ESG at Ardent Equity

At Ardent Equity, we treat environmental, social, and corporate governance (ESG) as true sources of competitive advantage, not ‘just’ a check in the box. Sustainability is a key lever in our approach to create long term sustainable value. By treating ESG opportunities and challenges as vital business topics we aim to drive sustainable growth, ensuring our portfolio companies have a meaningful contribution to their environments and remain relevant now and excel in the future.

Objective

The objective of this policy is to articulate Ardent Equity’s approach to integrating the considerations of ESG-related value creation opportunities and risks into its investment processes and to ensure adherence to the European Union’s Sustainable Finance Disclosure Regulation or ‘SFDR’. The public disclosures required to be made in terms of the SFDR are available on our website/are available [here].

Principles

Ardent Equity seeks to act in the best long-term interests of its beneficiaries and stakeholders of its investments, in which ESG plays an important role. Ardent Equity therefore strives to commit to the following United Nations-supported Principles for Responsible investments:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will report on our activities and progress towards implementing the Principles.

Integration into Ardent Equity’s investment processes

Ardent Equity aims to integrate an ESG lens throughout its investment processes by way of the following:

Pre-screening

Ardent Equity will not consider investments that inherently conflicts with its ESG principles and objectives. As such, Ardent Equity is to determine whether there are any critical ESG or reputational concerns linked (in)directly to target companies during the pre-screening process. To ensure the deal team and Investment Committee are actively considering any inherent ESG conflicts, Ardent Equity uses a standardized one-pager to discuss each potential deal. Besides a summary of the target company’s business operations and performance, a first view on the value creation opportunities and potential red flags, there’s a dedicated section in which any ESG-related opportunities and threats will need to be flagged by the deal team. Additionally, certain ESG sensitive industries such as oil & gas, production of weapons, tobacco, pornography, etc. are by definition excluded from our investment universe.

Due Diligence

Ardent Equity is to evaluate material ESG opportunities and risks applicable to the industry and/or target company in scope during the investment due diligence process. Therefore, Ardent Equity has integrated ESG into its standard investment approval process by the Investment Committee. In doing so, the Investment Committee is to assess and sign off on:

i)                Industry’s exposure to ESG trends

The deal team is to identify the relevant ESG-related trends and to assess how these have affected and will affect the industry in scope going forward. Based on this, the deal team is to outline both potential opportunities and threats. During the due diligence phase, the Investment Committee needs to assess whether the industry is too exposed to ESG-related trends negatively impacting the industry. If this is the case the opportunity will be discontinued.

ii)               Company’s maturity regarding ESG and current ESG performance

The deal team is to create an understanding of the target company’s current ESG maturity and performance. To standardize this assessment, the target company is to be classified into one of the following four categories:

Minimalist:              Views ESG as compliance issue, no targets nor reporting

Pragmatist:             Oriented to risk rather than opportunity, reporting, no targets

Strategist:                Sees risks ánd opportunities in ESG, reporting and targets in place

Trailblazer:              ESG is core to purpose and products, reporting and targets in place

This standardized approach will help the Investment Committee to better understand the target’s company current ESG maturity.

iii)             Company-specific ESG opportunities & risks

Based on the initial input from the pre-screening process, noted down on the standardized one-pager (as discussed in the “pre-screening” section), the deal team is further develop a view on the company-specific ESG opportunities and risks.

iv)             ESG-specific value creation levers to prioritize during the holding period

The deal team is to summarize the top 2-3 ESG-related value creation topics to prioritize during the holding period. Given that this is core to Ardent Equity’s strategy, this is a critical step that needs to be aligned with both the Investment Committee as well as management of the target company. Upon alignment, these value creation levers are included into the general value creation plan.

Besides ESG opportunities and risks, Ardent Equity also assesses companies on their good governance practices. Ardent Equity applies seven criteria to ensure a company follows good governance practices:

1.     Employee Relations: The company is compliant with the 3rd principle on labor relations on the UN Global Compact and is not on the non-compliance list

2.     Bribery, Corruption, Business Ethics: The company is compliant with the 10th principle on anti-bribery and corruption of the UN Global Compact and is not on the non-compliance list

3.     Accurate & Compliant Reporting: The company is compliant with the financial reporting guidelines as per the law and regulations of the country it operates in

4.     Board Oversight on Mgmt. Functioning: The management of the company acts in accordance to a management protocol, supervised by active shareholder(s) to ensure proper management functioning board member

5.     Tax Compliance: The company has no significant controversies on Taxation & Accounting

6.     Consistent Remuneration: The company has no significant shareholder dissent and follows basic expectations on golden parachutes and claw back provisions

7.     Breaches of Shareholder rights: The company has no Issue Codes on “other governance issues” and Active Ownership assessment principles

After acquisition, Ardent Equity strives to actively promote these good governance practices and, where needed, bring this to an even higher level.

Holding period

Upon the acquisition of a portfolio company, Ardent Equity aims to baseline all company’s emissions (incl. scope 3) using a third-party AI software in close cooperation with management (see Annex A for more detail). Establishing this baseline within the first weeks of the holding period will not only create more ESG awareness of the company’s emissions hotspots, it will also be used to formulate and quantify the company’s ambition to bring down emissions.

ESG-related initiatives are identified, and their impact quantified, serving as a roadmap to realize the company’s ambition to bring down emissions. Important to notice we strive to ensure these initiatives are also positively contributing to improved financial performance, to ensure overall incentives are aligned.

Using this baseline, Ardent Equity is to monitor, manage, and improve the ESG performance of its portfolio companies throughout the holding period. ESG reporting is integrated into the quarterly reviews, in which selective key ESG performance KPIs and progress of all portfolio companies is closely monitored and ESG-specific opportunities & risks (re)evaluated.

Yearly, to comply with the SFDR’s Article 8 requirements, Ardent Equity’s Sustainability Report is drafted and published, reporting across Ardent Equity’s portfolio companies all mandatory Principle Adverse Sustainability Impacts (PAIs) in line with the Sustainable Finance Disclosure Regulation.

The following PAIs are included:

Climate and other environment-related indicators

·       Greenhouse Gas emissions – scope 1, 2, and 3

·       Carbon footprint

·       GHG intensity

·       Share of non-renewable energy consumption and production

·       Energy consumption intensity per high impact climate sector

·       Activities negatively affecting biodiversity sensitive areas

·       Emissions to water

·       Hazardous waste ratio

Social and employee, respect for Human Rights, Anti-corruption, and Anti-Bribery indicators

·       Violations of UN Global Compact principles (UNGC) and Organization for Economic Cooperation and Development (OECD) Guidelines for Multination Enterprises

·       Lack of processes and compliance mechanisms to monitor compliance with UNGC and OECD Guidelines for Multination Enterprises

·       Unadjusted gender pay-gap

·       Board gender diversity

·       Exposure to controversial weapons

Ardent Equity uses third-party reporting software to ensure its Sustainability Report is and remains compliant with the SFDR and EU Taxonomy guidelines.

Leading by example

At Ardent Equity we want to lead by example by minimizing our own carbon footprint and proactively contributing to a more sustainable world.

We aim to minimize our own carbon footprint by i) promoting travel in a sustainable manner, ii) ensuring our office(s) are in sustainable buildings, close to public transport hubs, and iii) vetting our suppliers on sustainability. We partner with a third-party to evaluate our total emissions year-end and compensate for this when needed to ensure we retain a negative CO2 emission balance.