. This was

compounded by turmoil in the banking

sector towards the end of the financial

year, following the collapse of Silicon

Valley Bank and take-over of Credit

Suisse, which put pressure on banking

company balance sheets.

The Company reflected the

movement in discount rates across

the infrastructure sector, having

raised underlying rates by 50 bps (on

weighted average unlevered basis) at

the 30 September 2022 interim period

and a further 20 bps at 31 March 2023,

following independent discount rate

reviews across SEEIT’s whole portfolio.

Rising interest rates have had a

significant impact on the listed

infrastructure investment company

sector – not just in terms of short-term

pressure on discount rates, but also from

a yield competitiveness perspective, as

alternative fixed income investments,

such as government bonds, have

become comparatively more attractive.

SEEIT, along with nearly all members

of its wider listed infrastructure peer

group, has experienced a decline in

share price because of these factors,

leading to a period of trading at a

discount to NAV per share

(APM)

. The

Board and the Investment Manager

are focused on managing this discount

through investor engagement and

measures such as the recent share

buyback, and continue to build a

compelling portfolio proposition which

offers attractive returns to shareholders

over the medium to long term.

Inflation Linkage Strategy

Approximately half of SEEIT’s current

portfolio by value has revenues that

are partly or wholly inflation-linked,

which culminates in an overall positive

inflation correlation. Therefore, higher

than expected inflation has had an

overall small positive impact on the

Company’s returns during the year.

The Company’s projects are in a

number of different geographic

regions, which diversifies and

mitigates the impact of inflation

volatility for the portfolio. The Company

has the highest overall exposure, by

country, to the USA at 59% by Gross

Asset Value

(APM)

(“GAV”), followed

by the UK with 20% and the rest of

Europe with 20%.

The Investment Manager aims to

construct and maintain a portfolio

that generates year-on-year revenue

growth on a progressive basis.

The Investment Manager does not

exclusively target investments with

fully inflation-linked returns, but

inflation correlation is a relevant metric

when evaluating new investment

opportunities and when re-contracting

existing projects within the portfolio.

The portfolio includes some flexibility

to recontract certain non-inflation-

linked revenues periodically during a

project’s lifecycle. Some examples the

Investment Manager actively works

with project management teams to

implement include:

■ at Värtan Gas, individual customer

contracts are re-evaluated on an

annual basis. Typically, historic

inflation and short to medium-term

inflation is a key consideration when

setting customer tariffs; and

■ periodic re-contracting of revenue

contracts is assumed in the Primary

Energy projects, providing an

opportunity to recover inflation

exposure on costs or introduce

direct inflation linkage.

16 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

SEEIT’s Ability to Adapt to

Changing Market Conditions

The Investment Manager has sought

to construct a resilient portfolio with

defensive characteristics through

its contractual structures and credit

quality of counterparties.

Counterparty credit is a key risk

that the Investment Manager has

focused on when constructing the

portfolio. As at 31 March 2023, c.62%

of the portfolio by investment value

(March 2022: 60%) is associated

with investment grade or equivalent

counterparties. Those which are non-

investment grade are typically highly

diversified or providing vital services,

often via essential industries. Since

listing, the Company has not suffered

any material credit defaults across its

portfolio.

SEEIT maintains a relatively low

level of gearing

(APM)

versus the wider

infrastructure investment company

peer group, with total Group and

project level debt leverage as at 31

March 2023 of 32% of NAV, in line with

the medium-term target of 35% of NAV.

These qualities seek to ensure that

whether the Company is operating in

a high inflationary environment, a high

interest rate environment, a volatile

merchant pricing environment or a

recessionary environment, overall

portfolio cashflows can remain

relatively predictable over the medium

to long term and downside risk is

mitigated.

Notwithstanding these contractual

protections, the Investment Manager’s

asset management team also works

closely with the senior management

teams within its portfolio project

companies to address the impact

of changing market conditions on

operations. This includes, for example,

rising labour costs in certain markets

in which SEEIT operates. Labour is

actively managed at a project level

through a number of initiatives,

which include but are not limited

to, apprenticeship schemes and

comprehensive succession planning

strategies at both RED-Rochester and

Primary Energy.

Supply chain challenges have also

been a prevailing issue across a

number of industries, particularly in

the wake of the Covid-19 pandemic.

The Company is seeking to leverage

its procurement power across its

portfolio, with the Investment Manager

connecting certain project company

procurement teams such as UU

Solar and Onyx in order to improve

their ability to secure key equipment.

In addition, forward purchasing of

equipment has always been a key

part of the Company’s procurement

strategy, with regular review of stock

inventory and consideration for lead

times in all procurement activity at a

project company level.

Pictured: Spark Energy site

The Investment

Manager has sought

to construct a resilient

portfolio with defensive

characteristics

through its contractual

structures and

credit quality of

counterparties.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 17

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

USA

The Inflation Reduction Act (“IRA”),

passed in August 2022, is the most

significant climate legislation in US

history, offering funding, programmes

and incentives to accelerate the

transition to a clean energy economy.

The climate and energy industries are

central to the overall financial support

extended under the IRA, committing

c.$369 billion to the energy transition

and climate change mitigation. A sum

of $47 billion has been earmarked

for tax credits for rebates for energy

efficiency in buildings (commercial and

residential). By 2030, the Act will help

cut US greenhouse gas emissions by

roughly 42%.

The IRA introduces tax credit

support for clean energy generation,

storage and transmission, which is a

crucial development for renewable

energy projects. The legislation

provides certainty and continuity for

clean energy incentives, benefiting

decentralised energy generation

assets like Onyx Renewables. Along

with the IRA, another significant

policy development is the Bipartisan

Infrastructure Law (“BIL”), which was

signed in November 2021 and will

provide more than $1 trillion in federal

investment to improve the nation’s

infrastructure. Of the $550 billion

of new funding provided in the BIL,

approximately $76 billion is committed

to be invested in energy.

Overall, the recent focus on

energy efficiency in two of

the most significant infrastructure-

spending bills ever passed in the USA

has made investment opportunities

in the country increasingly appealing

for SEEIT. The Company is monitoring

changes in policies in the USA and

evaluating areas where legislative

support is applicable for both new and

existing investments.

Policy Tailwinds for Energy Efficiency

2.2 The Investment Manager’s Report

continued

Pictured: Onyx Renewable Partner site

18 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

United Kingdom

The UK Government has set an

ambitious target to reduce final energy

demand from buildings and industry

by 15% by 2030. In order to reach the

net zero target, in March 2023 the

government released a package of

policy plans termed “Powering Up

Britain”, which includes the Great British

Insulation Scheme that aims to deliver

up to £1 billion additional investment

by March 2026 in energy-efficient

upgrades.

Further, the government strives to

continue its support towards the

decarbonisation of the public sector,

with £1.4 billion in grant funding for

low-carbon heat and energy efficiency

retrofits made available over the period

2022/23–2024/25. The UK continues

the decarbonisation of the national heat

network market through the Green Heat

Network Fund and the Heat Network

Efficiency Scheme.

Additionally, the UK government

launched its Energy Efficiency Taskforce

in February 2023 to accelerate

improvements that will bring down

energy bills for households and

businesses. In March 2023, a £1.8 billion

outlay was announced to increase

energy efficiency and cut emissions

of homes and public buildings across

England.

The government’s commitment to

energy efficiency and the energy

transition has been made more apparent

during the year, and the Investment

Manager expects this to result in

greater investment and public-private

collaboration opportunities for the

Company in the UK.

European Union

Throughout the year, the European

Union has been working on several

legislative packages to guide member

states through the energy transition.

In May 2022, the European Commission

published the REPowerEU plan, which

aims to rapidly decrease the EU’s

dependency on Russian fossil fuels,

outlining a legal amendment to raise

the target reduction in final energy

consumption from 9% to 13%. The

European Parliament proposed to raise

it further, to 14.5% by 2030. The plan

recognises that energy efficiency is a

key solution to the energy crisis resulting

from the Russia-Ukraine conflict.

Furthermore, in March 2023 a

provisional political agreement of the

recast Energy Efficiency Directive

(“EED”) was reached, outlining the target

to reduce final energy consumption by

at least 11.7% by 2030. Also in March,

the European Parliament adopted draft

measures on the proposed revision of

the Energy Performance of Buildings

Directive (“EPBD”), which would

mandate that new buildings occupied,

operated or owned by public authorities

are zero-emission from 2026, and from

2028 would make rooftop solar panels

mandatory for new residential buildings.

The impact of the European

Union’s energy-related

policies on the Company varies

widely. The Investment Manager is

currently assessing how EU directive

revisions can help to unlock additional

opportunities and revenue streams for

project companies located within the

EU, such as Värtan Gas.

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 19

Asset Management

Overview

The Investment Manager manages

the portfolio to achieve operational

efficiency, provide reliable and

sustainable services to customers and

develop value-enhancing projects.

While the Investment Manager

manages operational challenges

that arise from time to time, it also

benefits from the upside opportunities

associated with improving project

company operations and working

hands-on with management at the

ground-level. Through this approach

the Investment Manager aims to

mitigate downsides, unlock new

revenue streams and improve margins

across the portfolio.

The portfolio is managed through a

combination of:

■

the active day-to-day involvement

of SDCL’s 50+ employees,

including an asset management

team of senior and experienced

professionals focused solely on

driving value through financial

management and operational

improvements;

■ over 250 full-time employees at

the project level, predominantly

dedicated to “on the ground”

operations of the Company’s largest

assets in the UK, Europe and North

America; and

■ the coordinated full-time presence

of on-site teams of professional

advisers.

2.2 The Investment Manager’s Report

continued

Operational issues are ongoing risks in infrastructure-based portfolios, especially in the volatile macroeconomic conditions

defining the market backdrop during the past year. The Investment Manager's asset management team dedicates a similar level

of attention and resource focused on overseeing portfolio performance, managing risks and adapting to potential obstacles facing

projects as it does to unlocking additional value.

Further information in relation to the risks around asset operations performing in line with expectations is outlined in Section 3.2,

Risk Management Framework.

Details of operational issues impacting the operations of the portfolio and mitigation strategies can be found in Section 2.4,

Portfolio Summary.

Mitigating Downside

Identifying accretive

investment opportunities

The Investment Manager

identifies, assesses and

implements additional

investment opportunities

for existing projects to

achieve higher returns and

provide improved services

to customers. These

improvements can include

unlocking additional revenue

streams, identifying new

customers, renegotiating

existing contracts, and

increasing generation capacity

and efficiency.

Improving operational and

financial performance of a

project

The Investment Manager

engages with management

teams to identify and solve

operational inefficiencies

and improve the financial

performance of a project.

The Investment Manager’s

engagement involves ensuring

that the management teams

have the proper governance,

leadership and technical

support to run the project

efficiently.

Enhancing sustainability

characteristics

The Investment Manager

consistently assesses the

efficiency of a project to

improve its performance and

seeks to ensure the usage of

the best available technology

at the point of investment.

The Investment Manager

also manages the ESG

performance of companies

based on its ESG principles,

more information about which

can be found in Section 3.1,

ESG.

Achieving platform value

Energy-as-a-service platforms

allow for the Company

to achieve scale through

opportunity to make follow-on

investments in new projects.

The Investment Manager

helps these platforms unlock

potential value through

investment and management

support, such as governance

and operational reforming.

Unlocking Additional Value

The Investment Manager seeks opportunities to improve margins by enhancing operational and financial performance, unlocking

platform value and expanding the energy efficiency characteristics of an asset. Details of some key asset management initiatives

undertaken during the year can be found in Section 2.4, Portfolio Summary.

20 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Pictured: Oliva Spanish Cogeneration site

Investment Pipeline Overview

The Investment Manager is focused

on building a pipeline of investment

opportunities that can complement

the existing portfolio, create synergies

between projects and maximise overall

value for SEEIT.

While the prevailing market environment

can present some interesting

opportunities, the Investment

Manager remains selective in making

new investments, with a very small

percentage making it to the stage

of Investment Committee review. A

significant proportion of the Investment

Manager’s focus is currently on

evaluating initiatives within the portfolio

to optimise assets and unlock additional

value within individual projects.

Organic growth of the existing SEEIT

portfolio currently comprises over 70%

of near-term pipeline by value through

follow-on opportunities, often at

attractive pre-agreed rates of return.

Further, the Company is reviewing

a good pipeline of new investment

opportunities, taking into account the

higher discount rate environment and

focusing on opportunities considered

to be accretive to key portfolio metrics.

While the Company remains flexible in

terms of which technology to employ

to address client needs and secure

required investment returns, the

Investment Manager seeks opportunities

with competitive advantages and

proprietary pipeline for the Company

by investing in developers, managers

or operators of energy efficiency

projects, some of which involve newer,

commercially proven technologies.

Examples include rare-earth-free motors,

liquid cooling for datacentres and, more

recently, thermal storage.

The Investment Manager exercises

robust pricing discipline when

evaluating any opportunities within

its target markets and geographies,

preferring to make investments where it

could add value and through a private or

bilateral negotiation with a vendor, rather

than through a competitive auction

process competing on price alone.

Over the next 12 to 24 months, the

Investment Manager expects that

in excess of £200 million could be

invested into organic opportunities,

of which approximately £50 million

is contractually committed and the

remaining is at the discretion of the

Investment Manager.

The organic pipeline includes several

investment opportunities within the

existing portfolio, which are expected

to contribute positively to portfolio

project valuations, such as:

■ efficiency improvement projects at

RED-Rochester, which contribute

directly to increasing the project

company’s profit margin;

■ further scaling of EVN as it

continues to establish itself as one

of the UK’s largest EV charging

developers; and

■ continued rollout of solar and

storage projects through Onyx,

which benefits from the substantial

policy tailwinds associated with the

Inflation Reduction Act of 2022.

The Company is also evaluating two

efficient heat project opportunities in

Europe, utilising biogas technology and

heat pumps.

Assuming that current market

conditions remain such that the

Company is not able to undertake an

equity capital raise, the Investment

Manager is confident it can source

funding for these investments

through a combination of current

cash resources, existing acquisition

facilities, investment disposals and co-

investment opportunities.

Enhancing Returns Through

Development and Construction-

Stage Investments

While the Company invests

predominantly in operational

investments, SEEIT may invest in

projects that are in a construction phase

or development phase. The Investment

Manager recognises the value

potential inherent in construction and

development-stage assets progressing

through stages to become operational.

The Investment Manager is therefore

pleased that during the year, multiple

investments under construction

became operational. These

investments include the first six sites

at EVN in the UK, energy-efficiency

retrofits at Tallaght Hospital in Ireland

and energy-efficient chillers at Lycra’s

facility in Singapore. At Red-Rochester,

construction work commenced to

replace chillers as well as a strategically

important new CHP plant (see Section

2.4 Portfolio Summary for details). At

31 March 2023, the Company had

c.17% of Gross Asset Value

(APM)

(“GAV”)

exposed to construction-stage projects,

well below the 35% of GAV across both

construction and development-stage

projects allowed under its investment

policy.

While construction phase investments

offer opportunities for capital gains

as well as income once they become

operational, it is important that

construction risks are managed. The

Company has seen some construction

delays during the year, notably in

Onyx, but continues to manage those

situations so that the investments

become operational as close as

possible to budget and expected

timelines. The Huntsman Energy Centre,

which had previously suffered from

extensive delays, reached steam on

date, the point at which it generates

revenues, in June 2023.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 21

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Additionally, within the 35% of GAV that

may be invested in construction and

development-stage projects, the Company

may invest up to 3% of GAV in companies

that are developers,

managers, or

operators of energy efficiency projects.

This offers the opportunity for capital

gains but also the ability to access or

secure pipeline for project investment,

particularly where such companies

are innovating in the context of a large

total addressable market. Examples

of such investments include Iceotope,

which provides energy efficient cooling

technology for datacentres; Turntide,

which provides energy efficient and

rare-earth-free motors; and, after the

year end, a company which provides

industrial scale thermal storage

solutions. More information on these

investments is in Section 2.4, Portfolio

Summary.

Strategy in Relation to Disposals

The Company may choose not to exit

certain investments until they reach the

end of their contracted life. At this point,

it may be possible for the Company to

extend the life of the project, subject to

contractual negotiations.

SEEIT will contemplate disposing of

assets opportunistically or via targeted

sales, in the near to medium term, where

these deliver value to shareholders.

Timing of such disposals will be partly

driven by market conditions to achieve

best outcomes for shareholders or in

order to secure capital for potentially

accretive investments. There may be

instances where a portfolio project is of

greater value to an external stakeholder

than to the Company – for example due

to synergies within the third-party’s

portfolio, or the ability of a third party to

recognise enterprise value or upside

potential earlier in the project’s lifecycle.

The Company is investing in a sector

for which there is an active secondary

market, and the Investment Manager

has received inbound interest in respect

of the disposal of certain assets within

SEEIT’s portfolio. These enquiries are

evaluated on a case-by-case basis to

determine whether pursuing an early

exit would be in the best interests of

shareholders.

Capital Markets Day

On 14 March 2023 the Investment

Manager hosted a Capital Markets

Day for the Company at the London

Stock Exchange. The Board and the

Investment Manager were grateful for

the support for the event, with over 250

in-person and virtual attendees, made up

of institutional investors and analysts.

The event consisted of a video interview

with International Energy Agency (IEA)

Executive Director Fatih Birol. This was

followed by four panel discussions, each

based around one of the Company’s

larger groups of investments – Onyx

Renewable Partners, Oliva Spanish

Cogeneration, Primary Energy and RED-

Rochester. A video about the investment

preceded each panel, which comprised

footage of the sites in operation, with

commentary from key senior managers

from the relevant project companies.

A full video recording of the event, as

well as the separate video interview and

the investment introduction videos, can

be found on the SEEIT website.

Outlook

SEEIT’s portfolio has grown significantly

since IPO and continues to deliver

diversified income and growth

opportunities from a combination of

follow-on investments.

The Investment Manager is seeking

opportunities to improve returns and

achieve capital gains from operational

projects while looking to mitigate any

potential downsides. Some of these

opportunities have already been included

in the valuation of underlying projects. A

selection of other opportunities identified

and described further in Section 2.4

Portfolio Summary could seek to offset

adverse value impacts experienced in this

financial year.

Energy efficiency has significant potential

as a solution to economic, climate and

energy security challenges. Reducing

energy usage and energy waste is

as valuable as ever, providing new

opportunities for the Company and its

portfolio.

The Investment Manager is seeking

opportunities to improve returns and

achieve capital gains from operational

projects while looking to mitigate any

potential downsides. A selection of these

opportunities is described further in

Section 2.4, Portfolio Summary.

The Investment Manager continues to

assess potential investment opportunities

with a focus on operational and follow-on

investments, in addition to more limited

investments in the development or

construction phase.

Against an outlook of heightened risks

to energy prices, energy security and

decarbonisation, energy efficiency has

a crucial role to play, with the potential

to offer large-scale, proven, rapid and

cost-effective solutions. The Investment

Manager believes that SEEIT is well

placed to continue to perform, deliver on

its investment objectives and remain a

leader in energy efficiency investment.

2.2 The Investment Manager’s Report

continued

22 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

(1.8)p

£135m

loss per share, comprising income components

of 5.5 pence, made up from inflation increases,

FX gain and portfolio performance, less capital

component of 7.3 pence, made up of discount rate

movements.

capital raised in September 2022 – accretive to

NAV, adding 0.7 pence.

£(19)m

£85m

loss before tax reflects performance below

management expectations, caused by the

unrealised loss of £81 million from increased

discount rates and specific portfolio adjustments

(March 2022: £80 million profit).

Investment cash inflow from the portfolio

(APM)

, up

31% on a portfolio basis

(APM)

(2022: £65 million),

providing 1.2x dividend cash cover

(APM)

Pictured: Capshare site

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 23

Financial Performance

The Company’s investment strategy and the Investment Manager’s focus on asset management helped manage

downside risks and target value accretive opportunities during the year, notwithstanding market volatility.

Efficient financial management, including the focus on treasury management described further below, helped

maintain consistent dividend cover and allowed the Company to capitalise on new investment opportunities.

2.3 Financial Review and

Valuation Update

2.3 Financial Review and Valuation

continued

Dividends

The Company paid a total of £62 million

in dividends to shareholders during the

year. This included the last quarterly

dividend for the year ended 31 March

2022, and the first three quarterly

dividends for the year ended 31 March

2023. The Company has declared the

fourth quarterly dividend for the year

ended 31 March 2023, payable at the

end of June 2023, thereby delivering

the target of a 6.00 pence per share

total dividend related to the year ended

March 2023.

Based on the projected investment

cashflows from the current portfolio

prepared by the Investment Manager

and approved by the Board, the

Company announced new dividend

guidance of 6.24p per share for the year

to March 2024 and, as before, will target

a progressive dividend growth thereafter.

The Company intends to continue to pay

interim dividends on a quarterly basis

through four broadly equal instalments

(in pence per share).

Analysis of Movement in NAV

During the year, the investment

portfolio has seen benefits from net FX

movements and high inflation levels.

During the year, the performance

of the operational assets in the

underlying portfolio has generally

been in line with expectations, apart

from Oliva Spanish Generation (see 2.4

Portfolio Performance for additional

information).

However there has been an overall

increase in discount rates caused by

global increases of risk-free interest

rates. This has adversely impacted

the discount rates of individual

projects in the Company’s investment

portfolio, affecting the Company’s

financial performance and resulting in

a decrease in the Company’s overall

NAV.

108.4

1.5

0.9

3.1

0.7

(5.9)

108.7

(7.3)

101.5

Opening

NAV

Change in

macroeconomic

assumptions

movement

Portfolio

performance

Accretive

issue

Dividends

paid

NAV before

discount rate

Discount

rates

Closing

NAV

100

105

110

115

120

Increase

Decrease Total

1.00

5.00

5.50

5.62

6.00

6.24

Future

targets

2019 2020 2021 2022 2023 2024 2025

Pence per share

Dividend Growth

Movement in NAV in the year (pence per share)

The Company paid a stub dividend of 1 pence per share for the four-month period between its IPO and March 2019.

Thereafter, dividends reflect the full-year dividends paid or targeted in relation to each financial year.

As of 31 March 2023, the NAV per

(APM)

is 101.5p, a decrease of 6.9p from

108.4p at 31 March 2022. This decrease

reflects the impact of increased discount

rates (negative 7.3p) on Loss Per Share in

the year offset by uplifts in macroeconomic

assumptions related to inflation of 1.5p, FX

movements of 0.9p, portfolio performance

of 3.1p and accretive share issue of 0.7p –

each of which is further described below.

24 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Portfolio Valuation

(APM)

The Investment Manager is responsible

for carrying out the fair market valuation

of SEEIT’s portfolio of investments

(the “Portfolio Valuation”

(APM)

) which

is presented to the Directors for their

consideration and approval. A valuation

is carried out on a six-monthly basis, as

at 31 March and 30 September each

year. The Portfolio Valuation

(APM)

is the

key component in determining the

Company’s NAV.

The Company has a single investment

in a directly and wholly owned holding

company, SEEIT Holdco. It recognises

this investment at fair value. To derive the

fair value of SEEIT Holdco, the Company

determines the fair value of investments

held directly or indirectly by Holdco (the

Portfolio Valuation

(APM)

) and adjusted

for any other assets and liabilities. The

valuation methodology applied by

Holdco to determine the fair value of its

investments is materially unchanged

from the Company’s IPO and has been

applied consistently in each subsequent

valuation. See Note 3 for further details on

the valuation methodology and approach.

The Portfolio Valuation

(APM)

as at 31

March 2023 was £1,100 million, an

increase of 20% compared with

£913 million as at 31 March 2022. A

reconciliation between the Portfolio

Valuation

(APM)

at 31 March 2023 and

Investment at fair value shown in the

financial statements is given in Note 11.

After allowing for investments of £240

million (see Section 2.4, Portfolio

Summary for more details) and cash

receipts from investments of £85 million,

the Rebased Portfolio Valuation

(APM)

is £1,069 million. After adjusting

for changes in macroeconomic

assumptions, foreign exchange

movements and changes in discount

rates, this resulted in a portfolio return

of £49 million, equating to a 4.6% return

in the year. The return was affected by

a number of project specific valuation

movements described under Balance of

Portfolio Return below.

The Portfolio Valuation

(APM)

as at 31

March 2023 includes assumptions on

future project level revenues that are

both contracted and uncontracted (as

at 31 March 2023). The definition of

contracted revenues include:

■ long-term fixed contracts

■ rolling annual contracts (e.g. in

Värtan Gas where the majority of

customers have contracts that are

rolled over automatically on an

annual basis)

■ contracts due to be recontracted in

future, where there is a clear history

of recontracting and the customer

does not have another viable or

contractual source of energy (e.g.

extension of existing contracts in

Red-Rochester and Primary Energy)

The uncontracted revenues typically

relate to where assumptions have

been made for:

■ expansion of developer platforms

(e.g., future C&I solar portfolios

developed by Onyx)

■ growth assumptions based on

existing contracts (e.g., Red-

Rochester where revenue growth is

assumed from successful delivery

of value accretive capital expansion

and addition of new customers), and

■ contract life extensions where the

customer can be considered to

have a viable alternative source

of energy at the end of the

existing contract (e.g., UU Solar

and Onyx where it is assumed

that the customer will seek an

extension for a few years instead of

decommissioning)

■ ancillary revenues that are

considered side products of

primary revenues in certain

projects (e.g., olive oil sales at

Oliva Spanish Cogeneration and

merchant revenues from excess

capacity at UU Solar).

Based on the above characteristics, as

at 31 March 2023, 79% (March 2022:

76%) of the Portfolio Valuation

(APM)

value is considered to be contracted

and 21% (March 2022: 24%) is

considered to be uncontracted.

Furthermore , based on the assumed

cash flows in the March 2023

Portfolio Valuation

(APM)

, approximately

73% (March 2022: 77%) of

portfolio revenues (contracted and

uncontracted as described above) are

linked to contracts with availability-

based, regulated or pre-determined

revenue characteristics, with a further

19% (March 2022: 18%) of portfolio

revenues having capacity-based

characteristics where there is typically

a right of first dispatch, whereby an

offtaker agrees to pay for a volume of

output to the extent that it has demand

for it.

The analysis above is based on the

revenue projections included in the

March 2023 Portfolio Valuation

(APM)

and excludes costs and terminal value

assumptions.

The weighted average remaining life of

investments as 31 March 2023 is 15.9

years (March 2022: 14.8 years), when

calculated purely on when current

contracts end. When based on the

March 2023 Portfolio Valuation

(APM)

which includes recontracting and

contract life extensions, the weighted

average remaining life is 28.0 years

(March 2022: 21.7 years).

Further information on key assets and

potential future valuation movements

can be found in Section 2.4 Portfolio

Summary and Note 3.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 25

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

2.3 Financial Review and Valuation

continued

Return from the Portfolio off the Rebased Portfolio Valuation

(APM)

Each movement between the Rebased Portfolio Valuation

(APM)

of £1,069 million and the 31 March 2023 valuation of £1,100

million is considered in turn below:

(i) Changes in Macroeconomic Assumptions of £16.9 million:

■ Inflation assumptions: consistent with March 2022, the approach in all jurisdictions is to apply a three-year near-term

bridge to the relevant long-term inflation assumption. Given the rises in global inflation in the last 12 months, this has

resulted in an uplift in the valuation due to high near-term inflation, compared with the assumptions applied for the

March 2022 valuation or at the time of investments during the year.

■ Tax rate assumptions: there were no changes to corporation tax rate assumptions during the year.

■ Further details on the macroeconomic assumptions applied to the 31 March 2023 valuation and comparison to previous

periods can be found in Note 3.

(ii) Changes in Foreign Exchange Rates of £46.6 million (before hedging):

■ The investment portfolio gained £46.6 million during the year from movements in foreign exchange rates, driven by the

movement of GBP against the US dollar, Euro, Singapore dollar and Swedish krona since 31 March 2022 or since new

investments were made in the year. The most significant impact was due to the GBP's weakening against the US dollar,

which had a pronounced effect on portfolio valuations as SEEIT has a significant portfolio exposure to the USA.

■ However, it is important to note that this only reflects the movement in underlying investment values, and it does not take into

account the offsetting effect of foreign exchange hedging that SEEIT Holdco applies outside of the Portfolio Valuation

(APM)

■ SEEIT Holdco experienced an aggregate loss of £36.3 million due to foreign exchange hedging. The overall foreign

exchange movements did not have a significant impact on NAV during the year, resulting in a net gain of £10.3 million

from foreign exchange movement.

(iii) Changes in Valuation Discount Rates of £(81.2) million:

■ The discount rate used for valuing each investment represents an assessment of the rate of return at which infrastructure

investments with similar risk profiles would trade on the open market.

■ During the year, and in particular since early September 2022, there were significant increases in interest rates globally,

including in SEEIT’s key geographical areas. This has stemmed from geopolitical uncertainties and a high inflationary

environment due, in part, to high energy costs. This has led to an increase in discount rates across the whole investment

portfolio that in aggregate resulted in a decrease in the Portfolio Valuation

(APM)

of £81.2 million

■ Since September 2022 there has been very little market activity to help set benchmarks for appropriate discount rates for

the investments in the Portfolio Valuation

(APM)

Valuation Movements

A breakdown of the movement in the Portfolio Valuation

(APM)

in the year is illustrated in the chart and set out in the table below.

240.3

(84.5)

16.9

46.6

(81.2)

48.8 1,099.6

912.7

1,068.5

Valuation

as at

31 March 2022

New

investments

Cash

receipts from

investments

Rebased

Portfolio

Valuation

Macro

changes

(infl. & tax)

Foreign

Exchange

Change

in Discount

Rates

Balance

of Portfolio

Return

Valuation

as at

31 March 2023

£m

200

400

600

800

1,000

1,200

1,400

Increase Decrease Total

12 month Valuation movement

26 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

■ The Investment Manager considered it necessary to apply a significant increase to discount rates, and having assessed

geographical areas as a whole and each project individually, has applied discount rate increases that increased the

weighted average discount rate by approximately 70bps to 7.7% on an unlevered basis (March 2022: 7.0%) and 8.5% on

a levered basis (March 2022: 8.0%).

■ For the valuation as at 31 March 2023, the Directors commissioned a report from a third-party valuation expert to

provide their assessment of the appropriate discount rate range for each investment (excluding small investments with

an aggregate value of less than 2% of the Portfolio Valuation

(APM)

) in order to further benchmark the valuation prepared

by the Investment Manager. The discount rate applied to each investment by the Investment Manager were within the

ranges advised by the third-party valuation expert.

Weighted average discount rate as at March 2023 (compared to March 2022)

Levered/unlevered UK US Europe/Asia Combined

Levered 7.1% (6.7%) 8.9% (8.3%) 8.4% (7.5%) 8.5% (8.0%)

Unlevered 7.1% (6.7%) 7.9% (7.2%) 7.4% (6.5%) 7.7% (7.0%)

Discount rate ranges (unlevered) as at March 2023 (compared to March 2022)

UK US Europe/Asia Combined

4.75% - 8.75%

(4.0% - 8.0%)

6.50% - 9.00%

(5.2% - 10.0%)

4.75% - 10.25%

(4.6% - 10.0%)

4.75% - 10.25%

(4.0% - 10.0%)

(iv) Balance of Portfolio Return of £48.8 million:

■ This refers to the balance of valuation movements in the year (excluding (i) to (iii) above), which provided an uplift of

£48.8 million. The balance of portfolio return reflects the net present value of the cashflows unwinding over the year

at the average prevailing portfolio discount rate, and various additional valuation adjustments described below. The

portfolio delivered a return of c.5% in the year, lower than expected with details on key movements described below.

■ The Portfolio Valuation

(APM)

as at 31 March 2023, and by implication the return achieved over the year, includes

several key estimates and judgements of future cash flows expected from different investments. In addition, specific

adjustments were required for events during the year that affected the actual outcome from certain investments.

■ The key estimates, judgements and adjustments described below summarise those that have had a material impact

on the March 2023 Portfolio Valuation

(APM)

and therefore the Company’s NAV, defined for the purpose of this section as

having a 1% impact or higher. The below movements are all between c. 1% and c. 3% of NAV:

Primary Energy

■ Estimates of medium to long-term energy demand expected at PCI in the Primary Energy portfolio has been lowered

materially, resulting in an adverse impact on the valuation of c. £16m.

RED-Rochester

■ The projected growth of earnings is assumed to deliver a business capable of continuing to serve customers at the

Eastman Business Park for a further 20 years beyond the lifetime previously assumed. As a result, estimates have been

included, based on the assumed projected growth of earnings, that a gain share pay-out will be made to the external asset

management team tasked with delivering the growth. The net positive impact of these is estimated at c. £30 million.

■ Assumptions for operating costs over the life of the investment have been increased, including labour costs, chemical

costs and maintenance costs. This has had an adverse impact of c. £24 million.

■ Changes in the assumed future commodity pricing affecting both revenues and costs had a favourable impact of c. £17 million. In

addition, due to changes in the expected energy demands of customers in the future and the increasing importance of providing

electrical loads, the methodology for calculating power pricing has been updated to more closely align to current market pricing.

A third-party power curve is now the basis of electricity pricing and thishas had a positive impact of c.£12 million.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 27

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Onyx

■ Based on the number of underlying assets that reached completion during 2022 and a revised target set for asset

completions in 2023 and 2024 caused by operational delays, there is a reduction in value of c. £16 million in the

construction portfolio (Obsidian II) of Onyx, after taking into account positive impact from the Inflation Reduction Act.

■ An estimate has been included that assumes Onyx continues to deliver annual portfolios of C&I solar assets until the

end of 2029 (previously 2026) with no terminal value thereafter for the development platform, which has positively

impacted the valuation of the development platform of Onyx by c. £30 million. This is further substantiated through the

acquisition after 31 March 2023 of the remaining 50% stake of the development platform as described in Note 18.

Oliva Spanish Cogeneration

■ Following a long delay, in late 2022 and early 2023 the Spanish government published regulatory updates to the RoRi

(incentive scheme to provide a return on operations and investments) for 2021 and the first half of 2022. The updates

were below expectations and caused an adverse one-off impact of c. £21 million to the actual outcome of Oliva for 2022

and the expected outcome for 2023.

■ The lack of RoRi updates and highly volatile commodity markets in 2022 resulted in a utilisation of the plants well below

expectations, especially in the second half of 2022 – this had an adverse one-off impact of over £10 million to the actual

outcome of Oliva for 2022.

Värtan Gas

■ The periodic regulatory update relevant to Värtan Gas changed both the WACC and RAB used in calculating the value

of the regulated investment, causing an adverse impact on the valuation of c. £17 million. There is no impact on medium

term cashflows stemming from this update as the forecast revenues at Värtan remain comfortably below the allowed

revenue cap. The valuation impact is primarily driven by the impact on the assumed terminal value which is calculated

as a multiple of the RAB in line with broader market practice.

■ Using third-party advice, long term assumptions on the rate of growth assumed for the use of biogas in the Stockholm

transport industry have been revised downwards in the Värtan Gas investment by c. £11 million, although partially offset

by assumed growth in revenues generated from restaurants of c. £2 million.

Other

■ The availability of group relief for UK corporation tax has increased during the year, resulting in a positive impact on the

Portfolio Valuation

(APM)

as a whole of c. £13 million.

■ A provision of c. £13 million has been included for the recoverability of a loan to FES Lighting while it is undergoing a

comprehensive review of its sales strategy, led by the Investment Manager.

Additional information and sensitivities are disclosed in the critical estimates and judgements section of Note 3.

Valuation movements during the year to 31 March 2023 (£’m)

Portfolio Valuation - 31 March 2022 912.7

New investments 240.3

Cash receipts from investments (84.5)

155.8

Rebased Portfolio Valuation 1,068.5

Changes in macroeconomic assumptions 16.9 1.6%

Changes in foreign exchange 46.6 4.4%

Change in Discount Rates (81.2) (7.6%)

Balance of Portfolio Return 48.8 4.6%

31.1

Valuation as at 31 March 2023 1,099.6

2.3 Financial Review and Valuation

continued

28 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Summary Financial Statements

Portfolio Basis Summary Income Statement

12 Month period to 31 March 2023 12 Month period to 31 March 2022

£ million

Portfolio

Basis

Holdco

reallocation

IFRS

(Company)

Portfolio

Basis

Holdco

reallocation

IFRS

(Company)

Total (loss)/income (1.8) (4.8) (6.6) 92.5 (3.8) 88.8

Expenses & Finance Costs (16.7) 4.7 (12.0) (12.7) (3.7) (9.0)

Profit/(loss) before Tax (18.5) (0.1) (18.6) 79.8 – 79.8

Tax (0.1) 0.1 – – – –

(Loss)/Earnings (18.6) – (18.6) 79.8 – 79.8

(Loss)/Earnings per share

(pence) (1.8) – (1.8) 10.0 – 10.0

Portfolio Basis Balance Sheet

31 March 2023 31 March 2022

£ million

Portfolio

Basis

Holdco

reallocation

IFRS

(Company)

Portfolio

Basis

Holdco

reallocation

IFRS

(Company)

Investments at fair value 1,099.6 28.3 1,127.8 912.7 15.5 928.2

Working capital (39.9) 37.2 (2.7) (10.6) 9.4 (1.2)

Debt – – – – – –

Net cash 65.7 (65.4) 0.3 170.9 (24.9) 146.1

Net assets attributable to

Ordinary Shares 1,125.4 - 1,125.4 1,073.1 – 1,073.1

NAV per share (pence) 101.5 – 101.5 108.4 – 108.4

■ Total income: Income at the Company level is the income it receives from Holdco which contrasts to Portfolio Basis

where the income is received from the portfolio assets.

■ Expenses & finance costs: Investment transaction costs are incurred at Holdco only and therefore not included in the

Company Income Statement.

■ Investment at fair value: Company valuation excludes Holdco’s other net assets (see note 11 for detailed reconciliation).

■ Working Capital and cash: Holdco working capital includes a large payable to a FX hedging counterparty.

Financial information

As described in detail in Note 2,

the Company meets the conditions

of being an Investment Entity in

accordance with IFRS 10. This report

is prepared on a consistent basis to

previous reports whereby the IFRS

10 Investment Entity exemption is

applied to the financial statements.

To provide shareholders with more

transparency into the Company’s

capacity for investment, ability to

make distributions, operating costs

and gearing

(APM)

levels, results have

been reported in the pro forma

tables below on a non-statutory

“portfolio basis”

(APM)

, as it has been

done in previous years, to include the

impact if SEEIT Holdco were to be

consolidated by the Company on a

line-by-line basis.

The Directors consider the non-

statutory portfolio basis

(APM)

to be

a more helpful basis for users of

the accounts to understand the

performance and position of the

Company. This is because key

balances such as cash and debt

balances carried in Holdco and all

expenses incurred in Holdco, including

debt financing costs, are shown in full

rather than being netted off.

The impact of including Holdco is shown

in the Holdco reallocation column in

the Income Statement and Balance

Sheet, which reconciles back to the

statutory financial statements (“IFRS”)

and constitutes a reallocation between

line items rather than affecting NAV and

Earnings. In the Cashflow statement

the Holdco reallocation column simply

represents the net difference between

the portfolio basis

(APM)

and IFRS for

movements that may occur only in

Holdco or only in the Company.

NAV per share

(APM)

and Earnings per

share are the same under the portfolio

basis

(APM)

and the IFRS basis.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 29

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Treasury Management

Cash cover

(APM)

for dividends paid

The financial year saw cash inflow

from investments (on a portfolio

basis

(APM)

) of £84.5 million, an increase

of circa 30% from the previous year’s

£64.7 million. After allowing for fund

level costs of £13.5m (March 2022:

£10.8m), this enabled the Company

to cover its cash dividends of £62

million by 1.2 times, maintaining the

same level as the previous year. The

Company’s average cash cover

(APM)

around 1.3x since its IPO to date, and

the Investment Manager is targeting to

grow the near to medium-term levels

to above the historic average.

Maintaining these levels of cash

cover

(APM)

has resulted in cumulative

excess cash cover

(APM)

of c. £29

million since IPO, demonstrating the

consistent nature of the income from

the underlying assets in the portfolio,

as well as the ability of the portfolio

to generate excess cash that can be

reinvested for an accretive return.

Post year end, the surplus cash

has assisted the Company with its

programme of share buybacks.

Liquidity and The Company’s

Hedging Strategy

The Investment Manager has been

proactive in ensuring significant

liquidity headroom to meet existing

investment commitments and

capitalise on emerging opportunities in

both organic and inorganic pipelines.

The heightened volatility in foreign

exchange markets has increased the

need for available liquidity to cover cash

collateral requirements and mark-to-

market losses associated with foreign

exchange trades. In the year, due to

sudden sharp movements in GBP/

USD, the highest amount reached for

cash collateral posted was £56 million.

As at 31 March 2023, the amount

outstanding for cash collateral was nil.

