2019 Annual Report
Environmental Social Governance Impact Who We Are Who We Are The paper used in this report is 100% post-consumer waste, FSC* certified, and made with wind power. * Forest Stewardship Council. FSC certification ensures that products come from responsibly managed forests that provide environmental, social, and economic benefits.
Legal Statement
This report was created to summarize Cerberus’, and certain of its portfolio companies’, Environmental, Social and Governance (“ESG”) program only. It is not intended to summarize or describe any investment performance of the Cerberus Funds and Accounts or individual investments. The information contained herein may contain “forward looking statements.” Such forward looking statements, which can sometimes be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “target”, “intend”, “believe”, “continue” or other variations or comparable language, are subject to various risks and uncertainties and actual events or results may differ materially. As such, they should not be relied on in any manner. This Report is provided solely for informational purpose only. It is not intended to be, nor should it be construed or used as, an offer to sell or a solicitation or any offer to buy, an interest in any Cerberus Fund or Account.
Cerberus personnel generally adhere to the Cerberus ESG policy stated herein in connection with the exercise of their professional responsibilities, including their duty to manage various investments held by the Funds and Accounts. The ability and rights of Cerberus personnel to impose the Cerberus ESG policy on a portfolio company or other related investment is strictly limited to the rights such personnel may exercise (or elections they may make) as the representative of an investor, member or partner in the entity that owns such investment, subject to the organizational documents relating to such investment. Nothing herein shall imply (or be construed to suggest) that Cerberus (or any of its personnel or representatives) controls the management, policies or actions of any other company (including portfolio companies) to any extent beyond that which may be expressly set forth in the organization documents of such company. It is the policy of Cerberus to respect the corporate structure and to require that each of its affiliated companies (including portfolio companies) govern itself in accordance with its organizational documents.
2 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 1 Contents
Introduction 1 Who We are At Cerberus, we believe responsibly addressing certain environmental and social issues, as well as prudent governance, helps to mitigate risk Message from the ESG Committee Chairman 6 and create more valuable companies and properties in the long run. About Cerberus 8
This perspective is reflected in our culture and approach to evaluating Cerberus Proprietary Operating Capabilities 10 transactions and managing investments. Our focus on Environmental, Cerberus CSR Program Overview 11 Social, and Governance (ESG) risks and opportunities spans the entire investment lifecycle, from pre-investment diligence through acquisition, from F-100 (First 100 days of transition) through portfolio 2 4 management, and, ultimately, exit. Conclusion This report is intended to demonstrate the history, depth, and breadth ESG Within Cerberus of ESG work at Cerberus, as well as our current ESG operating rhythm. Looking Forward 54 It also describes our most recent efforts to measure and improve our ESG Committee 16 performance with regard to ESG principles as applied to our portfolio ESG Policy 17 of companies, investments, and properties around the world. The Cerberus ESG Formula: The 3 C's 20
Through our ongoing commitment to ESG best practices, Cerberus ESG Process 21 has realized practical and tangible benefits for our investments and, 5 ultimately, our investors. 3 Appendix Glossary 58
ESG Process in Action Biographies of ESG Committee Members 59
Biographies of Other Cerberus ESG Resources Covid-19 Task Force 30 62
Operational Private Equity 32
Real Estate 36
Global Credit 44
Cerberus Frontier 50 1 Who We Are
Cerberus is a global leader in alternative investing with industry- leading operating expertise. Founded in 1992 and headquartered in New York, with 22 offices worldwide, we have approximately $44 billion in assets under management across complimentary credit, operational private equity, real estate strategies, and frontier markets. Who We Are
Message from the ESG Committee Chairman
As we were finishing up our 2019 report and I sat down to pen my What's New the management company and all of our offices and affiliated entities, We have never allowed our program to be defined by how others view annual letter, we were hit with the unprecedented Covid-19 pandemic but in the analysis of our investments. One part of governance is a ESG and the labels they use. Our program is specifically customized Each year we have made concerted efforts to enhance our ESG unfolding around the world. As soon as we understood the possible transformational issue facing all organizations and companies in to identify, remediate and address the environmental, social and program, including continually raising the bar for the annual ESG implications of the crisis, the Firm immediately put all-hands on deck today’s world - privacy and data protection. We have long focused on governance best practices related to our investments with the goal report. For example, this year we have further enhanced our reporting and systematically implemented a thoughtful approach to protect these issues but last year we formed a new committee to specifically of having an appropriate positive impact. That is one of the things by providing ESG data and results by investment desk. Not only our employees, the employees at our investments, our portfolio address the changing regulatory landscape – the Privacy Committee. that sets us apart. Our long-standing ESGI program is simply another does this approach highlight progress and performance by area of companies, and the interests of our investors. A special task force was This committee focuses on the implications of new privacy legislation example of what gives Cerberus a competitive advantage. We hope investment, but also has enabled us to more strategically pursue established to focus on each of these items along with daily reporting (e.g., GDPR, CCPA) and the practical implementation across our you find the report useful and welcome any and all feedback as we implementation of identified ESG opportunities in alignment with to discuss the information we were receiving as well as best practices investments as well as the Firm. strive to continuously create an edge for our investors and deliver each of our investment theses. In addition, this will allow us to to implement our strategy and plans. When I look back at our initial market leading, risk-adjusted returns. provide ESG data for specific funds which we will report out in 2021. response I am amazed at the outstanding job the entire team has Leading by Example: CSR From a program management perspective, we have added Ariunaa Finally, this year’s report uses multi-media to help bring our ESGI done – over eight hundred employees in 22 locations around the Batbold, a Managing Director and ESG leader in Cerberus Frontier, to The second component has to do with the positive impact we program “alive.” We hope that you will get a better sense of the depth world have been able to perform all of their roles and responsibilities the Cerberus ESG Committee. This further evidences our efforts to can have as a Firm. While in the past we focused our ESG efforts and commitment of our efforts in a more three dimensional manner. working remotely. The processes that we established over the years ensure that ESG is firmly integrated across all investment platforms primarily on our investments, this new initiative is introspective. Please use the QR codes that you will find throughout the report for stood up to one of the most challenging tests I have seen in my career. and pursued in a harmonized fashion. We have always valued diversity, inclusion and social responsibility, the full effect. Simply, open the Camera on your smartphone and hold And although the impacts from Covid-19 are clearly not over, we are and last year we formalized that commitment by creating two it over the QR code so that it is clearly visible within the screen. If already asking how we can improve on our findings and experiences. We are also very excited to announce one of our new ESG initiatives additional new committees: the Corporate Social Responsibility necessary, press the screen. We have included a few case studies in the beginning of Section 3 – the Cerberus ESG University Partnership Program. In 2020, we Committee and the Diversity & Inclusion Committee. Both are of this report to give you a glimpse of our Covid-19 response. We will be adding resources to our program by partnering with the designed to have a positive impact at the management company will continue to share these with our investment professionals and Environmental Program of two highly regarded business schools. level and the communities that we touch. You can read more about investors throughout 2020 and certainly in next year's report. Through this partnership we will work with our portfolio companies these initiatives, spearheaded by our ESG Committee member Sheila on optimizing ESG data collection, verification and reporting, and As we look back on 2019 and the beginning of 2020, it is important Peluso, in the report. We also focused on creating a positive impact advancing identified areas of value creation from our ESG evaluation. not to forget the hard work and accomplishments made in our ESG by looking across the Firm for areas where we could improve – such as replacing all of the plastic water bottles used in our offices program. Well over 14 years old, our ESG program is hardly in its ESG Plus: Cerberus ESGI adolescent stage. It is a mature program that has evolved into robust (and now our homes), encouraging double-sided printing (or and interactive engagements with our investments and investment Our strength in identifying and partnering with investments, forgoing the use of hard copies altogether, much easier in our WFH Andrew Kandel professionals. And its importance should not be lost on anyone; while recruiting and maintaining talent, as well as giving back to the environment) and recycling, just to name a few. We have included Global Chief Compliance Officer, evidence has shown time and again that companies that score well community, have been an essential part of our Firm for many years. selected activities within each of these areas in Section 1.4. Senior Legal Counsel, and on ESG metrics can better anticipate risks, as well as opportunities, As we continue to improve our ESG program and formalize our Impact Metrics Senior Managing Director, including those involving significant shocks to the world’s economy. Cerberus Corporate Social Responsibility program (CSR), it became Cerberus Capital Management, L.P. This makes them more strategically resilient and therefore able apparent that we needed to illustrate and report the holistic view of The third component will focus on further reporting of our ESG to anticipate, and adapt to, numerous and diverse risks and our impacts. With this view as our focus, we are now implementing impacts. Each investment is different and positive impact has to be opportunities. This directly and indirectly helps generate a tangible our next stage of ESG – ESG impact or ESGI. We will focus on three viewed in the particular context of that investment. This is not a return from ESG. In our case, it also signifies that we are more main components: Governance, CSR, and establishing impact metrics. foreign concept to us; to some degree it is simply opening our aperture naturally disposed to longer-term strategic thinking and planning, even greater and more actively searching for, or becoming better at Governance Drives ESGI and thus more focused on long-term value creation. identifying and measuring, the positive impact we create. Cerberus The first component of ESGI is to continue to emphasize an area Frontier has been at the forefront incorporating the “positive impact” that we believe sets the tone for our program – Governance. We alongside, but without sacrificing, financial returns in the frontier have never lost sight of the importance of corporate governance, and emerging markets for the past several years. Building on their compliance and culture. Good corporate governance and a culture experience, along with our knowledge of standardized metrics, will of the highest ethical standards plays an instrumental role not only at allow us to report on investment specific impacts.
6 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 7 WhoAbout We Are Cerberus Who We Are Cerberus is a global leader in alternative investing with expertise in credit, $44b 785 22 operational private equity, and real estate strategies, and industry-leading operating platforms. AUM Employees Global Offices We were founded in 1992 and today comprise over 785 employees in 22 locations globally. Cerberus manages assets on behalf of many of the most respected institutional investors worldwide. Our investor base includes pension plans, insurance companies, endowments, foundations, and sovereign wealth funds.
Cerberus Invests Dublin
Across Four London Complementary Baarn Platforms Amsterdam
Ulaanbaataar Frankfurt San Francisco Operational Tbilisi Real Estate New York Beijing 1 Private Equity 2 Chicago Lisbon Madrid Tokyo Value-driven investors in business Global real estate platforms with the Los Angeles worldwide, focused on: flexibility to invest across the capital » Businesses that can benefit from structure in: Dubai Hong Kong improved operations » Non-performing loans Mumbai » Complex corporate carve-outs » Commercial real estate and divestitures » Residential real estate Addis Ababa » Private companies as platforms » Portfolios of real-estate backed securities Singapore for growth
Global Credit Emerging Markets 3 Opportunities 4 Sao Paolo Multi-disciplinary platforms Experienced personnel and differentiated with expertise investing in: strategy for investing in the Emerging and Frontier Markets: » Corporate credit and distressed debt Sydney » Mortgage securities and assets » Opportunistically pursuing investments in » Middle-market direct lending corporate, consumer and real estate credit » Frontier markets concentrate on core strategic sectors: Consumer, New Economy Infrastructure, Logistics and Transport
8 | 2019 Cerberus ESG Report Who We Are Who We Are
Cerberus' Proprietary Leading by Example: Operating Capabilities Cerberus CSR Program Overview
Cerberus believes that there are distinct competitive advantages to sharing Since our inception in the early 1990’s, Cerberus Capital Management has
responsibility for ESG performance across all teams. We utilize a coordinated Open the camera on your participated in various community and social projects focused on our key CSR pillars approach for each investment platform and during each phase of the investment smartphone. Hold it over the and last year, we partnered with Volunteers of America for Operation Backpack, lifecycle to effectively manage material ESG topics. This style of teaming promotes QR code so that it is clearly Make-a-Wish Foundation, and Guiding Eyes for the Blind. These community and visible within the screen. improved collaboration to prevent information asymmetry and enables a resource social projects continued to track side by side with the development of our ESG model that can adapt to the bespoke set of ESG issues in play for each investment. program for the investment desks (see Section 2). With several senior managers from Cerberus participating in the original ESG program, along with the continued evolution of the ESGI program, we decided to formalize an internal CSR program Cerberus Operations Cerberus Operations and Advisory Company (COAC) is an industry-leading in 2019 which embodies the “lead by example” commitment set forth by the senior and Advisory operations platform that is proprietary to Cerberus. COAC has operating executives management team. The figure below illustrates the various components of our CSR program compared to the ESG program. The programs and initiatives led by these Company and functional experts that work across Cerberus’ investment platforms to maximize financial and operating performance. committees demonstrate the firm’s commitment to giving back to the communities in which we operate, continuously re-investing in employee development, and reducing the impact of our operations on the environment. Cerberus Technology Solutions (CTS) employs expert technologists that Cerberus Technology work closely with Cerberus investment and operating professionals to apply new Solutions technologies, realize new sources of revenue and value creation, and accelerate technological transformation and differentiation. ESGI
Headquartered in the United Kingdom with offices in London, Amsterdam, Cerberus European Dublin, and Madrid, Cerberus European Servicing (CES) is Cerberus’ Servicing proprietary asset management, property management, and loan servicing platform. Investment Desks Internal As of March 2019, Cerberus has directly engaged CES on over 75 different loan portfolios and REO transactions spanning more than 60,000 loans and in excess ESG CSR of 75,000 properties across Europe.
