SUSTAINABLE FINANCE DISCLOSURE REGULATION
Integration of sustainability risks: Albion Capital Group LLP (Albion Capital) is a signatory of United Nations Principles for Responsible Investments (UNPRI) and incorporates environmental, social and governance (ESG) considerations into its investment decisions. This forms part of our process to create value for investors and develop sustainable long-term strategies for our portfolio companies. We report against ESG criteria to UNPRI (annually) and to the boards of Albion Capital’s funds (quarterly).
We integrate ESG principles at the pre-investment, investment and exit stages.
Pre-investment stage: An exclusion list is used to rule out investments in high risk/ unsustainable areas. ESG due diligence is performed on each potential portfolio company to identify any sustainability risks associated with the investment. Identified sustainability risks are ranked from low to high and are reported to the relevant investment committee. The investment committee considers each potential investment. If sustainable risks are identified mitigations are assessed and, if necessary, mitigation plans are put in place. If this is not deemed sufficient, the committee would consider the appropriate level and structure of funding to balance the associated risks. If this is not possible, investment committee approval will not be provided, and the investment will not proceed.
Investment stage: An ESG clause is integrated into the pre-negotiation template shareholders agreement for all new investments. The clause outlines the portfolio company’s commitment to combine economic success with ecological and social success.
All new and existing portfolio companies are asked to report against an ESG Balanced Score Card annually. The ESG Balanced Score Card contains a number of sustainability factors against which a portfolio company will be assessed in order to determine the potential sustainability risks and opportunities arising from the investment. The score cards form part of our internal review meetings alongside discussions around other risk factors, and any outstanding issues are addressed in collaboration with the portfolio companies’ senior management. When follow-on investment is considered for portfolio companies, relevant ESG actions are identified, discussed at investment committee, and implemented as conditions of further investment.
Exit stage: We aim to ensure that good ESG practices remain in place following exit. For example, by ensuring that the portfolio company creates a self-sustaining ESG management system during our period of ownership, wherever feasible.
Principal adverse impact statement: The EU Sustainable Finance Disclosure Regulation (SFDR) requires us to make a “comply or explain” decision whether to consider the principal adverse impacts (PAIs) of our investment decisions on sustainability factors. Albion Capital has decided not to comply with that PAI regime at present. We are therefore required to publish and maintain on our website a statement to explain our reasons for not complying with the PAI regime, and information as to whether and when we intend to comply with such regime.
Albion 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 their investment decisions on sustainability factors. However, we have chosen not to comply with the regime for the time being. We manage funds that invest primarily in early-stage private companies and the data required to comply with the technical reporting requirements of the PAI regime is not readily available.