Cabot Square Capital LLP - ESG Policy
Environmental, Social and Governance Policy Statement
Cabot Square Capital LLP (“Cabot Square”) recognises that environmental, social and governance (“ESG”) issues can have a significant impact on value creation during the period in which we hold our investments. For this reason, we have adopted the following ESG policy.
2. Our Sustainable Investing Principles
Cabot Square is a signatory to and supports the UN Principles of Responsible Investment (www.unpri.org). In addition, we are committed to:
- Comply with relevant regulations governing the protection of human rights, occupational health and safety, the environment, and the labour and business practices of the jurisdictions in which we conduct business.
- Adhere to the highest standards of conduct intended to avoid even the appearance of negligent, unfair or corrupt business practices.
- Regard implementation of our ESG engagement activities as an integral part of how we do business.
- Appoint a Head of Sustainability and provide for the assignment of and accountability for ESG responsibilities to senior managers at companies we control – in this regard, Cabot Square has appointed Stephanie Wilde as our Head of Sustainability.
- Instruct Cabot Square Investment Professionals in the identification and management of ESG risks and opportunities, and provide them with appropriate support and assistance.
- Identify ESG risks and opportunities prior to the acquisition of companies entrusted to our care and control, and manage ESG risks and opportunities following acquisition.
- Establish appropriate ESG policies and practices for companies entrusted to our care and control comparable to standards adopted by Cabot Square.
- Recognise that our ESG activities are of an ongoing nature and to encourage continual improvement in ESG performance at the companies we own.
- Distribute this policy and related ESG information to all Cabot Square members and employees.
- Encourage dialogue on how we can accommodate ESG issues in a way that is consistent with our Limited Partners’ and other stakeholders’ initiatives in these areas.
3. Cabot’s Commitment
As part of our commitment to ethical and responsible investing, Cabot has been a signatory to the UN Principles for Responsible Investment since 2021.
As part of our commitment to sustainability, Cabot targets progress being made toward the 17 Sustainable Development Goals as laid out by the United Nations both prior to investment and throughout its ownership cycle.
As part of our commitment to advancing diversity, equality and inclusion in the private equity industry, Cabot has become a signatory of the ILPA Diversity in Action initiative in 2022.
4. How is this policy implemented?
Investing sustainably is embedded in every stage of the investment lifecycle, from origination of new investment opportunities through to eventual exit from an investment.
(i) Pre-Investment Screening and Excluding Investments Policy
- The manufacture of sale of controversial weapons (antipersonnel mines, cluster bombs, nuclear, chemical, or biological weapons)
- The manufacture or sale of tobacco products
- The manufacture of sale of illicit drugs
- Coal mining
- Oil or gas exploration or production
- Other activities that are illegal in the jurisdiction in which they are located, pursuant to applicable laws.
- Manufacture or sale of weapons
- Generation of nuclear power
- Manufacturer of sale of alcoholic beverages or legal recreational drugs
- Provision of gambling services
- Adult entertainment
- Privately operated correctional facilities
Cabot does not invest in entities deriving revenue from the following activities:
Further to this, we screen potential investments against criteria that include a broader consideration of activities in sectors that present especially elevated ESG risks. Investment in these activities requires special consideration as to whether associated societal harms are being mitigated prior to investment and the Investment Committee should be consulted before any opportunity to invest is pursued.
(ii) Due diligence and the investment decision
Investment teams are required to identify material ESG risks and opportunities by completing the pre investment ESG risk assessment for every deal, setting out how the relevant risks will be managed post acquisition. We also identify areas for positive impact and potential negative impacts on broader stakeholders during due diligence. Before making any investment, the ESG considerations relevant to that investment are considered by the Investment Committee as part of their overall deliberations as to whether the investment is made.
(iii) Post-investment Ownership Phase
After an investment decision is made, Cabot’s process for engaging with the investee company consists of an onboarding period, agreeing an ESG Strategy and Action Plan which is then revisited and refreshed annually with company management.
Cabot also runs a regular ESG forum where all portfolio companies are able to meet to share ideas and discuss better understand relevant ESG topics.