Community Diversity and ESG Policy ESG Committee ESG Team Engagement Inclusion Environmental FirstKey Homes provides acquisition and property management services to a FirstKey Homes diverse portfolio of 24,500 single-family rental homes across the United States. » Education » Women's Initiative » Energy and GHG Environmental Social Governance » Community » Recruiting and Emissions Services include leasing, rental collection, credit screening, repairs and maintenance, » Supply side » Health and safety » Employee code of » Veterans Mentorship » Resource construction, renovation oversight services, and quality control. Management and demand-side management conduct and ethics » Entrepreneurship » Internal Inclusion energy management » Employee diversity » Enterprise risk and Advancement » Waste management » Human rights and management and recycling fair labor practices » Anti-bribery FirstKey Mortgage is a real estate finance business that is a global leader in » Water management » Corporate Social and corruption » Responsible Responsibility (e.g. FCPA) FirstKey Mortgage acquiring, securitizing, and managing residential mortgages and related assets. sourcing (CSR) » Political Operating capabilities include sourcing loan opportunities, managing and providing » GHG emissions contributions servicing oversight of assets, and facilitating certain structuring and servicing activities. An experienced team provides collateral management and innovative deal structuring. It also has a dedicated technology group of software engineers and business analysts that develop and deploy solutions for complex mortgage trading, securitizations, and portfolio management.
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Community Engagement Overview Diversity & Inclusion Overview The purpose of the Community Engagement program is to support The purpose of the Diversity & Inclusion program is to increase nonprofit organizations that are aligned with four pillars: education, representation at all levels and foster inclusion globally. There are local community, veterans and entrepreneurship. Management three subcommittees as outlined below, with one person designated of each pillar is represented by a subcommittee, with one person as the lead of each subcommittee, and all employees globally are designated as the lead. Subcommittee work is primarily focused encouraged to participate. on event planning and execution, and at a minimum, leads one » Cerberus Women’s Initiative (CWI): The CWI subcommittee volunteer day per year. focuses on three objectives: Building Business Knowledge/Skills, Thanksgiving Food Drive Women in Leadership and Career Development and Advancement. » Recruiting & Mentorship: The initiative focuses on mentorship, City Harvest hosts New York City’s largest food drive to help the education and recruiting in the larger community. nearly 1.2 million New Yorkers who struggle to put food on their tables each holiday season. The Cerberus team distributed collection » Internal Inclusion & Advancement: The subcommittee will boxes throughout the office to gather and donate non-perishable promote inclusion and advancement for internal employees, food. Our donations helped to keep the shelves stocked at hundreds with an initial focus on programming planning and execution. of soup kitchens, food pantries and other community food programs Diversity and Inclusion Webinar across the city. The global Cerberus team participated in a session hosted by Make-a-Wish Foundation Holiday Raffle Dolph Westerbos, CEO of Staples Solutions B.V., – a Cerberus portfolio company. During the one-hour webinar, Dolph shared Each year, Cerberus hosts a holiday party where employees can some of his experiences in navigating diversity and inclusion in an purchase raffle tickets to win an assortment of donated prizes and ever-changing environment – from both a personal and professional the proceeds are donated to the Make-a-Wish Foundation. The perspective. The inaugural event provided an open and engaging 2020 annual party was a huge success, with over $32,000 raised forum for employees to discuss key issues and formalized our efforts by employees, which was $12,000 more than 2019. Cerberus also around diversity and inclusion in the workplace. commits to match the amount raised by employees, which brought the total donation to $65,000. Guiding Eyes for the Blind In support of National Disability Awareness month, Cerberus Environmental Overview was honored to host Guiding Eyes for the Blind. Since 1954, the international, non-profit organization has been able to enrich the lives The purpose of the environmental program is to manage the impacts of the blind and visually impaired by providing them with exceptional from our operations across the globe, including energy consumption, guide dogs. Guiding Eyes’ CEO, Thomas Panek, spoke with Cerberus GHG emissions, and resource management associated with our real team members and shared the organizations important mission, estate footprint and employee travel. including background on how Guiding Eyes has helped him personally. Cerberus Reusable Water Bottles To advance our commitment of responsible resource management, we provided all employees with a reusable bottle. This bottle serves two purposes: the message with our logo is yet another reminder of the value we place on compliance, and simultaneously demonstrates our commitment to environmental and sustainability issues. Additionally, we installed filtered water dispensers in our New York office to come into alignment with many of our European offices which already boast this feature. In the current "Work from Home" environment, we are encouraging people to similarly use these bottles.
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Cerberus has been integrating ESG initiatives into our investment processes for over 14 years. Our ESG Committee oversees a comprehensive ESG policy that we integrate into every stage of our investments in portfolio companies and properties worldwide.
Open the camera on your smartphone. Hold it over the QR code so that it is clearly visible within the screen. ESG at Cerberus ESG at Cerberus
The Cerberus ESG Committee The Cerberus ESG Policy
In 2015, Cerberus established our ESG Committee to formalize the oversight of our Cerberus strives to achieve best practices ESG activities across Cerberus and provide insight into emerging ESG issues and among alternative investment managers, guidance in reporting to our investors. particularly in the areas of governance, Cerberus ESG Policy Outline compliance, investor disclosure, valuation Each ESG Committee member is a statured, senior executive with numerous years procedures, and risk management. Cerberus will pay proper regard to the informational needs of investors of relevant, complementary business experience or subject matter expertise. in its funds and accounts, and when appropriate communicate adequate We have undertaken numerous efforts in information to them, including on Environmental, Social, and Corporate this regard, including becoming a signatory Governance (ESG) risks, in a way that is clear, fair, and not misleading. The Cerberus ESG Committee to the Standards Board for Alternative Cerberus’ investment analyses include, when relevant, a review of ESG issues. The particular issues considered vary based on the underlying Andrew Kandel Key Responsibilities Investments (formerly known as the Hedge operating business and investment involved. ESG Committee Chairman Fund Standards Board). In addition, we Global Chief Compliance Officer, » Monitoring and Oversight » Quarterly Meetings have developed and implemented policies Senior Legal Counsel, and Senior Managing Director, Cerberus ESG review includes the following topics where applicable: and procedures, employee trainings, and Cerberus Capital Management, L.P. » Identifying Industry Trends » Annual Report compliance certifications, and reporting, » Environmental factors including the impact of actual and potential » Tracking New and Pending all of which are designed to ensure a strong environmental costs Frank Bruno Legislation Co-Chief Executive Officer and Senior Managing Director, culture of ethical behavior and compliance. » Social factors including human rights, relations with indigenous people, child Cerberus Capital Management, L.P. labor, worker and consumer health and safety, and bribery and corruption Beyond legal and regulatory compliance, Chan W. Galbato The Committee continues to drive our ESG program, meeting we seek to implement and adhere to ESG » Governance issues including but not limited to, director qualifications and conflicts of interest, board structure, executive and director compensation, Chairman and Chief Executive Officer, best practices in our private investments quarterly to discuss a wide range of topics, and deriving accounting and audit quality, code of ethics and business conduct, and Cerberus Operations and Advisory Company, LLC in companies and properties worldwide. effectiveness from the following attributes: capital structure ESG has been a focus for over 14 years Paul Warmus » Cerberus evaluates ESG issues to determine their potential impact on Senior Operating Executive, through our industry leading operations investment performance Cerberus Operations and Advisory Company, LLC ESG Committee members serve on platform. In 2013, Andrew Kandel, our » Cerberus considers certain environmental, public health, safety, and social Integrated other Cerberus Committees. They also Global Chief Compliance Officer and Senior Pieter Korteweg issues associated with target investments when evaluating whether to invest sit on some of the boards of Cerberus Legal Counsel, took the lead in highlighting Senior Advisor and Vice Chairman, in a particular company or entity, as well as during the period of ownership Cerberus Global Investment Advisors, LLC portfolio companies. Cerberus’ focus on ESG with investors and Cerberus seeks to use governance structures that provide appropriate levels formalized our ESG Policy, as well as our » of oversight in the areas of audit, risk management, and potential conflicts Sheila Peluso first ESG Due Diligence Questionnaire. of interest and to implement compensation and other policies that align the Head of Human Resources and Managing Director, interests of owners and management Cerberus Capital Management, L.P. The Committee follows industry trends, Our ESG efforts and interactions with our Expertise reviews surveys and white papers, and portfolio companies and properties will » Cerberus is committed to compliance with applicable national, state, and local Christopher A. Holt participates in ESG conferences. continually be refined to ensure we are labor laws in the countries in which we invest General Counsel and Legal Practice Leader, Cerberus Operations and Advisory Company, LLC focused on driving value for our investors. » Cerberus respects the human rights of those affected by its investments
» Cerberus, when appropriate, provides information to its limited partners on the Jayne Binzer matters addressed herein, and works to foster transparency about our activities Senior Operating Executive, Committee members are deeply involved Cerberus Operations and Advisory Company, LLC Embedded in investment platforms operations, which To the extent possible, Cerberus encourages portfolio companies to offers an important vantage point to closely advance these same principles in a way which is consistent with their Ariunaa Batbold Newest Member monitor ESG programs and activities. fiduciary duties. Managing Director, Cerberus Frontier
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Comparison to Other ESG Principles
A Responsible Investor ESG issues can have significant impacts Cerberus monitors the following industry standards and on the financial performance of our www. unglobalcompact.org investments, as well as the communities incorporates key components as pertinent to the performance in which Cerberus and our portfolio of our investments versus a generic "one size fits all" approach. Cerberus’ ESG policy and practices meet all 10 of the UN Global Compact Principles. companies conduct business. Over the years, a variety of ESG codes Human Rights Environment and standards have been put forth by Principle 1 Principle 7 governments and Non-Governmental Businesses should support and respect the protection of internationally Businesses should support a precautionary approach to environmental www.gresb.com proclaimed human rights; and challenges; Organizations (NGOs) to provide a framework for managing ESG concerns. Principle 2 Principle 8 Cerberus’ ESG program meets all seven of the GRESB sustainability aspects. make sure that they are not complicit in human rights abuses. undertake initiatives to promote greater environmental responsibility; and While developing our ESG policy, Labour Principle 9 Cerberus has given consideration to Aspect 1: Management encourage the development and diffusion of environmentally friendly a range of these codes and standards, This aspect focuses on how the organization integrates ESG into its overall business strategy. Principle 3 technologies. including the United Nations Principles Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Anti-Corruption for Responsible Investment and the Aspect 2: Policy and Disclosure Principle 4 United Nations Global Compact. All The purpose of this section is to (1) describe the organization’s ESG policies and (2) Principle 10 the elimination of all forms of forced and compulsory labour; components of our policy are aligned understand how the organization communicates its ESG performance. Businesses should work against corruption in all its forms, including extortion and bribery. with each of the underlying principles Principle 5 the effective abolition of child labour; and found in these, and certain other, codes. Aspect 3: Risks and Opportunities This aspect investigates the steps undertaken by organizations to stay abreast of ESG related Principle 6 risks related to bribery and corruption, climate change, environmental legislation, market risks the elimination of discrimination in respect of employment and occupation. Our Investment Principles and other material ESG risks. In addition to our ESG principles, Aspect 4: Monitoring and EMS Cerberus’ investment strategies adhere This aspect describes the processes the entity uses to support ESG implementation and www. unpri.org to five inter-related principles: performance monitoring. Cerberus’ ESG policy and practices meet all six of the Principles for Responsible Investment. The Cerberus focus on ESG issues » Flexibility Aspect 5: Performance Indicators has existed since before the PRI effort began. » Innovation This aspect collects performance data on energy and water consumption, GHG emissions and waste. » Risk Management Principle 1 Principle 4 We will incorporate ESG issues into investment analysis and We will promote acceptance and implementation of the decision-making processes. principles within the investment industry. » Discipline Aspect 6: Building Certifications This aspect focuses on how the organization integrates ESG into its overall business strategy. Principle 2 Principle 5 » Transparency We will be active owners and incorporate ESG issues into our We will work together to enhance our effectiveness in ownership policies and practices. implementing the principles. Aspect 7: Stakeholder Engagement Principle 3 Principle 6 This aspect focuses on how the organization integrates ESG into its overall business strategy. We will seek appropriate disclosure on ESG issues by the entities We will each report on our activities and progress towards Find out more on our website in which we invest. implementing the principles.
cerberus.com
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The Cerberus ESG Formula: 3 C's The Cerberus ESG Process
Cerberus uses a simple and effective approach to engage with our investments on We deploy a consistent process to evaluate ESG performance across all investment ESG issues: Consistency + Collaboration = Commercial Value desks. Our systematic application of best practices and technological tools ensures consistency of data from deal to deal and from year to year, allowing us to accurately benchmark progress. It also enables us to work with our partners more effectively to create bespoke action plans.
