August Equity

1. Summary

The Fund promotes a combination of environmental and social characteristics by engaging with investee companies to improve their environmental, social and governance (“ESG”) score (as measured by an external provider (the “ESG Score Provider”)) (the “ESG Score”) to achieve an aggregate score of at least 60% across all of the scoring metrics during the period of ownership (also known as “ESG Excellent”).  The Fund does not use a designated reference benchmark to meet the environmental and social characteristics promoted by the Fund. The Fund measures attainment of its environmental and social characteristics using the ESG Score as a sustainability indicator. The ESG Score is comprised of several (typically 50 or more in number) environmental and social metrics (both quantitative and qualitative) against which investee companies are assessed. The Manager will develop a three-year plan for each investee company to achieve an aggregate ESG Score across all of the scoring metrics of at least 60% (the “ESG Roadmap”), against which it can track performance of the company and report to Fund investors. The Manager will work with each investee company to achieve the targets outlined in its ESG Roadmap and monitor performance of the investee company against those targets.   

2. No sustainable investment objective 

This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.

3. Environmental or social characteristics of the financial product 

The Fund promotes a combination of environmental and social characteristics by engaging with investee companies to improve their environmental, social and governance (“ESG”) score (as measured by an external provider (the “ESG Score Provider”)) (the “ESG Score”) to achieve an aggregate score of at least 60% across all of the scoring metrics during the period of ownership (also known as “ESG Excellent”).  
The Fund does not use a reference benchmark for the purpose of attaining its environmental and social characteristics.

4. Investment strategy 

Exclusions

The Manager will exclude from investment companies associated with the following activities: 

• Companies failing to respect fundamental principles and normative standards (e.g. UN Global Compact, ILO conventions, UN Declaration on Human Rights or any international treaty or convention)
• Crypto currency mining
• Landmines and cluster bombs (Oslo & Ottawa Conventions)
• Chemical weapons
• Biological weapons
• Thermal Coal
• Oil & Gas
• Tobacco
• Alcohol
• Gambling
• Adult entertainment
• Nuclear activities
• Palm Oil
• Fur

The Manager will only invest in companies that follow good governance practices. For further details, see below: ‘What is the policy to assess good governance practices of the investee companies?’.  As such, investee companies that do not follow good governance practices as described in that section will be excluded from investment. 

Pre-deal screening

The Manager will screen the inherent risks associated with each investee company’s business, sector, geography, and customers against relevant United Nations Sustainable Development Goals (the “UNSDGs”).  The Manager will record these risk ratings in the Investment Committee (“IC”) paper. The IC will consider the identified risks as a formal agenda item during the IC meeting, in particular to determine whether those risks can be addressed as part of the ESG Roadmap (described below). 

Pre-acquisition ESG diligence 

The Manager will engage with its specialist ESG advisory partners to undertake detailed ESG assessments of potential investee companies, taking into account the UNSDGs and targeted ESG factors. As a result of this assessment, a baseline ESG Score will be determined and the Manager will develop a three-year plan for the investee company to achieve an aggregate ESG Score across all of the scoring metrics of at least 60% (the “ESG Roadmap”), against which it can track performance of the company and report to Fund investors. The ESG Roadmap will identify areas of improvement and put in place specific targets for the investee company to improve its ESG Score.  For investee companies already achieving an aggregate ESG Score of at least 60% across all of the scoring metrics at the point of investment, the Manager will develop an ESG Roadmap for the company to achieve a score of 100%.  

There is no minimum ESG Score which an investee company needs to achieve to be considered for investment. 

Pre-acquisition documentation

Investee companies being considered for inclusion will be asked to complete a questionnaire which discloses information on the company’s internal policies and attitude towards ESG factors such as governance.  Additionally, each investee company will be required to adopt an ESG policy which is consistent with the Manager’s template ESG policy, and management teams will be required to warrant that it has not contravened any of the requirements of the ESG policy prior to the date of investment.  Each investee company will also be required to implement the terms of the ESG Roadmap. 

The Manager will also consider putting in place ESG-linked deal clauses to incentivise an investee company to meet the targets outlined in its ESG Roadmap.  For example, including a requirement for the investee company to deliver an ESG Score of 100% / ‘ESG Excellent’ as vesting criteria for sweet equity.

Post-investment monitoring, engagement, and reporting 

The Manager will work with each investee company to achieve the targets outlined in its ESG Roadmap and monitor performance of the investee company against those targets.  Any progress made by an investee company during the course of the reporting period will be reflected in the investee company’s ESG Score which is reported to Fund investors on a quarterly basis.

The Manager, in conjunction with the ESG Score Provider, will reassess performance of investee companies on at least an annual basis to determine whether to re-base the targets outlined in the ESG Roadmap and to enable Fund investors to appraise year-on-year progression at investee company and Fund level.  

Divestment and pre-exit review 

At divestment, the Manager will conduct a pre-exit review of the investee company to verify the high-quality ESG position. The Manager will consider whether potential purchasers of investee companies have suitable levels of socially responsible governance and will avoid, wherever reasonably possible, sale of its interests in investee companies to known unethical entities

What is the policy to assess good governance practices of the investee companies?

As part of its investment due diligence, the Manager assesses the governance practices of investee companies by reference to sound management structures, employee relations, remuneration of staff and tax compliance.  The Manager will only proceed with an investment if an investee company can demonstrate that it follows good governance practices in these respects. 