(iv) Strategy and ESG Action Plan
Working with management, a strategy is developed to address the material risks and opportunities identified through our investment due diligence. The strategy also aims to maximise positive impact and minimise negative impact on the environment and society, aligning with the applicable UN Sustainable Development Goals.
As part of the wider value creation programme, we agree with company management a specific annual ESG Action Plan, backed with specific targets and metrics where possible.
Each year, we support the investee companies in reviewing performance and updating their annual action plans. We provide feedback and seek to address any issues that come to our attention. In addition, we collect standard data across the portfolio on diversity and inclusion, and greenhouse gas emissions to support our investors in their own decision making. We report quarterly, and at our AGM, on progress on ESG matters across the portfolio.
While stakeholders will reap benefits before, during and after ownership by a Cabot fund, it is at exit that we will seek to maximise the financial value of the ESG programme for investors through a higher exit price and, as far as possible, ensure that established good practice will continue under the future owner.
5. Our guidelines on incorporation of ESG factors
Our investment strategy focuses on businesses of a certain scale, typically ranging from platforms at break-even to ones with low double-digit £’m earnings. Our investment style means that we typically hold a controlling stake in the businesses in which we invest. This gives us a unique position of leverage and to affect good stewardship of those assets. Through our control position, we mandate the inclusion of ESG factors within each business which support the growth and establishment of a healthy company culture.
During our ownership the operational infrastructure is built out through deepening of the team, including specialisation of roles as the team grows. Consequently, each business we invest in will have different levels of resources available to implement an ESG strategy.
This variation in available resources, combined with each business’s geographic focus and target market results in different ways that each can address the various ESG factors. To take this into account, we support each portfolio company in establishing an ESG strategy that is commensurate with the resources available and appropriate to their operating sphere of influence.
In formulating an ESG strategy, we guide portfolio companies to review all 17 SDGs, along with the 169 Targets that accompany them, and consider which of those Goals and Targets are most able to be addressed through their activities. This results in a clear focus for their ESG activities. Notwithstanding this tailored approach, there are certain core guidelines that we have for all companies:
(i) Environmental Factors
- Have an action plan to start to measure their Scope 1, 2 and 3 carbon emissions; and
- Start to consider and prepare themselves to take advantage of opportunities that will be increasingly viable as economic incentives start to effectively price carbon emissions.
All of our portfolio companies are exposed to the net-zero transition that is underway. Our guidelines are that each:
This is in support of SDGs 7, 11 and 13 (affordable & clean energy, sustainable communities & cities and climate action).
Once portfolio companies have a sufficient awareness of the carbon footprint of their supply chains, our guideline is to include in their risk and opportunity management the potential impact of changes in environmental legislation.
In addition to these factors, we encourage companies to integrate other team-selected agendas to support the generation of a positive environmental culture and closer relationships with other affected stakeholders. This will particularly have reference to environmental sustainability agendas.
(ii) Social Factors
- Collate data on diversity and inclusivity, and consider how their recruitment practices could be shaped to improve DE&I outcomes and thereby help address SDG 5 and 10 (gender equality and reduce inequalities) – this progress is reviewed annually by the Cabot DE&I Committee; and
- Consider carefully how SDGs 1, 3, 4, and 8 (no poverty, good health & well-being, quality education, and decent work & economic growth) can be integrated into their HR and personnel development strategies.
Our guidelines are that each:
These areas are to be covered in each portfolio company ESG strategy, and annual plan.
(iii) Governance Factors
- To adhere to the governance standards required by external regulators (where relevant); and
- To develop such governance processes and procedures that are relevant to the scale and scope of the particular portfolio company.
Many of our portfolio companies operate in regulated industries, particularly in UK financial services. The guidelines for governance factors are therefore:
Universal to each company is regular board meetings, including non-executive shareholder representatives; clear minutes and action logs; and a regular planning cycle, including an annual ESG planning cycle that is coordinated with the financial planning cycle.
This policy has been prepared by the Cabot ESG Committee and approved by all senior partners. It is reviewed and updated as required.