Consistency Collaboration
Following due diligence, our ESG process begins by collecting data that we analyze with management in order to develop and implement impactful programs. We track and monitor progress over time and continuously refine programs to drive results.
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standardized data sets across our investments can enjoy increased commercial success. Implement over time also allows for cross-pollination of Valuable insights are derived by executing our ideas and benchmarking. ESG process year upon year. When coupled with our collaborative and interactive approach with our partners, this often leads 4 to identification of several ESG-related growth levers. These levers can help unlock significant commercial value and contribute to a positive impact on the bottom line.
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Integration Throughout The Cerberus ESG Evaluation Tool the Investment Lifecycle Quantitative and Qualitative Scoring of ESG Performance The cross-functional Cerberus approach uses rigorous ESG processes and We have developed an ESG evaluation tool that collects information critical to frameworks for each investment desk and industry. Years of experience have been monitoring ESG performance across our investments. We analyze the data against distilled into best practices that are employed throughout the lifecycle of a Cerberus our proprietary scoring process and determine a green, yellow, or red rating for investment. Our focus is to continuously evaluate ESG risks and seek opportunities each ESG category. The results help us to prioritize actions and best practices that for value creation. can drive impact. Our evaluation is driven by a series of qualitative questions and quantitative metrics that are industry-specific within each of the ESG categories. The questions The Investment Lifecycle and Sample Activities and metrics were developed, in part, through a rigorous review of globally recognized ESG reporting standards and frameworks, including SASB, GRI, and GRESB. The results are captured in a dashboard for each investment, which enables our ESG Due Diligence Portfolio Management Divestiture professionals to quickly identify priority action items and track the performance over time on a portfolio-level basis.
» Phase I and property condition » Conduct ESG evaluation in » Communicate sustainable assessments collaboration with management team business value Scope of ESG Topics » Characterize risks and opportunities » Implement ESG programs and track » Respond to investor inquiries » Review compliance and progress over time » Prepare for IPO / SEC ESG The evaluation tool focuses on both operational improvements and achieving revenue impact. sustainability programs » Share leading practices and make disclosures, as applicable The following are a few examples of the topics covered in our evaluation tool: » Benchmark performance and refinements establish F-100 Environmental » Supply-side and demand- side energy management ESG Performance is Considered Across All Cerberus Strategies » Waste management and recycling » Water management Operational Private Equity Real Estate Global Credit Frontier » Responsible sourcing » GHG emissions
Due Diligence Portfolio Management Social » Health and safety management » Employee diversity Revenue Growth » Human rights and fair » Sustainable products labor practices and services » Corporate Social » Customer satisfaction Responsibility 134 (CSR) Projects Projects Total Projects + Governance in 2019 » Employee code of conduct and ethics » Enterprise risk management » Anti-bribery and corruption (e.g., FCPA) » Political contributions
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Collaboration Throughout Spectrum of Collaboration the Investment Lifecycle
While our ESG process and tools are consistent, the action plans we develop In executing ESG action plans, we offer several modes of engagement that are are bespoke to each company or property and the outcomes for each investment tailored to the specific resources and requirements of each portfolio company are unique. or property. This is achieved through collaborative engagement with our management teams In situations where there are meaningful internal resources focused on ESG through a two-way dialogue. We do not dictate how it needs to be done, but instead initiatives, Cerberus can engage as a business advisor providing high-level guidance are a consultative partner who can be utilized to achieve success. and support. In other instances where the internal resources may be limited, we take a more active role to lead the planning and execution of ESG activities in partnership Our engagement throughout the lifecyle of an investment provides many interactions with the company’s management team. to partner with our portfolios companies and properties to provide bespoke input and assistance.
ESG Action Plan: Levels of Engagement Due Diligence / Relationship-building and collaboration starts right Acquisition at the acquisition stage.
Ongoing Support Portfolio companies and partners can deploy the many Independent Hybrid Outsourced resources within Cerberus to execute their own ESG / High level of autonomy; A blend of Cerberus No internal resources; in Execution of an CSR programs. Establishing open lines of communication Cerberus acts as a and internal resources Cerberus handling all consultant and advisor functions ESG Action Plan open with partners and providing whatever they require.
Working with partners to distribute ESG questionnaires Data Collection / and help them coordinate their data collection. Cerberus Data Analysis leverages its in-house operational expertise to identify areas for improvement. Provide resources Supplement our Cerberus takes a
Adopting a non-prescriptive, partnership approach and guidance portfolio companies leadership role Debrief: Co-Define enables us to position ourselves as a trusted business to fill gap in resources ESG Action Plan advisor and invites a two-way dialogue. This promotes buy-in from our partners and increases the changes of successful execution of agreed action plan.
24 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 25 ESG at Cerberus ESG at Cerberus
Cerberus ESG Incident Reporting Process
Our monitoring approach uses formal and informal methods to keep track of ESG events across the portfolio. ESG events have the potential to materially impact a company’s financial performance and / or reputation in the marketplace. The formal method consists of our ESG evaluation, which enables us to collect and track relevant ESG data for each investment. The informal method requires the ESG point of contact at each investment to immediately notify members of the Committee in the event of a material ESG-related incident. In the event of an incident, the information is immediately discussed with the Committee Chairman and, if necessary, a Committee meeting is scheduled. Notifications to appropriate stakeholders are then performed along with any corrective actions.
Incident Reporting Process
Report
Formal Reporting Informal Reporting ESG Evaluation ESG Contact Notifies Committee
Action Incidents reported to 0 ESG Chairman No material ESG Committee ESG incidents Chairman notified reportable in 2019 ESG Committee meeting scheduled
Notify
Notification of stakeholders
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Cerberus employs a rigorous and analytical approach to monitoring and managing ESG issues throughout the lifecycle of our investments in portfolio companies and properties. ESG Process in Action ESG Process in Action
Covid-19 Task Force Examples of Outstanding Portfolio Contributions During Initial Response
As one part of Cerberus’ immediate and swift response to the rapidly evolving Covid-19 global pandemic, we organized and implemented a comprehensive Task ABC Technologies Force. The team was comprised of both senior leadership and staff, and the purpose was to actively engage and partner with operating partners and portfolio company In a matter of weeks, the company formed and stood-up a new management teams to monitor and proactively manage all impacts of the Covid-19 Medical Devices Business Unit to meet the overwhelming need pandemic effects on our employees and businesses. for critical medical equipment due to the coronavirus pandemic. ABC’s new unit developed and manufactured components for life-saving medical devices, such as ventilators, face shields, Key Focus Areas and face masks. Additionally, it provided ventilator components as part of the efforts led by General Motors to produce more While the team structure and scope was designed for maximum agility, the task than 100,000 ventilators. force identified seven key areas of focus to initially address across the portfolio:
1. Employee Health and Safety: Our number one priority was protecting the health 7 Key Focus Areas and safety of our employees, and the employees of our investments. To accomplish this objective, the task force took a multi-faceted approach including the following:
» Initially collaborated with our operating partners/operating companies to Employee Health and Safety characterize essential and non-essential work force. This conversation allowed for an initial sharing of current best practices. » After the initial collection of best practices, a follow up process included the Customer Demand development of an EH&S roundtable with leading experts in each of our portfolio companies. Technology used to support this roundtable included establishing a SharePoint site, developed a dashboard tracking various public health and safety metrics, establishing a blog to allow all members to communicate real time issues Liquidity Support / solutions and incorporated our supply chain practice leader to support our ever changing needs for various supplies and services across the platform.
2. Customer Demand: Coordinated with management teams to adjust operations Albertsons Companies Government Support in anticipation of, and in response to, change in customer demand. » With more than 2,200 stores and 270,000 employees 3. Liquidity Support: Analyzed scenarios concerning liquidity requirements and across the United States, Albertsons Companies was on the “front lines” helping communities prepare for financial stability, and identified sources of support if necessary. Return Planning the impact of the coronavirus. 4. Government Support: Reviewed, summarized, and communicated various » Albertsons hired 50,000 employees by partnering with various government relief programs across the world, and providing information and companies to provide opportunities for furloughed workers. resources to portfolio companies on how to access those programs if appropriate. » Provided front-line associates an extra $2.00 per Strategic Planning hour of appreciation pay. 5. Return Planning: Supported Firm company plans to return business to scale as COVID-19 situation evolves. » Partnered with the United Food and Commercial Workers International Union (UFCW), America’s largest food 6. Strategic Planning: and retail union, in announcing a joint national effort to seek Evolved business plans to contemplate long-term changes Government Issues in demand and behaviors. a temporary designation of “extended first responders” or “emergency personnel” for supermarket associates to ensure 7. Governance Issues: Arranged a town hall meeting for experts to discuss that they are prioritized for testing and provided personal potential legal issues surrounding healthcare regulation, OSHA compliance, protection equipment during the coronavirus outbreak. potential litigation, labor laws, employment laws, and benefits.
