ESG is integrated into CDC's investment process with the Environmental, Social and Governance Impact (ESG-I), Business Integrity (BI) and Development Impact (DI) teams, which provide specialist input into all stages of CDC's investment process (from screening and due diligence to legal agreements and monitoring). They then present risks and opportunities to add value at Investment Committee meetings to inform investment decisions. Where gaps in compliance with CDC's Code are identified, CDC will negotiate an action plan with the company to meet CDC's requirements within a reasonable timeframe and this is formally documented in the shareholder agreements.
Beyond this standard approach during the pre-investment stage, there were instances in 2019 when specific ESG issues were considered in more detail due to higher risk or opportunity, as outlined by Schedule 4 of the CDC Code. These included:
- Specific screening for child labour in sectors and regions where this is endemic, such as construction in South Asia
-Assessing retrenchment plans for a company who would require large-scale dismissal as part of an industry pivot
-Conducting pre-investment energy audits where resource efficiency is considered core to the investment thesis
- Additional consideration of gender opportunities in companies where women are underrepresented or have a high potential to take on leadership roles
- Conducted workshop on business integrity issues to ensure alignment and raise awareness following some BI concerns raised in due diligence
- Quality of education assessment including safeguarding to understand specific company policies and practices
Regulatory regimes in different countries and sectors can impact the way that ESG issues are considered. Strong environmental and social regulatory requirements better facilitate alignment with the IFC Performance Standards and the requirements of the CDC Code, but in countries and sectors where these are less robust, ESG issues are likely to have greater scrutiny in the investment selection process.