To further manage liquidity risk,

the Investment Manager has taken

measures to increase cash collateral

thresholds and diversify its exposure

across multiple hedge counterparties.

This approach has significantly

reduced Holdco’s liquidity risk,

ensuring that Holdco and the

Company maintained ample liquidity

levels throughout and beyond the

reporting period.

The Company’s hedging strategy is

executed at the level of Holdco, so

the Company itself is only indirectly

exposed to foreign exchange

movements. The objective of the

Company’s hedging strategy is to

protect the value of both near-term

income and capital elements of the

portfolio from a material impact on

NAV arising from movements in

foreign exchange rates.

This is achieved on an income basis

by hedging forecast investment

income from non-sterling investments

for up to 24 months through

foreign exchange forward sales.

On a capital basis, it is achieved

by hedging a significant portion of

the portfolio value through rolling

foreign exchange forward sales. The

Investment Manager also seeks to

utilise corporate debt facilities in

the local currency to reduce foreign

exchange exposure.

As part of the Company’s hedging

strategy, the Investment Manager

regularly reviews the non-sterling

exposure in the portfolio and adjusts

the hedging levels accordingly

while considering the cost-benefit

of the hedging activity. The hedging

strategy also involves ensuring

regular calculation of sufficient cash

headroom, so as to meet potential

liquidity requirements imposed

by hedging counterparties during

periods of volatility that may adversely

affect the Company.

As demonstrated on the next page,

the portfolio has a substantial

exposure to non-GBP assets. In the

execution of hedging strategy, the

Investment Manager has chosen to

retain high levels of hedging during

the year, typically ranging between 90-

100% of the value of the underlying

non-GBP investments.

2.3 Financial Review and Valuation

continued

30 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

During the year marked by sharp fluctuations in GBP/USD and the USD’s strengthening, the increase in portfolio value

attributed to foreign exchange was mostly negated by the hedging’s foreign exchange loss. Consequently, the impact on the

Net Asset Value

(APM)

due to currency exchange was limited to £10.3 million (0.9p/share), which equates to less than 1% of NAV.

Following an assessment of liquidity risk and medium-term projections, the Investment Manager has concluded that SEEIT

Holdco should lower its current hedging level and focus on hedging 75% to 90% of its non-GBP assets going forward. This

target range remains within the parameters previously agreed with the Directors through the Company’s Treasury Policy, thus

the overall hedging strategy and objective are unchanged from before. This move is expected to result in reduced liquidity risks

and increased cash and RCF availability, enabling the Investment Manager to invest in new and existing projects accretive to

the Company’s total return prospects without the need for higher levels of cash/RCF buffers for hedging commitments.

700

USD EUR SEK

600

500

400

300

200

100

800

Notional Asset value

46.6

FX gain in portfolio value

(36.3)

FX loss on hedging

10.3

Net impact

Increase Decrease Total

0.9p

FX Hedging position (local currency) as at 31 March 2023

Impact on NAV arising from FX (£'m) in FY23

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 31

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Revolving Credit Facility

The Investment Manager periodically

considers refinancing options aligned

to the pipeline of new and existing

investments. During the year SEEIT

Holdco increased its RCF by £35

million to £180 million, through a

partial exercising of the accordion

option. At 31 March 2023 the RCF

was undrawn.

Ongoing Charges

The Portfolio’s ongoing charges

ratio

(APM)

remained in line with before

at 1.02% (March 2022: 1.00%),

the marginal increase stemming

predominantly from the impact of

increased discount rates and the

associated adverse impact on NAV as

described elsewhere in this section.

Ongoing charges, in accordance

with AIC guidance, are defined as

annualised ongoing charges (i.e.

excluding acquisition costs and other

non-recurring items) divided by the

average published undiluted net asset

value in the year). Ongoing Charges

percentage has been calculated on

the portfolio basis

(APM)

to take into

consideration the expenses of the

Company and Holdco.

2.3 Financial Review and Valuation

continued

Portfolio Basis Cash Flow Statement

31 March 2023 31 March 2022

£ millions

Portfolio

Basis

Holdco

reallocation

IFRS

(Company)

Portfolio

Basis Holdco

IFRS

(Company)

Cash from investments 85.1 (0.3) 84.8 64.7 (11.7) 53.0

Operating and finance costs

outflow (13.1) 3.1 (10.0) (11.8) 2.9 (8.9)

Net cash inflow before

capital movements 72.0 2.8 74.8 52.9 (8.8) 44.1

Cost of new investments

including acquisition costs (240.2) (52.2) (292.4) (304.9) (14.9) (319.8)

Share capital raised net of

costs 132.6 – 132.6 343.9 – 343.9

Movement in borrowings 29.6 (29.6) – (1.7) 1.7 –

Movement in capitalised debt

costs and FX hedging (37.3) 38.5 1.2 (1.3) 1.3 –

Dividends paid (62.0) – (62.0) (44.2) – (44.2)

Movement in the period (105.3) (40.5) (145.8) 44.7 (20.7) 24.0

Net cash at start of the period 170.9 (24.9) 146.1 126.2 (4.1) 122.1

Net cash at end of the

period 65.6 (65.3) 0.3 170.9 (24.9) 146.1

Investment cash inflows from the

portfolio

(APM)

on a Portfolio Basis were

£85.1 million (2021: £64.7 million),

includes £84.5 million cash from

portfolio investments plus other

interest income.

The total cost of investments by the

SEEIT group on a portfolio basis

(APM)

was £240.2 million (March 2022:

£304.9 million), including a further

£119 million invested as follow-on in

existing investments and transaction

costs (transaction costs are included

at Holdco and not included in the

Company Income Statement). Further

details can be found in Section 2.4,

Portfolio Summary.

Going Concern

The Directors believe that the Group

has adequate resources to continue

in operational existence for the

foreseeable future. Therefore, they

continue to adopt the going concern

basis of accounting in preparing the

financial statements. Further details of

the processes carried by the Company

in determining that the going concern

basis continues to be appropriate

including the upcoming continuation

vote, can be found in Section 4.3,

Report of the Directors and Note 2.

32 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

2.4 Portfolio Summary

Investment Update

During the financial year, SEEIT

successfully invested c.£240 million

in six new and seven follow-on

investments and commitments.

A further c.£30 million has been

invested since 31 March 2023

into two new and four follow-on

investments and commitments.

The Investment Manager has actively

sought to make investments in a wider

range of technological solutions for

energy efficiency. For example, since

31 March 2022, SEEIT has made

investments focused on supply and

distribution and demand reduction

involving:

■ geothermal power and heating;

■ energy-efficient motors, free of

rare earth minerals;

■ datacentre liquid cooling; and

■ behind-the-meter solar PV, wind

and hydropower.

Project Description

Investment/

commitment date Location

Investment/

commitment

amount

Sweden

Baseload Convertible debt investment into a

portfolio of small-scale geothermal

projects that utilise existing heat sources.

May 2022 Sweden c.£4m

USA

Turntide Energy-efficient variable-speed motor

systems technology that reduces carbon

emissions, providing energy cost savings

to various industries without incorporating

environmentally damaging rare earth

minerals used in alternatives.

May 2022 USA c.£8m

Iceotope Data centre immersion cooling technology

providing significant reduction in energy

usage and associated CO2 emissions

versus traditional air-cooling technology.

June 2022 UK c.£3m

UU Solar Portfolio of predominantly solar PV assets,

providing renewable energy generated on

site directly to the end user across North

West England.

July 2022 UK c.£100m

USA

On.Energy Investment in battery energy storage

systems (“BESS”) and microgrids solutions

provider, focusing on delivering long-term,

on-site “energy storage as a service”

projects.

August 2022 USA c.£4m

USA

Bloc Power Energy efficiency solutions, including heat

pumps, LED lighting, solar PV, battery

storage, etc, for small and medium-sized

enterprises and low-to-moderate income

communities in New York State.

November 2022 USA c.£0.2m

Inorganic Investments Made During the Year

6 A total commitment of c.£21m (€25m), of which c.£4m had been deployed by 31 March 2023

7 A total commitment of up to c.£9m (US$10m), of which c.£4m had been deployed by 31 March 2023

8 A total commitment of c.£6m ($8m), of which c.£0.2m had been deployed by 31 March 2023

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 33

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

2.4 Portfolio Summary

continued

Organic Investment Activity During the Year

Project Location

Investment/

commitment amount

Biotown USA c.£1m

Onyx USA c.£50m

Spark US Energy Efficiency II USA c.£13m

Tallaght Hospital Ireland c.£4m

EV Network UK c.£23m

FES Lighting USA c.£6m

Lycra Asia c.£3m

RED-Rochester USA c.£16m

Investment Activity Since Year End

Project Investment Date Type Location

Investment/

Commitment Amount

Onyx Development

Platform – remaining

50% interest

June 2023 Follow-on USA c.£4m

CPP Biomass June 2023 Inorganic USA c.£1m

Thermal energy

storage company

June 2023 Inorganic USA c.£2m

Spark US Energy

Efficiency

Various Follow-on USA c.£7m

RED-Rochester Various Follow-on USA c.£12m

Onyx Various Follow-on USA c.£1m

FES Lighting Various Follow-on USA c.£2m

9 A total commitment of up to c.£6m (€6m), of which c.£4m had been deployed by 31 March 2023

£4m ($5m) upfront consideration, plus performance related contingent deferred consideration in future periods

34 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Portfolio – Key Updates

Overview

Pictured: Oliva Spanish Cogeneration site

SEEIT has made several larger

investments since listing, which form

a foundation for overall portfolio

cashflows as well as providing

established platforms to generate

growth opportunities. Some of these

investments consist of a number

of distinct individual projects and

therefore 21 individual projects are

represented by this section.

The largest six investments

(consolidated) are diversified across

the UK, North America and Europe

and make up c.78% of SEEIT’s

total portfolio by value. A detailed

summary of these investments and

their performance during the year is

outlined below.

In comparison to previous periods,

this section increases the overall

disclosure of SEEIT’s key underlying

portfolio investments, including the

provision of specific project-level

KPIs. The Board and the Investment

Manager will continue to engage with

the Company’s shareholders and

evaluate the benefits of increasing

disclosure further in future.

For a more comprehensive

understanding of these investments,

Section 2.3, Financial Review and

Valuation Movements, the principal

risks in Section 3.2, Risk Management

Framework and Note 3 in the financial

statements provide further details.

The revenues referred to in this

section describe the revenues that are

assumed in the Portfolio Valuation

(APM)

and therefore includes both contracted

and uncontracted revenues. This

is explained further in Section 2.3,

Financial Review and Valuation

Update.

This section also highlights some of

the upside opportunities, a number of

which would require further upfront

investment, that are being developed

by the Investment Manager across

the larger investments but not yet

included in the March 2023 Portfolio

Valuation

(APM)

. These opportunities

alone could potentially add over

£150 million to the NAV over the next

2-5 years, although there can be no

guarantee that this will be realised. In

addition there is a pipeline of identified

upside opportunities that are yet to

be reliably quantified. As a result, the

Investment Manager expects the NAV

accretive opportunities to continue to

develop over the next few years.

Data shown below in this Section 2.4,

Portfolio Summary is as at 31 March

2023 unless otherwise stated.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 35

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

RED-Rochester

One of the largest commercial district energy systems in North America

Investment Highlights

Investment type

Direct equity (100%)

Acquisition date

May 2021

Asset location

Rochester, NY

No. of projects

Project equity value

and as a percentage

of SEEIT’s GAV

c.$314 million

(c. GBP 254 million)

(c.22%)

Project level debt

c.$75 million

Capacity

117MW

Technology

16 on-site services, primarily process/heating steam,

electricity, and process/conditioning cooling

Forecast project life

remaining

c. 40 years

Lifecycle stage

Operational

Counterparties /

offtakers

Over 115, including Eastman Kodak, Li-Cycle, Amazon,

among others

O&M

RED-Rochester staff

Fuel supply

Natural gas supplied from Rochester Gas & Energy Corporation

RED-Rochester Revenues and Cost Model

Net Cash Flows

Overhead

margin tariff

Usage-based

variable tariff

End User

Long-term

fi xed tariff

Services

Revenue

Power & other

services

District energy system

providing 16 utility

services to Eastman

Business Park

Customers in

Eastman Business

Park

Costs

Various

Red Rochester

Various

Usage based

variable costs

Fixed Overheads

Natural gas:

passthrough to end user

11 With opportunity to undertake construction/development stage accretive capital enhancements

36 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The project is underpinned by predominantly long-term contracted cashflows with positive inflation correlation. RED-Rochester has contracts with

over 115 commercial and industrial customers on fixed terms under an approved tariff structure as follows:

• Customers typically sign a 20-year contract with no break clauses. Contract extensions are assumed in the March 2023 Portfolio Valuation

(APM)

Revenues are split:

• Fixed charge: c.40% of revenues are generated from fixed fees paid, unrelated to demand or services procured.

• Capacity based charge: c.50% of revenues are from a pre-determined tariff, based on the cost of delivery of the service and the customer’s

demand.

• Overhead: c.10% of revenues are from a fixed mark-up for each customer on the total utility bill.

RED-Rochester is the exclusive provider of select utility services to

customers within the Eastman Business Park (“EBP”), for which it has

contractual and regulated utility-status franchise rights.

The asset provides 16 on-site services to customers that reduce

customer energy demand compared with local utility and third-party

service providers. These services include electricity, steam, chilled

water, industrial wastewater treatment, compressed air, nitrogen, water

treatment, industrial water and high-purity water distribution.

RED-Rochester provides SEEIT with a platform to grow the delivery

of on-site energy efficient services to the local region, including the

expansion of operations beyond the EBP to greater Rochester and the

Northeast of the USA.

Investment

12 Unaudited figures

13 Million British Thermal Units. This KPI represents annual heat demand from the customers.

Investment Risks and Mitigants

Risk Type: Description Mitigation

Operational

Construction delays of capex

projects, including the CHP

plant.

The Investment Manager ensures that, where appropriate, project contracts include

liquidated damages for delays should they overrun schedule. The schedules also assume a

buffer for delays.

Credit

Default of counterparties. By providing services to over 100 customers across the park, the credit risk is diversified. The

Manager works with other stakeholders to ensure the creditworthiness of new customers

does not degrade the overall credit profile. In addition, the fixed charge component of the tariff

is joint and several between customers, thus limiting the impact of any potential default.

Operational

Demand risk resulting in the

lower-than-expected

variable tariff revenues.

Demand from the customers at RED-Rochester is relatively stable. The majority of the

customers were deemed as “critical industry” during the Covid-19 pandemic period, with

demand remaining in line with expectations. The diversification across 100 customers

helps mitigate against individual customer demand volatility.

Future cashflows are also assumed from growth opportunities, including the accretive capital enhancements such

as the CHP plant described below that is expected to increase revenues in the future.

Project Key Performance Indicators (KPIs)

$14,628

EBITDA (US$ ‘000’s)

Year to 31 December 2022

7,005,222

MMBTUs

delivered to customers

Year to 31 December 2022

Value Accretion Potential

There are two potential sources of value accretion at RED-Rochester:

■ Increasing Fixed Revenues: EBP is currently underutilised and has

capacity to service more customers. As new tenants join EBP, RED-

Rochester can benefit from increased profits from the additional fixed fee

that each new customer will pay.

■ Improving Efficiency: the variable charge is based on a baseline efficiency

of the cost of delivering services. If RED-Rochester is able to improve the

efficiency of its operations and reduce this cost, it is able to capture the

financial benefit of this reduced cost.

There are several examples of upside opportunities at RED-Rochester that

have not been reflected in its current valuation, but could provide additional

value over the short to medium term, including:

Increasing Fixed Revenues:

Converting 5% higher new customers to the EBP above forecasted in the

Portfolio Valuation

(APM)

Estimated potential value uplift:

£10 million - £20 million

Time period:

2-4 years

Improving Efficiency:

CHP plant constructed on time and on budget (the Portfolio Valuation

(APM)

31 March 2023 applied a probability factor and higher discount rate for the

construction activity).

Estimated potential value uplift:

£10 million - £15 million

Time period:

2-3 years

Investment in other energy efficiency projects that result in cost savings

(the Portfolio Valuation

(APM)

at 31 March 2023 applied a probability factor and

higher discount rate for the construction activity).

Estimated potential value uplift:

£5 million - £10 million

Time period: 1-3 years

Cost recovery of future fixed overheads based on management’s planned

actions over the medium-term.

Estimated potential value uplift:

£5 million - £10 million

Time period: 3-5 years

Investment Updates in the Year

The Investment Manager has progressed several growth initiatives that will

support the operational and financial performance at RED-Rochester.

In July 2022, a three-year asset management agreement was signed with

Ironclad for management oversight of the asset’s administration, finance,

operations and maintenance activities, as well as project management and

execution of major accretive projects. As part of this agreement, the Investment

Manager and Ironclad agreed on incentives aimed at growing RED-Rochester’s

EBITDA through marketing efforts to attract new customers and implement

value-added projects.

The Investment Manager also completed negotiations to bring lithium-ion

battery recycler Li-Cycle to the EBP, providing a new processing centre and

warehousing multiple utility services.

Several capital projects were also approved in the year, including:

■ a c. £7 million new chiller installation, for which construction commenced in

2022 and is expected to complete in 2024.

■ a c. £69 million CHP plant (cogeneration turbine generator and heat recovery

steam generator), for which construction commenced in 2023 and expected

to complete in 2025.

■ a c. £13 million investment to support Li-Cycle’s new processing centre and

warehouse, for which construction commenced in 2022 and is expected to

complete in 2024.

Finally, the Investment Manager engaged with the RED-Rochester management

team to strengthen governance and employment opportunities, including:

■ The appointment of a new CEO to RED-Rochester to support business

development at EBP and pursue new opportunities in district energy in the

northeast USA.

■ the creation of staffing and leadership succession plans to manage eventual

staff changes and employee resource efficiency.

■ the implementation of an internship programme to bring undergraduates

and technical students to RED-Rochester and therefore support

educational programmes, promote ESG community outreach and identify

potential new hires.

■ the hiring of additional managerial and technical staffing at the EBP

wastewater treatment facility in order to improve environmental compliance.

EBITDA was c.11% below budget for the year to December 2022, primarily driven

by some unplanned maintenance as well as higher than expected chemical costs,

which could not be passed through during the period. This cost increase has been

incorporated into the current valuation.

Additionally, the MMBTUs delivered were c.4% under budget, driven by lower

heat demand due to a milder winter in Rochester. Slight weather adjusted

fluctuations in output, both up and down, are to be expected over the long term.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 37

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Onyx Renewable Partners (“Onyx”)

C&I Solar and Storage Platform in the USA

Onyx Portfolio Revenues and Cost Model

Onyx Developer Revenues and Cost Model

Investment Highlights

Investment type

Direct equity (100% of operational assets, 50% JV

in development platform)

Acquisition date

February 2021

Asset location

Currently operational in over 13 states in the USA

No. of projects

Project equity value

and as a percentage

of SEEIT’s GAV

c.$200 million (c. GBP 161 million)

- Onyx – SM III, Janus II, and CTAZ operational portfolios

(c.3%)

- Onyx – Obsidian I operational portfolio and Obsidian II

construction/late-stage development portfolio (c.10%)

- Onyx – Development Platform (c.2%)

Project level debt

c.$81 million

Capacity

72 MW operational

Technology

Solar and storage

Forecast project life

remaining

c. 34 years

Lifecycle stage

Development, construction, operational

Counterparties /

offtakers

Over 80 across operational and construction sites

O&M

Various

Fuel supply

N/A

Net Cash Flows

Costs

Onyx

Various

AM: fi xed price –

annual rolling contract

O&M: Fixed price –

annual rolling contract

RECs: medium term

fi xed price

US Gov

Long-term PPA

Services

Revenue

Onsite Power

Existing asset

portfolio

100% SEEIT

Owned asset

End User

Commercial &

Industrial Customers

Net Cash Flows

Capex payment for

devleopments of new

projects, jointly funded

Asset Buyer

Proceed of Sales

including

original capex

EPC margin and

development fees from

sale of assests to SEEIT

(or another thrid party)

Asset management

revenue

Development

platform

50:50 JV with

Blackstone to

develop and sell

assets to SEEIT

38 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The 100% owned portfolio consists of

operational, construction and late-stage

development projects and makes up c.88%

of the investment’s value. The projects in

the portfolio have the following revenue

structure once they are operational:

• Power Purchase Agreements (“PPAs”):

c.95% of asset revenues are generated

from the end users. PPAs have fixed

indexation and are typically 20 years

(weighted average of c.18 years).

• SRECs: c.5% of asset revenues are

generated from SRECs.

The valuation assumes that the current

construction and development stage

projects within this portfolio will become

operational within a defined timeframe.

The Onyx development platform makes up

c.12% of the total Onyx value and has the

following revenue structure:

• Asset Management fees: c.52%,

generated from AM fees charged by

Onyx for managing operational portfolios.

• EPC Development margin: c.33%,

achieved on commercial operation date

for delivery of certain assets.

• Asset sales: c.15%, based on the net

proceeds from the future sale of assets

developed in the pipeline after the

130MW of 100% SEEIT-owned projects

are constructed.

Onyx Renewable Partners is a large and established C&I solar and

storage platform, with over 200 commercial and industrial customers

across its operational, construction and development stage assets.

SEEIT’s investment is structured as follows:

• 100% ownership of portfolios of projects that are operational (SMIII,

Janus II, CTAZ, and Obsidian I, totalling 72MW) or in construction/

late-stage development (Obsidian II totalling 106MW).

• 50% ownership of the Onyx development platform with Blackstone,

with SEEIT retaining the right to acquire pipeline projects at a pre-

agreed price.

Onyx provides SEEIT with a well-established platform to expand its

on-site solar and storage presence in North America. The investments

have strong energy efficiency characteristics, increasing the supply

of on-site renewable energy and helping to reduce greenhouse gas

emissions from the supply, distribution and consumption of energy.

Investment

14 Unaudited figures

15 MWh actual / MWh expected based on budget and available irradiance

Investment Risks and Mitigants

Risk Type: Description Mitigation

Operational

Delay in the deployment of the short-term

pipeline impacts the receipt of cashflows for the

100% owned assets as the valuation assumes

them reaching commercial operations date

(“COD”) within a defined time period.

Conversion of development pipeline to

operational projects is less than projected.

The Investment Manager has been focused on accelerating the conversion

of Onyx’s pipeline by streamlining the development process and hiring key

individuals.

In addition, the pipeline has increased substantially so that, should some

projects experience significant delays, other projects can make up the MW

target.

Operational

Underperformance of operational projects. Onyx minimises the potential of underperformance by building projects using

tier 1 equipment with equipment warranties and using local subcontractors,

with oversight, for O&M.

Operational

Supply chain issues/cost increases. As projects are being developed, PPA pricing takes into account construction

and operational costs identified at the time of signing. Additionally, recontracting

opportunities exist to further enhance revenues to protect margins, if required.

Value Accretion Potential

There are two potential sources of activity for value accretion:

■ Increasing the pipeline of solar and storage projects in the Onyx

development platform. This creates value uplift as follows:

– The Onyx development platform valuation assumes a forecast level

of MW under management over a period, with value created through

cashflows from AM, EPC and Asset Sales. Increasing the MW in the

pipeline increases the value of the platform.

■ Improving the economics of new individual solar projects will create

value for SEEIT given it has an option to acquire the projects at pre-

agreed rates of return.

There are several examples of upside opportunities at Onyx that have not

been reflected in SEEIT’s valuation, but could provide additional value over

the short to medium term, including:

A potential 10% increase in expected annual MW deployment in 2024

and 2025 would accelerate the receipt of cashflows for the 100% owned

portfolio.

Estimated potential value uplift:

£5 million - £10 million

Time period:

3 years

In addition, the value of the Onyx development platform assumed a level

of MW of projects developed per year and any increase in MW would

increase the value of the platform.

Estimated potential value uplift:

£5 million - £10 million

Time period:

3+ years

Improved economics with the Inflation Reduction Act: this benefits the Onyx

development platform as it improves the economics of any assets sales.

Estimated potential value uplift:

£2 million - £5 million

Time period:

3-5 years

Investment Updates in the Year

The Investment Manager has worked closely with the Onyx team to ensure

that the investment has the right leadership and support to develop and

convert its project opportunity pipeline. Specific actions included:

■ The integration of a new CEO, who joined in January 2022 to oversee

operations, asset management and business development.

■ The expansion of the management team to enhance governance and

leadership at Onyx, through the hiring of a Chief Commercial Officer and

Executive Vice President, Operations.

■ The reorganisation and prioritisation of business initiatives to drive

improvements in portfolio operational performance, improve timely

completion of development projects, and expand services and product

offerings.

Additionally, the new management team is putting a focus on the business

development strategy to expand beyond commercial and industrial solar

and storage development. The Investment Manager continues to pursue

new opportunities for behind-the-meter solar and storage development

from Onyx’s relationship network, as well as through the Company’s

portfolio through ongoing discussions at Primary Energy, RED-Rochester

and FES Lighting.

The Company was also pleased, after year end, to acquire the remaining

50% interest in the Onyx Development Platform from Blackstone giving it

100% ownership of the entire Onyx Investment.

Annual delivery of projects to COD increased c.75% in the year to

December 2022. However, this was under budget by c.74% due to

continued supply chain issues relating to certain major components, partly

resulting from lingering effects of Covid-19. Furthermore, permitting and

inspection delays for construction activities have slowed the ability for

projects to reach COD. In the short term, this has been mainly a timing

issue rather than losing projects. As a result of positive changes in the

business over the past year, management has brought a number of

projects back on track and in the first quarter of 2023 Onyx achieved a new

record for project PPAs signed since SEEIT’s investment of 28MW.

Certain one-off maintenance issues with the operational projects resulted

in c.5% lower production and performance than budgeted for the period.

These issues are in the process of being resolved by the Onyx management

team and are not expected to materially affect production going forward.

OVERVIEW

Project Key Performance Indicators (KPIs)

14MW

New projects at COD

Year end 31 December 2022

95%

Performance ratio

Year end 31 December 2022

64,942

MWh produced (operational

projects only)

Year end 31 December 2022

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 39

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Primary Energy

Portfolio of on-site waste recycling cogeneration units, servicing the largest

steel blast furnace in the USA

Primary Energy Revenues and Cost Model

Cokenergy Northlake

Ironside Portside

PCI

Net Cash Flows

Costs

Primary Energy

Cleveland Cliff s

Cleveland Cliff s,

US Steel

Fixed Overheads

O&M: Fixed

Fuel Supply:

free/pass through

Pulverised coal

Services

Revenue

Long Term PPA:

Fixed Price

Long Term PPA:

Fixed indexation

Services

Revenue

Onsite Heat

End User

US Steel

Cleveland Cliff s

End User

Cleveland Cliff s

Investment Highlights

Investment type

Direct Equity (100% in four projects and 50% in one project)

Acquisition date

December 2019 (50%), December 2020 (15%), September

2021 (35%)

Asset location

Indiana, USA

No. of projects

Project equity value

and as a percentage

of SEEIT’s GAV

c.$241 million (c. GBP 195 million)

Consisting of:

- Primary - Cokenergy (c.9%)

- Primary - North Lake (c.4%)

- Primary - Portside (c.2%)

- Primary - Ironside (<1%)

- Primary - PCI Associates (c.2%)

Project level debt

c.$180 million

Capacity

298MW

Technology

On-site cogeneration, waste heat recovery process efficiency

Forecast project life

remaining

c. 32 years

Lifecycle stage

Operational

Counterparties /

offtakers

Cleveland-Cliffs, US Steel (“USS”)

O&M

Primary Energy, Cleveland-Cliffs, USA Steel

Fuel supply

Waste gases from CC; Natural gas supplied via CC

40 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Approximately 83% of Primary Energy’s revenues are derived from energy services to CC’s Blast Furnace (“BF”) #7 at Indiana Harbor Works, which is

considered to be the largest and most competitive furnace facility of its kind in North America. The remaining revenues are derived from the Portside

Project which services USS BF #14. Primary Energy’s revenues are split in the following way between the five different projects:

• Cokenergy (c.57% of revenues): the project receives waste gas and converts to power and steam to sell to CC’s BF #7 through a long-term PPA

that is index linked. The revenues are protected from demand fluctuations through a true-up mechanism.

• North Lake (c.19% of revenues): the project receives waste gas steam and converts into power and steam and sells back to BF #7 through a long

term PPA, which is index linked. The revenues are protected from demand fluctuations through a true-up mechanism.

• PCI (c.7% of revenues): the project is 50% owned with Cleveland Cliffs, the asset pulverises coal for steel production. Revenues are demand based.

• Portside (c.17% of revenues): the project’s revenues generated through the sale of heat, power and softened water through a long-term PPA.

Revenues are capacity based.

• Renewable Energy Certificates (“RECs”) (c.4% of revenues): the RECs are generated by Cokenergy and North Lake and are sold in the open market.

Primary Energy is a 298MW portfolio comprising three energy

recycling projects, one natural gas-fired CHP project and a 50%

interest in an industrial process efficiency project.

These projects are fully integrated into the operations of two steel mills

in the USA, one owned by Cleveland-Cliffs (“CC”) and the other by

Midwest Steel, a subsidiary of United States Steel Corporation (“USS”).

The projects provide services critical to the operations of the steel mills,

including fuel handling and emissions control equipment. Primary

Energy has overall responsibility for the O&M of the projects but uses

line staff seconded from CC and USS under contracts for site operations.

Primary Energy generates energy for the blast furnaces at the steel

mills through the recycling of waste gases, playing a crucial role in

reducing harmful emissions such as CO2 and SO2, and in certain

cases, serving as the sole source for emissions control equipment

and fuel handling. Primary Energy also improves energy efficiency by

bringing energy generation closer to the point of use and reducing

heat wasted in the steel making process.

The projects qualify for RECs that, due to their efficiency and

environmental impact, are equivalent to those generated by

approximately 536MW of solar or 374MW of wind projects.

Investment

Investment Risks and Mitigants

Risk Type: Description Mitigation

Operational

Recontracting of existing PPAs is assumed in the

forecasts and risk of recontracting terms being below

forecasts.

Primary Energy assets play a critical role in the operations of two of the

most profitable and critical blast furnaces in North America by providing

significant cost savings and emissions reductions. The Investment

Manager believes that alternative energy sources would not be able to

compete on the same terms and associated benefits.

Credit

Offtaker is currently sub-investment grade. Further to the sale by Arcelor Mittal N.A. to CC in 2021, the largest offtaker

within the Primary Energy portfolio is sub-investment grade.

The blast furnaces associated with the Primary Energy assets are some of

the largest in the USA and are highly profitable. Given their importance to

the North America steel market, the likelihood of not finding a buyer, in the

event of a credit default by CC, is considered low.

Climate

Development of new technologies may displace

or make obsolete existing pulverised coal injection

(“PCI”) technology, leading to reduction in revenues.

The Investment Manager is working with CC to assess options for

employing best available technologies and will deploy, and/or replace,

them into existing assets if necessary.

Value Accretion Potential

Examples of upside opportunities at Primary Energy that have not

been reflected in SEEIT’s valuation, but could provide additional

value over the short to medium term, include:

Additional revenue streams and contracts from existing assets e.g.

capacity contracts.

Estimated potential value uplift: £5 million - £10 million

Time period:

2-5 years

Additional energy efficiency capex to improve operations that also

generate attractive returns.

Estimated potential value uplift:

£2 million - £5 million

Time period: 2-3 years

BF #4 restarted by Cleveland-Cliffs resulting in Ironside returning to

operations but at reduced output

Estimated potential value uplift:

£20 million - £40 million

Time period: Uncertain

Investment Updates in the Year

The focus at Primary Energy has been on maximising operational

performance at the Primary Energy sites. In March 2022, Primary

Energy customer CC announced the idling of its BF #4 steel

manufacturing facility, resulting in operational idling of Primary

Energy’s Ironside project. This was provided for as at March 2022.

The Investment Manager has supported Primary Energy leadership in

their development of an interim operating agreement proposal, signed

in Q1 2023, for the continuation of select operations at Ironside that

save CC costs.

This extended the existing contract from a day-to-day basis, creating

the potential for incremental revenues in the future.

The Investment Manager is collaborating with Primary Energy and

CC on operations at PCI, which provides pulverised elemental coal,

essential for steelmaking in CC’s largest North American blast

furnace. The Investment Manager has identified options to extend the

asset life as well as end-of-life technology alternatives.

Additionally, the Investment Manager is supporting the negotiations

between Primary Energy and CC in renewing the existing ten-year

operations agreement and therefore continue supplying CC with

essential energy and environmental services.

The Investment Manager also initiated reviews with brokers and

underwriters to take credit for existing Primary Energy initiatives and

outage planning to lower the overall cost of insurance, resulting in

premium rate decreases in 2022.

The 2022 EBITDA was c.16% below budget, primarily due to idling

of BF #4 and resultant operational idling of the Ironside project

facility. The valuation of Ironside assumes that BF #4 will remain idled

indefinitely and does not consider the possibility of it being re-started.

Additionally, operations and maintenance costs at Cokenergy and

Portside projects came in higher than budgeted during the year,

which has also been reflected in future cashflows, adversely affecting

the valuation of these projects. The Investment Manager is working

with stakeholders through ongoing contractual negotiations with the

objective of recovering these costs in future periods.

Unplanned outages at CC facilities, Primary Energy’s source of

waste heat, affected production at North Lake and Cokenergy which

contributed to Average Net Production being c.8% below budget

for the year to December 2022. Some of the revenues related to this

lost production will be recovered via a contractual true-up in the next

calendar year.

OVERVIEW

16 Unaudited figures

Project Key Performance Indicators (KPIs)

$36,450

EBITDA (US$ ‘000’s)

Year end 31 December 2022

163.4

Average Net Production (MWs)

Year end 31 December 2022

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 41

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Oliva Spanish Cogeneration (“Oliva”)

Portfolio of on-site waste recycling, on-site generation and process efficiency supporting

the olive oil industry in Spain

Oliva Revenues and Cost Model

Investment Highlights

Investment type

Direct equity (100% owned, apart from Celvi which is 90%

owned with 10% owned by the offtaker)

Acquisition date

November 2019

Asset location

Andalucía, Spain

No. of projects

Project equity value

and as a percentage

of SEEIT’s GAV

c. EUR 129 million (c. GBP 114 million)

Consisting of:

- Oliva - Celinares (c.2% of GAV)

- Oliva - Colinares (c.1%)

- Oliva - Cepuente (c.2%)

- Oliva - Cepalo (c.1%)

- Oliva - Sedebisa (c.2%)

- Oliva - Bipuge (c.1%)

- Oliva - La Roda (c.1%)

- Oliva - Celvi (c.1%)

- Oliva - Biolinares (c.1%)

Project level debt

Nil

Capacity

125MW

Technology

On-site cogeneration, biomass, oil extraction

Forecast project life

remaining

Various, up to c.18 years

Lifecycle stage

Operational

Counterparties /

offtakers

Olive co-operatives, San Miguel Arcángel, Acesur, Spanish

government

O&M

Sacyr

Fuel supply

Natural gas, biomass, waste olive cake

Oliva

Net Cash Flows

Costs

Sacyr

Oliva

Market

O&M: Fixed price

and variable price –

Long term

Overheads: fi xed

Natural Gas (cogen only):

Price hedged by RoRi

Cogen

Biomass

Olive Processing

Electricity

to grid

Services

Revenue

Electricity

Revenues Price

hedged by RoRi

Heat Revenues

Services

Revenue

Onsite Heat

End User

Olive Co-Operatives

42 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Oliva’s revenues are split in the following way:

• RoRi: c.44% (on average) of revenues. The RoRi is a regulatory payment from the government paid to CHP and biomass assets and adjusted to

account for changes in revenues received by the assets (namely sale of electricity) and operating costs (namely natural gas and EUA emission

certificates for the cogeneration). This results in stabilised cashflows and EBITDA over the long term. The assets receive the RoRi for the

remainder of their asset life.

• Electricity sales: c.42% (on average) of revenue comes from electricity sales produced by the biomass and CHP plants, which is predominantly

sold to the grid, as the heat is used on site. While the revenues are linked to market pricing, this is effectively hedged through the RoRi.

• Oil Sales: c.14% (on average) of revenues come from the product of the pomace processing, namely the production of Orujo oil, which Oliva sells

through short-term contracts in the market. The price of the oil links to the cost of the biomass, providing some hedging against this fuel supply cost.

Oliva Spanish Cogeneration, located in southern Spain, comprises nine

operating projects, of which five are efficient, natural gas cogeneration

(CHP) plants with a combined capacity of 100MW, two are olive waste

biomass plants with a combined capacity of 25MW, and two are olive

pomace processing plants.

Oliva Spanish Cogeneration brings geographical diversification to SEEIT,

through a series of efficient cogeneration plants that deliver on-site

energy generation.

The investment has good yield metrics and inflation correlation, as

well as robust energy efficiency credentials as the assets bring heat

generation closer to the point of use. As a result, they generate process

efficiencies compared with alternative heat sources. In addition, the

assets process waste pomace to produce Orujo oil and electricity, an

efficient energy solution that reduces greenhouse gas emissions.

Investment

17 Unaudited figures

Combination of electrical and thermal energy

Investment Risks and Mitigants

Risk Type: Description Mitigation

Regulatory

Increase of EU ETS costs. The cost of EU ETS certificates has been rising sharply, but the costs are

reimbursed over the medium term through the RoRi mechanism.

Regulatory

Update of RoRi mechanism: timing delays by the

Spanish government have created a short-term cash

impact on the business as well as general uncertainty

in the market.

The Investment Manager, alongside Oliva’s management team, have made

efforts to lobby the government (directly and through trade bodies) to try to

accelerate decision-making.

In addition, the assets have been optimised to sequence operational

availability during peak periods of profitability, resulting in periods where the

assets are not operating.

Climate

Extreme weather conditions (particularly drought) are

impacting the olive harvest in Andalucía. This would

not only impact the biomass assets within Oliva but

also the operations of the offtakers.

The Investment Manager monitors the impacts of extreme weather

events, such as drought on olive production, and works with Oliva’s

olive feedstock providers to manage and mitigate any potential physical

climate-related risks and pursue various mitigation tactics. These include

diversifying feedstock suppliers, using alternative waste feedstock,

forward purchasing of feedstock, and collaborating with local government

and olive producers in the region to minimise water usage.

Value Accretion Potential

The Investment Manager has been investigating several upside

opportunities at Oliva that have not been reflected in SEEIT’s

valuation, but could provide additional value over the short,

medium and long term, including:

Optimising use of owned land to generate additional revenues e.g.

for solar production.

Estimated potential value uplift: £1 million - £3 million

Time period:

3-4 years

Extension/Improvement of an existing contract.

Estimated potential value uplift:

£5 million - £10 million

Time period: 0-1 year

Investment Updates in the Year

Global energy markets were dominated in 2022 by unpredictability,

which significantly impacted the Spanish energy regime. As a

result of Russia’s invasion of Ukraine, European gas and electricity

markets were highly volatile and operated at elevated price levels

throughout 2022.

Normal market dynamics are managed in the Oliva projects

through adjustment of the RoRi payment over the medium to

long-term. The short-term impact of higher gas costs is normally

managed through the execution of the established Oliva hedging

strategy. However, price volatility was so extreme in 2022 that

hedging alone was insufficient to control rising input costs.

In its efforts to control escalating consumer electricity prices,

the Spanish government introduced energy price controls that

capped electricity prices (a revenue to Oliva) but did not cap gas

prices (an expense to Oliva), resulting in an abnormal and material

disconnect between the two. In turn, this severely impacted the

ability to hedge and, combined with Government induced delay

and uncertainty around the RoRi updating, resulted in cashflows at

five of the nine Oliva projects being negatively impacted.

In order to prioritise cashflow management and minimise losses

whilst waiting for the RoRi updates, the Investment Manager

paused operations during certain periods where losses were

highest. As a result, energy generation (Mwh produced) and

EBITDA were well below budget for 2022 of c. €29m and c.1.2m

MWh, respectively.

The Investment Manager led lobbying efforts to the Spanish

government to issue RoRi updates and favourable energy market

controls and policies.

A positive update for the RoRi was announced at the end of 2022,

allowing operations to return in line with expectations in 2023.

