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Abac Solutions Manager S.à r.l.

PRI reporting framework 2019

You are in Direct – Private Equity » Pre-investment (selection)

Pre-investment (selection)

PE 05. Incorporating ESG issues when selecting investments

05.1. During due-diligence indicate if your organisation typically incorporates ESG issues when selecting private equity investments.

05.2. Describe your organisation's approach to incorporating ESG issues in private equity investment selection.

ESG issues are taken into consideration throughout the entire investment process.

Abac Capital, the Independent Investment Advisor, includes ESG in the following investment decision stages:

Deal sourcing:

  • Any potential deal is rejected if:
    • a) Target company is engaged in a business excluded from investment as per Abac’s investment guidelines (i.e., manufacture or distribution of military weapons, prostitution, gambling and tobacco manufacturing)
    • b) Deal team has evidence that company has a material issue in Human Rights, Labour, Environment or Corruption, as defined by UN Global Compact

Approval Commitee:

  • CIO always asks deal team if any ESG related issue has been detected and response is recorded in Approval Committee minutes
  • Approval Committee dismisses any deal that has a material ESG red flag

Due Diligence:

  • During due diligence (during company visits, management interviews, etc.), deal team pays special attention to identifying any human rights, labour, environment, corruption or money laundering issue, or any unlawful or unethical behavior 
  • ESG due diligence is typically contracted to an external advisor with experience in the matter, and includes a situation assessment and an identification of areas of improvement and potential deal breakers. Report is discussed between the deal team and the advisor and identified issues directly with the company for further clarification
  • A specific environmental report is prepared for manufacturing businesses or when specific threats have been identified
  • Anti-money laundering and sanction checks are carried out on (1) deal co-investors, (2) portfolio companies (prior to signing) and (3) seller/buyer in buy/sell processes

Investment Commitee:

  • ESG matters are always discussed at Investment Committee and constitute an integral part of the investment decision; they are recorded in Investment Committee minutes

Management Plan/100-day plan:

  • During final due diligence stage, deal team supports management in the preparation of a business plan that includes immediate actions to be taken in the first 100 days post closing of the investment (100-day plan)
  • Plan includes actions to solve any ESG issues identified during due diligence, standardisation of ESG reporting as per Abac's standards, appointment of ESG responsible at portfolio company (when missing) and initiatives to improve key ESG metrics

ESG at Abac Solutions Manager ("ASM" or the GP):

  • ASM ESG Officer, during ASM Investment Committee, verifies that Abac Capital has complied with its self-imposed ESG obligations during due diligence and investment decision

05.3. Additional information. [Optional]

ESG issues are addressed in a consistent manner for all investments (regardless of sector, geography or investment thesis). However, special watch-outs are set in specific cases:

  • Manufacturing industries: external Environmental due diligence performed
  • Companies with procurement in emerging markets: check of supplliers labour conditions and implementation of suppliers homologation process post-acquisition
  • Industries prone to deal with black-money (typically retail businesses using cash)
  • Companies that mostly sell through tender processes: check existance of bribes / corruption and set anti-corruption and whistleblowing policies post-acquisition (if not directly ruled out from investment)

PE 06. Types of ESG information considered in investment selection

06.1. Indicate what type of ESG information your organisation typically considers during your private equity investment selection process.

06.2. Describe how this information is reported to, considered and documented by the Investment Committee or similar.

1- ESG due diligence from a specialised external advisor is attached to the documentation submitted for review to the Investment Committee

2- Deal team must complete at least two specific ESG slides that are included in the Investment Committee deck: a summary of ESG matters identified in the due diligence and a summary of ESG status and action plan to be included in the 100-day plan

PE 07. Encouraging improvements in investees (Private)

PE 08. ESG issues impact in selection process (Private)