Sustainability risk management is embedded in the way Maguar Capital seeks to originate investments and make investment decisions, as well as in ongoing portfolio and asset management activities.
Maguar Capital recognises the importance of identifying, assessing and managing material sustainability risks as an integral part of conducting business.
Maguar Capital’s sustainability risk policy (also ESG Policy) provides a comprehensive framework for integrating sustainability risk management into investment decision making.
How does this Sustainability Risk Policy work?
The Sustainability Risk Policy sets out how sustainability risks are integrated into Maguar Capital’s investment decision-making processes.
The Sustainability Risk Policy applies for Maguar Capital’s entire investment cycle. In particular, the deal-team shall use this policy as main point of consideration within the deal-flow process from sourcing to completion. In addition, Maguar places high importance on the policy in the ongoing portfolio monitoring for existing investments. Lastly, the investment committee takes into consideration the sustainability risk factors when deciding over the exit of an investment.
Our policy considers the main sustainability risk factors related to Environmental, Social, and Governance. Within each of the categories we identify relevant sub-categories relevant to our operations and to targeted industries in which we invest. The following non-exhaustive list of sustainability risks are considered: climate change resilience, pollution, biodiversity, carbon emissions, human rights in supply chains, health and safety, community relations, cultural heritage, labour and employment practices, resource efficiency, and the materiality of each risk will be determined for each investment.
Integration of sustainability risks into investment decision-making processes
Sustainability risks are considered at all stages of each product’s investment process, in respect of each individual investment opportunity.
Once a potential investment has been identified, it should be determined whether such potential investment accords with Sustainability Risk Policy. During the preliminary meetings of the investment committee, key issued should be raised. After the investment is deemed compliant, an in-depth assessment of sustainability risks is undertaken during the due diligence process.
The investment team is required to complete a summary ESG questionnaire as part of the investment committee paper submitted to the Investment Committee for consideration. This ESG Questionnaire is a tool used to assess initial sustainability risks for a number of chosen areas relevant to the investment in question, and to identify where additional investigation or due diligence into sustainability risks is required. This seeks to ensure sustainability risks are identified and mitigated during the investment process.
The sustainability risk matrix requires completion of due diligence questionnaires by the deal team and requires an assessment of each deal to be conducted two times throughout the investment process: at Preliminary Investment Approval, and at Final Investment Approval. Where the potential investment operates in a complex industry or sensitive environment, Maguar Capital will consider engaging external specialist. The report includes a scoring of the risks which were identified during sourcing and due-diligence and a rating between Low, Medium, and High is given. Furthermore a short narrative is used as comment on each area.
Within Maguar Capital, the Compliance officer is responsible for the oversight of the sustainability and ESG risks. All Members of Maguar Capital are required to comply and operate under the internal ESG policies. As the firm growth of size in terms of employees and assets under management, further roles such as Sustainability Officer and ESG committee are planned to be implemented.
No consideration of adverse impacts
The SFDR requires Maguar Capital to make a “comply or explain” decision whether to consider the principal adverse impacts (“PAIs“) of its investment decisions on sustainability factors, in accordance with a specific regime outlined in SFDR. Maguar Capital has opted not to comply with that regime, both generally and in relation to the Fund.
Maguar Capital will keep its decision not to comply with the PAI regime under regular review.
Maguar Capital has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the draft Regulatory Technical Standards which were published in April 2020 (the “PAI regime“). Maguar Capital is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors and the market, as to how financial market participants integrate consideration of the adverse impacts of investment decisions on sustainability factors. However, Maguar Capital is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as Maguar Capital believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding Maguar Capital’s decision not to comply with the PAI regime, Maguar Capital has implemented positive ESG-related initiatives and policies, as part of its overall commitment to ESG matters, as summarised in this section. For the avoidance of doubt, none of the following information is intended to suggest that Maguar Capitalcomplies with the PAI regime.
Maguar Capital (along with its subsidiaries and controlled affiliates, “Maguar Capital”) has established a remuneration policy (the “Policy“) applicable to all Maguar Capital entities. The Policy is developed, approved, implemented and monitored by a series of bodies within the Maguar Capital structure. The Policy applies to all employees of Maguar Capital, save for limited exceptions.
The Policy has been developed with the aim of supporting Maguar Capital’s business strategy, corporate values and long‐term interests, including by facilitating the identification, assessment and management of sustainability risks when determining individual remuneration packages. The key principles of the Policy include fostering appropriate risk culture (including with respect to the management of actual and potential conflicts of interest) and compliance with applicable law and regulation.
The performance management and rewards framework envisioned by the Policy has been designed to promote effective risk management, including in particular by:
- Ensuring that assessment of performance takes full account of adherence to risk management requirements, covering all relevant types of current and future risks, including sustainability risks;
- Implementing deferral arrangements using co‐investment and carried interest arrangements for senior personnel, facilitating alignment of interests between staff‐members and third-party investors. If the value of the relevant underlying investment portfolio should decrease (whether arising as a result of a sustainability risk or otherwise), the value of the employee’s holdings will be reduced accordingly; and
- Providing for reduction of deferred variable remuneration awards to senior personnel in certain circumstances, such as in the event that the entity in which the relevant employee works suffers a significant failure of risk management, or experiences a significant downturn in its financial performance (as determined in the sole discretion of Maguar Capital), including in connection with a sustainability risk concerning an investment.