Cyber resilience considered before White Oak lends to small firms

Transcript:

Liz Skinner [00:00:04] Welcome to Three Questions, I’m Liz Skinner with InvestmentNews and with me today is Teresa Cutter. She is head of ESG and Impact at White Oak Global Advisors. White Oak has deployed more than eight billion dollars of capital to about 500 small and medium sized companies through loans and other private credit products since it was started in 2007. Thank you for joining us today.

Terésa Cutter [00:00:29] Thank you, Liz. I really appreciate being here today.

Liz Skinner [00:00:32] Let’s start off by telling us a little bit about how White Oak incorporates ESG criteria as it’s considering to lend to a firm.

Terésa Cutter [00:00:44] White Oak has a really thorough ESG analysis and platform. Essentially, we run each credit that’s eligible for ESG into a proprietary calculator and a really detailed rubric. We also have our engagement tool that we use, which helps increase our due diligence information. And we have three committees that are involved in our ESG process for better oversight and thought leadership. We can also build ESG into the structure of our credits through sustainability covenants that can be triggered in a simultaneous ESG sustainability event, which is also tantamount to a credit event for us. We Buckett ESG under the credit risk umbrella and we’re happy to say that we train all of our team members and run ESG through our culture. So most of our members are trained through the UNPRI and we are partnered with SASB Sustainable Accounting Standards Board. And ultimately our belief in philosophy is that ESG funnels its way through credit investing and promotes value, which can increase alignment across a company and investors and the strategy. Our platform.

Liz Skinner [00:02:03] And has your firm always integrated ESG or has this kind of evolved in recent years to become part of your analysis?

Terésa Cutter [00:02:14] Since our founding in 2007, White Oak has had its core function to help small businesses receive financing and to be able to run their business and in some cases to get back on their feet. When we started, we were helping small businesses during the wake of the financial crisis of 2007 and 2008. And today we find that founding mission to help these small businesses more critical than ever during the coronavirus pandemic. And we’ve partnered with several governments in order to help these small businesses receive the financing they need. And think about it as your small local donut shop or a medical practice that you go to or the dentist’s office. So we’re partnering with governments in that respect to help these small businesses stabilize and put their solution out. And then we’re also partnering with the government in order to help these businesses retrofit their buildings, including installing solar and electric vehicle parking spaces to be able to install a low flow water technology LED lighting. And so these small businesses are able to reduce their carbon footprint as well as a part of their stabilization efforts. Were the only private debt manager that I’m aware of with the responsible investment track record of about seven years. And in fact, our history in this space goes back about 15 years when we developed the first solar purchasing power agreement. And so we’re here to stay. We’ve been in the business long before ESG was a household acronym and we continue to to deepen our resources in ESG and impact.

Liz Skinner [00:03:47] One aspect that I understand White Oak considers as part of the G for the governance factors is cyber resilience. What does the firm like to see with in regards to cyber resilience? And how do deficiencies in this kind of thing suggest a broader problem with the company?

Terésa Cutter [00:04:09] Yeah, so cyber resilience is becoming extremely important with the digitization of the economy. In a post pandemic world we have a lot of folks who are working online now, consuming online, online, and essentially that provides more fodder, if you will, for online security breaches. In the last six months alone, we’ve seen two global massive breaches of large scale T mobile being one, the capital pipeline being another. And these are these are breaches of national security. And if you compare that acceleration to the pace of what we’ve had over a two year period with Equifax and Capital One, what we had in two years is now speeding up over the course of six months. So cyber resilience is becoming a really big issue. And what we’re looking at is deeply into the policies of a company. You don’t want to see a one pager when you’re looking at a company and their cyber resilience program. That’s basically saying that the companies got their head in the sand. Breaches are here. I think everyone’s aware that there may be a breach at some point in their company. And so it’s important to make sure you’ve got cyber protections, dual authentification. You want to have resiliency and redundancy with your servers, passwords, other ways, protections for the privacy of your consumers, their finances. And equally importantly, you want to make sure that you have a post breach plan. So if there is a breach, you want to know what their swift disclosure and transparency will be with their clients and customers and what their indemnification practices will be. I’ll leave you with this. Essentially, there was a survey that was recently conducted by RBC. They said that two thirds of investors are now prioritizing cyber resilience as their top ESG concern.

Liz Skinner [00:05:55] Wow. So I guess we’re going to hear a lot more about cyber resilience with regards to ESG in the coming months and years.

Terésa Cutter [00:06:02] Yes, definitely. And rightly so.

Liz Skinner [00:06:06] Very good, Teresa. Thank you so much for joining us today.

Terésa Cutter [00:06:09] Thanks, Liz. I really appreciate the time.