The companies in which investments are made follow good governance practices.
The good governance practices of investee companies are assessed prior to making an investment. Investee companies will be assessed and monitored by the Advisors and AIFM prior to making an investment and on an ongoing basis. Such standards may include, but are not limited to: sound management structures, employee relations, remuneration of staff and tax compliance. Post-investment we actively support our investee companies to further improve the governance of their business.
Furthermore, Bregal Investments (which includes the Advisors and affiliated entities) is a signatory to the UN Principles for Responsible Investment (the “UNPRI”). As a signatory to the UNPRI the good governance practices of investee companies are assessed prior to making an investment and periodically thereafter.
Information on the methodologies used to assess, measure and monitor the environmental and social characteristics promoted by the Fund
The attainment of the environmental and social characteristics promoted by the Fund will be assessed by reference to the sustainability indicators which are also used as the “Binding Investment Limitations” described above. Investee companies will be periodically monitored against the same sustainability indicators.
Prior to making an investment recommendation to the AIFM, the Advisors perform due diligence on any proposed investment and will assess the proposed investment against the screening criteria under Binding Investment Limitations above.
The Binding Investment Limitations require that at the time of investment the relevant company does not generate more than a de minimis proportion of its revenues, currently set at 10%, from, the screening criteria set out above. However, the investment philosophy is not to make investment in these types of businesses, but the de minimis threshold is simply present to avoid a breach should there be any incidental revenues generated from these sectors.
The data used for the Binding Investment Limitations is generally obtained directly from the portfolio companies and/or their advisors as part of our detailed due diligence prior to any investment. This data is then processed by the Advisor’s dedicated ESG team and integrated into the investment decision making process.
Periodic Reports
A description of the extent to which environmental and social characteristics are met will be available as part of the annual report. This information will also be published on this website once available.
Engagement policies
The Advisors prepare ESG reviews for all investee companies on an annual basis, which results in a dedicated ESG improvement plan to be adopted by the company’s Board. The Board is accountable for implementation and overall ESG oversight. The Advisors assess ESG performance periodically and adopt long term targets for the fund.
The Advisors support management teams of portfolio companies in the Fund to strive for continuous improvements in ESG and sustainability-related performance, to move beyond compliance and to embed ESG considerations in the companies’ strategy. Following investment in a company, management is encouraged to assess and prioritise company-specific ESG impacts and to formulate a long-term strategic direction.
Sustainability Risk Policy
EU Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (”SFDR” or “the Regulation”) entered into force on 10 March 2021. The Regulation requires fund managers like Bregal Milestone (“Milestone”) as an authorised AIFM to provide information to investors with regards to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment.
Bregal Milestone LLP, as a UK firm, and Bregal Milestone SA, as a Swiss sub-advisor to Bregal Milestone LLP, are not directly subject to SFDR. However, they have elected to comply with certain provisions of the SFDR.
This document specifically addresses Article 3 of the Regulation:
“Financial market participants shall publish on their websites information about their policies on the integration of sustainability risks in their investment decision‐making process.”
This document applies in respect of Bregal Milestone LLP and Bregal Milestone SA (together “Milestone”). Milestone has determined that this policy applies in respect of its investment decision making and also in respect of the provision of investment advice and so references to investment decision making should be read as including the provision of investment advice.
More information related to the SFDR, and Milestone’s approach to ESG (Environmental, Social, Governance factors) and Responsible Investment in general, can be found on Milestone’s website, including:
- Remuneration policy in relation to the integration of sustainability risks
- Principal adverse impact statement
- Responsible Investment Policy
Sustainability risk
Milestone uses the definition of sustainability risk as described in Article 2 (22) of the Regulation: “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 an investment”. Milestone believes that integration of sustainability risk considerations in the investment decision-making process is an important part of risk management.
Sustainability risks include (but are not limited to) the following:
- Operational risk such as impacts of environmental events on operations.
- Governance risk such as inadequate management oversight of sustainability risk.
- Regulatory risk such as violation of ESG-related laws and regulations.
