Novalpina Capital LLP or Novalpina Capital Management International LLP and funds advised by them (“Novalpina” or “the group”) are committed to maintaining an investment approach that incorporates the consideration of environmental, social, and corporate governance (“ESG”) risks and opportunities. Novalpina seeks to both safeguard the interests of its stakeholders and to reduce or eliminate any negative impacts on society and the environment from companies in which it invests. The ESG Policy (this “policy”) defines Novalpina’s approach to ESG risks and how such risks feature in the investment decisions made by the group. It also looks at how it could take actions to reduce or eliminate any negative externalities resulting from the investee companies’ operations. Finally, it covers the responsibilities for monitoring compliance with this policy.
Novalpina is committed to considering material ESG issues in the course of its due diligence and to improve ESG performance of portfolio companies throughout its investment period. Novalpina is also committed to an ongoing process of improving its approach to integrating ESG into its investment processes. As such, the current approach reflected in this policy will likely evolve over time to reflect changes in business practices, business structures, technology, regulation and the law.
2. Objective and scope
The objective of this policy is to ensure:
- Material environmental, public health, safety, governance and social issues associated with potential targets when evaluating whether to invest in a particular company or entity are identified and considered.
- Compliance with all applicable laws and regulations in the territories in which Novalpina invests.
- Strict policies that prohibit bribery and other improper payments to public officials consistent with the UK Bribery Act, similar laws in other countries, and the OECD Anti-Bribery Convention are followed.
- Human rights of those impacted by Novalpina’s investment activities are respected and child or forced labour policies are followed in the companies Novalpina invests in.
- Long-term sustainability and value creation through the improvement of ESG performance and minimisation of adverse impacts throughout Novalpina’s investment period.
- Timely information to Novalpina’s limited partners on the matters covered by this policy is provided.
Scope of this policy:
- This policy applies to all investments considered by the relevant Investment Committee and will be interpreted in accordance with local laws and regulations.
- In instances where Novalpina determines it has limited ability to conduct diligence or to influence and control the integration of ESG considerations in the investment — e.g. if Novalpina is a minority shareholder – it may not be feasible to implement Novalpina’s ESG-related principles. In such cases Novalpina will make reasonable efforts to ensure compliance with at least an equivalent level of ESG standards.
3. Roles, responsibilities, and monitoring
The responsibility of ensuring consideration of ESG issues is integrated into investment decisions rests with all of Novalpina’s investment professionals.
Where additional subject matter expertise is needed, the teams will utilise external resources as relevant and necessary.
- Oversight – the relevant Investment Committee is responsible in the first instance for ensuring that ESG matters are considered and recorded as part of the investment process.
Monitoring and compliance – the relevant investment team is responsible for considering and monitoring ESG issues for a particular investment and for compliance with the guidance set out in Section 4.
4. Process for ESG integration in investments
An assessment of ESG risks and value creation opportunities for potential investments will be considered through the Investment Committee process. If deemed necessary, external advisors will be engaged for additional advice and/or to compile an ESG due diligence report.
- Red flag review – ESG due diligence will focus on identifying and assessing potential ESG-related red flag issues in accordance with this policy. Depending on the investment target, potential focus areas may include an assessment of level of compliance with laws and international standards that prohibit bribery, child labour and human rights violations.
- ESG standing – the due diligence effort should aim to quantify the current standing of the potential portfolio company in each of the ESG areas (General, Environmental, Social, Corporate Governance) as well as assign an overall ESG score for the investment target based on relative weights of the four ESG sub-categories. Findings should be based on review of relevant documented policies, interviews and Q&A with management and other relevant staff members as well as site visits where if applicable.
- ESG role in investment decision – the results of the Novalpina’s ESG are a material factor in the firm’s investment decision. Specifically, Novalpina will only invest in sectors, companies, business models which (1) have acceptable ESG standards at the time of the investment decision or (2) where Novalpina has conviction that it can improve ESG practices to such acceptable standards within a short period of time.
- ESG value creation opportunities – the ESG review should include preliminary suggestions on actions to be taken to improve ESG performance post-closing.
Novalpina’s main ESG objective throughout the investment period is to create value from improving ESG performance and minimise adverse impacts of its portfolio companies.
- Focus areas – Novalpina will appoint a person responsible for ESG issues and reporting within the portfolio company and work with him/her and the management to select key ESG focus areas across each of the General, Environmental, Social, Corporate Governance sub-categories which are deemed most critical and with highest impact for the ESG performance for the company. A detailed value creation action plan will be developed for each of the focus areas.
- ESG culture – ESG considerations are a material factor in the selection of members of senior management in our portfolio companies. Particularly in the C-suite where Novalpina is directly involved in hiring decisions and where the ESG standards for the entire organisation are set. Individuals without the appropriate ESG focus, mindset and track record will not be considered for leadership roles.
- Tracking performance – each of the focus areas will be assessed on the following basis: 0 (limited acknowledgment of the issue), 1 (issue is recognised but limited documented policies / processes are in place), 2 (policies are in place with some gaps in effectiveness), 3 (prudent and effective policies are in place). On that basis, an ESG score will be calculated for each of the ESG sub-categories as well as for the portfolio company as a whole (based on weights of sub-categories).
- Oversight – ESG review will be part of regular board meetings and where management of, or performance on, a material issue is considered to need improvement, Novalpina will actively work with management to support the development of a corrective action plan.
- Portfolio reporting – at least on an annual basis, each portfolio company will report progress to Novalpina in the form of a written report including a summary of key ESG initiatives implemented in the current reporting period, planned ESG initiatives as well as an update of the ESG score across each of the sub-categories. Novalpina will report at least annually on its progress across portfolio companies to its stakeholders.
5. Performance standards
Where applicable, and subject to the scope as defined in Section 2, in situations where local laws and regulations are considered to be insufficient, Novalpina will apply its judgment and expertise in assessing risks and opportunities related to material ESG issues. In support of this effort, Novalpina will consider the applicability of existing voluntary performance standards as frameworks to help achieve the objectives set out in Section 2 during the evaluation and ongoing management of its investments.
ESG principles laid out by the The Principles For Responsible Investment (“PRI”), an investor initiative in partnership with the UNEP Finance Initiative and the UN Global Compact, and the Private Equity Growth Capital Council (“PEGCC”; now: American Investment Council) have been considered in developing this policy. This policy does not, however, strictly adopt any external policy or set of standards beyond the processes that are defined in Section 4.