Environmental Social Governance Impact · 2020. 7. 2. · and social issues, as well as prudent governance, helps to mitigate risk and create more valuable companies and properties

EnvironmentalSocialGovernance Impact

2019 Annual Report

2 | 2019 Cerberus ESG Report 2019 Cerberus ESG Report | 1

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.

IntroductionAt Cerberus, we believe responsibly addressing certain environmental and social issues, as well as prudent governance, helps to mitigate risk and create more valuable companies and properties in the long run.

This perspective is reflected in our culture and approach to evaluating transactions and managing investments. Our focus on Environmental, 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 management, and, ultimately, exit.

This report is intended to demonstrate the history, depth, and breadth of ESG work at Cerberus, as well as our current ESG operating rhythm. It also describes our most recent efforts to measure and improve our performance with regard to ESG principles as applied to our portfolio of companies, investments, and properties around the world.

Through our ongoing commitment to ESG best practices, Cerberus has realized practical and tangible benefits for our investments and, ultimately, our investors.

Message from the ESG Committee Chairman 6

About Cerberus 8

Cerberus Proprietary Operating Capabilities 10

Cerberus CSR Program Overview 11

Glossary 58

Biographies of ESG Committee Members 59

Biographies of Other Cerberus ESG Resources 62

Looking Forward 54

ESG Committee 16

ESG Policy 17

The Cerberus ESG Formula: The 3 C's 20

ESG Process 21

Covid-19 Task Force 30

Operational Private Equity 32

Real Estate 36

Global Credit 44

Cerberus Frontier 50

Contents

1

5

42

3

Who We are

Appendix

ConclusionESG Within Cerberus

ESG Process in Action

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

1


Who We Are

As we were finishing up our 2019 report and I sat down to pen my annual letter, we were hit with the unprecedented Covid-19 pandemic unfolding around the world. As soon as we understood the possible implications of the crisis, the Firm immediately put all-hands on deck and systematically implemented a thoughtful approach to protect our employees, the employees at our investments, our portfolio companies, and the interests of our investors. A special task force was established to focus on each of these items along with daily reporting to discuss the information we were receiving as well as best practices to implement our strategy and plans. When I look back at our initial response I am amazed at the outstanding job the entire team has done – over eight hundred employees in 22 locations around the world have been able to perform all of their roles and responsibilities working remotely. The processes that we established over the years stood up to one of the most challenging tests I have seen in my career. And although the impacts from Covid-19 are clearly not over, we are already asking how we can improve on our findings and experiences. We have included a few case studies in the beginning of Section 3 of this report to give you a glimpse of our Covid-19 response. We will continue to share these with our investment professionals and investors throughout 2020 and certainly in next year's report.

As we look back on 2019 and the beginning of 2020, it is important not to forget the hard work and accomplishments made in our ESG program. Well over 14 years old, our ESG program is hardly in its adolescent stage. It is a mature program that has evolved into robust and interactive engagements with our investments and investment professionals. And its importance should not be lost on anyone; evidence has shown time and again that companies that score well on ESG metrics can better anticipate risks, as well as opportunities, including those involving significant shocks to the world’s economy. This makes them more strategically resilient and therefore able to anticipate, and adapt to, numerous and diverse risks and opportunities. This directly and indirectly helps generate a tangible return from ESG. In our case, it also signifies that we are more naturally disposed to longer-term strategic thinking and planning, and thus more focused on long-term value creation.

Message from the ESG Committee Chairman

What's NewEach year we have made concerted efforts to enhance our ESG program, including continually raising the bar for the annual ESG report. For example, this year we have further enhanced our reporting by providing ESG data and results by investment desk. Not only does this approach highlight progress and performance by area of investment, but also has enabled us to more strategically pursue implementation of identified ESG opportunities in alignment with each of our investment theses. In addition, this will allow us to provide ESG data for specific funds which we will report out in 2021. From a program management perspective, we have added Ariunaa Batbold, a Managing Director and ESG leader in Cerberus Frontier, to the Cerberus ESG Committee. This further evidences our efforts to ensure that ESG is firmly integrated across all investment platforms and pursued in a harmonized fashion.

We are also very excited to announce one of our new ESG initiatives – the Cerberus ESG University Partnership Program. In 2020, we will be adding resources to our program by partnering with the Environmental Program of two highly regarded business schools. Through this partnership we will work with our portfolio companies on optimizing ESG data collection, verification and reporting, and advancing identified areas of value creation from our ESG evaluation.

ESG Plus: Cerberus ESGI Our strength in identifying and partnering with investments, while recruiting and maintaining talent, as well as giving back to the community, have been an essential part of our Firm for many years. As we continue to improve our ESG program and formalize our Cerberus Corporate Social Responsibility program (CSR), it became apparent that we needed to illustrate and report the holistic view of our impacts. With this view as our focus, we are now implementing our next stage of ESG – ESG impact or ESGI. We will focus on three main components: Governance, CSR, and establishing impact metrics.

Governance Drives ESGI

The first component of ESGI is to continue to emphasize an area that we believe sets the tone for our program – Governance. We have never lost sight of the importance of corporate governance, compliance and culture. Good corporate governance and a culture of the highest ethical standards plays an instrumental role not only at

Andrew KandelGlobal Chief Compliance Officer, Senior Legal Counsel, andSenior Managing Director, Cerberus Capital Management, L.P.

the management company and all of our offices and affiliated entities, but in the analysis of our investments. One part of governance is a transformational issue facing all organizations and companies in today’s world - privacy and data protection. We have long focused on these issues but last year we formed a new committee to specifically address the changing regulatory landscape – the Privacy Committee. This committee focuses on the implications of new privacy legislation (e.g., GDPR, CCPA) and the practical implementation across our investments as well as the Firm.

Leading by Example: CSR

The second component has to do with the positive impact we can have as a Firm. While in the past we focused our ESG efforts primarily on our investments, this new initiative is introspective. We have always valued diversity, inclusion and social responsibility, and last year we formalized that commitment by creating two additional new committees: the Corporate Social Responsibility Committee and the Diversity & Inclusion Committee. Both are designed to have a positive impact at the management company level and the communities that we touch. You can read more about these initiatives, spearheaded by our ESG Committee member Sheila Peluso, in the report. We also focused on creating a positive impact by looking across the Firm for areas where we could improve – such as replacing all of the plastic water bottles used in our offices (and now our homes), encouraging double-sided printing (or forgoing the use of hard copies altogether, much easier in our WFH environment) and recycling, just to name a few. We have included selected activities within each of these areas in Section 1.4.

Impact MetricsThe third component will focus on further reporting of our ESG impacts. Each investment is different and positive impact has to be viewed in the particular context of that investment. This is not a foreign concept to us; to some degree it is simply opening our aperture even greater and more actively searching for, or becoming better at identifying and measuring, the positive impact we create. Cerberus Frontier has been at the forefront incorporating the “positive impact” alongside, but without sacrificing, financial returns in the frontier and emerging markets for the past several years. Building on their experience, along with our knowledge of standardized metrics, will allow us to report on investment specific impacts.

We have never allowed our program to be defined by how others view ESG and the labels they use. Our program is specifically customized to identify, remediate and address the environmental, social and governance best practices related to our investments with the goal of having an appropriate positive impact. That is one of the things that sets us apart. Our long-standing ESGI program is simply another example of what gives Cerberus a competitive advantage. We hope you find the report useful and welcome any and all feedback as we strive to continuously create an edge for our investors and deliver market leading, risk-adjusted returns.

Finally, this year’s report uses multi-media to help bring our ESGI program “alive.” We hope that you will get a better sense of the depth and commitment of our efforts in a more three dimensional manner. Please use the QR codes that you will find throughout the report for the full effect. Simply, open the Camera on your smartphone and hold it over the QR code so that it is clearly visible within the screen. If necessary, press the screen.


8 | 2019 Cerberus ESG Report

Cerberus is a global leader in alternative investing with expertise in credit, operational private equity, and real estate strategies, and industry-leading operating platforms.

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.

About Cerberus

Cerberus Invests Across Four Complementary Platforms

Multi-disciplinary platforms with expertise investing in:

» Corporate credit and distressed debt

» Mortgage securities and assets

» Middle-market direct lending

Global real estate platforms with the flexibility to invest across the capital structure in:

» Non-performing loans

» Commercial real estate

» Residential real estate

» Portfolios of real-estate backed securities

Value-driven investors in business worldwide, focused on:

» Businesses that can benefit from improved operations

» Complex corporate carve-outs and divestitures

» Private companies as platforms for growth

Experienced personnel and differentiated strategy for investing in the Emerging and Frontier Markets:

» Opportunistically pursuing investments in corporate, consumer and real estate credit

» Frontier markets concentrate on core strategic sectors: Consumer, New Economy Infrastructure, Logistics and Transport

Global Credit Opportunities3

Real Estate2Operational Private Equity1

Emerging Markets4

$44b 785 22AUM Employees Global Offices

New York

Sao Paolo

Chicago

Dublin

London

Baarn

Amsterdam

Frankfurt

Addis Ababa

TbilisiMadrid Beijing

Tokyo

Ulaanbaataar

Hong Kong

Singapore

Los Angeles

San Francisco

Lisbon

Mumbai

Dubai

Sydney



Cerberus' Proprietary Operating Capabilities

Cerberus believes that there are distinct competitive advantages to sharing responsibility for ESG performance across all teams. We utilize a coordinated approach for each investment platform and during each phase of the investment lifecycle to effectively manage material ESG topics. This style of teaming promotes improved collaboration to prevent information asymmetry and enables a resource model that can adapt to the bespoke set of ESG issues in play for each investment.