The Manager monitors the performance of investee companies to ensure they follow good governance practices. Should a governance issue arise, the Manager will act as it deems most appropriate to address the issue. This may include engaging with an appropriate PR company in the event of any negative publicity in relation to a governance issue.

5. Proportion of investments 

The Fund will primarily focus on companies whose headquarters are in, or whose principal place of business is situated in, the UK.  The Fund will make equity and equity-related investments of between £10 million and £60 million in management buy-outs, buy-ins and in private companies requiring expansion and development capital finance. 

The Fund aims to invest 95% of its NAV in companies aligned with the environmental and social characteristics promoted by the Fund in accordance with the binding elements of the investment strategy.

6. Monitoring of environmental or social characteristics 

The Manager relies on the ESG Score provided by the ESG Score Provider to monitor attainment of the Fund’s promoted environmental and social characteristics. Any progress made by an investee company during the course of the reporting period will be reflected in the investee company’s ESG Score which is reported to Fund investors on a quarterly basis.

The Manager, in conjunction with the ESG Score Provider, will reassess performance of investee companies on at least an annual basis to determine whether to re-base the targets outlined in the ESG Roadmap and to enable Fund investors to appraise year-on-year progression at investee company and Fund level.  

7. Methodologies 

To measure attainment of the Fund’s environmental and social characteristics, the Fund will measure improvements in the ESG Score of each investee company during the course of investment.  The ESG Score is comprised of several (typically 50 or more in number) environmental and social metrics (both quantitative and qualitative) against which investee companies are assessed, including the following:

• Environmental 
  •    Energy usage and emissions
  •    Waste management 
  •    Water consumption
  •    Environment policies (e.g., biodiversity and deforestation)
• Social
  •    Diversity equality and inclusion (policies and pay gap)
  •    Grievances 
  •    Health and safety (policies and incidents)
• Governance
  •    Board gender ratio 
  •    Bribery and corruption 
  •    Compliance with UN Global Compact principles 

The ESG Score Provider will assess the performance of each investee company against these environmental and social metrics to determine each investee company’s ESG Score.  The Manager will review and assess the ESG Scores to determine priority areas for engagement with investee companies to improve their ESG Score.  The Manager will also aggregate data at Fund level (normalising the data to account for fluctuations in the portfolio in the reporting period) to determine year-on-year progress and report on specific achievements during the reporting period. 

8. Data sources and processing 

The data used to attain the Fund’s environmental and social characteristics is the data comprised in each investee company’s ESG Score.  The ESG Score Provider sources this data based on information, policies and reports provided by investee companies.  In order to ensure data quality, the ESG Score Provider ensures that the information provided correlates to underlying sources (for example, Board minutes and meter readings).  Should there be any data gaps due to lack of information provided by the investee company, the ESG Score Provider will use third party sources to provide estimates.  The Manager anticipates that no more than 30% of the data comprising the ESG Score will be estimated. 

The ESG Score is comprised of several metrics (as outlined in section 7 above) against which companies are assessed to determine their ESG Score.  The following factors are taken into account when selecting each investee company’s ESG evaluation areas:

• Sector
• Utilities management (e.g., responsible for utilities or not)
• Vehicle usage
• Number and type of staff
• Client base
• Nature of operations
• Regulatory / compliance drivers
• Client base

Each metric is scored 0-4, which are then aggregated to deliver overall sectional scores for Environmental, Social and Governance as well. A target score is then set for each metric with tailored recommended actions for the investee company (which the Manager will consider when developing the ESG Roadmap). The results of the scoring methodology are loaded onto a portal which is accessible by the investee company, the ESG Score Provider, and the Manager. Scoring is refreshed on a daily basis, giving live updates of performance based on which elements of their action plan an investee company has completed. Each year, the ESG Score Provider will revisit investee companies to review and assess completed action plan items, as well as develop further objectives for the upcoming year. 

9. Limitations to methodologies and data 

The ESG Score Provider’s assessment is based on data, policies and reports provided by investee companies. This information is then screened against the metrics comprising the ESG Score based on industry best practices and international sustainability guidelines.  The scoring methodology does not include consideration of quantitative indicators against all of the metrics which comprise the ESG Score.  However this limitation does not affect the attainment of the environmental and social characteristics as these metrics can still be monitored and rated by a comprehensive list of qualitative indicators related to investee companies policies, actions, and results. In order to take action to address this limitation, the Manager (through the ESG Score Provider) will also collect additional quantitative key performance indicators across the Fund portfolio, addressing material aspects for the sectors where the investee companies operate.

10. Due diligence 

See section 4, above: ‘Investment strategy’ for details of the due diligence carried out on the underlying assets. 

11. Engagement policies

The engagement process for the Fund includes the following elements:

• ESG advisors work with each investee company to identify material ESG topics and corresponding KPIs relevant to reducing principle adverse impacts (“PAIs”). For example, if a company is flagged under Mandatory PAI Indicator 1 (greenhouse gas emissions), appropriate KPIs such as Scope 1–3 emissions and reduction targets may be developed.
• Based on the identified PAIs and other material ESG factors, each investee company receives a customised ESG Roadmap that sets out actions, timelines, and targets to address specific adverse impacts. These plans are agreed upon during the early stages of ownership and regularly revisited.
• While external ESG advisors support the analysis and engagement process, ultimate accountability for integrating PAI considerations into investment decisions rests with the Manager’s Investment Team. PAI insights are factored into screening, due diligence, and ongoing portfolio monitoring.