Last updated April 2018
Commitment to Environmental, Social and Governance (“ESG”) factors
- Stable Climate
- Responsible use of scarce resources
- Clean and healthy environment
- Respect for human rights
- Adequate access to basic needs
- Local socio-economic development
- Adequate shareholder rights
- Effective board structure and proper risk management
Strong focus on ESG principles to create long-term value for all stakeholders
Exergy Capital Management LLP (“Exergy”) is an investment firm focusing on real assets, infrastructure and innovative companies throughout the energy value chain and in interconnected sectors that facilitate the transition to a low carbon emission economy.
Exergy’s focus on facilitating the Global Energy Transition, a worldwide trend towards decarbonisation, electrification and digitisation, is based on its belief that a resource efficient and sustainable use of energy will have a positive impact on the environment, and, as a result, the global population. By partnering with industry participants and enabling the build out of new infrastructure and application of innovative technologies, Exergy is looking to pave the way to a clean and responsible energy system and allowing for significant greenhouse gas reductions.
Exergy aims to create a motivating work environment built on the key principles of high professional standards, a focus on stakeholders’ interests, mutual trust, respect, transparency and teamwork. This is intended to form the basis for the firm’s focus on creating sustainable value for its stakeholders by fostering strong long-term relationships with all parties involved in the investment process, including; strategic partners, investors and the communities we invest in. By improving the environmental footprint through the reduction of greenhouse gas emissions, Exergy also has a positive, direct impact on society by improving overall health through cleaner air, ensuring energy self-sufficiency and contributing to the local economic development.
We strive to maintain high standards of governance and business ethics within Exergy and each portfolio company. Working closely with the management teams of portfolio companies and bringing in experienced partners and external experts if required, we aim to help them recognize and manage the opportunities and risks associated with ESG issues.
United Nations Principles of Responsible Investment (“UNPRI”)
Exergy is committed to the UNPRI and became provisional signatory in April 2018.
The UNPRI initiative is an international network of over 1,800 signatories, from over 50 countries, representing approximately $70 trillion in assets under management as of February 2018. UNPRI signatories work together to implement six core principles of responsible investment.
These six principles are:
- We will incorporate ESG issues into investment analysis and decision-making processes;
- We will be active owners and incorporate ESG issues into our ownership policies and practices;
- We will seek appropriate disclosure on ESG issues by portfolio companies;
- We will promote acceptance and implementation of the principles within the investment industry;
- We will work together to enhance our effectiveness in implementing the principles;
- We will each report on our activities and progress towards implementing the principles.
Management of ESG considerations throughout the investment process
Responsible investment taking into account ESG issues is among the basic principles of Exergy’s business philosophy. Exergy’s aim is to create long-lasting relationships based on mutual trust, respect, and transparency with investors, partners and portfolio companies.
- performs detailed due diligence before an acquisition is made by a fund;
- is, where possible, actively represented at board level of fund portfolio companies; and
- recognizes its responsibility to the environment and society at large.
This approach is visible through the implementation of formalised procedures to identify and manage ESG issues. Throughout the investment process the assessment and management of ESG issues forms an integral part of due diligence, the evaluation of potential investments and management of portfolio companies.
To ensure the integration of ESG considerations in the evaluation of potential investments ESG criteria are specifically addressed during the initial due diligence process. Exergy’s team will conduct an assessment of potential ESG issues to identify potential risks and opportunities in relation to a specific investment opportunity and determine how these issues could be mitigated. As part of this process Exergy will ensure that each potential portfolio company complies with applicable regulations and does not cause harm to the environment and local ecosystem. In addition, the existing governance structures and relationships with all relevant stakeholders will carefully be reviewed and evaluated.
When material ESG issues are identified, they may be included in discussions with the applicable internal committees, and dedicated advisors and experts may be engaged to carry out additional ESG-related due diligence as needed. Where management of, or performance on, a material issue is considered by Exergy to need improvement, Exergy will work with the company’s management and its strategic partners to support the development of a corrective action plan.
In general, the team aims to work closely with a portfolio company’s management and its strategic partners to implement highest standards with respect to governance and business ethics. Exergy seeks to retain either controlling positions or strong minority protections (as reflected in governance rights) and representation on fund portfolio company’s relevant committees to allow for the implementation of proper governance structures and maximise shareholders’ value. Exergy will also communicate to portfolio companies its commitment to responsible investment, as well as information on Exergy’s programs for partnering on ESG issues.
Once an investment has been made, Exergy aims to work closely with a portfolio company’s management and its strategic partners to implement the corrective action plan developed during the due diligence phase and any additional measures required.
Documentation and communication
In cases where material ESG-related issues are identified and being managed by Exergy or its strategic partner, Exergy will document, for internal use, the specific issue, the progress made addressing it and potential next steps. Additionally, where appropriate and reasonable, Exergy will support portfolio companies’ efforts to report externally and internally on their ESG approach and performance as related to material ESG issues.