Cerberus Operations and Advisory Company (COAC) is an industry-leading operations platform that is proprietary to Cerberus. COAC has operating executives and functional experts that work across Cerberus’ investment platforms to maximize financial and operating performance.

Cerberus Technology Solutions (CTS) employs expert technologists that work closely with Cerberus investment and operating professionals to apply new technologies, realize new sources of revenue and value creation, and accelerate technological transformation and differentiation.

Headquartered in the United Kingdom with offices in London, Amsterdam, Dublin, and Madrid, Cerberus European Servicing (CES) is Cerberus’ proprietary asset management, property management, and loan servicing platform. 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 of 75,000 properties across Europe.

FirstKey Homes provides acquisition and property management services to a diverse portfolio of 24,500 single-family rental homes across the United States. Services include leasing, rental collection, credit screening, repairs and maintenance, construction, renovation oversight services, and quality control.

FirstKey Mortgage is a real estate finance business that is a global leader in acquiring, securitizing, and managing residential mortgages and related assets. Operating capabilities include sourcing loan opportunities, managing and providing 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.

Cerberus Operations and Advisory Company

Cerberus Technology Solutions

Cerberus European Servicing

FirstKey Homes

FirstKey Mortgage

Open the camera on your smartphone. Hold it over the QR code so that it is clearly visible within the screen.

Leading by Example: Cerberus CSR Program Overview

Since our inception in the early 1990’s, Cerberus Capital Management has participated in various community and social projects focused on our key CSR pillars and last year, we partnered with Volunteers of America for Operation Backpack, Make-a-Wish Foundation, and Guiding Eyes for the Blind. These community and social projects continued to track side by side with the development of our ESG 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 in 2019 which embodies the “lead by example” commitment set forth by the senior 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 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.

ESGI

Investment Desks

Environmental Social Governance

ESG

Internal

CSR

» Supply side and demand-side energy management

» Waste management and recycling

» Water management

» Responsible sourcing

» GHG emissions

» Education

» Community

» Veterans

» Entrepreneurship » Health and safety

management

» Employee diversity

» Human rights and fair labor practices

» Corporate Social Responsibility (CSR)

» Women's Initiative

» Recruiting and Mentorship

» Internal Inclusion and Advancement

» Employee code of conduct and ethics

» Enterprise risk management

» Anti-bribery and corruption (e.g. FCPA)

» Political contributions

» Energy and GHG Emissions

» Resource Management

ESG Committee Diversity and InclusionESG Policy Community

EngagementESG Team Environmental



Cerberus CSR Program 2019 InitiativesCommunity Engagement Overview The purpose of the Community Engagement program is to support nonprofit organizations that are aligned with four pillars: education, local community, veterans and entrepreneurship. Management of each pillar is represented by a subcommittee, with one person designated as the lead. Subcommittee work is primarily focused on event planning and execution, and at a minimum, leads one volunteer day per year.

Thanksgiving Food Drive City Harvest hosts New York City’s largest food drive to help the nearly 1.2 million New Yorkers who struggle to put food on their tables each holiday season. The Cerberus team distributed collection boxes throughout the office to gather and donate non-perishable food. Our donations helped to keep the shelves stocked at hundreds of soup kitchens, food pantries and other community food programs across the city.

Make-a-Wish Foundation Holiday Raffle Each year, Cerberus hosts a holiday party where employees can purchase raffle tickets to win an assortment of donated prizes and the proceeds are donated to the Make-a-Wish Foundation. The 2020 annual party was a huge success, with over $32,000 raised by employees, which was $12,000 more than 2019. Cerberus also commits to match the amount raised by employees, which brought the total donation to $65,000.

Environmental Overview The purpose of the environmental program is to manage the impacts from our operations across the globe, including energy consumption, GHG emissions, and resource management associated with our real estate footprint and employee travel.

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.

Diversity & Inclusion Overview The purpose of the Diversity & Inclusion program is to increase representation at all levels and foster inclusion globally. There are three subcommittees as outlined below, with one person designated as the lead of each subcommittee, and all employees globally are encouraged to participate.

» Cerberus Women’s Initiative (CWI): The CWI subcommittee focuses on three objectives: Building Business Knowledge/Skills, Women in Leadership and Career Development and Advancement.

» Recruiting & Mentorship: The initiative focuses on mentorship, education and recruiting in the larger community.

» Internal Inclusion & Advancement: The subcommittee will promote inclusion and advancement for internal employees, with an initial focus on programming planning and execution.

Diversity and Inclusion Webinar The global Cerberus team participated in a session hosted by Dolph Westerbos, CEO of Staples Solutions B.V., – a Cerberus portfolio company. During the one-hour webinar, Dolph shared some of his experiences in navigating diversity and inclusion in an ever-changing environment – from both a personal and professional perspective. The inaugural event provided an open and engaging forum for employees to discuss key issues and formalized our efforts around diversity and inclusion in the workplace.

Guiding Eyes for the BlindIn support of National Disability Awareness month, Cerberus was honored to host Guiding Eyes for the Blind. Since 1954, the international, non-profit organization has been able to enrich the lives of the blind and visually impaired by providing them with exceptional guide dogs. Guiding Eyes’ CEO, Thomas Panek, spoke with Cerberus team members and shared the organizations important mission, including background on how Guiding Eyes has helped him personally.

2

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.

ESG at Cerberus

2



ESG at CerberusESG at Cerberus

» Monitoring and Oversight

» Identifying Industry Trends

» Tracking New and Pending Legislation

» Quarterly Meetings

» Annual Report

The Cerberus ESG Committee

Andrew KandelESG Committee ChairmanGlobal Chief Compliance Officer, Senior Legal Counsel, and Senior Managing Director, Cerberus Capital Management, L.P.

Frank BrunoCo-Chief Executive Officer and Senior Managing Director, Cerberus Capital Management, L.P.

Chan W. GalbatoChairman and Chief Executive Officer, Cerberus Operations and Advisory Company, LLC

Paul WarmusSenior Operating Executive, Cerberus Operations and Advisory Company, LLC

Pieter KortewegSenior Advisor and Vice Chairman, Cerberus Global Investment Advisors, LLC

Sheila PelusoHead of Human Resources and Managing Director, Cerberus Capital Management, L.P.

Christopher A. HoltGeneral Counsel and Legal Practice Leader, Cerberus Operations and Advisory Company, LLC

Jayne BinzerSenior Operating Executive, Cerberus Operations and Advisory Company, LLC

Ariunaa BatboldManaging Director, Cerberus Frontier

The Cerberus ESG Committee

In 2015, Cerberus established our ESG Committee to formalize the oversight of our ESG activities across Cerberus and provide insight into emerging ESG issues and guidance in reporting to our investors.

Each ESG Committee member is a statured, senior executive with numerous years of relevant, complementary business experience or subject matter expertise.

ESG Committee members serve on other Cerberus Committees. They also sit on some of the boards of Cerberus portfolio companies.

The Committee follows industry trends, reviews surveys and white papers, and participates in ESG conferences.

Committee members are deeply involved in investment platforms operations, which offers an important vantage point to closely monitor ESG programs and activities.

Key Responsibilities

The Committee continues to drive our ESG program, meeting quarterly to discuss a wide range of topics, and deriving effectiveness from the following attributes:

Integrated

Expertise

Embedded

Newest Member

Cerberus will pay proper regard to the informational needs of investors in its funds and accounts, and when appropriate communicate adequate information to them, including on Environmental, Social, and Corporate Governance (ESG) risks, in a way that is clear, fair, and not misleading. Cerberus’ investment analyses include, when relevant, a review of ESG issues. The particular issues considered vary based on the underlying operating business and investment involved.

Cerberus ESG review includes the following topics where applicable:

» Environmental factors including the impact of actual and potential environmental costs

» Social factors including human rights, relations with indigenous people, child labor, worker and consumer health and safety, and bribery and corruption

» Governance issues including but not limited to, director qualifications and conflicts of interest, board structure, executive and director compensation, accounting and audit quality, code of ethics and business conduct, and capital structure

» Cerberus evaluates ESG issues to determine their potential impact on investment performance

» Cerberus considers certain environmental, public health, safety, and social issues associated with target investments when evaluating whether to invest in a particular company or entity, as well as during the period of ownership

» Cerberus seeks to use governance structures that provide appropriate levels of oversight in the areas of audit, risk management, and potential conflicts of interest and to implement compensation and other policies that align the interests of owners and management

» Cerberus is committed to compliance with applicable national, state, and local labor laws in the countries in which we invest

» Cerberus respects the human rights of those affected by its investments

» Cerberus, when appropriate, provides information to its limited partners on the matters addressed herein, and works to foster transparency about our activities

To the extent possible, Cerberus encourages portfolio companies to advance these same principles in a way which is consistent with their fiduciary duties.

