Our ESG Goals

Negative screening

The following sub-sectors or asset types are excluded:

• Upstream infrastructure related to the exploration and production of oil and gas, such as oil rigs and platforms, fracking facilities, and facilities involved in tar sands 
  Note that midstream assets (such as pipelines) and downstream assets (such as refineries) as well as power generation from oil and gas are not necessarily excluded but, as with all assets, are subject to Sequoia’s ESG scoring and monitoring processes.
• Thermal coal mining and directly related infrastructure, for example a dedicated thermal coal transportation asset like a railroad or wagons
• Power generation from coal and any asset using thermal coal, but not coking coal
• Permanent military infrastructure for active operational forces or for military production

The exclusion criteria apply to the primary nature and objective of the business. Ancillary revenues arising from excluded activities should not constitute more than 5% of an asset’s total revenues. 

Additionally, Sequoia’s investment criteria limits investment to only certain types of infrastructure. This means many harmful or controversial asset types are already excluded de facto, for example: alcohol production; gambling operations; tobacco production; pornography production and adult entertainment activities; and controversial and conventional weapons manufacturing.

Thematic investing (positive screening)

Currently, SEQI has three ESG investment themes.

Positive screening will be employed to increase the fund’s exposure to these investment themes, subject to existing concentration limits.

1. Renewable energy, such as solar, wind and geothermal generation, and directly-related businesses including companies that supply renewable energy.
2. Enabling the transition to a lower carbon world, such as grid stabilization, electric vehicles, traffic congestion reduction and the substitution of coal by gas.
3. Infrastructure with social benefits, which provides for basic human needs (such as clean water and food security) or brings a positive change by addressing social challenges and inequalities (such as healthcare, education and affordable housing) or advancing society as a whole (such as progressing telecommunications).

ESG scoring

An ESG scoring framework helps Sequoia to allocate capital between projects and to measure its progress over time in a quantitative way.

Sequoia’s proprietary ESG scoring methodology has been designed to be as objective as possible. The score primarily reflects the current ESG performance of the investment but also reflects, to a limited extent, the “direction of travel”. For example, a business that currently contributes to climate change will receive some credit if it is investing meaningfully to reduce its contribution.

The methodology blends the “E”, “S” and “G” components without allowing strength in one area to offset entirely weakness in another. For example, a polluting company will always get a poor score, even if it has excellent social and governance policies. Moreover, the Fund’s policy is not to lend to companies with a very low E score, of less than one, regardless of the overall ESG score.

A brief summary of our ESG scoring methodology can be found here.

Note that the ESG score is distinct to a credit rating. Some elements of ESG scoring will directly affect a borrower’s credit rating (for example, weak corporate governance has a negative contribution to credit quality) but nonetheless it is entirely possible for a business with a weak ESG score to have a strong credit profile, and vice versa.

ESG scores must be taken into account in the investment process. Ceteris paribus, when evaluating potential investments, Sequoia will prioritise transactions with higher ESG scores, and when considering the potential disposal of investments, Sequoia will prioritise transactions with lower ESG scores. By investing in higher‑scoring opportunities, and disposing of lower-scoring opportunities, the aim of the Policy is to improve the ESG score of our loan book over time. Albeit there will naturally be fluctuations in the portfolio ESG score over time rather than a monotonically increasing ESG score.