ESG Engagement Guidelines

Bluegem Capital Partners LLP

SCOPE OF THE GUIDELINES

The ESG Engagement guidelines have been developed by Bluegem Capital Partners LLP to be applied to their investments in Fund II and Fund III.

Bluegem are a signatory to the United Nations Principles for Responsible Investment (PRI), and we have incorporated environmental, social and governance principles into every aspect of our investment analysis, decision-making and engagement practices both in the pre-investment phase and in the portfolio management.

PRE-INVESTMENT PHASE

Maturity Assessment

At Bluegem, the ESG maturity assessment is a workstream of the due diligence process prior to any acquisition.

We employ our proprietary Bluegem ESG Rating to understand how the Target is currently performing against our ESG metrics compared to good market practice benchmarks. The analysis highlights areas to focus on in the due diligence or post acquisition, any urgent changes needed and a roadmap for improvement.

Investment decision

We have not set a minimum scoring threshold for the investment to be approved, unless a critical risk is identified. This is because our mission as responsible majority owners is not to passively select the companies that are already ESG worthy, but to work with them as an active and responsible owner to foster measurable improvements over time (e. g. higher energy efficiency, better work environment or stronger corporate governance).

Risks and opportunities

In case a significant risk in relation to ESG were discovered during the due diligence phase then this would be further investigated in order to understand if it has a material impact on the future of the business or the proposed price being paid.

Having a low-scoring ESG potential target company would not stop our decision to invest, as mentioned above. In fact it is quite common that the targets we have bought in the past, being largely from founder owners, do not have a robust system of controls, especially in the area of governance and that they may have paid limited attention to areas such as the environment or their social responsibilities. We see this as an opportunity to work with them to improve their ESG performance.

PORTFOLIO MANAGEMENT

Planning

During our ownership phase, we introduce an ESG agenda in our companies’ planning process. This will necessarily vary from company to company depending on their sector, activities and maturity, but will most likely be predicated on:

  • a roadmap or ESG improvement plan in which we agree initiatives for improvement with the management of the portfolio company

  • a review of the ESG implications of the company’s capex plan or other material investment activity

Monitoring

For all our portfolio companies, once we have established a plan and defined what success will look like, we move on to assessing the progress generated by our initiatives through our proprietary monitoring and scoring system

  • Every quarter, we sample a set of quantitative KPIs based on the SASB framework, unique for each portfolio company depending on their industry sub-sector

  • Every six months we have check points with the company to assess the progress of the yearly goals

  • Every year we assess the companies’ overall ESG maturity level through our proprietary Bluegem ESG Rating questionnaire

REPORTING

Yearly report

We retain PriceWaterhouseCoopers every year to conduct an extensive objective review of the status of the ESG initiatives and maturity of all our portfolio companies.

This yearly report is then included with the financial reporting package at the beginning of the year and communicated to all our investors.

Quarterly reporting

We have worked with selected investors to implement client-specific ESG integration guidelines (including customized indices and metrics) that are monitored quarterly across all the invested portfolio companies and then reported back quarterly to the specific client.

United Nations’ Principles for Responsible Investment

Every year we monitor and summarise our responsible investment activities to the United Nations, using their standardised transparency tool for signatories’ reporting. We then receive feedback from which to learn and develop and that leads to the continuous development of our internal processes.