Sustainability Risk Policy – Disclosure Statement
Sustainability Risk Policy – Disclosure Statement
MV Credit Partners LLP & MV Credit Sarl
(“MV Credit” or the “Firm”)
In accordance with the requirements of Article 3 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (“SFDR” or the “ESG Disclosure Regulation”), MV Credit has chosen to formulate and disclose its policy on the integration of sustainability risks into its investment decision making processes.
Its objective is to explain how sustainability risks are integrated into our investment decision making activities.
MV Credit’s Investment Philosophy
MV Credit’s investment philosophy is committed to deliver attractive risk adjusted returns and bring environmental and social benefits for all stakeholders within our ecosystem over the long-term. Our investment approach follows a buy and maintain strategy, constructing diversified portfolios of European credits that typically have a market-leading position in stable sectors, targeting non-cyclical, defensive industries and regions where the team has a deep understanding.
Sustainability risk assessments are systematically included in all investment processes to reduce risk and enhance the environmental and social positive impacts.
Our success, tested across market cycles, is based on the following investment principles:
- Active buy and maintain investment philosophy;
- Credit driven approach focused on less cyclical industries;
- Extensive expertise across Western Europe;
- Thorough due diligence processes;
- Strong long-term relationships with top-tier private equity sponsors; and
- Focus on responsible investing in stable cash generative businesses through the integration of sustainable risks.
MV Credit consistently applies the same approach, which has been refined and enhanced for more than 20 years.
MV Credit’s Regulatory Framework
MV Credit’s sustainability risks integration measures comply with relevant provisions of the EU Sustainable Finance Framework, e.g.:
- AIFM Delegated Acts – provisions to integrate sustainable risks in investment due diligence and risk management policies & processes and governance structures; and
- MIFID II Delegated Acts – provisions to integrate ESG factors in mandatory client suitability assessment and product governance processes.
In addition, MV Credit complies with United Kingdom, France and Luxembourg national frameworks and laws, as they have stressed the importance of incorporating sustainability risks in investment, risk processes, internal organisation and reporting of asset managers.
The integration of our sustainability risk measures is outlined in this policy. However, sustainability risks are evolving according to the investors’ expectations and regulatory requirements. Therefore, MV Credit will review on a regular basis its sustainability risks policy in order to be fully in line and compliant with all the requirements.
Consideration of Sustainability Factors in MV Credit’s Investment Process
Investment analysis of non-financial factors, including the sustainability factors, takes place as part of MV Credit’s pre-investment due diligence procedures and ongoing monitoring processes. MV Credit believes that such factors may materially impact upon an investee company’s financial performance and ability to meet its financial obligations in the long term. MV Credit therefore views incorporating consideration of these non-financial factors with respect to investments as being in line with its duties acting as an agent for its investors.
The below briefly outlines how MV Credit approaches the integration of sustainability risk from an investment risk perspective. This approach is applicable to all asset classes MV Credit invests in.
Each investment process considers ESG integration according to MV Credit’s investment philosophy. ESG factors can be critical to evaluating the sustainability of an issuer and the expected impact on investment performance. MV Credit’s Investment Team assesses the materiality of these factors in each investment decision. As part of the integration of ESG risk consideration in our investment process, we incorporate a screening model alongside the inclusion of other relevant ESG considerations in our investment analysis:
i. Negative Exclusion (i.e., the exclusion of specific sectors, issuers, or themes where investor, guidelines or regulatory restrictions apply);
ii. ESG Screening (i.e., investing in companies demonstrating low ESG risk factors, and / or companies that are well situated to deliver lasting growth, relative to peers); and
iii. ESG integration (i.e., the inclusion of ESG factors alongside traditional financial analysis of companies by investment managers).
Our ESG assessment aims to ensure that each new investment is and will be in line with investors' expectations as well as with voluntary and regulatory constraints.
ESG is an important aspect of our risk management – designed to limit potential downside risk, generating increased performance. We assess risk at the market, sector and company/borrower levels.
At the asset level, MV Credit examines the ESG attributes of a company/borrower before investing in it by adopting a risk materiality (case-by-case) approach whilst simultaneously utilising a MV Credit proprietary ESG checklist. Whilst the checklist ensures consistency (driving a cohesive assessment framework for tracking KPI development and in turn the ESG-related risks throughout the life of the investment), the materiality approach corroborates/ensures that relevant ESG considerations not captured by the checklist are not omitted.
To support our Investment Professionals, we have dedicated procedures outlining the various guidelines on how to approach screening; exclusions; risk materiality assessment (case by case considerations); as well as the checklist, and an overview of necessary procedural steps which must be taken.