In addition to the above, the Investment Manager has proactively

collaborated with the management team at Oliva to ensure full

compliance with wastewater treatment requirements and lower

incident rates for equipment incidents and employee injuries

OVERVIEW

Project Key Performance Indicators (KPIs)

(8,010)

Adjusted EBITDA (€ ‘000’s)

Year end 31 December 2022

827,966

MWh produced

Year end 31 December 2022

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 43

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

UU Solar

Portfolio of 70 operational on-site renewable projects across the UK

UU Solar Revenues and Cost Model

Investment Highlights

Investment type

Direct equity (100%)

Acquisition date

September 2022

Asset location

North West England, UK

No. of projects

1 (across several locations)

Project equity value

and as a percentage

of SEEIT’s GAV

c. GBP 96 million (c.9%)

Project level debt

Nil

Capacity

69MWdc

Technology

Predominantly solar, with some wind and hydropower

– all onsite

Forecast project life

remaining

c. 29 years

Lifecycle stage

Operational

Counterparties /

offtakers

United Utilities

O&M

PSH

Fuel supply

Not applicable – solar, wind and hydro energy

Net Cash Flows

Costs

Green Nation

PSH

AM: fi xed price –

medium term contract

O&M: Fixed and variable

price – medium term

contract

Long-term FIT

UK Gov

Long-term PPA

Services

Revenue

Onsite Power

Solar Project

End User

United Utilities

44 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The majority of UU Solar’s project revenues are generated from long-term contracts, and can be broken down into:

• PPAs: 77% of revenues are through PPAs with UU for a fixed price on a take-or-pay basis, with a fixed escalation of 2%.

Weighted average life of the PPAs is 25 years.

• Feed-in tariff with RPI-linked payment: c.14% of revenues are on an NPV basis. Weighted average life is 17.5 years.

• Merchant revenues: 9% for electricity not consumed on site.

UU Solar’s portfolio provides renewable energy generated on-site

directly to the end user, United Utilities Water Limited (“UUW”). UUW is

the regulated water and wastewater business of United Utilities Group

PLC, the largest listed water and wastewater company in the UK.

The portfolio is 90% solar PV, 9% wind and 1% hydro in terms of

total generation. The assets are all connected to UUW on-site water

and wastewater utility infrastructure via private wire, and provide

green electricity under long-term, fixed-price PPAs with UUW. UU

Solar provides SEEIT with a yielding, fully operational project with an

investment grade counterparty, underpinned by predominantly long-

term contracted cashflows.

The project increases the supply of renewable energy generated on site

and helps to reduce greenhouse gas emissions arising from the supply,

distribution and consumption of energy. In particular, these assets

supply clean energy to critical water infrastructure sites.

Investment

Investment Risks and Mitigants

Risk Type: Description Mitigation

Operational

Underperformance of assets resulting in lower

generation and therefore, revenues.

Projects are built using tier 1 equipment; some applicable warranties

remain. O&M is carried out by an experienced contractor, PSH, with

oversight by an asset manager, Green Nation.

Value Accretion Potential

An example of an upside opportunity at UU Solar that has not been

reflected in SEEIT’s valuation, but could provide additional value

over the short to medium term is:

Expanding the use of existing sites for additional revenues e.g.

batteries.

Estimated potential value uplift:

£2 million - £5 million

Time period:

1-3 years

Investment Updates in the Year

Following a competitive tender process the Investment Manager

appointed a third-party asset manager to manage and optimise

performance of the portfolio. The Investment Manager has

also negotiated with the existing third-party operations and

maintenance contractor to revise and execute a four-year contract

with enhanced availability and performance guarantees.

The Investment Manager anticipates improved performance

after negotiation of a long-term O&M agreement that includes

performance guarantees, implementation of a more rigorous

preventive maintenance programme and heightened focus

on performance metrics to identify and eliminate operational

deficiencies.

Given SEEIT’s ownership of UU Solar commenced only in the last

half of FY 2023, there are no Project KPIs to report in this period

but they will be reported in FY 2024.

OVERVIEW

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 45

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Värtan Gas Revenues and Cost Model

Värtan Gas

Green gas distribution and supply for the city of Stockholm

Investment Highlights

Investment type

Direct equity

Acquisition date

October 2020

Asset location

Stockholm, Sweden

No. of projects

Project equity value

and as a percentage

of SEEIT’s GAV

c.SEK 831 million (c. GBP 65 million) (c.6%)

Project level debt

c.SEK782 million

Capacity

Distributing approximately 250GWh/year of gas

Technology

Green gas distribution

Forecast project life

remaining

c. 22 years and terminal value

Lifecycle stage

Operational

Counterparties /

offtakers

Various, including c.50,000 residential customers and

c.800 commercial and industrial customers

O&M

Värtan Gas

Fuel supply

Gasum, Scandinavian Biogas, Others

Net Cash Flows

Unregulated Tariff –

Adjusted to refl ect

change in gas costs

Regulated Tariff

Fixed Price –

adjusted annually

Services

Revenue

Biogas supply and

distribution

Distributed gas

network

Värtan Gas

End User

Residential and

commercial

customers

Costs

Various

Bio/Natural gas costs:

Short-medium term

fi xed contracts

O&M: Fixed costs –

annual rolling contract

46 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The investment’s revenues consist of:

• Fixed Tariff (c.51% of revenues): annual fixed fee to the regulated grid from end users, which is not related to consumption.

Contracts are typically rolling yearly contracts with residential customers (c.50,000).

• Variable fee (c.49% of revenues): tariff paid for the supply of gas. Tariffs are reviewed annually (or more frequently if required) and

are based on gas costs and a margin. This also includes transport and restaurants as customers.

Investment

Värtan Gas owns and operates the regulated gas grid in Stockholm,

Sweden, c.78% of the gas is locally produced renewable biogas,

sourced primarily from the city’s wastewater facilities. The investment

was fully operational from the point of acquisition, with strong long-

term yield metrics and inflation correlation.

Värtan Gas provides essential infrastructure services, reducing

pollution and greenhouse gas emissions by reusing waste gases

both at the point of production, (for example, at municipal wastewater

treatment plants) and, at the point of use, through the displacement of

natural gas in buildings and diesel in transport. These characteristics

are aligned to Swedish national and EU regional strategies to attain

carbon neutrality by 2040.

This investment brings geographical diversification to SEEIT, together

with a substantial customer base and opportunity to unlock further

growth in volumes – including through the transport segment.

Value Accretion Potential

There are several examples of upside opportunities at Värtan Gas

that have not been reflected in SEEIT’s valuation, but could provide

additional value over the short to medium term, including:

Improved customer retentions (5% above forecast for 3 years) as a

result of initiatives implemented by management.

Estimated potential value uplift: £3 million - £5 million

Time period: 2-3 years

Development of new business/customer offerings in order to grow

consumption volume and new lines of business, e.g. green energy as

a service.

Estimated potential value uplift:

£10 million - £15 million

Time period: 3-5 years

Successful appeal of latest regulatory period updates.

Estimated potential value uplift:

£5 million - £10 million

Time period: 1-2 years

Investment Updates in the Year

Customer retention remains a priority, with a new retention strategy

developed and implemented in 2023. Reduced future transport loads are

projected and an assumption around additional costs for relining sections

of the distribution piping network in future periods have impacted the

valuation as at 31 March 2023, although this has been partly offset by

higher restaurant volumes.

A key focus for Värtan Gas is to increase the share of biogas as a

proportion of total gas sold from the current average of 78% to 100%

in the medium to long term. During the second half of the year, the

Investment Manager completed an organisational restructuring to

position Värtan Gas for future growth, with the appointment of a

new CEO who started in January 2023. The Investment Manager

consolidated operations and management of business segments

Gasnãtet and Stockholm Gas to improve efficiency and revised the board

structure to eliminate non-executive board membership and provide

unified oversight of the restructured business.

Towards the end of 2022, the Swedish regulator, the Energy markets

Inspectorates (“Ei”) updated their assumptions on calculating the

revenue cap for the period 2023-2026. The regulatory cost of capital,

the WACC, has come down significantly, from 8.65% to 6.87%. In

addition, there has been a change to the calculation of the Regulated

Asset Base (“RAB”), which has resulted in a devaluation of the RAB

(and therefore, the allowed revenue). The reduction in WACC and RAB

does not impact the short-medium term revenues as these revenues

are still below the regulatory cap. The impact is seen in future years

for WACC and the change in RAB primarily impacts the terminal value

assumed for Värtan as it has been calculated as a multiple of RAB.

Ei’s decision is being appealed by Värtan Gas and other gas network

operators in the market and we expect a decision in Q3/Q4 2023.

Given the nature of the changes and the precedents in other countries,

we anticipate a positive outcome. We have however taken a cautious

approach to the valuation in this period and not assumed the appeal will

be successful.

The 2022 EBITDA was c.6% below budget as a result of additional gas

costs due to the timing of implementing tariff price increases in reaction

to increasing gas costs, mitigated by putting gas cost hedging in place.

The Investment Manager has worked closely with the Värtan Gas

management team to secure stable gas supplies through the reporting

period’s energy market volatility. The Company increased its hedging

through the purchasing of biogas and natural gas, and by reviewing

retail pricing to bring customers cost certainty for Värtan Gas products.

Investment Risks and Mitigants

Risk Type: Description Mitigation

Operational

Churn rate (reduction) of customers higher than

expected resulting in lower customers and revenues.

The Investment Manager is engaging with the Värtan Gas management

team to deliver more targeted marketing to gain new customers and retain

existing ones. Electrification typically requires building refits.

Operational

Transport and restaurant revenues lower than

targeted resulting in lower revenues.

Electrification of Stockholm buses has occurred faster than expected and

therefore the Värtan Gas management team is focusing on expanding into

new transport segments such as ferries/marine transport.

Regulatory

Periodic regulatory updates causing revenues to be

less than expected.

Regulatory updates may be appealed, such as the current appeal for the

most recent update. Business plans may be adjusted for future years

where it impacts revenues.

Commodity

Volatility in biogas costs resulting in higher gas

procurement costs.

The Investment Manager has implemented a hedging strategy to ensure

majority of short-term volatility of biogas costs can be mitigated. In addition,

the Investment Manager and local management team implement price

changes for the end customers to reflect actual gas costs.

19 Unaudited figures

Project Key Performance Indicators (KPIs)

40.2

EBITDA (SEK’m)

Year end 31 December 2022

78%

% of Green Gas

Year end 31 December 2022

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 47

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

OVERVIEW

Additional Portfolio Project Updates

2.4 Portfolio Summary

continued

EVN FES

SEEIT’s dedicated Electric Vehicle (“EV”) charging

infrastructure platform has progressed well through

the year. The first six sites (totalling 26 ultra-speed

chargers) are operational and have been handed

over to the Charge Point Operator, with another 15

in construction as at 31 March 2023. This includes a

project in the West Midlands, where EVN has signed

a 30-year exclusive contract with NEC Group to

develop and build the EV charging infrastructure at

the NEC campus. Once completed, the NEC campus

will be a first-of-its-kind charging hub for EVs at this

scale, with over 180 charging points, becoming the

largest fast charging hub in the UK and one of the

largest in Europe.

The assets owned by SEEIT are acquired at

attractive pre-agreed returns and there is an

opportunity for SEEIT to benefit from yield

compression once the assets are fully operational.

This upside has not been considered in the current

valuation but is currently

estimated at £10 million to

£15 million.

Due to the lingering effects of post-Covid-19

economics within FES’s target market, as well

as FES business development staffing turnover,

revenue and EBITDA dropped well below projected

levels during the second half of 2022. The

Investment Manager is engaging with the business

to manage cash constraints and the unanticipated

difficulties with project deployment and employee

hiring. In addition, rising interest rates and the

consequent cost of capital led to additional follow-

on investment in FES and a debt restructuring,

which is ongoing.

The issues above have impacted FES’s ability to

be profitable in the short term and the Investment

Manager is carrying out a review of FES’ business

development strategy, shifting focus to target larger

commercial businesses, channel partner business

development and MUSH (municipal, university,

schools, and hospitals) entities, all of which have

longer sales cycles but potentially higher revenue

profitability.

The valuation has taken a provision against FES of

c. £13 million as a result of the issues experienced

during the period. There may be an upside

opportunity to recover the provision if there is a

successful implementation of actions coming out of

the review.

48 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Tallaght Hospital

Moy Park Biomass

Lycra

GET Solutions

Construction of the energy efficiency

retrofit at Tallaght Hospital in Dublin,

Ireland was completed on budget

and on schedule, with operational

handover achieved in early January

2023.

The underlying performance of the

site’s biomass boilers has been

strong throughout the year. The

minority shareholder, which is also the

feedstock provider, has submitted two

force majeure claims towards the end

of the financial year, both in relation

to the provision of their obligations

under the feedstock contract. The

Investment Manager is in ongoing

discussions to resolve this matter and

ensure service of supply to the end

customer is maintained.

Construction of the energy efficient

chiller system at Lycra’s Singapore

facility was completed one month

ahead of contracted schedule

and on budget, with full operation

commencing on 1 February 2023.

A period of record high fuel costs

created problems for the contractor

associated with SEEIT’s GET Solutions

project, in covering contract gas

procurement costs. This has resulted

in SEEIT covering these costs,

which has negatively impacted the

asset’s financial performance. The

Manager is seeking to recover these

costs from the contractor, while also

exploring opportunities to hedge the

gas procurement position to preserve

performance on top of the existing

contractual protections.

Huntsman Energy Centre

The Huntsman project progressed

through the year and started the

commissioning process. However, the

failure of a steam system compressor

resulted in an approximately six-

month delay at the beginning of the

calendar year, as detailed testing and

a root cause analysis were completed

before manufacturing replacement

components. The rectification

programme for this setback has

progressed well, with the plant

becoming operational in June 2023.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 49

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Portfolio

Diversification

Overview

During the year, the Company achieved further

scale and diversification for SEEIT by geography,

technology, industry and counterparty.

Geographically, SEEIT added to its US portfolio and

gained exposure to a new country, Japan, through its

investment in Baseload Capital’s debt facility. SEEIT

also expanded its portfolio in the UK through the

acquisition of UU Solar, the 69MW portfolio of on-site

renewable generation projects.

By technology, SEEIT added exposure to new markets

by funding geothermal district energy, liquid cooling

for data centres and energy-efficient motors free of

rare-earth minerals.

Cleaner & More Efficient Supply

Green Energy Distribution

Point of Use / Demand Reduction

2.4 Portfolio Summary

continued

Diverse project portfolios spanning 43 states:

Tecogen

Onyx

Primary Energy

RED-Rochester

Spark US Energy Efficiency I & II

Sustainable Living Innovations (SLI)

Future Energy Solutions (FES)

Turntide Technologies

Baseload Capital

On.Energy

Bloc Power

CPP Biomass

50 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Spain

Oliva Spanish Cogeneration

Portugal

Capshare

Ireland

Tallaght Hospital

Over 650 locations nationwide

Huntsman Energy Centre

Santander UK Lighting

Moy Park Biomass

Moy Park Lighting

Citi Riverdale CCHP

St. Barts CHP

Smart Energy

Kingspan Holywell Solutions

Supermarket Solar

EV Network (EVN)

GET Solutions

Iceotope

UU Solar

Iceland

Baseload Capital

Sweden

Värtan Gas

Vietnam

SOGA

Singapore

Singapore Energy Efficiency

Lycra

Japan

Baseload Capital

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 51

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Pictured: Baseload Capital site

Portfolio by Project

Project

As at

March 2023

Remainder of portfolio 22%

Cash 16%

Oliva - Cepuente 2%

Primary - PCI 2%

Primary - Portside 3%

Oliva - Celinares 3%

Capshare 3%

Värtan Gas 8%

Primary - Northlake 4%

Primary - Cokenergy 10%

Onyx Obsidian Portfolio 8%

Red Rochester 18%

As at

March 2022

Red Rochester 22%

Primary - Cokenergy 9%

UU Solar 9%

Onyx - Obsidian 8%

Värtan Gas 6%

Primary - North Lake 4%

Capshare 3%

Primary - Portside 2%

EVN - Construction 2%

Oliva - Cepuente 2%

Remainder of portfolio 29%

Cash 3%

Portfolio by Geography

Asia Pacific <1%

UK 17%

Europe 20%

US 59%

Cash 16%

Cash 3%

Asia Pacific <1%

UK 6%

Europe 22%

US 55%

geography

As at

March 2023

As at

March 2022

2.4 Portfolio Summary

continued

The information presented below summarises the portfolio of the Company across different metrics, using the

Company’s Gross Asset Value

(APM)

as at 31 March 2023 (and using 31 March 2022 for comparison).

52 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Portfolio by Technology

Tech

Solar & Storage 23%

District Energy 22%

CHP (Waste gases / other) 13%

CHP (Natural Gas) 9%

Biomass 6%

Gas Distribution Networks 6%

Industrial process

efficiency solutions 4%

EV charging 4%

Bundled Energy efficiency

solutions 3%

Lighting 2%

Remainder of portfolio 5%

Cash 3%

As at

March 2023

District Energy 18%

Remainder of portfolio 5%

Industrial process

efficiency solutions 4%

Lighting 3%

Solar & Storage 12%

Biomass 6%

CHP (Natural Gas) 11%

CHP (Waste gases/other) 17%

Gas Distribution Networks 8%

Cash 16%

As at

March 2022

Portfolio by Investment Stage

Development 6%

Construction 17%

Operating 74%

Cash 16%

Cash 3%

Construction

10%

Development 1%

Operating 73%

investment stage

As at

March 2023

As at

March 2022

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 53

2.5 Company Key Performance Indicators

In the section below, the Company sets out its financial and operational key performance indicators (KPIs) used to track

the performance of the Company over time against its objectives. The Board believes that the KPIs detailed below provide

shareholders with sufficient information to assess how effectively the Company is meeting its objectives.

Financial KPIs

KPI Definition 31 March

2023

31 March

2022

Commentary

Net Asset Value

(”NAV”) per share

(pence)

NAV divided by number of

shares outstanding as at 31

March

101.5p 108.4p NAV has decreased compared with the prior

year due to global increases in risk-free

rates pushing discount rates up materially

from March 2022 –see Section 2.3, Financial

Review and Valuation Update.

Share price (pence) Closing share price as at 31

March

84.0p 117.5p The share price has decreased predominantly

due to market volatility. Since 31 March 2023,

the Company launched a buyback programme

(see Note 12)

Dividends per share

(pence)

Aggregate dividends declared

per share in respect of the

financial year

6.0p 5.62p The dividend increased year on year due to

predictability of near-term cash generation

from portfolio, plus new investments made

previously. The Company met its stated

dividend targets for the years ended 31 March

2022 and 31 March 2023.

Dividend cash cover (x) Operational cashflow

divided by dividends paid to

shareholders during the year

1.2x 1.2x The target was for net operational cash inflow

to fully cover dividends paid. The Company

met its target for the years ended 31 March

2022 and 31 March 2023.

Total return on NAV

basis in the year (%)

NAV growth and dividends

paid per share in the year

(0.9)% 11.2% The payment of interim dividends contributed

to NAV return in the year, although offset by

significantly higher discount rates, resulting

in a material decrease in return compared to

prior year.

Ongoing charges ratio

(%)

Annualised ongoing charges

(i.e. excluding investment

costs and other irregular

costs) divided by the average

published undiluted NAV

in the period, calculated

in accordance with AIC

guidelines

1.02% 1.00% Remained consistent although marginal

increase year on year caused by increased

discount rates affecting the March 2023

NAV. See Section 2.3, Financial Review and

Valuation Update.

Operational KPIs

KPI Definition 31 March

2023

31 March

2022

Commentary

Weighted average

contracted investment

life (years)

Weighted average number of

years of contracted revenue

remaining in investment

contracts (excludes all

recontracting assumptions)

15.9 14.8 In line with expectations – one material

contract requires recontracting in the year

ahead but offset by new investments made

during the year.

Largest five

investments as a % of

GAV (%)

Total value of five largest

individual investments divided

by the sum of all investments

held in the portfolio plus cash,

calculated at year end

54% 49% Target is to maintain good portfolio

diversification, achieved in both financial

years.

54 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

2.6 Stakeholders and Section 172

Section 172: Promoting the Success of the Company

The Directors consider, both individually and together, that they have fulfilled their duties under Section 172 of the

Companies Act 2006 to act in good faith and to promote the success of the Company for the benefit of shareholders and

stakeholders as a whole, having regard to the stakeholders and matters set out in Section 172 of the UK Companies Act

2006 (“Companies Act”) in the decisions taken during the year, as set out below:

Section 172(1) Description

(a) the likely consequences of any

decision in the long term

The aim of the Board is always to ensure the long-term sustainable success of the Company and,

therefore, the likely long-term consequences of any decisions are a key consideration. During the year

under review, the Board believes it acted in good faith, with a view to promoting the Company’s long-

term sustainable success and to achieving its wider objectives for the benefit of its shareholders as a

whole, having had regard to our wider stakeholders and the other matters set out in Section 172 of the

Companies Act. See the rest of this Section 2.6 for the Board’s decisions on capital raising, approving

dividends and the oversight and monitoring of the Investment Manager’s activities in relation to risk and

portfolio management for the Company.

(b) the interests of the company’s

employees

As a closed-ended investment company, the Company does not have any direct employees. However, the

interests of employees in project companies are considered when making decisions for the Company’s

benefit, such as promoting positive health and safety cultures.

business relationships with suppliers,

customers and others

The Company’s approach is described under “Stakeholders” below.

(d) the impact of the company’s

operations on the community and the

environment

The Board places a high value on the monitoring of Environmental, Social and Governance (“ESG”)

issues and sets the overall strategy for ESG matters related to the Company. The Board provides

oversight for the managing of climate-related risks for the group by the Investment Manager, including

transparent disclosure of these risks, and reviews mitigating actions taken by the Investment Manager

to reduce or eliminate them where possible. A description of the Company’s Responsible Investment

Policy is available on the Company’s website and further detail on climate-related risks is set out in

Section 3.1, ESG and Section 3.2, Risk Management Framework. Additionally, the Company’s 2022

Environmental, Social and Governance Report was published in November 2022 and is available on

the Company’s website.

(e) the desirability of the company

maintaining a reputation for high

standards of business conduct

The Board’s approach is described under “Culture and Values” below. For further information please

also see Section 3.1, ESG.

(f) the need to act fairly between

members of the company

The Board’s approach is described under “Stakeholders” below. For further information please also

see Section 4.4, Corporate Governance Statement.

The issues, factors and stakeholders

the Directors consider relevant in

complying with Section 172(1) (a) to

(f) are described in detail below. The

Investment Manager provides updates

to the Board at quarterly meetings

on the above items, including the

rationale behind investment decisions,

its relationships with the Company’s

shareholders and key stakeholders

and the Company’s reputation in

the broader market. This is further

supported by reports from a number of

advisers such as the Company’s broker

and financial PR consultant.

Further, the Companies

(Miscellaneous Reporting) Regulations

2018 require Directors to explain

how they have discharged their

duties under Section 172(1) of the

Companies Act 2006 in promoting the

success of their companies for the

benefit of “members as a whole”. The

Board’s approach is described under

“Stakeholders” below.

Stakeholders

The Board challenges the Investment

Manager to balance the interests

and concerns of all stakeholders

effectively to ensure continuing

positive stakeholder engagement.

The Company is committed to

maintaining good communications

and building positive relationships

with all stakeholders. To achieve this,

the Company, either directly or via the

Investment Manager, interacts with

a variety of stakeholders relevant to

its success. The Company seeks to

achieve the correct balance between

engagement and communication,

whilst working within the limitations

of what can be disclosed to the

various stakeholders with regards

to maintaining confidentiality of

market and/or commercially sensitive

information.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 55

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

The Company has identified the following key stakeholders:

■ shareholders;

■ the Investment Manager;

■ the Company’s key service providers;

■ the Company’s investment business partners (including host counterparties); and

■ lenders at project level and corporate level.

Why they are important Engagement

Shareholders

As the Company is an investment trust

listed on the London Stock Exchange

and a constituent of the FTSE 250

index, its shareholders are also its main

stakeholders. Continued shareholder

support and engagement are critical to

the existence of the Company and to the

delivery of the long-term strategy.

The Company currently has over 350 shareholders.

Through the Company’s engagement activities, it strives to obtain investor endorsement for the

Company’s strategic objectives and how they are executed.

During the year, the Board reviewed and challenged the Investment Manager’s pipeline of opportunities.

Following engagement with shareholders, the Company completed a successful capital raise in

September 2022, which enlarged the shareholder base and increased liquidity in the Company’s shares.

The Company also engaged, directly or via the Investment Manager, with shareholders in the year

through meetings, market announcements and various written materials, including the Company

Factsheet available on the Company’s website.

The Manager hosted a Capital Markets Day in March 2023 for institutional investors and analysts

in order to increase shareholder knowledge of the Company’s activities and the industry in which it

operates. The Investment Manager highlighted key market drivers for energy efficiency and provided

greater insights into some of the Company’s larger portfolio projects.

Following year end, and after a period of the Company’s shares trading at a discount to NAV, the Board

authorised a share repurchase scheme as part of the Company’s discount control strategy in order to

increase liquidity in the Company’s shares.

At every Board meeting, the Directors receive updates on share trading activity, share price performance,

shareholder feedback and any mention of the Company in the press.

Through a combination of the above engagement activities, clear reporting and shareholder support,

the Board has been able to ensure the Company’s investment pipeline and fundraising programme have

been aligned with the investment strategy and that funds have been available to secure the current asset

portfolio. The Company will continue to engage actively with shareholders in future.

The Investment Manager

The Investment Manager’s performance

is critical for the Company to deliver

its investment strategy and meet its

objectives.

Constructive and ongoing engagement with the Investment Manager is important to ensure that the

expectations of shareholders are being met and that the Board is aware of any challenges to the

investment strategy or management of the Company’s portfolio of investments.

The Board conducts both ongoing and an annual review of the Investment Manager’s performance

and terms of engagement, and provides feedback after such reviews. The most recent annual review

took place in March 2023 and written feedback was given to the Investment Manager.

The Board and the Investment Manager maintain an open and ongoing dialogue on key issues facing

the Company with a view to ensuring that key decisions relating to, inter alia, potential investments,

portfolio performance and the Company’s investment strategy are aligned with achieving long-term

value for shareholders. This open dialogue takes the form of at least quarterly scheduled Board

meetings and frequent informal contact, as appropriate to the subject matter.

Key service providers

The Company has a number of other

key service providers, each of which

provides a vital service to the Company

and ultimately to its shareholders. The

Company’s key service providers are the

Administrator and Company Secretary,

Auditor, Corporate Broker, Depositary

and Registrar.

During the year, the Company conducted a review of the terms of all key service provider engagements

along with their fee levels to ensure an appropriate level of support was being provided to the

Company. The Directors provided specific feedback to key service providers with the aim of ensuring

the Company receives an appropriate service. The Company seeks to ensure a two-way engagement

between the Board and key service providers on service delivery expectations and feedback on

important issues experienced by service providers.

2.6 Stakeholders & Section 172

continued

56 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Why they are important Engagement

Investment business partners (including host counterparties)

The Company has various business

partners including, crucially, the

counterparty hosts to whom the

Company’s investments are providing

critical energy services, as well as

sub-contractors who provide key

services to individual or groups of

portfolio companies. Such services

include operations and maintenance,

technical asset management and EPC

construction that are considered vital to

the success of the investments.

As the Company acquires new portfolio investments, the Investment Manager undertakes a review

of the contracting terms of all counterparties to ensure they are fair and appropriate. The Directors

received an update on plans for the Investment Manager to seek to maintain long-term collaborative

partnerships with these counterparties to ensure relationship stability and that the Company’s

investment return targets are achieved. Since there were several new investments made during this

year, the Investment Manager enhanced its onboarding methods to ensure the foundations are laid

for long-term partnerships. This included the use of initial 100-day plans and proactive communication

to employees at investment level to introduce the Investment Manager’s asset management function

and position the Company as a long-term business partner.

The Directors conducted a site visit to Oliva assets in Spain, where they had the opportunity to interact

with the project’s management team.

Lenders at project level and corporate level

The availability of funding and liquidity

are crucial elements in ensuring the

Company’s ability to execute against

attractive investment opportunities as

they arise.

Considering how important the availability of funding is, the Company aims to demonstrate to its

lenders through regular reporting and dialogue that it is a well-managed business and, in particular,

that the Investment Manager is focused on providing regular and careful management of risk within

the investment portfolio and the Company as a whole. During the year, the Directors received and

reviewed the Investment Manager’s recommendation for exercising an accordion increase of the

revolving credit facility held by the Company’s single subsidiary, SEEIT Holdco, thereby ensuring that

the Company had access to liquidity to make further investments.

Culture and Values

The Directors’ overarching duty is to

promote the success of the Company

for the benefit of shareholders, with due

consideration of other stakeholders’

interests. The Company seeks to

maintain high standards of business

conduct and corporate governance, and

to ensure via the Investment Manager

that appropriate oversight, control

and suitable policies are in place to

guarantee stakeholders are treated fairly.

The Board seeks to ensure the alignment

of its purpose, values and strategy with

this culture of openness, debate and

integrity through ongoing dialogue and

engagement with its key stakeholders.

The Board, made up of 40% male and

60% female members, aims to achieve

a supportive business culture combined

with constructive challenge, and to

provide a regular flow of information to

shareholders and relevant information

as required to other key stakeholders.

Both the Board and the Investment

Manager support equal opportunities

for recruitment and when managing

existing employees – regardless of age,

race, gender, or personal beliefs and

preferences.

Although the Company has no

employees, it is committed to respecting

human rights in its broader relationships.

The Company does not tolerate

corruption, fraud, bribes or human

rights breaches. The Company aims to

maintain standards of business integrity,

a commitment to truth and fair dealing,

and a commitment to complying with all

applicable laws and regulations.

The Company has a number of policies

and procedures in place to assist

with maintaining a culture of good

governance including those relating

to diversity, anti-bribery (including the

acceptance of gifts and hospitality),

tax evasion, conflicts of interest,

whistleblowing and directors’ dealings

in the Company’s shares. The Board

assesses and monitors compliance with

these policies regularly through Board

meetings and the annual evaluation

process. The Board seeks to appoint

the most appropriate service providers

for the Company’s needs and evaluates

their services on a regular basis. The

Board considers the culture of the

Investment Manager and other service

providers through regular reporting and

by receiving regular presentations, as

well as through ad hoc interactions.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 57

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

3. STRATEGIC

REPORT: ESG AND

RISK

3.1 Environmental, Social and

Governance (“ESG”)

Introduction

SEEIT invests in energy-efficiency projects

to reduce energy demand and consequently

greenhouse gas emissions. In addition to the

inherently beneficial environmental impacts of

the Company’s investments, the Investment

Manager has a range of material social and

governance impacts that help enhance long-

term value creation for both investors and other

stakeholders. The Company’s Responsible

Investment Policy (“RIP”) sets out the Company’s

four ESG focus areas, which are then expanded

upon in the ESG Principles to form its

ESG policies.

The following section sets out the Company’s

ESG policies and the overall process for

monitoring its ESG considerations across

the portfolio. It also highlights the Company’s

support for voluntary ESG guidelines, such as

the UN Principles for Responsible Investment

(“UN PRI”) and the UN Sustainable Development

Goals (“UN SDGs”), and compliance with

mandatory ESG regulations, such as the EU’s

Sustainable Financial Disclosure Regulation

(“SFDR”).

The Company has

adopted four ESG

focus areas to inform its

operations and values."

Carbon Saved

1,202,528 tCO

Energy saved

387,868 MWh

equivalent to removing

1,004,619

cars off the road

equivalent to powering

26,031

homes in the UK

20 For the year ending 31 March 2023 and based on an analysis of c.95% portfolio

by value.

1 For the year ending 31 March 2023 and based on an analysis of c.95% portfolio

by value.

2 The RIP and ESG Principles documents can be found on SEEIT’s website

(https://www.seeitplc.com/esg/) and are described in summary in the

following section

58 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

SEEIT’s Responsible Investment Policy (“RIP”)

The Company’s RIP sets out the material ESG considerations

that are integrated into SEEIT’s investment decision-making

and monitoring processes. This policy applies to all of SEEIT’s

investments and is overseen on a day-to-day basis by the

Investment Manager. The policy details the Company’s

commitment to the six UN Principles for Responsible

Investment (“UN PRI”) and organises ESG issues around four

key focus areas, which are described below.

The Investment Manager has developed a set of ESG

Principles that expand on these four focus areas and

complement the Company’s RIP. These ESG Principles are

used during the screening and diligence process to assess

the credentials of potential new investments, and then as

a framework for engaging with third-party operations and

management (“O&M”) service providers responsible for the

day-to-day operations of each project.

Aiding the transition

to a low-carbon

economy

by maximising energy efficiency

through its investment strategy

and operations

Pro-actively minimising the

environmental footprint

of operations through managing negative

impacts, such as waste, biodiversity loss and

emissions

Securing robust

governance and

business integrity

including assessing resilience to

physical climate risk and engaging

as an active participant on ESG with

its delivery partners

Providing a safe

and healthy

environment

for all workers, contractors

and members of the

community who use or

encounter its projects

Pictured: UU Solar site

ESG has become an increasing priority for investors, regulators and customers and, consequently,

the Company’s focus on ESG has grown. The Investment Manager and the Board have been

discussing improvements to the Company’s ESG practices, including a refresh of its strategy and the

implementation of both portfolio and asset-level targets, to ensure the Company remains a leader in

sustainability. Therefore, the following section represents the ESG-related work undertaken during the

year and further updates will be provided in due course.

SEEIT’s ESG Focus Areas

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 59

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

SEEIT’s ESG Principles

SEEIT’s ESG Principles expand upon the four focus areas

in its RIP to set out ESG minimum standards and policies

applicable to all SEEIT’s projects.

As described in the ESG Principles, to aid the transition

to a low-carbon economy, SEEIT’s investments will

deploy best available technologies, utilise waste gases

and reduce resource usage. In order to minimise the

environmental footprint of SEEIT’s investments, the

Investment Manager will ensure the projects comply

with applicable local laws, and will monitor, measure and

manage any potential adverse environmental impacts

resulting from any project.

SEEIT will continue to adhere to the highest standards

of corporate governance practice in its investments

through engagement with the Investment Manager, O&M

providers and other service providers to ensure they have

acceptable business conduct policies. Finally, to provide

a safe and healthy environment, the Company will ensure

that its investments provide safe working conditions

and have established appropriate health and safety

policies and processes to monitor incidents and prevent

recurrences.

Additionally, the ESG Principles specify an expectation

for O&M providers, as well as other service providers, to

adhere to the Company’s ESG Principles, integrate the

Company’s ESG standards into their operations, and report

on ESG outcomes. Where applicable, service providers

and their supply chains must also adhere to the human

rights considerations set out in the ESG Principles.

SEEIT’s ESG Management Process

The Company’s ESG Management Process refers to the

internal procedures that ensure the standards defined in

SEEIT’s ESG Principles and RIP are integrated into the

core operations of the Company. The Investment Manager

oversees this process, which begins with the assessment

of a potential investment opportunity.

The ESG investment review process is conducted in two

main stages, beginning with early identification of any

ESGred flags and followed by a second phase of detailed

due diligence to resolve any concerns and confirm that

climate-related targets can be met during each project’s

contracted life. The detailed due diligence is conducted

through an ESG questionnaire, which includes questions

on SEEIT’s ESG standards and is organised around the

four ESG focus areas.

Once an investment has been made, the Investment

Manager engages on ESG matters with the appropriate

management teams through regular reporting. This allows

the Investment Manager to monitor the performance of

the Company’s asset companies, engage in any necessary

interventions and inform the Board accordingly. The ESG

performance of SEEIT’s portfolio companies, monitored and

recorded through these questionnaires, are reported as key

performance indicators (“KPIs”) in the SEEIT ESG Report.

The annual ESG due diligence and quarterly

environmental performance questionnaires are both

based around SEEIT’s four ESG focus areas, best-practice

minimum standards, and voluntary and mandatory

requirements, such as the six UN PRI principles.

Additionally, the questionnaires cover all the Sustainable

Finance Disclosure Regulation’s (“SFDR”) principle

adverse indicators.

The Investment Manager continues to engage closely

with each asset company throughout its lifetime to search

for innovative projects that can improve its efficiency,

lower associated emissions and enhance overall value

for investors and the local community. Further details of

these follow-on investments can be found in Section 2.4,

Portfolio Summary.

3.1 SEEIT Environmental,

Social and Governance (“ESG”)

continued

60 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Aiding the

transition to a

net-zero carbon

economy

Early

identification

of possible

deal breakers

Initial

gateway

questions

Identify

where

additional

technical due

diligence may

be required

Red flag

review

Onboarding /

100-day plan

ESG engagement

Review ESG

due diligence

questionnaire to

assess and fill gaps

Oversee ESG

performance of

investments according

to SEEIT’s ESG

standards

Determine

whether

to invest

and fulfil

disclosure

obligations

Detailed due

diligence

Assess compliance with SEEIT’s sustainable

investment objective and ESG focus areas

Monitor and manage investments in line with

SEEIT’s sustainable investment objective and

ESG focus areas

Identify material ESG issues

that may stop/influence the

investment

Quarterly environmental

performance

questionnaire

Annual social

and governance

questionnaire

Minimising the

environmental

footprint

Securing robust

governance and

business integrity

Providing

safe, diverse

and inclusive

environments

Due Diligence

Asset Management

Focus Areas

Pictured: Onyx Renewable Partner's site

IC Meeting: Review ESG

Due Diligence and decide

whether or not to invest

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 61

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Headline Description Key target

Affordable and clean

energy

Ensure access to

affordable, reliable,

sustainable and modern

energy

7.2 By 2030, increase substantially the share of renewable energy

in the global energy mix

7.3 By 2030, double the global rate of improvement in energy

efficiency

Decent work and

economic growth

Promote inclusive and

sustainable economic

growth, employment and

decent work for all

8.4 Reduce consumption of global resources and improve

efficiency of production. Endeavour to decouple economic growth

from environmental degradation, in accordance with the ten-

year framework of programmes on sustainable consumption and

production, with developed countries taking the lead

Industries, infrastructure

and innovation

Build resilient

infrastructure,

promote sustainable

industrialisation and

foster innovation

9.1 Develop quality, reliable, sustainable and resilient

infrastructure, including regional and trans-border infrastructure,

to support economic development and human wellbeing, with a

focus on affordable and equitable access for all

9.4 By 2030, upgrade infrastructure and retrofit industries to

make them sustainable, with more efficient use of resources

and increased adoption of clean and environmentally sound

technologies and industrial processes, with all countries taking

action in accordance with their respective capabilities

Sustainable cities and

communities

Make cities inclusive,

safe, resilient and

sustainable

11.6 By 2030, reduce the adverse per capita environmental impact

of cities, including by paying special attention to air quality and

waste management

Responsible consumption

and production

Ensure sustainable

consumption and

production patterns

12.5 By 2030, substantially reduce waste generation through

prevention, reduction, recycling and reuse

Climate action Take urgent action to

combat climate change

and its impact

13.1 Strengthen resilience and adaptive capacity to climate-

related hazards and natural disasters in all countries

United Nations’ Sustainable Development Goals

In 2015, 197 countries addressed global social,

environmental and economic challenges through the

17 UN Sustainable Development Goals (“SDGs”). Many

private-sector organisations have now adopted these goals to

communicate a commitment to sustainable development.

As such, the Investment Manager has been tracking SEEIT’s

alignment with the SDGs and the below table sets out its key

goals and targets based on the impact of its assets.

3.1 SEEIT Environmental,

Social and Governance (“ESG”)

continued

62 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Pictured: Primary Energy site

Recommendation Disclosure

Governance

Describe the Board’s

oversight of

climate-related risks

and opportunities.

The Board oversees the Company’s operations and remains informed of relevant climate-related risks and opportunities

through the Investment Manager during quarterly Board and committee meetings.

The Investment Manager informs the Board of all new and follow-on investments through regular reporting on the

Company’s pipeline. If relevant, the Investment Manager will include climate-related risks and opportunities.

Once the Company has invested in a project, the Board receives a portfolio update and a risk matrix quarterly. These regular

updates reflect emerging climate-related risks and opportunities, allowing the Audit and Risk Committee and Board to

oversee and manage them alongside the Investment Manager. The Investment Manager will notify the Board of urgent

matters arising outside of the regular reporting cycle.

Describe

management’s role

in assessing and

managing climate-

related risks and

opportunities.

Under direction from the Board, the Investment Manager is responsible for day-to-day management of the climate-related

risks and opportunities impacting the portfolio. The Investment Manager does this in part through its ESG Management

process, more details of which are located in Section 3.1, ESG. The ESG Management process considers climate-related

risks and opportunities when assessing and monitoring an investment.

When assessing a potential investment, the Investment Manager completes the ESG due diligence questionnaire and

identifies climate-related risks and opportunities related to the investment.

Once a project has been acquired, the Investment Manager regularly monitors its operations through questionnaires. If

there is a climate-related risk or opportunity that could significantly impact the operation of a project, it will be raised to the

Investment Committee and, if necessary, the Board.

Strategy

Describe the climate-

related risks and

opportunities the

organisation has

identified over the

short, medium and

long term.

Due to the length of the Company’s project contracts, the Company’s investment into and management of its projects

take account of both short and long-term climate-related risks and opportunities. This includes consideration of climate-

related opportunities and transition risks to the assets.