Cerberus strives to achieve best practices among alternative investment managers, particularly in the areas of governance, compliance, investor disclosure, valuation procedures, and risk management.

We have undertaken numerous efforts in this regard, including becoming a signatory to the Standards Board for Alternative Investments (formerly known as the Hedge Fund Standards Board). In addition, we have developed and implemented policies and procedures, employee trainings, and compliance certifications, and reporting, all of which are designed to ensure a strong culture of ethical behavior and compliance.

Beyond legal and regulatory compliance, we seek to implement and adhere to ESG best practices in our private investments in companies and properties worldwide.

ESG has been a focus for over 14 years through our industry leading operations platform. In 2013, Andrew Kandel, our Global Chief Compliance Officer and Senior Legal Counsel, took the lead in highlighting Cerberus’ focus on ESG with investors and formalized our ESG Policy, as well as our first ESG Due Diligence Questionnaire.

Our ESG efforts and interactions with our portfolio companies and properties will continually be refined to ensure we are focused on driving value for our investors.

The Cerberus ESG Policy

Cerberus ESG Policy Outline



Comparison to Other ESG Principles

A Responsible Investor

ESG issues can have significant impacts on the financial performance of our investments, as well as the communities in which Cerberus and our portfolio companies conduct business.

Over the years, a variety of ESG codes and standards have been put forth by governments and Non-Governmental Organizations (NGOs) to provide a framework for managing ESG concerns.

While developing our ESG policy, Cerberus has given consideration to a range of these codes and standards, including the United Nations Principles for Responsible Investment and the United Nations Global Compact. All components of our policy are aligned with each of the underlying principles found in these, and certain other, codes.

Our Investment Principles

In addition to our ESG principles, Cerberus’ investment strategies adhere to five inter-related principles:

» Flexibility

» Innovation

» Risk Management

» Discipline

» Transparency

cerberus.com

Find out more on our website

Aspect 1: Management

This aspect focuses on how the organization integrates ESG into its overall business strategy.

Aspect 2: Policy and DisclosureThe purpose of this section is to (1) describe the organization’s ESG policies and (2) understand how the organization communicates its ESG performance.

Aspect 3: Risks and OpportunitiesThis aspect investigates the steps undertaken by organizations to stay abreast of ESG related risks related to bribery and corruption, climate change, environmental legislation, market risks and other material ESG risks.

Aspect 4: Monitoring and EMSThis aspect describes the processes the entity uses to support ESG implementation and performance monitoring.

Aspect 5: Performance IndicatorsThis aspect collects performance data on energy and water consumption, GHG emissions and waste.

Aspect 6: Building CertificationsThis aspect focuses on how the organization integrates ESG into its overall business strategy.

Aspect 7: Stakeholder EngagementThis aspect focuses on how the organization integrates ESG into its overall business strategy.

Cerberus’ ESG program meets all seven of the GRESB sustainability aspects.

www.gresb.com

Cerberus monitors the following industry standards and incorporates key components as pertinent to the performance of our investments versus a generic "one size fits all" approach.

Environment

Principle 7Businesses should support a precautionary approach to environmental challenges;

Principle 8undertake initiatives to promote greater environmental responsibility; and

Principle 9encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10Businesses should work against corruption in all its forms, including extortion and bribery.

Principle 1We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Cerberus’ ESG policy and practices meet all six of the Principles for Responsible Investment. The Cerberus focus on ESG issues has existed since before the PRI effort began.

www. unpri.org

www. unglobalcompact.org

Human Rights

Principle 1Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2make sure that they are not complicit in human rights abuses.

Labour

Principle 3Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4the elimination of all forms of forced and compulsory labour;

Principle 5the effective abolition of child labour; and

Principle 6 the elimination of discrimination in respect of employment and occupation.

Cerberus’ ESG policy and practices meet all 10 of the UN Global Compact Principles.

Principle 4We will promote acceptance and implementation of the principles within the investment industry.

Principle 5We will work together to enhance our effectiveness in implementing the principles.

Principle 6We will each report on our activities and progress towards implementing the principles.



The Cerberus ESG Formula: 3 C's

Consistency Collaboration

Commercial Value

Cerberus uses a simple and effective approach to engage with our investments on ESG issues: Consistency + Collaboration = Commercial Value

Consistency

We have developed an ESG evaluation and scoring process to systematically evaluate ESG performance on a consistent basis. This set of best practices and technological tools is a resource available to all our portfolios investments across industries and geographies and allows for a consistent approach to ESG issues. The analysis of the standardized data sets across our investments over time also allows for cross-pollination of ideas and benchmarking.

Collaboration

Even though all portfolios have access to the same tools, processes, and knowledge, we understand that each investment is different and requires bespoke treatment and customized solutions. We partner with our portfolio companies and allow each to set its own course, while being able to lean on us as a partner.

Commercial Value

We believe that when ESG programs are done consistently and collaboratively, they can unlock significant commercial value. ESG issues are becoming increasingly relevant in today’s world and companies that are best able to leverage ESG principles to expand their businesses, for example through new product lines and improved brand equity, can enjoy increased commercial success.

Valuable insights are derived by executing our ESG process year upon year. When coupled with our collaborative and interactive approach with our partners, this often leads 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.

The Cerberus ESG ProcessWe deploy a consistent process to evaluate ESG performance across all investment 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.

Annual Evaluation

Process

Data Collection Data Analysis

Track and Monitor Implement

Col

labo

rate

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.

1 2

3

4

5



» Phase I and property condition assessments

» Characterize risks and opportunities

» Review compliance and sustainability programs

» Benchmark performance and establish F-100

» Conduct ESG evaluation in collaboration with management team

» Implement ESG programs and track progress over time

» Share leading practices and make refinements

» Communicate sustainable business value

» Respond to investor inquiries

» Prepare for IPO / SEC ESG disclosures, as applicable

Integration Throughout the Investment LifecycleThe cross-functional Cerberus approach uses rigorous ESG processes and frameworks for each investment desk and industry. Years of experience have been distilled into best practices that are employed throughout the lifecycle of a Cerberus investment. Our focus is to continuously evaluate ESG risks and seek opportunities for value creation.

Due Diligence Portfolio Management

134Total Projects

in 2019

ESG Performance is Considered Across All Cerberus Strategies

The Investment Lifecycle and Sample Activities

3330

4

2439

22

76Projects + 58

Projects

Real EstateOperational Private Equity Global Credit Frontier

Due Diligence Portfolio Management Divestiture

The Cerberus ESG Evaluation Tool

Quantitative and Qualitative Scoring of ESG Performance

We have developed an ESG evaluation tool that collects information critical to monitoring ESG performance across our investments. We analyze the data against our proprietary scoring process and determine a green, yellow, or red rating for each ESG category. The results help us to prioritize actions and best practices that 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 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 professionals to quickly identify priority action items and track the performance over time on a portfolio-level basis.

Scope of ESG Topics

The evaluation tool focuses on both operational improvements and achieving revenue impact. The following are a few examples of the topics covered in our evaluation tool:

Revenue Growth

Environmental » Supply-side and demand-

side energy management

» Waste management and recycling

» Water management

» Responsible sourcing

» GHG emissions

Social » Health and safety

management

» Employee diversity

» Human rights and fair labor practices

» Corporate Social Responsibility (CSR)

Governance » Employee code of

conduct and ethics

» Enterprise risk management

» Anti-bribery and corruption (e.g., FCPA)

» Political contributions

» Sustainable products and services

» Customer satisfaction



Collaboration Throughout the Investment LifecycleWhile our ESG process and tools are consistent, the action plans we develop are bespoke to each company or property and the outcomes for each investment are unique.

This is achieved through collaborative engagement with our management teams through a two-way dialogue. We do not dictate how it needs to be done, but instead are a consultative partner who can be utilized to achieve success.

Our engagement throughout the lifecyle of an investment provides many interactions to partner with our portfolios companies and properties to provide bespoke input and assistance.

Relationship-building and collaboration starts right at the acquisition stage.

Portfolio companies and partners can deploy the many resources within Cerberus to execute their own ESG /CSR programs. Establishing open lines of communication open with partners and providing whatever they require.

Working with partners to distribute ESG questionnaires and help them coordinate their data collection. Cerberus leverages its in-house operational expertise to identify areas for improvement.

Adopting a non-prescriptive, partnership approach enables us to position ourselves as a trusted business 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.

Due Diligence / Acquisition

Ongoing Support in Execution of an ESG Action Plan

Data Collection / Data Analysis

Debrief: Co-Define ESG Action Plan

Provide resources and guidance

Supplement our portfolio companies to fill gap in resources

Cerberus takes a leadership role

Spectrum of Collaboration

In executing ESG action plans, we offer several modes of engagement that are tailored to the specific resources and requirements of each portfolio company or property.

In situations where there are meaningful internal resources focused on ESG initiatives, Cerberus can engage as a business advisor providing high-level guidance 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 with the company’s management team.

IndependentHigh level of autonomy; Cerberus acts as a consultant and advisor

HybridA blend of Cerberus and internal resources

OutsourcedNo internal resources; Cerberus handling all functions

ESG Action Plan: Levels of Engagement



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.

