Responsible ownership considerations are integrated into every stage of our investment process and drive the development of policies, action plans and metrics for our portfolio companies.
TowerBrook has a clear and consistent process that helps us scrutinise prospective investments, manage them responsibly and deliver sustainable results for our investors. Responsible ownership considerations are integrated into every stage of this process, and drive the development of policies, action plans and metrics for our portfolio companies.
TowerBrook seeks to conduct robust reviews of potential ESG risks early in the investment process. TowerBrook has drafted and continuously evolves a list of ESG Markers, including, but not limited to, certain industries or countries that present heightened ESG risk and investor sensitivities. Investment professionals reviewing potential opportunities in such industries or connected to such countries, or which otherwise could reasonably pose material ESG risks, must discuss any such issues with TowerBrook’s Transaction Committee at an early stage in the investment consideration process. TowerBrook also seeks to engage with its preferred ESG consultants at an early stage in the investment consideration process to identify ESG-related risks and opportunities.
Once an early stage investment proceeds to due diligence, TowerBrook conducts ESG-related diligence targeted to the Company’s industry and specific risk profile. TowerBrook has developed a standard ESG diligence request list to confirm a target company’s level of compliance with TowerBrook’s ESG policies and relevant legislation and regulation. Additionally, TowerBrook has developed a specific detailed ESG diligence request list for certain industries, such as consumer goods and manufacturing. TowerBrook’s investment team members may also conduct site visits, as appropriate. TowerBrook’s preferred ESG consultants would be retained during the diligence stage to conduct a fulsome ESG diligence review.
TowerBrook’s due diligence processes are designed to ensure that material issues, including ESG, are addressed when considering and evaluating investment opportunities. TowerBrook seeks to undertake ESG due diligence on applicable private equity investments, including, but not limited to, those with industrial manufacturing capabilities. Environmental diligence typically comprises environmental Phase I site assessments, but this can be extended to include Phase II site assessment if necessary. TowerBrook may also conduct diligence on anti-corruption, data privacy, supply chain, safety and other governance matters, as appropriate. TowerBrook’s due diligence process for structured opportunities investments may also take into account ESG considerations, as appropriate. During diligence, TowerBrook also extensively references key executives and non-executives affiliated with the company, testing among other things for integrity and ethical reputation to help shape our view of the broader company’s culture and attitudes.
At signing, TowerBrook’s legal team would consider whether to include detailed ESG clauses in investment or shareholders’ agreements, as practicable and applicable. The legal team and investment teams also work to verify due diligence findings via representations and warranties in the purchase agreement and seek specific indemnification as appropriate. TowerBrook may seek to cover itself either through reduced pricing, insurance, indemnities or other contractual protections. TowerBrook may also seek, as appropriate, to work with management to remediate material ESG issues. During the investment cycle, TowerBrook ensures that the recommendations of the due diligence reports are implemented and tries to remain abreast of environmental and other regulations to ensure all its portfolio companies remain compliant in all material aspects.
The 200-day plan for each portfolio company includes development and publication of an appropriate ESG policy and development of procedures to implement, monitor and test such policy. Each 200-day plan includes standard ESG items, as well as any specific ESG items identified during diligence as relevant for a particular target company. Individual portfolio company action plans are designed, where appropriate, to address any opportunities for improvement.
During ownership, ESG related risks are managed by the boards and management teams of the individual portfolio companies. Since TowerBrook invests in a wide range of sectors, ESG risks vary widely from company to company. In connection with its recent enhancement of Responsible Ownership policies, TowerBrook now seeks to discuss the importance of ESG with each CEO of private equity portfolio companies, together with the Chair, who would have been separately instructed during onboarding with a Welcome Pack that explicitly addresses Responsible Ownership and the Chair’s role therein. TowerBrook also works with the Board chair to ensure that the board composition reflects gender and other diversity to the extent practicable.
TowerBrook intends to actively monitor ESG at the portfolio company level, ensuring that systems and resources are in place to enable ESG risks to be effectively managed and that each portfolio company assigns specific management responsibility for ESG operations. TowerBrook’s approach to ESG has been to ask each portfolio company’s Audit & Risk Management Committee to review regularly such ESG risks as are relevant to that company. This practice is now evolving to establish a dedicated ESG (or similar) committee on each portfolio board. Portfolio company management is encouraged to engage directly with third parties (such as suppliers, developers, and contractors) to verify sound ESG practices. Furthermore, TowerBrook seeks to ensure adequate training on ESG at the portfolio company level, which may include sensitivity/diversity training and supply chain management training.
Responsible Investment and ownership considerations are also addressed in connection with exit, as appropriate. Any ESG issues would be addressed specifically pre-exit, or fully disclosed to a prospective purchaser, so that prospective buyers cannot use ESG factors to impose discounts due to lack of evidence that issues have been addressed. TowerBrook would also highlight ESG actions as selling points where applicable (for example, a “great ESG story to tell”). Transparency about what remains to be done, as well as about what has been done, is important in building trust and establishing an appropriate valuation.