ESG risks and opportunities are integrated into the full investment life-cycle. All potential portfolio company investments are reviewed for ESG risks and opportunities as an integral part of the investment due diligence process. Acquisition due diligence is undertaken for all proposed investments and incorporates financial, operational and ESG considerations. ESG due diligence is tailored depending on the location, type of asset and risk profile of the portfolio company.
At screening stage the MIRA Risk and Sustainability team work closely with transaction teams to identify material ESG risks. To guide this process MIRA has a range of materials and tools including the Macquarie Environmental and Social Risk Assessment Tool. The tool was built in collaboration with an external consultant and customised for our business. It is used for all transactions to help identify ESG ‘red flags’ and to shape the scope of due diligence. The environmental and social risk criteria and categorisation are based on International Finance Corporation (IFC) Performance Standards. External expert advisers are engaged as needed on specific ESG issues. MIRA is also supported by Macquarie Group’s dedicated Environmental and Social Risk team, which is available for consultation and guidance
Any deficiencies in the risk management system at the portfolio company identified during due diligence are documented as part of the transition plan, which contains actions to be implemented typically during the first 100 days post acquisition, together with responsibilities and timetables for each action.
Following acquisition, more detailed information is sought from each portfolio company in respect of its risk management framework and analysed by MIRA risk personnel as part of the Asset Risk Management Framework Assessment (ARMFA). The findings are discussed with the MIRA asset managers and Non-Executive Directors (NEDs) on the portfolio company board with a view to incorporating any identified improvements, including in respect of ESG matters, into the portfolio company’s risk management framework and underlying processes and policies.
These improvements are also incorporated into the transition plan together with responsibilities and timeframes for each action. Transition plan actions/initiatives are then tracked to completion by the asset management team.
The transition plan and subsequent ARMFA may highlight ESG risks and opportunities which require long-term management that cannot be resolved within the transition period. Recommendations for such management will be analysed as part of the ARMFA discussed with the portfolio company board.
The materiality of ESG issues will depend on a range of factors, including the type of asset, physical location, legal jurisdiction, stage of asset cycle and the outcomes of due diligence. ‘Environmental, Social and Governance (ESG) – Our Approach’ provides additional information on our ESG approach including how we approach material ESG factors including climate change, health and safety, cyber security and bribery and corruption.