Cerberus ESG Incident Reporting Process

Incident Reporting Process

Formal ReportingESG Evaluation

Informal ReportingESG Contact Notifies Committee

Incidents reported to ESG Chairman

ESG Committee Chairman notified

ESG Committee meeting scheduled

Report

Action

Notification of stakeholders

0No material

ESG incidents reportable in 2019

Notify

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

3


ESG Process in ActionESG Process in Action

As one part of Cerberus’ immediate and swift response to the rapidly evolving Covid-19 global pandemic, we organized and implemented a comprehensive Task 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 management teams to monitor and proactively manage all impacts of the Covid-19 pandemic effects on our employees and businesses.

Covid-19 Task Force

1. Employee Health and Safety: Our number one priority was protecting the health 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 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 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 / 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 in anticipation of, and in response to, change in customer demand.

3. Liquidity Support: Analyzed scenarios concerning liquidity requirements and financial stability, and identified sources of support if necessary.

4. Government Support: Reviewed, summarized, and communicated various government relief programs across the world, and providing information and resources to portfolio companies on how to access those programs if appropriate.

5. Return Planning: Supported Firm company plans to return business to scale as COVID-19 situation evolves.

6. Strategic Planning: Evolved business plans to contemplate long-term changes in demand and behaviors.

7. Governance Issues: Arranged a town hall meeting for experts to discuss potential legal issues surrounding healthcare regulation, OSHA compliance, potential litigation, labor laws, employment laws, and benefits.

Employee Health and Safety

Customer Demand

Liquidity Support

Government Support

Government Issues

Return Planning

Strategic Planning

7 Key Focus Areas

Key Focus Areas

While the team structure and scope was designed for maximum agility, the task force identified seven key areas of focus to initially address across the portfolio:

In a matter of weeks, the company formed and stood-up a new Medical Devices Business Unit to meet the overwhelming need 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, and face masks. Additionally, it provided ventilator components as part of the efforts led by General Motors to produce more

than 100,000 ventilators.

ABC Technologies

Albertsons Companies » With more than 2,200 stores and 270,000 employees

across the United States, Albertsons Companies was on the “front lines” helping communities prepare for the impact of the coronavirus.

» Albertsons hired 50,000 employees by partnering with various companies to provide opportunities for furloughed workers.

» Provided front-line associates an extra $2.00 per hour of appreciation pay.

» Partnered with the United Food and Commercial Workers International Union (UFCW), America’s largest food and retail union, in announcing a joint national effort to seek a temporary designation of “extended first responders” or “emergency personnel” for supermarket associates to ensure that they are prioritized for testing and provided personal

protection equipment during the coronavirus outbreak.

Examples of Outstanding Portfolio Contributions During Initial Response



Operational Private Equity by the Numbers

Operational Private Equity

ESG Drivers in Operational Private EquityCerberus is an industry pioneer of operational private equity, an approach where our investment professionals, operating executives, and functional experts work in close partnership with an investment throughout its life cycle. This style of engagement provides us with the ability to improve every segment of the business and drive long-term value creation. Using this formula allows the team to pursue ESG in a collaborative and consistent manner, which includes identifying, analyzing, and managing material, sector specific ESG topics for every investment from investment to exit.

Operational private equity investments have three unique characteristics that influence how we approach the management of material ESG issues:

» Direct collaboration with management: The ability to collaborate directly with senior management on a day-to-day basis enables us to drive significant change more quickly. We have found that a partnership-based approach, with a focus on mutually beneficial outcomes, yields the best long-term result at our portfolio companies.

» Length of the hold period: Our average hold period of approximately five years, allows a more flexible timeframe to pursue a broader set of ESG focused operational improvements and strategic initiatives. 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.

» Type of companies: Our approach to operational private equity, investing in companies where we can improve the overall efficiency of a company, often lead us to find the most compelling opportunity investing in “asset-heavy” industries. This may manifest itself in a company that has a broad footprint, such as Albertsons, or a service provider that has substantial human capital like WFS or KBS. In both cases, these companies lend themselves to a robust ESG framework that we employ. Even in the cases where we invest in a Company that is “asset-light”, protecting and enhancing a company’s brand and reputation through ESG will improve our exit opportunities.

ESG Selected Data ResultsOur 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 facet of their environmental management programs which has enabled risk mitigation and cost reduction.

100.00%

33.33%

83.33%83.33%

66.67%

EnergyDemand Side

Energy Supply Side

WasteWater

Fuel

$6b

356,862

6,579,674

12,904,770

15

5

36

AUM

Companies

Sectors

Employees

Energy (Mwh)

GHG (MT)

Countries with Operations

2018-2019 Environmental Management Initiatives (Industrial Sectors)

20182019

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 maintaining effective oversight.

Regardless of sector, a strong and motivated workforce is crucial to realizing sustained business performance. A strong economy with historically low unemployment has created fierce competition for top-talent and forced companies to reassess their abilities to recruit and retain top talent. Companies across all sectors have made great strides to systematically improve employee engagement programs that contribute to financial outperformance.

2018-2019 Employee Engagement Programs (All Sectors)

2018-2019 Governance Program (All Sectors)

Operational Private Equity Environmental Social Governance Commercial Value CSR Report

2019 YoY Change 2019 YoY Change 2019 YoY Change 2019 YoY Change

Healthcare

Company 1 • • • • In progress

Industrial

Company 1 • • • • Published







Retail and Consumer



Services




Performance ResultsOur 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.

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 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 continuous refinement of the ESG questionnaire to reflect leading market practices.

The following pages provides case studies that highlight examples of noteworthy ESG accomplishments in our portfolio during 2019.

Decision-maker and/or committeeaccountable for ESG issues across operations

Provide annual training for your employees on key governance issues

Process for identifying, assessing, and managing beyond compliance

related risks and opportunities

83.33%

100.00%100.00%

20182019

Program to stay ahead ofchanging laws and regulations

Workplace violenceprotection program

Programs that support employeeinclusion and awareness

Conduct annual employee survey, communicate results,

and take actions to addressareas for improvement

Conduct annual employee performance

reviews and provide employees with

feedback

100.00%

100.00%

50.00%

83.33%

66.67%

20182019



Expanding Commercial Value Through TransparencyESG Focus AreasIn our 2017 ESG report, we highlighted the great strides made by ABC Technologies to advance its CSR program, including formalizing roles and oversight for CSR responsibilities along with consolidating data tracking and monitoring systems. Since that time, performance on material sustainability issues has remained very important to ABC and its customers, many of whom include the world’s leading automotive original equipment manufacturers (OEMs). Many of these OEMs send an annual supplier sustainability scorecard to ABC, which evaluates a company’s performance on a wide range of material sustainability topics. One area of increasing importance on this scorecard has been producing regular communications on sustainability progress through a public document such as a sustainability report.

Actions Taken The Cerberus ESG team collaborated with ABC to develop and produce the company’s inaugural CSR report, which was launched on January 24, 2020. The report details the company’s progress against its six CSR drivers, including (1) Our People (2) Customers centered products/innovation (3) Business ethics (4) Corporate governance (5) Community involvement & development and (6) Environmental sustainability. Highlights from the report include:

» Three percent reduction target for energy consumption and solid waste by 2020, for all Tier 1 Plants

» Designing various new products that include sustainability features

» Goal to become certified to ISO-45001 Occupational Health & Safety in 2020

» Commitment to the 10 principles of the UN Global Compact

» Improved employee engagement programs that reduced turnover by 27%

Value Added The report was well received by customers and employees alike, and has positioned the company to continue conversations about how it can continue to drive total business value 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.

Investment Phase

Onboarding Ownership Exit

Operational Private Equity Case Studies

ABC TechnologiesSince 2017, ABC has collaborated with Cerberus to develop its CSR program and align with increasing customer expectations.

C O R P O R A T E S O C I A L R E S P O N S I B I L I T Y R E P O R T

FY20

19

39 4040

COMMUNITY ENGAGEMENTThe ABC Technologies’ global footprint and workforce provides a wide range of opportunities to serve and positively impact the local communities in which we operate. Our community engagement strategy uses a two pronged approach, which consists of a global component that focuses on Science, Technology, Engineering and Mathematics (“STEM”) and a local component that allows individual facilities to select organizations they wish to support. This blended approach enables ABC Technologies to achieve a coordinated focus at scale while empowering our employees to drive impact at a local level.

UNIVERSITY/ COLLEGE RELATIONS

The attraction and retention of qualified co-op students, interns and new graduates is increasingly important to our success. We partner with post-secondary institutions to hire co-ops/interns for work 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 of Ontario Institute of Technology.

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.

A summary of our annual co-op/ apprenticeships is outlined below:

Co-op recognition event at ABC Head Office.

2019 ABC Technologies + Humber College Competition Awards Ceremony.

COMPETITIONS ABC Technologies’ has been supporting the Industrial Design Program at Humber College for over 30 years. Final year students in the Bachelor’s program compete in teams to develop solutions to real world challenges outlined by ABC as a project for one of their courses. The competition runs for eight-weeks and mentors from ABC visit the class on a weekly basis for design reviews. Feedback is provided and helps students get real-world industry perspectives. The final presentations are given at ABC Head Office to a jury of employees from various departments and the top teams are given an award by Executive Management.


