ADM Capital believes that the social and environmental aspects of business ultimately influence returns. As such, we fully expect that our investments, whilst producing superior returns, should be based on ecologically sound principles. Our Sustainability Report 2024 integrates our TCFD & TNFD reporting as part of consolidating our approach to managing climate and nature-related risks together with other ESG risks.
Read Our Sustainability Report
Our ESG integration is embedded in our business and governance processes through the Environmental and Social Management System (“ESMS”), which is central to our overall risk management framework. The ESMS guides the investment decision-making approach from concept note through to exit and lays out the process by which we assess and control the risks associated with a financial transaction.
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We believe environmental and social challenges pose both risk and opportunity for ourselves and our borrowers, and that these should be proactively managed. Since establishing our initial environmental & social investment principles in 2006 and becoming Asia’s first investment manager ex-Japan to sign on with the Principles for Responsible Investment in 2008, we have continued to evolve our strategy.
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Supporting Our Borrowers
For over two decades, ADM Capital has witnessed Asia’s profound economic transformation and the progress out of poverty for many millions. The dramatic shift to production in Asia has strained our ecosystems, depleted our natural resources and pushed planetary boundaries beyond levels deemed safe.
Additionally, changes to our increasingly erratic and warming climate have been recorded and these are, in part, driven by human actions, according to the scientific community. This was made abundantly clear in the Intergovernmental Panel on Climate Change’s (“IPCC”) Sixth Assessment Report (“AR6”) report, finalised in 2023. The report indicates that greenhouse gas (“GHG”) emissions are at historically high levels and if left unchecked, the impacts to our economy, environment and society will be significant, representing a global risk to markets and communities. The scientists’ message is that the next decade is decisive. We must all follow the science and embrace our responsibility to keep global warming to 1.5 degrees above pre-industrial levels.
Managing Environmental & Social Risk
At ADM Capital we view Environmental, Social and Governance (“ESG”) integration as part of our fiduciary duty and broader responsibility under our stewardship and Engagement policy. We believe that as a fund manager we have an important role to play in supporting our portfolio companies’ social and climate outcomes. Integration can mitigate potential environmental and social risks that would otherwise reduce an investee company’s financial viability and also help identify business opportunities.
We actively engage with industry associations to stay updated and exchange insights in a constantly changing environment. We believe that partnering with like-minded organisations helps us better identify opportunities to enhance our sustainability efforts and increase our overall impact and value.
Our Approach
Each component of our Environmental Social Management System (“ESMS”) is listed below. Our ESMS outlines how we integrate ESG factors into our investment process, from deal sourcing through to exit. We view our ESG integration, aligned with the IFC Performance Standards (“IFC PS”), as key to our private credit strategy and part of our fiduciary duty in managing risk.
We also recognise the importance of our role in actively engaging with and supporting our portfolio companies to future-proof their businesses, helping them to achieve better environmental and social outcomes. Our close engagement with our borrowers is central, both to our private credit strategy and to helping our borrowers achieve a transition to better practice.
Our governing policies, including ‘Climate Change’, ‘Anti-Slavery and Human Trafficking’, ‘ESG’; ‘Stewardship and Engagement’, ‘Animal Welfare’, and ‘Diversity, Equity and Inclusion’, underpin our ESG integration process.
In 2006 the partners of ADM Capital established the ADM Capital Foundation (“ADMCF”), a philanthropic vehicle created to support critical research and impact-driven approaches to environmental conservation. ADMCF data and research has provided insight and knowledge that has supported our integration strategy.
Exclusion List
ADM Capital’s exclusion list is the initial step in our E&S due diligence process and is based on IFC’s exclusion criteria as well as relevant criteria from other LPs. For example, we will not invest in companies with significant involvement in producing, marketing or distributing tobacco, gambling, casinos and equivalent enterprises, nuclear power, pornography, firearms or military weapons. Our full exclusion list can be found in the Annex of our ESG Policy here.
In-house ESG Toolkit
ADM Capital Foundation designed the initial version of the ADM Capital ESG Toolkit (“Toolkit”), which provides analysts with sector-specific knowledge of ESG risk and opportunity factors. The Toolkit generates a simple rating system, providing appropriate due diligence questions to support the analyst through KPI setting and ESAP development with companies. The Toolkit is based on the Sustainability Accounting Standards Board’s (“SASB”) industry standards, in-house research and MSCI’s ESG ratings methodology.
In 2024, we developed another proprietary pre-concept ESG toolkit to support our investment team in conducting ESG screening earlier in the investment process. The toolkit facilitates:
- Review against ADM Capital’s Exclusion List
- Identification of industry-based ESG challenges and opportunities, including climate transition risks
- Assessment of climate hazards impacting key assets using ThinkHazard!
