ESG Integration

MIM believes that active engagement with company leadership is key to managing investment risk. Investment analysts frequently interact and engage in discussions with a firm’s senior management throughout the initial due diligence process and as part of the portfolio monitoring process. Ongoing dialogue helps to raise awareness of sustainable business practices.

The sustainable investing landscape continues to evolve, influencing the asset management services our clients require of MIM. We recognize that our ESG Investment Policy cannot be a static document, but instead fluid enough to flex with the way in which we manage our business. As such, we’ve committed to reviewing our ESG Investment Policy at least annually. Take a look at a copy of the latest version of our ESG Investment Policy, last refreshed in December 2020.

At MIM, we believe ESG risk factors should be evaluated alongside other risks to determine a credit’s fair value. The proper role of an investment manager, in our view, is to ensure that clients are aware of the relevant risks and are being compensated via the terms and structure of the investment. For example, consider how ESG factors can be incorporated into the key steps of the credit research framework:

• Quality of the underlying asset. As part of an effort to identify strategically well-positioned and cost-competitive businesses, it is important that analysts assess a company’s carbon footprint and how it is managing environmental issues material to their business, as future regulations or environmental liabilities may impact the asset’s valuation.
• Assessing the management team. When thinking about the quality of management, social factors such as diversity, and governance issues such as the board structure and compensation are important considerations.
• Liability review. In public fixed income investments, there is an extensive focus on the issuer’s credit profile, but we feel that should not be limited only to debt liabilities. ESG factors in this case may include environmental liabilities, mediation liabilities, possible contingent liabilities from a litigation perspective, and pension funding needs—in short, anything that may be a future draw on the company’s cash and may impact the visibility and volatility of cash flow.
• Relative value. One of the most important considerations in credit analysis, relative value, is an assessment of how efficiently the market is pricing credit risk. Analyzing ESG issues, as well as a range of other factors, can help determine whether the market is mispricing credit risks. An alternative to an integrated credit research process would be to conduct a separate ESG analysis. While some asset managers have taken that approach, we believe that a holistic view of a sector and individual issuers within it promotes a more comprehensive understanding of all the risks inherent in a business. We also believe it is valuable, as part of an integrated and rigorous credit research process, for analysts to be able to cover the entire spectrum from investment grade to high-yield loans. The belief is that the ability to cover one credit, which may migrate from investment grade to high-yield and back, allows for consistency over time. 

Risk management is ingrained in MIM’s culture and integrated throughout the organization. When assessing credit risk related to any investment opportunity, we conduct bottom-up, fundamental research and focus on multiple factors. ESG considerations are a vital part of our due diligence, as we seek to identify issues that may impact the reputation of a borrower as well as their financial condition, credit rating, and transaction pricing. We believe that adhering to sound ESG practices can minimize financial risks, such as controversy-triggered loss of customers, fines, penalties, and environmental cleanup costs.

Both our public and private credit teams have a dedicated ESG-focused section included within their internal credit memos. Relevant ESG risks and ESG risk ratings, as applicable, are included as a part of our overall risk assessment.

MIM embraces our role as a responsible real estate lender and investor. We understand the impact buildings have on people, communities, and the environment. We also know that issues such as climate change, regulatory environments, and building operational efficiencies will increasingly impact lending decisions and financial performance. Risk of property damage from climate-related events, such as hurricanes and floods, is considered as part of our due diligence process. Flood zone determination, as well as hurricane modeling, is performed to understand potential investment risk. 

MIM has implemented the use of a commercial mortgage ESG questionnaire that collects data on sponsor-level sustainability practices and accomplishments, including written policies, public disclosures, and memberships in sustainable organizations. We also track LEED certification and ENERGY STAR status at the time of loan origination. MIM has also implemented the use of an ESG Acquisitions Assessment as part of the required due diligence for all new real estate equity investments. The Assessment seeks to evaluate the resilience of each asset from both a short- and long-term perspective. 

 MIM developed and implemented the MetZero™ program, based on a Carbon Cascade™ approach, that seeks to aggressively reduce emissions in our MIM-managed real estate equity properties. We are pursuing carbon neutrality in several of our real estate fund projects. 

Both MIM’s commercial mortgage lending and equity real estate teams have developed supplemental ESG Investment Policies, which can be found on MIM’s website at: 

• Real Estate Equity Environmental, Social, and Governance Investment Policy
• Commercial Mortgage Lending ESG Investment Policy

We created a COVID-19 task force comprised of MIM personnel and industry experts to create and update guidelines to operate assets during the COVID-19 pandemic, as well as how to reopen them. We also expanded our Fitwel program in response to COVID-19 and investigated various microbiological technologies and products with regard to indoor air quality to ensure occupants’ and residents’ safety.

MIM’s Agricultural Finance Group (MAG) clients provide long-term debt capital for farmers, ranchers, agribusinesses, forest products facilities, and timberland owners in the U.S. and globally. At MAG, we conduct a thorough review of ESG risk factors when evaluating loan opportunities and are proud to continue our legacy of over a century of building resilient communities and supporting sustainable agriculture. Key ESG considerations include:

• Animal welfare;
• Character and corporate governance;
• Food quality and safety;
• Labor and human rights;
• Sustainable forestry;
• Water availability and quality; and
• Organic foods.