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With an increasingly complex set of emerging ESG-related risks in the marketplace, Regardless of sector, a strong and motivated workforce is crucial to realizing Operational Private Equity installing a robust governance program is critical to establishing a culture of sustained business performance. A strong economy with historically low compliance throughout the organization and maintaining effective oversight. unemployment has created fierce competition for top-talent and forced companies to reassess their abilities to recruit and retain top talent. Companies across all 2018-2019 Governance Program (All Sectors) sectors have made great strides to systematically improve employee engagement ESG Drivers in Operational » Length of the hold period: Our programs that contribute to financial outperformance. Operational Private Equity Private Equity average hold period of approximately Decision-maker and/or committee 2018-2019 Employee Engagement Programs (All Sectors) five years, allows a more flexible accountable for ESG issues across operations by the Numbers Cerberus is an industry pioneer of timeframe to pursue a broader set of 83.33% Program to stay ahead of operational private equity, an approach changing laws and regulations ESG focused operational improvements Conduct annual where our investment professionals, 2018 100.00% employee performance and strategic initiatives. Additionally, 2018 operating executives, and functional experts reviews and provide this extended duration provides an 2019 2019 employees with work in close partnership with an investment feedback $6b optimal environment to consistently throughout its life cycle. This style of 100.00% drive our processes, including tracking 66.67% engagement provides us with the ability AUM KPIs on a year-over-year basis to Programs that to improve every segment of the business support employee monitor performance and evaluate the inclusion and and drive long-term value creation. Using awareness effectiveness of our approach. 100.00% 100.00% this formula allows the team to pursue ESG 50.00% » Type of companies: Our approach to Provide annual training for Process for identifying, assessing, 15 in a collaborative and consistent manner, your employees on key and managing beyond compliance 83.33% Conduct annual employee which includes identifying, analyzing, and operational private equity, investing in governance issues related risks and opportunities Workplace violence survey, communicate results, Companies protection program and take actions to address managing material, sector specific ESG topics companies where we can improve the areas for improvement for every investment from investment to exit. overall efficiency of a company, often lead us to find the most compelling Performance Results Operational private equity investments have opportunity investing in “asset-heavy” Our team’s collaborative approach to continuous improvement within each ESG segment, coupled with dynamic efforts at scale, has yielded significant results with three unique characteristics that influence improvements to overall business value and contributions to risk-adjusted returns. Our year-over-year performance is summarized in the following table. 5 industries. This may manifest itself in a how we approach the management of company that has a broad footprint, such A robust program that is systematically integrated throughout the investment’s strategy and operations with targeted opportunities for improvement Sectors material ESG issues: as Albertsons, or a service provider that Implemented several programs and / or initiatives with broad opportunities to increase scale and depth » Direct collaboration with has substantial human capital like WFS or Substantial opportunities to expand program management: The ability to collaborate KBS. In both cases, these companies lend directly with senior management on a day- themselves to a robust ESG framework Operational Private Equity Environmental Social Governance Commercial Value CSR Report to-day basis enables us to drive significant 36 that we employ. Even in the cases where 2019 YoY Change 2019 YoY Change 2019 YoY Change 2019 YoY Change change more quickly. We have found that we invest in a Company that is “asset- Healthcare Countries with Operations a partnership-based approach, with a light”, protecting and enhancing a focus on mutually beneficial outcomes, Company 1 In progress company’s brand and reputation through • • • • yields the best long-term result at our Industrial ESG will improve our exit opportunities. portfolio companies. Company 1 • • • • Published 356,862 Company 2 • • • • In progress ESG Selected Data Results Company 3 • • • • In progress Employees Company 4 In progress Our companies in the industrial sector typically have the most value at-stake from an environmental perspective. • • • • As a result of a consistent approach and collaborative efforts, many of these companies have improved each Company 5 • • • • In progress facet of their environmental management programs which has enabled risk mitigation and cost reduction. Company 6 • • • • In progress Company 7 In progress Energy • • • • 6,579,674 Demand Side Retail and Consumer 100.00% 2018-2019 Environmental Company 1 Published Energy (Mwh) • • • • Management Initiatives Company 2 • • • • Published (Industrial Sectors) Services Company 1 Published 2018 Fuel Energy • • • • Supply Side 2019 66.67% 33.33% Company 2 • • • • In progress 12,904,770 Company 3 • • • • In progress GHG (MT) ESG data presented in this report has been self-reported by each investment and has not been independently verified. Two additional acquisitions were performed in December 2019 and are not incorporated into the above table. These scores will be included in the 2020 report. While we endeavour to facilitate year-over-year score improvements, some companies may experience a decrease in score to due to a variety of factors including changes to the operational footprint (e.g., bolt-ons, divestments) as well as our team’s 83.33% 83.33% continuous refinement of the ESG questionnaire to reflect leading market practices. Water Waste The following pages provides case studies that highlight examples of noteworthy ESG accomplishments in our portfolio during 2019.
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Operational Private Equity Case Studies
Expanding Commercial Value Developing Best-in-Class Processes for Through Transparency Environmental and Safety Performance ESG Focus Areas ESG Focus Areas In our 2017 ESG report, we highlighted the great strides made by ABC Technologies to SubCom Since 1955, SubCom has been at the forefront of the international communication advance its CSR program, including formalizing roles and oversight for CSR responsibilities SubCom has taken systematic infrastructure industry. The business combines comprehensive technical and marine along with consolidating data tracking and monitoring systems. Since that time, performance expertise to design, manufacture, deploy, maintain, and operate undersea cable ABC Technologies on material sustainability issues has remained very important to ABC and its customers, efforts to improve energy communication networks that transmit nearly all the world's data and communications. many of whom include the world’s leading automotive original equipment manufacturers efficiency and enhance Since 2017, ABC has Prior to Cerberus’ acquisition, SubCom’s core competency was held under the parent (OEMs). Many of these OEMs send an annual supplier sustainability scorecard to ABC, which employee health & safety. collaborated with Cerberus evaluates a company’s performance on a wide range of material sustainability topics. One area company TE Connectivity Ltd, which built a dynamic and leading sustainability program. to develop its CSR program of increasing importance on this scorecard has been producing regular communications on During the carve out transaction, Cerberus identified several material sustainability topics and worked with the management team to ensure the continuation of programs that sustainability progress through a public document such as a sustainability report. Investment Phase and align with increasing effectively addressed these areas. The main areas of focus include energy and fuel efficiency customer expectations. Actions Taken Onboarding Ownership Exit and health & safety – both of which contribute towards realizing the company’s broader The Cerberus ESG team collaborated with ABC to develop and produce the company’s strategic and financial goals. Investment Phase inaugural CSR report, which was launched on January 24, 2020. The report details the Actions Taken company’s progress against its six CSR drivers, including (1) Our People (2) Customers centered Onboarding Ownership Exit products/innovation (3) Business ethics (4) Corporate governance (5) Community involvement Reducing GHG Emissions from Ship Operations: In 2009, SubCom implemented a & development and (6) Environmental sustainability. Highlights from the report include: Shipboard Energy Efficiency Plan (SEEMP), which includes a fleet fuel reduction initiative working towards a 10% reduction of fuel use every three years. Initiatives include energy » Three percent reduction target for energy consumption and solid waste by 2020, conservation training, hull and propeller cleaning and paint selection, Green Weather Voyage for all Tier 1 Plants Routing, economical speeds and operational directives, and economical loading conditions. » Designing various new products that include sustainability features Health and Safety: Each business unit develops an annual Safety Improvement Plan » Goal to become certified to ISO-45001 Occupational Health & Safety in 2020 Open the camera on which is comprised of various initiatives that contribute towards meeting safety performance » Commitment to the 10 principles of the UN Global Compact your smartphone. Hold goals. Examples of initiatives include behavior based safety observations, machine guarding, it over the QR code so facility walk-through, post-incident and reasonable suspicion drug & alcohol screening, lean » Improved employee engagement programs that reduced turnover by 27% that it is clearly visible within the screen. daily management, and frequent employee training. Moving into the future, the company is Open the camera on Value Added focused on shifting the safety culture from reactionary to proactive through four keys actions: your smartphone. Hold The report was well received by customers and employees alike, and has positioned the (1) Get the EH&S message to all levels (2) Track safety concerns to closure (3) Refuse to accept it over the QR code so company to continue conversations about how it can continue to drive total business value sub-standard conditions (4) Implement corrective actions. that it is clearly visible within the screen. through CSR efforts. Moving forward, ABC will use the report as a foundation from which to proactively communicate its progress on CSR topics and inspire forward progress. Value Added The results from these initiatives demonstrate significant financial and non-financial impacts across the operations, including cost savings, decreased environmental footprint, and enhanced employee safety.
A summary of our annual co-op/ apprenticeships is outlined below:
Calendar Year # of Total Co-ops/ Apprenticeships
2017 21
2018 12
2019 26
Our goal is to make ABC a place where graduates can grow, develop and achieve their career goals. We are enhancing our college/ university relations’ strategy to ensure that we develop targeted, long-term relationships with select schools/ programs who meet the needs of our business. We will measure our progress though our candidate conversion rates (co-op/intern to full-time) and modify/improve our initiatives based on the feedback we receive from participants. COMMUNITY ENGAGEMENT
The ABC Technologies’ global footprint and workforce provides a COMPETITIONS ABC Technologies’ has been supporting the Industrial Design Program wide range of opportunities to serve and positively impact the local at Humber College for over 30 years. Final year students in the communities in which we operate. Our community engagement Bachelor’s program compete in teams to develop solutions to real strategy uses a two pronged approach, which consists of a global world challenges outlined by ABC as a project for one of their courses. component that focuses on Science, Technology, Engineering and The competition runs for eight-weeks and mentors from ABC visit Mathematics (“STEM”) and a local component that allows individual the class on a weekly basis for design reviews. Feedback is provided facilities to select organizations they wish to support. This blended and helps students get real-world industry perspectives. The final 126,807 39,553 15.9% approach enables ABC Technologies to achieve a coordinated focus at presentations are given at ABC Head Office to a jury of employees scale while empowering our employees to drive impact at a local level. from various departments and the top teams are given an award by Executive Management. Co-op recognition event at ABC Head Office. Metric tons of CO2 saved Metric tons of fuel saved Reduction in overall UNIVERSITY/ COLLEGE The attraction and retention of qualified co-op students, interns and
FY2019 RELATIONS new graduates is increasingly important to our success. We partner with post-secondary institutions to hire co-ops/interns for work fuel consumption placements in our Corporate and plant environments. More specifically, we hire Industrial Design co-ops (Humber College), Tool&Die, and mechanical apprentices (Sheridan College and Georgian College) as part of a formal apprenticeship program. We regularly hire engineering co-op students (i.e., automotive, mechanical, electrical) from leading engineering schools including; the University of Waterloo, McMaster University, University of Toronto, Ryerson University and the University
CORPORATE SOCIAL RESPONSIBILITY REPORT of Ontario Institute of Technology. 2019 ABC Technologies + Humber College Competition Awards Ceremony.
39 40
34 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 35 ESG Process in Action ESG Process in Action Performance Results Our team’s collaborative approach to continuous improvement within each ESG segment, coupled with dynamic efforts at scale, has yielded significant results with improvements to overall business value and contributions to risk-adjusted returns. Our year-over-year performance is summarized in the following table. Real Estate A robust program that is systematically integrated throughout the investment’s strategy and operations with targeted opportunities for improvement Implemented several programs and / or initiatives with broad opportunities to increase scale and depth Substantial opportunities to expand program
ESG Drivers for Assets with External Servicing Partners RE Partner Managed Assets Environmental Social Governance Commercial Value Creation Real Estate by the Numbers The real estate investment platform is comprised of real estate and real estate-related 2019 YoY Change 2019 YoY Change 2019 YoY Change 2019 YoY Change assets with investments that span across assets classes, property types, and geographies. Commercial Investments include the debt and equity of commercial and residential portfolios, as well Company 1 as real estate operating companies and servicing companies that provide our investments • • • • Company 2 with a competitive edge to drive value. These investment strategies utilize external servicing • • • • partners/operators to manage the day-to-day operations while Cerberus maintains an active Company 3 • • • • $11.7b oversight role. Company 4 • • • • Company 5 For investments with external servicing partners, we routinely collaborate throughout the • • • • AUM investment lifecycle to manage material ESG topics using a coordinated approach. For example, Company 6 • • • • during due diligence, many ESG-related issues are captured through three principal activities: Company 7 • • • • (1) Phase I Environmental Site Assessment, (2) Property Condition Assessment, and (3) the Hotel capital expenditures and deferred maintenance budget. The results from these activities are Company 1 analysed, discussed, and form the basis for a mutually agreed upon operating plan. • • • • Company 2 • • • • 16 Company 3 • • • • ESG Selected Data Results Company 4 • • • • Countries with Assets From an ESG perspective, real estate assets typically have a significant portion of value at-stake from an energy Company 5 management. Globally, commercial and real estate buildings generate nearly 40% of annual GHG emissions. • • • • Leading practices shows that implementing a systematic energy management program can most effectively Company 6 • • • • improve energy efficiency which reduces total operating costs, reduces GHG emissions, contribute to obtaining Company 7 • • • • green building certification, and better align with tenant expectations. Office Strategy Company 1 • • • • Company 2 4 2018-2019 Energy Management 67% • • • • Company 3 Program Components • • • • Property Types Company 4 86% • • • • 2018 Data Leader Company 5 67% • • • • 2019 Company 6 • • • • Company 7 • • • • Company 8 • • • • Company 9 • • • • 81% 21 Company 10 • • • • Initiatives 76% Goals Company 11 • • • • External Servicing Partners Company 12 Many of our external servicing partners have developed comprehensive ESG management programs that provide • • • • Company 13 a wide range of capabilities and contribute towards enhancing the long-term commercial value of an asset. • • • • Company 14 • • • • CR Report, Company 15 Marketing Materials • • • • 2018-2019 ESG Company 16 71% • • • • Program Components Residential Company 1 13 2018 100% • • • • Env. Diligence, ESG Tenant Company 2 2019 Engagement • • • • Owned Servicing Platforms ESG CapEx 57% Company 3 Program • • • • Company 4 • • • • Company 5 • • • • 52% ESG data presented in this report has been self-reported by each investment and has not been independently verified. While we endeavour to facilitate year-over-year score improvements, some companies may experience a decrease in score to due to a variety of factors including changes to the operational footprint (e.g., bolt-ons, divestments) ESG Procurement Green Building 76% as well as our team’s continuous refinement of the ESG questionnaire to reflect leading market practices. Process Certification The following pages provides case studies that highlight examples of noteworthy ESG accomplishments in our portfolio during 2019.
