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CDC Group plc

PRI reporting framework 2020

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Outputs and outcomes

FI 17. Financial/ESG performance

17.1. Indicate whether your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or performance.

Select all that apply
Corporate (financial)
Corporate (non-financial)
We measure whether incorporating ESG impacts portfolio risk.
We measure whether incorporating ESG impacts portfolio returns.
We measure the ESG performance/profile of portfolios (relative to the benchmark).
None of the above

17.2. Describe how your organisation measures how your incorporation of ESG analysis in fixed income has affected investment outcomes and/or ESG performance. [OPTIONAL]

During due diligence, CDC always screens for gaps in compliance with ESG standards and develops an action plan with the company to close these gaps and add value.

At screening phase, CDC’s ESG professionals identify inherent risk ratings for all investments and update residual risks following our efforts to work toward international standards with the investees. On a quarterly basis, we discuss the residual ESG risk and the ESG performance of individual investments and consider them within the context of our expectations and the whole portfolio. Where ESG risk is above our expectation or performance below our expectation, based on our institutional experience and the portfolio, we would take steps to improve. Where performance is meeting or exceeding expectations, we make efforts to collect and disseminate lessons learned.

While CDC does not systematically measure whether incorporating ESG impacts portfolio returns, this is done on an ad hoc basis.

17.3. Additional information.[OPTIONAL]


FI 18. Examples - ESG incorporation or engagement

18.1. Provide examples of how your incorporation of ESG analysis and/or your engagement of issuers has affected your fixed income investment outcomes during the reporting year.

ESG issue and explanation

As part of due diligence, CDC always assesses alignment with our Code of Responsible Investment, which includes reference to local and international ESG standards. Where applicable, CDC agrees an ESG action plan with the company to close identified gaps and, where possible, implement value-adding opportunities. For example, at one company CDC identified that passports for overseas workers were being retained by a potential debt client, and indication of the potential for Modern Slavery.  Prior to our disbursing on the debt facility, CDC secured commitment from the company to return passports in the majority of cases; to hold passports in accordance with a written procedure where workers wished passports to be held for safe-keeping; and to engage with all employees to inform them of their rights with respect to their identity documents. In the same transaction, improvements were also required to be made to company-provided worker accommodation. Significant improvements have been observed over the past months through a verification audit focussed on passport retention, worker accommodation and HR management system implementation.

Impact on investment decision or performance

Significant improvements have been observed over the past months through a verification audit focussed on passport retention, worker accommodation and HR management system implementation. The Company are appreciative of the support and flexibility provided by CDC and of our provision of external advisory services for their benefit.

ESG issue and explanation

During our relationship with borrowers, CDC maintains close attention to ESG aspects through monitoring, often using external consultants.  Where possible, we cross-refer between similar projects to identify trends and draw parallels.  For one Borrower with whom we have multiple investments, we spend some time in 2019 to review findings across three construction-phase projects in order to identify commonalities and to consider how to make improvements where ESG performance merited it.  As a result of this analysis, the CDC ESG team convened a meeting with the Borrower’s Senior Management to highlight the trends and express concern that common failings were being noted across multiple construction sites.  CDC were pleased to receive a response from our Borrower concurring with our position and after some further consideration the Borrower recruited an extra Senior-level person in an ESG capacity.

Impact on investment decision or performance

The first task for the new capacity recruited was to undertake an internal ESG due diligence of all projects to assess them against International ESG Standards and to draw up Action Plans as appropriate.  During and following this exercise, the CDC ESG team has held several meetings with the new person in order to receive updates and for CDC to support as required.  The impact has been a steady improvement in ESG performance across the projects in which we are invested.

ESG issue and explanation

Following Environmental & Social Due Diligence, CDC often formulate Environmental & Social Action Plans (ESAPs) for inclusion in our Facility Agreements aimed at closing gaps to International ESG Standards through specific actions.  These ESAPs include details of deliverables required and specify timescales over which they are to be closed-out.  On some occasions, Borrowers struggle to meet the timescales contained within ESAPs and CDC has to work with companies to seek alternative pragmatic resolutions while still meeting our Standards. One example from 2019 was in relation to one of our Borrowers developing and implementing an Environmental & Social Management System for their operations in Africa.  After the Borrower was late with developing this system, due to a capacity constraint internally, CDC and another Lender engaged with them to suggest that either the deadline be moved to give the company an extra month to comply or that the company engage a suitably qualified consultant to develop and implement the system.  In the event, the Borrower chose the latter option.  The next step will be for CDC’s monitoring advisor to check implementation of the system and provide capacity building as required so that the system is able to drive improvement in ESG performance.

Impact on investment decision or performance

The Borrower now have an Environmental & Social Management System which can be utilised by them to adequately manage ESG aspects as a basis for continual improvement.

ESG issue and explanation

The BI team had experienced significant pushback from a company in west Africa on CDC’s BI requirements in the past. A BIAP had been negotiated as part of the investment, but the company was very defensive. The BI team and the investment team dedicated extra time and resources to establish a regular and smooth communication line with the company. The engagement gradually improved, despite a few disappointments such as missed deadlines and a an initial “tick the box” approach on their side. A first step in the right direction was the hiring of a compliance officer in Q1 2019. With our support, the BIAP was successfully completed in Q1 2020. 

One of the BIAP requirements was for the company to conduct a risk assessment to map staff most vulnerable to bribery risk. After an attempt to conduct this exercise themselves, we renegotiated the deadline and advised them to appoint an external provider to conduct the work. We supported them in selecting the right company and defining the scope.

Impact on investment decision or performance

The final product went beyond the BIAP’s requirements – as it mapped out the company’s processes and controls most vulnerable to fraud, giving us additional insights into the company’s vulnerabilities. It was also helpful for us to have a specialised consultant on site for 6 weeks, which helped us to further improve the dialogue on BI. We were also pleased to see that the company had already taken steps to address some of the consultant’s mitigation recommendations by the time the report was shared with us.

We will continue to support the company to implement of the remaining recommendations from the consultant. We will also use the momentum to engage on the company’s third-party risk management programme, which we have identified as a priority area during this period of renewed engagement.

18.2. Additional information.


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