- Privacy concerns and cybersecurity issues.
This information shall be published on Milestone’s website and will be periodically reviewed and revised. Records will be maintained to ensure version history is clear. As such, Milestone will indicate the dates of publication, and where applicable, identify which content has been updated.
Integration of sustainability risks in investment processes
Milestone has integrated sustainability risk assessment in the investment decision-making and portfolio management process as further described below.
Initial Screening
Milestone conducts a pre-due diligence screening with the aim to identify and consequently avoid any investment which is currently, or likely in the future, to generate a significant share of its revenue from industries or products involved in the following:
- production, trade and/or distribution of weapons;
- pornography or the sex industry;
- the manufacture or sale of tobacco;
- products or services that promote termination of life;
- gambling activities; and
- the production or sale of oil, gas or coal
The purpose of this initial screening is to screen out investments which present a potentially high level of sustainability risk and also to reflect Milestone’s responsible investment approach.
In general, Milestone deems the sustainability risk of investments with material activity in fossil fuels, nuclear energy, intensive farming, and industries making use of animal testing too high. Through this negative screening exercise, Milestone aims to filter out potential investments that are likely to be exposed to significant sustainability risks.
Due diligence
Milestone conducts a comprehensive ESG (Environmental, Social, Governance factors) due diligence for each potential investment. Within the ESG due diligence, Milestone assesses whether there are any red flags (e.g. unmanageable ESG risks) that should prevent Milestone from proceeding with the potential transaction. Through this process Milestone identifies key sustainability risks (and opportunities), and defines appropriate mitigating activities.
Examples of sustainability risks assessed include, where relevant, inter alia risks related to environment, health and safety, people, suppliers and customers, community and charity, and governance.
Within the proprietary ESG due diligence framework, Milestone assesses the likely impacts of sustainability risks on the financial returns in a qualitative manner by allocating a grading on low, medium, high scale.
Governance
All Investment Committee memos have a mandatory ESG section covering the main ESG aspects and ensuring that ESG risks and opportunities are an integral part of the decision-making process.
Should materially negative ESG exposure to material ESG risks be found during due diligence, these will be discussed with company’s management and mitigation will be sought in transaction documentation. In some cases, exposure to material ESG risks, which cannot be mitigated, may become reason to not pursue an investment further.
Business Operations
Milestone seeks to provide provides portfolio companies with the appropriate tools and guidance required to assess and manage sustainability risks. Post initial investment, Milestone seeks to work closely with portfolio company management to prepare a value creation plan to guide strategic direction and prioritise value creation initiatives. Throughout the ownership phase, Milestone conducts regular comprehensive ESG Roadmap reviews through which it challenges and supports portfolio companies to enhance and further develop their ESG related achievements and disclosure. Company specific action plans are created focused on key material issues with targets being set. Performance and progress are regularly monitored via KPIs, and the plans are continuously revised by the Board of Directors in the portfolio companies.
Reporting
Investors in Milestone funds are provided with an annual Portfolio ESG report. Portfolio companies’ ESG Reports describe the relevance of ESG in the industry they are operating in, highlights the key material ESG themes, assesses their performance on those themes, and provides an action plan that aims both at reducing or mitigating risks and identifying value creation opportunities.
The report is updated annually, to monitor progress and keep the portfolio company focussed on achieving its goal of becoming a more sustainable and future proof company over time. The reports are the result of an independent review, commissioned and approved by the board and management of the portfolio companies.
The ESG framework and approach used to create the ESG Reports covers key sustainability risks. Sustainability risks are often interconnected and evolve and change over time. As such, Milestone monitors the landscape to ensure sustainability risks are being managed appropriately, ensuring that any emerging risks are taken into consideration.
Remuneration policy in relation to the integration of sustainability risks
EU Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (”SFDR” or “the Regulation”) entered into force on 10 March 2021. The Regulation requires fund managers like Bregal Milestone (“Milestone”) as an authorised AIFM to provide information to investors with regards to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment.