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ESG Case Studies for Assets with External Servicing Partners
Best in Class ESG Management Program Energy Star and LEED Gold Certification ESG Focus Areas ESG Focus Areas The 637,000 sqft office complex was purchased in 2014 by a joint-venture between Cerberus In 2017, Cerberus and our partner, The Muller Company, completed the recapitalization of and our partner, Greenlaw Partners. The complex is 100% net-leased to Bank of America an 841,036 square-foot, three-building office portfolio in Orange County, California. One through 2023, which has been the original occupant of the property since 1983, and effectively Orange County component of the investment strategy was focused on increasing occupancy by aligning the serves as an operations facility for the bank. Bank of America has a world-class sustainability building with tenant expectations, such as maintaining high performance green building Brea Office Campus program that includes several commitments to reduce the environmental impacts of its Office Parks certifications. With mounting anecdotal and empirical evidence, tenants are increasingly operations, such as energy, water, and waste. Given Bank of America’s long-history as a tenant interested in occupying buildings with a green building certification such as EnergyStar A systematic, consistent of the building, along with their best-in-class sustainability program, this allowed Cerberus Green building certifications and LEED. These certifications attest that buildings have met a rigorous set of standards approach enabled superior and Greenlaw to monitor the progress and provide support when and if needed. can contribute to value which provide numerous benefits including lower total operating costs, improved employee ESG results. creation by attracting new productivity, reduced employee absenteeism, and higher building valuations. Actions Taken tenants and increasing Selected highlights from Bank of America’s sustainability initiatives include: occupancy. Actions Taken Investment Phase The three buildings have obtained LEED Gold and EnergyStar certifications, which require a » EBOM LEED Certification variety of ongoing activities to maintain the coveted designations. For example, to maintain Onboarding Ownership Exit Investment Phase » Energy Star Certification LEED Gold, Muller Company has developed a sustainable purchasing policy which it integrates into each building’s management practices. The goal of the policy is to prevent waste and » Smart Irrigation System in place Onboarding Ownership Exit pollution by considering environmental impacts, along with price, performance and other » Interior LED Lighting Retrofit completed in 2019 traditional selection factors, when making purchasing decisions. The policy provides three » Electric Vehicle Charging Stations installed in 2018 categories with sustainable purchasing requirements including ongoing consumables, durable goods, and facility alterations and additions. Selected highlights from these purchase » Variable Frequency Drives on Cooling Tower System installed in 2020 requirements are as follows: » Integrated Pest Management Program in place Sustainable Purchasing for Ongoing Renewables » Waste and Recycling Management Program in place Open the camera on » Purchases contain at least 50% rapidly renewable material your smartphone. Hold » Purchases contain at least 50% Forest Stewardship Council (FSC) certified wood it over the QR code so Open the camera on that it is clearly visible Value Added your smartphone. Hold within the screen. The actions taken by Bank of America to improve the sustainability of the Brea office complex it over the QR code so Sustainable Purchasing for Durable Goods have yielded numerous financial and environmental benefits, including reduced operating that it is clearly visible » ENERGY STAR labeled costs, improved occupant welfare, and decreased environmental footprint. within the screen. » The equipment (either battery or corded) replaces conventional gas-powered equipment
Sustainable Purchasing for Facility Alterations and Additions » Purchases contain at least 70% material salvaged from off-site or outside the organization » Paints and coatings have VOC emissions not exceeding the VOC and chemical component limits of Green Seal’s Standard GS-11 requirements
Value Added Maintaining LEED Gold and EnergyStar will positively contribute to attracting and retaining quality tenants that are concerned with lowering their environmental footprint, reducing total operating costs, and enhancing employee health and well-being. These asset upgrades will also play a key role in providing a competitive edge in the battle to sustain and attract new tenants. Finally, numerous studies have shown that buildings with LEED and EnergyStar certification can also raise the property value, thus contributing to an increased sale price at exit.
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ESG Drivers for Real Estate Owned Servicing Platforms With an increasingly complex set of emerging ESG-related risks in the marketplace, installing a robust governance program is critical to establishing a culture of compliance throughout the organization and The ESG management approach for real estate owned servicing platforms is similar to maintaining effective oversight. the process used for non-real estate operating companies (i.e., operational private equity). Owned servicing platforms have three unique characteristics that influence how we approach 2018-2019 ESG Governance Program the management of material ESG issues. 2018 Decision-maker and/or committee accountable for ESG issues across operation » Length of the hold period: A longer hold period provides a more flexible timeframe to 2019 pursue a broader set of ESG focused operational improvements and strategic initiatives. 75.00% Additionally, this extended duration provides an optimal environment to consistently drive our processes, including tracking KPIs on a year-over-year basis to monitor performance and evaluate the effectiveness of our approach.
» Direct collaboration with management: We routinely collaborate with senior management on a frequent basis which enables us to effectuate significant changes more quickly. We have found that a partnership-based approach, with a focus on mutually beneficial outcomes, yields the best long-term results. 75.00% 66.67% Provide annual training Process for identifying, assessing, » Type of companies: Owned servicing platform companies typically have international for your employees on and managing beyond compliance key governance issues related risks and opportunities exposure, which requires a higher degree of focus on protecting brand equity and reputation in the marketplace. Achievement here is dependent on success in two areas, consistent processes coupled with a collaborative approach, and will ultimately yield sustained commercial value and drive long-term operational success. Performance Results Our team’s collaborative approach to continuous improvement within each ESG segment, coupled with dynamic efforts at scale, has yielded significant results with improvements to overall business value and contributions to risk-adjusted returns. Our year-over-year performance is summarized in the following table. ESG Selected Data Results A robust program that is systematically integrated throughout the investment’s strategy and operations with targeted opportunities for improvement Implemented several programs and / or initiatives with broad opportunities to increase scale and depth Many companies increasingly have value at-stake from an environmental A strong and motivated workforce is crucial to realizing sustained business Substantial opportunities to expand program perspective, including failure to align with stakeholder expectations. As a result performance. A strong economy with historically low unemployment has of a consistent approach and collaborative efforts, many of these companies created fierce competition for top-talent and forced companies to reassess RE Owned Servicing Platforms Environmental Social Governance Commercial Value Creation CSR Report have improved each facet of their environmental management programs which their abilities to recruit and retain top talent. Companies across all sectors have has enabled risk mitigation and cost reduction. made great strides to systematically improve employee engagement programs 2019 YoY Change 2019 YoY Change 2019 YoY Change 2019 YoY Change that contribute to financial outperformance. Hotels and Leisure Company 1 In progress 2018-2019 Environmental Footprint Reduction Initiatives 2018-2019 Employee Engagement Programs • • • • Company 2 • • • • Published 2018 2018 Industrial 2019 2019 Company 1 Published Energy Program to stay ahead of • • • • Demand Side changing laws and regulations Services Company 1 In progress 72.73% 100.00% • • • • Company 2 • • • • Published Company 3 Published 75.00% Programs that 100.00% • • • • Fuel Energy support Annual Company 4 • • • • In progress 50.00% Supply Side employee employee Company 5 In progress inclusion 54.55% performance • • • • and awareness reviews and Company 6 • • • • In progress feedback Company 7 • • • • Published In progress 45.45% Company 8 • • • • 100.00% 100.00% 63.64% ESG data presented in this report has been self-reported by each investment and has not been independently verified. While we endeavour to facilitate year-over-year score Water Waste improvements, some companies may experience a decrease in score to due to a variety of factors including changes to the operational footprint (e.g., bolt-ons, divestments) as Workplace violence Annual employee survey, well as our team’s continuous refinement of the ESG questionnaire to reflect leading market practices. protection program communicate results, and take actions to address areas for improvement The following pages provides case studies that highlight examples of noteworthy ESG accomplishments in our portfolio during 2019.
40 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 41 ESG Process in Action ESG Process in Action
ESG Case Studies for Assets for Owned Servicing Platforms
Mitigating Environmental-Related Credit Risk Guest Safety ESG Focus Areas ESG Focus Areas Bluestone is a lender that specializes in residential home loans across Australia and New In June 2017, Cerberus acquired Qbic Hotels Ltd, an urban 3 star hotel concept. The Bluestone Zealand. With a team of over 290 professionals, the company manages over A$10bn in home acquisition included the London flagship location and the corporate management loans. The recent Australia bush fires have highlighted the potentially catastrophic physical QBIC platform. One central feature of Qbic’s brand is its commitment to environmentally Bluestone manages emerging impacts from climate change and illustrate the significant value at-risk to both companies and sustainable design and operations, including a long list of industry best practices. For physical risks through rigorous economies. Although the mortgage industry is well-versed at pricing risks, the environmental We leveraged portfolio example, use of solar PV to offset electricity, recycling capabilities for multiple waste environmental assessments. risks associated climate change have created an evolving risk set that must be taken into knowledge to improve streams, 100% LED lighting, motion sensors, chemical-free cleaning products, water consideration to reduce default risks. social performance. saving devices, and organic mattresses. Although the Qbic brand has firmly incorporated sustainability and environmental efficiency into its design and operations, the annual Actions Taken Investment Phase Cerberus ESG questionnaire revealed several opportunities for value creation related to As part of Bluestone’s commitment to sustainability across operations, environmentally Investment Phase social and governance matters. Onboarding Ownership Exit related factors are appropriately considered throughout the lending process. The company Onboarding Ownership Exit uses a systematic approach, coupled with firm guidelines, to evaluate and mitigate potential Actions Taken environmental risk factors. We were able to leverage our experience in other hotel portfolios and work together All loan applications that proceed past conditional approval are initially evaluated for to establish a Modern Slavery Statement to address human trafficking, including recommendations for staff training. potential environmental risks by a third-party valuation firm. The scope of environmental Open the camera on factors considered includes flooding, landslip, bushfire, contamination, cyclone, pest your smartphone. Hold Value Added infestation, and electrical. The results of this evaluation are first reviewed by another third- it over the QR code so party that validates accuracy of the information and cross-references against region-specific that it is clearly visible The introduction of these new policies will help the hotel to improve the guest experience by data, such as bushfire prone land mapping and flood awareness maps. Next, a Bluestone within the screen. tackling the global human trafficking crisis, bolster an environmental dedicated to guest safety, loan coordinator reviews the report and must provide sign-off before the loan proceeds to and protect the hotel from potential legal and / or reputational issues. Open the camera on your smartphone. Hold underwriting. If any concerns are identified, additional reports are ordered to provide further it over the QR code so input and the underwriter takes this into consideration accordingly. Where a clear and present that it is clearly visible risk is identified, Bluestone will either lend and condition for appropriate insurance to protect within the screen. against the identified risk, or decline to lend. In addition to the rigorous environmental risk assessment, Bluestone has a very strict list of acceptable risk locations – which is much tighter than most residential mortgage lenders and helps minimize the likelihood of occurrence from this risk set. Value Added Green Due to acceptable locations restrictions, it is a very rare occurrence to reach the valuation stage with a loan that presents considerable environmental risks. Electricity
Left image: Solar panels installed on hotel rooftops. All hotel lighting is LED and energy efficient. Right image: Qbic supports greener driving in the community with electric car charging points.
