In line with its commitment to the UNPRI, Ardian seeks to integrate ESG considerations into all phases of the investment process, with the ultimate aim of improving extra-financial performance of the portfolio
For its Funds of Funds activity, Ardian has tailored a pragmatic approach to integrate ESG criteria in both its primary and secondary transactions taking into account the specificities of each.
Due diligence phase
In the due diligence phase, the investment team integrates extra-financial considerations to assess GPs and make sure that their activity is in line with our interests. ESG analysis takes shape in two ways:
- For primary investments, in order to ensure an alignment of interests, Ardian can seek to negotiate clauses in side letters barring investments in sectors banned the CSR Charter whenever it is deemed necessary. These side letters request that underlying fund manager acknowledges Ardian’s CSR Charter, commitment to the UN PRI as well as Ardian’s Responsible Investment Policy. In order to assess the potential performance of a primary fund manager, the Fund of Funds team assesses extra-financial policy and practices with a dedicated questionnaire largely inspired by the UN PRI LP DDQ, which attributes an ESG score to the GP.
This ESG score accounts for 10% of the GPs final score and is therefore a significant factor in the investment decision . This ESG score is attributed to all new primary investments and is updated during the holding period. The results of this analysis is included in the pro/cons summary of the GPs, right at the beginning of the memo, highlighting the importance of the topic
- For secondary transactions, the whole portfolio undergoes a transparency analysis in order to identify any exposure to sectors that would be banned by Ardian’s CSR Charter. Afterwards,the Fund of funds team calculates the percentage of the commitment/NAV within the acquired portfolio that is managed by GPs who are members of the UNPRI and AIC.
Ardian strives to primarily invest in funds managed by GPs with a solid reputation and highest professional standards, which are often already concerned with ESG and thus more inclined to actively integrate ESG considerations in their own investment practices; two thirds of the funds in which Ardian invests (in terms of NAV) are managed by PRI signatories and/or members of American Investment Council.
The investment memos always have a dedicated ESG section which includes a summary of the analysis undertaken during due diligence. The investment memos are then submitted to the Investment Committee who is ultimately responsible for the investment decision.
For the Fund of Funds activity, along with active dialogue with GPs, an ESG monitoring survey was developed in 2010 in order to raise awareness of ESG and evaluate their progress over time. This survey has been regularly sent to Ardian's GPs in order to address both primary and secondary transactions. Collected data allows to follow up on progress for each individual fund, and the ESG performance data is then stored in Ardian's database. This information also allows Ardian to establish an ESG benchmark for GPs. The ultimate goal is to encourage GPs to incentivize ESG integration by portfolio companies and improve extra-financial impact of portfolio over time.
Another lever for Ardian to promote and monitor ESG issues during the holding period is the fact that Ardian often secures a seat on the Boards of funds in which it invests.