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NorthEdge Capital LLP

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.

At first stage investment review

Our RI policy is the first 'port of call' for incorporating ESG concerns into our investment approach. The RI policy sees approximately 1/10 (otherwise would be introductory papers - the first stage of our investment process); rejected from further deliberation. In the past, this has been driven by business activities (e.g. in the defence supply chain) or lack of governance (e.g. an opaque corporate structure with limited, rational explanation).

At phase I investment committee review 

We implement ESG screening ahead of commencing any 3rd party due diligence. Each new business executive, prior to presenting to IC, is required to liaise with the company to complete our ESG screening document. This ESG "screen" is the tool that incorporates ESG issues and opportunities in our investment selection. The screen requiries clarification that the business does not clash with the UN Global Compact 10 Principles, our 'restricted' investments (per our RI policy) and a written testimonial on the methods used to establish initial compliance (+ further ESG developments possible post-investment), covering items from REI to climate-risk.

This is signed off by the deal team following completion with a C-Level exec from the target company and submitted to investment committee, alongside their request to approve non-contingent deal fees. Any opportunities which breach certain elements of the screening exercise are mandated to a review by our CFO. 

This screening document serves to inform Investment Committee of the ESG risks and opportunities inherent in the investment opportunity they are considering, to help guide their questions - and ultimately, guide those of 3rd party due diligence providers.

For example, the screening exercise has previously identified a business heavily engaged in agri-chem where we subsequently engaged a due diligence provider to assess the end-uses of these agri-chems as well as any known side-effects of their use. It has also identified weak and inneffective health, safety and environmental practices in a different business, which encouraged IC to double the proposed due diligence spend on the related work-stream. 

Pre/Shortly post-completion 

The 3rd party and NorthEdge due diligence will be incoporated into the 100-day plan under a dedicated ESG section. 

This next juncture is again fully linked through to our RI policy, following through on the areas that were identified for improvement through active ownership during the investment screening process. 

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.

          Management interaction and engagement with the process (i.e. a qualitative assessment of the importance they place upon ESG).
        

06.2. Describe how this information is reported to, considered and documented by the Investment Committee or similar.

Our investment screen will include direct engagement with the company. We will perform a desktop search on accreditations, industry standards and ad-hoc analysis (e.g. trading countries or key supplier relationships). We will seek specific external due diligence projects where deemed necessary by the investment team or by Investment Committee. 


PE 07. Encouraging improvements in investees (Private)


PE 08. ESG issues impact in selection process (Private)


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