In the shorter term, the Company focuses on immediate risks and opportunities, such as the potential of that investment

to reduce emissions compared with its alternative, or to satisfy requirements for legislative energy transition policies,

such as low-carbon energy credits. These shorter-term considerations occur over a period of one to two years.

In the longer term, these considerations can include both the positive and negative impacts of technological changes,

accelerated net-zero targets and physical climate impacts. The Company recognises its assets may be impacted

through technological changes and accelerated net-zero timeframes. The Board and Investment Manager monitor the

diversification of portfolio technologies and evaluate environmental-related risks, including assessing the suitability of

natural gas cogeneration assets as a target technology within a specific timeframe. Furthermore, as a company focusing

on investments that improve sustainability through reduced use of energy, risks and opportunities are assessed in terms

of the long-term capability of those investments to deliver sustainable energy solutions.

Task Force on Climate-Related Financial Disclosures (“TCFD”) Update

The Investment Manager and the Company are both

supporters of the Task Force on Climate-Related Financial

Disclosures (“TCFD”), recognising that climate change

scenarios represent significant risks and opportunities

for the Company in the short, medium and long term. The

Investment Manager believes that TCFD’s recommendations

on governance, strategy, risk management and metrics

provide a useful framework for monitoring, managing and

increasing transparency around climate-related risks and

opportunities.

While the UK’s Financial Conduct Authority (“FCA”)

made publishing a TCFD report mandatory for many

companies in the UK in January 2023, the Company is

not in scope of this requirement. As a supporter of the

TCFD recommendations, the Investment Manager has

determined to use the framework to voluntarily disclose the

Company’s considerations around climate-related risks and

opportunities.

The Company has provided summaries of its progress to

date against TCFD’s eleven recommended disclosures and

acknowledges that its TCFD reporting will continue to be

developed and enhanced in the future.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 63

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FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Recommendation Disclosure

Describe the

impact of climate-

related risks and

opportunities on

the organisation’s

businesses, strategy

and financial

planning.

The policy trends as a result of the energy transition stand to benefit SEEIT’s investments through additional opportunities

and stronger regulatory support. The Company believes that the overall impact of the climate-related issues affecting the

Company is positive for the following reasons:

• The Company’s investments are designed to provide solutions to climate-related issues.

• The Company’s supply chains provide solutions to climate-related problems, helping ensure both short and medium-term

reliability of suppliers who are prioritising similar solutions and innovation.

• The complexity and capital requirements of effective longer-term climate-related solutions favour the Company, which

believes it has the necessary resources to identify investment and development opportunities where it is well placed to

add value.

Notwithstanding these competitive advantages, the Company considers how climate-related risks could affect its portfolio

and seeks to minimise its exposure. The Investment Manager considers a range of climate-related risks associated with the

Company’s portfolio, which impact the type of investments the Company makes, the location of the assets and how those

assets are managed in terms of upgrades and capex projects.

Describe the

resilience of the

organisation’s

strategy, taking

into consideration

different climate-

related scenarios,

including a 2°c or

lower scenario.

SEEIT considers the resilience of its strategy in terms of the impact of climate-related risks on its portfolio, and on the

prospects for new investment opportunities in the future.

The Investment Manager considers how climate change and specifically the energy transition would impact the portfolio.

This includes consideration of climate-related opportunities and transition risks, which are all considered during investment

appraisal and on an ongoing basis as part of asset management.

For new acquisition and development opportunities, the Investment Manager considers the impact of climate change in

making decisions about the technologies and markets to focus on. The Investment Manager will continue to enhance its

reporting around the potential impacts of climate-related risks and will assess those risks under different climate scenarios

in due course.

Risk management

Describe the

organisation’s

processes for

identifying and

assessing climate-

related risks.

The Company’s risks are managed as part of its overall risk management framework, which covers all aspects of the

Company’s activities. Climate-related risks are incorporated into the overall risk management framework and thus follow the

same monitoring, managing and governance structure of other types of risk.

The risk management framework and risk appetite are overseen by the Company’s Audit and Risk Committee, which meets

on a quarterly basis. The Audit and Risk Committee receives regular risk management reports from the Investment Manager

to support its assessment, in addition to updates to the risk register, whereby each risk is rated, risk-mitigating factors are

detailed and applicable controls are highlighted. Climate-related risks including best-available technology or regulatory

changes are assessed as part of the risk register.

On a project level, the Investment Manager identifies and assesses climate-related risks through due diligence and asset

management. The Investment Manager does this in the first instance through due diligence questionnaires and checklists –

one of which is the ESG questionnaire with climate-related questions around high physical climate risks and high exposure

to technologies not consistent with net zero. These questions on climate change risk and adaptation are expanded upon in

the next stage of ESG due diligence, as part of the broader questionnaire.

The Investment Manager regularly monitors those risks through questionnaires and discussions with project management

teams.

For more information, please refer to Section 3.2, Risk Management.

Describe the

organisation’s

processes for

managing climate-

related risks.

As described above, the Audit and Risk Committee oversee the risk management framework to ensure that emerging and

existing risks are managed. This includes climate-related risks as they are incorporated into the overall framework.

On a day-to-day basis, risks are managed by the Investment Manager at the portfolio and project level. The Investment

Manager works closely with project management teams to mitigate emerging risks through collaboration with

counterparties and advisors.

For more information, please refer to Section 3.2, Risk Management.

Describe how

processes for

identifying, assessing,

and managing

climate-related risks

are integrated into the

organisation’s overall

risk management

The risks are identified during the assessment of a potential investment and can be enhanced throughout the life of a

project, depending on technology or legislative changes relating to climate change. Ongoing monitoring of each asset

occurs through regular questionnaires, and all reported risks are validated and quantified by the Investment Manager.

Furthermore, the Company discloses the portfolio’s environmental performance data, including its greenhouse gas

emissions, to inform ongoing risk management.

Risk-mitigating controls are implemented on a case-by-case basis to ensure that the Company’s exposure to ESG risk is

managed. The controls are reviewed for effectiveness by the Investment Manager on a regular basis as ESG risks evolve

and the Company adapts.

3.1 SEEIT Environmental,

Social and Governance (“ESG”)

continued

64 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Recommendation Disclosure

Metrics and targets

Disclose the

metrics used by

the organisation

to assess climate-

related risks and

opportunities in line

with its strategy and

risk-management

process.

The Company reports on a variety of metrics related to carbon and energy savings, energy generation and GHG emissions,

which are calculated by monitoring environmental performance data of all investments quarterly. The climate-related

metrics are calculated using guidance from the Greenhouse Gas Protocol and UK Streamlined Energy and Carbon

Reporting legislation. The data is collected and collated by an external consultant and then reviewed internally.

The Company monitors its environmental performance data to track progress against its sustainability indicators, namely

the carbon and energy savings. Furthermore, the Company tracks the relevant GHG emissions of its assets to monitor its

environmental impact and will inform its net zero strategy.

Details on the relevant metrics are laid out in Section 3.1, ESG.

Disclose Scope1,

Scope 2 and, if

appropriate, Scope 3

GHG emissions, and

the related risks.

The Company reports on its Scope 1, 2 and 3 GHG emissions in accordance with the methodology set out in the

Greenhouse Gas Protocol. The Company’s GHG emissions inform the degree of risk associated with an accelerated

net-zero transition on a project-by-project basis.

Details on the Company’s emissions are provided in Section 3.1, ESG.

Describe the

targets used by

the organisation to

manage climate-

related risks and

opportunities and

performance against

targets.

The Company seeks to measure, monitor and report climate-related KPIs that are consistent with relevant international

standards, both statutory and voluntary, for assessing the sustainability of the Company’s activities. As mentioned above,

in line with the EU Sustainable Finance Disclosure Regulation, the Company tracks the performance of its identified

sustainability indicators.

Further, in line with the Investment Manager’s commitment to the Glasgow Financial Alliance for Net Zero (“GFANZ”), the

Investment Manager is assessing its strategy for reaching net zero across the group and will provide an update on SEEIT’s

net zero plan in due course.

EU Sustainable Finance Disclosure Regulation (“SFDR”)

As stated above and in the Company’s investment policy,

SEEIT seeks to make sustainable investments by investing

in energy-efficiency projects that reduce energy usage and

greenhouse gas emissions. On the basis that the Company

has sustainable investment as its objective, based on the

current laws and related guidance, the Investment Manager

considers that the Company qualifies as an Article 9 fund

under the EU Sustainable Finance Disclosure Regulation

(“SFDR”). Since its IPO, the Investment Manager has

considered making sustainable investments to be a key

aspect of the Company’s investment approach and believes

that the incorporation of sustainability into its investment

process, asset management and reporting procedures is

crucial for continuing to deliver sustainable growth and

returns for shareholders.

In the appendix of the report is the Company’s first periodic

disclosure under Article 9 of SFDR, following its most

recently published Annex III pre-contractual disclosure in the

August 2022 investor disclosure document. The Investment

Manager consistently monitors SFDR developments

and emphasises that the evolution of the regulation and

understanding of its requirements have impacted the

responses provided in its disclosures. The Investment

Manager recognises that the Company’s reporting under

SFDR will develop with future disclosures.

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FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Climate-Related Environmental Performance Data – year to 31 March 2023

The principal environmental performance data of SEEIT’s portfolio is set out in the tables below which cover, respectively: carbon

and energy savings, portfolio energy generation, scope 1,2 and 3 GHG emissions, and carbon intensity indicators. The Investment

Manager collects environmental performance data individually from the majority

of its assets based on actual energy usage and

generation to inform its below analysis in-line with relevant requirements and recommendations.

Portfolio Energy

and Carbon

Savings

3.1 SEEIT Environmental,

Social and Governance (“ESG”)

continued

Carbon

Savings

Energy

Savings

tCO2e MWh

2022/23 2021/22 2022/23 2021/22

EU 153,474 167,191 1,518 -

USA 1,021,939 872,106 337,889 188,076

UK 18,980 16,596 37,849 42,523

ASIA 8,136 4,723 10,613 11,562

TOTAL PORTFOLIO 1,202,528 1,060,616 387,868 242,161

23 The environmental performance data disclosed in the report covers the majority of the projects in SEEIT’s portfolio for the year ending 31 March 2023, making up c.95% of portfolio by value,

but select investments have been excluded from this analysis due to relevance.

4 Energy savings refers to the electrical and thermal energy not consumed at the point of use by the customer due to a SEEIT investment.

25 Carbon savings refer to the reduction in GHG emissions achieved by a project compared to a relevant counterfactual, i.e. how the customer would receive the energy services in the absence of

said project.

Portfolio Energy Generation

4,373,103 MWh

Total Energy Generated at 31 March 2023;

3,747,622 31 March 2022

Renewable Electricity

Generated

Renewable Heat

Generated

Non-Renewable Electricity

Generated

Non-Renewable Heat

Generated

MWh MWh MWh MWh

2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22

EU 227,449 195,723 214,394 - 353,882 721,754 239,165 487,511

USA 89,301 75,294 - - 1,701,990 1,417,920 1,381,514 718,082

UK 34,069 745 34,838 36,031 42,002 43,867 48,728 51,079

ASIA 5,772 - - - - - - -

TOTAL PORTFOLIO 356,591 271,763 249,232 36,031 2,097,873 2,183,541 1,669,406 1,256,672

66 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The calculation approach in each case follows several key principles to maintain a consistent approach. The principles are:

■ where possible to capture fundamental data regarding project performance. Examples of this data include energy

generated (kWh) and fuel consumed (kWh);

■ use publicly available emissions factors from government sources specific to the project location;

■ where a project was commissioned or purchased by SEEIT mid-way through the reporting period, only the portion of the

period after commissioning or purchase date should be recognised; and

■ where SEEIT owns less than 100% of a project, the total project savings should be reduced pro-rata with the ownership

percentage.

The data gathering process is predominantly manual and therefore dependent on accurate reporting from the management

teams and other sources at the asset level. Market practice and processes keep improving and the Investment Manager is actively

engaged in seeking the most up to date and accurate data for each of the investments. There have been instances in which

evolving calculation methodologies or new information provided slightly alters previously reported data, but as those changes

have been immaterial, the data reported in 2021/2022 for that year remains consistent in these tables.

26 The Portfolio Scope 1, 2 and 3 GHG emissions predominately represent the fuel used to generate energy in SEEIT’s energy generating assets, in addition to limited Scope 2 and 3 emissions

relating to business operations and supply chain emissions.

7 The MWh in the table refers to the energy consumed associated with the disclosed emissions.

28 Definitions of carbon intensity indicators:

- Weight average carbon intensity: The portfolio's exposure to carbon-intensive companies, expressed in tons C02e/$M value.

- Total carbon footprint: The total carbon emissions for a portfolio normalized by the ownership of the asset, expressed in tons CO2e / $M invested.

- Total carbon intensity by revenue: The volume of carbon emissions per million dollars of revenue (carbon efficiency of a portfolio), expressed in tons C02e/$M revenue. Last year, the carbon

intensity by revenue was calculated at the asset level, but this year it has been calculated at the regional level. Therefore, the 2021/2022 carbon intensity is shown on an equivalent basis.

- Total exposure to carbon-related assets: The percentage of carbon-related assets in the portfolio, expressed in $M or percentage of the current portfolio value.

Portfolio GHG Emissions

Carbon Intensity Indicators

558,821 tCO2e

Total Carbon Emissions (S1 + 2) at 31 March 2023;

745,041 tCO2e 31 March 2022

SCOPE 1 SCOPE 2 SCOPE 3

tCO2e MWh tCO2e MWh tCO2e

2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22

EU 180,776 366,021 2,148,396 2,794,579 2,479 2,486 14,578 14,645 2,482 8,210

USA 361,550 365,223 1,973,844 1,993,948 7,372 5,149 68,228 48,408 255,283 256,920

UK 6,645 6,162 74,876 74,090 - - - - 16,829 15,832

ASIA - - - - - - - - - -

TOTAL PORTFOLIO 548,971 737,406 4,197,116 4,862,617 9,851 7,636 82,806 63,054 274,594 280,962

Weighted Average

Carbon Intensity Carbon Footprint Carbon Intensity

Exposure to Carbon-

Related Assets

tCO2e / £M Value tCO2e / £M Value tCO2e / £M Value %

2022/23 2021/22 2022/23 2021/22 2022/23 2021/22 2022/23 2021/22

EU 1,680 3,010 173 404 1,516 880 20.9% 23.1%

USA 1,459 1,909 349 406 2,721 2,062 42.5% 46.1%

UK 1,519 734 6 7 472 732 3% 5%

ASIA - - - - - - 0% 0%

TOTAL PORTFOLIO 4,658 5,653 529 817 2,060 1,184 66.5% 73.6%

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 67

OVERVIEW

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STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Pictured: Onyx Renewable Partner site

68 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Risk Management

Framework

The Company has a risk management

framework that covers all aspects of the

Company’s activities, including systems

and procedures designed to ensure

that all applicable risks pertaining to the

Company, its portfolio of investments

and any stakeholders can be identified,

monitored and managed.

The Investment Manager is a key

service provider to the Company and is

tasked with operating the key controls

within the Company’s risk management

framework.

The risk management framework

and risk appetite are overseen by the

Company’s Audit and Risk Committee,

which meets on a quarterly basis at

minimum. The remit of the Audit and

Risk Committee includes a requirement

to monitor the risks against pre-agreed

risk tolerances, and to keep under

review the adequacy and effectiveness

of the internal financial controls,

internal controls and risk management

systems relied upon by the Company.

The Audit and Risk Committee receives

regular risk management reports from

the Investment Manager to support its

assessment, in addition to updates to

the risk register, whereby each risk is

rated, risk mitigating factors detailed

and applicable controls highlighted.

The Audit and Risk Committee and

the Investment Manager discuss and

consider emerging risks and possible

mitigants on a regular basis. When

required, the Company’s external

advisers will be consulted.

Part of the Company’s wider risk

management framework captures

the activities of key service providers

– including the Investment Manager,

which has its own risk management

function, with appropriate systems and

controls, and on which the Company

relies.

Principal Risks

The principal risks faced by the

Company and the investment portfolio

have been summarised in the table

below. These risks are monitored by

the Investment Manager and have

been reviewed by the Board and by

the Audit and Risk Committee. The

key risks faced by the Company and its

investment portfolio are materially the

same as in the prior year, although the

likelihood of certain risks crystallising

may have moved over time.

The majority of the risks are faced

directly by the investment portfolio

and only indirectly by the Company.

Risks are typically not expected to

change materially through the year, as

operational and financial performance

of underlying projects are measured

over the medium to long term and are

therefore typically consistent between

periods.

3.2 Risk Management

Framework

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 69

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FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Risk Type

Risk

Movement

Risk Description Mitigation

Credit

Increase

Counterparty risks relating to

potential default and failure

to pay.

Default risks relating to

counterparties for energy

services contracts and relating

to key service providers are the

Company’s largest inherent risks.

• Thorough counterparty due diligence is undertaken on prospective

investments, which includes credit rating assessments to determine

whether credit counterparties are of sufficient quality.

• Ongoing counterparty risks are monitored, with the potential to be

mitigated via credit risk management relating to counterparties

(including through credit risk assessments, diversification across

such counterparties or selling investments).

• Additional protections such as parent company guarantees may

also be sought.

• Investment due diligence processes include assessments of

the likely rate of recoverability of project capital in the event of

any counterparty default. For example, an assessment would

be undertaken regarding alternative offtaker arrangements or

expectations for continuing plant operations due to the underlying

profitability of such plants.

Market

Regulatory

Same

Market regulation changes

that could result in negative

financial impact or volatility of

revenues.

Short to medium-term risk to

revenues or costs through

changes in carbon-related

charges, emissions standards or

energy prices.

• The Company mitigates these risks by ensuring any impact is

primarily borne by the beneficiary of the asset rather than the

Company as owner.

• In the longer term, the pipeline development strategy can take

account of policy and regulatory changes, as the Company retains

flexibility to pursue opportunities in different technologies or regions

which are identified as priorities.

Investment

Increase

Re-contracting

The risk that assets within the

portfolio are unable to renew

their contracts on favourable

terms.

• The majority of projects in the portfolio are contracted for the

medium to long term. The key risk is that the value of the Company’s

investment in specific projects can be materially impacted by the

ability of the asset to recontract. This risk is mitigated as all asset

projects, where relevant, have a good recontracting record – given

that projects are focused on providing a combination of emissions

control and renewable energy, providing essential services to clients

at a competitive price.

Operations

The risk that asset operations

are not performing in line with

expectations.

• Experienced and skilled contractors are employed for projects,

and appropriate contractual performance assurances may further

mitigate such risks.

• However, there may be situations where contractual protection will

not provide complete protection against underperformance. This is

likely to occur where revenues are capacity rather than availability

based.

• Due diligence undertaken on prospective investments seeks

to identify risks relating to decommissioning and ongoing

maintenance. Leading equipment manufacturers are selected, and

the Company seeks to only adopt tried-and-tested technology, in

mitigation of operational risks.

• The range of established technologies in which SEEIT has invested

is sufficiently broad that systemic issues are limited.

• Operational KPIs are shared on a regular basis and the asset team

oversees operations to mitigate these risks.

70 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Risk Type

Risk

Movement

Risk Description Mitigation

Investment

(continued)

Construction

Delayed construction/cost

overruns resulting in financial

underperformance.

• Technical due diligence at project design stage, the use of

conservative construction time-period assumptions, the

appointment of leading construction engineers and the use of tried-

and-tested technology should all contribute towards mitigation of

this risk.

• Contractual protection negotiated with developers may also be used

to ensure the Company is not itself directly at risk for the costs of

construction delays.

• The Company’s investment policy limit on the level of exposure

to development and construction projects also helps mitigate the

effect of this risk, by ensuring it remains a relatively small proportion

of the total invested portfolio.

Feedstock and commodity

prices

Risks relating to fluctuations

in pricing of commodity and

feedstock, unhedged energy

price exposures or regulated

revenues.

1. The Company may face

feedstock shortages, leading

to higher production costs or

the inability to produce the

required amount of energy

using desired inputs.

2. Prices for energy inputs

may also rise with changing

market conditions, which

could affect economic

returns.

• At the stage of prospective investment due diligence, careful

consideration is given to any potential exposures relating to future

feedstock availability or prices, alternative sources, and any reliance

on energy pricing or subsidies.

• The Company has the capacity to purchase entities to integrate the

supply chain and deliver cost savings on feedstock supplies to key

assets.

• The Investment Manager reviews market prices, where residual

market-related exposures may remain unhedged, with a view to

reducing such pricing exposures and volatility. In general, the

Company seeks to pass material price risk on to Counterparty so

there is no direct impact on the Company.

Demand Risk

Risk that lower demand from

offtaker reduces revenues.

• The Company targets contracted revenues with protection

against demand risk. Where there is exposure to demand risk, the

Manager seeks to manage this through various measures such as

diversification across multiple offtakers (e.g. RED-Rochester), right of

first dispatch (e.g. Primary Energy) and/or ensuring that demand of

the offtaker significantly exceeds capacity.

Regulatory,

Reputational

and

Compliance

Same

ESG compliance of

counterparties

Risk that assets or partners are

not adhering to relevant ESG

policies and requirements (e.g.

labour laws).

• The Investment Manager undertakes ESG onboarding and uses

checklists for all new investments to ensure compliance with its

ESG framework and standards.

• For all greenfield opportunities, or where contracts can be

amended, appropriate compliance and monitoring requirements will

be included.

• Where existing contracts cannot be amended, the Investment

Manager will use best endeavours to ensure compliance and

regular monitoring of counterparties.

• The Investment Manager works with direct counterparties to

understand and target compliance with best practices.

3.2 Risk Management Framework

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 71

OVERVIEW

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STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Risk Type

Risk

Movement

Risk Description Mitigation

Operations

Increase

Cyber Risk

The Company’s range of

different assets may be exposed

to a number of cyber and/

or fraud-related risks, which

require a tailored mitigation plan

according to the specifics of

each portfolio asset.

Increased risk due to Russian

hostility towards Western

corporations.

• Cyber security controls are operated by service providers and other

contractors in respect of portfolio assets. The controls of service

providers are monitored /reviewed by the Investment Manager

periodically and the Audit and Risk Committee.

• Appropriate security access controls are put in place at host sites,

reflecting the essential nature of energy services provided to such

hosts.

• The Investment Manager has undertaken a third-party review of

cyber risk across key projects. While no red flags were identified,

recommendations are being actioned by the Investment Manager’s

asset management team.

Macro-

economic

Increase

Corporation tax

Changes to corporate rules

could increase tax payments.

• Comprehensive tax and structuring advice are taken prior to making

new investments, with the aim of structuring these appropriately,

within the overall low-risk approach to taxation of the Company.

• The Company can use intragroup profits and losses efficiently,

allowing it to materially negate the rise in UK corporation tax rates.

• Significant new investment in the USA provides an opportunity for

optimising structuring and undertaking various consolidations that

may reduce the impact of rising corporation tax rates.

• The Company, by virtue of being a HMRC-approved investment

trust, can potentially utilise interest streaming to reduce the overall

impact of rising corporation tax rates across the portfolio.

Interest Rates Rises

Risk of pricing impact to current

assets and future deals.

• Risks are mitigated by the Company having a globally diversified

portfolio.

• A credit facility reduces the risk of the Company having to exit an

asset at an unfavourable price to meet potential funding demands.

Inflation

Inflation may be higher or lower

than base case expectations.

• The Investment Manager continues to monitor the effect of inflation

on a regular basis through detailed stress testing and sensitivity

analysis.

• The Investment Manager is building the portfolio to mitigate against

material changes to inflation and it is currently positive correlated to

inflation. Further mitigation is inherent in the recontracting feature

within some of the assets, which should allow for incorporation of

inflationary impacts at the time of recontracting.

Liquidity

Same

Risk that the Company is unable

to meet short-term liability and

financial demands.

• The Investment manager manages the cash portion of the portfolio

to ensure there is sufficient cash to meet short-term demand.

• Additional liquidity is available via a credit facility.

• Investment Manager may also consider strategic disposals when it

can maximise value for shareholders.

Financial/

Market

Increase

Risk of share price continuing to

trade at a discount to NAV.

• Enhanced disclosure to investors through a Capital Markets Day

in March 2023 and providing additional level of disclosure in this

Annual Report

• Company has implemented a buyback plan in Q2 2023 and will

continue to review this against the wider market movements.

• Regular interaction with shareholders via the Investment Manager

and meetings with the Chair.

Emerging Risks

The Company’s Board, along with the Investment Manager, utilises the Risk Management Framework to assess and identify new

risks that are pertinent to the Company. The Company monitors not just existing risks but also these emerging risks, which may or

may not crystallise over the medium-to-long term.

72 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Risk Type

Risk

Movement

Risk Description Mitigation

Operations

Increase

The Company plans to hold

energy-efficiency assets

generating cashflows over the

long term. However, its assets

may be impacted through

technological changes, or

otherwise impacted through

accelerated international

timeframes to reach net-zero

carbon emission targets.

• The Board and Investment Manager monitor portfolio technology

diversification and any environmental-related risks, including

consideration of the timeframe within which natural gas

cogeneration assets will remain acceptable as a target technology.

• Such investments achieve a high degree of combined thermal

and electrical efficiency, making important and demonstrable

contributions to the transition towards net-zero status.

• Due diligence on prospective investments includes, as applicable,

consideration of the adaptability and flexibility of prospective assets

to achieve progressive environmental impact targets – with a view to

a potential longer-term transition to alternative fuel sources such as

biogas and hydrogen.

Investment

Increase

Increased investor activity and

competition could impact ability

to acquire projects at desired

returns.

• While the sectors that the Investment Manager invests in are

relatively niche, compared to utility-scale renewables, more players

are starting to invest in these sectors, resulting in increased

competition. This may result in a downward pressure on returns on

new investment opportunities. Conversely, this would have a positive

impact on discount rates for the existing portfolio.

• Risk can be managed through focusing on our own network of

developers, partners and offtakers, and ensuring a strategic angle to

our investment.

Specific Event Risks

COVID-19

Overall, Covid-19 did not have a material

impact on the majority of the portfolio

during the previous twelve months, as

it had in the preceding period. With

the majority of offtakers operating as

essential industries, the operation of

portfolio projects has broadly adapted

well to the pandemic environment.

Brexit

While the Company has not

experienced any material impact from

Brexit, the Investment Manager will

continue to monitor any developments

in the relationship between the EU

and the UK, both in the near term as

businesses adjust, and over the longer

term, as UK and EU regulation may

diverge over time.

Ukraine War

The impact of the conflict is evolving.

While the Company does notanticipate

currently direct operational disruption

to the portfolio (primarily gas supply),

this situation remains closely

monitored. The Company and its

portfolio are exposed indirectly

through macroeconomic volatility,

impacting interest rates, inflation and

commodity prices, all of which has

impacted the financial performance of

the Company, as described elsewhere.

The Company notes the heightened

risk to businesses regarding

cybersecurity, and has reflected that

through the increase in the cyber risk

status.

The Investment Manager continues

to assess the impact of sanctions,

which are themselves evolving,on

the portfolio supply chain and

stakeholders, and will continue to

work with the project companies to

ensure compliance with all applicable

regulations.

Climate-Related Risks

Climate-related and other ESG

considerations are reviewed, analysed

and managed as an integral part of the

Company’s overall risk management

procedures for investment appraisal,

due diligence and asset management.

3.2 Risk Management Framework

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 73

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

ADDITIONAL INFORMATION

Viability Assessment Period

The Directors have assessed the

prospects of the Company over a

five-year period to 31 March 2028.

Consistent with prior years, the

Directors have determined that

five years is an appropriate period

over which to provide this viability

statement, as this period accords with

the Company’s business planning

exercises and is appropriate for the

investments owned by the Company

and the nature of the Company.

Assessment Process

In making this statement, the Directors

have considered the resilience of

the Company, taking account of its

current position, the principal risks

facing the business in severe but

plausible downside scenarios, and the

effectiveness of any mitigating actions.

The Company benefits from a

majority of investments that have a

high degree of contracted long-term

cashflows, and a set of risks that

can be identified and assessed and

would not be expected to change

materially from one period to the next.

The investments are each supported

by detailed financial models, and

investments that have financing in

place have done so on a non-recourse

basis to the Company. The Directors

believe that the diversification within

the portfolio, of predominantly

operational investments, helps to

withstand and mitigate the identified

risks the Company may face.

The Investment Manager prepared,

and the Directors reviewed, five-

year cashflow projections as part

of business planning – including as

part of the approval process of the

Company’s budget and business

plan – and undertook to approve

dividends on a quarterly basis after

reviewing medium-term cashflow

projections. The projections consider

cashflows, dividend cover, investment

policy compliance and other key

financial indicators over the period.

These projections are based on the

Investment Manager’s expectations

of future asset performance, income

and costs, and are consistent with the

methodology applied to provide the

valuation of the investments during

the year.

The Investment Manager provided

analysis on these projections at

various points through the year,

considering the potential impact of

the Company’s principal risks actually

occurring in severe but plausible

downside scenarios.

The Audit and Risk Committee had the

opportunity to review and challenge

the scenario analysis, which included

the potential adverse impact of the

scenarios detailed below on the

Company’s projected near-term,

medium and long-term cashflows,

and the associated effect on ability to

pay dividends, ability to settle ordinary

liabilities, and on earnings and the

NAV.

Scenarios Reviewed and

their Impact

The Investment Manager selected

these scenarios on the basis that each

could reasonably be assumed to be a

plausible but severe impact caused by

market factors, including the knock-

on effect of the Covid-19 pandemic

and global recession, affecting the

Company directly or indirectly:

■ inability to refinance third-party

debt, resulting in a reduction of

distributions from investments

– which in turn places the

Company’s ability to cash cover

(APM)

its dividends under pressure in

specifically identified future years;

■ a scenario that combined,

during the same period, major

challenges at project level,

including slower than projected

deployment of solar and storage

projects at Onyx, removal of an

accretive cogeneration project at

RED-Rochester, and lower than

expected revenues resulting from

recontracting at Cokenergy. The

combined effect resulted in a

significant assumed permanent

loss in revenues and approximately

a 15-20% reduction in the Portfolio

Valuation

(APM)

and therefore NAV of

the Company;

■ a scenario that reviewed a sharp

one-off rise of c.10% in US federal

tax rates, although due to mitigants

available the impact on the

Portfolio Valuation

(APM)

was

c. 1%; and

■ a scenario that determined the

extent of a rise in EU-ETS costs of

over 60% in the near terms, which

would cause sufficient impact to

put at risk the Company’s ability to

cash cover its dividends in full

The Audit and Risk Committee

reviewed and challenged the

Investment Manager on each of the

scenarios presented. This included

reviewing the likelihood of the risks

of the scenarios materialising and

considering the potential mitigants

that the Investment Manager

could apply to reduce any potential

downside risk. The Audit and Risk

Committee concluded that the

scenarios, each prepared individually,

demonstrated good resilience of the

Company against adverse factors

impacting its portfolio. The Investment

Manager also provided the Audit and

Risk Committee with a severe scenario

that calculated the extent of the loss

in revenue required to threaten the

Company’s solvency. The outcome of

this scenario provided comfort that the

Company should remain viable over

the period assessed.

Confirmation of viability

Based on the reviews conducted

throughout the year, the Directors

confirm that they have a reasonable

expectation that the Company will be

able to continue in operation and meet

its liabilities as they fall due over the

period to 31 March 2028.

On behalf of the Board

Tony Roper,

Chair

3.3 Viability Statement

BOARD AND

GOVERNANCE

Pictured: RED-Rochester site

74 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 75

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

4.1 Investment Policy and Approach

Summary of the

Investment Policy

• The Company seeks to achieve its

investment objective by investing

principally in a diversified portfolio of

investments with high quality, private

and public sector counterparties.

The contracts governing these

investments typically entitle the

Company, on the whole, to receive

stable and predictable cashflows.

The Company’s returns are derived

from contractual payments by

counterparties in respect of each

relevant investment.

• Whilst the Company invests

predominantly in operational

investments, the Company may

under certain circumstances invest

while such investments are in a

construction or development phase.

In addition, the Company may, to a

limited extent, invest in developers,

operators or managers of energy

efficiency infrastructure investments.

• In respect of the investment

portfolio, the Company seeks to

diversify its subcontracting exposure

by contracting, where commercially

practicable, with a range of different

engineers, manufacturers or other

service providers.

• Investments may be acquired

individually or as a portfolio.

TheCompany may also invest jointly

with a co-investor. The Company aims

to achieve diversification by investing

in a range of different energy efficiency

technologies and contracting with a

wide range of counterparties.

• Though the Company initially

focused its attention on investing

in the UK, over time the Company

has expanded to invest in projects

in Europe, North America, and the

Asia-Pacific region.

• In pursuing its investment policy,

the Company will seek to target

sustainable investments, for

example, by making investments

that contribute to GHG emission

reductions.

The full investment policy can be found

on the Company’s website.

Gearing

The Company maintains a

conservative level of aggregate

gearing

(APM)

in the interests of capital

efficiency, to enhance income returns,

long-term capital growth and capital

flexibility. The Company’s target

medium-term gearing

(APM)

is 35% of

Net Asset Value (NAV)

(APM)

, calculated

at the time of borrowing (“structural

gearing”).

The Company may also enter

borrowing facilities on a short-term

basis to finance acquisitions

(“acquisition finance”), provided that

the aggregate consolidated borrowing

of the Company and the investment

portfolio, including any structural

gearing

(APM)

, shall not exceed 65%

of NAV, calculated at the time of

borrowing. The Company intends to

repay any acquisition finance with the

proceeds from capital raisings in the

short –to medium term.

Structural gearing

(APM)

and acquisition

finance are employed either at the

level of the Company, at the level of

the relevant investment, or at the level

of any intermediate wholly owned

subsidiary of the Company. Structural

gearing

(APM)

and acquisition finance

primarily comprise bank borrowings,

though small overdraft facilities may

be used for flexibility in corporate

transactions.

Use of Derivatives

The Company may use derivatives

for efficient portfolio management

but not for investment purposes. In

particular, the Company may engage

in full or partial interest rate hedging

or otherwise seek to mitigate the risk

of interest rate increases and full or

partial foreign exchange hedging to

mitigate the risk of currency inflation.

The Company does not typically

enter into hedging contracts and

other derivative contracts directly

but may do so via its subsidiaries

when they are available in a timely

manner and on terms acceptable to

it. The Company reserves the right to

terminate any hedging arrangement in

its absolute discretion.

Cash Management

Whilst it is the intention of the

Company to be fully or near

fully invested in normal market

conditions, the Company may

hold cash on deposit and invest in

cash-equivalent investments, which

could include short-term investments

in money-market type funds and

tradeable debt securities.

Investment Objective

The Company’s investment objective is to generate an attractive total return

for investors comprising stable dividend income and capital preservation,

with the opportunity for capital growth.

76 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

4.2 Board of Directors

Appointed: 12 October 2018

Tony started his career as a structural

engineer with Ove Arup and Partners in

1983. In 1994 he joined John Laing plc

to review and make equity investments

in infrastructure projects both in the

UKand abroad and then in 2006 he joined

HSBC Specialist Investments to be the

fund manager for HSBC Infrastructure

Company Limited (now HICL Infrastructure

plc). In 2011, Tony was part of the senior

management team that bought HSBC

Specialist Investments from HSBC,

renaming it InfraRed Capital Partners.

Tony was a managing partner and a senior

member of the infrastructure management

team at InfraRed Capital Partners until

June 2018, during which time he oversaw

the successful launch of The Renewables

Infrastructure Group on the London Stock

Exchange.

Tony is the chair of abrdn European

Logistics Income plc.

Tony has a master’s degree in engineering

from the University of Cambridge and is

an Associate Chartered Management

Accountant (“ACMA”).

Appointed: 12 October 2018

Helen joined Climate Group in March 2017

as Chief Executive Officer. Climate Group

is an international non-profit organisation

with a mission to drive climate action, fast.

Climate Group builds networks of leading

governments and businesses working on

issues such as renewable electricity and

zero carbon steel, to shape markets and

policy. Helen also sits on the board of the

We Mean Business Coalition.

Prior to joining the Climate Group, Helen

worked at Forum for the Future where

she founded the organisation’s US office.

At Forum, Helen led work with large US

corporations such as Target, Walmart,

Nike, Gap and Levi Strauss & Co. to

solve complex sustainability challenges.

Helen joined Forum from Médecins

Sans Frontières where she worked on

humanitarian missions across a number of

conflict zones.

Helen qualified as a Chartered Accountant

with Deloitte and has an undergraduate

degree from the University of Cambridge,

and a master’s degree from the University

of London. In 2022 Helen was awarded an

OBE for services to the climate.

Anthony (Tony) Roper

Independent Non-Executive Chair,

Nomination Committee Chair

Helen Clarkson OBE

Independent Non-Executive Director,

Management Engagement Committee

Chair

The Directors are of the opinion

that the Board as a whole has

an appropriate balance of skills,

experience and diversity.

As at the date of this

Annual Report, the

Board consists of five

Directors who have

complementary and

relevant skills and

backgrounds.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 77

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Appointed: 21 October 2020

Emma is an experienced director,

having worked in both the UK and North

America. She has broad capital markets

and significant international investment

expertise, gained as both an executive

and non-executive director. From 2002

to 2013 Emma was a founding partner

of Oriel Securities, which was sold to

Stifel Corporation, and in her early career

she worked for HSBC James Capel and

Schroders.

Emma currently serves as a non-executive

director of St James’s Place plc and of

IA Financial Group (listed on the TSX in

Canada). She is also a director of privately

owned ED&F Man Holdings and serves

on the board of Claridge Inc., a private

investment firm, and on the board of one

of its largest individual investments. Emma

has recently joined the board of NM

Rothschild and Sons Limited.

Emma has a master’s degree in Latin and

Greek from the University of Oxford.

Emma Griffin

Independent Non-Executive Director,

Remuneration Committee Chair

Appointed: 12 October 2018

Chris has over 40 years’ experience in

projects, infrastructure and environmental

finance and economics. He spent the

majority of his career to date at the European

Investment Bank (EIB), heading the

infrastructure and environmental investment

funds business from 2005 to 2017. In this

capacity, he had pan-European responsibility

for a diverse portfolio of activities, including

equity funds for infrastructure and clean

energy, energy efficiency, carbon finance,

natural capital and structured finance.

From 2000 to 2005 he led the lending

operations team responsible for EIB’s

financing in the transport and infrastructure

sectors in Spain, closing €4-5bn of financing

annually for Europe’s largest national

infrastructure programme, much of it in

public-private partnership form. He spent

the 1990s in similar jobs throughout central

Europe, Finland and Greece, and the 1980s

in Africa and the Caribbean. Prior to his time

at EIB he worked for the Lesotho National

Development Corporation, the European

Commission and Lazard Brothers.

Chris also serves as a non-executive director

on a number of private equity and debt

funds pursuing ESG and impact strategies in

Europe, Latin America, Africa and Asia. Heis

a member of various advisory committees

including that for the Climate Bond Initiative

and the Organisation for Economic

Co-operation and Development (“OECD”)

Centre for Green Finance & Investment.

Chris holds degrees in Economics and

Management from the University of Durham.

Appointed: 1 January 2022

Sarika is an experienced business

leader in amixture of public and private

organisations, and has worked as a

senior corporate finance professional at

ZeusCaps (aprincipal investment and

advisory platform focused on infrastructure

and related sectors operating in India,

Europe and the Middle East) and Grant

Thornton.

Sarika is the Chair of abrdn Equity

Investment Trust plc, and is a non-executive

director of and chairs the audit committees

at Foresight Forestry Fund plc and Sequoia

Economic Infrastructure Income Fund

Limited. Sarika is the Chair of Action for

Children and is a board member of the

Office for Nuclear Regulation where she

chairs the Audit, Risk and Assurance

Committee.

Sarika is a Chartered Accountant and

a Chartered Marketer and is a double

graduate in Law and Commerce.

Christopher (Chris) Knowles

Senior Independent Non-Executive

Director

Sarika Patel

Independent Non-Executive Director,

Audit and Risk Committee Chair

78 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

4.3 Report of the Directors

The Directors are pleased to present the Annual Report

for the year ended 31 March 2023. In accordance with

the Companies Act 2006 (as amended), the Listing Rules

and the Disclosure Guidance and Transparency Rules,

the Corporate Governance Statement, the Directors’

Remuneration Report, the Audit and Risk Committee

Report, the Nomination Committee Report and the

Statement of Directors’ Responsibilities should be read in

conjunction with one another and the Strategic Report.

As permitted by legislation, some of the matters normally

included in the Directors’ Report have instead been

included in the Strategic Report, as the Board considers

them to be of strategic importance. Therefore, a review of

the business of the Company, recent events and outlook

can be found in Section 2, Strategic Report: The Company,

along with information regarding environmental, social and

governance issues.

Corporate Governance

The Company’s Corporate Governance Statement is set out

in Section 4.4, Corporate Governance Statement and forms

part of this report.

Details regarding independent professional advice and

insurance are set out in Section 4.4, Corporate Governance

Statement.