Transparency and stakeholder engagement
Exergy will seek to be transparent in its approach to incorporating ESG considerations throughout its investment process by regularly reporting on its progress and outcomes. The format of this reporting may vary from among written public reports, or verbal informal reports or confidential fund level reports to investors.
Commitment to the energy transition and sustainability
Exergy and its team members have a strong commitment to environmental preservation and reduction of carbon emissions. This commitment is communicated to every individual joining Exergy and strongly reflected in the firm’s culture. A variety of measures are implemented, and best practices are adopted to provide a positive contribution to environmental preservation and reduction of carbon emissions.
- Exergy’s office is in a highly energy efficient building with an energy performance certificate (EPC) rating of ‘B’ and a BREEAM (Building Research Establishment Environmental Assessment Method) rating of ‘Excellen
- the electricity consumption is reduced in addition to building-wide systems by using energy efficient information, communication and technology (ICT) hardware, automatically turning computers/ screens into sleep mode and switching lights off when leaving offices;
- the consumption of paper and printing are limited;
- the waste is sorted and recycled;
- public transportation is favored for daily commute and business travel; and
- carbon emissions from business travels are offset.
Exergy also encourages portfolio companies to control their energy and resource consumption. A detailed analysis of the impacts of the construction of real assets allows to identify potential risks in relation to:
- air, water and/or soils pollution;
- biodiversity and/or presence of protected areas or risky habitat; and
- consumption of (scarce) resources.
Strong regard for social and ethical principles
A basis of Exergy’s values is to operate its business in a responsible and ethical manner, for the benefit of investors, ourselves, and society as a whole. Therefore, its operations are based on the following key principles:
- respect for the internationally proclaimed human rights principles;
- equal opportunity, independent of gender, race or religion;
- freedom of association and the right to bargain collectively;
- working conditions that surpass basic health and safety standards;
- good governance practices, in particular in relation to bribery and conflicts of interest;
- refraining from collusion that may harm competition and consumers and other anti-competitive practices that might have negative implications on society as a whole; and
- adherence to applicable local and international laws, regulations, and, where appropriate, relevant international standards and industry best practices.
Exergy will refrain from cooperating or engaging with companies that display unethical behaviours, including those that:
- have demonstrated a systematic denial of basic human rights;
- are engaged in pattern of non-compliance with environmental regulations; or
- participate in child labor or forced labor.
On a more local level, Exergy intends to ensure that the activities it finances facilitate growth and are beneficial to the environment and/or society. As part of this process and to get a better understanding of the needs and problems of local authorities and regulators, Exergy will look to engage in a dialogue with them and establish long-term mutually beneficial relationships.
Moreover, Exergy considers the sectors listed below as sensitive from a responsible investment standpoint and will not contemplate a direct investment in companies active in these areas:
- Alcoholic spirits
- Armaments & firearms
This list is not exhaustive, and judgement must be applied for activities not on the list, but which carry similar risks.
Adherence to high governance standards and business ethics
Exergy believes that the firm’s future success is supported by:
- high governance standards;
- adherence to business ethics; and
- best-in-class quality management.
Exergy also only employs individuals, who have passed a thorough interview and vetting process, including a detailed background check. Furthermore, Exergy’s members and employees have regular training related to their activities, regulatory requirements and industry developments throughout the year. In addition, Exergy also regularly participates in industry-specific educational events.
Exergy is an appointed representative of Mirabella Advisers LLP, which is authorised and regulated by the UK Financial Conduct Authority (the “FCA”). As such, Exergy must maintain an appropriate relationship with the FCA.
An associate of Mirabella Advisers LLP, Mirabella Financial Services LLP (the “AIFM”), acts as the alternative investment manager to any alternative investment fund (the “AIFs”) raised by Exergy. Investment decisions are taken by individuals seconded from Exergy to the AIFM. This relationship ensures that Exergy is required to comply with and perform its obligations and duties in accordance with the regulatory standards imposed on alternative investment fund managers under the Alternative Investment Managers Directive (the “AIFMD”).
Exergy has constituted two committees to assist with the ongoing operation of the business:
- the Management Committee is responsible for making decisions relating to Exergy that are outside of the day-to-day operation of the business. There will be at least two members of the Management Committee at any one time;
- the Research Committee is responsible for reviewing potential investment opportunities, prior to them being reviewed and approved by the AIFM. There will be at least two members of the Research Committee at any one time
In addition, independent third parties have been appointed to act as administrator and depositary to the AIFs. The third-party administrator provides middle and back office functions to the AIFs in accordance with an arms’ length service agreement, thereby providing an independent check and balance for safeguarding investors’ interests. The depositary fulfils the role of depositary under the AIFMD and provides an oversight and monitoring function in respect of the AIFs.
With respect to its financial reporting Exergy is committed to meet highest standard and to ensure that financial information provided is accurate, valid, reliable, timely, relevant and complete. In line with the principles of transparency and accountability, Exergy will provide quarterly reports to investors in the AIFs. In addition, annual accounts will be audited by external auditors.