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TowerBrook Capital Partners

PRI reporting framework 2019

You are in Direct – Private Equity » Pre-investment (selection)

Pre-investment (selection)

PE 05. Incorporating ESG issues when selecting investments

05.1. During due-diligence indicate if your organisation typically incorporates ESG issues when selecting private equity investments.

05.2. Describe your organisation's approach to incorporating ESG issues in private equity investment selection.

Responsible ownership considerations are integrated into every stage of our investment process and drive the development of policies, action plans and metrics for our portfolio companies. 

Overview

TowerBrook has a clear and consistent process that helps us scrutinise prospective investments, manage them responsibly and deliver sustainable results for our investors. Responsible ownership considerations are integrated into every stage of this process, and drive the development of policies, action plans and metrics for our portfolio companies. 

Initial Screening

TowerBrook seeks to conduct robust reviews of potential ESG risks early in the investment process.  TowerBrook has drafted and continuously evolves a list of ESG Markers, including, but not limited to, certain industries or countries that present heightened ESG risk and investor sensitivities.  Investment professionals reviewing potential opportunities in such industries or connected to such countries, or which otherwise could reasonably pose material ESG risks, must discuss any such issues with TowerBrook’s Transaction Committee at an early stage in the investment consideration process.   TowerBrook also seeks to engage with its preferred ESG consultants at an early stage in the investment consideration process to identify ESG-related risks and opportunities. 

Due Diligence

Once an early stage investment proceeds to due diligence, TowerBrook conducts ESG-related diligence targeted to the Company’s industry and specific risk profile.  TowerBrook has developed a standard ESG diligence request list to confirm a target company’s level of compliance with TowerBrook’s ESG policies and relevant legislation and regulation.  Additionally, TowerBrook has developed a specific detailed ESG diligence request list for certain industries, such as consumer goods and manufacturing.  TowerBrook’s investment team members may also conduct site visits, as appropriate.   TowerBrook’s preferred ESG consultants would be retained during the diligence stage to conduct a fulsome ESG diligence review. 

TowerBrook’s due diligence processes are designed to ensure that material issues, including ESG, are addressed when considering and evaluating investment opportunities.  TowerBrook seeks to undertake ESG due diligence on applicable private equity investments, including, but not limited to, those with industrial manufacturing capabilities. Environmental diligence typically comprises environmental Phase I site assessments, but this can be extended to include Phase II site assessment if necessary.  TowerBrook may also conduct diligence on anti-corruption, data privacy, supply chain, safety and other governance matters, as appropriate.   TowerBrook’s due diligence process for structured opportunities investments may also take into account ESG considerations, as appropriate.  During diligence, TowerBrook also extensively references key executives and non-executives affiliated with the company, testing among other things for integrity and ethical reputation to help shape our view of the broader company’s culture and attitudes.

05.3. Additional information. [Optional]


PE 06. Types of ESG information considered in investment selection

06.1. Indicate what type of ESG information your organisation typically considers during your private equity investment selection process.

06.2. Describe how this information is reported to, considered and documented by the Investment Committee or similar.

ESG risks and/or ESG-related opportunities are discussed in the investment memoranda presented to the applicable Transaction Committee or Investment Committee. Additionally, all diligence reports by advisors relating to ESG issues are presented to the relevant committee. ESG matters would then be discussed thoroughly, with such discussion including members of TowerBrook's legal team and portfolio group, and also outside consultants if necessary. Consideration of ESG issues would be reflected in the minutes of the Committee meetings, as appropriate. Each final Investment Committee acquisition contains a written section detailing identified ESG risks and ESG opportunities in connection with the proposed opportunity.


PE 07. Encouraging improvements in investees

07.1. During deal structuring,what is the process for integrating ESG-related considerations into the deal documentation and/or the post-investment action plan?.

If yes

          Advisor recommendations
        

07.2. Describe the nature of these improvements and provide examples (if any) from the reporting year

Transaction Closing

At signing, TowerBrook’s legal team would consider whether to include detailed ESG clauses in  investment or shareholders’ agreements, as practicable and applicable.  The legal team and investment teams also work to verify due diligence findings via representations and warranties in the purchase agreement and seek specific indemnification as appropriate. 

200-Day Plan

The 200-day plan for each portfolio company includes development and publication of an appropriate ESG policy and development of procedures to implement, monitor and test such policy.  Each 200-day plan includes standard ESG items, as well as any specific ESG items identified during diligence as relevant for a particular target company.  Individual portfolio company action plans are designed, where appropriate, to address any opportunities for improvement. 

Ownership

During ownership, ESG related risks are managed by the boards and management teams of the individual portfolio companies.  Since TowerBrook invests in a wide range of sectors, ESG risks vary widely from company to company.

07.3. Additional information. [OPTIONAL]

TowerBrook seeks to discuss the importance of ESG with each CEO of private equity portfolio companies, together with the Chair, who would have been separately instructed during onboarding with a Welcome Pack that explicitly addresses Responsible Ownership and the Chair’s role therein.  TowerBrook intends to actively monitor ESG at the portfolio company level, ensuring that systems and resources are in place to enable ESG risks to be effectively managed and that each portfolio company assigns specific management responsibility for ESG operations.  TowerBrook’s approach to ESG has been to ask each portfolio company’s Audit & Risk Management Committee to review regularly such ESG risks as are relevant to that company.  This practice is now evolving to establish a dedicated ESG (or similar) committee on each portfolio board.  Portfolio company management is encouraged to engage directly with third parties (such as suppliers, developers, and contractors) to verify sound ESG practices.  Furthermore, TowerBrook seeks to ensure adequate training on ESG at the portfolio company level, which may include sensitivity/diversity training and supply chain management training. 

Example

A recent example of integrating ESG considerations into the post-investment plan is our portfolio company, AustroCel Hallein.   Following TowerBrook’s acquisition, a project was approved to construct a bioethanol plant that would enable the company to produce bioethanol by recycling a side product called brown liquor that is generated as part of the mill’s core manufacturing process. This investment is expected to significantly increase the earnings coming from green energy production, and to overall improve the financial profile of AustroCel Hallein.


PE 08. ESG issues impact in selection process

08.1. Indicate how ESG issues impacted your private equity investment selection processes during the reporting year.

08.2. Indicate how ESG issues impacted your private equity investment deals during the reporting year.

          ESG issues caused TowerBrook to pass on investment opportunities
        

08.3. Additional information. [OPTIONAL]

During the reporting year we abandoned an early stage investment in an lending business on ESG grounds.  The deal presented a unique financial opportunity but we were uncomfortable with the high interest rate lending strategy.  We also abandoned the opportunity to invest in a few direct selling businesses on the grounds of questionable selling practices.


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