Principal Activity

The Company is a closed-ended UK investment trust

that invests in energy efficiency infrastructure projects.

Further details can be found in Section 2, Strategic Report:

TheCompany and Section 3, Strategic Report: Portfolio

Review. The Directors do not anticipate any change in the

principal activity of the Company in the foreseeable future.

Investment Trust Company Status

The Company has been approved as an investment trust

under Sections 1158/1159 of the Corporation Tax Act 2010.

The Company has continued to meet relevant eligibility

conditions and ongoing requirements as an investment

trust, in particular that the Company must not retain more

than 15% of its eligible investment income. The Directors

are of the opinion, following advice from the Company

Secretary and Administrator, that the Company continues

to conduct its affairs as an Approved Investment Trust

under the Investment Trust (Approved Company) (Tax)

Regulations 2011.

Non-Mainstream Pooled Investments

As a UK investment trust, the Company’s shares are

excluded from the restrictions in the FCA Rules on

the marketing of non-mainstream pooled investments

(“NMPIs”) to ‘ordinary retail clients’ and the Company is

accordingly not considered to be an NMPI. The Company

currently conducts its affairs, and intends to continue to do

so for the foreseeable future, in order that its shares can

be recommended by a financial adviser to ordinary retail

investors in accordance with the FCA Rules on NMPIs.

As an equity security admitted to listing on the premium

listing segment of the Official List of the FCA and to trading

on the Main Market of the London Stock Exchange, the

ordinary shares of the Company are expected to qualify as

a readily realisable security. Accordingly, it will not be either

a (i) speculative illiquid security; (ii) a non-mass market

investment; or (iii) a restricted mass market investment.

Directors

The Directors in office at the date of this report and their

biographical details are shown in Section 4.2, Board of

Directors.

Details of the Directors’ terms of appointment can be

found in Section 4.4, Corporate Governance Statement.

The beneficial interest of the Directors and their connected

persons in the ordinary shares of the Company are set out

in Section 4.7, Directors’ Remuneration Report.

The Investment Manager

The Company and the Investment Manager entered into

the Investment Management Agreement pursuant to which

the Investment Manager has been given responsibility,

subject to the overall supervision of the Board, for active

discretionary investment management of the portfolio

in accordance with the Company’s investment objective

andpolicy.

The Investment Manager is authorised and regulated as an

‘alternative investment fund manager (“AIFM”) by the FCA

and, as such, is subject to the FCA rules in the conduct of

its investment business.

As the entity appointed and responsible for risk

management and portfolio management, the Investment

Manager is the Company’s AIFM. The Investment Manager

has full discretion under the Investment Management

Agreement to make investments in accordance with the

Company’s investment policy. This discretion is, however,

subject to:

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 79

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

i. the Board’s ability to give instructions to the Investment

Manager from time to time; and

ii. the requirement of the Board to approve certain

investments where the Investment Manager has a

conflict of interest in accordance with the terms of the

Investment Management Agreement.

The Investment Manager also has responsibility for

financial administration and investor relations, advising

the Company and its Group in relation to the strategic

management of the portfolio, advising the Company in

relation to any significant investments and monitoring the

Company’s funding requirements.

The Board keeps the performance of the Investment

Manager under continual review. The Directors believe that

the continuing appointment of the Investment Manager, on

the agreed terms, is in the best interest of the Company and

its shareholders as a whole.

Further information on the SDCL group can be found on the

website: https://www.sdclgroup.com/

Articles of Association

The Company’s Articles of Association set out its internal

regulations and cover the rights of the shareholders, the

appointment of Directors and the conduct of the Board and

general meetings. Copies of the Articles of Association are

available upon request from the Company Secretary.

The Articles of Association may be amended by the

shareholders of the Company by special resolution

(requiring a majority of at least 75% of the persons voting on

the relevant resolution).

AIFM Requirements

AIFM requirements have continued to apply since 1 January

2021, through existing transposed rules replicating EU

AIFM Directive (2011/611/EU), within the rules of the UK’s

FCA. AIFM requirements impose detailed and prescriptive

obligations on fund managers, including prescriptive rules

on measuring and capping leverage, the treatment of

investors, liquidity management, the use of depositaries and

cover for professional liability risks. The AIFM requirements

further impose conditions on the marketing of entities such

as the Company to investors in the UK.

Independent Auditor and Disclosure of

Information

PricewaterhouseCoopers LLP has expressed its willingness

to continue in office as independent auditor of the

Company, and resolutions for its re-appointment and to

authorise the Audit and Risk Committee to determine its

remuneration will be proposed at the forthcoming AGM.

Further information about the Company’s independent

auditor, including tenure, can be found in Section 4.6, Audit

and Risk Committee Report.

Financial Risk Management

The principal risks and uncertainties facing the Company

are set out in Section 3.2, Risk Management Framework.

Information about the Company’s financial risks and policies

for managing these risks are set out in Note 13 to the

financial statements.

Foreign Account Tax Compliance Act

(“FATCA”) and the OECD Common

Reporting Standards (“CRS”)

The Board, in conjunction with the Company’s service

providers and advisers, will ensure the Company’s

compliance with FATCA and CRS requirements to the

extent relevant to the Company.

Share Capital

The issued share capital of the Company as at 31 March

2023 was 1,108,709,053 ordinary shares of £0.01 each and

the total voting rights of the Company were 1,108,709,053.

As at 21 June 2023, being the last practicable date prior to

the publication of this Annual Report, the issued share capital

of the Company was 1,108,709,053, with 15,503,104 shares

held in treasury and thereby leaving a total voting rights

figure of 1,093,205,949. A share repurchase programme was

initiated following year end, which has resulted in the lower

total voting rights figure as at 21 June 2023.

Details of movements in share capital during the year are

shown in Note 12 to the financial statements.

The Company has one class of ordinary shares which carry

no rights to fixed income and have no restrictions attached

to them. Shareholders are entitled to all dividends paid by

the Company and, on a winding up, provided the Company

has satisfied all of its liabilities, the shareholders are entitled

to all of the surplus assets of the Company.

80 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Shareholders are entitled to attend and vote at all general

meetings of the Company and, on a poll, to one vote for

each ordinary share held.

Treasury Shares

The Companies Act allows companies to hold shares

acquired by way of market purchase as treasury shares,

rather than having to cancel them. This gives the Company

the ability to re-issue ordinary shares quickly and cost

effectively, thereby improving liquidity and providing the

Company with additional flexibility in the management of its

capital base. Ordinary shares will not be sold from treasury

at a price less than the (cum income) NAV per existing

ordinary share at the time of their sale. No ordinary shares

were bought back during the year ended 31 March 2023,

however, following the year end and as at 21 June 2023,

15,503,104 ordinary shares were bought back to be held in

treasury.

Share Repurchases and Discount

Management

The Company may seek to address any significant discount

to NAV at which its ordinary shares may be trading by

purchasing its own ordinary shares in the market on an ad

hoc basis. As outlined above, no ordinary shares were bought

back by the Company during the year to 31 March 2023.

As announced on 3 April 2023, the Company commenced

a share repurchase programme following the year end.

As at 21 June 2023, being the last practicable date prior

to the publication of this Annual Report, the Company

has repurchased 15,503,104 ordinary shares to be held in

treasury.

At the AGM held on 12 September 2022, the Company

was granted the authority to purchase up to 14.99% of the

Company’s ordinary share capital in issue at the date that

the AGM notice was published, amounting to 148,444,171

ordinary shares.

The maximum price (exclusive of expenses) which may

be paid for an ordinary share must not be more than the

higherof:

(i) 5% above the average of the mid-market values of the

ordinary shares for the five business days before the

purchase is made; or

(ii) the higher of the price of the last independent trade and

the highest current independent bid for the ordinary

shares.

Ordinary shares will be repurchased only at prices below

the prevailing NAV per ordinary share, which should have

the effect of increasing the NAV per ordinary share for

remaining shareholders.

It is intended that a renewal of the authority to make market

purchases will be sought from shareholders at each AGM

of the Company and authority for the Company to purchase

up to 163,871,572 ordinary shares (subject to a maximum

of 14.99% of the ordinary shares in issue, excluding those

shares held in treasury, at the date of the AGM) will be

sought at the forthcoming AGM. Purchases of ordinary

shares will be made within guidelines established from time

to time by the Board. Any purchase of ordinary shares would

be made only out of the available cash resources of the

Company. Ordinary shares purchased by the Company may

be held in treasury or cancelled.

Purchases of ordinary shares may be made only in

accordance with the Companies Act, the Listing Rules, and

the Disclosure Guidance and Transparency Rules.

Investors should note that the repurchase of ordinary

shares is entirely at the discretion of the Board and no

expectation or reliance should be placed on such discretion

being exercised on any one or more occasions or as to the

proportion of ordinary shares that may be repurchased.

Significant Voting Rights

As at 31 March 2023, the Company is aware or had been

informed of the following notifiable interests in the voting

rights of the Company, in accordance with Disclosure

Guidance and Transparency Rule 5.1.2:

Number of

ordinary

shares held

% of voting

rights

M&G plc 135,037,247 12.18

Investec Wealth & Investment

Limited

133,128,884 12.01

BlackRock, Inc. 99,410,025 10.03

Liontrust Investment Partners LLP 55,271,080 4.99

The Company has been informed of the following changes

to notifiable interests between 31 March 2023 and 21 June

2023, being the last practicable date prior to the publication

of this Annual Report:

Number of

Ordinary

shares held

% of voting

rights

M&G plc

135,123,811 12.36%

4.3 Report of the Directors

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 81

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Dividends to Shareholders

The Company’s policy is to pay interim dividends on a

quarterly basis so typically there is no final dividend payable.

The total aggregate interim dividends attributable to

shareholders for the year amounted to £62.0 million (2022:

£44.2 million).

Details of the interim dividends paid during the year under

review are noted in the table below:

Dividend Year ended

Dividend per

Fourth interim dividend 31 March 2022 1.405p

First interim dividend 31 March 2023 1.5p

Second interim dividend 31 March 2023 1.5p

Third interim dividend 31 March 2023 1.5p

On 7 June 2023, the Board declared a fourth interim

dividend of 1.5p per share with respect to the year ended

31March 2023, payable on 30 June 2023.

Going Concern

The Directors have considered the following current matters

alongside the regular cashflow and business activities in

assessing that it is appropriate to prepare the financial

statements on a going concern basis:

The Articles of the Company provide that a continuation

vote be put to shareholders at the upcoming AGM to be

held in September 2023.

The Directors recognise the importance of the continuation

vote mechanism for shareholders and believe that there

is no fundamental concern with the Company’s prospects

and its ability to deliver value for shareholders and therefore

recommend the shareholders vote in favour.

The resolution requires a simple majority to pass, and

Directors and Investment Manager are confident the vote will

be achieved. This is based on positive feedback from recent

meetings held by the Chair or the Investment Manager with

several major shareholders alongside discussions with the

Company’s Broker who has indicated their confidence the

shareholders will vote in favour of continuation. The Company

also has a strong track record of shareholder support through

consistently oversubscribed capital raises since IPO and

achieving overwhelming majority (over 90%) support for all

resolutions at all its general meetings to date. The Directors

believe the Company is well positioned, with substantial

scale and a diversified portfolio able to deliver attractive

returns. Should the resolution not pass, the Directors note

that this would not automatically result in the Company not

continuing as a going concern. The requirement from the

Articles of the Company would be for the Directors to put

forward proposals within six months of the vote. In practice,

the Directors would consider that this would be for a

reconstruction, reorganisation or winding up.

Although the shareholder vote on continuation is outside of

the control of the Company, the Directors remain confident

that the Company’s continuation vote will be passed and

accordingly, having considered this carefully believe that it

is appropriate to continue to adopt the going concern basis

in preparing the financial statements.

In light of the events in Ukraine, the Board and the Investment

Manager have been monitoring its continual development

and performed an assessment of the current exposure to

Ukraine, Russia and Belarus (the “Region”) and the potential

impact to the Company’s and the portfolio companies’

operations. The Company is a UK registered public company.

Currently neither the Company nor the Investment Manager

conducts business and operations in the Region; therefore

the Company is not subject to any direct impact by this event.

With regards to the Company’s investments, none of

the portfolio companies have business operations or

client / supplier relationships in the Region. Through

this assessment, the Board and the Investment Manager

duly considered any restriction imposed by the relevant

sanctions, and its impact on the portfolio companies and

have concluded there are no direct material implications.

The global impact of the Russian invasion of Ukraine on

the oil and gas prices is a significant contributor to inflation

and cost of living rises globally at present. The Company

has carried out an assessment of the impact of the global

rise in inflation on its portfolio and has concluded that,

overall, there is a positive correlation to inflation and

there is no adverse impact. The Directors are satisfied

that the Company has sufficient resources to continue in

operation for the foreseeable future, a period of not less

than 12 months from the date of approval of the financial

statements. The Directors have reviewed the Company’s

financial projections and cashflow forecasts, including

the potential impact from this and believe, based upon

those projections and forecasts and various risk mitigation

measures in place, that it is appropriate to prepare the

financial statements on a going concern basis.

The Company, through its investment in Holdco, benefits

from a portfolio of investments that have a range of

long-term contracts with a diversified set of counterparties

82 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

across multiple sectors and jurisdictions. A key risk facing

the Company is that counterparties to the investments

may not be able to make their contractual payments. The

Directors have reviewed a cashflow forecast to June 2024,

taking into consideration potential changes in investment

and trading performance and applying a 10% reduction

in income to test the resilience of cashflows in the near

term. The forecast results in positive cashflows for the

foreseeable future that meets the liabilities as they fall due.

They also reviewed a severe downside scenario where

the Company receives no income from its investment for

the next 12 months but continue with existing committed

payments for running the Company. Even under this stress

scenario, the Company would have sufficient cash reserves

to continue as a going concern. As at 31 March 2023, the

Company’s net assets were £1,125 million, including cash

balances of £0.3million.

Further amounts of cash are held by the Company’s direct

and indirect subsidiaries (including Holdco which has c.£62

million at the year-end), which are sufficient to meet current

obligations as they fall due. The major cash outflows of

the Company are the payment of dividends and payments

relating to the investment in new assets, both of which are

discretionary.

The Company’s single subsidiary, Holdco, has a RCF that

has adequate headroom in its covenants that have been

tested for historic and forward interest cover and loan to

value limits. As at 31 March 2023, the facility was undrawn.

The Company is a guarantor to the RCF but has no other

guarantees or commitments.

The Directors have considered the upcoming continuation

vote, impact from the Ukraine conflict and the cost of living

crisis, and relevant financial projections and cashflow

forecasts.

The Directors are satisfied that the Company has sufficient

resources to continue in operation for the foreseeable future,

a period of not less than 12 months from the date of approval

of the interim financial statements, and that it is appropriate

to prepare the financial statements on a going concern basis.

Directors’ Responsibilities Pursuant to

Section 172 of the Companies Act 2006

The Directors fulfilled their duties under Section 172 of the

Companies Act 2006 to act in good faith and to promote the

success of the Company for the benefit of shareholders as

a whole. See Section 2.6, Stakeholders and Section 172 for

further details.

Employees and Officers of the Company

The Company does not have any employees and therefore

employee policies are not required. The Directors of the

Company who were in office during the year and up to

the date of signing the financial statements are listed in

Section4.2, Board of Directors.

Greenhouse Gas Emissions

Information about the Company’s greenhouse gas

emissions are set out in Section 3.1, ESG.

Political Donations

The Company made no political donations during the year

or the preceding year.

Anti-bribery and Tax Evasion

The Company is committed to ensuring that the Company,

its subsidiaries, partners, agents and anyone contracted to

it, including by the Company’s Investment Manager and key

service providers, complies with the requirements of the UK

Bribery Act 2010 or equivalent legislation in other jurisdictions.

The Criminal Finances Act (“CFA”) (Commencement No. 1)

Regulations 2017 (SI 2017/739) brought Part 3 of the CFA,

the corporate offences of failure to prevent facilitation of tax

evasion, into force on 30 September 2017. The Company does

not tolerate tax evasion in any of its forms in its Group or the

project companies in which it invests. The Company complies

with the relevant UK law and regulation in relation to the

prevention of facilitation of tax evasion and supports efforts to

eliminate the facilitation of tax evasion worldwide. It also works

to make sure its business partners share this commitment.

The Company’s Anti-Bribery and Criminal Finances policy is

published on the Company’s website. These statements are

reviewed annually by the Board.

Requirements of the Listing Rules

Listing Rule 9.8.4 requires the Company to include certain

information in a single identifiable section of the Annual

Report or a cross-reference table indicating where the

information is set out. The Directors confirm that there are no

matters requiring disclosure in relation to Listing Rule 9.8.4.

The Report was approved by the Board on 28 June 2023

and signed on its behalf by:

Tony Roper

Chair

4.3 Report of the Directors

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 83

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

4.4 Corporate Governance Statement

This Corporate Governance statement

forms part of the Directors’ Report.

The Board of Directors has considered the Principles and

Provisions of the Association of Investment Companies

(“AIC”) Code published in February 2019. The AIC Code

addresses the Principles and Provisions set out in the

UK Corporate Governance Code 2018 (the “UK Code”)

published in July 2018, as well as setting out additional

Provisions on issues that are of specific relevance to the

Company.

Statement of Compliance with the AIC Code

The Board recognises the importance of sound corporate

governance culture that meets the requirements of the UK

Listing Authority and the AIC Code.

As an AIC member, the Company has considered the

Principles and Provisions of the AIC Code, which addresses

the Principles and Provisions set out in the UK Code. The

Board considers that reporting against the Principles and

Provisions of the AIC Code, which has been endorsed by

the Financial Reporting Council (“FRC”), provides more

relevant information to shareholders. The AIC code can be

found at www.theaic.co.uk and the UK Code can be found at

www.frc.org.uk.

The Company has complied with the Principles and

Provisions of the AIC Code. In respect of the UK Code, the

following items are not considered to be relevant (and so

are not reported on further) due to the Company being an

externally managed investment company with no executive

directors or employees:

■ The role of the chief executive;

■ Executive Directors’ remuneration; and

■ The need for an internal audit function.

The AIC Code includes an explanation of how the AIC Code

adapts the Principles and Provisions set out in the UK Code

to make them relevant for investment companies.

Set out below are the full details of how the Company has applied the Principles of the AIC Code:

AIC

Code

Principle Compliance Statement

A successful company is led by an effective

board, whose role is to promote the long-

term sustainable success of the company,

generating value for shareholders and

contributing to wider society.

In managing the Company, the aim of the Board and

of the Investment Manager is always to ensure the

long-term sustainable success of the Company and,

therefore, the likely long-term consequences of any

decision are a key consideration. The Board is subject to

an annual evaluation, the results of which indicate that

the Board performs effectively as a whole. As part of the

evaluation process, the Board identifies areas in which

they could further improve and performance in these

areas is monitored throughout the year and at the point

of the next annual evaluation. Further information on the

Board evaluation process can be found in Section 4.5,

Nomination Committee Report.

The Board should establish the company’s

purpose, values and strategy, and satisfy

itself that these and its culture are aligned.

All directors must act with integrity, lead by

example and promote the desired culture.

The Company’s investment objective is to generate an

attractive total return for investors comprising stable

dividend income and capital preservation, with the

opportunity for capital growth.

The Board seeks to ensure the alignment of its purpose,

values and strategy with a culture of openness, debate

and integrity through ongoing dialogue and engagement

with its stakeholders. The Directors aim to achieve a

supportive business culture combined with constructive

challenge and to provide a regular flow of information to

shareholders and other stakeholders.

84 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

AIC

Code

Principle Compliance Statement

The Board should ensure that the necessary

resources are in place for the company to

meet its objectives and measure performance

against them. The Board should also establish

a framework of prudent and effective controls,

which enable risk to be assessed and managed.

The Directors regularly consider the Company’s financial

position in the context of its business model, the balance

sheet, cashflow projections, availability of funding and

the Company’s contractual commitments.

The Company is subject to various risks in pursuing its

objectives and, in order to effectively assess and manage

risk, appropriate controls and policies are in place, which

are regularly reviewed and assessed by the Audit and

Risk Committee. These are detailed in Section 3.2, Risk

Management Framework, in Section 4.6, Audit and

Risk Committee Report, and in Note 13 to the financial

statements.

The Directors confirm they have carried out a robust

assessment of the emerging and principal risks facing

the Company, including those that would threaten its

business model, future performance, solvency or liquidity.

See Section 3.2, Risk Management Framework for further

details.

The Directors have assessed the prospects of the

Company over a five-year period to 31 March 2028. The

Directors have determined that a viability statement for

a five-year period is appropriate as this period accords

with the Company’s business planning exercises and is

appropriate for the investments owned by the Company

and the nature of the Company.

See Section 3.3, Viability Statement for further details on

the Viability Statement.

In order for the company to meet its

responsibilities to shareholders and

stakeholders, the Board should ensure effective

engagement with, and encourage participation

from, these parties.

The Company describes its key stakeholders, the

reason they are important, how it seeks to gain an

understanding of their interests, and how the Board

engages with them, whether directly or via the

Investment Manager, in Section 2.6, Stakeholders and

Section 172.

The Chair leads the Board and is responsible

for its overall effectiveness in directing the

company. They should demonstrate objective

judgement throughout their tenure and promote

a culture of openness and debate. In addition,

the Chair facilitates constructive board relations

and the effective contribution of all non-

executive directors, and ensures that directors

receive accurate, timely and clear information.

The role and responsibilities of the Chair are described

in Section 4.4, Corporate Governance Statement. The

Company recognises that the Chair leads the Board and

is responsible for its overall effectiveness in directing the

affairs of the Company.

The annual evaluation of the Board’s effectiveness

always considers the performance of the Chair, and

whether they have performed their role effectively. The

Directors have concluded that the Chair has fulfilled

their role and performed well to support effective

functioning of the Board as evidenced in the internal

Board evaluation that took place during the latter part of

the financial year.

4.4 Corporate Governance Statement

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 85

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

AIC

Code

Principle Compliance Statement

The Board should consist of an appropriate

combination of directors (and, in particular,

independent non-executive directors) such that

no one individual or small group of individuals

dominates the Board’s decision making.

During the year under review, the Board consisted only

of non-executive Directors and all of the Directors are

deemed to be independent of the Investment Manager.

In the Board’s opinion, each Director continues to

provide constructive challenge and robust scrutiny of

matters that come before the Board.

The Board also considers the composition of the Board

as well as longer-term succession plans. The Board is

satisfied the Board’s current composition is adequate to

appropriately discharge its duties and currently has no

intentions to alter its composition.

Non-executive directors should have sufficient

time to meet their board responsibilities. They

should provide constructive challenge, strategic

guidance, offer specialist advice and hold third-

party service providers to account.

The Board considers the required time commitment

annually and, during the year under review, the Board

concluded that all Directors continued to devote

sufficient time to the business of the Company. Through

their contributions in meetings as well as outside of the

usual meeting cycle, the Directors share their experience

and guidance with, as well as constructively challenge,

the Investment Manager.

The Management Engagement Committee annually

assesses the performance of all material third-party

service providers.

The Board, supported by the company

secretary, should ensure that it has the policies,

processes, information, time and resources

it needs in order to function effectively and

efficiently.

The Board’s responsibilities are set out in the Schedule

of Matters Reserved for the Board and certain

responsibilities are delegated to its Committees, so that

it can operate effectively and efficiently.

All Board policies were reviewed and, where appropriate,

updated during the year. They continue to be reviewed

on a regular basis. Directors are also provided with any

relevant information and have access to the Company

Secretary and independent advisers, if required.

Appointments to the Board should be subject to

a formal, rigorous and transparent procedure,

and an effective succession plan should be

maintained. Both appointments and succession

plans should be based on merit and objective

criteria and, within this context, should

promote diversity of gender, social and ethnic

backgrounds, cognitive and personal strengths.

The Company is committed to ensuring that any vacancies

arising are filled by suitably qualified candidates.

The Board has adopted a Diversity Policy, which

acknowledges the benefits of greater diversity, and

remains committed to ensuring that the Company’s

Directors bring a wide range of skills, knowledge,

experience, backgrounds and perspectives to the Board.

Appointments of new Directors to the Board follow a

structured and transparent process as described further

below. The Company’s policy on the tenure of Directors also

helps guide long-term succession plans and recognises the

need and value of progressive refreshing of the Board. Both

policies are described in more detail below.

86 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

4.4 Corporate Governance Statement

continued

AIC

Code

Principle Compliance Statement

The Board and its Committees should have

a combination of skills, experience and

knowledge. Consideration should be given to

the length of service of the Board as a whole

and membership regularly refreshed.

The Nomination Committee, which comprises the whole

Board, is responsible for identifying and recommending

to the Board the appointment of new Directors.

The Nomination Committee reviews, at least annually,

the key skills and experience of each Director and the

skills matrix is reviewed at least once per year to ensure

that the Board has an appropriate mix of skills and

experience, particularly when considering longer-term

succession plans.

Annual evaluation of the Board should consider

its composition, diversity and how effectively

members work together to achieve objectives.

Individual evaluation should demonstrate

whether each director continues to contribute

effectively.

The Directors are aware that they need to monitor

and improve Board performance continuously and

recognise that this can be achieved through regular

Board evaluation, which provides a valuable feedback

mechanism for improving Board effectiveness.

In line with the AIC Code, the Board has agreed that an

external Board evaluation will be carried out every three

years and, in the intervening years, evaluations will be

carried out by means of questionnaires and interviews.

An internal evaluation of the performance of the Board,

its Committees and individual Directors took place

during the year, and was led by the Chair with the

support of the Senior Independent Director and the

Company Secretary. The next external evaluation is due

to take place in 2025.

Further details of the results of the Board evaluation

process can be found in Section 4.5, Nomination

Committee Report.

The Board should establish formal and

transparent policies and procedures to ensure

the independence and effectiveness of external

audit functions and satisfy itself on the integrity

of financial and narrative statements.

The Audit and Risk Committee supports the Board in

fulfilling its oversight responsibilities by reviewing the

performance of the independent auditor, audit quality,

and the auditor’s objectivity and independence. The

Audit and Risk Committee also reviews the integrity

and content of the financial statements, including the

ongoing viability of the Company.

More details can be found in Section 4.6, Audit and Risk

Committee Report.

The Board should present a fair, balanced and

understandable assessment of the company’s

position and prospects.

The Audit and Risk Committee supports the Board in

assessing that the Company’s Annual Report presents

a fair, balanced and understandable assessment of the

Company’s position and prospects.

Please refer to Section 4.6, Audit and Risk Committee

Report for further information.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 87

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

AIC

Code

Principle Compliance Statement

The Board should establish procedures to

manage risk, oversee the internal control

framework, and determine the nature and

extent of the principal risks the company is

willing to take in order to achieve its long-term

strategic objectives.

The work of the Audit and Risk Committee, that

supports the Board through its independent oversight

of the financial reporting process – including the

financial statements, the system of internal control and

management of risk, the appointment and ongoing

review of the quality of the work and independence

of the Company’s external auditor – is described

Section4.6, Audit and Risk Committee Report.

Remuneration policies and practices should be

designed to support strategy and promote long-

term sustainable success.

The Directors are all non-executive and independent

of the Investment Manager. They receive fees and no

component of any Director’s remuneration is subject

to performance factors. Whilst there is no requirement

under the Company’s Articles of Association or letters of

appointment for Directors to hold shares in the Company,

all Directors do hold shares in the Company and the details

of their shareholdings are set out in Section 4.7, Directors’

Remuneration Report.

A formal and transparent procedure for

developing a policy for remuneration should be

established. No director should be involved in

deciding their own remuneration outcome.

As the Company has no employees and the Board

is comprised wholly of non-executive Directors, the

Board has established a separate Remuneration

Committee, which is comprised of all Directors.

Directors’ remuneration is determined by the Committee,

at its discretion within an aggregate ceiling as set

out in the Company’s Articles of Association. Each

Director abstains from voting on their own individual

remuneration. The details of the Remuneration Policy

and Directors fees can be found in Section 4.7, Directors’

Remuneration Report. The terms and conditions of

the Directors’ appointments are set out in their letters

of appointment, which are available for inspection on

request at the registered office of the Company.

Directors should exercise independent

judgement and discretion when authorising

remuneration outcomes, taking account of

company and individual performance, and

wider circumstances.

The process of reviewing the Directors’ fees is described

in Section 4.7, Directors’ Remuneration Report, although

because there are no performance-related elements of the

remuneration, there is very little scope for the exercise of

discretion or judgement.

Principle E of the UK Code relates to the treatment of employees and so is generally not applicable to companies under the AIC Code if, as in the case of the

Company, there are no employees.

88 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The Board of Directors

The Directors of the Company who were in office during the

year and up to the date of signing the financial statements

are listed in Section 4.2, Board of Directors.

Board Independence

The Board consists of five independent non-executive

Directors, who were considered independent of the

Investment Manager at the time of their appointment. The

independence of the Directors is reviewed as part of the

annual evaluation process and, in line with the guidelines

of the AIC Code, continue to be considered independent in

character and judgement and entirely independent from the

Investment Manager.

Appointment of New Directors

Any appointments to the Board are subject to a formal,

rigorous and transparent procedure. The Nomination

Committee is responsible for satisfying itself that there

is succession planning in place for Directors to ensure

continued refreshment of the Board; for identifying and

nominating appointments to the Board for their approval

and is also responsible for identifying and nominating

candidates to fill Board vacancies, as and when they arise.

As part of the appointment process, the Nomination

Committee:

■ evaluates the balance of skills, knowledge and

experience on the Board;

■ will draw up a description of the role including the

capabilities required and use an external search

consultancy in the search for candidates; and

■ will ensure that appointments are made based on merit

and after assessing candidates by means of objective

criteria, ensuring that appointees have enough time

available to devote to the position, and also determine the

terms and conditions of the appointment of non-executive

Directors, setting out clearly what is expected of them

in terms of time, commitment, committee service and

involvement outside Board meetings.

Induction Process

New appointees to the Board are provided with a full

induction programme.

The programme is based on the Corporate Governance

Institute UK & Ireland’s ‘Induction of directors’ guidance

note, and adapted to the requirements of the Company, and

is designed to:

 build an understanding of the nature of the company, its

business and its markets;

ii.

 build a link with the company’s people; and

iii.

 build an understanding of the company’s main

relationships.

The programme covers the Company’s investment strategy,

policies and practices. The Directors are also given key

information on the Company’s regulatory and statutory

requirements as they arise, including information on the role

of the Board, matters reserved for its decision, the terms

of reference for the Board Committees, the Company’s

corporate governance practices and procedures and the

latest financial information.

The Directors are also afforded the opportunity to meet

with other non-executive Directors, key personnel from

the Investment Manager and other key service providers,

including the independent auditor, the Company Secretary

and Administrator, and the Corporate Broker.

Terms of Appointment

The terms of appointment of the Directors are formalised

in letters of appointment, copies of which are available for

inspection at the Company’s registered office. None of the

Directors has a contract of service with the Company nor

has there been any other contract or arrangement between

the Company and any Director at any time during the year.

Re-Election

The Articles of Incorporation provide that each of the

Directors shall retire at each AGM. All Directors intend to

retire at the forthcoming AGM and offer themselves for

re-election.

As set out further below, the Board carries out an annual

review of each Director and the Board as a whole. The

Board believes that the balance of skills, gender, experience

and knowledge of the current Board provides for a sound

base from which the interests of investors will be served to

a high standard.

The Board recommends the re-election of all other

Directors at the forthcoming AGM.

4.4 Corporate Governance Statement

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 89

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Board Responsibilities

Under the leadership of the Chair, the Board is responsible

for the effective stewardship of the Company’s affairs,

including strategy, corporate governance, risk assessment

and overall investment policy.

Role and Responsibilities of the Chair

The Chair leads the Board and is responsible for its overall

effectiveness in directing the affairs of the Company. Key

aspects of the Chair’s role and responsibilities are to:

■ act with objective judgement;

■ promote a culture of openness and debate;

■ facilitate constructive Board relations and the effective

contribution of all Directors;

■ work with the Company Secretary to ensure that all

Directors receive accurate and timely information so

that they can discharge their duties;

■ seek regular engagement with the Company’s

shareholders; and

■ act on the results of the annual evaluation of the

performance of the Board, its Committees and

individual Directors.

The Chair, Tony Roper, met the independence criteria upon

appointment and has continued to meet this condition

throughout his term of service.

Role and Responsibilities of the Senior

Independent Director

The key elements of the Senior Independent Director’s role

are to:

■ act as a sounding board for the Chair;

■ lead the annual evaluation of the Chair as part of the

annual evaluation process;

■ in the event of any major difference of opinion on

the direction of the Company, act as an intermediary

between the Chair, other Directors and the Investment

Manager; and

■ provide a conduit for views of shareholders in the event

that the usual channels are not available or not suitable

in the circumstances.

Chris Knowles was appointed as Senior Independent

Director at IPO.

The complete responsibilities of the Chair and Senior

Independent Director are available on the Company’s

website.

Delegation of Responsibilities

The Board has delegated the following areas of

responsibility to a number of service providers, each

engaged under separate contracts:

The day-to-day administration of the Company has been

delegated to Apex Group Secretaries (UK) Limited in its

capacity as Company Secretary and Apex Group Fiduciary

Services (UK) Limited as Administrator.

The Board has access to the Company Secretary to advise

on all governance and day-to-day administrative matters.

The Company Secretary is also responsible to the Board for

guaranteeing that statutory obligations are met.

The management of the Company’s portfolio is delegated

to the Investment Manager, Sustainable Development

Capital LLP.

The Investment Manager has full discretion (within agreed

parameters) to make investments in accordance with the

Company’s investment policy and has responsibility for

financial administration and investor relations, in addition to

advising the Board in relation to further capital raisings and

the payment of dividends amongst other matters, subject to

the overall supervision and oversight of the Board.

Among the specific tasks of the Investment Manager are

the overall financial management of the Company and

existing portfolio as a whole, including the deployment of

capital, management of the SEEIT group’s debt facilities,

hedging arrangements, the sourcing of new investments,

operating the risk management framework, preparing

the semi-annual valuations, the statutory accounts, the

management accounts, business plans, presenting results

and information to shareholders, coordinating all corporate

service providers to the Company and giving the Board

general advice.

Members of the Investment Manager are also appointed as

directors of the SEEIT Group’s project companies and/or

intermediate holding companies and as part of their role

in managing the portfolio, they attend board meetings

of these companies and make appropriate decisions.

Material decisions are referred back to the Investment

Manager’s Investment Committee for consideration, and

the Company’s Board is consulted on key matters relevant

to the Company’s strategy, policies or overall performance,

90 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

4.4 Corporate Governance Statement

continued

both on an ad hoc basis where required and during formal

reporting sessions, including all matters outside the

Investment Manager’s delegated authority.

Board Tenure Policy

The Board’s policy regarding tenure of service of the

Directors including its Chair, is that any decisions regarding

tenure should balance the benefits of continuity and

knowledge and the orderly transition of responsibilities

through succession plans for the retirement and

appointment of Directors against the need to periodically

refresh the Board composition to maintain an appropriate

mix of the required skills, experience, diversity and length

of service. The Board considers each of the Directors’

independence carefully on an annual basis as part of the

Board self-evaluation and succession planning process.

It is not envisaged that any Board members will continue

on the Board past nine years, except where required by

Company circumstances at that time (and then only for

a limited period), to be agreed by the Board as a whole,

taking into account their independence and the need to

balance this against the benefits of maintaining continuity,

knowledge and experience.

Culture

The culture of the Board is considered as part of the

annual performance evaluation process that is undertaken

by each Director. The culture of the Company’s service

providers, including their policies, practices and behaviour,

is considered by the Board as a whole during the annual

review of the performance and continuing appointment of

all service providers. Further information on the Company’s

culture and values and engagement with its service

providers and other stakeholders is set out in Section 2.6,

Stakeholders and Section 172.

Diversity

Diversity, including, but not limited to, gender, ethnicity,

professional and industry-specific knowledge, is an

important consideration in ensuring that the Board and its

Committees have the right balance of skills, experience,

independence and knowledge necessary to discharge their

responsibilities. The right blend of perspectives is critical to

ensuring an effective Board and a successful Company.

The Board has adopted a Diversity Policy and considers

that its composition with respect to the balance of skills,

ethnicity and cultural diversity, gender, experience and

knowledge, coupled with a mixed length of service,

provides for a sound base from which the interests of

shareholders will be served to a high standard.

The Board of Directors comprised five independent non-

executive Directors; two male and three female (being 60%

female representation), as at 31 March 2023.

The Company supports the Hampton-Alexander review

and the more recent FTSE Women Leaders review and

their respective targets for a minimum of 33% and 40% of

women on boards and the opportunity for companies to

continue to increase on this representation. The Company

also supports the Parker review’s recommendations to

increase ethnic and cultural diversity on boards, including

its target for FTSE 250 boards to have at least one

director from an ethnic minority background by 2024, the

development of a pipeline of candidates, the planning

for succession through mentoring and sponsoring, and

enhancing transparency and disclosure to record and track

progress against the objectives. The Company meets the

recommendations and targets of these three reviews as at

31 March 2023.

According to new requirements of the Listing Rules LR9.8.6

R(9) and (11) (applicable for periods from 1 April 2022), the

Company is required to include a statement in the annual

financial report setting out whether it has met the following

targets on board diversity as at 31 March 2023:

a) at least 40% of individuals on the board are women;

b) at least one of the senior board positions (defined by

the FCA as either the Chair, SID, CEO or CFO) is held by

a woman; and

c) at least one individual on the board is from a minority

ethnic background.

The following tables set out the prescribed format for

information in accordance with the requirements of

LR9Annex 2.

Table for reporting on gender identity or sex

Number of

board

members

Percentage

of the

board

Number

of senior

Positions on

the board

(SID and Chair)

Men 2 40% 2

Women 3 60% –

Not specified – – –

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Table for reporting on ethnic background

Number of

board

members

Percentage

of the board

Number of

senior Positions

on the board

(SID and Chair)

White British or other

White (including

minority-white groups) 4 80% 2

Mixed Multiple Ethnic

Groups – – –

Asian/ Asian British

1 20% –

Black/ African/

Caribbean/ Black

British – – –

Other ethnic group,

including Arab – – –

Not specified

– – –

As at 31 March 2023, the Board meets the criteria of target

a) as 60% of the Board are women, and target c) as one

Board member is from a minority ethnic background.

With regards to target b) none of the senior board positions,

as defined by the FCA, are held by a woman. However, the

Board considers the role of the Audit and Risk Committee

Chair to be a senior board position given the nature of

the Company as an investment trust. The Company has

no executive directors, so has neither a CEO or a CFO.

Additionally, the role of the Audit and Risk Committee Chair

is the second highest remunerated position on the Board,

reflecting the importance of the position and the time

commitments it commands. The Audit and Risk Committee

Chair position is held by a woman and, therefore, the Board

considers that at least one of the senior board positions is

held by a woman under this interpretation.

Matters Reserved for the Board

The Directors have adopted a formal schedule of matters

specifically reserved for their approval. The Directors have

overall responsibility for the Company’s business activities

in accordance with the Company’s Articles and investment

policy. The Board has delegated certain functions as

described further below and retains the right to vary the

delegation from time to time.

Reserved matters for the Board’s approval include:

■ capital raising activities;

■ declaring dividends;

■ reviewing the performance and appointments of key

service providers;

■ setting terms of reference for the Board and relevant

Board Committees; and

■ monitoring the constitution and efficiency of the Board

and its Committees and key governance aspects such

as general meetings and shareholder circulars.

Committees of the Board

The Board has four Committees to assist with its operations;

the Audit and Risk Committee, the Remuneration

Committee, the Nomination Committee and the

Management Engagement Committee. The delegated

responsibilities of each Board Committee are clearly

defined in formal terms of reference, which are available on

the Company’s website.

The Company Secretary acts as secretary to each

Committee. No persons other than the Committee

members are entitled to attend Committee meetings unless

formally invited by the respective Committee.

Membership of the Board Committees as at 31 March 2023 are as follows:

Audit and Risk

Committee

Remuneration

Committee

Nomination

Committee

Management

Engagement

Committee

Chair Sarika Patel Emma Griffin Tony Roper Helen Clarkson

Members Helen Clarkson Helen Clarkson Helen Clarkson Emma Griffin

Emma Griffin Chris Knowles Emma Griffin Chris Knowles

Chris Knowles Sarika Patel Chris Knowles Sarika Patel

Tony Roper Tony Roper Sarika Patel Tony Roper

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Audit and Risk Committee

The Board considers that the members of the Audit and

Risk Committee have the requisite skills and experience

to fulfil the responsibilities of the Committee. The

Chair of the Audit and Risk Committee has significant

recent and relevant financial experience. The Audit and

Risk Committee has direct access to the Company’s

independent auditor and provides a forum through

which the independent auditor reports to the Board.

