How we manage ESG risk in debt portfolios
We recently refined our approach to managing ESG factors within our diversified credit business, making it a separate but integrated part of our due diligence process. This detailed, in-house approach is more transparent for our clients and supports our increasing level of investment in private debt, which is typically not covered by third-party ESG research providers.
Debt investors lend money to companies but do not have ownership rights, hence they typically have less ability than equity investors to influence company management. Therefore, we believe an ESG approach for debt investing needs to be concentrated in the investment screening and due diligence phases, prior to entering an investment. This enables us to avoid investments that do not meet certain ESG criteria, whilst our fuller due diligence in the underwriting process ensures that ESG risks are appropriately elevated in our credit assessment.
In debt markets, our ESG assessment process enables us to focus our investments in well-governed, sustainable businesses that pose a lower risk of default or rating downgrade.
Hiran Wanigasekera, Executive Director, Debt Investments
Our ESG Scorecard assigns a separate risk assessment to each set of ESG issues associated with a potential investment - Environmental, Social and Governance. This includes the impact of any mitigating factors (e.g. specific conditions to the investment, maintenance covenants, presence of an active industry regulator), so it is the ‘net’ ESG risk profile that is incorporated into our assessment of the company’s credit rating.
About the author
Joined in 2007
Hiran is responsible for joint management of key credit portfolios, credit product strategies and managing the day-to-day running of debt funds, including jointly managing the IFM Specialised Credit Fund (SCF). Hiran has worked across a wide range of credit sectors and industries including bank lending, corporate credit and structured investments. His experience includes credit analysis, portfolio management and trading. While on secondment in London, Hiran helped established IFM’s Debt presence in Europe and was integral to the development of IFM’s Global Infrastructure Debt strategy. Prior to IFM Investors, Hiran was employed in retail banking with Bank Australia as a Financial Accountant. His responsibilities included treasury operations as well as the trading, hedging, management of liquid assets, financial reporting, modelling and prudential compliance.
About the author
Joined in January 2018
Clint is the credit lead within the APAC Diversified Credit team, directly managing the Diversified Credit analysts and providing oversight of the investment process, credit memorandums and financial models. Prior to joining IFM Investors, he was an Associate Director at KPMG, where he managed debt advisory engagements in the financial services sector. Previously, Clint spent time at Westpac Institutional Bank within the structured finance and asset restructuring businesses, where he reviewed distressed and impaired corporate bank assets, and executed restructuring and workout solutions.