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Tikehau Capital

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

Our fixed income investments include private direct lending, leveraged loans (including CLOs) and listed fixed income management (investment grade and high yield).

In terms of ESG screening, Group exclusion principles are applied to potential investments. Manufacturers of controversial weapons and issuers based in high risks jurisdictions are excluded.

In terms of ESG evaluation approach, investment analysts perform a detailed review of each potential investment which includes a range of ESG factors. This is being formalized by implementing a proprietary ESG risk tool. If there is a concern over an investment opportunity (e.g.. polluting industry, controversial businesses, etc.), the ESG committee will be called.

ESG monitoring processes will be implemented from 2018: In terms of ESG monitoring for listed fixed income securities and CLOs, research analysts will update the analysis risk tool on an annual basis. In terms of ESG monitoring for private debt securities, an ESG questionnaire will be sent to portfolio companies and the results will be monitored by investment teams.

For companies offering a greater access to management, the investment teams may ask ESG questions during management interviews and promote best practices.

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Group exclusions are applied to all new investments – specifically manufacturers of controversial weapons and issuers from high risks jurisdictions. Companies publicly violating the UN Global compact will be flagged on the ESG analysis grid and excluded. 

04.3. Additional information. [Optional]


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

Corporate (non-financial)

Corporate (non-fin)

05.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

Tikehau Capital is committed to investing responsibly, and believes that the effective integration of an ESG framework is key in achieving a long-term sustainable performance. Hence, non ESG compliant companies are seen as riskier. Moreover, the Group ESG charter establishes good governance as one of the main subjects of ESG research. 

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process (Private)


FI 07. Screening - ensuring criteria are met

07.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?
Norms-based screening

07.2. Additional information. [Optional]


(C) Implementation: Integration

FI 11. Integration overview

11.1. Describe your approach to integrating ESG into traditional financial analysis.

For potential investment in private direct lending activities, a summary of the ESG analysis grid is included in the investment case submitted for approval to the Investment Committee.

11.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

Corporate (non-financial)

For listed bonds, the ESG analysis mainly involves the integration ESG evaluations into investment recommendations. Meetings with company executives are also conducted where possible (e.g. during roadshows). 

For private direct lending, Tikehau teams conduct a more in depth due diligence based on an extended questionnaire. If the investments materializes, the loan agreement will include an ESG clause setting out Tikehau Capital’s ESG commitments as well as engaging management of the target to adopt a progressive approach in carrying out their business combining economic interests and corporate responsibility. An ESG information request clause will also be included in the contractual documentation. Further, the ESG monitoring will be based on in-depth interaction with the executives of the company especially for sponsorless private debt.

11.3. Additional information [OPTIONAL]

Levels of ESG integration primarily depend on the availability of ESG data as well as the level of interaction with management. 


FI 12. Integration - ESG information in investment processes

12.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

12.2. Additional information [OPTIONAL]


FI 13. Integration - E,S and G issues reviewed

13.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
Corporate (non-financial)

Environmental

Social

Governance

13.2. Please provide more detail on how you review E, S and G factors in your integration process.

Corporate (non-financial)

Our ESG analysis grid encompasses 3 pillars. The Tikehau Capital teams are convinced that corporate governance is an essential factor of performance and risk control and hence a weight of 40% is given to this factor. A weight of 30% is given to social and environmental pillars. 

13.3. Additional information.[OPTIONAL]


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