Bregal Milestone LLP, as a UK firm, and Bregal Milestone SA, as a Swiss sub-advisor to Bregal Milestone LLP, are not directly subject to SFDR. However, they have elected to comply with certain provisions of the SFDR.
This document specifically addresses Article 5 of the Regulation:
“Financial market participants and financial advisers shall include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks, and shall publish that information on their websites.”
More information related to the SFDR, and Milestone’s approach to ESG and Responsible Investment in general, can be found on Milestone’s website, including:
- Sustainability risk policy
- Principal adverse impact statement
- Responsible Investment Policy
Bregal Milestone’s Remuneration Policy
This document provides a summary of Milestone’s Remuneration Policy for the purposes of Article 5 of the Regulation. The full Remuneration Policy is available upon request at Milestone’s registered office.
Milestone’s Remuneration Policy aims to promote sound and effective risk management, and to discourage risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the alternative investment funds the Manager manages, and to avoid conflicts of interest.
The Remuneration Policy has been adopted by the management of Bregal Milestone in accordance with binding rules implementing EU directive 2011/61/EU on Alternative Investment Fund Managers and relevant implementing regulations (together, the AIFMD), and in accordance with the principle of proportionality.
Remuneration policy considerations in relation to the integration of sustainability risks
Milestone’s Remuneration Policy promotes sound and effective risk management with respect to sustainability risks, ensuring that the structure of remuneration does not encourage excessive risk-taking with respect to sustainability risks.
More particularly, remuneration of the employees having a material impact on the relevant funds’ risk profile is comprised of fixed and variable remuneration. Remuneration levels shall be justified according to performance of the individual concerned. The total amount of variable remuneration shall be based on a combination of the assessment of the performance of the employee and the overall results of the fund, as well as the conduct of the employee under the internal procedures, performance under BM’s Responsible Investment policy, and compliance requirements applicable.
Milestone also considers the effect of potential conflicts of interest on remuneration in a way that is consistent with the integration of sustainability risk, including (but not limited to), any activities that give rise to greenwashing, mis-selling, or misrepresentation of investment strategies.
Board approval and revision
The Remuneration Policy is approved by the management of each Milestone entity. It shall be reviewed by the management or each Milestone entity at least annually and updated if deemed necessary or desirable.
Responsible Investment policy Bregal Milestone
Bregal Milestone seeks to partner with outstanding businesses. We seek out European companies with high growth potential in attractive sectors. We partner with ambitious owners and management teams and support them in building their businesses.
We act with integrity and respect to build a relationship of trust. In working together, we seek to create long-term sustainable value with our partners. This also means that we ensure high environmental, social and governance (ESG) standards throughout our portfolio of companies and in our own investment approach.
Bregal Milestone has adopted this Responsible Investment policy to guide our approach to building resilient businesses and to invest responsibly with environmental and social sustainability.
Bregal Milestone is a PRI signatory since inception in 2018.
Purpose
The purpose of the policy is to define Bregal Milestone’s approach to responsible investing and the integration of ESG considerations in our investment decision-making and ownership practices. Through our investments, we aim to build resilient companies and to create long-term value by improving both their financial performance and ESG performance during our ownership period.
Scope
This policy shall be implemented throughout Bregal Milestone and applies to all new investment opportunities explored and investment decisions made by Bregal Milestone’s Investment Committee as well as management of the existing portfolio. Bregal Milestone brings a flexible, partnership-focused approach to growth investing. Our ESG approach reflects our investment strategy. In all of our investments, Bregal Milestone aims to support management in prioritising and improving relevant ESG impacts of the business. In our non-control investments, the governance structures might not allow Bregal Milestone to control the incorporation of ESG considerations. In such circumstances, we commit ourselves to promote and undertake reasonable efforts to consider ESG aspects.