Every Investment Memorandum has a mandatory ESG section which is presented to the Investment Committee/Board. During the Investment Committee/Board, the ESG assessment findings are presented to the Manager Board as part of the investment proposal. ESG compliance is determined through deliberation on the combined ESG assessment findings.
We also intend to check the eligibility with EU Taxonomy to:
- Identify environmentally sustainable economic activities; and
- Comply with current and future investors and regulatory requirements.
The operational aspects of internal oversight and reporting of sustainability risk incorporation across the Firm primarily reside with the ESG Committee and the Investment Team.
As part of the investment process, the oversight and mandatory incorporation of ESG considerations as part of the investment due diligence reside with the Portfolio Managers and Senior members of the investment team. As with all prospective investment due diligence areas – it is the responsibility of the Investment Team coverages to summarise and present all material/relevant ESG risk (and mitigants) to the Investment Committee/Board.
The ESG Committee’s purpose is to independently review and establish MV Credit’s ESG policy, investment procedures and principles. The Committee is further responsible for ESG related reporting on an annual basis and is present to assist the Manager Board, the Investment Team, and firm employees to enforce and implement ESG procedures for the purpose of responsible investing and monitoring.
Finally, it is the ESG Committee’s responsibility to oversee Management’s tolerance for ESG risks and considerations and to formulate ESG deliberation whenever appropriate. The scope of the Committee covers oversight of ESG guidelines and investment principles and the effective incorporation of ESG initiatives within the firm.
Use of Data, Tools and Third Parties
Prior each investment, MV Credit uses a proprietary ESG checklist and risk materiality assessment to ensure the ESG alignment of the underlying company.
As part of our post-investment ESG monitoring, MV Credit utilises third-party consultants to aggregate and analyse on an annual basis ESG data from all existing investments. The data (derived from a proprietary KPI assessment) is validated by both the consultants and the underlying borrower/portfolio company.
MV Credit has adopted a number of complementary and related policies which provide an overview of its approach. These include, but are not necessarily limited to:
- ESG Policy
- ESG Investment Procedures
- Exclusion Policy
- Portfolio Management Procedures
- Risk Management Policy
- Stewardship Code Disclosure Statement
- Statement on the UK Modern Slavery Act
- Personal Account Policy
- Whistleblowing Policy
- Inducement Policy
- Anti-Bribery policy
- Conflicts of Interest Policy
Transparency and Reporting
MV Credit is a signatory to the UN Principles for Responsible Investment (UNPRI) and fulfils the reporting requirements that being a PRI signatory entails, in the form of the annual Transparency Report which is available on the PRI website (www.unpri.org).
In addition, MV Credit supports the transparency on governance and strategy recommended by the Task Force on Climate related Financial Disclosure – TCFD (https://www.fsb-tcfd.org/)
At Corporate level, MV Credit’s operational carbon footprint is being provided by Natural Capital Partners (https://www.naturalcapitalpartners.com - leading experts in carbon and climate finance). As of 2021, this footprint covers the London and Luxembourg offices.
MV Credit has reviewed its Remuneration Policy in accordance with the requirements of Article 5 of SFDR to ensure consistency with the Firm’s integration of sustainability risks as described above. The relevant details incorporated in that respect are featured below:
- Central to MV Credit’s remuneration policy is the promotion of sound and effective risk management and this has now been extended beyond financial risks to encompass sustainability risks. In summary, relevant individuals who are involved in implementing and/or overseeing MV Credit’s Sustainability Risks Policy will be assessed in this respect as part of the determination of variable remuneration awards by reference to their risk-adjusted performance. MV Credit does not have any quantitative sustainability-focused performance targets at either a portfolio or asset level and therefore this is a qualitative assessment in respect of adherence to the Firm’s internal procedures for integration of sustainability risks as outlined above.
- Further, another key aspect of MV Credit’s remuneration policy is with respect to avoid creating an environment which rewards or encourages excessive risk-taking. Again, this principle has been extended beyond financial risk to incorporate sustainability risks; and for those individuals who have a role in ensuring or overseeing that the Firm’s sustainability risks policy is adhered to, this is factored into decisions in respect of variable remuneration awards.
Sustainability adverse impacts
MV Credit aims to mitigate the negative impacts on ESG factors in its investment process as it can lead to negative material effects.
These negative impacts are also referred to Principal Adverse Impacts (PAI). These impacts can be related to the environment, social and employee matters, human rights, corruption and bribery matters.
MV Credit prioritises adverse impacts depending on the asset class and the strategy led by the Investment Team. Nonetheless, adverse impacts are always used as input for our investment decisions.
Last updated January 2022.