Responsible investment DDQ for private debt investors

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Investors can use the questionnaire when selecting an investment manager for a new mandate or monitoring an existing one. The PRI encourages investors to tailor and adjust the questions appropriately.

The DDQ should not be considered in isolation, but rather used to support a wider information-gathering process. The PRI encourages investors to:

• consider what additional resources are available to enhance their understanding of investment managers’ answers; and
• engage with investment managers to seek additional information and clarification, where necessary.

To promote consistency, the DDQ is designed to complement the information gathered through the PRI’s Reporting Framework – particularly the fixed income module – as well as investment disclosure standards and frameworks developed by external organisations. The DDQ will be updated periodically to align with future changes to the Reporting Framework.

The DDQ has been developed in collaboration with the Alternative Credit Council. You can also view the Alternative Credit Council’s version of the questionnaire.

Notes on using this DDQ Document checklist

DDQ questions

1. Policy, governance, commitments and resourcing

1.1 What is your organisation’s overall approach to responsible investment?

Please briefly explain your organisation’s responsible investment approach and the reasons behind it. Please add whether there have been any major developments in your organisation’s responsible investment process in the last 12 months.

1.2 Does your organisation have a responsible investment policy?

If yes, please provide a copy and state whether the policy is publicly available. Where relevant, please specify if this policy applies solely to private credit strategies or across the entire firm. Please also describe the process for reviewing and updating the policy.

If your organisation does not have a policy, or if the policy does not cover private credit strategies, please explain why.

1.3 Which industry initiatives, international standards, industry (association) guidelines, reporting frameworks, or other initiatives that promote responsible investment practices does your organisation participate in, support, or commit to?

As well as listing relevant initiatives, please provide a short description of why and how you participate in these initiatives. Where your organisation participates in multiple initiatives, please limit this description to what you consider to be the two most significant initiatives. Examples may include publicly supporting the goals of the Paris Agreement, being a PRI signatory and endorsing the TCFD recommendations. Please also confirm when you joined any initiatives.

1.4 How are (i) oversight responsibilities and (ii) implementation responsibilities for responsible investment structured within your organisation?

List the persons involved, their role, tenure and position within the organisation, and how they are qualified for this role. Also mention any relevant responsibilities held by committees and governance arrangements. Describe any external resources you may use.

1.5 How does your organisation ensure its investment professionals and other relevant staff are trained on responsible investment and stay up to date on relevant topics?

If your organisation provides training, assistance and / or additional resources, please describe them. This should include how often these are delivered, by whom, and to whom.

1.6 To what extent, if any, are responsible investment objectives incorporated into performance reviews and / or compensation mechanisms at your firm?

Please describe how any objectives are selected, defined and measured, and to which positions they apply, e.g., investment professionals, ESG teams, and at senior management or board level.

1.7 What are the options for including responsible investment commitments, and restrictions based on ESG factors, within fund formation contracts?

Please specify where the commitments and restrictions would be stated (e.g., in the LP agreement, side letters, a separately managed account). Where applicable, specify which commitments are expressed through these means and any policies or frameworks in place to monitor and manage them.

2. Pre-investment

2.1 Are screens relating to ESG factors applied to this strategy?

In the response, please mention whether you can apply client-directed screens.

2.2 How do you identify material ESG factors and incorporate this analysis into the investment decision-making process?

In your response please:

• Explain your process, mentioning any tools, standards (e.g., the SASB Standards / IFRS Sustainability Disclosure Standards), and data you use to determine which ESG risks and opportunities are material.
• Describe your approach to scenario analysis in relation to material ESG factors, such as climate change, and whether it is conducted in line with any specific requirements or standards, such as TCFD guidance.
• Describe how material ESG factors, once identified, impact investment decisions (e.g., if they affect your approach to potential investments, or lead to abandoning certain investments).
• Provide recent examples of how your ESG integration process for this strategy functions in practice, including, where feasible, examples:

1. in which you have declined an investment; and
2. in which you have proceeded with an investment.

For the examples, please state the percentage of your investments they represent or the size of the investment. Where possible, one of the examples should relate to one of the strategy’s top ten holdings. Please include information on environmental, social and governance factors that you analyse.

2.3 Describe your process of engagementwith the borrower, private equity sponsor or co-lending parties on ESG considerations.

Please describe the primary purpose of your engagement and when this takes place in the investment process.

2.4 Do you use the ESG Integrated Disclosure Project template  as part of your investment process?

If yes, please describe how you use the ESG Integrated Disclosure Project template within your investment process. If no, please explain why and share details of any other templates you use.

2.5 Describe how your ESG due diligence process is documented as part of the investment decision making process.

Please provide samples of investment memos that cover ESG factors.

3. Post-investment

3.1 Do you have a formal process for monitoring, managing, and tracking ESG factors post-investment?

If yes, please describe the process, the ESG factors you monitor and whether investees are monitored for involvement in negative ESG incidents  / controversies. Please specify how you engage with the borrower on ESG factors post-investment and mention whether oversight of such factors is discussed regularly with the borrower’s management. Explain your approach where borrowers do not comply with the ESG commitments included in the transaction documents.

If there is no formal process, please explain why not.  

3.2 How do you approach ESG factors in situations where the borrower is in default or facing stress?

If it differs from the standard approach, please explain how. For example, mention if the nature of engagement changes.

3.3 Do you analyse whether your approach to ESG factors influences the financial performance of your investments?

Please describe whether the analysis is conducted quantitatively and / or qualitatively. Describe the challenges and complexities involved, and your approach to addressing these.

4. Sustainability outcomes

4.1 Do you invest in sustainability-linked loans¹  (SLLs)?

If yes, please explain, where applicable:

• your process for establishing whether an SLL is appropriate;
• the process for working with borrowers to establish key performance indicators (KPIs) and sustainability performance targets (SPTs). Specify whether sustainability-linked KPIs are included in loan contracts and whether details on the terms of SLLs are disclosed;
• how borrower performance against KPIs and SPTs is assessed and verified; and
• whether you require SLLs to be made in line with any industry frameworks, such as the Sustainability-Linked Loan Principles.

Provide two examples of SLLs you have invested in, covering the sustainability-linked targets and the economic outcomes linked to KPIs and SPTs being met.

4.2 Do you consider sustainability outcomes  and impacts relating to this strategy?

If yes, please describe the outcomes you identify and any actions you take to help influence them. Disclose any frameworks or tools you use to identify these outcomes (e.g., the Sustainable Development Goals, the Paris Agreement). Specify whether both positive and negative outcomes are identified. Describe how you collaborate with others, such as private equity sponsors, to take action on sustainability outcomes. Provide recent examples to illustrate your processes.

If no, please explain why not.

5. Reporting

5.1 What information do you disclose to investors on responsible investment activities and performance?

Please describe the type of information disclosed (e.g., engagement activity, climate performance, sustainability outcomes, ESG screens). List any specific metrics disclosed (e.g., weighted average carbon intensity, carbon footprint). Describe what information is publicly reported and the frequency, and what is provided privately to clients and the frequency.  

5.2 How do you disclose material ESG incidents to investors?

Describe any processes you have to ensure material ESG incidents are reported.

6. Corporate sustainability

6.1 Does your organisation identify and manage the ESG risks, opportunities and impacts connected to its internal operations?

If so, please provide a brief overview. Examples may include initiatives to reduce the organisation’s carbon footprint and to enhance the diversity of its investment teams.

7. Additional information

7.1 Is there any information on your responsible investment approach not otherwise covered in the DDQ that you would like to share?

Appendix 1: Indicator mapping

Appendix 2: Acknowledgements