Developing Best-in-Class Processes for Environmental and Safety Performance ESG Focus AreasSince 1955, SubCom has been at the forefront of the international communication infrastructure industry. The business combines comprehensive technical and marine expertise to design, manufacture, deploy, maintain, and operate undersea cable communication networks that transmit nearly all the world's data and communications.

Prior to Cerberus’ acquisition, SubCom’s core competency was held under the parent company TE Connectivity Ltd, which built a dynamic and leading sustainability program. During the carve out transaction, Cerberus identified several material sustainability topics and worked with the management team to ensure the continuation of programs that effectively addressed these areas. The main areas of focus include energy and fuel efficiency and health & safety – both of which contribute towards realizing the company’s broader strategic and financial goals.

Actions Taken Reducing GHG Emissions from Ship Operations: In 2009, SubCom implemented a 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 conservation training, hull and propeller cleaning and paint selection, Green Weather Voyage Routing, economical speeds and operational directives, and economical loading conditions.

Health and Safety: Each business unit develops an annual Safety Improvement Plan which is comprised of various initiatives that contribute towards meeting safety performance goals. Examples of initiatives include behavior based safety observations, machine guarding, facility walk-through, post-incident and reasonable suspicion drug & alcohol screening, lean daily management, and frequent employee training. Moving into the future, the company is focused on shifting the safety culture from reactionary to proactive through four keys actions: (1) Get the EH&S message to all levels (2) Track safety concerns to closure (3) Refuse to accept sub-standard conditions (4) Implement corrective actions.

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.

Investment Phase


SubComSubCom has taken systematic efforts to improve energy efficiency and enhance employee health & safety.

126,807Metric tons of CO2 saved

39,553Metric tons of fuel saved

15.9%Reduction in overall fuel consumption




Real Estate by the NumbersESG Drivers for Assets with External Servicing PartnersThe real estate investment platform is comprised of real estate and real estate-related assets with investments that span across assets classes, property types, and geographies. Investments include the debt and equity of commercial and residential portfolios, as well as real estate operating companies and servicing companies that provide our investments 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 oversight role.

For investments with external servicing partners, we routinely collaborate throughout the investment lifecycle to manage material ESG topics using a coordinated approach. For example, during due diligence, many ESG-related issues are captured through three principal activities: (1) Phase I Environmental Site Assessment, (2) Property Condition Assessment, and (3) the capital expenditures and deferred maintenance budget. The results from these activities are analysed, discussed, and form the basis for a mutually agreed upon operating plan.

ESG Selected Data ResultsFrom an ESG perspective, real estate assets typically have a significant portion of value at-stake from an energy 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 improve energy efficiency which reduces total operating costs, reduces GHG emissions, contribute to obtaining green building certification, and better align with tenant expectations.

Many of our external servicing partners have developed comprehensive ESG management programs that provide a wide range of capabilities and contribute towards enhancing the long-term commercial value of an asset.

67%

67%

81%

76%

86%

Strategy

Leader

GoalsInitiatives

Data

71%

57%

52%76%

100%

CR Report, Marketing Materials

ESG Tenant Engagement

Green Building Certification

ESG Procurement Process

Env. Diligence, ESG CapEx Program

$11.7bAUM

4Property Types

16Countries with Assets

21External Servicing Partners

13Owned Servicing Platforms

Real Estate

2018-2019 Energy Management Program Components

2018-2019 ESG Program Components

20182019

20182019

RE Partner Managed Assets Environmental Social Governance Commercial Value Creation


Commercial

Company 1 • • • •Company 2 • • • • Company 3 • • • • Company 4 • • • • Company 5 • • • • Company 6 • • • • Company 7 • • • • Hotel

Company 1 • • • • Company 2 • • • • Company 3 • • • •Company 4 • • • • Company 5 • • • • Company 6 • • • •Company 7 • • • •Office

Company 1 • • • •Company 2 • • • •Company 3 • • • • Company 4 • • • •Company 5 • • • • Company 6 • • • • Company 7 • • • •Company 8 • • • • Company 9 • • • •Company 10 • • • • Company 11 • • • • Company 12 • • • •Company 13 • • • • Company 14 • • • •Company 15 • • • •Company 16 • • • •Residential

Company 1 • • • •Company 2 • • • •Company 3 • • • • Company 4 • • • •Company 5 • • • •





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 well as our team’s continuous refinement of the ESG questionnaire to reflect leading market practices.




Best in Class ESG Management ProgramESG Focus AreasThe 637,000 sqft office complex was purchased in 2014 by a joint-venture between Cerberus and our partner, Greenlaw Partners. The complex is 100% net-leased to Bank of America through 2023, which has been the original occupant of the property since 1983, and effectively serves as an operations facility for the bank. Bank of America has a world-class sustainability program that includes several commitments to reduce the environmental impacts of its operations, such as energy, water, and waste. Given Bank of America’s long-history as a tenant of the building, along with their best-in-class sustainability program, this allowed Cerberus and Greenlaw to monitor the progress and provide support when and if needed.

Actions Taken Selected highlights from Bank of America’s sustainability initiatives include:

» EBOM LEED Certification

» Energy Star Certification

» Smart Irrigation System in place

» Interior LED Lighting Retrofit completed in 2019

» Electric Vehicle Charging Stations installed in 2018

» Variable Frequency Drives on Cooling Tower System installed in 2020

» Integrated Pest Management Program in place

» Waste and Recycling Management Program in place

Value Added The actions taken by Bank of America to improve the sustainability of the Brea office complex have yielded numerous financial and environmental benefits, including reduced operating costs, improved occupant welfare, and decreased environmental footprint.

Investment Phase


ESG Case Studies for Assets with External Servicing Partners

Brea Office CampusA systematic, consistent approach enabled superior ESG results.



Energy Star and LEED Gold Certification ESG Focus AreasIn 2017, Cerberus and our partner, The Muller Company, completed the recapitalization of an 841,036 square-foot, three-building office portfolio in Orange County, California. One component of the investment strategy was focused on increasing occupancy by aligning the building with tenant expectations, such as maintaining high performance green building certifications. With mounting anecdotal and empirical evidence, tenants are increasingly interested in occupying buildings with a green building certification such as EnergyStar and LEED. These certifications attest that buildings have met a rigorous set of standards which provide numerous benefits including lower total operating costs, improved employee productivity, reduced employee absenteeism, and higher building valuations.

Actions TakenThe three buildings have obtained LEED Gold and EnergyStar certifications, which require a variety of ongoing activities to maintain the coveted designations. For example, to maintain 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 pollution by considering environmental impacts, along with price, performance and other traditional selection factors, when making purchasing decisions. The policy provides three categories with sustainable purchasing requirements including ongoing consumables, durable goods, and facility alterations and additions. Selected highlights from these purchase requirements are as follows:

Sustainable Purchasing for Ongoing Renewables

» Purchases contain at least 50% rapidly renewable material

» Purchases contain at least 50% Forest Stewardship Council (FSC) certified wood

Sustainable Purchasing for Durable Goods

» ENERGY STAR labeled

» 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.

Investment Phase


Orange County Office ParksGreen building certifications can contribute to value creation by attracting new tenants and increasing occupancy.



72.73%

75.00%

100.00%100.00%

50.00%

EnergyDemand Side

EnergySupply Side

WasteWater

Fuel

100.00%

100.00%

63.64%45.45%

54.55%

Program to stay ahead of changing laws and regulations

Annual employee performance reviews and feedback

Annual employee survey, communicate results, and take actions to address areas for improvement

Workplace violence protection program

Programs that support employee inclusion and awareness

ESG Drivers for Real Estate Owned Servicing PlatformsThe ESG management approach for real estate owned servicing platforms is similar to 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 the management of material ESG issues.

» Length of the hold period: A longer hold period provides a more flexible timeframe to pursue a broader set of ESG focused operational improvements and strategic initiatives. 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.

» Type of companies: Owned servicing platform companies typically have international 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.

ESG Selected Data Results

A strong and motivated workforce is crucial to realizing sustained business performance. A strong economy with historically low unemployment has created fierce competition for top-talent and forced companies to reassess their abilities to recruit and retain top talent. Companies across all sectors have made great strides to systematically improve employee engagement programs that contribute to financial outperformance.

Many companies increasingly have value at-stake from an environmental perspective, including failure to align with stakeholder expectations. As a result of a consistent approach and collaborative efforts, many of these companies have improved each facet of their environmental management programs which has enabled risk mitigation and cost reduction.

2018-2019 Employee Engagement Programs

20182019

20182019

2018-2019 Environmental Footprint Reduction Initiatives

75.00%

66.67%75.00%

Decision-maker and/or committee accountablefor ESG issues across operation

Process for identifying, assessing, and managing beyond compliancerelated risks and opportunities

Provide annual training for your employees onkey governance issues

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 maintaining effective oversight.

RE Owned Servicing Platforms Environmental Social Governance Commercial Value Creation CSR Report


Hotels and Leisure



Industrial


Services














2018-2019 ESG Governance Program

20182019




Mitigating Environmental-Related Credit Risk ESG Focus AreasBluestone is a lender that specializes in residential home loans across Australia and New Zealand. With a team of over 290 professionals, the company manages over A$10bn in home loans. The recent Australia bush fires have highlighted the potentially catastrophic physical impacts from climate change and illustrate the significant value at-risk to both companies and economies. Although the mortgage industry is well-versed at pricing risks, the environmental risks associated climate change have created an evolving risk set that must be taken into consideration to reduce default risks.