Approach
Investment process
ESG risks and opportunities are assessed during due diligence and discussed with the management team of the companies and the Bregal Investment Committee. Due diligence can be performed in-house, but should the industry or the business itself be exposed to material ESG issues we engage specialist consultants to assist us. Pre-investment, Bregal Milestone seeks to confirm that the company’s governance is of an adequate standard and operations are socially and environmentally sound. And we make sure the company complies with relevant industry regulations and legislation, human rights are respected, and the business is governed with high standards of integrity.
Bregal Milestone avoids any investment which is currently, or likely in the future, to generate a significant share of its revenue from industries or products involved in the following:
- production, trade and/or distribution of weapons;
- pornography or the sex industry;
- the manufacture or sale of tobacco;
- products or services that promote termination of life;
- gambling activities; and
- the production or sale of oil, gas or coal
In general, Bregal Milestone deems the sustainability risk of investments with material activity in fossil fuels, nuclear energy, intensive farming, and industries making use of animal testing too high.
Our Investment Committee memos have a mandatory ESG section covering the main ESG aspects and ensuring that ESG risks and opportunities are an integral part of the decision-making process. If we identify relevant ESG improvement areas, we define measures how to address and improve them. In case, nothing material is found we re-assess and review ESG priorities periodically.
Ownership practices
We support our management teams to strive for continuous improvements in ESG performance, to move beyond compliance and to embed ESG considerations in the companies’ strategy. Our ESG approach has been developed to assist portfolio companies in embedding ESG aspects into their culture and operations.
Once Bregal Milestone has invested in a company, management is encouraged to assess and prioritise company specific ESG impacts as part of value creation plan.
Annual ESG reviews
As part of our ESG approach, we conduct annual ESG reviews across the portfolio, seeking to identify key risks and value enhancement opportunities. We work closely with all management teams to develop detailed ESG action plan. Our ESG reviews assess performance against a set of portfolio-wide material themes as well as company specific priority areas.
Eight portfolio-wide themes include:
Environment:
- Energy reduction in line with Science-Based Targets and carbon neutrality
Social:
- Talent management & retention
- Diversity & inclusion
- Social impact & stakeholder engagement
Governance:
- Data security & customer privacy
- Business integrity
- Risk management
- Board & oversight
It is our ambition to create positive ESG impacts during our ownership period and to proactively work with portfolio companies to achieve ‘best-practice’ performanceⁱ against our 5-point performance scale across all material themes. Furthermore, we aim to support all portfolio companies to set Science Based climate Targets and align their business with a 1.5o warming pathways as defined by the Paris Agreement.
Bi-annual engagements are conducted to assess progresses against action roadmaps.
The board of directors of a company is Bregal Milestone’s primary platform to define the long-term strategic direction of the business and to drive the value creation agenda, including ESG performance and progress. We encourage our boards to discuss the ESG priorities and the performance periodically as part of their commitment to the ESG roadmap.
Bregal Milestone aims to report to its investors periodically on the ESG performance and the progress of our portfolio companies.
Sustainable Development Fund
The Bregal Sustainable Development Fund is a €40 million fund intended for strategic ESG improvement projects. We engage with portfolio companies to identify eligible projects to help achieve ESG objectives. Eligible investments include the following areas: Renewable energy; Ecosystem impact; Water management and conservation; Supply chain improvements; Energy efficiency; Emissions and waste; Eco efficient product development; Social impact.
Bregal Helps Initiative
Through Bregal Helps Initiative we actively support our management teams in engaging with their local communities to address social causes and create business relevant impact in their local communities.
Our own organisation
Although our own impact is relatively limited, it is very important for us to lead by example.
Bregal Milestone has been carbon neutral since 2019. We also seek to reduce our business travel by substituting flights with video conferencing. As part of our commitment to help mitigate climate change, in 2020 we also joined and are actively participating in Initiative Climat International (iCI), a PRI endorsed global private equity initiative.
Through various internal programmes we also aim to ensure diverse and inclusive workplace and seek to offer and attractive place to work. We are a proud sponsor of the Level2020 initiative. We also engage with our local communities and take an active role and charitable partnerships.
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ⁱ | As defined by our dedicated external ESG consultant.
