Transparency of sustainability risk policy

• Adagia Partners’s integration of sustainability risks in the investment decision-making

Adagia Partners’s responsible investment approach implies to identify and take into account sustainability risks throughout the investment process.

A stainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.

Origination – Sector exclusion
Adagia Partners shall not invest in a company the principal source of revenue of which is derived from:

(i) the production, manufacturing and trading of offensive weapons, cluster bombs or munitions provided however, that for the avoidance of doubt such provision shall not apply to the production, manufacturing or sale of computer technology, communications equipment, software, medical supplies, vaccines or similar items;(ii) the production of distilled alcohol;
(iii) the production or trading of pornographic content;
(iv) the production, manufacturing and trading of tobacco;
(v) the production, manufacturing and selling of narcotics where such production; manufacturing or selling is prohibited by laws in the company’s state of incorporation;
(vi) the operation of casinos and equivalent enterprises (excluding internet gambling and online casinos);
(vii) coal power generation and/or electricity via a coal powered plant; or
(viii) human cloning activities (other than for therapeutic purposes).

Irrespective of industry exclusion, Adagia Partners refuses any investment opportunity which stands against our values of integrity and responsibility.

Pre-investment phase
During the analysis of an investment opportunity, the deal team investigates ESG matters within a separate due diligence, executed by internal and external experts.

Adagia Partners focuses particularly on climate change risk caused by greenhouse (GHG) emissions, which may have a material effect on a company’s long-term sustainability and investor returns. Adagia Partners’s teams are expected to check how companies have prepared or are preparing for a lower-carbon economy. Carbon emission levels and their reduction potential within companies will be systematically addressed.

The ESG due diligence is also meant to assess the company’s level of awareness and involvement regarding ESG matters (existing policies and resources allocated to ESG). It includes a preliminary mapping of the relevant UN SDGs addressed by the company’s business and market.

Investment decision
Investment decisions are made taking into account ESG factors and the ability to mitigate risks and leverage opportunities identified in that respect.

Monitoring and Improvement during Ownership
Post-closing, an ESG audit is performed and an ESG Roadmap incorporating a set of KPIs and more in-depth SDGs mapping is agreed with Management. The role of the Adagia Partners deal team is to ensure that its portfolio companies focus on the most relevant ESG topics.

Every year, an ESG questionnaire is sent to all portfolio companies, in order to measure improvement achieved in each pillar. The data collected are used for benchmarking at portfolio level.

• Adagia Partners’s assessment and monitoring of Principal Adverse Impacts

Adagia Partners has defined a set of qualitative and quantitative ESG indicators (with additional specific indicators depending on portfolio companies’ activity) which will be used to monitor its portfolio companies ESG performance and sustainability impacts. Data gathered will include environmental, social and governance criteria. The Principal Adverse Impacts as defined by the SFDR Regulatory Technical Standard will be included in the indicator’s framework to the extent, they are relevant with the portfolio companies’ activity.

Adagia Partners will monitor in particular the following indicators regarding:

• Environment: GHG and Carbon emissions (Scope 1, 2 and 3), energy consumption, water consumption, waste generation and activities negatively affecting biodiversity-sensitive areas
• Social: Gender pay gap and board gender diversity, health and safety
• Governance: business ethics (notably non-violations of the UNGC principles and OECD Guidelines for Multinational Enterprises), transparency (through dedicated Audit, Remuneration, and ESG & Compliance Committees), and employee share ownership programs

Finally, in accordance with article 29 of the French Energy and Climate Law, Adagia Partners also takes into account the risks associated with climate change and biodiversity in its risk sustainability risk policy.

Remuneration policy in relation to the integration of sustainability risks
Pursuant to Article 5 of the European Regulation (EU) 2019/2088, Adagia Partners’s remuneration policy is part of an overall objective to promote sound and effective risk management with regard to sustainability risks.

Thus, Adagia Partners ensures that its remuneration policies do not encourage excessive risk-taking in terms of sustainability.