Deerpath capital
Article 3 (2019/2088) – Transparency of Sustainability Risk Policies
Deerpath Capital Management, LP (‘’Deerpath or the Firm’’) has implemented a Sustainable Investment Policy & Procedures document that details how Deerpath considers sustainability risks and opportunities within the investment process. Further details on this process can be found on our website, while the full policy is available on request.
Article 4 (2019/2088) – Transparency of Adverse Sustainability Impacts at Entity Level
Deerpath does not currently consider the adverse impacts of investment decisions on sustainability factors. The investment manager has taken this approach due to the range of investments made relative to the size of the internal organization, and the ability to receive reliable data. Deerpath will reassess the consideration of adverse impacts on an annual basis.
Article 5 (2019/2088) – Transparency of Remuneration Policies in Relation to the Integration of Sustainability Risks
Deerpath’s remuneration policy details that employees are rewarded on several factors. For employees responsible for investment decisions, one of the factors that influences remuneration is the investment performance of the portfolio. Deerpath firmly believes that appropriate integration of sustainability information can help identify risks and opportunities and therefore help generate and maintain strong financial investment performance.
Article 23 (2022/1288) – Website Section for the Disclosure of Sustainability-Related Information about Financial Products
| No Sustainable Investment Objective | Deerpath promotes environmental and social characteristics but does not have sustainable investments as an investment objective. |
| Environmental or social characteristics of the financial product | The Firm will promote either Climate Change Adaptation and Risk Management (“Climate”) or Human Capital Management (“HCM”) in its portfolio company investments. The environmental or social factor that is promoted will be assessed based on the industry in which the borrower operates. |
| Investment Strategy | Deerpath is a leading non-bank lender in the U.S. lower middle market, focused on providing first lien loans to private equity backed companies. Deerpath’s investment strategy looks to fully assess and underwrite the specific governance, financial and sustainability risks that the Firm is taking on by lending to an individual borrower.
Deerpath assesses several factors to understand the governance practices of investee companies, including but not limited to third party diligence reviews of management background checks, human resource policies, employee benefits, corporate insurance, IT & cybersecurity, and compliance, along with a review of the company’s employee base (retention / composition). |
| Proportion of investments | It is expected that 20% of investments in Deerpath’s portfolio will be aligned with the promotion of environmental or social characteristics at the end of Fund VII’s reinvestment period. |
| Monitoring of environmental or social characteristics | Deerpath’s Portfolio Reporting & Analysis team will monitor borrowers sustainability performance in line with expectations through the distribution of annual questionnaires, and handbooks. The availability and quality of data will likely vary across borrowers due to the corporate sustainability maturity of each business and the resources available to measure and provide transparency into their relevant activities. |
| Data Sourcing and Processing | Deerpath will collect data directly from borrowers through both direct due diligence and engagement with the borrower and more systematically on an annual basis via sustainability questionnaires, and handbooks. The sustainability questionnaires explicitly ask for borrowers to document their progress against the relevant sustainability indicators. The questionnaires will be managed by a third-party specialized sustainability software platform.
Where data is missing Deerpath will not use estimates but will instead look to encourage further disclosures from the borrower. |
| Limitations to methodologies and data | The availability and quality of data will likely vary across borrowers due to the corporate sustainability maturity of each business and the resources available to measure and provide transparency into their relevant activities. Given Deerpath’s investment universe, it is likely that many borrowers will be at the very start of their sustainability journey. However, this will not limit the ability to promote Climate or HCM by the Fund, as many of the initial sustainability indicators Deerpath would like borrowers to demonstrate improvements on are not focused on the collection and improvement of quantitative metrics.
The Fund, given its private credit strategy, is unable to immediately exit the investment should a borrower continue to exhibit no improvements or willingness to improve upon the relevant sustainability indicators. However, Deerpath believes the Firm’s heightened engagement process, which can include initiating discussions with the borrower and/or private equity sponsor (“PE Sponsor”) is a good method of managing this challenge within the confines of the investment strategy. |
| Due diligence | The investment approach for Deerpath is one of fundamental due diligence on each borrower with additional support by the owner (typically a PE Sponsor) which includes an exclusions, PE Sponsor, materiality matrix, aggregate sustainability factor, and financial impact assessments. All pre-investment due diligence findings are presented to investment committee prior to a final investment decision. |
| Engagement policies | If Deerpath identifies limited improvement in a borrower’s performance or willingness to engage on Climate or HCM improvement over the lifecycle of a loan, Deerpath will move to heightened engagement with portfolio companies. Heightened engagement includes sending formal letters to the borrower and/or PE Sponsor highlighting and reiterating Deerpath’s expectations as it relates to the importance of improving upon Climate or HCM. If after heightened engagement Deerpath continues to see no improvement in the borrower’s performance or willingness to engage, the Firm will move to escalation. Escalation includes formally engaging the borrower and/or PE Sponsor to discuss Deerpath’s expectations as it relates to the borrower’s management of Climate or HCM. |
| Designated reference index benchmark | Deerpath does not have a designated reference index benchmark for the purpose of meeting the environmental or social characteristics promoted by the fund. |