ESG Policy
Statement on the ESG Approach, Article 173 of the French Act on Energy Transition And article 3 of the Regulation (EU) 2019/2088
INFORMATION ON THE MANAGEMENT COMPANY
ESG Approach
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).
Implementation of the ESG Management system to CCPE funds
Smallcap I and II, Sino-French Fund
These funds were created before the design & implementation of the ESG Management system
Smallcap III and IV, Midcap I and II, Cathay Global Healthcare Fund 1,
Complete implementation of the ESG Management system
Cathay’s ESG approach is regularly reviewed.
INFORMATION REGARDING ESG CRITERIA IN THE INVESTMENT POLICY
Reference ESG criteria
The ESG Management system defined CCPE’s commitments and sets out the criteria taken into account in investment decisions:
- Safeguarding its activities from risks posed by ESG matters, thus minimizing any subsequent negative externalities;
- Promoting good practices and encouraging positive externalities on all stakeholders;
- Encouraging the efficient use of natural resources, reducing greenhouse gas emissions in portfolio companies’ value chains, protecting the environment and biodiversity when this subject is material given the characteristics of the investments;
- Complying with ESG-regulations and standards, such as the International labor Organization Core Labor Standards, and aligning with good industry practices;
- Encouraging portfolio companies’ in seizing the potential for positive impacts and opportunities in their business activities, such as strengthening their supply chain structures and management.
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:
- The Universal Declaration of Human Rights
- The United Nations Sustainable Development Goals
- The Principles of Responsible Investment
- Commonwealth Development Corporation standards
- The conventions of the International Labor Organization
- The Rio Declaration on Environment and Development
- The United Nations Convention against Corruption
Integration of ESG criteria in the investment policy
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:
- An assessment of the prospective company’s compliance with Cathay Capital’s ESG requirements and of potential non-compliances;
- A detailed action plan if appropriate.
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.
III. INVESTOR INFORMATION
For the funds in the scope of the ESG Management system, CCPE provides its investors with:
- An annual report on the fund’s ESG performance;
- Upon request, information on the implementation of the ESG management system, the ESG analysis performed during ESG due diligences, and the action plans validated with portfolio companies.
APPENDIX: EXCLUSION LIST
Cathay Global Healthcare Fund I S.L.P. (the “Fund”) is prohibited from investing, directly or indirectly, in:
- companies which realise their turnover in any activities listed below :
- activities involving any use of forced labour or child labour;
- activities that are illegal under the law of the host country or under international treaty, convention or regulation, in particular activities not consistent with the Kimberley Process concerning trade in diamonds and activities counter to the International Tropical Timber Organization (ITTO) agreement;
- production of, or trade in, in weapons and ammunition of any kind, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;
- production of, or trade in, tobacco, related products and alternative tobacco;
- products, such as vaporisers and electronic cigarettes (tobacco heating products);
- production of, or trade in, distilled alcoholic beverages and related products;
- gambling, casinos and equivalent activities;
- companies which, at the date of the Fund’s investment, derive part of their revenue from coal-based activities, including, but not limited to, coal extraction and/or coal power generation and/or electricity via a coal powered plan and/or coal mining activities;
- companies which operates any power generation plant and heat networks whose fossil mix represents more than thirty (30)% of the total production mix or whose electricity or emission factor of the heat production is higher than 500 g CO2 per kwH produced, it being specified that 500 g CO2 per kwH is the average emission factor of the world’s electricity production);
- trade in wildlife and products within the scope of CITES (the Convention on International Trade in Endangered Species of Wild Fauna and Flora);
- production of, or trade in, radioactive materials other than for medical use;
- production of, or trade in, or use of, asbestos;
- commercial deforestation or purchases of equipment for such purposes in tropical rain forests;
- production of, or trade in, products containing polychlorinate biphenyl (PCBs);
- production of, or trade in and storage or transport of significant volumes of dangerous chemicals, or the use of dangerous products for commercial purposes other than for medical use;
- production of, or trade in, pharmaceutical products subject to international prohibition or destruction requirements;
- production of, or trade in, pesticides or herbicides subject to international prohibition or destruction requirements;
- production of, or trade in, ozone depleting substances subject to international destruction requirements;
- fishing at sea with the use of floating nets of a length exceeding 2.5 km;
- production on, or investment in, land belonging to, or claimed in an adjudication process by, an indigenous people without the duly documented agreement of the same people;
- production or distribution of, or trade in, pornographic material;
- prostitution;
- products and commodities subject to French or European embargo;
- production of, or trade in, narcotics (including cannabis and any product with cannabis as an ingredient);
- production of, or trade in, illicit drugs and substances;
- upstream or downstream palm oil value chain (it being understood that upstream and downstream palm oil value chain does only refers to companies involved in the extraction, production and distribution of palm oil and not to companieswhich use palm oil in their products);
- construction (including expansion and upgrading) of a coal-fired power plant, or ownership or operation of one or more coal-fired power plants, operation of one or more thermal coal mines (electricity production);
- exploration, development and production of oil sand and/or shale oil and gas, or arctic oil and gas exploration projects, or pipelines transporting a significant volume of oil sand and/or shale oil and gas, as well as LNG export terminals supplied by a significant volume of shale gas; and
- greenfield and/or expansion of existing mining projects, covering mine planning and development, operation, on-site processing of extracted ore, mine closure and rehabilitation, or owns mining assets representing a significant share of its total assets and is involved in exploration, development or operation of such mining assets;
- research, development or technical applications relating to electronic data programs or solutions, which aim specifically at:
- supporting any activity which :
- activities involving any use of forced labour or child labour;
- activities that are illegal under the law of the host country or under international treaty, convention or regulation, in particular activities not consistent with the Kimberley Process concerning trade in diamonds and activities counter to the International Tropical Timber Organization (ITTO) agreement;
- production of, or trade in, in weapons and ammunition of any kind, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;
- internet gambling and online casinos; or
- pornography; or
- are intended to enable to illegally
- enter into electronic data networks; or
- download electronic data.
- companies which would not represent due compliance with the minimum requirements relating to employment conditions or regarding which CCPE would reasonably determine that they would not comply with these conditions in accordance with the principles for responsible investments (PRIs);
- companies which are established or have part of their businesses activities in any country listed as a non-cooperative country and territory by the Financial Action Task Force on anti-money laundering and terrorist financing;
- companies which are established or have part of their Business Activities in any country which is subject to sanctions imposed by the European Union pursuant to the procedure set forth in articles 96 and 97 of the agreement amending the Partnership Agreement between the members of the African, Caribbean and Pacific Group of States, of the one part, and the European Community and its Member States, of the other part, signed in Cotonou;
- companies which are established or have a substantial part of their business activities in any country listed as tax heaven or a non-cooperative jurisdiction by the OECD;
- companies which, to CCPE’s knowledge at the time of the Fund’s investment, seriously and repeatedly violate international standards or conventions, or one or more of the ten principles of the Global Compact; and
- other investment funds or other pooled investment vehicles, except that the Fund may invest its available cash in money market funds or other short-term negotiable instruments for nonspeculative purposes.
- supporting any activity which :