Consilium views environmental, social, and governance (“ESG”) factors as important for making sound investment decisions. Long considered as part of its activities, Consilium has formalised its commitment to high standards in its own ESG Policy. The policy sets out the significance of ESG factors in relation to its investors, portfolio companies, employees and other stakeholders.
As an investor, Consilium aims to grow and improve performance as well as minimise risk in areas relevant to the long-term sustainability of each business in its investment portfolio.
Since 25 March 2020 Consilium has been a signatory of the United Nations supported Principles for Responsible Investment. The Principles for Responsible Investment provide a voluntary framework to managers for incorporating environmental, social, and governance (ESG) issues into their mainstream investment decision-making and ownership practices.
Consilium takes an active role in improving ESG awareness, performance and compliance in each portfolio company. At Consilium a mandatory ESG assessment is undertaken during due diligence by the deal team members for each prospective investment: such due diligence activity’s aim is to identify any sustainability risk and to understand how such risks can be assessed and mitigated. During these assessments, all portfolio companies are scored on a proprietary ESG rating. In addition, a risks and opportunity assessment is conducted the relevant next steps are agreed with the respective management teams. Following the initial ESG assessment, each portfolio company is then required to carry out their own ESG assessment and present it to their board of directors of Consilium on an annual basis, focused on performance and progress relative to company specific KPIs.
Sustainable Risk Finance Disclosure Regulation (2019/2088) (the “Disclosure Regulation”)
Consilium makes the following disclosures in accordance with Articles 3(1), 4(1)(b) and 5(1) of the Disclosure Regulation.
Approach to sustainability risk
A sustainability risk means “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment”. Sustainability risks are risks which, if they were to crystallise, would cause a material negative impact on the value of the portfolios of the funds managed by Consilium. Before any investment decision is made on behalf of any managed funds, Consilium identifies the material risks associated with each proposed investment, including sustainability risks (supplemental due diligence may also be conducted by an external professional firm when deemed necessary). Consilium considers such risks as part of its fund risk management process having regard to the fund’s investment policy and objective.
Consideration of sustainability adverse impacts
Article 4 of the Disclosure Regulation requires fund managers to make a clear statement as to whether or not they consider “principal adverse impacts”. Although ESG and sustainability risk is important to Consilium and Consilium takes it seriously, Consilium does not consider the adverse impacts of investment decisions on sustainability factors in the manner prescribed by Article 4 of the Disclosure Regulation. This is the current position, which Consilium will keep under review. The reason for this decision also stems from the fact that the detailed requirements on the scope of “principal adverse impacts” were not settled by 10 March 2021, when Consilium was required to decide and publish its initial approach. Consilium is continuing to assess the mandatory data collection and disclosure requirements, which are applicable to firms which opt in to consider the principal adverse impacts of their investment decisions.
Consilium requires relevant individuals to adhere to its policy and processes regarding the integration of environmental, social and governance obligations. Specific ESG-related metrics may be set for relevant individuals based on the priorities and objectives for that individual, as determined by their manager and functional leaders. In addition, Consilium considers its commitment to ESG integration as material to investment performance over the long term and aligned with its remuneration structure, which focuses on long-term funds’ performance.