Sustainability

SIPCo has three sustainability principles that are applied to the portfolio:

Negative screening

Thematic investing (positive screening)

Scoring

For more details, see SIPCo’s Sustainability Policy and publications.

These help us manage sustainability-related risks and integrate sustainability considerations into the investment process.

Integration into the investment process

Sustainability evaluation and risk assessment is present at every stage of the investment process, starting pre investment with potential pipeline opportunities all the way through to exit deliberations and decisions.

Negative screening is applied to each potential new investment, precluding the Fund from investing in certain harmful, risky or controversial sectors.

Positive screening is employed to take a more favourable view on companies that fall within one of our three sustainability themes.

The team gather and analyse due diligence materials, such as environmental assessments, technical reports, and internal policies. Any material or emerging sustainability risks will be identified for review at the Investment Committee meeting and for subsequent monitoring. Further information or a pre-investment sustainability questionnaire may be requested in order to more fully understand the company’s sustainability risks and opportunities.
The asset is assigned an unmodified E score and then a preliminary ESG score is calculated according to the ESG scoring methodology. This gets assessed in context of the Fund’s overall portfolio and investment objectives and is presented in the final credit memorandum, alongside a commentary describing the scoring rationale and any notable sustainability risks.

The Investment Committee (“IC”) of SIMCo approves or modifies the ESG score and discusses any material ESG risks or opportunities for the asset.
Where appropriate and possible depending on the type of deal, sustainability-related covenants may be embedded into loan documentation.

Final investment decisions are made by SIMCAP.
Each investment is formally monitored at least semi-annually. As part of the monitoring, the IC reviews the investment’s ESG score and any emerging risks or changes that may have occurred. The IC formally reconfirms or updates the scoring based on its review.
All borrowers are also sent an annual sustainability questionnaire and engaged with over the course of the year on key sustainability risks, opportunities and topics.

The sustainability profiles of investments are considered when discussing portfolio restructuring and disposals. Companies with a low or deteriorating ESG score may be looked at for disposal, whilst decisions are made taking account of financial metrics.

Engagement

We maintain an open and transparent dialogue with the Fund’s key stakeholders – shareholders, borrowers, suppliers, lenders, and society – and report periodically on our engagement activities.
We deploy a range of engagement strategies designed to encourage and promote sustainable behaviour in the companies that the Fund lends to. On occasion and where viable, some of our engagements may be collaborative with other stakeholders or lenders on the deal. Parts to our borrower engagement strategy can include:

We deploy a range of engagement strategies designed to encourage and promote sustainable behaviour in portfolio companies, some of which are described below. On occasion and where viable, some of our engagements may be collaborative with other stakeholders or lenders on the deal. If the borrower is unwilling to engage, we may deploy an escalation strategy that could include looking to dispose of the loan. Lenders do not, as a matter of course, have voting rights in the companies they lend to, so this engagement strategy is rarely applicable to SIMCo.

Where appropriate and possible, loan terms can include covenants or repeated representations to ensure that the borrower complies with its stated sustainability objectives and to encourage it to improve its standards over time. These could include, for example, obligations to: meet predefined targets; disclose data or enhanced reporting, such as completing our annual sustainability questionnaire; or adopt, continue or enhance environmental, social, or governance policies.

Borrowers will also be asked to complete a detailed annual post-investment sustainability questionnaire. This includes questions on the borrower’s overall sustainability policies, procedures, progress and oversight, as well as requests into specific areas of E (e.g. description of the carbon-reduction initiatives), S (e.g. the complaints process) and G (e.g. the internal audit function). There are a range of quantifiable sustainability metrics also covered, such as CO2 emissions, Health and Safety records, and Board independence.

Sustainability performance and credentials will be monitored regularly for each investment in the semi-annual monitoring process. The Investment Adviser will seek to maintain a direct dialogue with the management teams of the borrowers, or the sponsor where applicable, to discuss sustainability risks and performance.