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Performance Results Global Credit: Cerberus Business Finance Our team’s collaborative approach to continuous improvement within each ESG segment, coupled with dynamic efforts at scale, has yielded significant results with and Corporate Credit improvements to overall business value and contributions to risk-adjusted returns. Our year-over-year performance is summarized in the following table. A robust program that is systematically integrated throughout the investment’s strategy and operations with targeted opportunities for improvement Implemented several programs and / or initiatives with broad opportunities to increase scale and depth ESG Drivers in Cerberus Business Finance Substantial opportunities to expand program Global Credit by the Numbers The Direct Lending investment platform (Cerberus Business Finance) provides commercial loans to leading middle-market companies, including acquisition financing, recapitalizations, Global Credit Environmental Social Governance Commercial Value Creation CSR Report working capital financing, bridge loans, and debtor-in-possession financing. 2019 YoY Change 2019 YoY Change 2019 YoY Change 2019 YoY Change Within this investment platform, ESG issues are primarily borne out of the credit risk profiling Services $26.6b process and due diligence typically contemplates compliance-oriented issues and high impact potential risks such as EHS compliance, environmental remediation, anti-money laundering Company 1 • • • • In progress AUM (AML), and know-your-client (KYC). Post-close, our ability to effectuate change in lending Company 2 In progress scenarios is more limited, compared to investments with a controlling interest, and instead • • • • focuses on influencing ESG best-practices versus direct control. Company 3 • • • • In progress 7 In situations that result in a workout agreement with restructuring, Cerberus will likely Retail and Consumer become directly involved with the senior management team. This outcome provides increased Company 1 • • • • In progress Companies ability to improve ESG performance, in which case an operating company style approach Industrial (i.e., operational private equity) is utilized. Company 1 • • • • In progress 3 ESG Selected Data Results Company 2 • • • • In progress The highlighted results below provide a more detailed view of the programs and policies that each company is Company 3 • • • • In progress Sectors evaluated on and contribute to the overall R/Y/G score for each dimension. 2018 2019 ESG data presented in this report has been self-reported by each investment and has not been independently verified. While we endeavour to facilitate year-over-year score improvements, some companies may experience a decrease in score to due to a variety of factors including changes to the operational footprint (e.g., bolt-ons, divestments) as 2018-2019 Environmental Reduction Initiatives 2018-2019 Employee Engagement Programs well as our team’s continuous refinement of the ESG questionnaire to reflect leading market practices.
11 Energy Program to stay ahead of changing Demand Side laws and regulations Countries with Operations 80% Programs that support ESG Drivers in Corporate Credit 60% employee inclusion and awareness 100% The Corporate Credit investment platform primarily invests in stressed and distressed debt Energy Fuel of middle market companies. The underwriting strategy centers on investing at significant Supply Side 80% 50% 25% discounts to intrinsic value with a heightened focus on operational risk and opportunity. 3,808 Annual employee performance Downside protection risk is achieved through three main tactics: favouring senior and secured 20% reviews and feedback debt over junior and unsecured credit investments, identifying sources of legal and structural Employees 60% 40% protection/risk, and developing hedging strategies to mitigate company, industry, and macro risk. 75% Annual employee survey, The due diligence approach is similar to operational private equity, including comprehensive communicate results, Water Workplace violence Waste and take actions to address company, industry, operational, and competitive evaluations with a focus on operational risk protection program areas for improvement and opportunity. Within this investment platform, ESG issues are primarily borne out of the 186,493 credit risk profiling process and due diligence typically contemplates compliance-oriented issues and high impact potential risks such as EHS compliance, environmental remediation, 2018-2019 Decision-maker and/or committee accountable Energy (Mwh) Governance Program for ESG issues across operations anti-money laundering (AML), and know-your-client (KYC). Post-close, our ability to effectuate change in lending scenarios is more limited, compared to investments with a controlling interest, and instead focuses on influencing ESG best-practices versus direct control. 38,006 40.00%
GHG (MT) The following pages provides case studies that highlight examples of noteworthy ESG accomplishments in our portfolio during 2019. 60.00% 80.00%
Provide annual training for your Process for identifying, assessing, and managing employees on key governance issues beyond compliance related risks and opportunities
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ESG Case Studies for Cerberus Business Finance Targeted Health and Safety Improvements ESG Focus Areas Isola is leading manufacturer of advanced copper-clad laminates, dielectric prepregs and PCB materials. The nature of the operations, combined with the global footprint, make Driving Growth with Sustainably Isola environmental, health and safety performance critical to achieving immediate and long-term Sourced Materials business objectives. In 2018 when Cerberus acquired equity ownership, ESG due diligence With assistance from Cerberus revealed several opportunities to further enhance the process safety/health & safety programs. ESG Focus Areas EHS experts, Isola developed Actions Taken Based in Sheffield, England, Home Decor is one of Europe’s leading manufacturers of a clear path forward to The Isola and Cerberus EHS teams collaborated to conduct a 12-month assessment and contemporary bedroom furniture and high-quality kitchens and goes to market through improve health and safety identified specific areas for improvement to address key management concerns and continuing Home Décor both its contract (B2B) and direct-to-consumer channels (B2C). B2B customers include performance. business needs. Activities and accomplishments included: Home Décor utilizes product large retailers and new home builders. Each year the company has seen increased demand for certified sustainable primary raw materials, such as timber, from both B2B and B2C. Health and Safety: Evaluated current program, management structure, personnel, sustainability certifications to reporting and metrics On the B2B side of the business, Home Décor frequently has to complete an annual Investment Phase meet customer demands and sustainability supplier scorecard for many of its customers which includes questions about » Established detailed JSAs for each workstation de-risk its supply chain. various sustainability practices such as sustainable raw materials. It is critical for a supplier Onboarding Ownership Exit » Evaluated EHS task assignment and workload to achieve a score above the minimum requirements to be eligible for the bid list and remain » Developed health and safety KPIs in good standing with the customer. » Revised management reporting presentations Investment Phase » Created a training and education program for all employees Actions Taken » Created a Road Map and defined accountabilities for the reorganization of the EHS program Onboarding Ownership Exit Home Décor utilizes certified sustainable materials for both timber and steel in its products Process Safety: Evaluated current program, accountabilities, structure, reporting and metrics to ensure alignment with increasing customer expectations. For timber, the company has » Conducted a detailed review of incidents, process capabilities and personnel a Forest Stewardship Council (FSC) Chain-of-Custody certification, which traces the path » Conducted a detailed review of each facility’s chemical capabilities, the process associated of products from forests through the supply chain, verifying that FSC-certified material is with products manufactured, chemical, risks and identified mitigating factors identified or kept separated from non-certified material throughout the chain. The FSC sets Open the camera on » Revised and updated step-by-step job safety analysis (JSA) and aligned with work standards for responsible forest management to protect forests for future generations. FSC® your smartphone. Hold instructions to reflect the mitigating factors certified products are manufactured under license number FSC-C013654 and identified with it over the QR code so » Updated all work instructions based on ISOLA Best Practices an FSC logo. In addition to timber, steel is compliant with the European Union’s REACH that it is clearly visible » Created the role of Process Safety Manager (PSM) with a qualified engineer regulation (Registration, Evaluation, Authorization and Restriction of Chemicals). To comply within the screen. » PSM training completed for the PSM Manager with the regulation, companies must identify and manage the risks linked to the substances » Created a 2-year Process Safety Management Program Road Map with accountabilities Open the camera on they manufacture and market in the EU. They have to demonstrate how the substance can be and program goals your smartphone. Hold safely used, and they must communicate the risk management measures to the users. it over the QR code so Process Safety: Conducted a complete review of the R&D program, process requirements, that it is clearly visible within the screen. Value Added and the process for implementation of new product into the various facilities » Established key accountabilities and training requirements at all levels of product development Home Décor’s ability to procure certified sustainable primary materials has been critical » Provided a process connecting R&D product and plant process knowledge with critical to meeting customer expectations and has positioned the company to continue capturing safety requirements for safe production required for product launch market share into the future as this preference expands. Additionally, the use of certified » Provided transparency and guidance on plant process capabilities and limitations based sustainable materials has contributed to de-risking the company’s supply chain by preventing on chemical risks and plant process controls and equipment situations where illegal or controversial issues could arise. This ultimately serves to protect » Revised and upgraded the management of change program establishing key accountabilities brand value at-stake and enhance the company’s reputation in the marketplace. between operations, R&D, engineering and EHS for safe product launch Value Added The assessment provided a clear path to address the immediate risks and concerns of management through the optimization of processes and people that included longer term strategic direction. The realignment of existing process and people with clear accountabilities and metrics has enabled the organization to more effectively identify strategic capital needs and limitations associated with plant capacity and equipment limitations. The realignment of program accountabilities and metrics provides management critical transparency to ensure the safe and profitable operation of all facilities.
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ESG Case Studies for Emerging Markets Corporate Credit Award Winning Sustainability Program ESG Focus Areas Grupo Los Grobo Holdings LLP (“GLG”) is an agribusiness company providing products and services for the agricultural sector in Argentina and the region, with an integrated, Commercial Success Driven by ESG Actions Grupo Los Grobo diversified and wide business platform. The origination and services business, Agfood, Progress across the board provides grain storage, conditioning and logistic services as well as access to different ports ESG Focus Areas and markets. The crop protection business, Agrofina, produces specialty off-patent crop Bayport Management Ltd is a leading emerging market financial services provider operating on ESG buildings long-term protection products. In recent years, the agribusiness sector has experienced increased across sub-Saharan Africa and Latin America. Services include transactional banking, commercial success pressure from a multitude of sustainability related issues including ecological impacts, credit and insurance solutions to individuals and micro-businesses in emerging and frontier water stress, chemical impacts on human health and insects, worker safety, and labor rights. Bayport markets. As a financial services operator in an emerging market, operating with the highest A structured, balanced degree of integrity is critical to establishing trust with customers and community members. Investment Phase Actions Taken approach to ESG contributes The sustainable business management system consists of three components and is critical Actions Taken Onboarding Ownership Exit to establishing a foundation for ethics and integrity across the organization. to long-term commercial The company has a structured process in place to systematically manage a comprehensive set » Whistleblowing system: Communication channel which is transparent, confidential, of ESG issues across operations. Examples include: success and open to all stakeholders » Governance: The subsidiary governance framework is divided into seven areas of » Corporate governance: Framework guaranteeing transparency focus including governance (board charter and committees), risk management (policies, Investment Phase » Ethics code area policies: Management's internal framework prevents risks within frameworks, and reporting), fraud and ethics (code of ethics, fraud, reporting hotline), IT the organization Onboarding Ownership Exit governance (information security), health and safety (policies, emergency preparedness), environmental (policies, hazardous substance management, resource efficiency initiatives, Additionally, the company has adopted a formal sustainability framework which is comprised pollution prevention initiatives), and other (business continuity, CSR). of four components and used to guide sustainability practices throughout operations. » Environmental: The Bayport Environmental Management System (EMS) is focused on » Environment: The production model takes into account responsible use of fertilization. resource conservation (energy and water consumption) and pollution (waste reduction, » Society: Actively engage local communities to foster a positive dialogue. recycling, hazardous substance disposal). » Human rights: Integrate internationally recognized standards into all » CSR: All subsidiaries have active social investment programs that contribute to the employment practices. communities close to the Bayport operations, focusing mainly on education and health. » Product quality: The company was the first agribusiness company in the world to achieve ISO 9001 certification and developed an in-house software system called Grobosoft to » Endorsed the SMART campaign: The Client Protection Principles articulate the manage production. standards of care that clients should expect to receive when doing business with a financial service provider. These standards include transparency, responsible pricing, The company has won a number of awards for its sustainability program and practices. fair and respectful treatment of clients, privacy of client data, and mechanisms for Highlights include: complaint resolution. » The first company in the world to get double certification of its soy productive process The comprehensive set of ESG actions taken by Bayport, combined with its customer under the standards of sustainability guaranteed by the International Sustainability centric approach, have enabled the company to better align with stakeholder expectations and Carbon Certification (ISCC) and the Round Table for Responsible Soy (RTRS) while effectively mitigating internal and external risks to operations. These actions have » Received the Environmental Sustainability Report (UCES Award) that reflects the significantly contributed to the company’s continued success and growth, including an company’s agricultural production system, its impact on the environment and its industry leading default rate of 6%. relationship with society Value Added » In 2018, won the award for “One of the most successful companies to attract and retain talents” from the Monitor Empresarial de Reputacion Corporativa – Talent (MERCO) By incorporating relevant ESG issues into the company and industry reviews, the Cerberus Emerging Market Credit team was able to gain a broader understanding of potentially Value Added significant credit risks and opportunities. Specifically, versus other peers operating in the By incorporating relevant ESG issues into the company and industry reviews, the Cerberus sector in Colombia, the deal team was able to verify the broader Bayport ESG policies in Emerging Market Credit team was able to gain a broader understanding of potentially practice such as non-discriminatory loan origination policies and practices to hard-copy significant credit risks and opportunities. Los Grobo’s integrated business model enables backups stored at independent climate-controlled storage facilities; practices that are not compliance with the highest environmental standards set globally and ensures safe and as stringently adhered to by Bayport’s peers in Colombia. A strong adherence to the highest productive agricultural process in Argentina. The ESG policies in place ultimately enabled standard of ESG enabled Cerberus to lead a US$100mm bilateral secured facility to help grow Cerberus to comfortably structure and disburse a US$50 million bilateral secured loan facility Bayport’s presence in Colombia through new loan origination to Colombians not served by that enabled Los Grobo to weather the financial turmoil caused by unexpected election the traditional banking system. results in Argentina. This facility ensures Los Grobo’s best-practices regarding agricultural production continue to make an impact in the local market.
