The term Responsible Investment (‘RI’) refers to the integration of financially material environmental, social and corporate governance (‘ESG’) factors into investment processes.
Investee companies with robust governance structures should be better positioned to handle the effects of shocks and stresses of future events. There is clearly a risk in holding investments in companies that have weak governance of financially material RI issues, but there is also an opportunity to improve them. A key focus for our fund management activity is therefore to engage with investee companies to improve their governance structures rather than exclude them.
Financial markets could be materially affected by climate change and by the response of climate policy makers. We should proactively manage this risk through our stewardship activity.
Frontier Development Capital Limited seeks to promote responsible business standards in the businesses in which it invests. Our policy can be summarised as follows:
- Our vision is that our investments will not just deliver financial returns but will also bring social, environmental and economic benefits.
- We will measure and report on these benefits to our investors and stakeholders.
- We seek to encourage the companies we invest in to be responsible towards their own stakeholders, in the belief that this is in the interests of the companies as well as their communities.
- Whilst we believe in engagement rather than exclusion, we reserve the right to refuse investments that we consider are not socially or environmentally responsible.
These four points are explained in more detail below:
- Our vision is that our investments will deliver financial returns in all cases, and bring social, environmental and economic benefits wherever possible. Our investments focus on fast-growth businesses and real estate. We focus on underserved areas of the Private Debt market. In our evaluation of potential investments, we will consider ESG factors and specifically refer to them in our Investment papers which are considered by the Investment Committee, setting out the current status for each company and where we believe improvements can be made during our involvement (and as a result of it).
- We will measure and report on these benefits to our investors and stakeholders. Pre-investment, we will highlight the key ESG factors in our investment papers and set targets for areas we can help realise improvement. Post-investment, they act as a portfolio management tool, so that we can monitor the impact risk/return profile of each investment on an ongoing basis. In order to track an investment’s performance, we work with each investee to determine the most appropriate key performance indicators (KPIs). We select KPIs that tell us whether the company is achieving impact through the way it is operating (environmental, social and governance factors that signal risks as well as opportunities to create additional value). The resulting KPIs will be reported to investors alongside the financial outcomes.
The actions of investee companies to address climate change considerations will be specifically reported to our investors and stakeholders.
- We seek to encourage the companies we invest in to be responsible towards their own stakeholders, in the belief that this is in the interests of the companies as well as their communities. We recognise that every investment has the potential to generate societal outcomes, both positive and negative. ESG risks and opportunities are examined in partnership with the management team of the prospective portfolio company prior to making an investment. ESG factors are then reviewed regularly at board meetings with investee companies, as well at our own regular internal portfolio meetings.
- We will avoid investing in companies which do not respect human rights, do not comply with existing environmental and social legislation, have no proposals to address defined future relevant legislation, do not seek to comply with industry standards, or who operate in a sector or trade which is potentially embarrassing to our stakeholders.
The Board of FDC is responsible for our Responsible Investment Policy, and senior management are responsible for ensuring that all staff are aware of the policy, are made aware via regular training of topical issues, and that ESG outcomes are captured and reported to investors.