Actions Taken As part of Bluestone’s commitment to sustainability across operations, environmentally related factors are appropriately considered throughout the lending process. The company uses a systematic approach, coupled with firm guidelines, to evaluate and mitigate potential environmental risk factors.

All loan applications that proceed past conditional approval are initially evaluated for potential environmental risks by a third-party valuation firm. The scope of environmental factors considered includes flooding, landslip, bushfire, contamination, cyclone, pest infestation, and electrical. The results of this evaluation are first reviewed by another third-party that validates accuracy of the information and cross-references against region-specific data, such as bushfire prone land mapping and flood awareness maps. Next, a Bluestone loan coordinator reviews the report and must provide sign-off before the loan proceeds to underwriting. If any concerns are identified, additional reports are ordered to provide further input and the underwriter takes this into consideration accordingly. Where a clear and present risk is identified, Bluestone will either lend and condition for appropriate insurance to protect 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 Due to acceptable locations restrictions, it is a very rare occurrence to reach the valuation stage with a loan that presents considerable environmental risks.

Investment Phase


ESG Case Studies for Assets for Owned Servicing Platforms

BluestoneBluestone manages emerging physical risks through rigorous environmental assessments.

Guest SafetyESG Focus AreasIn June 2017, Cerberus acquired Qbic Hotels Ltd, an urban 3 star hotel concept. The acquisition included the London flagship location and the corporate management platform. One central feature of Qbic’s brand is its commitment to environmentally sustainable design and operations, including a long list of industry best practices. For example, use of solar PV to offset electricity, recycling capabilities for multiple waste streams, 100% LED lighting, motion sensors, chemical-free cleaning products, water saving devices, and organic mattresses. Although the Qbic brand has firmly incorporated sustainability and environmental efficiency into its design and operations, the annual Cerberus ESG questionnaire revealed several opportunities for value creation related to social and governance matters.

Actions Taken We were able to leverage our experience in other hotel portfolios and work together to establish a Modern Slavery Statement to address human trafficking, including recommendations for staff training.

Value Added The introduction of these new policies will help the hotel to improve the guest experience by tackling the global human trafficking crisis, bolster an environmental dedicated to guest safety, and protect the hotel from potential legal and / or reputational issues.

Investment Phase


QBICWe leveraged portfolio knowledge to improve social performance.

Green 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.





Global Credit: Cerberus Business Finance and Corporate Credit

ESG Drivers in Cerberus Business FinanceThe Direct Lending investment platform (Cerberus Business Finance) provides commercial loans to leading middle-market companies, including acquisition financing, recapitalizations, working capital financing, bridge loans, and debtor-in-possession financing.

Within this investment platform, ESG issues are primarily borne out of the credit risk profiling process and due diligence typically contemplates compliance-oriented issues and high impact potential risks such as EHS compliance, environmental remediation, 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.

In situations that result in a workout agreement with restructuring, Cerberus will likely become directly involved with the senior management team. This outcome provides increased ability to improve ESG performance, in which case an operating company style approach (i.e., operational private equity) is utilized.

ESG Selected Data ResultsThe highlighted results below provide a more detailed view of the programs and policies that each company is evaluated on and contribute to the overall R/Y/G score for each dimension.

60%

25%

60%75%

50%

EnergyDemand Side

EnergySupply Side

WasteWater

Fuel

80%

100%

20%

40%

80%

Program to stay ahead of changing laws and regulations

Annual employee performance reviews and feedback

Annual employee survey, communicate results, and take actions to address areas for improvement

Workplace violence protection program

Programs that support employee inclusion and awareness

40.00%

60.00%80.00%

Decision-maker and/or committee accountable for ESG issues across operations

Process for identifying, assessing, and managingbeyond compliance related risks and opportunities

Provide annual training for your employees on key governance issues

Global Credit by the Numbers

$26.6b

3,808

186,493

38,006

7

3

11

AUM

Companies

Sectors

Employees

Energy (Mwh)

GHG (MT)


2018-2019 Environmental Reduction Initiatives 2018-2019 Employee Engagement Programs

2018-2019 Governance Program

2018 2019

Global Credit Environmental Social Governance Commercial Value Creation CSR Report


Services




Retail and Consumer


Industrial









ESG Drivers in Corporate CreditThe Corporate Credit investment platform primarily invests in stressed and distressed debt of middle market companies. The underwriting strategy centers on investing at significant discounts to intrinsic value with a heightened focus on operational risk and opportunity. Downside protection risk is achieved through three main tactics: favouring senior and secured debt over junior and unsecured credit investments, identifying sources of legal and structural protection/risk, and developing hedging strategies to mitigate company, industry, and macro risk.

The due diligence approach is similar to operational private equity, including comprehensive company, industry, operational, and competitive evaluations with a focus on operational risk and opportunity. Within this investment platform, ESG issues are primarily borne out of the credit risk profiling process and due diligence typically contemplates compliance-oriented issues and high impact potential risks such as EHS compliance, environmental remediation, 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.




Driving Growth with Sustainably Sourced MaterialsESG Focus AreasBased in Sheffield, England, Home Decor is one of Europe’s leading manufacturers of contemporary bedroom furniture and high-quality kitchens and goes to market through both its contract (B2B) and direct-to-consumer channels (B2C). B2B customers include 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. On the B2B side of the business, Home Décor frequently has to complete an annual sustainability supplier scorecard for many of its customers which includes questions about various sustainability practices such as sustainable raw materials. It is critical for a supplier to achieve a score above the minimum requirements to be eligible for the bid list and remain in good standing with the customer.

Actions Taken Home Décor utilizes certified sustainable materials for both timber and steel in its products to ensure alignment with increasing customer expectations. For timber, the company has a Forest Stewardship Council (FSC) Chain-of-Custody certification, which traces the path of products from forests through the supply chain, verifying that FSC-certified material is identified or kept separated from non-certified material throughout the chain. The FSC sets standards for responsible forest management to protect forests for future generations. FSC® certified products are manufactured under license number FSC-C013654 and identified with an FSC logo. In addition to timber, steel is compliant with the European Union’s REACH regulation (Registration, Evaluation, Authorization and Restriction of Chemicals). To comply with the regulation, companies must identify and manage the risks linked to the substances they manufacture and market in the EU. They have to demonstrate how the substance can be safely used, and they must communicate the risk management measures to the users.

Value Added Home Décor’s ability to procure certified sustainable primary materials has been critical to meeting customer expectations and has positioned the company to continue capturing market share into the future as this preference expands. Additionally, the use of certified sustainable materials has contributed to de-risking the company’s supply chain by preventing situations where illegal or controversial issues could arise. This ultimately serves to protect brand value at-stake and enhance the company’s reputation in the marketplace.

Investment Phase


ESG Case Studies for Cerberus Business Finance

Home DécorHome Décor utilizes product sustainability certifications to meet customer demands and de-risk its supply chain.


Targeted Health and Safety ImprovementsESG Focus AreasIsola is leading manufacturer of advanced copper-clad laminates, dielectric prepregs and PCB materials. The nature of the operations, combined with the global footprint, make environmental, health and safety performance critical to achieving immediate and long-term business objectives. In 2018 when Cerberus acquired equity ownership, ESG due diligence revealed several opportunities to further enhance the process safety/health & safety programs.

Actions TakenThe Isola and Cerberus EHS teams collaborated to conduct a 12-month assessment and identified specific areas for improvement to address key management concerns and continuing business needs. Activities and accomplishments included:

Health and Safety: Evaluated current program, management structure, personnel, reporting and metrics

» Established detailed JSAs for each workstation » Evaluated EHS task assignment and workload » Developed health and safety KPIs » Revised management reporting presentations » Created a training and education program for all employees » Created a Road Map and defined accountabilities for the reorganization of the EHS program

Process Safety: Evaluated current program, accountabilities, structure, reporting and metrics

» Conducted a detailed review of incidents, process capabilities and personnel » Conducted a detailed review of each facility’s chemical capabilities, the process associated

with products manufactured, chemical, risks and identified mitigating factors » Revised and updated step-by-step job safety analysis (JSA) and aligned with work

instructions to reflect the mitigating factors » Updated all work instructions based on ISOLA Best Practices » Created the role of Process Safety Manager (PSM) with a qualified engineer » PSM training completed for the PSM Manager » Created a 2-year Process Safety Management Program Road Map with accountabilities

and program goals

Process Safety: Conducted a complete review of the R&D program, process requirements, and the process for implementation of new product into the various facilities

» Established key accountabilities and training requirements at all levels of product development » Provided a process connecting R&D product and plant process knowledge with critical

safety requirements for safe production required for product launch » Provided transparency and guidance on plant process capabilities and limitations based

on chemical risks and plant process controls and equipment » Revised and upgraded the management of change program establishing key accountabilities

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.

Investment Phase


IsolaWith assistance from Cerberus EHS experts, Isola developed a clear path forward to improve health and safety performance.




