DBAY Advisors’ ESG Policy
The purpose of this policy is to define DBAY Advisors’ approach to integrating the consideration of environmental, social, and governance (“ESG”) risks and value creation opportunities into investments made through its private equity funds.
1. DBAY Advisors commits to consider material ESG issues in the course of its due diligence and in the monitoring of portfolio investments to the extent reasonably practical under the circumstances, subject, in any event, to the provisions of the limited partnership agreements and having regard to the confidential private placement memoranda of the funds concerned (collectively, the “Funds”), and to the duty of DBAY Advisors to seek to maximise the returns on investment for all of the partners of the Funds. For the purposes of this policy, “material” ESG issues are defined as those issues that DBAY Advisors in its sole discretion determines have or have the potential to have a direct substantial impact on an organisation’s ability to create, preserve, or erode economic value, as well as environmental and social value for itself and its stakeholders.
2. DBAY Advisors’ Board has approved this policy and will seek to update the policy continually, as appropriate.
3. This policy will apply to all investments considered by the Investment Committee or made by DBAY Advisors following the date hereof, and will be interpreted in accordance with local laws and regulations. In cases where DBAY Advisors determines it has limited ability to conduct diligence or to influence and control the integration of ESG considerations in the investment—for example, in cases where DBAY Advisors is a minority shareholder, or where other circumstances affect DBAY Advisors’ ability to assess, set, or monitor ESG-related performance goals—it will not necessarily be feasible to implement ESG-related principles. In such instances where DBAY Advisors believes it to be appropriate, reasonable efforts will be made to encourage such portfolio companies to consider relevant ESG-related principles.
4. DBAY Advisors’ investment and operating professionals are primarily responsible for ensuring that the consideration of ESG issues is integrated into investment decisions in collaboration with the COO of DBAY Advisors.
5. DBAY Advisors is a signatory to the United Nations Principles for Responsible Investment Initiative (“PRI”). These principles are set out in the Appendix.
Goals of the ESG Policy
DBAY Advisors seeks to:
1. Consider environmental, public health, safety, and social issues associated with target companies when evaluating whether to invest in a particular company or entity, as well as during the period of ownership.
2. Be accessible to, and engage with, relevant stakeholders either directly or through representatives of portfolio companies, as appropriate.
3. Grow and improve the companies in which the Funds invest for long-term sustainability and to benefit multiple stakeholders, including on environmental, social, and governance issues. To that end, DBAY Advisors will work through appropriate governance structures (e.g., board of directors) with portfolio companies with respect to environmental, public health, safety, and social issues, with the goal of improving performance and minimising adverse impacts in these areas.
4. Use governance structures that provide appropriate levels of oversight in the areas of audit, risk management, and potential conflicts of interest, and to implement compensation and other policies that align the interests of owners and management.
5. Remain committed to compliance with applicable laws and regulations in the countries in which DBAY Advisors invests; support the payment of competitive wages and benefits to employees; provide a safe and healthy workplace in conformance with national and local law; and, consistent with applicable law, will respect the rights of employees to decide whether or not to join a union and engage in collective bargaining.
6. Encourage strict policies that prohibit bribery and other improper payments to public officials consistent with the U.S. Foreign Corrupt Practices Act, similar laws in other countries, and the OECD Anti-Bribery Convention
7. Respect the human rights of those affected by DBAY Advisors’ investment activities and seek to confirm that DBAY Advisors does not invest in companies that utilise child or forced labour or maintain discriminatory policies.
8. Provide timely information to DBAY Advisors’ limited partners on the matters addressed herein, and work to foster transparency about DBAY Advisors’ activities.
9. Encourage DBAY Advisors portfolio companies to advance these same principles in a way that is consistent with their fiduciary duties.
ESG integration through the investment cycle
DBAY Advisors will seek to integrate the consideration and thoughtful management of ESG issues throughout the investment cycle.