Representatives of the independent auditor attend meetings

of the Audit and Risk Committee at least twice per year.

Further details about the Audit and Risk Committee and

its activities during the year under review are set out in

Section4.6, Audit and Risk Committee Report.

Remuneration Committee

The Remuneration Committee meets at least once per

year and deals with matters of Directors’ remuneration. In

particular, the Remuneration Committee reviews and makes

recommendations to the Board regarding the ongoing

appropriateness and relevance of the Remuneration Policy,

Directors’ annual fee levels and also considers the need to

appoint independent professional external remuneration

consultants.

Further details about the Remuneration Committee and

remuneration matters are set out in Section 4.7, Directors’

Remuneration Report.

Nomination Committee

The Nomination Committee meets at least once per year to

consider Board succession planning and recruitment and to

conduct the annual Board evaluation exercise.

Further details about the Nomination Committee and

its activities during the year under review are set out in

Section4.5, Nomination Committee Report.

Management Engagement Committee

The Company has established a Management

Engagement Committee. The Board has formally

delegated duties and responsibilities within agreed written

terms of reference for the Committee, which are available

on the Company’s website.

As at 31 March 2023, the Management Engagement

Committee was comprised of all Directors of the Company.

The Committee meets at least once per year.

The Committee met formally once during the year to

assess the performance of the Investment Manager and

the Company’s other key third-party service providers. This

annual review process includes two-way feedback, which

provides the Board with an opportunity to understand the

views, experiences and any issues encountered by service

providers during the year. In addition, the Management

Engagement Committee is actively involved in reviewing

the contractual relationships of the Investment Manager

and the Company’s other key third-party service providers

and ensuring the contractual terms remain aligned

with the objectives of the Company and the interests of

Shareholders.

Following the Committee’s assessment of the Investment

Manager, and based on its performance, the continued

appointment of the Investment Manager is considered

to be in the interests of shareholders as a whole, and it

was recommended that SDCL continue as Investment

Manager.

Meetings

The Board is scheduled to meet at least five times per

year and between these formal meetings there is regular

contact with the Investment Manager, the Administrator,

the Company Secretary and the Corporate Broker. The

Directors are kept fully informed of investment and financial

controls, and other matters that are relevant to the business

of the Company that should be brought to the attention of

the Directors.

The Board considers agenda items laid out in the notice and

agenda of any meeting, which are circulated to the Board

in advance of the meeting as part of the Board papers.

Directors may request any agenda items to be added that

they consider appropriate for Board discussion. Each

Director is required to inform the Board of any potential or

actual conflicts of interest prior to Board discussion. Board

meetings include a review of investment performance and

associated matters such as health and safety, marketing,

investor relations, risk management, gearing

(APM)

, general

administration and compliance, peer group information and

industry issues.

4.4 Corporate Governance Statement

continued

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The number of scheduled Board and Board Committee meetings held during the year and the attendance of the Individual

Directors is shown below:

Scheduled Board

meetings

Audit and Risk

Committee

Remuneration

Committee

Nomination

Committee

Management

Engagement

Committee

No. of meetings held 5 4 1 1 1

Tony Roper 5 4 1 1 1

Helen Clarkson 4 4 1 1 1

Chris Knowles 5 4 1 1 1

Emma Griffin 5 4 1 1 1

Sarika Patel 5 4 1 1 1

During the year ended 31 March 2023, there were

11 additional ad hoc Board meetings, five ad hoc

Audit and Risk Committee meetings, two ad hoc

Remuneration Committee meetings, and one ad hoc

Nomination Committee meeting held in order to deal with

administrative matters. These were attended by those

Directors available and/or delegated by the Board to one

or more members to action.

Insurance and Indemnity Provisions

Directors’ and Officers’ liability insurance cover is in

place in respect of the Directors. The Company’s Articles

of Association provide, subject to the provisions of UK

legislation, an indemnity for Directors in respect of costs

which they may incur relating to the defence of any

proceedings brought against them arising out of their

positions as Directors, in which they are acquitted, or

judgement is given in their favour by the Court.

Except for such indemnity provisions in the Company’s

Articles of Association and in the Directors’ letters of

appointment, there are no qualifying third-party indemnity

provisions in force.

The Board has agreed arrangements whereby Directors

may take independent professional advice in the

furtherance of their duties.

Conflicts of Interests

It is the responsibility of each individual Director to avoid an

unauthorised conflict of interest situation arising. All Directors

must inform the Board as soon as they become aware of

the possibility of an interest that conflicts, or might possibly

conflict, with the interests of the Company.

A register of conflicts is maintained by the Company Secretary

and regularly reviewed by the Board to ensure that any

authorised conflicts remain appropriate. The Directors are

required to confirm at Board meetings whether there has been

any change to their position.

The Board has adopted a policy that records all gifts and

hospitality in excess of £50 accepted by the Directors from the

Company’s service providers and other relevant third parties.

Reporting on Stakeholder Engagement

The Company sets out how it interacts and engages with its

stakeholders in Section 2.6, Stakeholders and Section172.

The stakeholder relationships identified provide the

foundation for the Company’s sustainability, which in return

provides benefits to all parties. Both the Board and the

Investment Manager value the importance of maintaining

a high standard of business conduct and stakeholder

engagement in order to ensure a positive impact on the

environment in which the Company operates.

Relations with Shareholders

The Company welcomes the views of its shareholders,

placing great importance on communication with

them. Senior members of the Investment Manager

make themselves available, as practicable, to meet with

shareholders and key sector analysts and feedback from

these meetings is provided to the Board. The Directors also

make themselves available to engage with shareholders

and offer meetings annually as part of good governance to

those shareholders who wish to meet them.

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The Board is kept fully informed of all relevant market

commentary on the Company by the Company’s Financial

PR consultant, as well as receiving relevant updates from

the Investment Manager and the Corporate Broker.

The Company reports formally to shareholders twice

peryear.

The results of the AGM are announced by the Company

promptly after the relevant meeting and are also published

on the Company’s website. Additionally, other notices and

information are provided to shareholders on an ongoing

basis through the Company’s website in order to assist in

keeping shareholders informed.

The Company Secretary and Registrar monitor the

voting of the shareholders and proxy voting is taken into

consideration when votes are cast at the AGM.

The Company is committed to ongoing shareholder

dialogue and takes an active interest in voting outcomes.

Where there are substantial votes against any resolution at

an AGM, the Company will consider what, if any, actions it

intends to take going forward.

2022 AGM

The 2022 AGM of the Company was held on 12 September

2022. Resolutions 1 to 13 related to ordinary business and

resolutions 14 to 16 related to special business as follows:

■ to approve the purchase of the Company’s own shares;

■ to authorise the disapplication of Statutory Pre-emption

Rights; and

■ to approve that a general meeting may be convened on

not less than 14 clear days’ notice.

All votes cast were in favour and as a result each of the

resolutions proposed at the AGM were passed.

2023 AGM

The next AGM of the Company is currently scheduled to be

held on 11 September 2023.

A separate notice convening the AGM will be sent to

shareholders and published on the Company’s website in

July 2023 and will include an explanation of the items of

business to be considered at the meeting.

4.4 Corporate Governance Statement

continued

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4.5 Nomination Committee Report

Nomination Committee

The Nomination Committee is chaired by Tony Roper and the

membership of the Committee comprises all Directors of the

Company, all of whom are independent and non-executive.

During the year, the Nomination Committee held two

meetings. The Nomination Committee operates within

clearly defined terms of reference, which are available on the

Company’s website.

Function of the Nomination Committee

The principal duties of the Nomination Committee are to:

■ regularly review the structure, size and composition

required of the Board and make recommendations

to the Board with regard to any changes (including

skills, knowledge and experience in accordance with

PrincipleK of the AIC Code);

■ give full consideration to succession planning for

Directors taking into account the challenges and

opportunities facing the Company, and to oversee the

development of a diverse pipeline for succession;

■ be responsible for identifying and nominating, for the

approval of the Board, candidates to fill Board vacancies

as and when they arise; and

■ oversee a formal and rigorous annual evaluation of the

performance of the Board, its Committees, the Chair

and individual Directors.

Matters Reviewed in the Year

Succession planning

The Committee annually reviews its effectiveness,

composition and long-term succession planning. This

process takes into consideration the balance of skills,

knowledge, experience, independence and diversity of the

Board, to ensure any new appointments complement or

address any gaps in these areas.

The Committee has reviewed the Composition of the Board

and, following the appointment of Sarika Patel, as a non-

executive Director on 1 January 2022, is satisfied the Board’s

current composition is appropriate to adequately discharge

its duties. Additionally, the Committee has no immediate

concerns regarding the independence or tenure of the Board

as the longest serving Directors have been in office for less

than five years, having been appointed in October 2018,

which is less than the nine years considered by the AIC code

for a director to continue to be considered independent.

Nevertheless, in March 2023, the Committee reviewed and

updated its emergency succession plan.

Board performance evaluation

The Board recognises the importance of the AIC Code’s

recommendation in respect of evaluating the performance

of the Board as a whole, the Committees of the Board and

individual Directors. The Chair, with the assistance of the

Senior Independent Director and the Company Secretary,

oversaw an internal Board evaluation process with respect

to the year ended 31 March 2023.

The evaluation followed a number of stages as outlined

below:

■ an update was given against the performance of the

recommendations and actions from the prior year;

■ all Directors responded to questionnaires about the

Chair, the Board and its Committees;

■ the Chair held individual meetings with each Director to

understand their views on the performance of the Board;

■ the Senior Independent Director collated feedback

from the non-executive Directors, excluding the Chair,

and the Investment Manager on the performance of

theChair;

■ a summary of results, together with anonymised

comments, was collated into a comprehensive report

and presented to the Nomination Committee; and

■ an action plan for the Board and its Committees with

recommendations of areas to improve was prepared

and approved by the Committee.

The evaluation addressed all areas relating to the Board,

its Committees, the Chair, the individual Directors, and

their performance. The scope of the evaluation was in line

with other internal evaluations conducted in previous years

in order to track progress in each assessed area, which

included, but was not limited to: Board and Committee

relationships, composition, effectiveness, leadership, roles,

activities, development, and engagement with and impact

on various stakeholder groups. The evaluation also explored

other items including culture, technology, and the Board

processes for developing strategy, dealing with investments,

and managing risk.

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Overall, the evaluation was positive and indicated a high

level of satisfaction with the operation of the Board. It also

demonstrated that the Board and Investment Manager

were operating effectively and showed the necessary

commitment to the effective fulfilment of their duties.

Anumber of areas were highlighted as strengths, including:

■ calibre of depth and experience;

■ leadership of the Board and of each Committee;

■ Board dynamics and communication;

■ sufficient opportunity to challenge and support the

Investment Manager;

■ clear consensus around strategy; and

■ good oversight of the Company’s performance.

The evaluation also highlighted a number of opportunities

for improvement, including: identifying further training

and development opportunities to assist the Board and

each individual Director to continue their professional

development, and continuing to improve the risk-

management key performance indicators presented to the

Directors.

Terms of Reference

The Committee reviewed its terms of reference in March

2023 to ensure that it is still operating effectively and in line

with its delegated duties and responsibilities.

Tony Roper

Chair of the Nomination Committee

4.5 Nomination Committee Report

continued

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4.6 Audit and Risk Committee Report

The Audit and Risk Committee is chaired by Sarika Patel

and the membership of the Committee comprises all

Directors of the Company, all of whom are independent and

non-executive.

The Board is satisfied that the Committee is properly

constituted. The Company’s Chair is a member of the Audit

and Risk Committee given his independence at the time

of his appointment and throughout his service. The Board

believe that his extensive experience in dealing with matters

such as valuation and risk management is relevant to the

Committee.

The Audit and Risk Committee operates within clearly

defined terms of reference, which are available on the

Company’s website. It is also the formal forum through

which the independent auditor reports to the Board of

Directors and met nine

times during the year.

The terms of reference are reviewed annually. The

Committee last reviewed its terms of reference in March

2023 and is satisfied that it is still operating effectively.

The main functions of the Audit and Risk Committee are:

■ assessing, and recommending to the Board for approval,

the contents of the half year and annual financial

statements and reviewing the independent auditor’s

report on these, including consideration as to whether

the financial statements are overall fair, balanced and

understandable;

■ reviewing the valuation of the Company’s investments

prepared by the Investment Manager and making a

recommendation to the Board on the valuation;

■ agreeing with the independent auditor the external audit

plan including discussing with the independent auditor

the key risk areas within the financial statements;

■ considering and understanding the key risks of

misstatement of the financial statements and

formulating an appropriate plan to review these and

agreeing with the Investment Manager its processes to

manage these risk areas;

■ reviewing and recommending for approval the Viability

and Going Concern Statements and reviewing the work

prepared by the Investment Manager in support of

these statements;

■ reviewing the scope, results, cost-effectiveness,

independence and objectivity of the independent auditor

as well as reviewing the effectiveness of the external

audit process and making any recommendations to the

Board for improvement of the audit process;

■ reviewing and recommending to the Board for approval

the audit, audit-related and non-audit fees payable to

the independent auditor or their affiliated firms overseas

and the terms of their engagement;

■ reviewing the appropriateness of the Company’s

accounting policies;

■ ensuring the adequacy and effectiveness of the internal

control and risk management systems;

■ considering and recommending to the Board for

approval the Investment Manager’s recommendations

to changes in the Company’s Risk Management Policy

and Treasury Policy;

■ reviewing the Company’s risk appetite and overall risk

management approach;

■ monitoring the current and emerging risk exposures on

behalf of the Board and challenge the actions taken to

mitigate against such risks, taking into account scenario

analysis;

■ considering any reports or information received in

respect of whistleblowing;

■ reviewing effectiveness of controls of sub-contractors

and suppliers; and

■ reporting to the Board on how it has discharged its duties.

None of the members of the Audit and Risk Committee

have any involvement in the preparation of the financial

statements of the Company, as this has been contracted to

the Investment Manager and the Company’s Administrator.

The Audit and Risk Committee meets the independent

auditor regularly and as needed. It discusses the scope of

annual audit work and audit findings with the independent

auditor. The independent auditor attends the Audit and

Risk Committee meetings at which the annual and interim

financial statements are considered. The Committee

also ensures that it meets with the independent auditors

without representatives of the Investment Manager and

30 The Audit and Risk Committee had four scheduled meetings during the reporting period, held three ad hoc meetings outside of the quarterly meeting

cycle, and received two valuation updates from the Investment Manager.

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4.6 Audit and Risk Committee Report

continued

Administrator being present. The Committee has direct

access to the independent auditor and to key senior staff

of the Investment Manager. It reports its findings and

recommendations to the Board, which retains the ultimate

responsibility for the financial statements of the Company.

Significant Activities in the Year

During the year, the Audit and Risk Committee’s

discussions have been broad ranging and focused on but

not limited to:

■ agreeing the audit plan and fees with the independent

auditor in respect of the review of the half-yearly report

for the six months ended 30 September 2022 and the

statutory audit of the Annual Report for the year ended

31 March 2023, including the principal areas of focus;

■ receiving and discussing with the independent auditor

their report on the results of the review of the half-yearly

financial statements and the year-end audit;

■ meeting independently with the external auditors;

■ reviewing and challenging information received from

the Investment Manager recommending the rationale

for preparing the financial statements on a going

concern basis, including a viability statement. This

was discussed with the independent auditor prior to

concluding that the recommendation be made by the

Committee that the Board approve the adoption of the

financial statements on a going concern basis and their

approval of the viability statement;

■ reviewing and challenging the valuation prepared by the

Investment Manager and its valuation process, together

with the independent auditor;

■ in light of the continued growth of the Company,

reviewing and recommending to the Board the

continued application of IFRS 10 Investment Entity

which is considered a key judgement for the Company’s

accounting policies;

■ reviewing the Company’s annual and half-yearly

financial statements and recommending these to the

Board for approval;

■ considering the FRC’s review of the Company’s annual

report and financial statements for the year ended

31March 2022, which raised no substantive questions

or queries, and discussing and agreeing the appropriate

actions in response to suggestions on additional

disclosures by the FRC;

■ conducting a review of the risk management systems of

the Company and its third-party service providers, and

introducing further enhancement to the system;

■ commissioning a third party to conduct a review of the

Investment Manager’s investment process and inviting

the provider to present the findings of their audit to the

Committee;

■ discussing and reviewing the outcome of a cyber-risk

review undertaken in the financial year;

■ reviewing the Investment Manager’s ongoing

programme of stress scenarios aimed at understanding

the impact on the Company of downside but plausible

scenarios;

■ reviewing the Company’s Risk Management Policy and

Treasury Policy; and

■ reviewing reports of internal controls of key advisers and

gaining assurance from the Investment Manager and

Administrator on these.

In addition to formal Audit and Risk Committee meetings

during the year, the Committee has had regular contact and

meetings with the Investment Manager, the Administrator

and the independent auditor.

Key Issues Considered for Financial

Statements

After discussion with the Investment Manager and the

independent auditor, the Audit and Risk Committee

determined that the key risks of misstatement of the

Company’s financial statements related to the valuation

of the Company’s investment in SEEIT Holdco and in

turn the valuation of the underlying investments held via

SEEITHoldco.

Valuation of Investments

As outlined in Note 11 to the financial statements, the

total carrying value of the investment portfolio at fair value

at 31March 2023 was £1,099.6 million (31 March 2022:

£912.7 million). Market quotations are not available for these

financial assets, and therefore their valuation is undertaken

using predominantly a discounted cashflow methodology,

ora similar method to determine the fair value of an

investment. This requires a number of material estimates

to be made as further explained in Note 3 to the financial

statements.

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The valuation process and methodology was discussed by

the Audit and Risk Committee with the Investment Manager

at the time of the interim review, in March 2023 prior to

the year-end valuation process, and again post year end in

May 2023 and June 2023 as part of the year-end sign-off

process. The Investment Manager carries out a valuation

semi-annually and provides a detailed valuation report to

the Company.

The Audit and Risk Committee reported to the Board on

the challenges it made to the valuation and the outcome of

discussions with the Investment Manager and independent

auditor on the valuation, particularly in relation to key

judgements. The Audit and Risk Committee met with the

independent auditor when it reviewed and agreed the

independent auditor’s group audit plan, and also at the

conclusion of the audit of the financial statements, focusing

much of its discussion on the valuation process and the

outcome of the audit of the valuation.

The Company engaged an independent valuation expert

to provide a report on a fair and reasonable range of

discount rates for the investments in the portfolio as at

31March 2023. The Audit and Risk Committee received

a presentation from the independent valuation expert and

challenged the assumptions and conclusions as needed.

The Audit and Risk Committee was satisfied that this report

confirmed the reasonableness of the discount rates applied

by the Investment Manager in its valuation of the portfolio

as at 31 March 2023.

Valuation of investments – key forecast assumptions

The Audit and Risk Committee considered in detail those

assumptions that are subject to judgement and may have a

material impact on the valuation. The key assumptions are:

Valuation discount rates

The vast majority of the underlying investments are

valued using a discounted cashflow valuation. A small

selection of investments were valued using other forms

of fair value calculations, such as earnings multiples, and

certain investments were held at cost as the most accurate

reflection of their fair value.

The discount rates adopted to determine the valuation are

selected by the Investment Manager and recommended

to the Audit and Risk Committee. These discount rates

are applied to the expected future cashflows for each

investment’s financial forecasts to arrive at a discounted

cash-flow valuation which is, in turn, sensitive to the

discount rate selected. The Investment Manager

is experienced and active in the valuation of these

investments and adopts discount rates which reflect their

understanding of the current market. It is noted, however,

that the judgement required is subjective and there is

a range of discount rates which that could be applied.

The discount rate assumptions and the sensitivity of the

valuation of the investments to this discount rate are set out

in Section 2.3, Financial Review and Valuation Update.

The Audit and Risk Committee discussed with the

Investment Manager the process adopted to arrive at

the selected valuation discount rates (which includes

comparison with other market transactions and engaging

an independent review of valuation discount rates by the

independent valuation expert) and satisfied itself that the

rates applied were appropriate. The independent auditor

explained to the Audit and Risk Committee the results of

its review of the valuation, including its consideration of the

Company’s underlying cashflow projections, the economic

assumptions and discount rates.

Macroeconomic assumptions

Macroeconomic assumptions include inflation, interest

rate, foreign exchange and tax rate assumptions. The

Investment Manager’s assumptions in this area are set

out and explained in Section 2.3, Financial Review and

Valuation Update. The Audit and Risk Committee reviewed

and discussed the methodology by which the Investment

Manager derived the assumptions and agreed its

appropriateness.

Other key assumptions

The Investment Manager has discussed and agreed the key

valuation assumptions with the Audit and Risk Committee.

These included critical estimates and judgements

regarding future cashflow assumptions, predominantly

for investments in Primary Energy, Onyx, RED-Rochester,

OlivaSpanish Cogeneration and Värtan Gas. In relation

to the key judgements underpinning the valuation, the

Investment Manager has provided sensitivities showing the

impact of changing these assumptions, further described

in Note 3. These have been reviewed by the Investment

Manager and the Audit and Risk Committee to assist in

forming an opinion on the fairness and balance of the

Annual Report, together with their conclusion on the

overallvaluation.

100 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Key Risks Considered

The Company’s key risks are set out in more detail in

Section 3.2, Risk Management Framework.

The Audit and Risk Committee actively provides risk

management oversight, and reviews and challenges on a

regular basis the risk updates provided by the Investment

Manager.

These risks and reviews included:

Counterparty and credit risk

■ reviewing the dynamic levels of risk associated with

the counterparties associated with the Company’s

investments;

■ reviewing stress tests assessing the impact of material

credit counterparty defaults;

■ assessing the Investment Manager’s feedback on

limited mitigants available to the Company; and

■ monitoring compliance with the Company’s Treasury

Policy in relation to exposures to deposit takers.

Operations and business interruption risk

■ receive updates from the Investment Manager on the

risks specific to each asset and the potential impact of

these risks on the valuation of the Company’s portfolio

as a whole;

■ receive and challenge regular formal and informal

updates from the Investment Manager on the level

of business interruption or potential for business

interruption at the operational level of the investments,

particularly focusing on event risks such as the Covid-19

pandemic, the Russian invasion of Ukraine and the

resulting impact on supply chain; and

■ receive a detailed third-party review, arranged by the

Investment Manager, to assess the current levels of

cyber-security risk, particularly in light of the growth of

the Company‘s investment portfolio and the nature of

the underlying investments.

Macro-economic and market risk

■ reviewing the impact of global rises in inflation,

including the sensitivity of the valuations of the

Company’s underlying investments to changes in

inflation in the near, medium and long term;

■ reviewing the impact of the Ukraine conflict and the

emerging risk of larger-scale conflict as well as seeking

assurance on compliance with sanctions;

■ reviewing the impact of global rises in corporation

taxes, including the sensitivity of the valuations of the

Company’s underlying investments to potential changes

not yet enacted, discussing potential mitigants available

to the Company and agreeing reviews to be undertaken

by the Investment Manager; and

■ reviewing the impact on the portfolio of a period of

recessionary environment in the key jurisdictions in

which the Company operates.

Financial Reporting Council review letter

During the reporting period, the Company received a letter

from the FRC’s Corporate Reporting Review team, who

had reviewed the Company’s annual report and financial

statements for the year ended 31 March 2022, as part

of their regular review and assessment of the quality of

corporate reporting in the UK. This review is based solely

on the annual report and financial statements and the

reviewers did not have detailed knowledge of the business

or an understanding of the underlying transactions entered

into. However, it was conducted by staff of the FRC who

have an understanding of the relevant legal and accounting

framework.

The FRC did not have any questions or queries they wished

to raise with regards to the Company’s annual report and

financial statements, and they did not request a response

from the Company. The FRC did, however, include a

number of matters where they believe the users of the

financial statements would benefit from improvements

to existing disclosures, and these recommendations

have been incorporated into this Annual Report and

Accounts, including: improving the presentation of the APM

reconciliations; defining all carbon-related indicators; and

providing clarification for the energy consumption metrics.

Internal Controls and Risk Management

The Audit and Risk Committee is responsible for reviewing

and monitoring the effectiveness of the Company’s internal

control systems and risk-management systems on which it

is reliant.

The Board has considered the need for an internal

audit function, and it has decided that the systems and

procedures employed by the Investment Manager and the

Administrator, including their own internal review processes

and processes in place in relation to the Company, provide

sufficient assurance that a sound system of internal control,

which safeguards the Company’s assets, is maintained.

An internal audit function specific to the Company is

4.6 Audit and Risk Committee Report

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 101

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GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

therefore considered unnecessary at this time; however, the

Board is keeping this under regular review and focuses on

identifying any areas where internal control improvements

can be made.

The Audit and Risk Committee recognises that these

control systems can only be designed to manage rather

than eliminate the risk of failure to achieve business

objectives. It is understood that they provide reasonable,

but not absolute, assurance against material misstatement

or loss, and rely on the operating controls established by the

Company’s Administrator and the Investment Manager.

The Audit and Risk Committee assesses the effectiveness

of the internal controls, internal financial controls and risk

management systems on a continuing basis and receives

regular reports on these systems. The Committee believes

that the Company’s internal controls and processes are

satisfactory, and that appropriate systems are in place.

Furthermore, the Audit and Risk Committee instructed an

external provider to conduct a review of the Investment

Manager’s investment process during the year, which

evaluated the design adequacy and, where applicable,

performed substantive testing on the effectiveness

of controls across the investment lifecycle. The audit

report was rated ‘satisfactory’ and found documentation

evidencing the performance of key control activities

along the investment lifecycle, and noted good practices

including: comprehensive deal packs and documentation

supporting investment analysis; consistent performance

of due-diligence across deals sampled; good budgetary

controls and transparency observed around deal costs;

and good controls over the authentication / validation

of accounts for payment. The provider made one

recommendation to improve the investment process and

this has been incorporated into the existing framework.

Appointment of the Independent Auditor

PricewaterhouseCoopers LLP (“PwC”) was appointed as

independent auditor for the SEEIT group at the IPO of the

Company in December 2018.

The objectivity of the independent auditor is reviewed

by the Audit and Risk Committee, which also reviews

the terms under which the independent auditor may be

appointed to perform non-audit services. The Audit and

Risk Committee reviews the scope and results of the

audit, its cost-effectiveness and the independence and

objectivity of the independent auditor, with particular

regard to any non-audit work that the independent auditor

may undertake and the level of non-audit fees. In order to

safeguard auditor independence and objectivity, the Audit

and Risk Committee ensures that any other advisory and/or

consulting services provided by the independent auditor

does not conflict with its statutory audit responsibilities.

Non-audit services generally only cover reviews of

interim financial statements and capital raising work.

The independent auditor may not undertake any work

for the Company in respect of the preparation of the

financial statements, preparation of valuations used in

financial statements, provision of investment advice, taking

management decisions or advocacy work in adversarial

situations.

The total proposed fees for audit services amounted to

£0.8 million for the year ended 31 March 2023 of which

£0.6 million related to the Company and £0.2 million related

to audit of its direct subsidiary, SEEIT Holdco, and some of

the SEEIT Group’s intermediate and project subsidiaries.

Non-audit fees amounted to £0.1 million for the year ended

31 March 2023 due for the interim review of the Company’s

half yearly financial statements.

Notwithstanding such non-audit services, the Audit and

Risk Committee considers PwC to be independent of the

Company and that the provision of such non-audit services

is not a threat to the objectivity and independence of the

conduct of the audit.

To fulfil its responsibility regarding the independence of

the independent auditor, the Audit and Risk Committee

considered:

■ a report from the independent auditor describing

their arrangements to identify, report and manage any

potential independence threats; and

■ the extent of non-audit services provided by the

independent auditor.

To assess the effectiveness of the external audit process,

the Audit and Risk Committee reviewed:

■ the independent auditor’s fulfilment of the agreed audit

plan and variations from it;

■ the evaluations from the Investment Manager and

Administrator on the performance of the independent

auditor’s team; and

■ all reports highlighting any significant issues that arose

during the course of the audit.

102 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The Audit and Risk Committee is satisfied with PwC’s

effectiveness and independence as auditor having

considered the degree of diligence and professional

scepticism demonstrated by the firm. As such, the

Committee has not considered it necessary during this

period to conduct a tender process for the appointment of

its independent auditor for the year ending 31 March 2023.

As this is the fifth audit conducted by PwC and the fourth

full year of operation of the Company, it is not expected

that the Company will tender the external audit in the near

future.

The Audit and Risk Committee will conduct a formal review

of PwC following the issue of these financial statements

to ensure that the Audit and Risk Committee considers

all aspects of the independent auditor’s service and

performance.

Whistleblowing

The Board has considered the UK Code recommendations

in respect of arrangements by which staff of the Company’s

key advisers and project companies may, in confidence,

raise concerns within their organisations and the Board,

and the Investment Manager has a Whistleblowing Policy

which supports these recommendations.

Sarika Patel

Chair of the Audit and Risk Committee

4.6 Audit and Risk Committee Report

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 103

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STRATEGIC REPORT

FINANCIAL STATEMENTS

4.7 Directors’ Remuneration Report

The Remuneration Committee is chaired by Emma Griffin

and the membership of the Committee comprises all

Directors of the Company, all of whom are independent and

non-executive.

The Board is satisfied that the Committee is properly

constituted. The Company’s Chair is a member of the

Remuneration Committee given his independence at the

time of his appointment and throughout his service.

The Board presents the Directors’ Remuneration Report

for the year ended 31 March 2023, which is made up of

two sections; the Annual Report on Remuneration and the

Directors’ Remuneration Policy report.

Annual Report on Remuneration

The Remuneration Committee’s main functions include:

■ agreeing the policy for the remuneration of the Directors

and reviewing and proposing changes to the Company’s

Remuneration Policy;

■ reviewing and considering ad hoc fees to the Directors

in relation to duties undertaken over and above routine

business; and

■ appointing independent professional external

remuneration consultants, as may be required from time

to time.

The Remuneration Committee met three

times during the

year and operates within clearly defined terms of reference,

which are available on the Company’s website. The

Committee reviewed its terms of reference in March 2023 to

ensure that it continues to operate effectively.

The key activities during the year included the review

of the level of Directors’ annual remuneration proposed

for the next financial year, taking into account advice

received in 2021 from an independent professional

external remuneration consultant, and considering and

recommending to the Board an appropriate level of

Directors’ remuneration for additional, specific corporate

work undertaken during the year, and to review and propose

to shareholders an increase on the cap on the aggregate

Directors’ base remuneration for the year ending 31 March

2023. These activities are described further below.

Regulation requires the Company’s independent auditor

to audit certain disclosures provided. Where disclosures

have been audited, they are indicated as such. The auditor’s

opinion is included in their report on pages 111 to 116.

Statement of the Chair of the

Remuneration Committee

The Committee assists the Board in developing a fair and

transparent framework for setting the levels of Directors’

remuneration while having regard to the Company’s financial

position and performance, remuneration in other companies

of comparable scale and complexity and market statistics

generally. It also reviews the ongoing appropriateness and

relevance of the Directors’ Remuneration Policy. No Director

is involved in determining their own remuneration.

The Board may determine that additional remuneration may

be paid, from time to time, to any one or more Directors in

the event such Director or Directors are requested by the

Board to perform extra or special services on behalf of the

Company. Where the Company requires the Directors to

work on specific corporate actions, such as the raising of

further equity, an additional fee will be determined, on each

occasion, by the Committee and recommended to the Board.

Directors’ Remuneration Review and

review of Directors’ fees for the year to

31 March 2024

During the year, the Committee undertook an analysis on

Directors’ remuneration of comparable companies, together

with the advice received from Trust Associates, who had

undertaken a review of the Directors’ remuneration in 2021

and also further considered the expectations on the time

of the Directors. Based on its analysis, the Committee’s

recommendation is set out below:

■ the base annual Director’s fee be increased to £49,500

(2023: £47,000);

■ the annual fee paid to the Company’s Chair be

increased to £69,500 (2023: £67,000);

■ the annual supplement paid to the Audit and Risk

Committee Chair remains at £5,000 (2023: £5,000);

■ the annual supplement for the roles of Senior

Independent Director and the Remuneration Committee

Chair to remain at £2,000 (2023: £2,000);

■ an annual supplement for the role of the Management

Engagement Committee Chair of £2,000 be introduced

(2023: N/A);

31 The Remuneration Committee had one scheduled meeting during the reporting period and met on two further occasions on an ad hoc basis to discuss

remuneration matters.

104 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

4.7 Directors’ Remuneration Report

continued

■ additional fees, up to a limit of £10,000 per director, continue to be paid for specific corporate work that may be

undertaken during the year ending 31 March 2024 (2023: £10,000); and

■ the cap on the aggregate annual Directors’ base remuneration remains at £400,000 (2023: £400,000).

In the year ended 31 March 2023, an additional fee of £2,500 was paid to each of the Directors on the Board at the time in

respect of work undertaken in relation to the equity capital raising in September 2022. An additional fee of £2,500 was paid

to each of the Directors in June 2022, however, this was earned in respect of work undertaken during the prior financial year,

in relation to a capital raising completed in March 2022.

Directors’ remuneration for the year ended 31 March 2023 (audited)

The table below sets out the Directors’ remuneration for the year ended 31 March 2023:

Fees for the year

ended 31 March

2023

Total

£’000

Fees for the year

ended 31 March

2022

Total

£’000

Tony Roper Chair 69.5 72.5

Helen Clarkson Management Engagement Committee Chair 49.5 57.5

Emma Griffin Remuneration Committee Chair 51.5 54.5

Chris Knowles Senior Independent Director 51.5 54.5

Sarika Patel Audit and Risk Committee Chair 54.5 15.0

Total 276.5 254.0

1 Helen Clarkson was the Audit and Risk Committee Chair for the period from 1 April 2021 to 1 January 2022, although received fees consistent with

remuneration of the Audit and Risk Committee Chair up to 31 March 2022 to ensure an orderly handover to Sarika Patel.

2 Sarika Patel was appointed as a non-executive Director and Audit and Risk Committee Chair on 1 January 2022 and was paid pro rata for the year ended

31March 2022 accordingly.

The Directors’ remuneration for the year ended 31 March 2023, detailed in the table above, is inclusive of the increases

in the Directors’ fees, approved by the shareholders at the AGM held on 12 September 2022 and the £2,500 additional

fee paid for specific corporate work in September 2022 to each Director. An explanation of the additional fee paid for the

specific corporate work is set out in this Remuneration Report. For the year ended 31 March 2022, additional fees of £7,500

in aggregate were paid to each Director in respect of specific corporate work undertaken in September 2021 and March

2022.

The Directors are also entitled to be paid all reasonable expenses properly incurred by them in connection with the

performance of their duties. These expenses include those associated with AGMs, Board or Committee meetings and legal

fees. In the year, such expenses were de minimis and were in line with the Directors’ Expenses Policy.

There are no other taxable benefits payable by the Company other than certain expenses which may be deemed to be

taxable. None of the above fees were paid to third parties.

Annual Percentage Change in the Directors’ Remuneration

The annual percentage change in remuneration in respect of the financial years prior to the current year in respect of

each Director role is detailed in the table below. The annual percentage change is calculated based on the aggregate

annual base Director’s remuneration plus an additional fee for acting in the role as either Chair of the Company, Senior

Independent Director or as the Chair of a Board Committee. The percentage calculation excludes any additional fees

earned for corporate transaction work as described further above.

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 105

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Director Role Date appointed

Financial

year to

31 March

2021

Financial

year to

31 March

2022

Financial

year to

31 March

2023

Tony Roper Chair 12 October 2018 11.1% 30.0% 3.1%

Helen Clarkson

Management Engagement Committee

Chair

12 October 2018 14.2% 25.0% (6.0)%

Emma Griffin Remuneration Committee Chair 21 October 2020 – 17.5% 4.3%

Chris Knowles Senior Independent Director 12 October 2018 14.2% 17.5% 4.3%

Sarika Patel

Audit and Risk Committee Chair 1 January 2022 – – –

1 Helen Clarkson was the Audit and Risk Committee Chair for the period from 1 April 2021 to 1 January 2022, although received fees consistent with

remuneration of the Audit and Risk Committee Chair up to 31 March 2022 to ensure an orderly handover to Sarika Patel.

2 Sarika Patel was appointed as a non-executive Director and Audit and Risk Committee Chair on 1 January 2022 and fees were paid pro rata for the year

ended 31 March 2022 accordingly. If Sarika had been a non-executive Director and the Audit and Risk Committee Chair for the full year to 31 March 2022,

the annual percentage change in her remuneration for the year to 31 March 2023 would be 4.0%.

Relative Importance of Spend on Pay

The table below sets out the remuneration paid to the Directors in comparison to total aggregate amount of dividends paid

to the Company’s shareholders for the year ended 31 March 2023:

Year to

31 March

2023

£’000

Year to

31 March

2022

£’000 % change

Directors’ remuneration 276.5 254.0 8.9

Dividends paid to shareholders 62,029 44,207 40.3

Company Performance

Total Shareholder Return Since SEIT IPO

(40.0%)

(30.0%)

(20.0%)

(10.0%)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Dec-18 Jun-19 Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23

Total Shareholder Return (Dividends Reinvested)

SEEIT: (2.2%) FTSE 100: +11.6% FTSE 250: +4.8%

(2.2%)

+11.6%

+4.8%

The graph above highlights the comparative total shareholder return (“TSR”) for an investment in the Company from

inception to 31 March 2023 compared with an investment in the FTSE 250 index over the same period. The Company is a

member of the FTSE 250 and All Index hence they have been selected for this graph.

The Board is responsible for the Company’s investment strategy and performance, although day-to-day management of the

Company’s affairs, including the management of the Company’s portfolio, has been delegated to the Investment Manager.

An explanation of the performance of the Company is given in Section 2.3, Financial Review and Valuation Update.

106 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Directors Interests in the Company (audited)

As at 31 March 2023, the interests of the Directors and any Persons Closely Associated (“PCAs”), as defined in Article 3(1)(26)

of the Market Abuse Regulation (“MAR”), in the ordinary shares of the Company are set out in the table below:

Ordinary shares of

£0.01 each held at

31 March 2023

Ordinary shares of

£0.01 each held at

31 March 2022

Tony Roper 148,500 128,500

Helen Clarkson 20,000 8,326

Emma Griffin 20,509 20,509

Christopher Knowles

94,000 37,000

Sarika Patel 25,000 –

Total 308,009 194,335

1 Christopher Knowles’ spouse, who is a PCA of Chris Knowles under MAR, holds 37,000 ordinary shares in the Company and these are included in the

figure shown in the above table. Other family members of Chris Knowles hold an additional 85,000 ordinary shares in the Company. These other family

members holding ordinary shares in the Company do not meet the definition of PCA under MAR.

There have been no changes to any of the above holdings between 31 March 2023 and the date of this report.

None of the Directors or any of their PCAs had a material interest in the Company’s transactions, arrangements or

agreements during the year.

As at the date of this report, Jonathan Maxwell, CEO and Founder of the Investment Manager, holds 240,000 ordinary

shares. Jonathan Maxwell is considered to be a Person Discharging Managerial Responsibilities (“PDMR”) by both the

Board of Directors and Investment Manager.

There have been no changes in the year in respect of each of the Directors as notifiable to the Company in accordance with

DTR 3.1.2.

Statement of voting at AGM on the Annual Report

A binding Ordinary Resolution approving the Remuneration Policy, and an advisory vote adopting the Directors’ Remuneration

Report for the year ended 31 March 2022, were approved by shareholders at the AGM held on 12 September 2022.

The votes cast by proxy were as follows:

Directors’

Remuneration

Report

(AGM 2022)

Remuneration

Policy

(AGM 2022)

Votes for 838,768,176 838,755,779

% 99.68 99.68

Votes against 2,720,538 2,723,252

% 0.32 0.32

Total votes cast 841,488,714 841,479,031

Votes withheld 20,052 29,735

A resolution to approve this Directors’ Remuneration Report in respect of the year ending 31 March 2023 will be proposed

at the forthcoming AGM. The Directors’ Remuneration Policy is required to be presented to shareholders for approval every

three years and is due to be next presented at the AGM to be held in 2025.

4.7 Directors’ Remuneration Report

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 107

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Remuneration Policy

This Remuneration Policy provides details of the Remuneration

Policy for the Directors of the Company. All Directors are

independent and non-executive, appointed under the terms

of Letters of Appointment, and none of the Directors has a

service contract. The Company has no employees.

This Remuneration Policy was approved by shareholders at the

AGM of the Company held on 12 September 2022 and is also

available on request at the Company’s registered office.

The Company follows the recommendation of the AIC Code

that non-executive Directors’ remuneration should reflect the

time commitment and responsibilities of the role.

The Board’s policy is that the remuneration of non-executive

Directors should reflect the experience of the Board as a

whole and be determined with reference to comparable

organisations and appointments.

The fees of the non-executive Directors are determined within

the limits set out in the Company’s Articles of Association and

Directors’ remuneration is determined by the Remuneration

Committee, at its discretion within the current aggregate

limit of £400,000, as set out in the Company’s Articles of

Association.

