Environmental, Social and Governance Policy
Introduction
Westbourne Credit Management Limited, ACN 131 843 144 (Westbourne) seeks to generate attractive risk-adjusted returns for our clients from investment in a portfolio of debt security investments associated with infrastructure assets that provide important services within their respective communities in a manner that reflects responsible investing and the maintenance of our good reputation and that of our clients.
Westbourne is exclusively focused on lending to borrowers operating in the infrastructure industry sector. Infrastructure assets typically occupy privileged market positions benefitting from monopoly characteristics, high barriers to entry or long-term contracts. Infrastructure assets are generally large in scale and, in recognition of their critical role in the environment in which they operate, are often subject to varying degrees of regulation and oversight by government organisations or industry bodies.
Westbourne recognises that Environmental, Social and Governance (ESG) related factors can impact the credit quality of debt securities.
The objective of this policy is to set out how Westbourne considers and addresses ESG factors in our investment process and the monitoring of investments.
Scope
This ESG Policy applies to Westbourne and its subsidiaries (Westbourne, we, our, us). It covers Westbourne in its capacity as an Australian Financial Services Licence holder, trustee, investment manager, general partner and investment adviser.
This Policy applies to Westbourne’s directors, employees, contractors and consultants.
ESG commitments
As a signatory to the Principles for Responsible Investment, Westbourne is committed to implementing the Principles and, as an institutional investor, we acknowledge that we have a duty to act in the best long-term interests of our stakeholders. In this fiduciary role, Westbourne believes that ESG issues can affect the performance of investment portfolios (to varying degrees across individual assets, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, Westbourne commits to the following:
- To incorporate ESG issues into investment analysis and decision-making processes;
- To be an active lender and to incorporate ESG issues into our policies and practices;
- To seek appropriate disclosure on ESG issues by the entities in which we invest;
- To promote acceptance and implementation of the Principles within the investment industry;
- To work with the PRI Secretariat and other signatories to enhance their effectiveness in implementing the Principles; and
- To report on our activities and progress towards implementing the Principles.
ESG integration
Westbourne’s approach to ESG reflects our role as a lender to (rather than owner of) infrastructure companies. The investment due diligence process completed prior to investment is most critical given lenders often have little or no direct influence over the day-to-day operations or strategic direction of a company.
Westbourne will seek to promote acceptance and implementation of ESG principles and will seek appropriate disclosure on ESG issues by borrowers. Westbourne endorses initiatives by the lending community to improve borrower engagement and outcomes.
Westbourne believes it is fundamental to focus on investment risks that have a material impact on credit quality (including cashflow and collateral value). Westbourne considers ESG related risks in a balanced manner (alongside other material investment risks) and seeks to ensure material ESG risks are suitably addressed or mitigated.
Westbourne believes that its established investment and monitoring processes are able to identify those material investment risks (including material ESG related risks) which vary by infrastructure sub-sector and individual borrower.
Incorporating ESG in credit assessment
Westbourne undertakes a comprehensive investment due diligence process ahead of completing any investment. In relation to ESG considerations, this includes the investment team reviewing company reporting, available third-party ESG related due diligence reports, relevant industry data and reports, and engagement with the borrower and/or advisors. Westbourne undertakes to encourage borrowers to complete industry standard ESG templates as part of due diligence processes (included in Appendix I) noting such templates continue to evolve.
Westbourne prepares and includes an ESG section in each new investment proposal presented to the Investment Committee. This seeks to summarise the key ESG findings relevant to the opportunity being considered.
Westbourne determines a credit rating for borrowers based on sector specific credit rating grids. The credit rating grids incorporate all material credit considerations, including ESG issues. The credit rating assigned to each investment ultimately reflects an assessment of the risk profile of the underlying borrower and the specific debt security being considered and represents a critical input to client specific portfolio construction and required returns and lending protections.
