CDC

ESG survey among fund managers

December 2013

ESG management practices of fund managers 3

Agenda

2

An evaluation of CDC’s ESG instruments 4

Executive summary 1

Methodology 2

An evaluation of CDC’s ESG support to fund managers

3

CDC actively supports fund managers in developing and maintaining systems to manage ESG

issues and risks in their investment portfolios. This support consists of two instruments:

• ESG Toolkit

• Annual series of ESG workshops

But CDC has limited knowledge of the fund managers’ opinion regarding its ESG support besides

feedback on individual ESG workshops

CDC has asked Steward Redqueen to evaluate its ESG support based on fund managers’ feedback

Despite some socially desirable responding, the survey (in particular the interviews) provided

useful input for evaluating the two instruments and their improvement potential

CDC’s support is highly appreciated and impactful, but can be improved through customisation and efficiency

4

To start with, CDC is considered a business-minded partner with strong PE expertise

• CDC is a pragmatic LP with an eye for detail but never without a drive for business

ESG support instruments are relevant and useful to fund managers

• The Toolkit is most used and serves as an important reference point

• The workshop is an essential instrument for awareness raising and knowledge sharing

But they insufficiently meet the ever more specific needs of fund managers

• The Toolkit and workshop are too generic for today’s ESG management

Three recommendations for improvement

• Bring the Toolkit and workshop up-to-date with current market demands through customisation

• Leverage CDC’s unique position as private equity specialist in the DFI world

• Make support more efficient through standardisation and involvement of CDC’s front office

Methodology 2

Agenda

5

An evaluation of CDC’s ESG support 4

ESG management of fund managers 3

Executive summary 1

The survey consists of a questionnaire and interviews

6

Online via SurveyMonkey

5 subtopics:

• ESG and your firm

• CDC’s ESG support

• Workshop

• Toolkit

• Future ESG support

28 mostly quantitative questions:

• Multiple choice

• Scoring assessments

• Comment boxes

Questionnaire

In-depth telephone interviews of 30-45 minutes

Selection of fund managers for interviews based on:

• Geographic spread: reflecting CDC's geographic

investment scope

• Investment size: including larger and smaller

funds

• Investment focus: including specialist

investment funds (infrastructure, housing,

mining)

• Responses: interesting or striking comments in

the online questionnaire

• Suggestions: made by CDC ESG team

Interviews

A representative sample of CDC’s portfolio as a result of a high response rate and good geographic distribution

7

Respondents and response rate

• Online questionnaire: 53 individual responses, representing 44 out of 62 invited fund managers (71%)

• Telephone interviews: 18 out of invited 20 (90%)

The number of respondents to the online questionnaire exceeded the initially expected number (30) and fund

managers were very willing to conduct the telephone interviews

Latin

America 6%

Africa

49%

Asia

41%

Global

4%

Questionnaire

Latin

America 6%

Africa

44% Asia

39%

Global

11%

Interviews

ESG management practices of fund managers 3

Agenda

8

An evaluation of CDC’s ESG instruments 4

Executive summary 1

Methodology 2

As expected, respondents consider their ESG management performance to be equal or better than market standards

9

on par 37%

above par 50%

best-in-class

13%

Overall ESG performance rating

compared to peers

45%

45%

42%

42%

42%

40%

19%

55%

55%

58%

58%

58%

60%

81%

Environmental improvements

Energy efficiency improvements

Health & safety improvement

Staff skills development

Corporate governance improvement

Legal compliance

Business integrity

Subdivision of ESG performance rating

on par above par

Investee resistance and poor enforcement of regulation are considered most challenging to ESG management

10

94%

90%

67%

56%

49%

6%

10%

33%

44%

51%

0% 20% 40% 60% 80% 100%

Internal resistance within fund management

Lack of understanding of ESG among the investment team

Contradicting ESG requirements from LPs

Poor enforcement of regulation

Resistance from portfolio company management

Hurdles in the implementation of ESG management

not/hardly challenging (very) challenging

CDC’s ESG support is considered relevant and better when compared with peers

11

averagely, 20% substantially, 68% crucially, 12%

CDC’s involvement as a contribution to improved ESG management

4%

2%

12%

19%

48%

54%

37%

25%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Relevance of CDC's ESG support

Impact of CDC's ESG support

CDC's ESG support compared to other LPs

below par on par above par best-in-class

Fund managers discuss ESG management with most LPs and appreciate CDC for its proactive, pragmatic approach

12

All (DFI) LPs address ESG management in investments, but approaches differ

• Many LPs put a lot of resources in due diligence and then lose interest afterwards

