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ESG Policy
SUSTAINABILITY STATEMENT
GCP Asset Backed Income Fund (the “Company”) - June 2021
The Company aims to operate a sustainable business model which does not detrimentally impact the environment and provides benefits to society where possible.
Introduction
ESG has become an increasingly important topic in both the assessment of impact of investments in the future and investor assessment of opportunities. In the last year, the UK Government has brought in legislation to target net zero greenhouse gas emissions by 2050 and introduced new ESG reporting requirements for pension scheme trustees in recognition of the role investment plays in policy change. In addition, the UK Stewardship Code 2020 and the UN Principles for Responsible Investment (“UNPRI”), both of which have been adopted by the Investment Manager (Gravis Capital Management Ltd), focus on the process of incorporating ESG considerations into the investment process and disclosures to investors to better inform investment decisions and promote sustainable investment.
ESG strategy
During 2020, the Board, with the assistance of the Investment Manager, began the process of defining its policy on sustainability and approach to ESG. This process is to be continued during 2021 in order that the Company will have a clearly defined approach regarding its ESG strategy, governance, risk management and metrics and targets. The Company intends to adopt the recommendations of the TCFD where appropriate and has made additional disclosures in regard to climate change.
Investment process
The Investment Manager has enhanced its investment processes in respect of the provision of investment management services to the Company during the year. It believes that integrating ESG considerations into investment management processes and ownership practices can help to create more successful and sustainable businesses over the long term and generate enhanced value for clients and society at large. It has developed a responsible investment process which incorporates the following:
Deal screening
The Investment Manager has implemented processes to positively screen for investments that promote sustainability or benefit society, including, but not limited to: the areas of climate change mitigation and adaptation; energy transition; critical infrastructure; affordable living; social housing; education and healthcare. It excludes investments which focus on animal testing; armaments; alcohol production; pornography; tobacco; coal production and power; and nuclear fuel production.
ESG due diligence processes
The Investment Manager is working with the Board on the implementation of its responsible investment checklist for new investments which assesses how the investment fares against key relevant ESG criteria. The checklist covers the counterparty’s commitment and capability to effectively identify, monitor and manage potential ESG-related risks and opportunities, and, to the extent applicable, the availability of relevant policies and procedures; alignment with industry or investment specific standards and ratings; and compliance to relevant ESG-related regulation and legislation.
Monitoring and engagement
Following the investment, investments are monitored in accordance with the relevant covenants and information requirements for the project. The requirements are tailored to manage risks specific to each project and typically include financial, regulatory, operational and construction reporting, where relevant. Through the new responsible investment checklist process, the Investment Manager is seeking to identify ESG indicators to include in reporting and monitoring of borrowers to inform the way in which the investment is managed.
Reporting
The Investment Manager intends to report on its progress on responsible investment on an annual basis. This information will be made publicly available on its website: www.graviscapital.com.
The responsible investment policy can be found on its website. The policy sets out its commitment to responsible investment and investment processes within its organisation.
Responsible investment
The Investment Manager is a signatory to the UNPRI, a global network of investors working together to incorporate responsible investment into investment practice.
The principles were developed by an international group of institutional investors reflecting the increasing relevance of ESG issues. The Investment Manager recognises that applying these principles better aligns investment activities with the broader interests of society and has committed to the adoption and implementation as follows:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- Principle 4: We will promote acceptance and implementation of the principles within the investment industry.
- Principle 5: We will work together to enhance our effectiveness in implementing the principles.
- Principle 6: We will each report on our activities and progress towards implementing the principles.
More information can be found on the UNPRI website: www.unpri.org.
CLIMATE CHANGE IMPACT
The Investment Manager directly and/or indirectly addresses climate-related risks and opportunities when evaluating and approving new investments.
The Board intends to seek to adopt the recommendations of the TCFD where appropriate and has made additional disclosures in the 2020 Annual Report in regard to climate change. The Board will seek to expand these disclosures for future years as further guidance on adoption is issued.
INVESTMENT PROCESS
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GOVERNANCE |
STRATEGY |
RISK MANAGEMENT |
METRICS AND TARGETS |
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Governance in regard to climate‑related risks and opportunities. |
Impacts of climate-related risks and opportunities on the Company strategy1. |
Risk identification, assessment and management. |
Metrics and targets used to assess and manage relevant climate-related risks and opportunities. |
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The Investment Manager has established a responsible investment policy and a dedicated responsible investment committee to monitor and implement ESG initiatives across its organisation.
It has integrated ESG considerations into its investment management processes during 2020 as it believes this creates a more sustainable businesses over the long term. Further information can be found above.
The Investment Manager also carries out ongoing performance monitoring, including site visits (when possible) by experienced personnel. Detailed reports on asset performance are provided to the Board. |
The portfolio is diversified across a number of asset classes where the impact of climate change would vary across the portfolio.
Environmental impact assessments are carried out as part of the due diligence process to identify potential transition and physical short, medium and long term impacts to costs and viability across service providers and investments. Further information can be found above. |
The Investment Manager directly and/or indirectly addresses climate-related risks and opportunities when evaluating and approving new investments. This includes the completion of a responsible investment checklist for each new investment.
Ongoing due diligence is carried out during the life of each asset to identify any new risks and changes to existing risks. This includes changes to Government and industry legal and regulatory requirements and assessment, the impact of flooding and the Covid-19 pandemic. |
As an externally managed investment company, the Company has no employees, does not own any property, and it does not purchase electricity, heat, steam or cooling for its own use. The Company outsources all services on a fee basis and, as such, has no reportable emissions to which it can measure or set targets against.
During 2021, as part of the development of the Company’s approach to ESG, the Directors will consider the extent to which appropriate portfolio metrics and targets can be reported on. |
- The Company defines short, medium and long-term risk time horizons as follows: short term: zero to three years; medium term: three to eight years; long term: more than eight years.
MAKING A DIFFERENCE
ENVIRONMENTAL IMPACT
Green energy projects
The Group (being the Company and subsidiary entities) has invested in a number of green energy projects, including an operational CNG station. The CNG station is located in Lancashire, UK, within the immediate vicinity of the major customer. The site has been operational since March 2016 and was developed as a flagship project with National Grid/Cadent as the first high‑pressure gas fuel station in the UK.
As a form of transportation, CNG trucks have a significant positive impact on air quality and the environment, emitting c.80% less CO2 than diesel trucks. In total 4.5 million litres of diesel have been displaced during the last year by vehicles fuelling at this station. The Group is actively working with the developer to support the project and has recently invested in a second station, expanding the number of fuel dispensers supported from two to six.
The Company has also invested in a number of battery storage projects which support the deployment of renewable energy projects throughout the UK by providing flexible capacity and balancing services to the National Grid. Further information can be found above. Further, the Company has invested in companies providing operation and maintenance services for rooftop solar panels, in turn contributing to increased renewable capacity in the UK.
SOCIAL IMPACT
Societal benefits
The Company’s business model targets assets for which there is a structural demand within society. The Group provides benefits to society through its investing activities, by providing funding for assets, such as housing for vulnerable adults, care for the elderly and urban regeneration, in addition to assets that meet a structural demand for producing or managing energy and/or processing waste. The Group also provides finance for property purchases or developments which mainstream lenders cannot serve, for reasons other than credit quality.
Since IPO, the Group’s investment activities have facilitated the creation of c.900 jobs, of which c.300 have been created at care homes, c.250 at urban regeneration projects, c.250 at nurseries, with the remainder at student accommodation schemes.
The Group intends to continue to support borrowers that have a positive impact on society, as it further enhances the security of the portfolio.