Westbourne also assigns an ESG impact score to each debt security which is designed to communicate the impact of ESG considerations on the credit rating of the borrower of the relevant debt security. In assigning an ESG impact score, each component of ‘E, S, G’ is assessed based on various subfactors listed in the table below. Westbourne’s comprehensive approach to determining an ESG impact score is outlined in further detail in Appendix II.
| Environmental factors | Social factors | Governance factors |
|---|---|---|
| Carbon transition | Health & safety | Organisational structure |
| Physical climate risks | Human capital | Management credibility |
| Water management | Societal trends | Financial strategy & risk management |
| Waste & pollution | Customer relations | Board structure & policies |
| Natural capital | Responsible production | Compliance & reporting |
Investment screening
Westbourne has in place a negative screening process to rule out ineligible investments, including those relating to certain ESG factors. Client specific portfolio construction guidelines may include incremental negative screens and minimum individual debt security or portfolio credit rating thresholds. As of the date of this ESG policy, Westbourne excludes new investment in:
- Debt securities with an assigned credit rating of below B-/B3;
- Borrowers where the ESG risks are deemed to be too high implying a very highly negative ESG credit score;
- Borrowers with material exposure to thermal coal including, but not limited to, the production and transportation of thermal coal and the usage of thermal coal in electricity generation;
- Borrowers with material exposure to oil including, but not limited to, the extraction, refining and transportation of oil based products;
- Borrowers who own or operate prisons or correctional facilities;
- Borrowers exposed to known human rights issues including modern slavery;
- Borrowers with business activities associated with the manufacture, trading, distribution and/or servicing of armaments, firearms, assault weapons or cluster munitions, mines and nuclear, chemical, biological and toxin weapons; and
- Borrowers involved in gambling, tobacco or anti-social force (including organised crime or an entity operating within a jurisdiction under United Nations Security Council sanctions).
An existing investment made prior to this policy update that would not meet the incremental screen criteria will continue to be held and managed to preserve capital invested and maximise return.
In addition to the negative screening principles outlined above, Westbourne also applies ‘positive’ screening. We will actively target borrowers which score well on ESG metrics with the objective of generating positive financial, environmental and/or social outcomes.
Disclosure by borrowers
Westbourne undertakes to encourage borrowers to include more prescriptive ESG reporting obligations based on industry standards into the financing documentation process going forward. The types of reporting obligations to be sought are outlined in Appendix III.
Westbourne will seek ESG information from a borrower at least on an annual basis. The type of information to be requested may include carbon footprint (scope 1, 2 and 3 emissions), GHG intensity, energy consumption (from renewable and non-renewable sources), biodiversity, water and waste data, social and employee matters, and ESG policies and procedures updates.
Engagement with borrowers
Westbourne engages directly with borrowers as part of periodic reporting updates and in relation to all borrower requests for consents or waivers, both of which may relate to ESG matters. Consents or waivers relating to material matters require the approval of the Investment Committee and where applicable the approval of clients. Westbourne is open to collaborating with other lenders to achieve a consensus.
Westbourne may encourage a borrower to consider a sustainability linked debt financing, particularly if the underlying business does not have existing contractual or regulatory incentives to effect positive change in relation to ESG matters. Additional detail on our approach to sustainability linked debt investment is outlined in Appendix IV.
Ongoing monitoring and reporting of investments
Ongoing monitoring after an investment has been completed is an essential part of Westbourne’s investment process. During the due diligence phase Westbourne identifies any material ESG issues to be monitored over the life of an investment and considers any emerging issues on an ongoing basis.
Westbourne undertakes a formal semi-annual credit review process on its underlying investment portfolio which is presented to and requires the approval of the Investment Committee. As part of this process, credit ratings and ESG impact scores will be reviewed and amended for ESG factors as appropriate. In addition, Westbourne will prepare a heat map to assist with assessing the overall investment portfolio review of ESG related classifications and report on any key ESG related data provided by each borrower.
Westbourne prepares a quarterly manager’s report for each client which includes reporting on any material ESG related matters as well as advising clients on the ESG impact scores. In addition, Westbourne undertakes to respond to any ESG questionnaires from its client base on a timely basis.
Version
Updated March 2023.
Appendices
Appendices have been redacted from the public version of the policy.