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EIG Global Energy Partners

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

(C) Implementation: Integration

FI 10. Integration overview

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

Pre-Investment ESG Diligence

  • EIG investment professionals focus specifically on ESG issues when conducting transaction diligence for covered Funds
  • EIG engages external advisors, as appropriate, to assist in performing due diligence on social and environmental issues
  • ESG Committee may identify further areas where additional diligence is warranted prior to presentation to the Investment Committee or prior to signing/closing the investment and will identify material ESG issues to the Investment Committee
  • For each new investment, an ESG Report is prepared and presented to Investment Committee
  • Upstream transactions take APG “Guidelines on Unconventional Gas Operations” into consideration

Closing Process

  • Representations and warranties in our investment documents serve as an important supplement to EIG’s ESG diligence practices
  • Through representations, warranties and covenants, we are generally able to require portfolio companies to report certain ESG issues to EIG both at the time of the initial investment and on an ongoing basis
  • Representations and warranties included in our investment documents typically require borrowers or investees to assert that no material ESG issues exist as of the time of the investment, or if such is not the case, to identify any ESG issues that may exist

Post-Investment Monitoring

  • After an investment is made, covenants in our investment documents may require (i) periodic (both quarterly and annual) reporting on select ESG metrics, and/or (ii) notification by portfolio companies on the occurrence of specific events that implicate ESG concerns
  • Quarterly asset-by-asset reviews are conducted by EIG investment professionals and senior management with specific reference to ESG incidents or issues
  • EIG seeks to maintain board of director seats and/or board observation rights which allow EIG to monitor, initiate, and participate in ESG discussions at the portfolio company level

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

Corporate (non-financial)

In addition to the above response in FI 10.1, our ESG diligence process is risk-based. EIG-managed funds make investments across the spectrum of geographic regions and industries and in different positions in the capital structure. Our approach to due diligence will generally differentiate between OECD country investments and investments that are made in non-OECD countries, as well as our position in the capital structure. For example, in OECD countries where, in general, there are effective local legal regimes that govern environmental impacts, EIG's environmental diligence focus is on ensuring both the existence of effective internal policies and controls relating to the environment as well as actual compliance with local environmental laws. In developing countries with potentially less effective environmental legal or regulatory regimes, EIG's environmental diligence would be geared towards identifying specific environmental risks posed by a company's operations as well as potential corresponding mitigating measures the company may be able to take in response to such risks. Additionally, EIG's scrutiny of ESG issues connected to a project in a high-risk industry is enhanced.

Our ESG diligence approach is tailored both for the level of risk inherent in a portfolio company's industry as well as the effectiveness of the legal/regulatory regime in which it operates.

10.3. Additional information [OPTIONAL]


FI 11. Integration - ESG information in investment processes

11.1. 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 used to adjust the internal credit assessments of issuers.
ESG analysis is used to adjust forecasted financials and future cash flow estimates.
ESG analysis impacts the ranking of an issuer relative to a chosen peer group.
An issuer's ESG bond spreads and its relative value versus its sector peers are analysed to find out if all risks are priced in.
The impact of ESG analysis on bonds of an issuer with different durations/maturities are analysed.
Sensitivity analysis and scenario analysis are applied to valuation models to compare the difference between base-case and ESG-integrated security valuation.
ESG analysis is integrated into portfolio weighting decisions.
Companies, sectors, countries and currency and monitored for changes in ESG exposure and for breaches of risk limits.
The ESG profile of portfolios is examined for securities with high ESG risks and assessed relative to the ESG profile of a benchmark.
Other, specify

11.2. Additional information [OPTIONAL]


FI 12. Integration - E,S and G issues reviewed

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

Environment
Social
Governance
Corporate (non-financial)

Environmental

Social

Governance

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

Corporate (non-financial)

In parallel with EIG's transaction diligence, investment professionals will conduct ESG-specific diligence to assess non-strictly financial considerations relating to sustainable development, environmental stewardship, social equity and corporate governance. The ESG Committee will review the findings of the ESG diligence and may identify further areas where additional diligence is warranted prior to presentation of the investment opportunity to the Investment Committee or prior to signing/closing the investment.

Subsequent to an investment being made, EIG undertakes a quarterly review process whereby quantitative and qualitative information specific to each investment, inclusive of ESG issues and updates, are reviewed and discussed.

12.3. Additional information.[OPTIONAL]


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