- Analysis of overlaps between key assets and significant biodiversity areas using IBAT and Open Global Mangrove Watch
- Examination of ESG controversies related to the potential borrower’s operations and key stakeholders
ESG Governance Structure
We believe that by implementing robust governance frameworks, we can effectively identify, assess, and manage ESG risks and opportunities. At ADM Capital, we strive to integrate ESG considerations into all levels of our business decision-making processes.
- The Executive Committee (“ExCo”) oversees the firm’s ESG matters, including strategy, management approach and reporting.
- The Investment Advisory Committee (“IAC”) reviews ESG risks and opportunities associated with all proposed financings. Lisa Genasci, Chair of ESG Committee and Managing Director, Sustainable Finance, is an IAC Observer on ESG matters.
- Our ESG Committee, established in 2020, engages closely with all members of the firm on ESG matters, including climate and nature. The ESG Committee meets monthly and reports directly to ADM Capital’s ExCo.
- The Risk Committee helps oversee, identify and review macroeconomic risks including those related to ESG and climate.
- The Portfolio Management Committee oversees and reviews idiosyncratic risks, including those related to ESG.
- The entire investment team is responsible for making sure our borrowers align with our ESG approach, understand and can respond appropriately. Our ESG Committee supports the team as needed.
ESG Due Diligence Process
Independent E&S consultants are engaged to conduct E&S due diligence based on IFC Performance Standards gap analysis ahead of any transaction. Our analysts work proactively with the consultants to understand any E&S risks and opportunities relative to the potential investment.
Environmental and Social Action Plans (ESAPs)
Following E&S due diligence, our third-party providers build an ESAP for each transaction that identifies key E&S risk factors and guides sustainability mitigation or enhancement based on IFC Performance Standards. The ESAP is broken down into identifiable and measurable timebound and budgeted actions that we require our borrowers to complete. These are included in our loan documents.
Key Performance Indicators
ESG Key Performance Indicators “ESG KPIs” are crucial indicators that extend beyond financial metrics to proactively address risks and opportunities within our portfolio. They also assess our value-add to a borrower in a transaction and facilitate strategic discussions with both internal and external stakeholders.
In 2023, we improved our approach to capturing our impact and ESG performance of our portfolio companies by adding additional metrics with reference to the EU SFDR Principle Adverse Impact (“PAI”) indicators.
Sustainability Targets
We actively encourage our portfolio companies to improve practices by working with them to set sustainability targets, where feasible. We believe these targets can create new opportunities that contribute to long-term value. While not all portfolio companies are equipped to take this step during an initial transaction, we advocate for it in follow-on funding.
SDGs
While climate change and biodiversity loss have gained momentum in recent years, the SDGs represent a broader spectrum of critical ESG issues. We illustrate in our annual Sustainability Report below how our investments align with the SDGs by examining aspects like sector, performance on ESG KPIs and their ESG commitments and initiatives.
Performance Monitoring
We monitor ESG performance through regular engagement with our companies, managing alignment with the IFC Performance Standards through Environmental Social Action Plans (“ESAPs”) and by setting ESG KPIs for each transaction. We seek board director or board observer status whenever possible, and this helps us work closely with borrowers. ESAP completion is verified by a third-party consultant annually and we ensure ESG representation, warranties and covenants are incorporated into transaction documents and evaluated for compliance.
Reporting
We prioritise engagement and transparency by communicating our ESG progress to investors quarterly, and publicly through our annual sustainability reports. In 2024, we became the first asset manager headquartered in Hong Kong to publish TNFD-aligned disclosures, in our first integrated TCFD and TNFD report.
We were also the first Asia ex-Japan signatory of the Principles of Responsible Investment in 2008 and provide an annual and disclosed report to PRI.
We have also joined the UN Global Compact as an active participant, committing to the Ten Principles in the areas of human rights, labour, environment, and anti-corruption. We adhere to the accountability mechanism of the UN Global Compact and produce the Communication on Progress report through our annual Sustainability Report disclosing our efforts to operate responsibly and support society.
Our past sustainability reports can be accessed below:
Our past TCFD & TNFD reports can be accessed below:
Remuneration
ESG considerations are embedded in ADM Capital’s organisational culture, recognising that each employee is a critical steward of our ESG commitments. Under our Remuneration Policy, employees are evaluated on their contributions to ADM Capital’s objectives, including adherence to ESG policies and performance in managing ESG within operations and portfolio companies.