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Cerberus Frontier ESG Selected Data Results Across the Platform Gender Equality Decent Work and Economic Growth
$1,400,000 ESG Drivers in Frontier 52.80% $1,180,433 $1,200,000 Cerberus Frontier by the Numbers Cerberus Frontier is at the forefront of private investing in some of the world’s fastest growing economies across emerging and frontier markets. The team of investment professionals has $1,000,000 developed a successful approach to frontier market investing, which consists of leveraging 29.00% $800,000 21.40% leading investment strategies, developing in-country relationships, and utilizing hands-on $600,000 $139.5m portfolio management. $400,000 $200,000 $143,255 The Cerberus Frontier investment thesis is comprised of two objectives: (1) Deliver a market $48,711 $4,293 AUM or above market, risk-adjusted rate of financial return; and (2) Identify investments with a Total Female Total Female Female Participants $- high potential to create a positive non-financial impact. The second objective broadens the Employees Managers Receiving Training Paid Health and Subsidized Sports and Tuition Reimbursement Social Insurance Meals Cultural Activities to Employees focal point beyond financial capital to consider generating returns based on investments in improving human and environmental capital. Although Cerberus Frontier has typically held a minority-stake in investments to date, the approach has been able to accomplish intended 19 human and environmental impacts by agreeing on specified ESG targets with management from the outset. Companies ESG Case Study for Cerberus Frontier Investment Philosophy Cerberus Frontier utilizes a three-pronged approach to investing, which includes: Actions Taken network to secure additional financial 1. Maximizing Positive Impact Through the Choice of Target Country: Investing in Fuji-Altai LLC support. Local portfolio companies and 12 a country that is generally avoided by the international investment community will drive Addressing Social Issues: Since the domestic enterprises which promote local economic development and a multitude of Rooftop Project a US-based charity provided financial Sectors planned new gym would not be adequate to support, and this has become the first corresponding benefits. accommodate the sheer number of students, (Mongolia) joint community initiative across different Fuji-Altai and Cerberus Frontier proposed to 2. Deal Selection: Within most sectors, certain types of deals or deal structures can portfolio companies in Mongolia. leverage the former’s expertise in Firestone be prioritized in order to maximize potential non-financial benefits. Cerberus Frontier ESG Focus Areas will generally: Building Materials’ RubberGard EPDM Value Added 6 Fuji-Altai LLC, a general roofing and technology to utilize the building roof as » Prioritize businesses that present the greatest potential to address the country’s construction company, undertook a project a sports and recreational area. Cerberus The rooftop recreational area was the first Countries with Operations most acute needs (education, healthcare, food security, etc.) to expand facilities of a secondary school Frontier offered to take the lead in raising of its kind in Mongolia and was widely » Prioritize businesses owned and run by locals rather than foreigners in one of the most populated districts the necessary funds to complete a sports praised as an innovative solution to a » Prioritize women-owned businesses of Ulaanbaatar. The area has the highest and recreational area on the roof that would widespread problem of recreation space in low-income districts throughout the city. » Prioritize minority investments so that Cerberus Frontier is a partner to the number of school-aged children due in include a basketball court, mini soccer field, The completed project has set a precedent 9 entrepreneur – rather than taking over the business large part to a large number of herders and additional green space. By using the migrating from rural areas seeking better rooftop space in a creative way, Fuji-Altai in Mongolia as a way for the private sector to » Prioritize businesses with limited access to alternative capital sources. SDGs Addressed economic opportunities. While working on was able to provide the school community pool resources and expertise to find creative, the construction of the school extension, Mr. with a modern and spacious recreation area. long-term solutions to pressing social 3. Proactive Implementation of ESG Improvements to Create Maximum Benefits: Gerelt-Od, CEO of Fuji-Altai, noticed a lack problems in the country. The general considerations in post investment are: of recreational space for children in the area. Support from Cerberus Frontier: While » Environmental: Enhance environmental protection and stewardship as a condition The school is fully surrounded by a crowded Fuji-Altai donated the necessary waterproof of investment. The companies are expected to go beyond compliance. roof lining material and the labor needed community with no running water or public Open the camera on » Social: With the creation of new jobs as a result of the capital investment, Cerberus facilities, and there are virtually no public to complete the project, Cerberus Frontier your smartphone. Hold Frontier will focus on enhancing worker benefits such as healthcare and workplace safety. spaces and play areas for children. mobilized its in-country and international it over the QR code so that it is clearly visible » Governance: An enhancement of accountability and governance is always required. within the screen. These include: financial management systems; human resource management practices; board operation and oversight; internal and external audit practices; and tax reporting and payment.
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We will continue to work with our portfolio companies and properties, as well as our executive leadership team, to broaden and deepen our ESG programs at Cerberus. Conclusion
Added a senior leader from Cerberus Frontier Looking Forward Our to our ESG committee Incorporated "impact" Each year we have raised the bar for our ESG program, and 2020 will be no metrics into ESG analysis 2019 exception. In an ever- changing world with increasing volatility seemingly the ESGI Formalization of Cerberus new normal, it is a clear reminder that ESG is a proxy for strong management Social Responsibility Program Added three senior leaders to – and a company with strong management will always be better equipped to our ESG committee weather the storm. Journey 2018 Expanded use of technology to help manage our ESG program
Added internal ESG resources Launching our New ESGI Strategy Developed a detailed and updated ESG reporting ESG scoring and The rigorous processes, systems, and tools we have built over the years to reporting framework track, monitor, and improve ESG performance within the portfolio provide a solid 2017 Added additional ESG foundation from which to launch our new ESGI strategy. And at the core of this resources to support the foundation is our steadfast focus on building relationships and collaboration – ESG accounting elements both within our investments and our investors. We will continue to systematically work with our portfolio companies and properties, as well as our executive 2016 Published our first ESG annual report leadership team, to broaden and deepen our ESG programs at Cerberus to facilitate our mutual goal of delivering long-term, risk-adjusted returns.
Formal ESG Committee Integrating TCFD Recommendations established to provide oversight 2015 We will continue to monitor industry developments and integrate what we think is for the Cerberus ESG program best suited for supporting an investment thesis and driving results. For example, beginning in 2020, PRI aligned with the Task Force on Climate-related Financial Disclosures (TCFD). We are currently contemplating the data collection and Developed a technology round table 2014 to monitor significant developments scenario modelling requirements set forth by the TCFD recommendations and driving ESG innovations anticipate this to be part of our future ESG program.
Formalized our ESG Developing a University Partnership Program policy and developed our first ESG due diligence 2013 Finally, we will continue to innovate and stay ahead of the curve by proactively questionnaire for investors implementing new initiatives that work to address key investor concerns, such as our partnership with two highly regarded business schools. Our work with these graduates, while mutually beneficial, will enable our portfolio companies to quickly Expanded from EHS, HR, Legal, and Compliance to more holistic scale identified areas for value creation that seek to improve commercial value. 2010 Environmental, Social, and Governance issues The groundwork has been set, a leading program in place, and a plan for action clearly defined. We are excited to provide you with our progress over the past Mid-2000s: COAC employs year and look forward to the next chapter in driving this program forward. Our ESG professionals to focus on due diligence and portfolio 2000 conviction, and our responsibility, will continue to be centered on delivering a company monitoring, competitive edge to our investors – and the achievements of the ESG program eliminating third-party silos are a staunch reflection of that commitment. 1990s - Early 2000s: 1990 Focused on due diligence and retained liabilities
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Glossary Biographies of ESG Committee Members
CES Cerberus European Servicing CO Carbon Dioxide Emissions 2 Andrew I. Kandel CSR Corporate Social Responsibility Global Chief Compliance Officer, Senior Legal Counsel, and Senior Managing Director, Cerberus Capital Management, L.P. CTS Cerberus Technology Solutions Mr. Kandel joined Cerberus in 2007 and oversees compliance for Cerberus and its global operations. Mr. Kandel is a member of the Compliance and Risk Management, Allocation, Brokerage Selection, and Financial Risk Management Committees. He is also COAC Cerberus Operations and Advisory Company the Chairman of the firm’s Environmental, Social, and Governance (ESG) Committee. As Chief Compliance Officer, Mr. Kandel EHS Environmental, Health, & Safety works with the firm’s business units and its professionals worldwide to ensure Cerberus is maintaining the highest standard of compliance and ethical behavior. He has been instrumental in integrating best practices into the firm’s day-to-day operations, ESG Environmental, Social, Governance including through the development of a robust compliance program that, among other things, regularly monitors activities and conducts trainings to ensure the safeguarding of the firm’s integrity and reputation. In addition, Mr. Kandel leads Cerberus’ ESG F100 First 100 days of transition efforts and is a key driver in incorporating ESG into the activities of the firm, its portfolio companies, and investments. Prior to FCPA Foreign Corrupt Practices Act joining Cerberus, Mr. Kandel was First Vice President and Assistant General Counsel at Merrill Lynch, where he was in charge of state regulation, legislation and government relations and also handled various SEC, NYSE, NASD, and compliance-related FSC Forest Stewardship Council matters. From 1995 to 1998, Mr. Kandel was the Chief of the Investor Protection & Securities Bureau at the New York State Attorney General’s Office, where he also served as Assistant Deputy Attorney General, assisting in oversight of the Antitrust, Charities, GHG Greenhouse Gas Consumer Fraud, Civil Rights, Environmental, and Real Estate Finance Bureaus. From 1993 to 1995, he was Senior Special Counsel, GRESB Global Real Estate Sustainability Benchmark then Trial Counsel, at the Enforcement Division of the New York Stock Exchange. He was also an Assistant District Attorney in Manhattan for seven years. Mr. Kandel is a graduate of the University of Pennsylvania and received his J.D. from the University of GRI Global Reporting Initiative Pennsylvania Law School. He is a Lecturer and Adjunct Professor at the University of Pennsylvania Law School. HR Human Resources ISO International Organization for Standardization IPO Initial Public Offering Frank Bruno KPI Key Performance Indicator Co-Chief Executive Officer and Senior Managing Director, Cerberus Capital Management, L.P. LED Light Emitting Diode As Co-Chief Executive Officer of Cerberus Capital Management, Mr. Bruno is responsible for leading the firm’s global investment activities across credit, operational private equity, and real estate strategies, working closely with Co-CEO and CIO LEED Leadership in Energy and Environmental Design Steve Feinberg and the rest of the firm’s long-tenured leadership team. Prior to this role, Mr. Bruno was President of Cerberus Global Investments, where he was responsible for leading the firm’s European, Asia, and Latin American businesses. Since NASD National Association of Securities Dealers joining Cerberus in 1998, Mr. Bruno has overseen the investment of more than US$32 billion in equity capital in Asia and NGOs Non-governmental Organizations Europe, alone. Under his leadership, Cerberus expanded its international presence significantly, opening global advisory offices across Asia, including Beijing, Hong Kong, and Tokyo; and across Europe, including Baarn, Belfast, Dublin, Frankfurt, London, NYSE New York Stock Exchange and Madrid. Mr. Bruno is a graduate of Cornell University and received an M.B.A. from the Wharton School at the University of Pennsylvania. He currently serves on the Wharton School’s Graduate Advisory Board and the Cornell University ILR School PRI Principles for Responsible Investment Advisory Board. He is an active supporter of Hire Heroes, a U.S. military veteran transition resources organization and Save the SASB Sustainability Accounting Standards Board Children. Mr. Bruno is a member of numerous Cerberus committees, including the Cerberus Capital Management Operating / Management Advisory Committee, Operational private equity Investment Committee, Real Estate Committee, Valuation SEC Securities and Exchange Commission Committee, and NPL Committee. SDGs Sustainable Development Goals YoY Year Over Year