To ensure the integration of ESG considerations in the pre-investment phase of investments, and subject to DBAY Advisors’ determination of what is reasonable and appropriate for each investment, DBAY Advisors will:
a. Undertake ESG due diligence, involving where appropriate internal subject matter experts with ESG-related competence to assess ESG value creation opportunities or risks for potential investments considered by the investment Committee. When material ESG issues are identified, they may be included in discussions with the Investment Committee, and external advisors may be engaged to carry out additional ESG-related due diligence as needed.
b. Where management of, or performance on, a material issue is considered by DBAY Advisors to need improvement, DBAY Advisors will work with target company management to support the development of a corrective action plan. In cases where ESG-related issues are considered during the due diligence process, DBAY Advisors will seek to document, for internal use, the issues considered, findings, and next steps, if any.
To manage ESG risks and value creation opportunities in the Funds’ investments, DBAY Advisors will:
a. Monitor progress: Where management of, or performance on, a material issue is considered by DBAY Advisors to need improvement, DBAY Advisors will work with company management to support the development of a corrective action plan. In cases where material ESG-related risks and opportunities are being monitored or managed by DBAY Advisors, DBAY Advisors will seek to document, for internal use, the issue, progress, and next steps, if any.
b. Engage during investment
i. DBAY Advisors will encourage the management teams of portfolio companies to identify and raise material ESG issues to the relevant decision-makers, including, where appropriate, board-level individuals.
ii. Where appropriate, DBAY Advisors will assist portfolio companies in the development of action plans to adequately address the identified ESG-related risks and opportunities.
iii. Where appropriate and reasonable, DBAY Advisors will also support its portfolio companies’ efforts to report externally and internally on their ESG approach and performance as related to material ESG issues. Further, DBAY Advisors will communicate to portfolio companies its commitment to responsible investment.
Transparency and stakeholder engagement
1. DBAY Advisors will seek to be transparent in its approach to incorporating ESG considerations in its investments by reporting at least annually in the annual report of the Funds on its progress and outcomes at the firm level. The format of this reporting may vary among written public reports, or verbal informal reports, or confidential fund or asset-level reports to DBAY Advisors investors.
2. DBAY Advisors intends to provide updates at least quarterly in the quarterly report of DouglasBay Capital III Fund LP on any significant incidents or updates relating to ESG matters that occurred in the applicable quarter which DBAY Advisors reasonably believes would have a material adverse effect on the operations of DouglasBay Capital III Fund LP.
3. Where appropriate, throughout the investment cycle, DBAY Advisors will seek to actively engage relevant stakeholders to make informed decisions that may affect these stakeholders.
Where applicable, and where local laws and regulations are considered insufficient, DBAY Advisors will apply its judgment and expertise in assessing risks and opportunities related to material ESG issues. To support this, DBAY Advisors will consider the applicability of existing voluntary performance standards as frameworks to help achieve its goals, as set out earlier, during the evaluation and ongoing management of its portfolio companies. To prioritise and focus its ESG assessment and management efforts during diligence and the life of the investment, DBAY Advisors will consider the magnitude of ESG-related risks and impacts associated with each individual company as follows:
a. Magnitude of impact: When a company is being evaluated for investment, DBAY Advisors will, as part of its internal due diligence, assess a company based on what DBAY Advisors considers to be the magnitude of its potential ESG risks and impacts.
b. Area of operation In addition, DBAY Advisors will consider the country of such company’s operations to further prioritise its efforts for those regions where existing standards are considered to be less robust.
Principles for Responsible Investment
The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice.
The signatories’ commitment is:
"As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (“ESG”) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:
We will incorporate ESG issues into investment analysis and decision-making processes.
We will be active owners and incorporate ESG issues into our ownership policies and practices.
We will seek appropriate disclosure on ESG issues by the entities in which we invest.
We will promote acceptance and implementation of the principles within the investment industry.
We will work together to enhance our effectiveness in implementing the principles.
We will each report on our activities and progress towards implementing the principles.
The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance issues to investment practices. The process was convened by the United Nations Secretary-General. In signing the Principles, we as investors publicly commit to adopt and implement them, where consistent with our fiduciary responsibilities. We also commit to evaluate the effectiveness and improve the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. We encourage other investors to adopt the Principles.”