CEO Report

Brian P. Kelly, CEOSeptember 2021
This edition of the CEO Report was delivered by Authority Chief Executive Officer Brian Kelly and Authority Director of Sustainability and Planning Meg Cederoth.

Federal Funding | Bookend Project | Upcoming | ESG | Materials


FEDERAL FUNDING UPDATE

Federal Investment Infrastructure Investment and Jobs Act

Federal Competitive Grant Programs as of September 2021

ProgramEligibility / PurposeAppropriatedAdditional AuthorizedTotal
National Intercity Passenger Rail
  • High-Speed Rail and all intercity rail expansion projects.

  • Multi-year commitments possible.
$12 Billion$4.1 Billion$16.1 Billion
Consolidated Rail Infrastructure and Safety Improvements (CRISI)
  • Capital projects that will improve passenger and freight rail transportation systems in terms of safety, efficiency, or reliability.
$5 Billion$5 Billion$10 Billion
National/Regional Significance
(Mega Project)
  • Broad eligibility for different types of infrastructure.
$5 Billion$5 Billion$10 Billion
Rebuilding American Infrastructure with Sustainability and Equity (RAISE)
  • Invest in road, rail, transit and port projects that promise to achieve national objectives.
$7.5 Billion$0$7.5 Billion
Infrastructure for Rebuilding America (INFRA)
  • Fund highway and freight projects of national and regional significance.

  • Available for rail/highway crossing projects.
$3.2 Billion$4.8 Billion
(Contract Authority)
$8 Billion
Rail/Highway Crossing Elimination
  • Highway-rail grade crossing improvement projects that focus on improving the safety and mobility of people and goods.
$3 Billion$2.5 Billion
(Contract Authority)
$5.5 Billion
  • Key to Terms:

    • Appropriated – Funds are appropriated in the legislation

    • Authorized – Funds can only be released upon future appropriation by Congress

    • Contract Authority – Funds come from the Highway Trust Fund and do not require appropriations to be released
  • Nothing new in this chart.
  • It shows what’s in the pending bipartisan infrastructure bill which has already passed the senate and is pending in the house. There are several pots we intend to compete in. There are project elements that fit a number of these pots. For example, the fourth row down, RAISE grants. We have RAISE grants pending right now. These are all areas we would look to compete. It is mammoth how much these add up to, 50 plus billion.

But this revisits last meeting. Here’s what I really wanted to update the board on:

Federal Reconciliation

  • Passenger Rail Improvement, Modernization, & Emissions Reduction Grant Program
    • The House Committee on Transportation and Infrastructure approved their portion of a $3.5 trillion budget reconciliation package, including $10 billion in designated high-speed rail funding through the PRIME Grant program.
    • PRIME provides up to 90% federal match towards high-speed rail planning or capital projects within a high-speed rail corridor.
    • This is good for us, as there are speed requirements, there are not a lot of those in the nation right now. This is a pot we are looking to compete in.
    • There was an agreement in the bipartisan infrastructure bill that orgs couldn’t double dip in the reconciliation bill. What we’ve seen says high-speed rail is not double dipping in this development. We think that’s a helpful thing. If this new pot holds, it’s a positive development. We’re closely monitoring what’s going on at the federal level.
    • The full House is planning a vote on the measure before the end of September.
    • The Senate is negotiating on the size and scope of their version of the budget reconciliation.

FIRST BOOKEND PROJECT COMPLETED

We have funded “bookend projects” up and down the state. A San Mateo grade separation project and the Caltrain electrification project are highlights in northern California. In southern California we’ve helped fund the Rosecrans /Marquardt grade separation and the renovation and expansion of Los Angeles Union Station.

25th Avenue Grade Separation Project Completion

  • Very important, one of the more dangerous and busiest grade crossings in the corridor/San Mateo.
  • As they prepare for electrified Caltrain and ultimately our use, this is a really important project.
  • California High-Speed Rail, Caltrain and regional partners celebrated the completion of the 25th Avenue Grade Separation Project on September 17th.
  • Last Friday Northern California Regional Director Boris Lipkin participated.
  • HSR contributed $84 million to total project costs.

LOOK AHEAD: UPCOMING ITEMS

  • Construction progress update
    • I had reported this at the last meeting, a CP by CP review is coming.
    • We’ll be back in November or October for a full progress update, same time when we come back with the program baseline budget.
  • Baseline adoption
  • Continued virtual board meetings through January 2022
    • We understand and appreciate there is eagerness to get back together in person, but the prerequisite is that public health standards cooperate. It has led to the GO, working with the legislature, teleconferencing has been extended through January of 2022.
    • We will monitor things and pay attention to what’s going on, but we do have extended authority to do our business remotely through January 2022.
    • We will continue to evaluate things as they develop. We are erring on the side of caution.

Now I want to pass it over to the Authority’s Director of Sustainability and Planning, Meg Cederoth.


ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) ACTIVITIES

Really pleased you heard from the leaders on this issue in our public comment. Our project is really being watched.

