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Cordiant

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (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

Each potential investment is subjected to a multi-stage approval process with analysis of the ESG risks incorporated at the outset of the process. Cordiant assesses potential investments on a variety of levels, beginning with the sector (i.e. does it fit into Cordiant’s preferred areas of focus?). The first step of screening is therefore rejecting undesirable investment categories and ensuring that all proposed investments do not show evidence of excluded/prohibited activities.

  • By investing in sectors with already high potential for positive social, economic, and environmental impact, in addition to financial return considerations, Cordiant seeks companies that support our Impact Investor themes that include bridging the digital divide, food security and the modernisation of agriculture, enhancing energy security whilst reducing greenhouse gas emissions, improving transportation whilst reducing pollution and sustainable urbanisation. Hence, Cordiant seeks to invest  in  well‐managed and commercially-minded  enterprises  that  generate  positive  development  outcomes. 

04.3. Additional information. [Optional]

PROCEDURES AND TECHNICAL METHODOLOGY

A structured business approach to ESG disclosure assists Cordiant in managing social, environmental and ethical risks and is increasingly seen as a priority and precondition to sustainable development efforts. Cordiant believes that proper respect for ESG principles can optimize investment strategies, risk management, responsiveness in volatile markets, reduce costs for all parties engaged in investment activities, as well as strengthen stakeholder relations and improve a borrower’s brand, reputation, and profitability.

Each potential investment is subjected to a multi-stage approval process with analysis of the ESG risks incorporated at the outset of the process. Cordiant assesses potential investments on a variety of levels, beginning with the sector (i.e. does it fit into Cordiant’s preferred areas of focus?). The first step of screening is therefore rejecting undesirable investment categories and ensuring that all proposed investments do not show evidence of excluded/prohibited activities.

By investing in sectors with already high potential for positive social, economic, and environmental impact, in addition to financial return considerations, Cordiant seeks companies that support our Impact Investor themes that include bridging the digital divide, food security and the modernisation of agriculture, enhancing energy security whilst reducing greenhouse gas emissions, improving transportation whilst reducing pollution and sustainable urbanisation. Hence, Cordiant seeks to invest  in  well‐managed and commercially-minded  enterprises  that  generate  positive  development  outcomes  (see below).

 

In keeping with our chosen set of Performance Standards, Cordiant has implemented a thorough process for screening investments aimed at achieving E&S Objectives. This process systematically draws from (i) IFC Performance Standards for ESG risk management (ii) Sustainability Accounting Standards Boards (SASB) standards; and (iii) IRIS Metrics[1] managed by the Global Impact Investor Network (GIIN) for Developmental Impact Performance Management. The strategy involves Cordiant proactively engaging with borrowers on ESG matters, through active monitoring of the evolution of ESG risks and compliance with agreed-upon mitigation measures and Action Plans, throughout the life of the investments.

Preliminary Due Diligence: Identification & Assessment of Environmental and Social Risks & Impacts

1. Development Impact Assessment

  • Assessment of Business Contribution to Development Impact
  • Assessment of Business Contribution to Sustainable Development Goals

 

2. Industry ESG Risk Profile & Score: Quantification of ESG industry risks

  • ESG integration in internal credit rating
  • ESG Risk Evaluation & Discussion

Note that Cordiant has been developing sectoral policies for an in-depth due diligence framework that touches upon and aligns with the relevant certifications and principles of sustainable practices on the ground.

That way, it is able to consistently and systematically apply best impact and risk management practices across sectors, industries and commodities. This is both time-effective and creates a lot of value for the borrowers, as through our investments, they become aligned with the applicable international standards that are relevant for their operations. As such, the remaining assessment procedure used for an alignment with international standards includes the following steps;

 

Final Sectoral Due Diligence & Assessment of Performance Against IFC Standards

1. Firm-Level ESG Risk Identification

  • E&S Risk Categorization (IFC)
  • Identification of Applicable IFC Performance Standards

2. Firm-Level Due Diligence: Application of Sectoral Technical Procedures for a Consistent and Integrated Risk Management System

  • Application of in-depth Operational Due Diligence (DD no1): Evaluation of ESG Risks Management Systems
  • Applicable Occupational health and Safety Guidelines (IFC)
  • Applicable  Environmental Health & Safety Guidelines (IFC)
  • Applicable Sustainability Accounting Standards (SASB)
  • Other industry standards, as relevant (by sector)

3. Firm-Level Risk Assessment: Application of IFC Performance Standards:

  • Application of General IFC Performance Standards Due Diligence (DD no2)
  • GAP Analysis for Alignment with International Standards

4. Firm-Level Development Impact Assessment: Impact Quantification & Monitoring Reports

  • Application of the Impact Measurement & Management Framework: Based on the new Global Impact Investing Network IRIS+ metrics (DD no3)
  • Applicable Harmonized Indicators for Private Sector Operations (HIPSO)
  • Application of Relevant Gender ESG & Impact Metrics (DD no4)

After agreeing upon a potential borrower’s financial, ESG and Impact goals, and applying best practice, Cordiant works with the owner of the company to develop an E&S Action Plan that includes all necessary measures to mitigate adverse outcomes

Monitoring & Evaluation are vital aspects of the process to ensure that the borrower’s actions are consistent with the agreed- upon ESG plan. Monitoring is conducted either on a bi-annual or yearly basis- depending on the materiality of risks- and throughout the life of the loan. Cordiant conducts a yearly monitoring of the firms’ performance through (i) the Annual Monitoring Report (AMR) which quantifies risks E&S indicators; (ii) the Action Plan which forms the compliance indicators and loan agreement; and (iii) the Developmental Impact Baseline Survey

 

Final Assessment & Decision Process

1. Post Due Diligence:

  • ESG Debriefing
  • Elaboration of the ESMS & Action Plan

 

2. Monitoring & Evaluation: Reporting Framework

  • Annual Monitoring Reports (AMR) & Evaluation of Compliance
  • Development Impact Annual Monitoring Report
  • Action Plan Compliance Monitoring & Evaluation Process
  • Annual Monitoring Report & Baseline KPI’s for ESG Disclosure

 

4. Loan Agreement & Fund Protection

5. Conditions Precedent: Loan Agreement Prior to Disbursement

 

HEALTH, SAFETY PROCESS & INCIDENT MANAGEMENT SYSTEM

Each sector in which Cordiant invests present its own set of Occupational Health and Safety (OHS) risks, which requires the team to systematically integrate health and safety prevention principles as part of the Due Diligence, Action Plans, as well as incorporating specific KPIs into Monitoring & Evaluation Reports.

E&S Safety Risk Evaluation:

  • Management commitment and employee involvement
  • Worksite analysis and hazard identification
  • Hazard prevention and control
  • Employee safety training

 

Work Related Activities Incidents:

  • Systematic Application of the Procedure for Investigation, Monitoring and Reporting of OHS Incidents
  • Action Plan & Emergency Response Plan:
  • Corrective measures are included in an Emergency Response Plan & Action Plan. Borrowers must have implemented and complied with such procedures to investigate all near misses and accidents and that effective corrective measures efficient in order to avoid future serious accidents.

 

Monitoring & Evaluation:  

  • Compliance with Subsequent Monitoring Report

FI 05. Examples of ESG factors in screening process

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

05.2. Additional information.

See the previous answer and additional explanation. 


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
Positive/best-in-class screening
Norms-based screening

06.2. Additional information. [Optional]


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