Transparency on Metrics
Investment modalities have evolved with investments that have obvious negative adverse social and environmental impacts required to meet a much higher bar to qualify for institutional investing. These modalities also require higher levels of transparency with regards to both the decision making processes as well as the ongoing monitoring of the portfolio companies.
Soho Square strives to be open about our sustainability efforts and goals, and progress in the adoption of these policies demonstrates our further commitment to these goals.
ESG is easy to define as a concept but is hard translate into specific rules or sets of actions. Our approach is intended to be practical through the implementation of broad based policies that recognize the complexities associated with the implementation of ESG concepts and also by defining exclusion lists that reflect the areas that we believe are not compatible with our broader ESG agenda.
We believe that this approach achieves many key objectives while giving us the flexibility to examine and evaluate those ESG issues that may not fall into well-constructed definitions.
We have defined our broad based policies around the three Environmental, Social, and Governance areas.
- Minimise and manage environmental impact
- Measure and report carbon emissions
- Protect employees through high health and safety standards
- Ensure product safety and protect consumer interests
- Engage positively with local communities
- Ensure the adoption and institutionalization of critical governance policies, including anti-corruption and bribery policies
- Ensure that portfolio companies operate to the highest standards of corporate governance
The exclusion list that we have adopted is and will continue to be a work in progress.
The list represents our current assessment and will continue to evolve to reflect our position on industries and business that we deem to no longer be within our broader ESG agenda.
- Production, distribution, or sale of pornography
- Production, trade and/or distribution of tobacco
- Production of and trade in weapons and ammunition
- Operation of casinos and other gambling enterprises
- Exploitation and testing on animals
- Extraction of fossil fuels
- Enterprises whose business models involves the destruction of habitat e.g., palm oil/deforestation
Implementation of Objectives
The integration of these policies into our day-to-day activities is key – that is how we will translate these objectives into tangible actions. The integration will cover three areas: Investment decision making, senior level resource commitment, and reporting and monitoring.
Investment Decision Making
The integration of our ESG policies into our investment processes is key to delivering on the broader commitment. We have historically informally applied many of the policies that we have now codified. In that context, we evaluate not only a company’s current position but also what its objectives are and how we can help it achieve them.
The formalization of the policies alongside the exclusion rules will provide a clearer reference frame to assess which opportunities fit within our remit.
While ESG consideration are integral to our overall approach, there are three places where these considerations will determine whether we pursue an opportunity or continue to support it:
1. Exclusion Filter
The primary filter is against our exclusion rules, whereby each company or project is assessed against those rules and a determination is made as to whether the opportunity fits within our parameters.
2. Management commitment to ESG objectives
If the opportunity falls outside those exclusions, we will engage with the management teams and make them aware at an early stage that ongoing ESG compliance, improvement and promotion is a pre-requisite for our capital. Their commitment to the adoption of ESG guidelines will form an important part of our decision making.
3. Due diligence validation
Confirming our ESG assumptions about a company forms an important part of our due diligence. We use this exercise to both validate our beliefs, determine the baselines of the company, and assess which areas require more support and focus to improve.
We will work with our portfolio companies to set out ESG goals and targets and support them in developing the disciplines required to achieve those objectives. That commitment will continue through the lifecycle of the investment.
Once an investment has been agreed, a 100-day improvement plan is developed by the key stakeholders, including Soho Square and the company management team. This plan will serve as a guide which includes targets to be measured, achieved, and discussed at board meetings and reported on.
During investment, our positions on the board of the companies will allow us to oversee their progress towards their stated ESG targets and provides us with the ability to support or challenge the team on their execution.
At exit, Soho Square are committed to being open and transparent regarding ESG performance and any specific ESG initiatives and achievements to potential new buyers.
Senior Team Accountability
Soho Square has a dedicated team who are each responsible for different stages of the investment, including screening and due diligence, monitoring, and reporting. While these teams are led by senior members of the firm, the responsibility to ensure adherence to our objectives sits with every member of the team.
We are all responsible and share a duty to oversee and ensure ESG integration. As a team, we hold monthly board meetings where ESG progress will be discussed, including specific ESG initiatives introduced by portfolio companies.
Soho Square will report on ESG performance on an annual basis to LPs and will cover the specific investee company initiatives as part of this reporting.
This document will be subject to changes and updates as we progress through our ongoing journey of ESG integration at Soho Square.
Dated: 5th July 2022