Statement on the ESG Approach, Article 173 of the French Act on Energy Transition And article 3 of the Regulation (EU) 2019/2088
Cathay Capital Private Equity (CCPE) firmly believes that accounting for Environmental, Social and Governance (ESG) stakes in its activities is fundamental to its role as an investor. Integrating ESG factors in investment decisions is vital in determining risks and opportunities, and ensuring long-term, sustainable value creation for the company, for its portfolio companies, their management and employees, the environment, and society as a whole.
As such, CCPE formalized a responsible investment approach in 2017 by designing and implementing its ESG Management system. The approach which was decided upon strengthens CCPE’s consideration of ESG issues in all stages of the investment process, and also allocates Cathay’s roles and responsibilities with regard to accompanying portfolio companies in adopting sustainable practices and in implementing continuous improvement with regards to these issues.
CCPE implements France Invest’s recommendations regarding ESG disclosure and is considering the advisability of implementing the negative impact statement provided for by the Article 4 of Regulation 2019/2088defined in Article 4 of Regulation (EU) 2019/2088.
As acting as a portfolio Management company approved by the AMF, CCPE has a remuneration policy, including variable compensation linked to risk management and compliance with internal procedures and policies (incl. ESG issues).
Smallcap I and II, Sino-French Fund
Smallcap III and IV, Midcap I and II
Complete implementation of the ESG Management system
Cathay’s ESG approach is regularly reviewed. An update of this approach and Cathay’s strategies is planned for 2021.
The ESG Management system defined CCPE’s commitments and sets out the criteria taken into account in investment decisions:
In 2018 and 2019, CCPE actively pursued this responsible investment approach, consolidating the ESG commitments formalized in 2017 and continuing to integrate ESG criteria into all stages of the investment process As CCPE’s investments are carried out on a wide scope of activities and countries, notably in Europe and in China, the ESG criteria cover an exhaustive perimeter.
Internationally recognised referentials were considered in determining the criteria:
CCPE’s management system approach focuses on ensuring that ESG issues are accounted for at all stages of the investment process, from the pre-qualification to the exit stage.
In the initial stages of investments (deal qualification and LOI stages), potential portfolio companies’ activities are screened to ensure none figure on CCPE’s Exclusion List (see Appendix). A report on any material ESG matter the company is associated with is also formalised, based on the initial review and investigation of public information regarding any adverse impact on local communities or the environment. The findings from the ESG report are discussed at the Local Executive Committee Level to identify any potential no-go decision.
During the transaction stage, CCPE launches an ESG due diligence which is performed by qualified, independent, external experts in order to assess the ESG risks and impacts of the proposed Portfolio Company’s operations. This report notably contains an assessment of operations into high, medium and low risks, based on the Commonwealth Development Corporation (CDC) criteria and sector profiles.
The ESG due diligence includes:
The due diligence is presented to the Global Partners and Advisory Committee. No investment can be finalised unless the portfolio company has accepted the proposed action plan.
During the holding stage, the deal team follows up on the relevant Action Plan and more generally on continuous improvements on a regular basis, and ESG topics are addressed by the company’s Board on a minimum yearly basis. In addition, CCPE has implemented an annual ESG reporting framework in order to publish the consolidated ESG performance of portfolio companies. This reporting provides additional disclosure on the ESG impacts of portfolio companies and continuous improvement actions.
Lastly, at the exit stage, the Exit Memorandum for the Portfolio Company contain an overview of the ESG improvements made along the investment period.
For the funds in the scope of the ESG Management system, CCPEP provides its investors with: