How to invest responsibly
Sofia Angles Ventures (SAV) team is highly committed to a transition to a low‐carbon, more sustainable, resource‐efficient and circular economy in line with the SDGs is key to ensuring the long‐term competitiveness of the economy of the Union. The Paris Agreement adopted under the United Nations Framework Convention on Climate Change (the ‘Paris Agreement’), which was approved by the Union on 5 October 2016 (3) and which entered into force on 4 November 2016, seeks to strengthen the response to climate change by, inter alia, making finance flows consistent with a pathway towards low greenhouse gas emissions and climate‐resilient development.
Our internal ESG risk policy is targeting to establish a professional approach towards investment decision making and involving/disclosing to co-investors the integration of sustainability risks, the consideration of adverse sustainability impacts, sustainable investment objectives, or the promotion of environmental or social characteristics, in investment decision‐making and advisory processes.
- Our management team aims to integrate ESG into pre-deal company assessment and portfolio company operations and monitoring and reporting processes.
- Any issues identified during due diligence that have not already been addressed are factored into early action planning, with progress tracked.
- Depending on the level of ESG information disclosed during due diligence, our team may want to conduct a more detailed ESG review to determine/verify the status of the policy implementation at the company level and to determine what improvement actions, if any, are required.
ESG pre-deal DD
- Initial check-up according to established criteria upon funding application
- Potential portfolio company ESG screening during DD
- Investment Committee’s final decision takes into account the investee company’s ESG eligibility.
ESG governance check
- SAV and the portfolio company Board agree on who is responsible for ESG at the portfolio company Board level. The Board should have overall responsibility.
- As good practice and depending on the ESG risk profile of the company, the portfolio company should consider assigning day-to-day responsibility for ESG matters to a nominated individual.
- SAV would continue to provide support and guidance to management (e.g. through dedicated GP-level ESG resources, a GP Board representative and deal team members).
Assess portfolio company ESG management systems
- The portfolio company should establish an appropriate ESG management system, which include:
– ESG-related policies;
– ESG materiality risk assessment (value protection / value creation);
– portfolio company level objectives and targets;- appropriate oversight and resources;
– training programme;
– monitoring process (to include KPIs);
– formal ESG management system certifications, e.g., ISO 45001 for Occupational Health and Safety, ISO 14001 for Environmental Management, ISO 27001 for Information Security;
– routine and incident-driven reporting (to the Board, external reporting requirements and all other key stakeholders).
As appropriate, the portfolio company should provide assurance to SAV that it has implemented and maintains an effective ESG management system.
Consider initial key ESG initiatives
- As part of the implementation of the ESG management system, SAV works with the portfolio company to identify company/sector-specific risk management and value creation initiatives.
- The initial focus could be to identify and address quick wins (e.g. operational efficiencies) or red flags from due diligence.
- SAV established appropriate monitoring processes to ensure ESG risks and opportunities are being appropriately managed.
- Monitoring is regular and focuses on relevant material KPIs. It should also track progress regarding risk management and value creation initiatives. Results are reported to the Board as appropriate.
- To the extent possible, monitoring should consider the environmental and social benefits of key ESG initiatives, and business impact, e.g., costs saved, staff retention and absenteeism, improved revenues, etc.
- SAV ensures that ESG due diligence processes are applied to expansion/bolt-on acquisitions, including where acquisitions are being managed by the company management team.
Consider establishing reporting requirements (including incidents to the GP)
- SAV is developing a process for reporting ESG performance at the company level, to the GP and to any other relevant stakeholders (employees, customers, investors, regulators, etc.) as required.
- It includes reporting ESG incidents to the company board and GP (frequency and type of incidents to be reported to be agreed between the GP and portfolio management team). Managing the reputational impact of incidents is important, as financially immaterial risks can escalate and have material consequences if not appropriately handled from a communications perspective.
- GPs and the portfolio company agree when particular incidents require immediate escalation (e.g., a fatality).
- A process to respond to, investigate and learn from material incidents, accidents or events should also be implemented.
- assess how ESG has created value throughout the holding period;
- consider what level of ESG reporting may be required to support the exit process. The level of disclosures will be dependent on the type of exit (i.e. IPO, trade sale, secondary, buyout, carve out, etc.);
- consider the need for ESG advisers to support the preparation for sale and undertaking appropriate ESG vendor due diligence.