58 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 59 Appendix Appendix
Biographies of ESG Committee Members (continued) Biographies of ESG Committee Members (continued)
Chan W. Galbato Sheila Peluso Chief Executive Officer, Cerberus Operations and Advisory Company, LLC Head of Human Resources, Senior Legal Officer, and Managing Director, Cerberus Capital Management, L.P. Mr. Galbato joined Cerberus in 2009. He serves as Chairman of Avon Products, Inc., Chairman of YP Holdings, LLC, Director Ms. Peluso joined Cerberus in 2005. From 2001 to 2005, Ms. Peluso was an Associate with Chadbourne & Parke LLP in of New Avon, Director of Blue Bird Corporation and Director of DynCorp International, and as a director on the Executive New York where her practice focused on representing private equity clients in M&A and securities and general corporate Committee of Steward Health Care, LLC. Previously, Mr. Galbato served as a director of the publicly-traded Brady Corporation matters. Ms. Peluso is a graduate of Binghamton University and Cornell Law School. Ms. Peluso is a member of the for seven years, including as Lead Director. He also served as Chairman to North American Bus Industries, Inc. and Guilford Cerberus Capital Management Securities Compliance Committee. Mills until their sales in 2013 and 2012 respectively, and as director of Tower International, Inc. until Cerberus’ exit in 2014. Prior to joining Cerberus, Galbato was President and CEO of the Controls Group of businesses for Invensys PLC and President of Services and of the commercial distribution arm of companies for The Home Depot. Mr. Galbato also served previously as President and Chief Executive Officer of Armstrong Floor products and Chief Executive Officer of Choice Parts, a joint-venture Christopher A. Holt start-up. He spent 14 years with General Electric Company, holding several operating and GE Finance leadership positions General Counsel and Legal Practice Leader, Cerberus Operations and Advisory Company, LLC within their various industrial divisions (including Transportation (Locomotive) Systems, Aircraft Engines, Medical Systems and Appliances), as well as holding the role of President and CEO, Coregis, a G.E. Capital company. Before beginning his business Mr. Holt joined Cerberus in 2006 and is a member of the firm’s Office of the General Counsel. In his capacity as General career he played professional baseball with the Montreal Expos in their minor league system. Mr. Galbato holds a Master degree Counsel of COAC, Mr. Holt serves as a senior legal advisor to the firm on a broad array of matters involving the acquisition, in Business Administration from the University of Chicago and a Bachelor of Arts in Economics from the State University oversight and monetization of companies in the Cerberus operational private equity, lending, distressed debt and other of New York. Mr. Galbato is a member of the Cerberus Capital Management Operating / Management Advisory Committee, investment portfolios. He also supports the legal needs of COAC and its operations executives and handles special projects Operational private equity Investment Committee, and Environmental, Social and Governance Committee. for Cerberus portfolio companies. Prior to Cerberus, Mr. Holt held executive leadership positions as the chief legal officer, corporate secretary, and senior vice president of regulatory and external affairs at several public and private companies, including a Cerberus portfolio company. Before that, he practiced law for nine years at two highly rated law firms in Washington, Pieter Korteweg D.C. Mr. Holt is a graduate of Drew University in Madison, N.J. and earned his law degree from The Columbus School of Law at Vice Chairman and Senior Advisor, Cerberus Global Investment Advisors, LLC Catholic University, Washington, D.C. Dr. Korteweg joined Cerberus in 2002. Prior to joining Cerberus, Dr. Korteweg was Chairman and CEO of Robeco Group from 1986 to 2001. From 1981 to 1986 he served as Treasurer General of the Dutch Treasury, and from 1971 to 1981 as Professor of Economics at Erasmus University in Rotterdam and Carnegie-Mellon University from 1973 and 1974. He serves as Chairman of Cerberus Global Investments B.V. (Baarn). He last served as Chairman of the Board of Directors of AerCap Holdings NV (Dublin Jayne Binzer 2005 – 2020) and as Chairman of the Supervisory Boards of BAWAG Group AG and BAWAG PSK Bank AG (Vienna 2007 – 2019). Senior Operating Executive and Head of Strategic Initiatives, Cerberus Operations and Advisory Company, LLC Dr. Korteweg previously served as non-executive Member of the Board of Directors of Haya Real Estate (Madrid), non-executive Member of the Board of Directors of Promontoria MMB SAS (Promontoria My Money Bank SAS) (Paris) and as Chairman of the Ms. Binzer joined Cerberus Operations and Advisory Company, LLC in 2004. During her tenure she has participated in Board of Directors of Capital Home Loans Ltd (Fleet, UK), all of which are Cerberus portfolio companies. Dr. Korteweg also served numerous transactions and turnarounds, focusing on human capital and social issues. Prior to joining Cerberus, Jayne as Senior Advisor to Anthos Amsterdam, as Vice Chairman of the Supervisory Board of the Dutch Central Bank, Chairman of was a Principal and East End Consulting Partners, LLC. She spent her early career in positions of increasing responsibility the Supervisory Board of the Netherlands Pension and Insurance Authority, Chairman of the Dutch Central Bureau of Statistics, at Bloomingdale’s where her last role was a VP of Human Resources. She sits on the Boards of New Avon LLC, and New Member of the Board of Directors of SSA Global Technologies Inc. (Chicago), non-executive Member of the Board of Directors of Avon Canada, as well as Friends of the East River Esplanade, where she is Treasurer and a member of the Executive Aozora Bank Ltd (Tokyo), Member of the Board of Directors of Showa Jisho Co. Ltd (Tokyo), Chairman of the Supervisory Board Committee. Jayne is a graduate of Hofstra University. of Mercedes-Benz Nederland B.V., non-executive member of the Board of Directors of Lucida Plc (London), and as Member of the Governing Board of SONA, the Development Fund of the Netherlands Antilles. From 2001 to September 2017 Dr. Korteweg has been a director of the Cerberus affiliates in the Netherlands. Dr. Korteweg received a Ph.D. (cum laude) in Economics from Erasmus University Rotterdam. Ariunaa Batbold Managing Director, Cerberus Frontier Paul J. Warmus P.G Ms. Batbold is a Managing Director for Cerberus’ frontier market investment platform. She joined Cerberus in 2018 when Senior Operating Executive, Cerberus Operations and Advisory Company, LLC the Firm acquired SGI Frontier Capital to strategically advance its investment activities in emerging and frontier markets. Ms. Batbold has significant investment experience across Asia in a variety of sectors, including natural resources, food and Mr. Warmus joined Cerberus in 2007 and is the COAC Environmental, Health, and Safety (EHS) Practice leader. In the 22 beverage, technology, and consumer goods. Ms. Batbold has been with SGI Frontier for approximately eight years and was years prior to joining Cerberus, Mr. Warmus worked in the environmental and engineering consulting industry working for most recently a Partner at the firm. Prior to SGI Frontier, she co-founded a boutique investment bank in Asia. Ms. Batbold international consulting firms. In his last position, Mr. Warmus was a Principal and Senior Vice President at ATC Associates also has a consulting background from Bain & Company, where she worked as a Strategy Consultant in the United States. where he was responsible for environmental remedial programs. Mr. Warmus has worked with various industries and Ms. Batbold holds a joint Masters in International Business from the Tuck School of Business at Dartmouth College and the governmental agencies developing EHS management / compliance programs, assessing / remediation soil and groundwater, Fletcher School of Law & Diplomacy at Tufts University. and providing consulting services with respect to water resources. His clients include companies in the oil, automotive, pharmaceutical, transportation, manufacturing, paper, retail, industries as well as the Department of Defense and Department of Energy. Mr. Warmus is a graduate of the University of Wisconsin Oshkosh and is a registered professional geologist in multiple states. Mr. Warmus is a member of the Cerberus Capital Management Environmental, Social, and Governance Committee and a former board member of FirstKey Homes.
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Biographies of Other Cerberus ESG Resources
Steven K. Hatfield Senior Associate, Cerberus Operations and Advisory Company, LLC Mr. Hatfield joined COAC in 2017. He specializes in ESG including due diligence, strategy, operations, and reporting. Prior to joining COAC, Mr. Hatfield was an ESG Consultant at PwC where he advised his clients, including many F500 companies, to drive total business value through ESG initiatives that mitigate risks, reduce costs, and grow revenue. Mr. Hatfield holds a Masters of Business Administration in Renewable Energy from Marylhurst University and a Bachelors of Business Administration in Accounting from James Madison University. He is a licensed CPA in Maryland and Virginia and holds several ESG related certifications including LEED GA, SASB FSA, and GHG-IQ. He has co-authored several sustainability related white papers including “Considering Sustainability Disclosures in an IPO” and “Environmental Implications of e-Waste Management Practices.” Jan Magee Associate, Cerberus Operations and Advisory Company, LLC Ms. Magee joined Cerberus in 2009. Prior to joining Cerberus, Ms. Magee worked as a senior head hunter with Wilton & Bain and went on to set up and run her own executive search business in the City of London for five years, recruiting senior executives within the strategy consulting sector for blue chip companies. In 2009, Ms. Magee joined the London office of Cerberus, supporting the European Head of Real Estate. She has been working on the Firm’s ESG program since 2017 and transitioned to a dedicated role in 2019. A graduate of the University of St. Andrews, Scotland (2002) with a Joint Honours Masters in English Literature and French, Ms. Magee speaks fluent French. Jeremy Neporent Analyst, Cerberus Capital Management, L.P. Mr. Neporent joined Cerberus in 2019. Prior to joining Cerberus, Mr. Neporent worked as a sustainability consultant specializing in alternative energy. He has extensive experience with qualifying and matching clients to best-fit underwriting guidelines for green/environmental program incentives, including real estate finance institutions. Additionally, he has consulted on numerous energy efficiency investments such as commercial and residential photovoltaic installations, commercial demand response systems, and lighting retrofits. Mr. Neporent has a bachelor’s degree in Geography, with a concentration in Development & Sustainability, from the University of Maryland, College Park. Kevin J. Rooney Managing Director, Senior Compliance Officer, and Associate General Counsel, Cerberus Capital Management, L.P. Mr. Rooney joined Cerberus in 2008. From 2005 to 2011, he also served as an Assistant Professor at Fordham University’s Graduate School of Business and College of Business Administration. From 2003 to 2008, Mr. Rooney served in various legal and compliance roles including: Global Anti-Corruption Officer for American International Group, Inc., Global Head of Bank Anti-Corruption Compliance for Credit Suisse, and Director and Senior Counsel in the Government & Regulatory Compliance Group at Merrill Lynch. Prior to that, Mr. Rooney was a litigation associate at the law firm of Condon & Forsyth in New York. Prior to joining Condon & Forsyth, Mr. Rooney served as an Assistant District Attorney in the Trial Division of the Manhattan District Attorney’s Office from 1996 to 2000. Mr. Rooney is a graduate of Fordham College and received his J.D. from Fordham Law School.
Clair Turketo Senior Vice President, Senior Compliance Officer and Global Data Privacy Officer, Cerberus Capital Management, L.P. Ms. Turketo joined Cerberus in 2019. Prior to joining Cerberus, Ms. Turketo spent over a decade in senior compliance roles with some of the world’s largest alternatives businesses including the Blackstone Group in New York and KKR, BlackRock and Morgan Stanley Investment Management in London. As the Firm’s Global Data Privacy Officer, Ms. Turketo focuses on managing the impact of emerging regulations in the privacy space and applying new technologies and controls to safeguard the information entrusted to the Firm by its clients. Ms. Turketo is a graduate of the Australian National University and holds degrees in Economics and Asian Studies (Japanese).
Richard Alexander Chief Technology Officer and Managing Director, Cerberus Capital Management, L.P. Mr. Alexander joined Cerberus in 2008 as a member of the Operations and Advisory Company, which focused on driving value across Portfolio Companies. In 2010, Mr. Alexander became Head of Technology, Facilities, and General Services for Cerberus Capital Management. Prior to joining Cerberus, Mr. Alexander spent 12 years at GE. He is a former Chief Information Officer and Quality Leader within GE Commercial Finance where he became certified in Six Sigma and Operational Excellence. Prior to joining GE, Mr. Alexander held various IT and Operator roles within the U.S. State Department and UST, Inc. Mr. Alexander is a graduate of Loyola University Maryland and has taken technology courses at MIT.
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