Here at Wiltshire Pension Fund, we are consistently improving our ways of working. This means developing, with the assistance of Brunel and our other investment managers, how we report on our approach to responsible investment among different asset classes, such as private debt, where Environmental, Social and Governance (ESG) integration receives less focus compared to listed markets.
We sat down and interviewed Nick Gray, Portfolio Manager from Brunel, who oversees our private debt portfolio - 7.5% of the fund's value (c£200m). This portfolio is focused on lending money directly to companies in Europe and North America. The loans are secured against assets of the companies, offering protection in case things go wrong and the opportunity to deliver suitable investment returns. We wanted to understand how ESG factors are considered and implemented as part of their manager selection process.
ESG isn't just a buzzword—it's essential to spotting hidden risks that traditional analysis might overlook. Integrating ESG helps us gauge an investment's long-term resilience.
Our Investment Analyst, Daniel Smith sat down with Nick to discuss how Brunel incorporates ESG factors when constructing a Private Debt portfolio for their RI conscious LGPS clients who also have long term investment strategies?
"At Brunel, ESG isn't just a box to tick- it's central to our investment process. Every new opportunity goes through rigorous due diligence, and as a manager-of-managers, we pick partners who meet our high standards. Specifically, we look at six areas: ESG commitment, integration throughout their processes, measurable targets, transparency, DEI strategies, and climate action."
This led the conversation around what areas of best practice Nick looks for from Private Debt managers when selecting them for the strategy and what behaviours would be red lines for appointing an investment manager?
"We look for managers with a solid track record: clear policies, active engagement, and transparent reporting. Red lines include weak or non-existent ESG commitment, poor transparency, or any links to harmful environmental or social activities. We also require carbon emissions reporting and expect our managers to encourage portfolio companies to set science-based targets."
With investment pooling forming a huge part of the LGPS pensions review, Daniel was interested to know how Nick leverages the benefits of scale and influence from the Pool, to drive ESG improvements in the private debt market?
"Because of our (Brunel's) scale, we can set strong standards for managers, who then pass these expectations on to the companies they fund. In the past four years, we've really pushed for better data—focusing on actual rather than estimated metrics, expanding coverage, and promoting standardisation so everyone's on the same page."
Daniel highlighted that in private debt it could be said that you have limited ability to influence and affect change and improvements in the underlying companies and asked how Nick navigates this challenge, and if this statement accurate?
"It's true, we don't have board seats like equity holders, but we still have some leverage. Our lending managers often include ESG-linked terms in the credit agreements—such as margin ratchets that reward companies for meeting ESG targets or providing regular ESG data."
This led to Daniel asking how Nick monitors the progess of managers on ESG issues, what tools and recourse do you have to change this if insufficient progress is being made?
"We keep tabs on progress through regular reports, site visits, and open conversations. Tools like scorecards and benchmarks highlight areas needing improvement. If a manager isn't cutting it, we engage directly and, if needed, move our capital to a manager better aligned with our goals."
Agreeing with the above, Daniel wanted to know more about how important ESG factors are as part of an effective risk management system?
"ESG isn't just a buzzword—it's essential to spotting hidden risks that traditional analysis might overlook. Integrating ESG helps us gauge an investment's long-term resilience."
Daniel went on to ask how Nick ensures his investment managers are incorporating ESG factors into their investment process and that this process is being effective at mitigating risk and delivering better risk adjusted investment returns?
"We (Brunel) set clear expectations, review managers regularly, and require transparent reporting. We stay in ongoing dialogue to help refine their methods."
Wanting to know more, Daniel asked Nick if he could provide Wiltshire Pension Fund with an example of best practice of ESG integration you have seen in the private debt portfolio, and what positive outcomes it generated?
"A great example is a private higher education provider in France. With one of our European lenders, they arranged an ESG-linked loan tied to corporate social responsibility targets—hiring a CSR (Corporate Social Responsibility) manager, improving gender diversity in leadership, offering student scholarships, and enhancing cybersecurity. The results included reduced costs, happier employees, and a stronger reputation—benefiting both society and investors."
Finally Daniel asked Nick if there have been any examples of when the investment managers have made an error in assessing ESG as part of their risk management process and what was done about it?
"Yes, occasional hiccups happen. For instance, with a major UK education provider, we identified concerns around potential overcharging of public bodies and safeguarding vulnerable groups. We engaged with both the owners and lenders to address these issues, emphasising ethical standards and strong oversight. We were encouraged by the lenders' careful handling of these risks—confirming our decision to work with them. It's all about learning, adapting, and upholding our ESG commitments in every partnership."
We are pleased to see how ESG criteria is being applied throughout the investment process. Regardless of asset class, we believe there is a strong case for decision making that incorporates a responsible investment outlook to ensure we protect our assets and long-term strategy.
Investment Analyst
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