This report shows public data only. Is this your organisation? If so, login here to view your full report.

Permira Holdings Limited

PRI reporting framework 2020

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%
Securitised
100 Screening alone
0 Thematic alone
0 Integration alone
0 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.

PDM operates across three core strategies in European credit: direct lending (investing predominantly in European mid-market companies), CLO management, and structured credit (investing in European CLO assets). 

Please see below for further details on the core strategies and approach to ESG incorporation.  

01.3. Additional information [Optional].

PDM operates across three core strategies in European credit: direct lending (investing in European mid-market companies), CLO management, and structured credit (investing in European CLO assets).

  • Direct lending: PDM's direct lending funds provide capital to strong and growing companies in the European mid-market, typically as the sole lender to the company. PDM believes that a focus on ESG is an important part of building lasting value in portfolio companies. PDM is committed to ensuring that potentially material ESG matters are integrated as part of the standard investment analysis for direct lending investments. PDM recognises that the considerations for a debt provider are different to a private equity investor acquiring a controlling stake in a company.
  • CLO management: PDM relaunched its CLO management business during 2017, and has since priced and closed three Providus CLOs. As part of the relaunch, PDM developed an ESG screening approach for the pre-investment process for its directly managed CLOs with ESG eligibility criteria included in the fund documentation. 
  • Structured credit: PDM is committed to increased engagement with CLO managers to understand what ESG policies and approaches are currently in place, and to promote the implementation of ESG policies and/or negative screening criteria in their investments.

PDM investment teams across all three strategies have access to the existing Permira ESG network and framework.

For the purposes of PRI reporting, PDM's three core strategies are reported under the following categories: direct lending (Fixed income - Corporate, non-financial), CLO management and structured credit (Fixed income – Securitised).  The CLO funds are securitised vehicles but invest in ‘corporate non-financial’ investments.


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:

specify description

          PDM may rely on third party due diligence from reputable service providers and information disclosed by the portfolio company.
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

          ESG issues are regularly discussed within deal screening meetings.
        

03.3. Additional information. [Optional]

FI 03.1 – RepRisk, used during pre-acquisition and for ongoing monitoring of companies, is a live database, updated frequently to reflect current ESG/reputational issues and ESG ratings for companies. Various other sources of information may be used during the pre-investment due diligence for direct lending investments. For example, PDM may gain reliance on independent environmental, health, safety and/or social due diligence undertaken for the sponsor as part of the due diligence process and review information disclosed by the portfolio company.

FI 03.2 - All PDM staff have access to a central internal database with ESG framework, guidelines and other related reference documents. ESG is regularly discussed within deal screening meetings, and has been particularly relevant in 2019 when PDM assessed transactions in the care home and fertility clinic sectors. Material ESG risks identified throughout the pre-investment due diligence are raised with the Investment Committee (IC) through the iterative IC process. For direct lending investments, at Final Investment Recommendation stage, overall ESG risks identified throughout the pre-investment process are distilled and presented in one summary slide to the Investment Committee, and discussed where relevant. 


(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)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Exclusion requirements (focusing on particular sectors and business activities) have been developed and included in the fund documentation for PDM's most recent direct lending fund (PCS4) and the CLO management funds (Providus 1, 2, and 3). These exclusion requirements consider investor sensitivities and strategic sustainability concerns. Potential investments are considered on a case-by-case basis as part of the pre-investment due diligence process. There may also be instances where PDM would not invest in certain sectors/sub-sectors due to ESG-related concerns and sensitivities beyond the defined exclusion requirements.

It is the responsibility of the investment professionals, with oversight from the Investment Committee, to ensure that exclusion criteria are not breached.

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

other description

          ESG analysis is included in IC documents, including at early stages. Additionally, PDM investment professionals have access to ESG professionals who provide advice.
        

06.2. Additional information. [Optional]

In addition to the above, PDM investment professionals have access to the Permira ESG group and ESG professionals who provide advice on whether a transaction breaches any of Permira's ESG guidelines. 


(C) Implementation: Integration

FI 10. Integration overview

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

Direct Lending

Potentially material ESG matters are considered as part of the pre-investment due diligence process on each direct lending transaction. Responsibility for assessing ESG considerations of a potential transaction lies with the deal team. Where required, the PDM team can call on the expertise of Permira's Head of ESG, Adinah Shackleton, or Aga Siemiginowska (Adinah's maternity cover as of October 2019). During the pre-investment stage, deal teams may also have access to deal documentation, management teams and/or external advisors to understand and assess the ESG risks associated with the investment. Depending on the sponsor and the nature of the investment, PDM may also gain reliance on independent environmental, health, safety and/or social due diligence undertaken for the sponsor as part of the due diligence process. If no independent EHS or social due diligence has been undertaken, the PDM team may speak directly to the sponsor to better understand how ESG risks and opportunities are assessed at the sponsor level. 

PDM also use RepRisk, an ESG business intelligence provider, to inform the pre-acquisition process and screen companies for previous negative ESG and reputational issues (e.g. in the local, national, international media, issues raised by Non-Governmental Organisations and industry bodies in various languages). This tool is also used post investment to support in monitoring reputational risks during the lifetime of the investment.

Material risks identified throughout the pre-investment due diligence are raised with the Investment Committee through the iterative IC process. At Final Investment Recommendation overall ESG risks identified throughout the pre-investment process are distilled and presented in one summary slide to the Investment Committee, and discussed where relevant. As a result of the due diligence process, deal teams assign ESG risk ratings (red, yellow or green) according to a target's sector of activity and its internal ESG management capability. PDM deal teams have access to Permira's Head of ESG to discuss potential material issues and risk ratings to ensure that risk criteria are assessed consistently.

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)

Refer to FI 01 for further details on the approaches to ESG for the different types of fixed income strategies that are followed by the PDM funds.

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 in Additional Information

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)

Potentially material ESG matters are considered as part of the pre-investment due diligence process on each direct lending investment. Responsibility for assessing ESG considerations on a potential transaction lies with the deal team. Where required, the PDM team can call on the expertise of Permira's Head of ESG. During the pre-investment stage, deal teams may also have access to deal documentation, management teams and/or external advisors to understand and assess the ESG risks associated with the investment. Depending on the sponsor and the nature of the investment, PDM may also gain reliance on independent environmental, health, safety and/or social due diligence undertaken for the sponsor as part of the due diligence process. In cases where no independent EHS or social due diligence is available, the PDM team may reach out to the sponsor directly to better understand how ESG risks and opportunities are assessed. 

PDM also uses RepRisk, an ESG business intelligence provider, to inform the pre-acquisition process and screen companies for previous negative ESG and reputational issues (e.g. in the local, national, international media, issues raised by Non-Governmental Organisations and industry bodies, in various languages). This tool is also used post-investment to support in monitoring reputational risks during the lifetime of the investment (see section on post-investment below for further details).

An initial screening of ESG risks begins during deal origination. The ESG Framework and templates guide this process but are not prescriptive, allowing deal teams to focus on the relevant aspects of ESG for a given sector or target company. As a result of the due diligence process, deal teams assign ESG risk ratings (red, yellow or green) according to a target's sector of activity and its internal ESG management capability. PDM deal teams have access to Permira's Head of ESG to discuss potential material issues and risk ratings to ensure that risk criteria are assessed consistently.

12.3. Additional information.[OPTIONAL]


Top