There are no performance conditions attached to the

remuneration of the Directors as the Board does not consider

such arrangements or benefits necessary or appropriate for

non-executive Directors.

The Company is committed to ongoing shareholder dialogue

and any views expressed by shareholders on the fees being

paid to Directors would be taken into consideration by the

Board when reviewing the Directors’ Remuneration Policy and

in the annual review of Directors’ fees.

Under the Directors’ letters of appointment, there is

no notice period. All Directors of the Company receive

an annual fee appropriate for their responsibilities and

time commitment but no other incentive programme or

performance-related emoluments. As such there are:

■ no service contracts with the Company;

■ no long-term incentive schemes;

■ no options or similar performance incentives; and

■ no payments for loss of office unless approved by

shareholder resolution.

The Directors’ remuneration shall:

■ reflect the responsibility, experience, time commitment

and position of each Director on the Board;

■ allow the Chair, Senior Independent Director, Audit and

Risk Committee Chair, and Remuneration Committee

Chair to be remunerated in excess of any potential

remaining Board members to reflect their increased

roles of responsibility and accountability;

■ be paid quarterly in arrears;

■ include remuneration for additional, specific corporate

work, which shall be carefully considered and only

become due and payable on completion of that work;

and

■ be reviewed annually and, at least every three years,

by an independent professional external remuneration

consultant with experience of investment companies

and their fee structures.

The Remuneration Committee met in June 2022 to approve

an additional fee of £2,500, earned by each of the Directors in

respect of work undertaken in relation to the capital raising in

March 2022. This additional fee agreed by the Remuneration

Committee forms part of the Directors’ Remuneration for the

year ended 31 March 2022, approved by shareholders at the

Company’s AGM held on 10 August 2021.

At the meeting of the Remuneration Committee in June

2022, the Committee also considered the cap on the

aggregate Directors’ base remuneration in light of proposed

fee increases for the year ending 31 March 2023 and

the appointment of a fifth Director in January 2022, and

determined there was insufficient headroom in the fee cap

should the Board look to recruit an additional Director in the

future. Accordingly, the Committee proposed the fee cap be

increased from £300,000 to £400,000 and this proposal was

approved by shareholders at the 2022 AGM, with 99.99% of

votes being cast in favour of the resolution.

The Remuneration Committee met in March 2023 to

consider the current levels of annual base Directors’

remuneration and the proposed level of base Directors’

remuneration for the year ending 31 March 2024. The

Committee concluded that the proposed changes to the

Director’s annual remuneration be recommended and were

put to the Board for approval.

108 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The Remuneration Committee also met in September 2022 to approve an additional fee of £2,500, earned by each of the

Directors in respect of work undertaken in relation to the capital raising in September 2022. This additional fee, agreed by the

Remuneration Committee and recommended to the Board for approval, forms part of the Directors’ Remuneration for the year

ended 31 March 2023, approved by shareholders at the Company’s AGM held on 12 September 2022.

Proposed Base Directors’ Fees to be Paid for the Year Ending 31 March 2024:

Proposed base fees

to be paid for the

year ending

31 March 2024

Total

£’000

Base fees paid for

the year ended

31 March 2023

Total

£’000

Tony Roper Chair 69.5 67.0

Helen Clarkson Management Engagement Committee Chair 51.5 47.0

Emma Griffin Remuneration Committee Chair 51.5 49.0

Chris Knowles Senior Independent Director 51.5 49.0

Sarika Patel Audit and Risk Committee Chair 54.5 52.0

Total 278.5 264.0

The above table does not show fees paid for specific corporate work undertaken by the Directors for the year ended 31 March 2023. At its discretion, the

Remuneration Committee has the authority to grant additional fees, up to a limit of £10,000 in aggregate per Director, for specific work that may be undertaken

during the financial year. During the year ended 31 March 2023, each Director of the Company received a total of £2,500 for corporate work undertaken as part

of the September 2022 capital raise exercises.

The proposed remuneration recommendations for the year ended 31 March 2024 would result in an increase in the

aggregate Directors’ annual base remuneration to £278,500 in the coming year.

The Board also considered the availability of each Director, taking into account their other commitments, and concluded

that each Director made adequate time available for the appropriate discharge of the Company’s affairs. Each Director

abstains from voting on their own individual remuneration.

The Board has adopted the recommendations from the Remuneration Committee and will seek shareholder approval at the

upcoming 2023 AGM in relation to the proposed remuneration payable to the Directors for the year ending 31 March 2024

with a view to implementing the proposed increases backdated to the start of the Company’s current fiscal year.

The Directors’ Remuneration Report was approved by the Board on 28 June 2023 and signed on its behalf by:

Emma Griffin

Chair of the Remuneration Committee

4.7 Directors’ Remuneration Report

continued

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FINANCIAL STATEMENTS

4.8 Statement of Directors’ Responsibilities

Statement of Directors’ Responsibilities

in Respect of the Financial Statements

The Directors are responsible for preparing the Annual

Report and the financial statements in accordance with

applicable law and regulation.

Company law requires the Directors to prepare financial

statements for each financial year. Under that law, the

Directors have prepared the financial statements in

accordance with UK-adopted international accounting

standards.

Under company law, directors must not approve the

financial statements unless they are satisfied that they give

a true and fair view of the state of affairs of the company

and of the profit or loss of the company for that period.

In preparing the financial statements, the directors are

required to:

■ select suitable accounting policies and then apply them

consistently;

■ state whether applicable UK-adopted international

accounting standards have been followed, subject to

any material departures disclosed and explained in the

financial statements accounts; and

■ make judgements and accounting estimates that are

reasonable and prudent; and

■ prepare the financial statements on the going concern

basis unless it is inappropriate to presume that the

company will continue in business.

The Directors are responsible for safeguarding the assets of

the Company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are also responsible for keeping adequate

accounting records that are sufficient to show and explain

the Company’s transactions and disclose with reasonable

accuracy at any time the financial position of the Company

and enable them to ensure that the financial statements

and the Directors’ Remuneration Report comply with the

Companies Act 2006.

The Directors are responsible for the maintenance and

integrity of the Company’s website. Legislation in the United

Kingdom governing the preparation and dissemination of

financial statements may differ from legislation in other

jurisdictions.

Directors’ Confirmations

The Directors consider that the Annual Report and

Accounts, taken as a whole, is fair, balanced and

understandable and provides the information necessary

for shareholders to assess the Company’s position and

performance, business model and strategy.

Each of the Directors, whose names and functions are

listed in Section 4.2, Board of Directors, confirm that, to the

best of their knowledge:

■ the Company financial statements, which have been

prepared in accordance with UK-adopted international

accounting standards, give a true and fair view of the

assets, liabilities, financial position and result of the

company; and

■ the Strategic Report: Portfolio Review includes a fair

review of the development and performance of the

business and the position of the Company, together with

a description of the principal risks and uncertainties that

it faces.

In the case of each Director in office at the date the

Directors’ report is approved:

■ so far as the Director is aware, there is no relevant

audit information of which the Company’s auditors are

unaware; and

■ they have taken all the steps that they ought to have

taken as a Director in order to make themselves aware

of any relevant audit information and to establish that

the Company’s auditors are aware of that information.

The Annual Report and financial statements were approved

by the Board on 28 June 2023 and the above responsibility

statement was signed on its behalf by:

Tony Roper

Chair

FINANCIAL

STATEMENTS

Pictured: Oliva Spanish Cogeneration site

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STRATEGIC REPORT

FINANCIAL STATEMENTS

Independent auditors’ report to the

members of SDCL Energy Efficiency

Income Trust plc

Report on the audit of the financial statements

Opinion

In our opinion, SDCL Energy Efficiency Income Trust plc’s financial statements:

● give a true and fair view of the state of the company’s affairs as at 31 March 2023 and of its loss and cash flows for the

year then ended;

● have been properly prepared in accordance with UK-adopted international accounting standards; and

● have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Audited Financial Statements (the “Annual

Report”), which comprise: the statement of financial position as at 31 March 2023; the statement of comprehensive income,

the statement of changes in shareholders' equity and the statement of cash flows for the year then ended; and the notes to

the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit and Risk Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our

responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements

section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our opinion.

Independence

We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the

financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and

we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were

not provided.

Other than those disclosed in the notes to the financial statements, we have provided no non-audit services to the company

or its controlled undertakings in the period under audit.

Our audit approach

Overview

Audit scope

● The company invests in a diversified portfolio of energy efficient projects through an intermediate holding company named

SEEIT Holdco Limited. We performed an audit of the company including its investment in SEEIT Holdco Limited.

● All of our audit work was conducted in the UK by the company audit team.

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Key audit matters

● Valuation of Investments at fair value through profit or loss

● Ability to continue as a going concern (Continuation vote)

Materiality

● Overall materiality: £11.3m (2022: £10.7m) based on 1% of total assets.

● Performance materiality: £8.5m (2022: £8.1m).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial

statements.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of

the financial statements of the current period and include the most significant assessed risks of material misstatement

(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit

strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any

comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial

statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Ability to continue as a going concern (Continuation vote) is a new key audit matter this year. Otherwise, the key audit

matters below are consistent with last year.

Key audit matter How our audit addressed the key audit

matter

Valuation of Investments at fair value through

profit or loss

The company has £1,127.8 million of investments

recorded at fair value and these are significant in

the context of the overall balance sheet of the

company. See note 11 for details.

We planned our audit to critically assess

management’s assumptions and the investment

valuation model in which they are applied;

The company invests through a holding company

which in turn holds debt and equity interests in

project companies (the “underlying investment

portfolio”) for which there is no liquid market.

We have evaluated the design and

implementation of relevant controls over the

preparation of the portfolio valuation;

The fair value of the underlying investment

portfolio has principally been valued on a

discounted cash flow basis, which necessitates

significant estimates in respect of the forecasted

cash flows and discount rates applied.

We assessed the reasonableness of the

assumptions made by management in the

applicable valuation models;

We tested the mathematical accuracy of the

selected sample of valuation models;

The directors’ assessment of those fair values

involves estimates about the future results of the

underlying businesses, in particular around future

revenues, growth rates and discount rates applied

to future cash flow forecasts where there is a

higher degree of sensitivity. Based on the

historical performance of investments and best

estimates of future assumptions, the directors

believe that these fair values are reasonable.

We performed detailed testing over a sample of

models and significant inputs for the selected

sample of investments. This testing entailed

challenging key inputs in those models and

obtaining appropriate supporting documentation

and evidence;

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Determining the valuation methodology and the

inputs and assumptions within the valuation is

subjective and complex. This, combined with the

significance of the unlisted investments balance in

the statement of financial position, meant that

this was a key audit matter for our current year

audit.

We specifically considered management’s

assessment of the valuation impact of climate

change on the future cashflows assumed in the

models and obtained further evidence to support

management’s assumptions;

We used our internal valuation specialists in the

United Kingdom, United States, Sweden and

Spain to provide audit support in reviewing and

concluding on the fair valuation of certain

investments in the underlying investment

portfolio. They (a) reviewed the appropriateness

of the valuation methodology and approach and

(b) reviewed and commented on the discounted

cash flow valuation models, including comparing

the discount rate and certain other key

assumptions against those used by comparable

market participants, where appropriate and/or

other macroeconomic data and (c) concluded

that the overall valuation is within a reasonable

range;

In addition, our valuation specialists have also

challenged the independent third party reports

that management have obtained to support the

valuation of certain assets within the portfolio;

and

We have concluded that the overall valuation of

the portfolio as a whole is reasonable.

Ability to continue as a going concern

(Continuation vote)

Refer to the Going Concern section in the Report

of the Directors and in the Note 2 to the financial

statements.

Our audit procedures and findings in respect of

going concern are set out in the "Conclusions

relating to Going Concern' section below.

A continuation vote is due to take place at the

September 2023 AGM as required by the

company’s articles of association. A continuation

vote, by its nature requires the Directors to

consider and assess the potential impact on the

ability of the company to continue as a going

concern.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial

statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the

industry in which it operates.

As part of designing our audit approach, we determined materiality and assessed the risks of material misstatement in the

financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of

significant accounting estimates that involved making assumptions and considering future events that are inherently

uncertain.

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The impact of climate risk on our audit

As part of our audit we made enquiries of management to understand the extent of the potential impact of climate risk on

the financial statements, and we remained alert when performing our audit procedures for any indicators of the impact of

climate risk. Our procedures did not identify any material impact as a result of climate risk on the company’s financial

statements.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and

extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of

misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall company

materiality

£11.3m (2022: £10.7m).

How we

determined it

Based on 1% of total assets

Rationale for

benchmark

applied

We believe that total assets is

the most appropriate benchmark because this is the

key metric of interest to investors, and is a generally accepted measure used for

companies in this industry.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and

undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope

of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example

in determining sample sizes. Our performance materiality was 75% (2022: 75%) of overall materiality, amounting to £8.5m

(2022: £8.1m) for the company financial statements.

In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment

and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range

was appropriate.

We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above

£0.56m (2022: £0.54m) as well as misstatements below that amount that, in our view, warranted reporting for qualitative

reasons.

Conclusions relating to going concern

Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of

accounting included:

● In relation to the continuation vote specifically, we considered:

o that the directors have confirmed that they will recommend support for the continuation vote;

o the stability and diversity of the company’s shareholder register and the type of shareholders on the

o the track record of company’s performance;

o the company’s history of successful fund raising since listing;

o the diversity of the company’s investment portfolio;

o the performance of the company compared to similar investment trusts and the renewables sector;

o the company’s share price compared with its net asset value per share;

o the potential outcomes of the continuation vote and the consequent impact on the ability of the company

to continue as a going concern; and

o the discussions with and/or feedback received by the Board and Investment Manager from a range of

shareholders.

● Testing the mathematical integrity of the cash flow forecasts and the models and reconciled these to Board approved

budgets;

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● Challenging management on the appropriateness of key assumptions and considering their reasonableness in the

context of other supporting evidence gained from our audit work;

● Reviewing the revolving credit facility agreement to confirm the terms and conditions, including covenants. The covenants

were consistent with those used in management’s going concern assessment;

● Agreeing all cash balances as at 31 March 2023 to third-party evidence and considering the available financing. This

supported the directors’ conclusion that sufficient liquidity headroom remained throughout the assessment period;

● Testing the mathematical accuracy of the projected covenant calculations. We concluded that covenant compliance

remained throughout the assessment period; and

● Reviewing the management’s severe downside scenario to assess the viability of the company in such circumstances

which included an assessment of the company’s ability to meet its debt covenants where appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of

at least twelve months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in

the preparation of the financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's

ability to continue as a going concern.

In relation to the directors’ reporting on how they have applied the AIC Corporate Governance Code, we have nothing material

to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors

considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant

sections of this report.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our

auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does

not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise

explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,

consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in

the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material

misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial

statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that

there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based

on these responsibilities.

With respect to the Strategic report and Report of the Directors, we also considered whether the disclosures required by the

UK Companies Act 2006 have been included.

Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions

and matters as described below.

Strategic report and Report of the Directors

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and

Report of the Directors for the year ended 31 March 2023 is consistent with the financial statements and has been prepared

in accordance with applicable legal requirements.

In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did

not identify any material misstatements in the Strategic report and Report of the Directors.

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Directors' Remuneration

In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with

the Companies Act 2006.

Corporate governance statement

The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that

part of the corporate governance statement relating to the company’s compliance with the provisions of the AIC Corporate

Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement

as other information are described in the Reporting on other information section of this report.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate

governance statement is materially consistent with the financial statements and our knowledge obtained during the audit,

and we have nothing material to add or draw attention to in relation to:

● The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;

● The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify

emerging risks and an explanation of how these are being managed or mitigated;

● The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going

concern basis of accounting in preparing them, and their identification of any material uncertainties to the company’s

ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

● The directors’ explanation as to their assessment of the company’s prospects, the period this assessment covers and

why the period is appropriate; and

● The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in

operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures

drawing attention to any necessary qualifications or assumptions.

Our review of the directors’ statement regarding the longer-term viability of the company was substantially less in scope than

an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking

that the statement is in alignment with the relevant provisions of the AIC Corporate Governance Code; and considering

whether the statement is consistent with the financial statements and our knowledge and understanding of the company and

its environment obtained in the course of the audit.

In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of

the corporate governance statement is materially consistent with the financial statements and our knowledge obtained

during the audit:

● The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,

and provides the information necessary for the members to assess the company's position, performance, business

model and strategy;

● The section of the Annual Report that describes the review of effectiveness of risk management and internal control

systems; and

● The section of the Annual Report describing the work of the Audit and Risk Committee.

We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s

compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the

Listing Rules for review by the auditors.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of

the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair

view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of

financial statements that are free from material misstatement, whether due to fraud or error.

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FINANCIAL STATEMENTS

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going

concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless

the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance

is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect

a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of

these financial statements.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with

our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent

to which our procedures are capable of detecting irregularities, including fraud, is detailed below.

Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws

and regulations related to environmental regulations, and we considered the extent to which non-compliance might have a

material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the

financial statements such as the Companies Act 2006 and UK Tax legislation. We evaluated management’s incentives and

opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined

that the principal risks were related to the valuation of investments and posting inappropriate journal entries to achieve desired

financial results. Audit procedures performed by the engagement team included:

● Discussions with management, including consideration of known or suspected instances of non-compliance with laws

and regulations and fraud;

● Evaluation of design and implementation of management's controls designed to prevent and detect irregularities.

However, we have not relied on controls as substantive procedures are determined to be more effective for this audit;

● Reviewing the minutes of meetings of the Board and its committees;

● Challenging the assumptions and judgments made by management in their significant accounting estimates relating to

the valuation of investments; and

● Identifying and testing journal entries, in particular certain journal entries posted with unusual account combinations.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of

non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial

statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one

resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,

or through collusion.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing

techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete

populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases,

we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with

Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or

assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may

come save where expressly agreed by our prior consent in writing.

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Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

● we have not obtained all the information and explanations we require for our audit; or

● adequate accounting records have not been kept by the company, or returns adequate for our audit have not been

received from branches not visited by us; or

● certain disclosures of directors’ remuneration specified by law are not made; or

● the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the

accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit and Risk Committee, we were appointed by the members on 10 December 2018

to audit the financial statements for the year ended 31 March 2019 and subsequent financial periods. The period of total

uninterrupted engagement is five years, covering the years ended 31 March 2019 to 31 March 2023.

Other matter

In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these

financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of

the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’

report provides no assurance over whether the annual financial report will be prepared using the single electronic format

specified in the ESEF RTS.

Matthew Mullins (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

Watford

28 June 2023

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Note

For the

year ended

31 March 2023

£’millions

For the

year ended

31 March 2022

£’millions

Investment (loss)/income 5 (7.8) 88.8

Total operating income (7.8) 88.8

Finance income 1.2 –

Fund expenses 6 (12.0) (9.0)

(Loss)/Profit for the year before tax (18.6) 79.8

Tax on (loss)/profit on ordinary activities 7 – –

(Loss)/Profit for the year (18.6) 79.8

Total comprehensive (loss)/income for the year (18.6) 79.8

Attributable to:

Equity holders of the Company (18.6) 79.8

(Loss)/Earnings Per Ordinary Share (pence) 8 (1.8) 10.0

The accompanying Notes are an integral part of these financial statements.

All items in the above Statement derive from continuing operations.

Statement of Comprehensive Income

For the year ended 31 March 2023

5.2 Financial Statements

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Note

31 March 2023

£’millions

31 March 2022

£’millions

Non-current assets

Investment at fair value through profit or loss 11 1,127.8 928.2

1,127.8 928.2

Current assets

Trade and other receivables 0.6 0.3

Cash and cash equivalents 0.3 146.1

0.9 146.4

Current liabilities

Trade and other payables (3.3) (1.5)

Net current (liabilities)/assets (2.4) 144.9

Net assets 1,125.4 1,073.1

Capital and reserves

Share capital 12 11.1 9.9

Share premium 12 1,056.8 925.1

Other distributable reserves 12 39.3 39.3

Retained earnings 18.2 98.8

Total equity 1,125.4 1,073.1

Net assets per share (pence) 10 101.5 108.4

The accompanying Notes are an integral part of these financial statements.

The financial statements on pages 119 to 141 were approved by the Board of Directors on 28 June 2023 and signed on its behalf by:

Sarika Patel Tony Roper

Director Director

Company number: 11620959

Statement of Financial Position

as at 31 March 2023

5.2 Financial Statements

continued

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Note

Share Capital

£’millions

Premium

£’millions

Other

distributable

reserves

£’millions

Retained

earnings

£’millions

Total

Equity

£’millions

Balance at 1 April 2022 9.9 925.1 39.3 98.8 1,073.1

Shares issued 12 1.2 133.8 – – 135.0

Share issue costs 12 – (2.1) – – (2.1)

Dividends paid 9 – – – (62.0) (62.0)

Loss and total comprehensive loss

for the year – – – (18.6) (18.6)

Balance at 31 March 2023 11.1 1,056.8 39.3

18.2

1,125.4

Note

Share Capital

£’millions

Premium

£’millions

Other

distributable

reserves

£’millions

Retained

earnings

£’millions

Total

Equity

£’millions

Balance at 1 April 2021 6.8 584.4 58.1 44.4 693.7

Shares issued 3.1 346.9 – – 350.0

Share issue costs – (6.2) – – (6.2)

Dividends paid

– – (18.8) (25.4) (44.2)

Profit and total comprehensive

income for the year – – – 79.8 79.8

Balance at 31 March 2022 9.9 925.1 39.3 98.8 1,073.1

The accompanying Notes are an integral part of these financial statements.

Statement of Changes in Shareholders’ Equity

For the year ended 31 March 2023

122 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Note

For the

year ended

31 March 2023

£’millions

For the

year ended

31 March 2022

£’millions

Cashflows from operating activities

Total Comprehensive (loss)/income for the year before tax (18.6) 79.8

Adjustments for:

Loss/(gain) on investment at fair value through profit or loss 74.3 (47.8)

Loan interest income 5 (9.0) (7.3)

Operating cashflows before movements in working capital 46.7 24.7

Changes in working capital

(Increase) in trade and other receivables (0.3) –

Increase in trade and other payables 1.8 0.3

Net cash generated from operating activities 48.2 25.0

Cashflows from investing activities

Additional investment in Holdco 11 (292.4) (319.9)

Loan principal repayment received 11 18.5 12.0

Loan interest income received 9.0 7.3

Net cash used in investing activities (264.9) (300.6)

Cashflows from financing activities

Proceeds from the issue of shares 12 135.0 350.0

Payment of share issue costs (2.1) (6.2)

Dividends paid 9 (62.0) (44.2)

Net cash generated from financing activities 70.9 299.6

Net movement during the year (145.8) 24.0

Cash and cash equivalents at the beginning of the Year 2 146.1 122.1

Cash and cash equivalents at the end of the year 2 0.3 146.1

The accompanying Notes are an integral part of these financial statements.

Statement of Cash Flows

For the year ended 31 March 2023

5.2 Financial Statements

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 123

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

5.3 Notes to the Financial Statements

1. General Information

SDCL Energy Efficiency Income Trust plc (the “Company”) is a

Public Company limited by shares, incorporated on 12 October 2018

and registered and domiciled in England, United Kingdom under

number 11620959 pursuant to the Companies Act 2006 and is the

ultimate controlling party of the group. The Company’s registered

office and principal place of business is 6th Floor, 125 London Wall,

London, EC2Y 5AS.

The Company’s ordinary shares were first admitted to the premium

segment of the UK Listing Authority’s Official List and to trading on

the Main Market of the London Stock Exchange under the ticker

SEIT on 11 December 2018.

The Company’s objective is to generate an attractive total return

for investors comprising stable dividend income and capital

preservation, with the opportunity for capital growth through the

acquiring and realising of a diverse portfolio of energy efficiency

infrastructure projects.

The Company currently makes its investments through its principal

holding company and single subsidiary, SEEIT Holdco, and

intermediate holding companies which are directly owned by the

Holdco. The Company controls the investment policy of each of the

Holdco and its intermediate holding companies in order to ensure

that each will act in a manner consistent with the investment policy

of the Company.

The Company has appointed Sustainable Development Capital LLP

as its Investment Manager (the “Investment Manager”) pursuant

to the Investment Management Agreement dated 22 November

2018. The Investment Manager is registered in England and Wales

under number OC330266 pursuant to the Companies Act 2006. The

Investment Manager is regulated by the FCA, number 471124.

The financial statements are presented in pounds sterling because

that is the currency of the primary economic environment in which

the Company operates. All values are rounded to the nearest million

(£ million), except otherwise indicated. As a result, the prior year

numbers have been rounded to the nearest million to facilitate

comparability.

2. Significant Accounting Policies

a) Basis of Accounting

The financial statements of the Company have been prepared in

accordance with UK-adopted International Accounting Standards

and with the requirements of the Companies Act 2006, as applicable

to companies reporting under those standards. The financial

statements are prepared under the historical cost convention, except

for certain investments and financial instruments measured at fair

value through the Statement of Comprehensive Income.

Fair value is the price that would be received on sale of an asset or

paid to transfer a liability in an orderly transaction between market

participants at the measurement date, regardless of whether that

price is directly observable or estimated using another valuation

technique. In estimating the fair value of an asset or liability, the

Company takes into account the characteristics of the asset or

liability if market participants would take those characteristics into

account when pricing the asset or liability at the measurement

date. Fair value for measurement and/or disclosure purposes in

these financial statements is determined on such a basis.

The principal accounting policies adopted are set out below and

consistently applied, subject to changes in accordance with any

amendments in IFRS.

(i) New standards and amendments to existing standards

effective 1 April 2022

There are no standards, amendments to standards or interpretations

that are effective for annual periods beginning on 1 April 2022 that

have a material effect on the financial statements of the Company.

(ii) New standards, amendments and interpretations

effective after 1 April 2022 and have not been early

adopted

A number of new standards, amendments and interpretations are

effective for annual periods beginning after 1 April 2022 and have

not been early adopted in preparing these financial statements.

None of these are expected to have a material effect on the

financial statements of the Company.

b) IFRS 10 – Basis of Consolidation and

Investment Entities Exemption

The Company applies IFRS 10 Consolidated Financial Statements.

As in the previous year, the Directors have concluded that in

accordance with IFRS 10, the Company continues to meet the

definition of an investment entity having re-evaluated the criteria

(see below) that need to be met. The financial statements therefore

comprise the results of the Company only and no subsidiaries are

consolidated on a line by line basis.

The Company invests its investable cash into SEEIT Holdco when

a targeted investment has been approved by the Investment

Manager’s Investment Committee. The sole objective of the

Holdco is to enter into several energy efficiency projects, via

individual corporate entities. The Holdco issues equity and loans to

finance the projects. Holdco also incurs overheads and borrowings

on behalf of the group. As a result, the Directors have provided an

alternative presentation of the Company’s results in the Strategic

Report which includes a consolidation of Holdco.

Under IFRS 10 investment entities are required to hold subsidiaries

at fair value through the Statement of Comprehensive Income

rather than consolidate them. There are three key conditions to be

met by the Company for it to meet the definition of an investment

entity. For each reporting period, the Directors assess whether the

Company continues to meet these conditions:

(i) The Company has obtained funds for the purpose of providing

investors with investment management services;

(ii) The business purpose of the Company, which was

communicated directly to investors, is investing solely for

risk-adjusted returns (including having an exit strategy for

investments); and

(iii) the performance of substantially all investments is measured

and evaluated on a fair value basis.

Notes to the Financial Statements

For the year ended 31 March 2023

124 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

The Company is an investment company, providing investors

exposure to a diversified portfolio of energy efficiency infrastructure

projects that are managed for investment purposes.

During the year ended 31 March 2023, the Company, via Holdco,

made significant new investments, and as a result the size of the

Company increased. These investments are described in Note 11.

These investments were made in line with the stated objective of

the Company to generate returns from capital appreciation and

investment income in accordance with the strategy that has been

set by the Directors. The Directors assessed each new investment

carefully in order to determine whether the Company as a whole

still meets the definition of an investment entity.

As part of the assessments the Directors had regard for the nature

of the underlying business and operations and the exit strategy

of each new investment and how that compared to the already

existing portfolio. The Company’s exit of investments may be at

the time each investment reaches its current assumed end of

economic life. The Company is investing in a sector for which there

is an active secondary market and therefore the Company may

also exit investments at an earlier stage for profit or for portfolio

rationalisation purposes.

The assessments concluded that the new investments shared

similar characteristics to the existing investments, are in line

with the business purpose of the Company and that each has an

appropriate exit strategy. In particular, the Directors noted that:

■ the underlying businesses and the structure of the new

investments are in keeping with the existing portfolio through

the provision of energy efficiency services to clients, or host

counterparties, predominantly through long-term contracted

agreements;

■ the underlying businesses are set up as Special Purpose

Vehicles (SPV’s) and although each SPV can have an indefinite

life, the equipment associated with providing such services

have finite lives, are capable of being upgraded or sold and the

contracts can be renewed;

■ as part of the exit strategy for each new investment, the

structure of that investment is such that it could be readily

made available for sale; and

■ each new investment is measured at fair value.

Exit strategy:

The Company’s general approach to exit is as follows:

■ The investments can be traded on the secondary market between

willing buyers and willing sellers, therefore the Company can sell

its interest in a project, via Holdco, before the end of its project life

if there is an attractive offer from a buyer where the valuation is

higher than the carrying of the specific asset.

■ Investments are not indefinite. Generally SEEIT would invest

in a project for the maximum time frame during which it could

achieve required capital appreciation and returns acceptable

for the Company’s shareholders even though the useful life

of the underlying assets can be longer than the period the

investment is held.

After assessing whether the Company meets the definition of an

investment entity set out in IFRS 10 the Directors concluded that

as a whole:

(i) the Company has multiple investors with shares issued

publicly on London Stock Exchange and obtains funds from a

diverse group of shareholders who would otherwise not have

access individually to investing in energy efficiency projects;

(ii) the Company’s purpose is to invest funds for both investment

income and capital appreciation. The Holdco and its SPVs

have indefinite lives however the underlying assets have

minimal residual value because they do not have unlimited

lives, are not to be held indefinitely and have appropriate exit

strategies in place; and

(iii) the Company measures and evaluates the performance of

all of its investments on a fair value basis which is the most

relevant for investors in the Company. The Directors use fair

value information as a primary measurement to evaluate the

performance of all of the investments and in decision making.

c) Going Concern

The Directors have considered the following current matters

alongside the regular cashflow and business activities in assessing

that it is appropriate to prepare the financial statements on a going

concern basis:

Continuation Vote

The Articles of the Company provide that a continuation vote

be put to shareholders at the upcoming AGM to be held in

September2023.

The Directors recognise the importance of the continuation

vote mechanism for shareholders and believe that there is no

fundamental concern with the Company’s prospects and its ability

to deliver value for shareholders and therefore recommend the

shareholders vote in favour.

The resolution requires a simple majority to pass and the Directors

and Investment Manager are confident the vote will be achieved.

This is based on positive feedback from recent meetings held

by the Chair or the Investment Manager with several major

shareholders alongside discussions with the Company’s Broker

who has indicated their confidence the shareholders will vote in

favour of continuation. The Company also has a strong track record

of shareholder support through consistently oversubscribed capital

raises since IPO and achieving overwhelming majority (over 90%)

support for all resolutions at all its general meetings to date. The

Directors believe the Company is well positioned, with substantial

scale and a diversified portfolio able to deliver attractive returns.

Should the resolution not pass, the Directors note that this would

not automatically result in the Company not continuing as a going

concern. The requirement from the Articles of the Company would

be for the Directors to put forward proposals within six months of

the vote. In practice, the Directors would consider that this would

be for a reconstruction, reorganisation or winding up.

5.3 Notes to the Financial Statements

continued

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ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Although the shareholder vote on continuation is outside of the

control of the Company, the Directors remain confident that the

Company’s continuation vote will be passed and accordingly,

having considered this carefully believe that it is appropriate

to continue to adopt the going concern basis in preparing the

financial statements.

Ukraine conflict

In light of the events in Ukraine, the Board and the Investment

Manager have been monitoring its continual development and

performed an assessment of the current exposure to Ukraine,

Russia and Belarus (the “Region”) and the potential impact to the

Company’s and the portfolio companies’ operations. The Company

is a UK registered public company. Currently neither the Company

nor the Investment Manager conducts business and operations

in the Region; therefore the Company is not subject to any direct

impact by this event.

With regards to the Company’s investments, none of the portfolio

companies have business operations or client / supplier

relationships in the Region. Through this assessment, the Board and

the Investment Manager duly considered any restriction imposed

by the relevant sanctions, and its impact on the portfolio companies

and have concluded there are no direct material implications.

Inflation and cost of energy crisis

The global impact of the Russian invasion of Ukraine on the oil

and gas prices is a significant contributor to inflation and cost

of living rises globally at present. The Company has carried out

an assessment of the impact of the global rise in inflation on

its portfolio and have concluded that overall there is a positive

correlation to inflation and there is no adverse impact. The

Directors are satisfied that the Company has sufficient resources

to continue in operation for the foreseeable future, a period of

not less than 12 months from the date of approval of the financial

statements. The Directors have reviewed the Company’s financial

projections and cashflow forecasts, including the potential impact

from this and believe, based upon those projections and forecasts

and various risk mitigation measures in place, that it is appropriate

to prepare the financial statements on a going concern basis.

Regular cashflow and business activity

The Company, through its investment in Holdco, benefits from a

portfolio of investments that have a range of long-term contracts

with a diversified set of counterparties across multiple sectors and

jurisdictions. A key risk facing the Company is that counterparties

to the investments may not be able to make their contractual

payments. The Directors have reviewed a cashflow forecast to June

2024, taking into consideration potential changes in investment

and trading performance and applying a 10% reduction in income

to test the resilience of cashflows in the near term. The forecast

results in positive cashflows for the foreseeable future that meets

the liabilities as they fall due.

They also reviewed a severe downside scenario where the

Company receives no income from its investment for the next

12months but continue with existing committed payments

for running the Company. Even under this stress scenario, the

Company would have sufficient cash reserves to continue as a

going concern. As at 31 March 2023, the Company’s net assets

were £1,125 million, including cash balances of £0.3 million.

Further amounts of cash are held by the Company’s direct and

indirect subsidiaries (including Holdco which has c.£62 million

at the year-end), which are sufficient to meet current obligations

as they fall due. The major cash outflows of the Company are the

payment of dividends and payments relating to the investment in

new assets, both of which are discretionary.

The Company’s single subsidiary, Holdco, has an RCF that has

adequate headroom in its covenants that have been tested for

historic and forward interest cover and loan to value limits. As

at 31 March 2023, the facility was undrawn. The Company is a

guarantor to the RCF but has no other guarantees or commitments.

Closing summary

The Directors have considered the upcoming continuation vote,

impact from the Ukraine conflict and the cost of living crisis, and

relevant financial projections and cashflow forecasts.

The Directors are satisfied that the Company has sufficient

resources to continue in operation for the foreseeable future, a

period of not less than 12 months from the date of approval of the

annual financial statements, and that it is appropriate to prepare

the financial statements on a going concern basis.

d) Segmental Reporting

The Chief Operating Decision Maker (“CODM”) being the Board

of Directors, is of the opinion that the Company is engaged in a

single segment of business, being investment in energy efficiency

projects to generate investment returns whilst preserving capital.

The financial information used by the CODM to manage the

Company presents the business as a single segment.

e) Foreign Currency Translation

Foreign currency and presentation currency

Items included in the financial statements of the Company are

measured using the currency of the primary economic environment

in which the entity operates, the Company's functional currency. The

financial statements are presented in pounds sterling which is the

Company's functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into pounds sterling

using the exchange rates prevailing at the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of

such transactions and from the translation at year-end exchange rates

of monetary assets and liabilities denominated in foreign currencies

are recognised in the Statement of Comprehensive Income.

f) Income

Dividend income and investment income from financial assets

at fair value through profit or loss is recognised in the Statement

of Comprehensive Income within investment income when the

Company’s right to receive payments is established.

126 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Fair value gains on financial assets at fair value through profit or

loss are recognised in the Statement of Comprehensive Income at

each valuation point.

Finance income comprises interest earned on cash held on

deposit. Finance income is recognised on an accruals basis. Loan

interest income is accounted for on an accruals basis using the

effective interest method.

g) Dividends Payable

Dividends to the Company’s shareholders are recognised when

they become legally payable. In the case of interim dividends, this

is when they are paid. In the case of final dividends, this is when

they are approved by the shareholders at the AGM.

h) Fund Expenses

All expenses including investment management fees, transaction

costs, non-executive directors’ fees are accounted for on an

accruals basis. Share issue expenses of the Company directly

attributable to the issue and listing of shares are charged to the

share premium account.

i) Acquisition Costs

Acquisition costs are expensed to the Income Statement as they

are incurred.

j) Taxation

The Company is liable to UK corporation tax on its income. Current

tax is the expected tax payable on the taxable income for the

period, using tax rates that have been enacted or substantively

enacted at the date of the Statement of Financial Position. Fair

value movements and dividends received by the Company are

exempt from UK corporation tax.

k) Cash and Cash Equivalents

Cash and cash equivalents include deposits held at call with banks

and other short-term deposits with original maturities of three

months or less. Cash is spread across three banks including at

the Money market fund managed by JP Morgan. It is highly liquid

investment and readily convertible to a known amount of cash.

There is no expected credit loss as the bank institutions have credit

ratings of at least BBB+ and all cash is held at call from the banks.

l) Financial Instruments

Financial assets and financial liabilities are recognised in the

Company’s Statement of Financial Position when the Company

becomes a party to the contractual provisions of the instrument.

Financial assets are derecognised when the contractual rights to

the cashflows from the instrument expire or the asset is transferred

and the transfer qualifies for derecognition in accordance with

IFRS 9 Financial instruments.

Investments are recognised when the Company has control of the

asset. Control is assessed considering the purpose and design of

the investments including any options to acquire the investments

where these options are substantive. The options are assessed for

factors including the exercise price and the incentives for exercise.

The Company classifies its financial assets in the following

measurement categories:

■ those to be measured subsequently at fair value through profit

or loss; and

■ those to be measured at amortised cost.

At initial recognition, the Company measures investments in

energy efficiency projects at its transaction price net of transaction

costs that are directly attributable to the acquisition of the financial

asset. The Company subsequently measures all investments at

fair value and changes in the fair value are recognised as gains/

(losses) on investments at fair value through profit or loss within

investment income.

Financial liabilities are derecognised when the liability is

extinguished, that is when the contractual obligation is discharged,

cancelled or expired.

m) Trade and Other Receivables

Trade and other receivables are non-derivative financial assets

with fixed or determinable payments that not quoted in an active

market. Those includes Prepayments, VAT Receivable and

other receivables which are intercompany balances due from

subsidiary. Receivables are initially recognised at fair value. They

are subsequently measured at amortised cost, less any expected

credit loss.

The Company has assessed IFRS 9’s expected credit loss model

and does not consider that there is a material impact on these

financial statements.

n) Trade and Other Payables

Trade and other payables include accruals and other payables and

initially are recognised at fair value, and subsequently re-measured

at amortised cost using the effective interest method.

o) Share Capital and Share Premium

The Company’s ordinary shares are not redeemable and are

classified as equity. Incremental costs directly attributable to the

issue of ordinary shares and share options are recognised as a

deduction in equity and are charged from the share premium

account. The costs incurred in relation to the IPO and subsequent

fundraisings of the Company were charged from the share

premium account.

5.3 Notes to the Financial Statements

continued

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ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

3. Critical Accounting Estimates and

Judgements

The preparation of financial statements in accordance with

IFRS requires the Directors to make judgements, estimates and

assumptions that affect the reported amounts of assets and

liabilities and disclosure of contingent assets and liabilities at

the date of the financial statements and the reported amounts of

income and expense during the year. Actual results could differ

from those estimates. The estimates and underlying assumptions

are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate

is revised if the revision only affects that period or in the period

and future periods if the revision affects both current and future

periods.

Judgements

Investment entity

As disclosed in Note 2, the Directors have concluded that the

Company continues to meet the definition of an investment

entity as defined in IFRS 10. This conclusion involved a degree of

judgement and assessment as to whether the Company met the

criteria outlined in the accounting standards.

Estimates

Investment valuations

The key area where estimates may be significant to the financial

statements is the valuation of the Company’s single subsidiary,

SEEIT Holdco, which in turns holds investments in a portfolio that

are held at fair value (the “Portfolio Valuation

(APM)

”).

IFRS 13 establishes a single source of guidance for fair value

measurements and disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date.

The Board of Directors has appointed the Investment Manager

to produce the Portfolio Valuation

(APM)

at 31 March 2023, which

includes estimates of future cashflows that have the potential to

have a material effect on the measurement of fair value.