ESG Case Studies for Emerging Markets Corporate Credit

Commercial Success Driven by ESG Actions ESG Focus AreasBayport Management Ltd is a leading emerging market financial services provider operating across sub-Saharan Africa and Latin America. Services include transactional banking, credit and insurance solutions to individuals and micro-businesses in emerging and frontier markets. As a financial services operator in an emerging market, operating with the highest degree of integrity is critical to establishing trust with customers and community members.

Actions Taken The company has a structured process in place to systematically manage a comprehensive set of ESG issues across operations. Examples include:

» Governance: The subsidiary governance framework is divided into seven areas of focus including governance (board charter and committees), risk management (policies, frameworks, and reporting), fraud and ethics (code of ethics, fraud, reporting hotline), IT governance (information security), health and safety (policies, emergency preparedness), environmental (policies, hazardous substance management, resource efficiency initiatives, pollution prevention initiatives), and other (business continuity, CSR).

» Environmental: The Bayport Environmental Management System (EMS) is focused on resource conservation (energy and water consumption) and pollution (waste reduction, recycling, hazardous substance disposal).

» CSR: All subsidiaries have active social investment programs that contribute to the communities close to the Bayport operations, focusing mainly on education and health.

» Endorsed the SMART campaign: The Client Protection Principles articulate the standards of care that clients should expect to receive when doing business with a financial service provider. These standards include transparency, responsible pricing, fair and respectful treatment of clients, privacy of client data, and mechanisms for complaint resolution.

The comprehensive set of ESG actions taken by Bayport, combined with its customer centric approach, have enabled the company to better align with stakeholder expectations while effectively mitigating internal and external risks to operations. These actions have significantly contributed to the company’s continued success and growth, including an industry leading default rate of 6%.

Value Added 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 significant credit risks and opportunities. Specifically, versus other peers operating in the sector in Colombia, the deal team was able to verify the broader Bayport ESG policies in practice such as non-discriminatory loan origination policies and practices to hard-copy backups stored at independent climate-controlled storage facilities; practices that are not as stringently adhered to by Bayport’s peers in Colombia. A strong adherence to the highest standard of ESG enabled Cerberus to lead a US$100mm bilateral secured facility to help grow Bayport’s presence in Colombia through new loan origination to Colombians not served by the traditional banking system.

Investment Phase


BayportA structured, balanced approach to ESG contributes to long-term commercial success

Award Winning Sustainability Program ESG Focus AreasGrupo 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, diversified and wide business platform. The origination and services business, Agfood, provides grain storage, conditioning and logistic services as well as access to different ports and markets. The crop protection business, Agrofina, produces specialty off-patent crop protection products. In recent years, the agribusiness sector has experienced increased pressure from a multitude of sustainability related issues including ecological impacts, water stress, chemical impacts on human health and insects, worker safety, and labor rights.

Actions Taken The sustainable business management system consists of three components and is critical to establishing a foundation for ethics and integrity across the organization.

» Whistleblowing system: Communication channel which is transparent, confidential, and open to all stakeholders

» Corporate governance: Framework guaranteeing transparency

» Ethics code area policies: Management's internal framework prevents risks within the organization

Additionally, the company has adopted a formal sustainability framework which is comprised of four components and used to guide sustainability practices throughout operations.

» Environment: The production model takes into account responsible use of fertilization.

» Society: Actively engage local communities to foster a positive dialogue.

» Human rights: Integrate internationally recognized standards into all employment practices.

» 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 manage production.

The company has won a number of awards for its sustainability program and practices. Highlights include:

» The first company in the world to get double certification of its soy productive process under the standards of sustainability guaranteed by the International Sustainability and Carbon Certification (ISCC) and the Round Table for Responsible Soy (RTRS)

» Received the Environmental Sustainability Report (UCES Award) that reflects the company’s agricultural production system, its impact on the environment and its relationship with society

» 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)

Value Added 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 significant credit risks and opportunities. Los Grobo’s integrated business model enables compliance with the highest environmental standards set globally and ensures safe and productive agricultural process in Argentina. The ESG policies in place ultimately enabled Cerberus to comfortably structure and disburse a US$50 million bilateral secured loan facility that enabled Los Grobo to weather the financial turmoil caused by unexpected election results in Argentina. This facility ensures Los Grobo’s best-practices regarding agricultural production continue to make an impact in the local market.

Investment Phase


Grupo Los GroboProgress across the board on ESG buildings long-term commercial success



Cerberus Frontier by the Numbers

Cerberus Frontier

ESG Drivers in FrontierCerberus 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 developed a successful approach to frontier market investing, which consists of leveraging leading investment strategies, developing in-country relationships, and utilizing hands-on portfolio management.

The Cerberus Frontier investment thesis is comprised of two objectives: (1) Deliver a market or above market, risk-adjusted rate of financial return; and (2) Identify investments with a high potential to create a positive non-financial impact. The second objective broadens the 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 human and environmental impacts by agreeing on specified ESG targets with management from the outset.

Investment PhilosophyCerberus Frontier utilizes a three-pronged approach to investing, which includes:

1. Maximizing Positive Impact Through the Choice of Target Country: Investing in a country that is generally avoided by the international investment community will drive domestic enterprises which promote local economic development and a multitude of corresponding benefits.

2. Deal Selection: Within most sectors, certain types of deals or deal structures can be prioritized in order to maximize potential non-financial benefits. Cerberus Frontier will generally:

» Prioritize businesses that present the greatest potential to address the country’s most acute needs (education, healthcare, food security, etc.)

» Prioritize businesses owned and run by locals rather than foreigners

» Prioritize women-owned businesses

» Prioritize minority investments so that Cerberus Frontier is a partner to the entrepreneur – rather than taking over the business

» Prioritize businesses with limited access to alternative capital sources.

3. Proactive Implementation of ESG Improvements to Create Maximum Benefits: The general considerations in post investment are:

» Environmental: Enhance environmental protection and stewardship as a condition of investment. The companies are expected to go beyond compliance.

» Social: With the creation of new jobs as a result of the capital investment, Cerberus Frontier will focus on enhancing worker benefits such as healthcare and workplace safety.

» Governance: An enhancement of accountability and governance is always required. These include: financial management systems; human resource management practices; board operation and oversight; internal and external audit practices; and tax reporting and payment.

$139.5m

9

19

12

6

AUM

Companies

Sectors

SDGs Addressed


ESG Selected Data Results Across the Platform

Fuji-Altai LLC Rooftop Project (Mongolia)

ESG Focus Areas

Fuji-Altai LLC, a general roofing and construction company, undertook a project to expand facilities of a secondary school in one of the most populated districts of Ulaanbaatar. The area has the highest number of school-aged children due in large part to a large number of herders migrating from rural areas seeking better economic opportunities. While working on the construction of the school extension, Mr. Gerelt-Od, CEO of Fuji-Altai, noticed a lack of recreational space for children in the area. The school is fully surrounded by a crowded community with no running water or public facilities, and there are virtually no public spaces and play areas for children.

Actions Taken

Addressing Social Issues: Since the planned new gym would not be adequate to accommodate the sheer number of students, Fuji-Altai and Cerberus Frontier proposed to leverage the former’s expertise in Firestone Building Materials’ RubberGard EPDM technology to utilize the building roof as a sports and recreational area. Cerberus Frontier offered to take the lead in raising the necessary funds to complete a sports and recreational area on the roof that would include a basketball court, mini soccer field, and additional green space. By using the rooftop space in a creative way, Fuji-Altai was able to provide the school community with a modern and spacious recreation area.

Support from Cerberus Frontier: While Fuji-Altai donated the necessary waterproof roof lining material and the labor needed to complete the project, Cerberus Frontier mobilized its in-country and international

network to secure additional financial support. Local portfolio companies and a US-based charity provided financial support, and this has become the first joint community initiative across different portfolio companies in Mongolia.

Value Added

The rooftop recreational area was the first of its kind in Mongolia and was widely praised as an innovative solution to a widespread problem of recreation space in low-income districts throughout the city. The completed project has set a precedent in Mongolia as a way for the private sector to pool resources and expertise to find creative, long-term solutions to pressing social problems in the country.

29.00%

52.80%

21.40%

Total Female Employees

Total Female Managers

Female Participants Receiving Training

$1,180,433

$143,255 $48,711 $4,293

$-

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

Paid Health andSocial Insurance

Subsidized Meals

Sports and Cultural Activities

Tuition Reimbursementto Employees

Gender Equality Decent Work and Economic Growth

ESG Case Study for Cerberus Frontier


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

4

Conclusion

Looking ForwardEach year we have raised the bar for our ESG program, and 2020 will be no exception. In an ever- changing world with increasing volatility seemingly the new normal, it is a clear reminder that ESG is a proxy for strong management – and a company with strong management will always be better equipped to weather the storm.

Launching our New ESGI StrategyThe rigorous processes, systems, and tools we have built over the years to track, monitor, and improve ESG performance within the portfolio provide a solid foundation from which to launch our new ESGI strategy. And at the core of this foundation is our steadfast focus on building relationships and collaboration – both within our investments and our investors. We will continue to systematically work with our portfolio companies and properties, as well as our executive leadership team, to broaden and deepen our ESG programs at Cerberus to facilitate our mutual goal of delivering long-term, risk-adjusted returns.

Integrating TCFD RecommendationsWe will continue to monitor industry developments and integrate what we think is 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 scenario modelling requirements set forth by the TCFD recommendations and anticipate this to be part of our future ESG program.

