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Nordic Capital

PRI reporting framework 2020

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.

Nordic Capital investment professionals are well placed to address sustainability risks and opportunities with the support of a dedicated in-house Sustainability Team and external advisors. The in-house Sustainability Team ensures that Nordic Capital addresses sustainability risks and opportunities in a structured and efficient manner and promotes best practice in governance, social and environmental behaviour within Nordic Capital and our portfolio companies. This team is also responsible for developing training programmes and sustainability evaluation methods in order to measure our progress and report to our investors.

Potential investments must be assessed for financial, legal and sustainability risks and opportunities. We have therefore developed a robust method that our investment teams apply when performing risk and opportunity assessments during the due diligence phase. This enables Nordic Capital to address sustainability matters in a systematic and consistent manner and at the earliest stage.

The Nordic Capital toolbox includes a clear responsible investment checklist and supporting DDQs to address sustainability factors and risks in the pre-investment phase. This helps us to better understand the current and potential impacts that sustainability factors have on the investment's financial performance, operations and reputation. Nordic Capital includes a mandatory assessment of sustainability risk and opportunities in all final investment recommendation material that are presented to the GP Board.

Nordic Capital provides sector specific training for its investment teams and is also a member of the Sustainability Accounting Standards Board (SASB).

Nordic Capital believes that training and the sharing of best practice within Nordic Capital and its portfolio companies is critical and has therefore developed training programmes, tools, templates and guidelines on how to assess environmental, social and governance (ESG) factors during the investment and ownership process. The established training programme has been in place since 2014 and is continuously developed to address relevant policies, standards and frameworks.

It is mandatory for all Nordic Capital employees to participate in the “ESG I” training addressing Corporate Governance and Compliance including policies, implementation guidelines and risk assessments in the areas of anti-bribery, antirust, trade sanctions, data protection, information security, whistleblowing and ethical business frameworks.

To address material sustainability risks and opportunities in both the investment and ownership phases, Nordic Capital has developed a sector specific toolkit per focus sector. To ensure that the toolkits are utilised appropriately, we continuously train our investment professionals in how to apply the tools.

05.3. Additional information. [Optional]

During the course of the year, the Sustainability team has worked closely with the investment teams to ensure that sustainability matters are handled in a structured way in each sector. In addition, the team has developed new tools and defined metrics to measure sustainable performance within Nordic Capital and the portfolio.

In 2019, Nordic Capital took steps to enhance its investment assessment process and due diligence by instructing all external counsels to assess issues related to anti-bribery, competition / antitrust, trade sanctions, data protection, information security and working conditions when analysing and assessing investments.

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.

The investment process is built on a high focus and understanding of impact issues within Nordic Capital's Responsible Investment framework. Due diligence involves a variety of investigations including a review of company data disclosed by the target, detailed discussions with the management team and legal due diligence. Information and outcome from the sustainability investment analysis, is merged and presented with other analytical information being consistent and rigorous and forms a foundation for our recommended investment decisions to. It is key that sustainability never becomes a side issue but is an enduring and integral part of Nordic Capital's investment process. Nordic Capital applies a structured process to ensure consistency and high quality of investment recommendations which also includes consideration of all areas of sustainability.

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

Following the acquisition of a portfolio company, it is the responsibility the board of directors of such company to monitor sustainability risks; however, Nordic Capital actively encourages portfolio companies to, at minimum, meet external standards for sustainability. 

When Nordic Capital invests in a company, a structured on-boarding process is initiated to understand and identify material risks and opportunities related to sustainability and to set a sustainability agenda. This assesment may include environmental factors such as carbon footprint, energy effeciency, waste management; and also social, ethical and community impacts; as well as compliance such as anti-corruption, antitrust, trade sanctions and data protection. It is encouraged that this sustainability agenda is integrated into the value creation plan with clear objectives and KPIs set to measure progress over time.

Nordic Capital expects portfolio companies and their Board of Directors to address sustainability appropriately within two years of investment. We encourage them to apply the responsible investment principles that we have developed and aim for improvement during the ownership period. Nordic Capital Portfolio companies are required to have their sustainability strategies approved and reviewed annually by the Board of Directors and annually report on their sustainability performance to Nordic Capital.

07.3. Additional information. [OPTIONAL]

Nordic Capital actively engages with its portfolio companies during the ownership stage to promote the importance of sustainability, drive sustainable performance and share best practices. It sets out clear expectations for portfolio companies, ensuring that sustainability is addressed appropriately at boardroom level and throughout the organisation. In most cases, Nordic Capital is the majority shareholder or in a position to strongly influence the strategic transformation of the company.

To support portfolio companies to mitigate risks and seize opportunities, Nordic Capital's Sustainability team provides training, tools and support during the ownership period to help portfolio companies strengthen their sustainability strategies and develop appropriate processes for assessment, compliance and reporting. This also includes providing networking opportunities, tools, regular reporting tools and reviews.

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]

Potential investments are assessed for financial, legal and sustainability risks and opportunities. We have developed a robust method that our investment teams apply when performing risk and opportunity assessments during the due diligence phase and we generally manage to address sustainability issues at an early stage. Our responsible investment framework is core in our investment process and sustainability plays a vital role in determining if an investment is potential or risky. As also summarised under indicator 15, several potential investments have also been turned down due to sustainability issues.