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CDC Group plc

PRI reporting framework 2020

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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 (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%
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.

As previously mentioned, CDC interprets “fixed income” as our entire debt portfolio and responds accordingly. ESG factors are core to all of CDC's investments. All debt opportunities are screened first against CDC's Code of Responsible Investing, including our exclusion list. The selection of remaining potential investments are benchmarked against one another and against the market for both financial and ESG factors.

Before investment, all opportunities are diligenced against international best practices, and the gap analysis is translated into an action plan which becomes part of the deal legal documents. Thus, ESG factors are explicitly and systematically included into the decision-making process.

 

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research

02.1. Indicate which ESG factors you systematically research as part of your analysis on issuers.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Environmental data
Social data
Governance data

02.2. Indicate what format your ESG information comes in and where you typically source it

Indicate who provides this information  

specify description

          Publicly available sources, also specialist consultancies for technical ESG information
        

Indicate who provides this information  

specify description

          Publicly available sources
        

Indicate who provides this information  

specify description

          TBC with Mark
        

Indicate who provides this information  

specific description

          Publicly available information
        

Indicate who provides this information  

02.3. Provide a brief description of the ESG information used, highlighting any differences in sources of information across your ESG incorporation strategies.

CDC gathers ESG information with respect to every investment made. ESG information is requested from prospective investees, and assessed alongside evidence from environmental and social due diligence (ESDD) documents. ESDDs are conducted either by CDC professionals or external consultants who are specialists in the particular area for diligence, and are conducted in line with international best practices.

Investment and ESG teams also incorporate wider ESG information into sector and country mapping, including, for example, inherent political risks. When a larger sector or country mapping or an assessment of a new sub-sector is being undertaken, an ESG research provider may be engaged. 

02.4. Additional information. [Optional]


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          CDC internal ESG professionals review the content of all ESG-related information to ensure it is robust/accurate/appropriate.
        

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

          Ad-hoc meetings involving all the relevant teams.
        

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 (financial)
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

Environmental, social and governance risks are generally identified through a specific screening and due diligence process. Potential investees are assessed against international best practice standards for ESG matters. In the due diligence phase, risks are identified through site visits by CDC, and often also by external specialist consultants. 

Exclusionary screening is done to ensure the target is not engaged in any activities on the CDC Exclusion List or barred by the IFC Performance Standards (e.g. the use of pesticides that are identified in the Stockholm Convention on Persistent Organic Pollutants). Norms-based and Positive screening are done against the framework of the IFC Performance Standards, World Bank EHS Guidelines, and good international industry practice to identify compliance gaps as well as opportunities to support a company's move toward international best practice. Any gaps between current and international best practice are included in an action plan, which is included in the legal agreement of the loan.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

CDC's Exclusion List includes military equipment, for example. CDC and any funds CDC invests in cannot make investments in military equipment or trade in protected or endangered wildlife, for example. This exclusion appears also on a harmonised list which is common to most DFIs. In 2019, we rejected a deal due to the use of coal that would breach our new Climate Change Policy.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Potential investments demonstrating strong commitment, capacity, and track record on ESG factors are favoured over equivalent similar investments. This is also an opportunity to identify areas to work with a company to add value, for example through women's economic empowerment, the introduction of resource efficiency measures, among others.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

ESG factors are considered in all investments through the CDC Code of Responsible Investing, which reflects the international standards and practice including the IFC Performance Standards and other norms that portfolio companies, fund managers and financial institutions are expected to meet. IC papers all include a section for ESG which highlight any gaps to international best practice, and steps to achieve better practice. ESG factors form part of the core investment decision; any potential investment can be rejected on ESG grounds.

05.2. Additional information.


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

          During due diligence, an ESG staff member or expert consultant will visit to check compliance against our Code, including exclusion list.
        
Positive/best-in-class screening

other description

          We compare assets to international best practice and identify opportunities to move toward this over the course of our investment.
        
Norms-based screening

other description

          During due diligence, an ESG staff member or expert consultant will visit to check compliance with our reference framework
        

06.2. Additional information. [Optional]

ESG due diligence, encompassing each of the three listed types of screening, is conducted for every potential CDC direct investment. Schedule 6 of CDC's Code of Responsible Investing identifies excluded activities. Any compliance gaps to our norms and reference framework will be addressed through an Action Plan agreed with the Company in advance of disbursement; and opportunities to move toward best practice will also be identified and included in the Action Plan. Key findings to come out of ESG DD, including high-risk issues, will be included in Investment Committee papers and raised at the meetings to ensure CDC's screening criteria are not breached. Post-investment, regular monitoring meetings are held to discuss overall borrower performance.


(C) Implementation: Integration

FI 10. Integration overview

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

ESG is integrated into each step of the investment process, and dedicated ESG professionals engage closely on management of ESG issues. Analysis of ESG factors is usually undertaken separately from business modelling, unless there is a material ESG consideration or capital expenditure requirement that is clear before investment; however both are taken into account in all stages of investment decision.

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

Corporate (financial)

CDC's baseline environmental, social and governance standards ​identified in our Code of Responsible Investing are the same across all types of investment and are international best practice. The approach to addressing the gap with international best practice is adapted based on the materiality of specific risks in each project. Corrective action plans are developed for each investment, and are included in the legal agreements. In cases where a specific gap or opportunity is expected, such as a climate change risk or women's economic empowerment, the ESG team may engage a topic-specific expert to provide input during the investment analysis stage.

Corporate (non-financial)

CDC's approach across its fixed income categories is the same. Our corporate (non-financial) debt is our financial institutions debt portfolio, which we treat the same as outlined in corporate (financial) above.

10.3. Additional information [OPTIONAL]

CDC's approach across its project and corporate finance is the same, as outlined above. For trade finance, CDC provides a lighter touch due to the shorter tenor of our finance but we are working with the International Chamber of Commerce (ICC) on an initiative for sustainable trade finance to explore ways to be more ambitious in our approach for ESG in this type of facility.


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 (financial)
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 (financial)

Environmental

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 (financial)

ESG is integrated into each step of the investment process. Members of the responsible investment teams contribute to all investment committee papers and provide verbal input to investment committees, as well as carry out due diligence (usually including site visits) and help negotiate legal agreements​, which include Action Plans to close compliance gaps and add value. As discussed in FI06, this is done through exclusionary, norms-based and best-in-practice screening across E,S, and G. 

Corporate (non-financial)

CDC's approach across its fixed income categories is the same. Our corporate (non-financial) debt is our financial institutions debt portfolio, which we treat the same as outlined in corporate (financial) above.

12.3. Additional information.[OPTIONAL]


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