• Fund managers find it hard to manage LPs who lose sight of the big picture and focus too much on details

they often stumble upon by accident

Harmonisation of contradicting ESG requirements from LPs would help

• ESG requirements are accepted as a fact of life when working with DFI investors

• It would save time if ESG reporting requirements would be harmonised among LPs

• LPs could have more impact if they agree on a common ESG agenda for a fund

CDC stands out in the crowd as a knowledgeable and pragmatic partner

• CDC is more pragmatic in due diligence but focuses just as much on the investment phase

• CDC provides helpful advice as a partner and challenges the fund manager to constantly improve

• Fund managers find that CDC has eye for detail but never without a drive for business

Quotes from respondents

13

“The challenge is to get ESG management from compliance-based issue in a deal to a value add component. ESG

management is one thing in principle, but another one in practice.

“CDC is by far the most proactive investor in terms of adding value to our operations, providing advice in our

investment decision-making and challenging us on discussion points.”

“Among DFIs, CDC is clearly the frontrunner as private equity investor. They really understand our business and

know what private equity is about.”

Agenda

14

An evaluation of CDC’s ESG instruments

• Toolkit

• Workshop

4

ESG management practices of fund managers 3

Executive summary 1

Methodology 2

Use of Toolkit moves from starting point to reference document

15

The Toolkit is a useful starting point for fund managers in the process of developing an ESG

management approach

• Many fund managers have based their policies and procedures on the Toolkit

• The Toolkit’s comprehensiveness helps coming to grips with ESG management which is often perceived as

intangible and difficult

Once fund managers have their own policies and procedures in place, the Toolkit becomes a reference

document

• It provides practical frameworks for ESG management in investments (e.g. Action Plan)

• It is also consulted for information on specific technical issues

The usefulness and applicability of the various tools differs

• Tools 6 (due diligence), 11 (monitoring) and 12 (reporting) are most used as these give clear, pragmatic

guidance on ESG management

• Tool 14 is least used as it addresses the ESG from a risk perspective instead of a value-driven approach

ANALYSIS

But one size does not fit all

16

Not all fund managers appreciate the Toolkit’s comprehensiveness

• ESG specialists are pleased with the Toolkit’s comprehensiveness, but suggest it should be updated to reflect

the more sophisticated approaches to ESG that are evident in some funds

• Commercial people like the generic approach which makes the Toolkit user-friendly, but would value tools that

were more targeted to their specific needs

• As a static PDF-file the Toolkit is tough to digest and it is difficult to find specific information

Nowadays, fund managers want ESG tools that are tailored to the nature of their investments

• Besides a framework on how to manage ESG issues, fund managers need guidance on what is acceptable by

industry standard and what is not

• ESG issues become investment-specific and need to integrate with relevant industry sector standards

Investment size makes a particular distinction on a fund manager’s opinion regarding the Toolkit

• Numerous large-sized fund managers investing in corporates have ESG management approaches that are now

beyond the level of the Toolkit

• For small-sized fund managers, particularly SME investors, the Toolkit is too ambitious and questionnaires are

too detailed

LIMITATION

Customisation is key to enhance the Toolkit’s applicability

17

Measurable standards would improve the Toolkit as reference point, which is its most pivotal function

• Tools in bite-size chunks and with clear, measurable objectives makes the Toolkit workable for non-specialists

Market-specific focus would improve the Toolkit’s applicability to its broad set of users

• Sector-specific guidance helps advanced fund managers taking their next step in ESG management

• At the same time, basic versions of the formats and tools make the Toolkit usable for SME fund managers

An interactive presentation would improve the Toolkit’s user-friendliness

• An on-line landing page can present a lot more information and in a more digestible way (tools, formats,

background information, etc.)

• An interactive Toolkit makes it easier for users to find what they need and for CDC to upload additional

information

SUGGESTION

Quotes from respondents on the Toolkit

18

“The Toolkit is very useful and most our policies and procedures are based on it. Great reference point and helpful

for implementation.”

“Toolkit is extensive – as it should be – but one may lose overview because of its extensiveness”

“The Toolkit is comprehensive, but is not applicable to the size and nature of our investments. The level of detail

required is disproportionate to the information available to us.”

