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Ambienta SGR SpA

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.

We are here describing the investment selection only.

Our Fund rules, our investment process and the ESG in Action programme all combined prescribe the following pre investments steps:

  1. We make a first assessment to check if the investment fits our Fund Rules in terms of Environmental Impact very early in due diligence.
  2. At a later due diligence stage, we measure through our proprietary methodology (Environmental Impact Analysis) the Environmental Impact of each company's business, describing it along 11 Environmental Metrics. If complex, we use external audits for our calculation.
  3. Moving from E to ESG, we internally assess the overall level of incorporation of ESG issues in the daily business operations of the company.
  4. At last, our investment process requires a full ESG due diligence by an independent expert consultant prior to the completion of the investment.

Our ESG in Action then foresees a number of additional steps after the investment decision is made and the transaction has closed.

05.3. Additional information. [Optional]

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.

Two types of information are discussed and reported to our Investment Committee:

  1. Environmental Impact, in order to verify adherence to our Resource Efficiency and Pollution Control investment strategy
  2. ESG performance of the company as assessed in due diligence by the team and by independent expert ESG consultants

Both these points have a dedicated chapter in the final Investment Memorandum that is the basis for the investment decision of both the Investment Commitee level and the Board of Directors. Both need to agree in order for a transaction to be closed.

PE 07. Encouraging improvements in investees

07.1. During deal structuring,what is the process for integrating ESG-related considerations into the deal documentation and/or the post-investment action plan?.

If yes

07.2. Describe the nature of these improvements and provide examples (if any) from the reporting year

In terms of deal structuring, we started in 2016 to include in our shareholders agreements, if appropriate, a direct governance right for Ambienta relative to the steering of ESG issues. We use this approach as a first mean to drive and delegate to the management the implementation of a specific plan aimed to tackle, monitor and report ESG issues.

In terms of post investment plan we do have our ESG in Action programme that Ambienta executes on all its portfolio companies; it includes five sequential steps:

  1. ESG due diligence by an independent specialist (pre closing).
  2. Adoption at company board level of 3 Goal Setting policies: "Business integrity"; "Environment, Health and Safety"; "Employment and Labour standards"; carbon footprinting and carbon strategy in place (6 months from closing).
  3. Execution of a Materality Analysis for risks and opportunities.
  4. Board approval of an ESG Action Plan (1 year from closing) with actions at both preventative level (ISO certifications) and on single-issue related specific KPIs.
  5. KPI Monitoring and Reporting.

Example: Safim did the 5 steps in 12months (acquired Jul-17) and in Q4-2018 reached ISO 45001 certification which only 5 companies in Italy have at the time of the achievement, according to its ESG Action Plan.


07.3. Additional information. [OPTIONAL]

All the five steps of our ESG in Action programme are formally documented and available to LP for any information or reporting need.

PE 08. ESG issues impact in selection process

08.1. Indicate how ESG issues impacted your private equity investment selection processes during the reporting year.

08.2. Indicate how ESG issues impacted your private equity investment deals during the reporting year.

08.3. Additional information. [OPTIONAL]

One example relative to PE08.2:
Again in Safim (mechanical component manufacturer), aquired in July 2017, the initial ESG due diligence highlighted the complexity and potential vulnerability of the supply chain in consideration of the high expected international growth. 

In 2018 the company deep analysed its top 30 suppliers (under "Top 30 Supplier Assessment" initiative). Each supplier was investigated in its production processes and its ability to scale operations, increase volumes and deliver effectively without extra costs. The joint Safim and its supplier’s processes of forecasting, ordering, producing, stocking and delivering have been mapped, analysed and optimised for common benefit.

As a result, Safim in 2018 achieved a proforma cost reduction on purchased goods of approx. -5% (+2% overall EBITDA impact). It qualified and introduced 6 new suppliers. It created and launched a new shared demand forecast model landing a decrease between 50% and 90% in delayed delivery (depending on each supplier).

As for PE 08.1 we do not exclude investments because of insufficient ESG performance. We believe that in our average holding term (5 years) we can fundamentally improve the way ESG is perceived by management and stakeholders, managed and monitored.