Terms and conditions for taking environmental, social and governance (ESG) criteria into account in investment policy

March 2020

A) ESG INVESTOR INFORMATION

  1. Information on the management company

Smart Lenders Asset Management SAS (hereinafter «SLAM”) is an independent portfolio management company authorised by the Autorité des Marchés Financiers under the number GP-17000031.

SLAM is specialised in the US and European consumer credit markets and in lending to small and medium-sized enterprises through online financing platforms (Marketplace Lending). Only professional investors are eligible.

SLAM invests mainly on the following instruments:

  • single issuer of loans/ debt obligations
  • single issuer of bonds or similar instruments
  1. Regulatory Context

Following the Decree No. 2015-1850 of 31 December 2015 on the Article 173 application of the Energy Transition Act of 17 August 2015, portfolio management companies are required to publish information on whether or not ESG criteria are taken into account in their investment policy. In accordance with the regulations, SLAM makes information available to the public concerning the terms and conditions for taking ESG criteria into account in its investment process. This information is available on its website www.smartlenders-am.com

  1. Definition

ESG criteria allow the quality of corporate social responsibility to be taken into account. Companies implement ESG-related procedures to contribute to sustainable development. These procedures can potentially improve a company’s financial performance and also improve its overall reputation.The ESG criteria consist of three components:

  • Environment: climate impact, waste management, greenhouse gas emissions management, etc.
  • Social: working conditions of employees, well-being at work, gender parity, relationship with suppliers and customers, etc.
  • Governance: conflict of interest management, executive compensation, board independence, anti-corruption, etc.
  1. Investment approach and consideration of ESG criteria

Consumer loans

As part of the company’s investment process, borrowers are selected directly or indirectly through online funding platforms supported by an algorithmic model (logistic regression). On the one hand, debt instruments do not influence the borrowers’ management, nor do they provide commitments or even information on ESG criteria. On the other hand, given the granularity of these financing operations (high number of borrowers, over 25.000 in the book) and the nature of the debtors (individuals), it is practically impossible for SLAM to take ESG criteria and sustainability risks into account in the loan selection process.

However, SLAM is sensitive to non-financial considerations, particularly in relation to social and environmental impacts. For example, SLAM finances only the best individual borrowers, who are likely to repay their loan without placing them in situations of unsustainable indebtedness (for example, borrowers qualified as prime and super-prime in the USA).

Several positive points are important to note, despite the fact that lending anonymously through online lending platforms make positive actions from our part very complicated:

  • The selected borrowers are exiting the so-called “revolving” debt spiral, i.e. rolling debit balances without maturity, to enter into a loan contract redeemable at a lower rate, which allows the debt to be repaid monthly and to be extinguished at maturity (3 or 5 years).
  • Borrowers are presented to us by the platforms without name nor complete zip code, so selection is guaranteed to be based solely on quantitative criteria related to their probability of repayment and not on gender, ethnic origin nor age.
  • Finally, SLAM also choosed to lend through a platform specializing in financing US consumers of (legal) immigration origin who have a good financial situation but do not qualify for loans offered by traditional channels, due to their too short credit history, linked to their recent arrival in the USA.

Small Business loans

For its investments in debt financing to VSE/SMEs, SLAM has a specific ESG Policy. This Policy is based on two axes:

  • Exclusion Policy

In view of its values and ambitions in terms of responsible investment, SLAM has decided not to invest in certain sectors or activities that are in contradiction with its convictions. The management company has therefore developed an ambitious exclusion policy in line with its commitments and ESG objectives.

SLAM therefore refrains from participating in the financing of projects or companies in the following areas:

  • In the production and distribution of conventional weapons, if this is the main source of income for the business
  • In the production and distribution of gambling, if this is the main source of income for the business
  • In the production and distribution of pornography, if this is the main source of income for the business
  • In the production and distribution of nuclear energy
  • In the production and distribution of coal
  • In the production of fossil fuels
  • In tobacco production
  • In the production and distribution of fur products
  • In the production and distribution of breast-milk substitutes
  • In the manipulation of embryonic stem cells and foetal tissue

In addition, Smart Lenders AM refuses to invest in projects carried out by companies that contravene the principles of the UN Global Compact – to which SLAM is a signatory – or companies that specifically contravene the United Nations Business and Human Rights Guidelines and the conventions of the International Labour Organization.

Finally, SLAM’s investment policy by nature excludes all projects presenting a risk associated with climate change or a risk related to biodiversity.

  • Integration of ESG criteria

For its investments in debt financing to VSE/SMEs, SLAM is committed to integrating the analysis of ESG criteria in the monitoring of its portfolio and in the establishment of privileged partnerships with online financing platforms.

SLAM is now developing a real influence approach pushing the platforms, its direct counterparts, to integrate of ESG criteria in their selection process.

 

B) ESG INVESTMENT INFORMATION

SLAM only manages foreign investment vehicles whose net assets are below the €500 million threshold. Therefore, the management company only makes a declaration “ESG Investor Information”. The elements of this declaration are presented in the ESG Policy.