Alcentra has built up its responsible investing team, making Ross Curran, a portfolio manager who has been with the firm for 15 years, its first head of responsible investing, and bringing in two outsiders.
Curran will be supported in his new role by Adriana Carvallo, who has joined the firm as the head of ESG integration from Norges Bank Investment Management, where she was a senior sustainability analyst. Before that, Carvallo worked at The Carbon Trust for four years. Amanda Provencal, meanwhile, has joined as an ESG analyst.
Curran told GlobalCapital that Alcentra was ramping up its responsible investing activities as credit markets are at a "turning point".
"ESG risk factors will increasingly determine which companies will do well, which will struggle and which will not survive,” he said. “The climate and social risks are becoming more acute. The social issues are becoming more important. Regulation from the EU, with the UK and the US not far behind, is starting to bite.”
Regulation is only one of several motivating factors for the sea change taking place across capital markets over sustainable finance. Investors and banks are pushing companies into providing more clarity about their ESG plans, while companies that lag behind on sustainability will struggle to achieve a similar cost of capital to their greener peers, particularly in the most problematic sectors.
ESG factors are also increasingly playing into decisions made by institutional investors looking to place funds with asset managers.
“Companies are getting the joke,” said Curran. “If you want to benefit from margin ratchets, you need to provide data. This is all borne out from our end investors — they’re becoming more selective with which managers they choose, and which exclusions they have, and getting you to explain why you made those investment decisions. If I go back three or four years ago, probably 5% or 10% of my conversations with investors [were about sustainability] — now, it’s as much as 50%.”
Alcentra has adopted a two-layer exclusion policy in its own investment criteria when it comes to sustainability. The credit specialist will not invest in companies with exposure to dangerous weapons, recreational cannabis or payday lending. It also will not invest in companies with a material exposure to tobacco or tobacco products, adult entertainment, thermal coal or oil sands.
“Not as many will get caught up in the exclusions, but every company will go through our broader risk assessments, which seek to identify exposure to material ESG risks and assess the company’s commitment to mitigating these risks,” said Curran. “We assess credit on 20 or so ESG factors, revolving around climate change and ESG, and then we arrive at a rating.”
