Consideration of adverse sustainability impacts

Sustainability factors may impact the revenue and cost structure of target investments directly, or have external impacts, such as impacting the quality of life for community stakeholders or perceived value for customers. Accordingly, they also impact return on investment. CapMan strives to integrate sustainability factors with its general core business, creating a strong culture that drives sustainable practices both at CapMan and in its portfolio companies.

Description of and policies to identify and prioritise principal adverse sustainability impacts

The principal adverse sustainability impacts considered per investment area are based on indicators that refer to, among others, the following sustainability impacts[1]:

Private Equity, Credit and Infrastructure

  • Greenhouse gas emissions
  • Biodiversity
  • Water
  • Waste
  • Social and employee matters

Real Estate

  • Fossil fuels
  • Energy efficiency
  • Greenhouse gas emissions

CapMan utilises these indicators to identify and prioritise the principal adverse sustainability impacts of its activities.

Private Equity investments

Prior to making an investment, the case team conducts due diligence of the investment opportunity, including ESG due diligence or assessment that evaluates potential sustainability risks and value creation opportunities based on, among others, the following characteristics of the potential investment:

  • Industry
  • Location
  • Supply chain
  • Customer base
  • Nature of operations
  • Health and safety
  • Energy consumption and emissions
  • Water consumption
  • Waste management

ESG due diligence and assessment forms part of the overall risk assessment. The outcome of the risk analysis determines the level of controllable risks and details whether further action is required in order to proceed with the investment and what the follow-up for each identified risk is.

If CapMan is a minority investor or if there are co-investors, the findings of the ESG assessment are shared with the other owners/investors and follow-up and action plans are conducted in co-operation.

The value creation plan includes an ESG plan as identified in the initial due diligence with objectives and sustainability KPIs based on the industry, geography, supply chain, customer base and other aspects of the investment.

Credit investments

Prior to making an investment, the case team conducts due diligence of the investment opportunity, including negative screening and ESG due diligence or assessment that evaluates potential sustainability risks based on, among others, the following characteristics of the potential investment:

  • Industry
  • Geography
  • Supply chain
  • Customer base

ESG due diligence and assessment forms part of the overall risk assessment. The outcome of the risk assessment determines the level of controllable risks and details whether further action is required in order to proceed with the investment and what the follow-up for each identified risk is.

CapMan also evaluates the sustainable investment policies of equity owners before making an investment and co-operates with equity owners in order to guide the portfolio companies towards more sustainable operations. As a steering mechanism, covenants associated with credit can be linked to sustainability factors and objectives.

Real Estate investments

Prior to making an investment, the case team conducts due diligence of the investment opportunity, including ESG due diligence or assessment that evaluates potential sustainability risks based on, among others, the following characteristics of the potential investment:

  • Energy consumption
  • Energy sources
  • Water usage
  • Construction materials usage
  • The occurrence of hazardous substances
  • Waste management.

In addition, the ESG due diligence also includes a screening of potential climate risks i.e. risks associated to increased temperatures and associated climate changes. ESG due diligence forms part of the overall risk assessment.

The outcome of the risk analysis determines the level of controllable risks and details whether further action is required in order to proceed with the investment and what the follow-up for each identified risk is.

If there are co-investors, the findings of the ESG due diligence are shared with the other owners/investors and follow-up and action plans are conducted in co-operation.

The asset management plan includes an ESG plan with objectives and sustainability KPIs based on the risks identified in the initial due diligence of the asset.

Infrastructure investments

Prior to making an investment, the case team conducts due diligence of the investment opportunity, including ESG due diligence or assessment that evaluates potential sustainability risks based on, among others, the following characteristics of the potential investment:

  • Industry
  • Location
  • Supply chain
  • Customer base
  • Nature of operations
  • Energy consumption
  • Energy sources
  • Water usage
  • Construction materials usage
  • The occurrence of hazardous substances
  • Waste management

ESG due diligence forms part of the overall risk assessment. The outcome of the risk analysis determines the level of controllable risks and details whether further action is required in order to proceed with the investment and what the follow-up for each identified risk is.

If CapMan is a minority investor or there are co-investors, the findings from ESG due diligence are shared with the other owners/investors and follow-up and action plans are conducted in co-operation.

The asset management plan includes an ESG plan with objectives and sustainability KPIs based on the risks identified in the initial due diligence of the asset.

Investment Advisory – Wealth Services

Investment advisory provides advisory and discretionary portfolio management services. The team performs active manager selection of third-party public and private market funds.

We believe that sustainability is a return and risk driver in long-term investing and thus, it should be integrated in all investment decisions from investment strategy to individual instrument level.

The selection process includes detailed ESG data analysis and qualitative interviews with the portfolio managers and analyst. The focus is placed on funds ESG integration, carbon intensity, implementation, and engagement practices. Advisory team monitors chosen managers systematically with position level ESG data analysis and portfolio manager interviews. Investment advisory focuses on the following issues in particular:

  • Client preferences on ESG issues.
  • Sustainability factors are central in every investment decision – together with risk and return.
  • Align investments to support a low carbon economy.
  • Fund analysis includes the following sustainability factors: Carbon intensity, Green & Brown revenue, Corporate Governance, UNGC violations and controversies based on OECD guidelines.
  • Promote solutions that support reaching the Sustainable Development Goals (SDG’s).
  • Portfolio and fund level sustainability reporting.

[1] Based on RTS Table 1 + Table 2 + Table 3 indicators by investment area

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