The key estimates made include:

Discount rate

The weighted average unlevered discount rate (post tax) applied

in the 31 March 2023 valuation was 7.7% (2022: 7.0%) and 8.5%

on a levered basis (2022: 8.0%). The discount rate is considered

one of the most unobservable inputs through which an increase

or decrease would have a material impact on the fair value of

investment at fair value through profit or loss. An appropriate

discount rate is applied to each underlying asset. The range of

discount rates applied and its sensitivity to movements in discount

rates is shown in note 4.

Macroeconomic assumptions

Further estimates have been made on the key macroeconomic

assumptions that are likely to have a material effect on the

measurement of fair value being inflation, corporation tax and

foreign exchange which are further described in Note 4.

Investment specific cashflow assumptions and

sensitivities

The below highlights several key investment specific estimates

made for the Portfolio Valuation

(APM)

at 31 March 2023:

Primary Energy - An estimate has been made to determine the

future demand for generation by the offtaker in the PCI asset. If

the demand assumed is 25% less than estimated, the Portfolio

Valuation

(APM)

at 31 March 2023 could be reduced by between

£10 million and £20 million, assuming no other mitigants are

available. An estimate in relation to the Cokenergy asset has been

included for the cash flows that can be generated through renewal

of contract terms with the counterparty after the expiry of the

existing contract terms. Although this assumption has not changed

materially since March 2022, if the actual increase in contractual

terms assumed for the Cokenergy investment is 50% less than

estimated, the Portfolio Valuation

(APM)

at 31 March 2023 could be

reduced by between £10 million and £20 million, assuming no

other mitigants are available.

Onyx – The process of converting development assets into

construction and then operational stages has been adversely

affected by delays in the financial year, however an estimate has

been made for the amount of megawatts that is expected to be

become mechanically complete and earn revenues in 2024 and

2025. If only 75% of the megawatts are achieved in each of 2024

and 2025, the Portfolio Valuation

(APM)

at 31 March 2023 could be

reduced by between £5 million and £10 million, assuming no other

mitigants are available.

An estimate has been made for the amount of megawatts that is

expected to be deployed from the development pipeline in 2025 to

2029 which are valued on an EV multiple per MW. This estimate and

methodology has not changed since March 2022, however if only 50%

of the development pipeline is achieved, the Portfolio Valuation

(APM)

at 31 March 2023 would be reduced by between £20 million and

£30 million, assuming no other mitigants are available.

Oliva Spanish Cogeneration - There are updates under the

regulatory regime governing the nine investments that have

currently been published in draft form and awaiting finalisation.

Key estimates are made by applying the draft legislation. If the

final legislation differs materially from the draft legislation and no

other changes are introduced, then the Portfolio Valuation

(APM)

at 31March 2023 could be reduced by between £10 million

and £20 million.

RED-Rochester - Estimates have been made regarding future

capital expenditure projects at the site and the expected increase

to overall revenues, the most material being the construction

of a cogeneration plant expected to complete in 2025. If the

128 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

cogeneration plant delivers only 75% of the energy savings

currently assumed, the Portfolio Valuation

(APM)

at 31 March 2023

would be reduced by between £10 million and £20 million.

Estimates have been included for revenues related to providing

electricity to customers based on projected demands and an

assumed power price charged to customers. If market power

pricing is 25% lower than assumed, the Portfolio Valuation

(APM)

at 31 March 2023 would be reduced by between £5 million and

£10million.

In addition, estimates have been included, based on projected

growth of earnings in the RED-Rochester business, that a gain

share pay-out will be made to the external asset management

team tasked with delivering the growth within the next seven years,

linked to the investment increasing its profitability. Furthermore,

the projected growth is assumed to deliver a business capable

of continuing to serve customers at the Eastman Business Park

for a further 20 years beyond the c. 20 years lifetime previously

assumed. Should only 15 years of the targeted economic life

extension occur, the Portfolio Valuation

(APM)

at 31 March 2023

would be reduced by between £10 million and £20 million,

assuming no other mitigants are available.

Värtan Gas - The future cashflows includes an assumption that

the management team will target a decline in customer numbers at

a year-on-year rate that is lower than the historic average decline.

There are also a number of accretive expansion opportunities for

the Värtan Gas investment in the Stockholm region’s transport

sector for which estimates have been made around the future

growth profile in relation to decarbonisation targets and

electrification. If the recent historic average rate to customers

is applied for the next five years and no growth in revenue from

transport is achieved over the next ten years, the valuation

may potentially reduce by between £10 million and £20 million,

assuming no other mitigants are available.

5.3 Notes to the Financial Statements

continued

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ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

4. Financial Instruments

Valuation Methodology

As detailed in Note 1 and Note 11, the Company has a single investment directly wholly owned holding company (Holdco). It recognises

this investment at fair value. To derive the fair value of Holdco, the Company determines the fair value of investment held directly or

indirectly by Holdco and adjusts for any other assets and liabilities. See Note 11 for a reconciliation of this fair value. The valuation

methodology applied by Holdco to determine the fair value of its investments is described below.

Portfolio

Company

Portfolio

Company

Portfolio

Company

Portfolio

Company

Portfolio

Company

Holding

Company

THE

HOLDCO

THE

COMPANY

The Directors have satisfied themselves as to the methodology used and the discount rates and key assumptions applied in producing the

valuations. All investments are at fair value through profit or loss.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cashflow

methodology and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines where

appropriate to comply with IFRS 13 and IFRS 9, given the special nature of infrastructure investments. Where an investment is traded in

an open market, a market quote is used. Certain investments may be held at cost if in the early part of a construction phase, however this

will still be supported by a discounted cashflow analysis or similar method to determine fair value. For certain investments, fair value is

determined through assuming a price that can be achieved per MW.

The Investment Manager exercises its judgement in assessing the expected future cashflows from each investment based on the project’s

expected life and the financial models produced for each project company and adjusts the cashflows where necessary to take into account

key external macroeconomic assumptions and specific operating assumptions. Assumptions for future cashflows may include successful

recontracting and project life extensions as well as cashflow linked to assumptions made on growth rates and further business development

opportunities within existing projects.

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The fair value for each investment is then derived from the application of an appropriate market discount rate (on an unlevered basis) to reflect

the perceived risk to the investment’s future cashflows and the relevant year end foreign currency exchange rate to give the present value of

those cashflows. Where relevant, project level debt balances are then netted off to arrive at the valuation for each investment The discount rate

takes into account risks associated with the financing of an investment such as investment risks (e.g. liquidity, currency risks, market appetite),

any risks to the investment’s earnings (e.g. predictability and covenant of the income) and a thorough assessment of counterparty credit risk,

all of which may be differentiated by the phase of the investment.

Specific risks related to each asset that can be attributed to the Ukraine conflict or climate-related risks are assessed and where required,

adjustments are made to expected future cashflows or reflected in the asset specific discount rate that is applied.

The Investment Manager uses its judgement in arriving at the appropriate discount rate. This is based on its knowledge of the market,

taking into account intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market, and publicly

available information on relevant transactions.

All the operational investments included in the valuation have an underlying contract for energy services. The valuation is based on the future

expected cashflow derived from these contracts. For the March 2023 valuation the assumed cashflows match the maturity of the underlying

contract or regulatory life of the asset except in the case of RED-Rochester, four of the assets in Primary Energy, the assets in Oliva, and the

development assets in Onyx and EVN where it is assumed that future contract extensions are achieved and hence the expected cashflows are

currently projected to extend beyond the maturity date of the existing contract with the counterparty.

For the valuation as at 31 March 2023, the Directors commissioned a report from an independent third-party valuation expert to provide

their assessment of the appropriate discount rate range for each investment (excluding small investments with an aggregate value of less

than 2% of the Portfolio Valuation

(APM)

) in order to further benchmark the valuation prepared by the Investment Manager.

The valuation methodology is materially unchanged from the Company's IPO and has been applied consistently in each subsequent

valuation. Different measures are used to derive fair value, as summarised below:

Valuation approach Investments

% of Portfolio

Valuation

(APM)

Discounted cashflow (“DCF”) All remaining investments 95%

Held at cost Turntide

Iceotope

EVN (Zood construction)

Price per MW Onyx Development Pipeline 2%

Total 100%

Fair Value Measurement by Level

IFRS 13 requires disclosure of fair value measurement by level. Fair value measurements are categorised into Level 1, 2 or 3 based on the

degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its

entirety which are described as follows:

■ Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the

measurement date;

■ Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,

either directly or indirectly; and

■ Level 3 inputs are unobservable inputs for the asset or liability.

5.3 Notes to the Financial Statements

continued

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ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments.

Investment at fair value through profit or loss

Level 1

£’millions

Level 2

£’millions

Level 3

£’millions

31 March 2023 – – 1,127.8

31 March 2022 – – 928.2

The Company’s indirect investments have been classified as level 3 as the investments are not traded and contain unobservable inputs.

Asthe fair value of the Company’s equity and loan investments in the Holdco is ultimately determined by the underlying fair values of the

SPV investments or debt schedules, the Company’s sensitivity analysis of reasonably possible alternative input assumptions is the same

across all its investments. The reconciliation of Level 3 fair value is disclosed in Note 11.

Valuation Assumptions

31 March 2023 31 March 2022

Inflation rates UK (RPI)

7.8% declining to 3.0% by 2025,

3.0% p.a. long-term

7.9% declining to 3.5% by 2024,

2.75% p.a. long-term

UK (CPI)

6.6% declining to 1.5% by 2025,

2.0% p.a. long-term

6.0% declining to 2.3% by 2024,

2.00% p.a. long-term

Spain (CPI)

4.6% declining to 2.1% by 2025,

2.0% p.a. long-term

5.8% declining to 1.7% by 2024,

2.00% p.a. long-term

Sweden (CPI)

7.0% declining to 2.2% by 2025,

2.0% p.a. long-term

3.4% declining to 2.0% by 2024,

2.00% p.a. long-term

Singapore (CPI)

5.0% declining to 2.0% by 2025,

2.0% p.a. long-term

3.2% declining to 2.0% by 2024,

2.00% p.a. long-term

Ireland (CPI)

5.8% declining to 2.3% by 2025,

2.0% p.a. long-term

4.8% declining to 2.0% by 2024,

2.00% p.a. long-term

USA (CPI)

3.7% declining to 2.1% by 2025,

2.0% p.a. long-term

6.3% declining to 2.0% by 2024,

2.00% p.a. long-term

Tax rates UK 25% 19% to 2023, 25% thereafter

Spain 25% 25%

Sweden 20.6% 21.4%

Singapore 17% 17%

Ireland 12.5% 17%

USA 21% Federal & 3-9% State rates 21% Federal & 3-9% State rates

Foreign exchange rates EUR/GBP 0.88 0.84

SEK/GBP 0.08 0.08

SGD/GBP 0.61 0.56

USD/GBP 0.81 0.76

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Discount Rates

The discount rates used for valuing each investment are described in the Valuation Methodology section above.

The discount rates used for valuing the investments in the portfolio are as follows:

31 March 2023 31 March 2022

Weighted Average discount rate (on unlevered basis) 7.7% 7.0%

Discount rates 4.75% to 10.25% 4.0% to 10.0%

Sensitivities

The sensitivities below show the effect on Net asset value

(APM)

of assuming a different range for each key input assumption, in each case

applying a range that is considered to be a reasonable and plausible outcome for the market in which the Company has invested.

Discount Rates

The discount rates that are applied to each project’s forecast cashflow, form in aggregate the single most important judgement and variable

for the purposes of valuing the portfolio. The sensitivity shown in this section shows the sensitivity of changing the underlying discount

rates for each underlying project and where such a project has debt in place, the sensitivity takes into account the levered discount rate of

the project.

Discount rate

NAV/share

impact

-0.5%

change

Net asset

value

+0.5%

change

NAV/share

impact

31 March 2023 5.0p £55.1m £1,125.4m (£50.3m) (4.5p)

31 March 2022 4.5p £44.1m £1,073.1m (£40.6m) (4.1p)

Inflation Rates

The Company’s exposure to inflation via its investment portfolio is currently largely to the USA and Europe with c.59% and c.37% of NAV

respectively although the level of exposure to changes in inflation in underlying investments in each geography varies. The investment

portfolio as at 31 March 2023 has a positive correlation to inflation with approximately half of the current portfolio by value having revenues

that are partly or wholly inflation linked.

The Company’s portfolio includes investments that benefit from fixed or escalating revenues that are not directly linked to inflation. This

includes the assets in Primary Energy where periodic recontracting is assumed in the valuation. It is assumed that the renewed revenue

contracts (subject to negotiations) entered into in future years reset the revenues at such a level that it materially offsets increases to project

level costs such as O&M that is materially inflation-linked, effectively offsetting the effect of inflation. Within the portfolio of Oliva Spanish

Cogeneration assets there is some natural offsetting or protection between revenues and costs for inflation increases and decreases.

The assumption in the Värtan Gas investment is that the regular renewals of customer contracts (typically annually) include inflationary

increases to the tariffs charged, however it is also assumed that this would not result in the charges being above the regulatory cap and

that the full inflationary increase is not passed on to the customer each time. In the current portfolio there are several investments with no

or negligible exposure to inflation, notably the where investments are structured as senior debt loan investments.

As a result of the continued high inflationary environment, the Company has changed the sensitivity to inflation as at 31 March 2023 to

1.00% (31 March 2022: 0.5%)

Inflation rate

NAV/share

impact

-1%

(2022: -0.5%)

change

Net asset

value

+1%

(2022: +0.5%)

change

NAV/share

impact

31 March 2023 (1.5p) (£16.4m) £1,125.4m £18.3m 1.7p

31 March 2022 (1.1p) (£10.5m) £1,073.1m £11.9m 1.2p

5.3 Notes to the Financial Statements

continued

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Corporation Tax Rates

The sensitivity is shown on the basis that corporation tax rates remain at the sensitised level for the remainder of any period in which

cashflow is assumed for that project and that no mitigations that may be available are applied. Key mitigants available include portfolio

structuring changes including gearing

(APM)

, and the option available to the Company to use interest streaming of dividend distributions to

shareholders in the future, whereby a portion of the dividend distribution is designated as interest, allowing net taxable interest income to

be reduced.

The sensitivity mainly shows the unmitigated impact of changes in US, Swedish, Irish, Singaporean and Spanish tax rates. The exposure to

UK corporation tax at project level has negligible sensitivity to the sensitised movements in UK corporation tax rates because of UK entities

within the group being able to offset aggregate profits and losses, whilst in Spain the impact is reduced for similar reasons.

Corporation tax rate

NAV/share

impact

-5%

change

Net asset

value +5% change

NAV/share

impact

31 March 2023 2.7p £29.5m £1,125.4m (£29.8m) (2.7p)

31 March 2022 3.2p £31.7m £1,073.1m (£33.0m) (3.3p)

Foreign Exchange Rates

The Portfolio Valuation

(APM)

assumes foreign exchange rates based on the relevant foreign exchange rates against GBP at the reporting

date. A change in the foreign exchange rate by plus or minus 10% (GBP against Euro, Swedish Krona, Singapore Dollar and US Dollar) has

the following effect on the NAV, with all other variables held constant. The effect is shown after the effect of current level of hedging which

reduces the impact of foreign exchange movements on the Company’s NAV.

Foreign exchange rate

NAV/share

impact

-10%

Change

Net asset

value +10% change

NAV/share

impact

31 March 2023 0.8p £9.0m £1,125.4m (£9.0m) (0.8p)

31 March 2022 0.8p £8.3m £1,073.1m (£7.6m) (0.8p)

5. Investment Income

Year ended

31 March 2023

£’millions

Year ended

31 March 2022

£’millions

Dividend income 57.5 33.7

(Loss)/Gain on investment at fair value through profit or loss (Note 11) (74.3) 47.8

Loan interest income 9.0 7.3

Investment (loss)/income (7.8) 88.8

Loan interest income is in respect of coupon bearing loan notes issued to the Company by Holdco (Note 15) for the year ended 31 March

2023. The loan notes accrue interest at 6%, are unsecured and repayable in full on 18 April 2039. Loan Interest income is recognised on the

Statement of Comprehensive Income on an accruals basis. The loss/gain on investment is unrealised.

134 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

6. Fund Expenses

Year ended

31 March 2023

£’millions

Year ended

31 March 2022

£’millions

Investment management fees (Note 15) 9.6 7.2

Non-executive directors’ fees (Note 16) 0.3 0.3

Other expenses 1.3 1.0

Fees to the Company’s independent auditors:

- for the audit of the statutory financial statements 0.7 0.4

- for audit-related assurance services 0.1 0.1

Fund Expenses 12.0 9.0

As at 31 March 2023, the Company had no employees (31 March 2022: nil) apart from Directors in office. The Company confirms that it has

no key management personnel, apart from the Directors disclosed in Directors’ Remuneration Report in Section 4.7 of the Annual Report.

There is no other compensation apart from those disclosed. Other expenses include professional fees, administration fees, irrecoverable

VAT and other fees in relation to the running of the Company.

7. Tax

The tax for the year shown in the Statement of Comprehensive Income is as follows.

Year ended

31 March 2023

£’millions

Year ended

31 March 2022

£’millions

(Loss)/Profit for the year before taxation (18.6) 79.8

Tax on (loss)/profit on ordinary activities for the year multiplied by the standard rate of

corporation tax of 19% (31 March 2022: 19%)

(3.5) 15.2

Fair value movements (not subject to taxation) 14.1 (9.1)

Dividends received (not subject to taxation) (10.9) (6.4)

Surrendering of tax losses to unconsolidated subsidiaries 0.3 0.3

Total tax charge – –

The corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. No deferred tax was recognised in the periods.

8. (Loss)/Earnings per Ordinary Share

Year ended

31 March 2023

Year ended

31 March 2022

(Loss)/Profit for the year (£’millions) (18.6) 79.8

Weighted average number of ordinary shares (‘000) 1,056,150 795,954

(Loss)/Earnings per ordinary share (pence) (1.8) 10.0

There is no dilutive element during the financial year and subsequent to the financial year.

5.3 Notes to the Financial Statements

continued

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

9. Dividends

Year ended

31 March 2023

£’millions

Year ended

31 March 2022

£’millions

Amounts recognised as distributions to equity holders during the year:

Fourth quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share – 9.3

First quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share – 9.5

Second quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share – 12.7

Third quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share – 12.7

Fourth quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share 13.9 –

First quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share 14.9 –

Second quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share 16.6 –

Third quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share 16.6 –

Total Dividends 62.0 44.2

All dividends have been paid out of distributable reserves. Further information on distributable reserves can be found in Note 12.

In June 2023, the Company declared a fourth interim dividend for the year ended 31 March 2023 of 1.5p per share which is expected to

result in a cash payment of approximately £16.5 million on 30 June 2023.

10. Net Assets Per Share

31 March 2023 31 March 2022

Shareholders’ equity (£’millions) 1,125.4 1,073.1

Number of ordinary shares (‘000) 1,108,709 990,288

Net assets per ordinary share (pence) 101.5 108.4

11. Investment at Fair Value through Profit or Loss

The Company recognises the investment in Holdco, its single directly owned holding company, at fair value. Holdco’s fair value includes the

fair value of each of the individual project companies and holding companies in which the Holdco holds a direct or an indirect investment,

along with the working capital of Holdco.

Year ended

31 March 2023

£’millions

Year ended

31 March 2022

£’millions

Brought forward investment at fair value through profit or loss 928.2 572.6

Loan investments in year – 96.8

Equity investments in year 292.4 223.0

Loan Principal repaid in year (18.5) (12.0)

Movement in fair value (74.3) 47.8

Closing investment at fair value through profit or loss 1,127.8 928.2

Movement in fair value is recognised through Investment Income in the Statement of Comprehensive Income (see Note 5).

Of the closing investment at fair value through profit and loss balance, £131 million (31 March 2022: £150 million) relates to loan investment

(also see Note 5) and £996 million (31 March 2022: £778 million) relates to equity investment.

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A reconciliation between the Portfolio Valuation

(APM)

, being the valuation of the Investment Portfolio held by Holdco, and the Investment

at fair value through profit or loss per the Statement of Financial Position is provided below. The principal differences are the balances in

Holdco for cash and working capital.

31 March 2023

£’millions

31 March 2022

£’millions

Portfolio Valuation (see Section 2.3 for details) 1,099.6 912.7

Holdco cash 65.4 24.9

Holdco debt – –

Holdco net working capital (37.2) (9.4)

Investment at fair value per Statement of Financial Position 1,127.8 928.2

Investments by the Company

During the year ended 31 March 2023, the Company invested £292.4 million (31 March 2022: £320 million) into Holdco for new portfolio

investments and to fund acquisition costs. Acquisition costs are expensed to the income statement at Holdco as they are occurred.

Portfolio Investments, via Holdco

During the year ended 31 March 2023, Holdco invested £236 million (31 March 2022: £300 million) in new portfolio investments.

TheCompany announced the following investment activity in the period:

Project

Investment/

Commitment Date Type Location

Investment/

Commitment

Amount

Baseload Various in the period New Sweden c.£4m

Turntide May 2022 New USA c.£8m

Iceotope June 2022 New UK c.£3m

UU Solar July 2022 New UK c.£100m

On.Energy August 2022 New USA c.£4m

Biotown Various in the period Organic USA c.£1m

Onyx Various in the period Organic USA c.£50m

Spark US Energy Efficiency II Various in the period Organic USA c.£12m

Tallaght Hospital Various in the period Inorganic Ireland c.£4m

EV Network Various in the period Organic UK c.£23m

FES Lighting Various in the period Organic USA c.£6m

Lycra Various in the period Organic Singapore c.£3m

Bloc November 2022 New UK c.£0.2m

RED-Rochester January 2023 Organic USA c.£16m

5.3 Notes to the Financial Statements

continued

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

12. Share Capital and Share Premium

Ordinary Shares of £0.01

Year ended

31 March 2023

‘000

Year ended

31 March 2022

‘000

Authorised and issued at the beginning of the year 990,288 677,087

Shares Issued – during the year 118,421 313,201

Authorised and issued at the end of year 1,108,709 990,288

Share capital

£’millions

Share Premium

‘millions

Total as at 1 April 2022 9.9 925.1

Issue of ordinary shares 1.2 133.8

Costs of issue of ordinary shares – (2.1)

Total as at 31 March 2023 11.1 1,056.8

In September 2022, the Company issued 118,421,053 new ordinary shares at a price of 114p per share raising gross proceeds of

£135million.

The Company currently has one class of ordinary share in issue. All the holders of the £0.01 ordinary shares, which total 1,108,709k

(31March 2022: 990,288k) and are fully paid (31 March 2022: fully paid), are entitled to receive dividends as declared from time to time and

are entitled to one vote per share at general meetings of the Company.

On 3 April 2023, the company announced the commencement of a Share Buyback Programme. The Share Buyback Programme will be

funded from the Company’s surplus liquidity and operating cashflows from the portfolio and only undertaken where the Board and the

Investment Manager believe it to be in the shareholders’ best interests at the prevailing share price and accretive to NAV per ordinary

Share.

The Company has allocated up to £20 million of its FY2024 operational income from SEEIT Holdco to the Share Buyback Programme and

will review this allocation on an ongoing basis considering the Company’s ongoing liquidity position, the opportunity cost of investing in

its own shares versus investing in its existing portfolio or pipeline of asset opportunities, as well as the discount to NAV that the shares are

trading at.

Other distributable reserves were created through the cancellation of the Share Premium account on 12 March 2019. This amount is

capable of being applied in any manner in which the Company’s profits available for distribution, as determined in accordance with the

Companies Act 2006, are able to be applied.

Other distributable reserves and Retained Earnings are detailed in the Statement of Changes in Shareholders’ Equity.

13. Financial Risk Management

Financial Risk Management Objectives

The objective of the Company’s financial risk is to manage and control risk exposure of the underlying investment portfolio held by Holdco.

The Board is responsible for overseeing the management of financial risks, however the review and management of financial risks is

delegated to the Investment Manager. The Investment Manager monitors and manages the financial risks relating to the operations of the

Company through internal procedures and policies designed to identify, monitor and manage the financial risks to which the Company is

exposed.

These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.

138 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Price Risk

The value of the investments directly and indirectly held by the Company is affected by the discount rate applied to the expected future

cashflows and as such may vary with movements in interest rates, inflation, power prices, market prices host demand for energy services

and competition for these assets.

Currency Risk

Currency risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in foreign

exchange rates. The Company receives loan interest, loan principal and dividends from its single investment, Holdco, in sterling. However,

the Company is indirectly exposed to currency risk through its Holdco as its investments include non-sterling investments are held in euro,

US dollar, Singapore dollar and Swedish krona.

The Company monitors its foreign exchange rate exposures using its near-term and long-term cashflow forecasts. Its policy is to use foreign

exchange hedging to provide protection to the level of sterling distributions that the Company aims to pay over the medium-term, where

considered appropriate. This may involve the use of forward exchange.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market

interest rates.

The Company, via Holdco, invests indirectly in loans in project companies, usually with fixed interest rate coupons. Where floating rate

debt is owned, the primary risk is that the portfolio’s cashflow will be subject to variation depending on changes to base interest rates. The

portfolio’s cashflows are continually monitored and re-forecasted to analyse the cashflow returns from investments.

The Company’s policy is to ensure that interest rates are sufficiently hedged, when entering into material medium/long-term borrowings,

to protect the Company and portfolio companies’ net interest margins from significant fluctuations in interest rates. This may include

engaging in interest rate swaps or other rate derivative contracts at the subsidiary level under direction of the Company.

The Company’s financial assets and financial liabilities are at a pre-determined interest rate, as a result the Company is subject to limited

exposure to risk due to fluctuations in the prevailing levels of market interest rates.

Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company through

a reduction in future expected cash receipts.

The key counterparties are the project companies in which the Company makes indirect investments via Holdco. The projects companies’

near-term cashflows forecasts are used to monitor the timing of cash receipts from project counterparties and are reviewed regularly to

demonstrate the projects’ ability to pay interest and dividends when they fall due.

The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-

going credit evaluation is performed on the financial condition of accounts receivable.

As at 31 March 2023, there were no receivables considered impaired (31 March 2022: nil). At an investment level, the credit risk relating

to significant counterparties is reviewed on a regular basis and potential adjustments to the discount rate are considered to recognise

changes to these risks where applicable.

The Company maintains its cash and cash equivalents across various banks to diversify credit risk. These are subject to the Company’s

credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies. The Company’s cash

and deposits are held with counterparties that meet strict investment rating criteria per the Company’s treasury policy.

The Company is at risk of credit loss on its loans, receivables, cash and deposits. Underlying investments are held by Holdco at fair value

using discounted cashflows. Receivables are primarily intercompany and taxation. While cash and cash equivalents are subject to the

impairment requirements of IFRS 9, there was no identified credit loss.

The Company’s maximum exposure to credit risk over financial assets is the carrying value of those assets in the Statement of Financial

Position.

5.3 Notes to the Financial Statements

continued

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OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has

established an appropriate liquidity risk management framework for the management of the Company’s short-, medium- and long-term

funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves by monitoring

forecast and actual cashflows and by matching the maturity profiles of assets and liabilities.

Risk is spread by holding cash at three separate banking institutions and the Company also ensures that Holdco has sufficient banking

facilities by continuously monitoring forecast and actual cashflows and matching the maturity profiles of financial assets and liabilities.

Unconsolidated project companies are subject to contractual agreements that may impose temporary restrictions on their ability to

distribute cash. Such restrictions are not deemed significant in the context of the overall liquidity.

The table below shows the maturity of the Company’s non-derivative financial assets and liabilities. The amounts disclosed are contractual,

undiscounted cashflows and may differ from the actual cashflows received or paid in the future as a result of early repayments. Balances

due within 12 months equal their carrying balances as the impact of discounting is not significant.

As at 31 March 2023

Up to

3 months

£’millions

Between 3 and

12 months

£’millions

Between 1 and

5 years

£’millions

Total

£’millions

Assets

Cash and cash equivalents 0.3 – – 0.3

Trade and other receivables 0.6 – – 0.6

Liabilities

Trade and other payables (3.3) – – (3.3)

Total (2.4) – – (2.4)

As at 31 March 2022

Up to

3 months

£’millions

Between 3 and

12 months

£’millions

Between 1 and

5 years

£’millions

Total

£’millions

Assets

Cash and cash equivalents 146.1 – – 146.1

Trade and other receivables – – – –

Liabilities

Trade and other payables (1.5) – – (1.5)

Total 144.6 – – 144.6

Capital Management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders.

In accordance with the Company’s investment policy, the Company’s principal use of cash (including the proceeds of the IPO) has been to

fund investments via Holdco as well as ongoing operational expenses.

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company’s capital on an

ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, distributable reserves and

retained earnings).

The Company is not subject to any externally imposed capital requirements.

140 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

14. Related Undertakings

The following table shows the Company’s single direct subsidiary (SEEIT Holdco Limited). Appendix A lists the company’s indirect

subsidiaries through SEEIT Holdco Limited.

Investment

Country of

incorporation &

Place of Business

Shareholding at

31 March 2023

SEEIT Holdco Limited United Kingdom 100%

15. Related Parties

The Company and Sustainable Development Capital LLP (the “Investment Manager”) have entered into the Investment Management

Agreement pursuant to which the Investment Manager has been given responsibility, subject to the overall supervision of the Board, for

active discretionary investment management of the Company’s portfolio in accordance with the Company’s investment objective and

policy.

As the entity appointed to be responsible for risk management and portfolio management, the Investment Manager is the Company’s

AIFM. The Investment Manager has full discretion under the Investment Management Agreement to make investments in accordance with

the Company’s investment policy from time to time. This discretion is, however, subject to: (i) the Board’s ability to give instructions to the

Investment Manager from time to time; and (ii) the requirement of the Board to approve certain investments where the Investment Manager

has a conflict of interest in accordance with the terms of the Investment Management Agreement. The Investment Manager also has

responsibility for financial administration and investor relations, advising the Company and its group in relation to the strategic management

of the portfolio, advising the Company in relation to any significant acquisitions or investments and monitoring the Company’s funding

requirements.

Under the terms of the Investment Management Agreement, the Investment Manager will be entitled to a fee calculated at the rate of:

■ 0.9%, per annum of the adjusted NAV in respect of the Net Asset Value

(APM)

of up to, and including, £750 million; and

■ 0.8%, per annum of the adjusted NAV in respect of the Net Asset Value

(APM)

in excess of £750 million.

The management fee is calculated using an adjusted NAV which is the latest published NAV at the relevant time, less uncommitted cash

and adjusted on a daily basis for new acquisitions, new cash committed to investments, disposals and changes in amounts of debt drawn.

The management fee accrues monthly and is invoiced monthly in arrears. During the year ended 31 March 2023, management fees of

£9.6million (31 March 2022: £7.2 million) were incurred of which £2.5 million (31 March 2022: £0.7 million) was payable at the year-end.

During the year ended 31 March 2023, £292.4 million (31 March 2022: £319.9 million) of funding was provided by the Company to the

Holdco for investment acquisitions and the repayment of the RCF utilised by Holdco.

During the year ended 31 March 2023, coupon bearing loan notes of £nil (31 March 2022: £96.8 million) were issued which accrue interest

at 6%. During the year ended 31 March 2023, Holdco had repaid coupon bearing loan notes of £18.5 million (31 March 2022: £12.0 million).

In the year to 31 March 2023, £8.9 million interest had accrued on the loan notes (31 March 2022: £7.3 million) of which £0.2 million is

outstanding at the year-end (31 March 2022: £nil).

All of the above transactions were undertaken on an arm’s length basis and there have been no changes in material related party

transactions since the last annual report.

16. Key Management Personnel Transactions

The Directors of the Company, who are considered to be key management, received fees for their services. Their fees were £0.3m

(disclosed as non-executive directors’ fees in Note 6) in the year (31 March 2022: £0.3m) which included £289k for Director salaries

(31 March 2022: £254k), £18k for national insurance contributions (31 March 2022: £18k) and £10k for the reimbursement of expenses

(31March 2022: £3k).

5.3 Notes to the Financial Statements

continued

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 141

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

17. Guarantees and Other Commitments

The Company is the guarantor of the RCF between Holdco and Investec Bank plc.

The company holds a revolving-credit facility (RCF) that it holds through its wholly owned subsidiary, SEEIT Holdco amounting to

£180million. The RCF, which is SONIA linked and has a margin of 2.65%, expires in June 2024 with options to extend for a further two years

and includes an accordion function for a further £20 million increase on an uncommitted basis.

18. Events after the Reporting Period

The Directors have evaluated subsequent events from the date of the financial statements through to the date the financial statements were

available to be issued.

Between April and June 2023, the Company made the following investments, via SEEIT Holdco:

■ A further c. £2.3 million in RED-Rochester

■ A further c. £2.2 million in FES Lighting

■ A further c. £5.1 million in Onyx

■ A further c. £6.9 million in Spark US Energy Efficiency II

■ A new investment of c. £1.2 million into CPP Biomass

■ A new investment of c. £2.3 million into a thermal energy storage company.

■ Acquisition of remaining 50% stake on Onyx’s development platform for an initial c. £4.0 million plus performance related contingent

deferred consideration in future periods

On 3 April 2023, the company announced the commencement of a Share Buyback Programme. See note 12 for further details.

142 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Appendix A – List of SEEIT plc’s indirect

subsidiaries

The following table shows the Company’s indirect subsidiaries and related undertakings. As the Company applies IFRS 10 and Investment

Entities (Amendments to IFRS 10) (see Note 2), these entities have not been consolidated in the preparation of these financial statements:

Investment

Country of

incorporation &

Place of Business

Shareholding at

31 March 2023

EECO Kingscourt Limited United Kingdom 100%

EECO Biomass No. 1 Limited United Kingdom 60%

EECO Data Centres No. 1 Limited United Kingdom 100%

EECO Wilton No. 1 Limited United Kingdom 100%

SmartEnergy Finance Two Limited United Kingdom 49%

SEEIT UK 1 Limited United Kingdom 100%

Combined Heat and Power Investments Limited United Kingdom 100%

Energy Efficient Global UK Project Limited United Kingdom 100%

SEEIT Asia Limited United Kingdom 100%

EECO Smithfield Limited United Kingdom 100%

SEEIT Europe 2 Limited United Kingdom 100%

SDCL Solar Edge Limited United Kingdom 100%

Zood Infrastructure Limited United Kingdom 100%

SEEIT Europe Limited United Kingdom 100%

SEEIT US TWO Limited United Kingdom 100%

SEEIT Magma Limited United Kingdom 100%

SEEIT Bloc Limited United Kingdom 100%

SEEIT CPP Limited United Kingdom 100%

SIAF Energia S.A United Kingdom 80%

Iceotope Technologies Limited United Kingdom 100%

Iceotope Liquid Cooling Limited United Kingdom 100%

KU:L Sistem Limited United Kingdom 100%

SEEIT Sol Limited United Kingdom 100%

Greenland Investment Partners Limited United Kingdom 100%

SEEIT US Limited USA 70%

SDCL TG COGEN LLC USA 71%

COGEN ONE LLC USA 100%

COGEN TWO LLC USA 100%

SEEIT CAPITAL LLC USA 100%

SEEIT CAPITAL II LLC USA 100%

SEEIT PE 1 LLC USA 100%

SEEIT PE 2 LLC USA 100%

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 143

ADDITIONAL INFORMATION

OVERVIEW

GOVERNANCE

STRATEGIC REPORT

FINANCIAL STATEMENTS

Investment

Country of

incorporation &

Place of Business

Shareholding at

31 March 2023

PERC Midco LLC USA 100%

PERC Holdings 2 LLC USA 100%

Primary Energy Recycling Corporation USA 100%

Primary Energy Recycling Holdings LLC USA 100%

Primary Energy Operations LLC USA 100%

Cokenergy LLC USA 100%

North Lake Energy LLC USA 100%

Portside Energy LLC USA 100%

Ironside Energy LLC USA 100%

Harbor Coal LLC USA 100%

PCI Associates USA 50%

SEEIT Red Holdco LLC USA 100%

SEEIT District Energy LLC USA 100%

Recycled Energy Development LLC USA 100%

RED - Rochester LLC USA 100%

SEEIT Hemisphere Holdco LLC USA 100%

SEEIT Hemisphere I LLC USA 100%

SEEIT Hemisphere II LLC USA 100%

SEEIT Hemisphere III LLC USA 100%

Iceotope Technologies US Inc USA 100%

SEEIT US Lighting Holdings LLC USA 100%

SEEIT US Lighting LLC USA 100%

SEEIT TT LLC USA 100%

Turntide Technologies Inc USA 100%

SEEIT ON Holdco LLC USA 100%

ON Energy Storage LLC USA 100%

SEEIT BTB LLC USA 100%

SEEIT Net Zero LLC USA 100%

EE CO Ireland Hospitals TUH Limited Ireland 100%

Iceotope Technologies Limited Ireland 100%

SEEIPL 4 Pte Ltd Singapore 100%

SEEIPL 1 Pte Ltd Singapore 100%

SEEIPL 3 Pte Ltd Singapore 100%

144 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Investment

Country of

incorporation &

Place of Business

Shareholding at

31 March 2023

Shire Oak Green Asia Portfolio 2 Pte Ltd Singapore 100%

Walworth Invest S.L. Spain 100%

SEEIT Oliva, S.A. Spain 100%

SEEIT GAS S.L Spain 100%

Compañía Orujera de Linares, S.L Spain 100%

Bioeléctrica de Linares, S.L. Spain 100%

Compañía Energética de Linares S.L. Spain 100%

Compañía Energética Pata de Mulo S.L. Spain 100%

Compañía Energética Puente del Obispo Spain 100%

Compañía Energética de La Roda, S.L. Spain 100%

Biomasas de Puente Genil. S.L. Spain 100%

Secaderos de Biomasa, S.L . Spain 100%

Compañía Energética Las Villas, S.L. Spain 90%

SEEIT EUROPE 2 SWEDEN Holding AB Sweden 100%

Värtan Gas Stockholm AB Sweden 100%

Värtan Gas AB Sweden 100%

Gasnätet Stockhom AB Sweden 100%

Stockhom Gas AB Sweden 100%

Baseload Capital Sweden AB Sweden 100%

SOGA Uranus Company Limited Vietnam 100%

SOGA Mercury Company Limited Vietnam 100%

SOGA Triton Company Limited Vietnam 100%

All related undertakings that have a place of business in the United Kingdom are registered in the United Kingdom and their principal place

of business and registered office is 5

Floor, 1 Vine Street, London, W1J 0AH.

All related undertakings that have a place of business in the USA are registered in Delaware, USA and their registered office is 1209 Orange

Street, Wilmington, Delaware, USA with their principal place of business is 1120 Avenue of the Americas, New York, New York 10036, USA.

All related undertakings that have a place of business in Spain have principal place of business and registered office in Calle Príncipe de

Vergara 112, Planta Cuarta, 28002 Madrid, Spain.

All related undertakings that have a place of business in Ireland have their principal place of business and registered office in 55 Merrion

Square South, Dublin, DO2 YD65.

All related undertakings that have a place of business in Singapore have principal place of business and registered office in 6 Eu Tong Sen

Street #11-09, The Central, Singapore 059817.

All related undertakings that have a place of business in Sweden have principal place of business and registered office in

RÅSUNDAVÄGEN 12, 16967 Solna, Stockholm County, Sweden.

ADDITIONAL

INFORMATION

Pictured: Primary Energy site

SDCL Energy Efficiency Income Trust plc | SEEIT ANNUAL REPORT 2023 | 145

146 | SEEIT ANNUAL REPORT 2023 | SDCL Energy Efficiency Income Trust plc

Directors

Tony Roper (Chair)

Helen Clarkson

Emma Griffin

Christopher Knowles

Sarika Patel

Registered Office

6th Floor

125 London Wall

London

EC2Y 5AS

Company Secretary and Administrator

Apex Group Secretaries (UK) Limited (Company Secretary)

Apex Group Fiduciary Services (UK) Limited (Administrator)

6th Floor

125 London Wall

London

EC2Y 5AS

Investment Manager

Sustainable Development Capital LLP

5th Floor 1 Vine Street

London

W1J 0AH

Independent Auditors

PricewaterhouseCoopers LLP

40 Clarendon Road

Watford

Hertfordshire

WD17 1JJ

Public Relations

TB Cardew

5 Chancery Lane

Holborn

London

EC4A 1BL

Sponsor, Broker and Placing Agent

Jefferies International Limited

100 Bishopsgate

London

EC2N 4JL

Legal Adviser

Herbert Smith Freehills LLP

Exchange House

Primrose Street

London

EC2A 2EG

Depositary

Apex Group Administration Services (UK) Limited

6th Floor

125 London Wall

London

EC2Y 5AS

Registrar

Computershare Investor Services plc

The Pavilions

Bridgwater Road

Bristol

BS13 8AE

Bankers

RBS International

440 Strand

London

WC2R 0QS