Sustainability risk policy

01

Perimeter and objectives

This document covers all the entities of Argos Wityu in Europe and aims at presenting how its policies integrate sustainability risks in its investment decision-making and investment advice processes.

02

Definition and importance of integrating sustainability risks

A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment.

At Argos Wityu, we firmly believe that corporate social responsibility enables a company to improve its outlook for growth and manage risks more effectively. Such an approach makes it possible to reduce resource consumption and to improve operational efficiency, working conditions and employee relationships. It’s a source of innovation and new opportunities.

Our ESG methodology and the integration of these risks into our investment strategy thus allows us to achieve the following objectives, as stated in our Responsible Investment Code:

  • Comply with all applicable laws;
  • Endeavour to reduce adverse impacts and enhance positive effects of the business on the environment, employees and all stakeholders;
  • Remain pragmatic and use ESG as drivers for value creation;
  • Commit to continuous improvements with respect to environment, social matters and governance
  • Work over time to apply relevant international best practice standards, with appropriate targets and timetables for achieving them; and
  • Communicate with our partners on their socially responsible initiatives and performance.
03

Integration of sustainability issues and engagement with target investments

Argos Wityu is committed to integrating ESG throughout its investment decision-making process, while adapting its approach to each investment to ensure an appropriate and effective strategy. With the support of the ESG team, the investment team is responsible for the implementation of this policy during the different phases of the investment process.

03.1

Pre-acquisition: assessment of ESG risks and opportunities

During the pre-acquisition phase, Argos Wityu analyses both financial and ESG drivers through the following steps:

  1. All investments must comply with Argos Wityu’s ESG standards. These include the respect of an exclusion list and of Argos Wityu’s Responsible Investment Code.
  2. An ESG due diligence questionnaire is then conducted by Argos Wityu’s investment teams. This questionnaire enables Argos Wityu’s teams to identify the main ESG-related growth drivers and risks. The questionnaire is based on the documents available, the results of our due diligence measures as well as discussions with target investments’ management. A short synopsis of the main risks and opportunities identified is then included in the notes for the Investment Committee.

Once a target investment is deemed appropriate by the Investment Committee, measures are taken to ensure a thorough ESG knowledge of the target investment and work on an ESG action plan:

  1. Before the closing, an external ESG review is carried out by external advisors in order to better measure identified areas of ESG risks and opportunities uncovered during the internal ESG due diligence phase. The focus of this review is threefold:
    • Identify a small number (typically 1-3) of ESG drivers that could create value or avoid risks of value destruction (reduction in energy consumption, reduction of employee turnover, reputational issues, etc)
    • Put in place an Action Plan to leverage those drivers over a multi-annual period (use of technology using less energy, long term bonuses, etc)
    • Identify ESG Key Performance Indicators to follow this Action Plan (energy consumption in watts per day, employee turnover rate)
  2. Argos Wityu ensures that ESG commitments with target investments are formalized in writing through the following elements:
    • The inclusion of relevant ESG representations and warranties in the Sales and Purchase Agreements (SPAs) signed with target investments
    • The insertion of the following elements in the Shareholders’ Agreement concerning target investments:
      • the recognition of the ESG Principles, stating that value-creation can be obtained from non-financial aspects
      • the need for target investments to comply with Argos Wityu’s Responsible Investment Code
      • the necessity of sending a quarterly reporting to Argos Wityu on ESG aspects (Human Resources and ESG KPIs, advancement of the action plan, etc).

Argos Wityu is committed to integrating ESG throughout its investment decision-making process, while adapting its approach to each investment to ensure an appropriate and effective strategy. With the support of the ESG team, the investment team is responsible for the implementation of this policy during the different phases of the investment process.

03.2

Investment period: engagement, monitoring and support

Following the acquisition, one key ESG action is chosen based on materiality, in accordance with the management of the target investment. The goal is to monitor and support the target company in order to bring the necessary changes to attain a more sustainable future.

During the holding period, each target investment must send a quarterly reporting to Argos Wityu on the following matters:

  • Reporting on quantitative Human Resources KPIs common to all portfolio companies. These include aspects like headcount, turnover, training intensity, injuries and absenteeism
  • Reporting on ESG KPIs that embody the following elements:
    • Environmental: carbon footprint, environmental approach, initiatives taken to decrease energy consumption, waste management, etc
    • Social: inclusion of women in the company and at the Executive Committee, etc
    • Governance: presence of a code of conduct, existence of an anti-corruption policy, depth of the compliance function, etc
  • Reporting on progress on the firm’s ESG Action plan

Upon reception of the reporting, Argos Wityu’s investment teams ensure that an ongoing engagement with the target investment’s firms is made by:

  • Ensuring that HR and ESG KPIs action plan are properly monitored and recorded
  • Challenging management progress on HR KPIs and ESG KPIs
  • Questioning whether new actions / KPIs should be added

Finally, the key ESG action specific to each target investment is to be discussed at the target company’s board level at least once per year.

03.3

Exit: capturing the potential ESG value-added

ESG Due Diligences at Exit are only put in place in the following cases:

  • When the topic is of specific interest given the industry (for example when the company is in a sector known for its pollution risks such as extractive or metal transformation industry, or other social risks such as labour in the apparel industry) and/or given the company’s positioning in the value chain, or
  • When the illustration of how ESG action created value or limited risks on value creation is reasonably material

In this case, an ESG Vendor Due Diligence is carried out by an external advisor. The goal is to:

  • Describe the company’s behavior in ESG area
  • Identify how implementation of the ESG Action Plan created value
  • Use HR and ESG KPIs collected in quarterly reporting during the investment period
  • Demonstrate that the ESG Action Plan did have an impact on the evolution of KPIs (reduction of waste, energy consumption, employee turnover, …)
03.4

Focus on climate change and biodiversity risks (French Energy & Climate Law)

Argos Wityu takes into account the impact of its investments on climate change and biodiversity in its ESG investment-decision process, in particular through:

  • The monitoring of the environmental indicators of targets analysed
  • The implementation of an engagement policy with target investments in order to improve their impact
04

Integration of Sustainability Risks throughout Argos Wityu’s organisation

04.1

Focus on the ESG Team

At Argos Wityu we believe that ESG must be taken into account and therefore we have a dedicated ESG team that communicates on these matters and answers to the top management. They mainly work on:

  • Collecting ESG KPIs for our portfolio of companies with the help of the investment teams
  • Maintaining a portfolio-wide view of HR and ESG KPIs
  • Exchanging best practices and examples of actions

Our ESG team also raises awareness and trains our staff on ESG with regular ESG coffees and annual trainings on ESG topics.

04.2

The dissemination of ESG practices throughout the organisation

Sustainability risks are considered in a cross-divisional approach by all Argos Wityu’s teams:

  • Integration of sustainability risks in research work and exchanges with target investments
  • Involvement of asset managers in the effective integration of ESG principles and the understanding of their impact on target investments
  • Quarterly ESG reporting put in place towards Argos Wityu’s investors

Our Risk, Compliance and Internal Control teams are dedicated to ensuring that ESG criteria are duly taken into account during the due diligence phase and monitored throughout our relationship with the companies in portfolio. They work closely with our ESG dedicated team and our investment team aiming at improving our ESG standards.

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