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CDC Group plc

PRI reporting framework 2019

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Outputs and outcomes

PE 14. ESG issues affected financial/ESG performance

14.1. Indicate whether your organisation measures how your approach to responsible investment in Private Equity investments has affected financial and/or ESG performance.

Describe the impact on:
Impact
Financial performance of investments
Describe the impact on:
Impact
ESG performance of investments

14.2. Describe how you are able to determine these outcomes.

CDC has produced case studies of investments where the ESG and financial performance of a company has improved through its approach to ESG issues. For example, CDC's work with Pristine Logistics in India helped the company improve its occupational health and safety practices and overall efficiency. This has led to better outcomes for job quality as well as the overall efficient operations of the company (https://www.cdcgroup.com/en/esg/economic-development-india/).

CDC has also measured cost savings as a result of ESG initiatives in some instances. For example, Rainbow Children's Hospital underwent energy and water use audits with CDC's support, which led to them implementing improvements that reduced their resource use and saved costs. They also became the first hospital in South Asia to receive IFC EDGE certification, which helped establish them as a market leader (https://www.cdcgroup.com/en/esg/direct-equity-investment-india/). Rainbow also installed solar panels at two hospitals, and report to CDC quarterly on cost and energy savings associated with their generation.

To further strengthen its approach to improving financial performance through ESG, CDC produced value creation frameworks in 2014 for sectors such as education and healthcare.

As a DFI, CDC has a public commitment to responsible investment and believes that its approach to ESG due diligence and monitoring improves ESG performance in its investee companies.


PE 15. Examples of ESG issues that affected your PE investments

15.1. Provide examples of ESG issues that you identified in your potential and/or existing private equity investments during the reporting year.

Investment Stage
ESG issues

ESG issues

          No ESG staff responsible for company operations
        
          No ESG staff responsible for company operations
        
Sector(s)
          Healthcare
        
Impact (or potential impact) on the investment

Company did not have a dedicated resource to oversee their E&S operations, which is a concern in hospitals where both environmental and social risks require active management and monitoring.

Activities undertaken to influence the investment and its response

As part of CDC's investment, there was a requirement to hire a dedicated resource to work closely with CDC to implement the E&S Action Plan and monitor and report on all E&S indicators. This significantly improved company engagement and gave CDC better oversight of these issues.

Investment Stage
ESG issues

ESG issues

          Poor occupational health and safety practices outside of main city
        
Sector(s)
          ICT
        
Impact (or potential impact) on investment

Occupational health and safety (OHS) practices in the main city where Headquarters was located were good, but in second tier cities and rural areas, the same rigour and awareness did not exist. This was a material risk to the company in terms of employee safety and reputational risk.

Activities undertaken to influence the investment and its response

The requirement to hire a Health and Safety Manager was made a condition of CDC investment. CDC also provided access to its Technical Assistance Grant Facility to give additional expert advice and support to the development of an OHS management plan and the training and development of the new Manager, with the goal of integrating OHS more sustainably into the company's overall operations.

Investment Stage
ESG issues

ESG issues

          Concerns about political exposure of proposed joint venture partner and company had no formal approach to managing risks
        
Sector(s)
          ICT
        
Impact (or potential impact) on investment

CDC's Business Integrity team identified a potential governance issue during the due diligence process of a high-risk investment. This could have had serious reputational issues for the company and CDC.

Activities undertaken to influence the investment and its response

A comprehensive DD was conducted to identify and assess risks. As a condition of investment, CDC set certain governance requirements that were also included in the legal requirements. The BI team helped the company develop the appropriate governance policies to help it manage the risks appropriately. This active risk management approach enabled CDC to proceed with the transaction; and on-going support is being provided as part of portfolio management.

Investment Stage
ESG issues

ESG issues

          Agribusiness operating in country with inconsistent power access relied heavily on diesel generators
        
Sector(s)
          Food and Agriculture
        
Impact (or potential impact) on investment

A portfolio company operating in southern Africa is highly dependent on energy consumption and energy costs have increased considerably, which has had a negative financial impact on the company. At the same time, there are regular power outages from the national grid. As a result, the company often uses power from diesel generators.

Activities undertaken to influence the investment and its response

CDC's E&S team has supported the company to access CDC Technical Assistance grant funding to conduct an energy audit to identify opportunities to improve energy efficiency and demand stability as well as economically feasible renewable energy options. This proposal was developed in 2018 and will be implemented in 2019.

15.2. Describe how you define and evaluate the materiality of ESG factors.

CDC gives each investment opportunity an initial risk rating based on the sector and context of the deal at the initial screening stage of the investment process. CDC’s risk rating criteria are harmonised with other DFIs and aligned with the International Finance Corporation’s Performance Standards (the criteria are available on CDC’s ESG Toolkit). The initial risk rating is confirmed through ESG due diligence, often using a specialist ESG consultancy, and then monitored throughout the life of the investment. An ESG action plan is typically created during the due diligence process to close gaps in the company’s performance against international standards. The action plan sets priorities (including deadlines) and indicates an estimated cost for each action. These costs are then factored into the decision-making process and investment thesis. Sometimes, the costs associated with an action plan may affect the commercial attractiveness of a deal. During the holding period, CDC will monitor the risks associated with a deal and may add to an action plan. The aim of CDC’s support is for the company to develop the capacity to define and evaluate the materiality of ESG factors affecting its own operations, and for these robust processes to continue following divestment by CDC.


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