This Responsible Investment and ESG Policy was last updated on 17 August 2020
- Our Investment Philosophy
Affirma Capital is a newly formed, independent emerging market private equity firm owned and operated by the long standing former senior leadership of Standard Chartered Private Equity. Across our six offices in Dubai, Johannesburg, Mumbai, Seoul, Shanghai and Singapore, we recognize that being a successful investor in emerging markets requires a best-in-class team in each market, deep local operating experience with a focus on value creation, and governance structures based on global best practices. Our investment philosophy is underpinned by our commitment to be a responsible investor across our markets, whilst building and nurturing national and regional champions backed by strong management teams and founders.
Our investment approach is centered on delivering superior returns in emerging markets, whilst integrating environmental, social, and governance (“ESG”) factors into through-the-cycle decision making – from investment origination to exit. This approach has been a key contributor to our success as a firm, and has helped us build a superior track record with realized returns at a significant premium to the MSCI Emerging markets index.
The Affirma Capital Responsible Investment and ESG Policy (“ACRIEP”) sets forth our ESG framework and commitments, including our scope, goals, roles and responsibilities within the firm, management processes and reporting.
- Purpose and Approach
Affirma Capital’s ACRIEP serves as the foundation of our commitment to incorporate ESG factors into investment decisions to better manage risk and generate superior and sustainable returns for our investors.
The ACRIEP provides direction to our employees and external stakeholders in understanding our core investment beliefs; communicates commitments to our Limited Partners (“LPs”); aligns expectations with our investors, investment professionals, regulators, portfolio company employees and local communities where we operate; and, establishes the framework for a consistent ESG approach by describing the scope, goals, roles and responsibilities, management processes and reporting to support its integration.
Our ESG framework and processes, including the assessment of materiality for ESG elements, are guided by the IFC Performance Standards and the Sustainability Accounting Standards Board standards. We commit to considering material ESG factors for our investments from origination to exit, to the extent reasonably practical under the circumstances. Our assessment of materiality includes environmental, social, governance, as well as reputational, geopolitical, and regulatory issues.
We believe that an ESG element is material when it has, or has the potential to have, a direct substantial impact on the ability to create, preserve, or erode environmental, social or economic value for the investee company and its stakeholders, including reputational issues.
We commit to updating this policy continually, as appropriate, and consistent with the circumstances and mandates of our funds. The ACRIEP is a companion policy to the fund’s list of investment-specific restrictions, which are articulated in Affirma Capital’s Restricted Investments List.
This policy is intended to provide a broad framework for our approach to ESG integration throughout the investment life cycle within our business. This policy is effective from 17 August 2020 and will be interpreted in accordance with local laws and regulations across our operating footprint.
We recognize that the ability to implement ESG practices varies significantly based upon industry sectors, geographies and whether we have a controlling or minority stake in a given investment. Where we maintain control, we seek to work with the company to appropriately integrate and monitor progress on material ESG issues into business processes. In other instances, such as where we have limited ability to conduct due diligence or restricted levels of influence to incorporate ESG considerations into an investment, our governance structures will carefully consider the ramifications and appropriately incorporate the applicable elements of this policy.
We consider environmental, public health, safety, and social issues and any other types of material ESG factors associated with target companies when evaluating whether to invest in a particular company, as well as during the period of ownership.
We believe the best investment returns come with investing with a focus on long-term sustainability which benefit multiple stakeholders. To do this, we work through appropriate governance structures (e.g. board of directors) with the goal of improving performance and minimizing adverse impacts in ESG risk areas.
We commit to compliance with applicable laws and regulations in the countries in which we invest. This includes zero tolerance of bribery and other improper payments to public officials consistent with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, the OECD Anti-Bribery Convention and similar laws in other countries.
We will provide timely information to our limited partners on the matters addressed herein, and work to foster transparency about our activities.
For ourselves, we commit to continually fostering a culture of persistent progress of environmental efficiency, harnessing diversity, mutual respect and integrity and transparency across our offices as well as with those with which we work.
- Roles and Responsibilities
Our senior leadership provides ultimate oversight of our responsible investment efforts. The Investment Committee is responsible to ensure the goals of the ACRIEP have been met for all new investments and ongoing asset management.
We have created a ESG committee comprising two investment professionals to serve as the co-heads of our ESG team, along with our CEO, COO and Head of Legal & Compliance, to ensure implementation of the ACRIEP.
For each new investment, the investment professionals comprising the specific deal team, with assistance from the ESG Committee, are responsible for ensuring the integration of ESG issues into the investment decision to be presented to the Investment Committee for final approval.
Any material ESG risks of gaps found during deal evaluation will be escalated to the ESG committee for consideration and proper resolution prior to Investment Committee approval. Where additional subject matter expertise is needed to conduct due diligence, or assist with the development of potential solutions, the firm will utilise external resources.
- ESG Management Process
a. New investments
For each new investment, our deal teams will consider material ESG risks and opportunities, and ensure that every material ESG element will be considered as part of due diligence. This process will be adequately documented as part of internal processes.
Any material ESG risks or gaps found during the deal evaluation phase, shall be escalated to the ESG committee for consideration and proper resolution. Where required, external advisors may be engaged to carry out additional ESG-related diligence.
Where material ESG risks are identified, these will be reviewed by the ESG Committee prior to investment before ultimate decision-making by the Investment Committee, and addressed with the target company at the appropriate stage of the investment process.
Where there are material ESG factors, prior to approval and with coordination with the investee company when possible, the deal team will develop a plan for the management of these issues, with key milestones and timelines, and will work towards addressing these issues within a reasonable time period during the investment phase.
b. Portfolio Management
To the extent practicable, given the type of investment (minority vs. control), we will provide input into the company’s ESG action plan and will monitor its implementation. We will also offer to provide support to the company’s ESG performance.
If new concerns regarding an existing or new ESG material factor emerge, this will be brought to our ESG Committee and appropriate steps will be undertaken and included in our portfolio monitoring activities. A summary of these findings will be included in our annual report to LPs as part of the ARIEP’s progress and outcomes.
In cases where we determine there is limited ability to conduct diligence or to influence and control the integration of ESG considerations in an investment, we will appropriately incorporate the applicable elements of this policy. Examples include where we are a minority shareholder, have limited governance rights or there are other circumstances affecting our ability to assess, set, or monitor ESG-related performance goals.
At exit phase, we will endeavor to disclose key developments and progress achieved in enhancing ESG elements within the investee company. Where relevant, we will collate case studies outlining key ESG developments during our investment period.
We will be transparent in our approach to incorporating ESG considerations in our investments and will begin by reporting at least annually to our LPs on the ACRIEP’s progress and outcomes.
At their option, LPs may provide input if there are specific ESG elements that we can take that into consideration as we develop our reporting framework as well as in the on-going implementation of the ACRIEP.