SEQI’s ESG policy is not limited to investment selection but can include a range of engagement strategies designed to encourage and promote positive behaviour in the companies that it lends to.
Loan Terms
Where appropriate, loan terms should include covenants or repeated representations to ensure that the borrower complies with its stated ESG objectives and to encourage it to improve its standards over time. These could include:
Obligations to comply with environmental standards and regulations.
Obligations to adopt net zero policies.
Obligations to reduce pollution over and above statutory minimums, including light and noise pollution.
Obligations to adopt or continue social policies such as living wages, non-discrimination, employee diversification and minority board representation.
Obligations to adopt or continue good governance policies such as independent directors, whistleblowing, complaints procedures and internal audit functions.
Sequoia can also consider adopting financial terms in a loan where (for example) the interest rate might fluctuate depending upon the borrower’s performance on an environmental metric such as carbon emissions.
Ongoing Reporting and Monitoring
Where appropriate, loan terms should also include an obligation on the borrower to report suitable ESG metrics. These could include:
Carbon emissions (broken down by scope 1, 2 and 3), carbon footprint and weighted average carbon intensity.
Energy performance including the total energy consumption from non-renewable sources, energy consumption intensity.
Water emissions.
Hazardous waste ratio and non-recycled waste ratio.
Borrowers will also be asked to complete annual post‑investment ESG questionnaires. These will cover quantifiable ESG metrics/KPIs when appropriate, such as CO2 emissions, Health and Safety records, CQC ratings, etc, as well as confirmation of the borrower’s overall ESG policies and procedures.
ESG performance and credentials will be monitored regularly for each investment in the semi-annual monitoring process. If a borrower’s ESG scores deteriorate, Sequoia will contact the management of the borrower to determine a strategy to improve performance. If the borrower is unwilling or unable to do this, Sequoia may look to dispose of the loan.
Voting
Although lenders do not, as a matter of course, have voting rights in the companies that they lend to, from time to time they are required to consent to loan modifications (such as waivers of specific loan provisions). In such situations, SEQI and Sequoia’s policy is not to consent if the overall net effect of the requested modification would be negative for the ESG profile of the investment.
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