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

CDC Group plc

PRI reporting framework 2020

Export Public Responses
Pdf-img

You are in Direct – Private Equity » Outputs and outcomes

Outputs and outcomes

PE 14. ESG issues affected financial/ESG performance

14.1. Indicate whether your organisation measures how your approach to responsible investment in Private Equity investments has affected financial and/or ESG performance.

Describe the impact on:
Impact
Financial performance of investments
Describe the impact on:
Impact
ESG performance of investments

14.2. Describe how you are able to determine these outcomes.

CDC has produced internal and external case studies of investments where the ESG and financial performance of a company has improved through its approach to ESG issues.  In one company, the ESG-I team worked closely with our technical assistance facility to generate a carbon finance revenue model through its core business, which entails carbon emissions savings. Following third-party validation and verification, the company sold its first carbon credits and this is anticipated to be a source of revenue beginning in 2020.

CDC has also measured cost savings as a result of ESG initiatives in some instances. For example, Rainbow Children's Hospital underwent energy and water use audits with CDC's support, which led to them implementing improvements that reduced their resource use and saved costs. They also became the first hospital in South Asia to receive IFC EDGE certification, which helped establish them as a market leader (https://www.cdcgroup.com/en/esg/direct-equity-investment-india/). In 2019, two hospitals were certified to the EDGE standard. Rainbow also installed solar panels at two hospitals in 2018 and a third in 2019, and report to CDC quarterly on cost and energy savings associated with their generation.

In other cases, CDC will identify opportunities to reduce absenteeism and increase productivity through job quality, and while these numbers can be hard to quantify, we receive feedback from our investees that these initiatives has helped overall worker morale and the bottom line.

As a DFI, CDC has a public commitment to responsible investment and believes that its approach to ESG due diligence and monitoring improves ESG and commercial performance in its investee companies.​


PE 15. Examples of ESG issues that affected your PE investments

15.1. Provide examples of ESG issues that you identified in your potential and/or existing private equity investments during the reporting year.

Investment Stage
ESG issues

ESG issues

          Contract workers in a healthcare company were being required by the contract company to work overtime beyond the legal limit.
        
Sector(s)
          Healthcare
        
Impact (or potential impact) on the investment

This represented a social risk to the contract workers who may be more vulnerable than the direct hospital employees. It also represented a potential reputational and legal risk to the company. This type of non-compliance is essential to resolve before investment.

Activities undertaken to influence the investment and its response

As part of CDC's investment, there was a requirement before investment signing and closure for the company to include additional, more stringent terms in the contract with the contracted company and to verify that the workers were no longer working excessive overtime. CDC’s investee now monitors the payments and time sheets of the contractors to ensure this does not happen again.

Investment Stage
ESG issues

ESG issues

          Low capacity for managing environmental risks and impacts
        
          Low capacity for managing health and safety risks
        
Sector(s)
          ICT
        
Impact (or potential impact) on investment

Risks to the company employees and contract workers, community, and environment based on insufficient identification and management of E&S risks

Activities undertaken to influence the investment and its response

During due diligence, CDC identified a resource gap within the company for identifying and managing risks related to environmental and social impacts of their operations. As part of the ESAP, we required them to hire a dedicated resource and identified specific management plans and deliverables associated with the gaps in operations. Because international requirements are less familiar in this country, CDC provided access to its Technical Assistance Facility to provide semi-funded support to provide training to the E&S Manager and contractors and help co-create the E&S management and monitoring system commensurate with company risks.

Investment Stage
ESG issues

ESG issues

          Low capacity for identifying and managing integrity risks
        
Sector(s)
          Financial services
        
Impact (or potential impact) on investment

Potential risks to reputation, community and operating license due to insufficient ability to identify and manage key integrity risks, including corruption, fraud and other forms of financial crime. 

Activities undertaken to influence the investment and its response

As part of our post-investment action plan, we required the company to develop a risk management framework, covering key risks at onboarding, during credit underwriting, and loan payment, including related to engagement with technology partners, field agents and third parties. We worked closely with different parts of the business to set up a dedicated risk management team, identify risk indicators for fraud, money laundering and other corrupt activities, develop guidelines on escalation procedures and decision-making criteria, and build these into policies and training programmes across different departments. 

Investment Stage
ESG issues

ESG issues

          No institutionalised approach to decision-making around ethics
        
Sector(s)
          Business services
        
Impact (or potential impact) on investment

Without a clear ethics framework there was a risk the company would conduct work that now - or in the future - has a net negative impact on society. 

Activities undertaken to influence the investment and its response

As part of our post-investment action plan, we required the company to develop a clear ethics framework and establish an ethics sub-committee to the board, which would oversee the implementation of the framework. CDC worked closely with the company on the framework, which captured sector-specific international best practice and focused on customer choice, customer influence and workplace protection, importantly providing all employees the right to refuse work on a project. We also required the policy to be communicate to all employees during induction and made available subsequently through the company intranet.

15.2. Describe how you define and evaluate the materiality of ESG factors.

CDC gives each investment opportunity an initial risk rating based on the sector and context of the deal at the initial screening stage of the investment process. CDC’s risk rating criteria are harmonised with other DFIs and aligned with the International Finance Corporation’s Performance Standards (the criteria are available on CDC’s ESG Toolkit). The initial risk rating is confirmed through ESG due diligence, often using a specialist ESG consultancy, and then monitored throughout the life of the investment. An ESG action plan is typically created during the due diligence process to close gaps in the company’s performance against international standards. The action plan sets priorities (including deadlines) and indicates an estimated cost for each action. These costs are then factored into the decision-making process and investment thesis. Sometimes, albeit rarely, the costs associated with an action plan may affect the commercial attractiveness of a deal. During the holding period, CDC will monitor the risks associated with a deal and may add to an action plan. The aim of CDC’s support is for the company to develop the capacity to define and evaluate the materiality of ESG factors affecting its own operations, and for these robust processes to continue following divestment by CDC.


Top