During a periodic review of portfolio company exposure, we discovered that we had an indirect position in a publicly listed company ("Company A") that was excluded from our investable universe. We had a side letter with an opt out clause. However, due to our own oversight, the period under which we could claim an opt out had expired.

We contacted the Manager ("Manager A") to inform them about the situation and to seek possible solutions. Manager A was surprised that Company A was on an excluded list as the manager had completed a full ESG review and assessment prior to making the investment and asked us to provide background information. We provided this and it became apparent that the exclusion was under a particular "S" topic that was not identified by Manager A or their ESG consultant during diligence.

Although under no obligation to do so, Manager A reviewed alternatives to rectify our breach.  After reviewing alternatives, Manager A offered to arrange an internal auction for our position in Company A.  A single bid came forward at a price that was deemed unreasonable. We decided to continue to hold our position, which now is fully realized.

Through open and transparent interaction with Manager A, we were able to highlight ESG screening topics that were not apparent to Manager A previously. Our expectation is that such topics will be included ESG screening processes going forward.

We discovered a shortcoming in our own processes. Screening process against excluded publicly listed companies are made more robust.

We were introduced to Manager B, a specialist manager with a very strong track record and a profile that fitted well with our search criteria more generally. In early screening it became apparent that the focus area of the manager opened up for a potentially larger exposure towards certain "S" and "G" risks than average, as the strategy focused on investments in enterprises that principally conducted their business through long term government contracts in the US.

Moreover, we concluded that it would be difficult if not impossible for us to underwrite how these types of risks were mitigated by Manager B. This, in spite of Manager B's claim that mitigation and controlling for this type of risks were core competencies of Manager B, something we had no reason to question.

Screening out potential areas with contentious ESG risks to reduce exposure.

We have over several years maintained a separate screening funnel for managers who seek investments in enterprises that alleviate or provide solutions to some of the sustainability issues facing the global economy. In our search we have maintained that a manager must qualify on strategy, experience, investment track record and risk-reward criteria in the same way as any other manager in our program, i.e., the positive sustainability attributes cannot offset shortcomings in the investment acumen. The review to date has identified two investment managers as qualified candidates and we are increasingly seeing additional promising candidates.

Of the two qualified candidates, we have committed capital with Manager C, when Manager C launched its initial fund, and subsequently committed capital when Manager C raised its second fund. The second Manager, Manager D is placed on our watch list. The watch list is a list of managers we have attached a high probability that we will invest with in the future. This process ensures that Cubera has a systematic way of identifying managers who actively use sustainability to identify investment opportunities.

We recognize that the private equity ownership model, thanks to its long term, active and majority ownership character, is particularly suited to manage ESG risks and opportunities. We observe that several private equity fund managers present attractive investment opportunities, while also showing improvement potential and improvement willingness in terms of ESG proficiency. In such a case, we seek to contribute to improve the manager's ESG proficiency. Our contributions to improvements are done through legally binding agreements (e.g. side-letters), as well as educating the fund managers with our best practices, which may entail holding workshops for the fund managers and maintaining continuous dialogues.

In 2019, we invested in two funds which had improvement potential and improvement willingness in terms of ESG proficiency. For the two fund managers in question, we held workshops, continuous dialogues and imposed side-letter constraints. Both fund managers lifted their ESG proficiency by adopting more stringent ESG policies and establishing plans for further ESG development.

Our secondary strategy entails the acquisition of commitments to Nordic buyout funds with an existing portfolio of companies. In this strategy, we cannot influence the investments by the fund manager. As a part of our due diligence for each such acquisition, we review the managers' ESG routines, and assess the ESG-alignment of the existing portfolio. For the latter, we undertake an extensive review of available public information and the information the manager describes in their reporting. From time to time, we observe that portfolio companies are not ESG compliant. In such a case, we establish a dialogue with the fund manager in question to learn more on the issue in question and assess to what extent the portfolio company and the fund manager is mitigating the issue. If the mitigation cannot be expected, we will not undertake the investment. Even though we cannot influence the investment, we believe that initiating a dialogue, and worst case, rejecting an investment opportunity, sends a strong message to the fund manager in question, which will likely influence their future investment decisions.

In 2019, we identified some ESG-misalignments in portfolio companies in prospective acquisitions. We initiated a dialogue with a handful of relevant fund managers in this respect. In 2019, all identified issues had been or were expected to be mitigated.

We are leading in terms of gender diversity in the Private Equity industry. We recognize that diversity in the workplace provides an organization with valuable perspectives on issues driving the business, which leads to better decisions. In the Private Equity industry, better decisions equal better investments, which will yield better returns in the long run. The professionals engaged in the Private Equity industry are predominantly male. To this end, in 2019, we co-led the launching of Level 20 in Norway, a non-profit organization set up to promote diversity in the Private Equity industry.

The Norwegian chapter has been successfully established. Events with key industry people have been organized to raise awareness. The chapter has created a mentoring program to inspire women to join and succeed in the private equity industry. Level 20 and the Norwegian Venture Capital Association (NVCA) have hosted events at universities in Norway to inspire students to join the private equity industry.