Environmental Social and Governance (ESG) issues

Taking a fuzzy idea of sustainability, and make sure we can actually focus. Increasingly standardized over the past decade.

  • ESG indicators ARE:
    • A more corporate friendly way of saying sustainability.
    • A systematic approach to evaluating the performance of a company, asset or organization against more than just financial measures
    • A practice for the past two decades
  • ESG was first used to screen out bad actors
  • Now, it is also used to reward more progressive approaches to aspects valued by investors.
    • This is a more recent practice (~2016).
    • This reflects a growing interest in the investment sector, spurred by shareholders and boards and other stakeholders in socially responsible investing.
    • The social justice and climate crises of the past few years have intensified this interest.
  • ESG indicators illustrate a very broad range of socially preferable objectives.
  • ESG evaluation has been systematized over the past few years by organizations such as:
    • The Global Reporting Initiative standards
    • The Sustainability in Accounting Standards Board (SASB)
    • The UN (Sustainable Development Goals and Principles for Responsible Investment)
  • Even still, there is no one list or ‘one-size fits all.
  • An organization should take a systematic approach to identifying the ESG issues important to it and its stakeholders.
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ESG at the Authority

  • Long part of the Authority’s standard practice
  • ESG is part of the Authority’s DNA
  • The Authority has used its procurements to advance many ESG matters over the past decade:
    • Targeted hiring
    • Small, minority, and disadvantaged business participation
    • Corporate sustainability practices and policy
    • Corporate social responsibility practices and policy
    • Environmental quality of major materials
    • Cleaner construction practices
    • Fair or equitable business practices
    • Avoiding companies that do business in countries that have violated human rights law
  • 2018, we were a leader among California state agencies assessed on their approach to ESG in purchasing and procurement.

Examples of new ESG requirements in recent contracts

  • Developed by the sustainable procurement working group; in addition to our existing practices
    1. Track and System (TS) procurement requires ESG disclosure for the contractor and their suppliers of major materials including:
      • Disclosures akin to what CalPERS has been requiring of its investments and their supply chain.
      • Corporate social responsibility reports, sustainability report, or other ESG reporting for contractors and suppliers.
    2. Procurement of design services required bidders to submit ESG-type reports.
    3. Early Train Operators (ETO) procurement required corporate social or sustainability reports and/or policies.
  • By including more ESG disclosure requirements within the TS and other procurements, we will be able to better identify and select contractors and suppliers that are making efforts on equity, inclusion, environmental quality, and climate readiness.
  • This also enables us to manage risk, such as avoiding suppliers who have procured resources from conflict areas.

ESG reporting and Benchmarking

We’re not asking things of others that we’re not also already doing.

  • Reflect actions across the organization, not just procurement; includes third party vetting of our claims and progress
  • Benchmarking/Measuring
    • Annual GRESB benchmarking (since 2016)
    • Envision evaluation
    • Materiality Assessment
    • Sustainable Purchasing Leadership Council
  • Reporting of ESG information
    • Small Business and Jobs Report
    • Monthly PDSR
    • Bi-Annual Business Plan (not labelled as such)
    • Semi-Annual ARB Reporting
    • Annual Sustainability Report (uses GRI standards; since 2014)
  • Reporting and annual benchmarking provide a body of data for stakeholders to consider how well the Authority has met its promises.
  • It helps us see trends over time and to identify gaps for improvement.

The Authority’s Current ESG Indicator Set

  • Selected through consultation with stakeholders and used to frame an Annual Report (since 2014)
    • Environment (E):
      • Energy Conservation and Efficiency
      • Air, Land and Water Pollution
      • GHG Emissions
      • Renewable Energy
      • Biodiversity and Ecosystem Preservation, Enhancement
      • Water Use and Management
      • Waste Management
      • Resilience and Adaptation
      • Life Cycle Assessment
      • Noise and Vibration
    • Social (S):
      • Socioeconomic Equity
      • Health and Safety
      • Economic Development Skills and Employment
      • Community Consultation, Engagement and Participation
      • Transportation Hub Activation and Mass/Active Transportation
      • Enhancing Public Space and Amenities
    • Governance (G):
      • Transparency and Accountability
      • Sustainable Land Procurement
      • Emergency and Disaster Recovery Planning
      • Third-Party Assessment
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Continuous Improvement Is a Hallmark of ESG

  • Organizations that focus on ESG are not static; benchmarking has shown us gaps (since 2016)
  • Key Takeaways from 2020 GRESB results:
    • Scored well in Environmental and Social Indicators overall; room for improvement in Governance indicators.
    • Underperforming compared to our peers in Risk Management, which accounts for nearly 20% of total score in all categories (management systems, governance risk assessment, and monitoring performance of all three aspect of ESG) but 2 (environmental and social risk).
  • How We’ve Worked to Improve in 2021:
    • Identified low performing indicators to target areas for improvement.
    • Collaborated closely with newly appointed Director of Risk Management and Project Controls, Risk Management Office.

More information to come in October.

