Policies on the Integration of Sustainability Risks into the Investment Decision-Making Process
The information below regarding the policies of IK Investment Partners AIFM (together with IK Investment Partners Limited and their principal group companies, “IK”) on the integration of “sustainability risks” in its investment decision-making process is provided in accordance with Article 3(1) of the EU Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”).
Identifying environmental, social and governance (ESG) related risks and opportunities is an integral part of IK’s due diligence process. All prospective investments must be compatible with IK’s responsible investment (RI) principles and commitments, as well as in compliance with the exclusions prescribed by IK’s RI Policy, which can be viewed here. Judgment will be applied by IK to any prospective investment that is not listed in the RI Policy, but which poses similar risk characteristics. If it transpires during the pre-investment phase that a potential investment will not comply with IK’s RI Policy, the investment opportunity will not be pursued.
In addition, IK maintains an ESG policy which further details IK’s consideration of sustainability risks in the decision-making process, as well as IK’s monitoring and oversight of portfolio companies with regard to ESG risks and opportunities. IK’s evaluation of investment opportunities will always include the identification and assessment of relevant ESG-related risks. In order to assist the relevant Investment Team with its ESG risk assessment in the pre-investment stage, IK has put in place an Environmental and Social Risk (“E&S”) Tool as well as an IK Climate Change Tool. The use of both is mandatory for each investment proposal. The E&S Tool is a high-level proprietary risk scoping tool, which generates key risk categories based on the industry/sector/sub-sector classification of the portfolio company. This guides the relevant Investment Team as they design their approach to the ESG risk assessment during the pre-investment stage.
Further, external specialists will be instructed to perform enhanced ESG due diligence on potential target investments, where appropriate. IK anticipates that in due course external specialists will be used in relation to all proposed investments which are to be considered by its Investment Committee.
A summary of ESG due diligence findings must be included in the Investment Committee Memorandum alongside the investment thesis for a proposed investment. A mandatory ESG risk-screening and summary assessment of ESG factors relevant to an investment, including financial and non-financial information, are mandatory aspects of the detailed presentation made to the Investment Committee before its determination. These considerations enable the Investment Committee to properly assess the ESG risk factors before determining whether to recommend an investment by the IK fund.
When making a decision as to whether to recommend a prospective investment, the Investment Committee will take into account, alongside other considerations, information on ESG factors presented in the Investment Committee Memorandum and in the presentation to the Investment Committee. If the Investment Committee concludes that the ESG-related risks associated with a target company are too high and/or cannot be appropriately mitigated, IK will elect not to pursue the investment opportunity.