Exit planning requires considered and strategic understanding of the intended partners and acquirers of our equity stake. Upon entry to each Portfolio Company we have clear expectations of ESG performance, meeting at a minimum the IFC performance standards (2012). In this respect, the tailoring of ESG activities and priorities prior to exit depends upon the focus for trade buyers, IPO or another fund. ESG is considered a material aspect of value creation during ownership and as such is a material aspect upon exit valuation. 8 Miles has a defined responsible divestment policy that is undergoing review and is summarised below.
8 Miles considers responsible divestment as the final phase of responsible investment practices that have been applied as part of the fund raising, deployment and operational improvement. Responsible divestment is critical given the primary focus on exiting to a trade entity and as part of the development impact we achieve. Taking family run small to medium enterprises to a new scale or position requires improved risk management practices across operational, environmental, social and governance realms to improve business continuity and value. 8 Miles has committed to following a process similar to investment considerations during exit discussions to provide continuity and certainty over measures we believe are core attributes to successfully performing companies. The following is a a high level summary of the requirements undertake during divestment activities.
Stage 1: Business Integrity Questionairre on Counterparties
Prior to disclosing key documentation and entering into post term-sheet discussions a questionairre (Annex 1)is sent to the counter-party to provide material information on their activities and character. This questionaiire provides certainty over whom 8 Miles is dealing with and relevant information on environmental, social or governance matters as they could relate to the portfolio company we are seeking to fully or partially exit. Stage 1 will exclude entities that have been sanctioned under OFAC and will provide a cessation to negotiations where entities are currently engaged in legal disputes over environmental, social or governance considerations in the same or other jurisdictions. KYC will be undertaken into the brokers or advisors of the counterparty including potential conflict of interest declarations where advisors may have historically held confidential or sensitive information as part of former roles within the portfolio company being exited.
Stage 2: Due Diligence on ESG Performance
Counter-parties will provide their current suite of ESG policies, practicies and management systems, including any discloseable reporting committments such as SASB, GRI, UNPRI, etc (Annex 2). Wage profiles of equivalent businesses will be requested on the basis of understanding the implications for the future workforce of the target company. In principle agreement will be requested for the Responsible Business Principles (Annex 3).
Stage 3: Responsible Ownership Plan
Environmental, social and governance principles and committments will be highlighted for negotiation as part of the exit terms. These committments will include condition precendents and condition subsequents within the executed contracts and may include a responsible ownership plan or ESG action plan. The purpose of the committments is to provide continuity and embed the existing ESG principles within the future entity. Examples of committments include, but are not limited to the following:
Social - Committments on key standards such as living wage, contract conditions, retained roles and numbers that are reasonable to the future business plan, enshrining grievance and other material safeguarding processes.
Environment - Food health and hygiene, waste and water management, management system investment
Health & Safety -Substantiated commitments on the values the future owner/investor will place on this topic
Governance - Proposed approach to be adopted or committed to by the future shareholder inc. structuring board and sub-committees, taxation approaches, etc