In Nexxus we believe that the incorporation of social, environmental and good corporate governance (Environmental, Social and Governance or ESG) factors in our investment process, as well as in the management of our portfolio companies contributes to the creation of value, besides being an effective way to manage risk in our investment activity.
We act as responsible investors in our day to day, integrating ESG factors in each of the phases of our investment process:
1. Pre - Investment: we have decided to exclude from our investment universe a number of activities that are contrary to our principles and involve high reputational risk. Therefore, we rule out investing in companies that participate in any of the following businesses or activities:
- Illegal economic activities: production, marketing or other activity, which is illegal under the laws or regulations of the jurisdiction of origin;
- Tobacco and distilled alcoholic beverages - the production and trade of tobacco and distilled alcoholic beverages and related products;
- Production and trade of weapons and ammunition: the production and trade of weapons and ammunition of any kind, including chemical weapons and the mining, processing and/or sale of uranium for weapons purposes
- Casinos and equivalent undertakings.
- Restrictions in the information technology sector: research, development or technical applications related to electronic data programs or solutions specifically aimed at internet gambling and online casinos
- Life sciences sector: where support is given to the funding of research, development or technical applications related to; (i) human cloning for research or therapeutic purposes; or (ii) genetically modified organisms (GMOs)
- Dams that do not comply with the World Commission on Dams (WCD Framework)
- Mining or trade in rough diamonds not certified by the Kimberley Process;
- Artisanal mining (mining using rustic tools usually unregulated)
- Manufacture, storage and transport of Persistent Organic Pollutants (as defined in the Stockholm Convention) and of certain hazardous industrial chemicals and pesticides (as defined in the Rotterdam Convention)
- Nuclear energy-related activities that do not meet the standards outlined by the International Atomic Energy Agency;
- Illegal logging and subsequent marketing of timber and related forest products; and
- Energy sector activities or projects within or adjacent to UNESCO World Heritage sites.
This list of exclusions is periodically reviewed to include controversial issues that are identified in the ongoing dialogue with our investors.
2. Evaluation: those companies that meet our investment criteria are subject to a prior analysis process by the investment team which includes (i) description of the company's business, (ii) analysis of the sector, (iii) investment thesis, (iv) operation structure, (v) potential strengths, opportunities and risks (including major ESG risks and ), (vi) expected returns, and (vii) preliminary business plan. This analysis is set out in a document called Deal Alert.
3. First Investment Committee, Negotiation of the Memorandum of Understanding and Approval of the Due Diligence Budget: in case it is decided to proceed with the transaction, the responsible team will start the negotiation of a Memorandum of Understanding with the company on the basis of a non-binding assessment. At this stage, a report is also prepared for the Investment Committee which includes, among others, the budget approval for the due diligence analysis, including on ESG matters.
4. Due Diligence Analysis: it will include a specific ESG due diligence analysis that shall be performed by an external provider in order to identify short and long-term ESG risks and opportunities. The results of the analysis should be included in a report of conclusions and recommendations that should contain details of the most relevant issues from an ESG perspective for making an investment decision and recommendations for mitigating the identified ESG risks and exploiting the potential opportunities encountered during the investment period.
5. Investment Committee Approval: once the transaction team is satisfied with the results of the due diligence analysis, the relevant team will prepare the Investment Memorandum and submit it to the Investment Committee for final approval of the transaction. The Investment Memorandum should include at least a specific section devoted to the main ESG risks and opportunities identified in the Due Diligence phase. In the same committee, the 180-day Plan is also presented, which includes some of the actions recommended in the Due Diligence phase. The 180-day plan will include at least good corporate governance and business continuity measures (measures to align and retain key talent).
6. Value Creation: during the investment phase, at least one of the senior members of the investment team will join the board of directors of the portfolio company. He will be involved in key operational and strategic decisions and will also ensure the implementation of the following ESG measures:
(i) The endorsement of the portfolio company to the Nexxus ESG policy;
(ii) The appointment of an ESG responsible in the portfolio company;
(iii) The inclusion of the ESG issues in the agenda of at least two meetings of the Board of Directors per year;
(iv) The approval of ESG measures within the framework of the 180 Day Plan, Value Creation Plan and Business Plan; and
(v) The definition and calculation of ESG KPIs..
7. Divestment: our objective is to be able to demonstrate at exit that the ESG actions that we have undertaken during the investment period have contributed to the creation of value and a more sustainable company, from a social and environmental point of view.