ESG in Procurement: Current status

  • We’ve a proven track record or incorporating ESG.
  • This is a muscle we’ve conditioned reasonably well, and we can continue to strengthen it.
  • Since launching CP1, the Authority has incorporated and progressively improved its ESG requirements in contracts.
  • There is a cross-functional working group that has met regularly to review new opportunities related to ESG issues in procurement; executive definition of values and objectives for specific ESG issues would advance this work.
    • Environment (E):
      • Requirements for Tier VI and ZEV vehicles and equipment
      • Requirements for 100% concrete and steel recycling
      • Requirements for environmental quality disclosure for concrete and steel
      • Requirements for site environmental staff
      • Requirements to use renewable energy
      • Water conservation requirements
      • Carbon budget for TS contract
    • Social (S):
      • 30% Small Business Participation
        • 10% DBE
        • 3% DVBE
      • Health and Safety compliance
      • Targeted hiring:
        • The Contractor shall ensure the following targeted hiring requirements are met: A minimum of 30% of all hours of Project Work shall be performed by National Targeted Workers. A minimum of 10% of the 30% National Targeted Workers hours shall be performed by Disadvantaged Workers.
      • Community Consultation, Engagement and Participation: required notice to local jurisdictions
      • Also Development of skills and employment opportunities through apprenticeship training
    • Governance (G):
      • Required to provide ESG reports (corporate social governance, corporate sustainability policies, and other)
      • Transparency and Accountability: required reporting from contractors on a monthly basis against ESG issues
      • Requiring ESG reporting from contractor’s suppliers
      • Required Certifications:
      • No operations or contracts in Iran or Darfur
      • No suspensions or disbarment
      • No collusion
      • Equal Opportunity employer
      • Non-discrimination

Advance the Authority’s ESG focus

  • A few additional practices to hone and widen ESG at the Authority
    • Procurement
      • Require additional social and governance actions of bidders across all contracts
        • Equity and inclusion practices of consultants, contractors, and suppliers
        • Climate risk and climate exposure evaluation of suppliers
      • Apply penalties to suppliers or contractors who are out of compliance
      • Use reward structures to incentivize better behavior (see Carbon Budget in TS contract)
      • Use scoring for preferred corporate practices (see next section)
    • Other
      • Stakeholder consultation to periodically re-evaluate topics of importance
      • ESG dashboards
      • Expand where and how equity is addressed
      • Work with others to leverage even greater uptake of ESG issues in procurement
      • Consider other standards for disclosure
      • Educate staff on ESG topics
      • More communication from executives about ESG issues and the priorities for focus

Using Procurement to accelerate certain ESG issues

  • Private and public entities have been incorporating scoring.
  • Next logical move is to tighten our requirements to ES disclosure. We can and should ask for what our contractors are doing, and how they’re measuring and how they have improved and will continue to improve.
  • How do we adjust our expectations.
  • Existing ESG bid requirements (pass / fail): creates a clear bar all bidders must achieve.
    • Pass/Fail demonstration of SBE/DBE percentage participation is already in practice.
    • Current language: “Offerors shall further provide a narrative outlining their company’s environmental and social sustainability policies, commitments, and achievements.” (see RFQ HSR 20-36).
    • Recommended add: “Offerors shall further provide a narrative explaining their company’s equity, diversity, or inclusion policies, commitments, and achievements.”
  • Examples of scoring:
    • Scoring example, Diversity and Inclusion:
      • In an RFQ for services, request the bidder to provide their organization’s approach to diversity and inclusion for their workforce.
      • In evaluating ‘organization and key personnel’ assign point values and evaluate how well the bidder addressed the question.
      • Have a specific, possibly published, set of criteria for how we will carry out the evaluation:
        • Do they have a statement from a high-ranking corporate officer concerning equity and inclusion?
        • Do they have a policy to promote diversity in recruitment, promotion and advancement?
        • Do they participate with other organizations in advancing the issues of equity and inclusion?
        • Do they identify social equity risk within their risk register and manage against that risk?
        • Have you been externally evaluated on your program?
    • Scoring Example: Supply Chain
      • In an RFP for capital project, request the bidder to provide their own and their major supplier’s public corporate social responsibility (CSR) report (see TS1 Schedule 16 Section 3.2).
      • In evaluating ‘organization and key personnel’ assign point values and evaluate how well the bidder addressed the question.
      • Have a specific set of criteria for how we will carry out the evaluation, listed in the bid.
        • Does the report conform to listed CSR frameworks?
        • Does the company participate in annual CSR benchmarking?
        • Do they disclose their annual ranking?

ESG Wrap Up

  • Intent was to inform the board about what we’re doing, and that there are some options in the procurement world.
  • What we’re doing, and we’re looking to do more. Wanted to make sure the Board understands that the Authority is committed that these issues are seen as equal importance by our partners.
  • There is no action item, just an informative piece.
  • We saw this as an opportunity to inform folks, what we’re doing, what we’re looking at, how we’re dealing with this issue as we move forward on future procurements.

RELATED MATERIALS

Board of directors

Board Resolutions

View the Board Resolutions

Contact

Board of Directors Secretary
(916) 324-1541
boardmembers@hsr.ca.gov

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