Case Study

Private Debt — the final frontier of Stewardship

Private debt funds, alongside hedge and absolute return funds, are generally ranked quite low when it comes to ESG integration, climate, and stewardship*. but at Brunel we like a challenge. We have committed to be a responsible steward across all our asset classes, and whilst being pragmatic, we are also robust and have been clear that we are willing to walk away if we feel the commitment to improve is not evident.

Private debt has been an on-going area of stewardship engagement and one of which we have been pleasantly surprised at the pace of progress. We are currently embarking on our cycle 3 private debt programme which is very much regarded as a continuation of the ambitious work undertaken for cycle 2, but with a notable emphasis on measurement of carbon/ greenhouse emissions (within a broader long-term goal of reducing such in line with Net Zero for investee companies. It has become increasingly possible to request that General Partners (GP) have (or have clear roadmaps for) the detailed mapping of emissions/carbon intensity data in line with industry best practices (specifically scopes 1-2 and upstream/ downstream measurement for scope 3).

Generally speaking European managers have been more advanced in their efforts to date, and Brunel has been able to make investments with GPs who have extensive mapping efforts underway (even if using a majority of proxy data at this stage). We have also been able to engage them to set ambitious targets around factors such as: (i) efforts to increase the share of portfolio level emissions sourced from actual companies: (ii) establishing a medium term target to move portfolios towards net zero; and (iii) the onboarding of external consultants and data providers to aid in (i) and (ii). A particular success story has been our collaboration with a prominent European GP to help steer the formation of their climate policy and their onboarding of what Brunel regards as leading data providers and initiatives.

Within the US, a region typically further behind on the climate journey, we have been engaging with GPs to help move best-practice RI-integrators towards onboarding the necessary infrastructure to utilise proxy data to measure portfolio level emissions.

* Mercer ESG ratings