Developing a University Partnership ProgramFinally, we will continue to innovate and stay ahead of the curve by proactively 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 scale identified areas for value creation that seek to improve commercial value.

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 year and look forward to the next chapter in driving this program forward. Our conviction, and our responsibility, will continue to be centered on delivering a competitive edge to our investors – and the achievements of the ESG program are a staunch reflection of that commitment.

Our ESGI Journey

1990s - Early 2000s: Focused on due diligence and retained liabilities

Formalized our ESG policy and developed our

first ESG due diligence questionnaire for investors

Developed a technology round table to monitor significant developments driving ESG innovations

Mid-2000s: COAC employs ESG professionals to focus on

due diligence and portfolio company monitoring,

eliminating third-party silos

Published our first ESG annual report

Developed a detailed ESG scoring and

reporting framework

Added additional ESG resources to support the

ESG accounting elements

Added three senior leaders to our ESG committee

Expanded use of technology to help manage our ESG program

Added internal ESG resources and updated ESG reporting

Added a senior leader from Cerberus Frontier to our ESG committee

Incorporated "impact" metrics into ESG analysis

Formalization of Cerberus Social Responsibility Program

Formal ESG Committee established to provide oversight

for the Cerberus ESG program

Expanded from EHS, HR, Legal, and Compliance to more holistic Environmental, Social, and Governance issues

1990

2000

2010

2013

2014

2015

2016

2017

2019

2018


Appendix

5


AppendixAppendix

Glossary

CES Cerberus European Servicing

CO2 Carbon Dioxide Emissions

CSR Corporate Social Responsibility

CTS Cerberus Technology Solutions

COAC Cerberus Operations and Advisory Company

EHS Environmental, Health, & Safety

ESG Environmental, Social, Governance

F100 First 100 days of transition

FCPA Foreign Corrupt Practices Act

FSC Forest Stewardship Council

GHG Greenhouse Gas

GRESB Global Real Estate Sustainability Benchmark

GRI Global Reporting Initiative

HR Human Resources

ISO International Organization for Standardization

IPO Initial Public Offering

KPI Key Performance Indicator

LED Light Emitting Diode

LEED Leadership in Energy and Environmental Design

NASD National Association of Securities Dealers

NGOs Non-governmental Organizations

NYSE New York Stock Exchange

PRI Principles for Responsible Investment

SASB Sustainability Accounting Standards Board

SEC Securities and Exchange Commission

SDGs Sustainable Development Goals

YoY Year Over Year

Biographies of ESG Committee Members

Andrew I. KandelGlobal Chief Compliance Officer, Senior Legal Counsel, and Senior Managing Director, Cerberus Capital Management, L.P.

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 the Chairman of the firm’s Environmental, Social, and Governance (ESG) Committee. As Chief Compliance Officer, Mr. Kandel 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, 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 efforts and is a key driver in incorporating ESG into the activities of the firm, its portfolio companies, and investments. Prior to 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 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, Consumer Fraud, Civil Rights, Environmental, and Real Estate Finance Bureaus. From 1993 to 1995, he was Senior Special Counsel, 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 Pennsylvania Law School. He is a Lecturer and Adjunct Professor at the University of Pennsylvania Law School.

Frank BrunoCo-Chief Executive Officer and Senior Managing Director, Cerberus Capital Management, L.P.

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 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 joining Cerberus in 1998, Mr. Bruno has overseen the investment of more than US$32 billion in equity capital in Asia and 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, 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 Advisory Board. He is an active supporter of Hire Heroes, a U.S. military veteran transition resources organization and Save the 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 Committee, and NPL Committee.


AppendixAppendix

Biographies of ESG Committee Members (continued)

Chan W. GalbatoChief Executive Officer, Cerberus Operations and Advisory Company, LLC

Mr. Galbato joined Cerberus in 2009. He serves as Chairman of Avon Products, Inc., Chairman of YP Holdings, LLC, Director of New Avon, Director of Blue Bird Corporation and Director of DynCorp International, and as a director on the Executive Committee of Steward Health Care, LLC. Previously, Mr. Galbato served as a director of the publicly-traded Brady Corporation for seven years, including as Lead Director. He also served as Chairman to North American Bus Industries, Inc. and Guilford 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 start-up. He spent 14 years with General Electric Company, holding several operating and GE Finance leadership positions 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 career he played professional baseball with the Montreal Expos in their minor league system. Mr. Galbato holds a Master degree in Business Administration from the University of Chicago and a Bachelor of Arts in Economics from the State University of New York. Mr. Galbato is a member of the Cerberus Capital Management Operating / Management Advisory Committee, Operational private equity Investment Committee, and Environmental, Social and Governance Committee.

Pieter KortewegVice Chairman and Senior Advisor, Cerberus Global Investment Advisors, LLC

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 2005 – 2020) and as Chairman of the Supervisory Boards of BAWAG Group AG and BAWAG PSK Bank AG (Vienna 2007 – 2019).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 Board of Directors of Capital Home Loans Ltd (Fleet, UK), all of which are Cerberus portfolio companies. Dr. Korteweg also served as Senior Advisor to Anthos Amsterdam, as Vice Chairman of the Supervisory Board of the Dutch Central Bank, Chairman of the Supervisory Board of the Netherlands Pension and Insurance Authority, Chairman of the Dutch Central Bureau of Statistics, Member of the Board of Directors of SSA Global Technologies Inc. (Chicago), non-executive Member of the Board of Directors of Aozora Bank Ltd (Tokyo), Member of the Board of Directors of Showa Jisho Co. Ltd (Tokyo), Chairman of the Supervisory Board 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.

Paul J. Warmus P.GSenior Operating Executive, Cerberus Operations and Advisory Company, LLC

Mr. Warmus joined Cerberus in 2007 and is the COAC Environmental, Health, and Safety (EHS) Practice leader. In the 22 years prior to joining Cerberus, Mr. Warmus worked in the environmental and engineering consulting industry working for international consulting firms. In his last position, Mr. Warmus was a Principal and Senior Vice President at ATC Associates where he was responsible for environmental remedial programs. Mr. Warmus has worked with various industries and governmental agencies developing EHS management / compliance programs, assessing / remediation soil and groundwater, 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.

Sheila PelusoHead of Human Resources, Senior Legal Officer, and Managing Director, Cerberus Capital Management, L.P.

Ms. Peluso joined Cerberus in 2005. From 2001 to 2005, Ms. Peluso was an Associate with Chadbourne & Parke LLP in New York where her practice focused on representing private equity clients in M&A and securities and general corporate matters. Ms. Peluso is a graduate of Binghamton University and Cornell Law School. Ms. Peluso is a member of the Cerberus Capital Management Securities Compliance Committee.

Christopher A. HoltGeneral Counsel and Legal Practice Leader, Cerberus Operations and Advisory Company, LLC

Mr. Holt joined Cerberus in 2006 and is a member of the firm’s Office of the General Counsel. In his capacity as General Counsel of COAC, Mr. Holt serves as a senior legal advisor to the firm on a broad array of matters involving the acquisition, oversight and monetization of companies in the Cerberus operational private equity, lending, distressed debt and other investment portfolios. He also supports the legal needs of COAC and its operations executives and handles special projects 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, 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 Catholic University, Washington, D.C.

Jayne BinzerSenior Operating Executive and Head of Strategic Initiatives, Cerberus Operations and Advisory Company, LLC

Ms. Binzer joined Cerberus Operations and Advisory Company, LLC in 2004. During her tenure she has participated in numerous transactions and turnarounds, focusing on human capital and social issues. Prior to joining Cerberus, Jayne was a Principal and East End Consulting Partners, LLC. She spent her early career in positions of increasing responsibility at Bloomingdale’s where her last role was a VP of Human Resources. She sits on the Boards of New Avon LLC, and New Avon Canada, as well as Friends of the East River Esplanade, where she is Treasurer and a member of the Executive Committee. Jayne is a graduate of Hofstra University.

Ariunaa BatboldManaging Director, Cerberus Frontier

Ms. Batbold is a Managing Director for Cerberus’ frontier market investment platform. She joined Cerberus in 2018 when 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 beverage, technology, and consumer goods. Ms. Batbold has been with SGI Frontier for approximately eight years and was most recently a Partner at the firm. Prior to SGI Frontier, she co-founded a boutique investment bank in Asia. Ms. Batbold also has a consulting background from Bain & Company, where she worked as a Strategy Consultant in the United States. Ms. Batbold holds a joint Masters in International Business from the Tuck School of Business at Dartmouth College and the Fletcher School of Law & Diplomacy at Tufts University.

Biographies of ESG Committee Members (continued)


Appendix

Published June 2020

Steven K. HatfieldSenior Associate, Cerberus Operations and Advisory Company, LLCMr. 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 MageeAssociate, Cerberus Operations and Advisory Company, LLCMs. 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 NeporentAnalyst, 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. RooneyManaging 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 TurketoSenior 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 AlexanderChief 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.

Biographies of Other Cerberus ESG Resources


Appendix

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Environmental Social Governance Impact · 2020. 7. 2. · and social issues, as well as prudent governance, helps to mitigate risk and create more valuable companies and properties

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