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MV Credit Partners LLP

PRI reporting framework 2019

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income

ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

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.

Whilst MV Credit invests across the capital structure, most of our funds are focused on Senior (e.g. TLB, FRN) and Subordinated lending (e.g. second Lien, PIK, preferred equity). As such, our ESG strategy development has been characterised by our non-active ownership of the underlying assets we invest in.

Since inception, MV Credit has always operated with an informal and formal investment exclusion criterion. Initially the informal aspect was driven by the managers personal investment philosophy (ethical and moral exclusions); whilst the formal criteria included further specific requests from our LPs; which were formally included in our fund documentation [See more on questions FI 04.2 and SG 01.4].

Through gradually formalising our ESG practices (e.g. becoming a UN PRI signatory in 2012 – then under CapVest) we have reached a point in our development where we currently incorporate a three step ESG / RI evaluation of prospective investments. We (i) screen potential investments through a negative/exclusionary and norms-based strategy, (ii) seek further support/ validation of ESG values through a deeper Due Diligence Assessment (integration strategies), and (iii) our findings are presented and vindicated at the investment committee / Board level.

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

MV Credit’s screening approach starts with investing only with private equity sponsors which are in line with our values. As such, our PE sponsor evaluation includes (i) an assessment as to whether the PE sponsor is a UNPRI or equivalent signatory, and (ii) if not, on an exceptional basis, the Manager Board reserves the right to approve the sponsor relationship based on extensive alignment of ESG values.

Furthermore, MV Credit elects to not invest in certain sectors and industries. First of all, we do not invest in activities outlined in the following Exclusion List, which includes revenue derived from Tobacco, Weapons, Nuclear energy, Pornography, Gambling and Alcohol. To further encourage ethical behaviour beyond this exclusion list, we also take a very cautious approach to investing in care homes, nurseries, primary schools, fossil fuels, short-term unsecured lending, and – on a case by case basis – all businesses that could potentially negatively impact vulnerable members of society due to the highly leveraged nature of the proposed transaction.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process (Private)


FI 06. Screening - ensuring criteria are met

06.1. 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

06.2. Additional information. [Optional]


(C) Implementation: Integration

FI 10. Integration overview

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

An assessment of ESG risks, when making investment recommendations, is added to the Investment Memorandums to be presented to the Board. This assessment includes:

- A complete ESG investment checklist

- A complete ESG reporting checklist

- A review/list of other relevant ESG considerations addressed throughout the due diligence process. This review focuses on relevant ESG risks for each individual investment and put emphasis on how these would be addressed throughout the life of the holding of the asset (a suggested selection of considerations is listed on question FI 12.2).

Going forward, MV Credit is looking to implement an ESG scoring system, which will formalise how the Manager Board determines and evaluates ESG compliance.

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)

Our ESG integration approach is the same for each type of fixed income we invest in.

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)

ENVIRONMENTAL

Environmental

Climate change

Biodiversity

Energy resources and management

Biocapacity and ecosystem quality

Air pollution

Water scarcity and pollution

 

SOCIAL

Demographics

Human rights

Employee relations

Health and safety

Diversity

Customer relations

Product responsibility

 

GOVERNANCE

Business integrity

Shareholder rights

Incentive structure

Audit practices

Board independence & expertise

Fiduciary duty

Transparency/accountability

12.3. Additional information.[OPTIONAL]


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