The Toolkit is the most used ESG instrument and contributes to improved ESG management

19

4%

10%

12%

27%

33%

45%

52%

56%

35%

17%

2%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ESG Toolkit

ESG Training

Ongoing support

Use of CDC’s support instruments in ESG management practices

not at all averagely substantially crucially

6%

10%

12%

23%

22%

35%

50%

61%

46%

21%

8%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ESG Toolkit

ESG Training

Ongoing support

Contribution to improved ESG management practices

not at all averagely substantially crucially

Agenda

20

An evaluation of CDC’s ESG instruments

• Toolkit

• Workshop

4

ESG management practices of fund managers 3

Executive summary 1

Methodology 2

The workshop is an essential instrument for awareness raising and knowledge sharing

21

The workshop is a useful and well-appreciated part of CDC’s support to fund managers

• 100% of respondents think CDC should continue to run its workshops

• A vast majority wishes the workshop would last longer and would be organised more often

The workshop is most suited for awareness raising among the novices in ESG management

• The workshop improves general understanding of ESG management, provides deeper insight in specific or

new ESG issues and gives an opportunity to ask questions on CDC standards

• It provides crucial info on the practical application of several tools, particularly CDC’s Toolkit

To the more experienced fund managers, the workshop provides a moment for self-reflection and

sharing experiences with peers

• It provides an opportunity to assess the quality of a fund’s own ESG management and to identify potential

room for improvement

• Participants also learn important lessons from sharing experiences and ideas with other fund managers

ANALYSIS

But the workshop is not sufficiently tailored to meet the specific needs of the various participant groups

22

There is a growing gap between the capacity building needs of frontrunners and those funds that are

new to ESG issues

• Awareness raising and Toolkit instructions are useful for less experienced fund managers

• But experienced fund managers are beyond that point and want to take the next step and improve their

existing management systems

The workshop’s generic approach hampers meeting the ever more specific needs of participants

• As ESG management matures, issues become more complex and investment-specific

• Fund managers (of all kinds) would benefit from increased customisation of capacity building focused on their

reality

• The workshop currently does not sufficiently address the details of regions, company types, sectors

Although pragmatic and practical, the workshop needs more hard results and best practices

• Skeptical participants are more easily convinced when ESG management is translated into monetary terms

and business cases, both on the downside and the upside

• Investment managers need more best practices as examples to motivate investee companies to work on ESG

improvements

LIMITATION

Customised workshops would better meet participant expectations

23

The workshop could be divided in different modules/break-out sessions targeting specific participants

needs

• Generic modules for novice ESG managers on ESG management frameworks, standards, tools, best practices

• Specific modules for seasoned ESG managers on specific ESG issues such as corporate governance, energy

efficiency, development impact, human rights, relevant industry sector standards

• Customised modules for investment managers on the financial impact of ESG on an investee‘s bottom line

More case studies and best practices would strengthen the message

• Case studies show the practical application of the theoretical part

• Best practices inspire participants to do similar work at their investments

• The message sticks even better when told by a peer; CDC could invite frontrunner fund managers or

companies to share their experiences and present their ESG business case

Virtual workshops could be a cost effective alternative with a strong outreach potential

• Despite its limited resources, CDC could meet the demand for more (frequent) training with virtual workshops

• This would be particularly helpful when targeting a group of fund managers around a specific issue or theme

beyond a regional focus

SUGGESTION

Quotes from respondents on the workshop

24

“Partly due to the awareness raising efforts of CDC, fund managers are finally getting their heads around ESG

management. They acknowledge the importance of it and know what it is about. But now they’re ready for the next

step and want to tailor it to their structures and specific requirements of their portfolio.”

“We were already in full swing in having our own ESG systems when we attended CDC's workshop. So the

workshop did not materially change the way our systems work, but it did allow us to distill information that is

relevant to us and benchmark where we are and where we can go in terms of best practice.”

“The workshop is very helpful and an excellent platform for learning and networking, but it is too short and the

frequency of the event is too low. Considering the extent of the Toolkit and other topics addressed, I feel that we’ve

only scratched the surface with the workshop.”

“The most important take away for me was a recognition that the ESG team at CDC genuinely want to help us do a

good job and that they are very approachable. After participating in the workshop I feel motivated to speak to CDC

about issue that may arise.”

The workshop is most useful for awareness raising and knowledge sharing among new team members

25

12%

7%

9%

26%

7%

12%

63%

63%

56%

79%

56%

30%

28%

19%

14%

20%

0% 20% 40% 60% 80% 100%

Awareness raising on ESG issues

Instruction of the functioning of CDC's ESG Toolkit

Understanding how ESG can be implemented in a fund

Sharing of knowledge and experience in ESG management

Networking

Extent to which the ESG workshop serves different purposes

not at all averagely substantially crucially

7%

7%

7%

52%

39%

36%

41%

54%

58%

0% 20% 40% 60% 80% 100%

Investment officers

ESG officer

New team members

Usefulness of the ESG workshop for different fund team members

somewhat useful useful very useful

Steward Redqueen B.V. Kinderhuissingel 4A/B

2013 AS Haarlem, the Netherlands Tel: +31 (0)23 553 0400

www.stewardredqueen.com - info@stewardredqueen.com