Pollen Street Responsible Investing Policy

Our Responsible Investment Principles

Pollen Street has a proud history of focusing on investors and delivering strong risk adjusted returns. Thinking, behaving and investing responsibly underpins this approach. We aim to deliver these strong financial returns – but not at the expense of the community, environment or market integrity.

We have a responsibility as stewards of capital to make sure that we work towards sustainable growth and ultimately positive outcomes for wider society. As a responsible asset manager, we understand that it is important to integrate sustainability matters into our investing, operations and culture. Responsible Investment is multi-faceted and there are many ways to engage with it, but we try to focus on those considerations that are most pertinent to our core business and where we feel we can have the most impact.

Authority and Responsibilities

Pollen Street has established a Responsible Investment Committee (“RIC”) which is responsible for setting the strategy, framework and processes for Responsible Investment integration across the investment process.

The Head of Responsible Investment, supported by the RIC is responsible for:

• setting the strategic direction of Responsible Investment at Pollen Street, aligned to the Group’s strategy
• communicating and instructing relevant Pollen Street staff on the contents of the Policy
• advising and acting accordingly on any breaches of the Policy; and
• ongoing review and recommendation of amendments to the Policy.

The investment teams are responsible for:

• ensuring that sustainability considerations are fully embedded within the investment process;
• escalation of issues identified as part of Responsible Investment diligence and monitoring of investments, with appropriate follow-up with portfolio companies and Borrowers to ensure these are being addressed and documented.

Pollen Street also has a team called the Hub which works with the deal teams and directly with portfolio companies to manage a series of value creation and best-practice initiatives. The Head of Responsible Investment sits within the Hub, and provides dedicated resource to drive the sustainability agenda both internally and throughout the portfolio.

Our team understands the importance of sustainability and evolving developments and receives training on how they can incorporate Responsible Investment best practice into what we do. Each employee undergoes relevant training as part of annual Continuous Professional Development (“CPD”). New joiners undergo training provided by the Risk and Compliance functions, which covers key considerations to focus on during the investment cycle. The Investment Team receives training from the Head of Responsible Investment and other third parties as applicable, and guidance from the Responsible Investment committee on Responsible Investment considerations, and key sustainability developments.

Policy Objectives

This Responsible Investment policy document (the “RI Policy”) sets out the key elements of Pollen Street’s approach to managing environmental, social and governance considerations across the investment process, including decision making, and application through the firm’s corporate operations. The Pollen Street RI policy is applicable to all Pollen Street Funds and their respective investment strategies.

The Policy is designed to provide assurance to the Board of Pollen Street, as well as to existing and potential investors and other stakeholders including regulators, that we invest in a responsible manner, minimising any potential damage to the environment and providing a positive contribution to our community. We adopt a zero-tolerance approach to corruption, human rights violations, abuses of labour standards and any other serious violations of fundamental ethical norms.

Pollen Street assesses sustainability factors and their impact on investments across the various assets in which it invests. Pollen Street also seeks to improve upon the performance of portfolio companies and Borrowers across a range of factors. Pollen Street expects this to be done in a manner which is consistent with its investment objectives and fiduciary duties. By encouraging responsible corporate behaviour Pollen Street seeks to protect and enhance the value of its investments in the long-term.

To maintain the highest standards of Responsible Investment at Pollen Street, we have committed to reviewing and updating our Policy on an annual basis.

Pollen Street Responsible Investment Focus Areas

Within our strategic approach to Responsible Investment, we consider the following factors as part of our investment process. They provide the focus for incorporating these aspects across our investment process, and guide our set of minimum standards, as well as supporting our approach to sustainability risk management and how we can support our investments to deliver positive impact, where material and relevant to our investments:

Environment

Considers how a company performs as a steward of nature and the environment

• The impacts of climate risk (physical and transition) across the company’s operations and supply chain
• GHG emissions measurement and decarbonisation initiatives
• Efficient use of natural resources
• Energy, waste and water management
• Propositions that help address climate change – e.g. Green Finance

Social

How the company manages its relationships with employees, suppliers, customers and the community

• Employee health, wellbeing and engagement
• Diversity, Equity & Inclusion (including anti-discrimination)
• Employment practices and engagement (including Labour relations), as well as retention
• Supply chain sustainability standards
• Human Rights and Modern Slavery
• Selling practices, product quality and safety
• Management of customer complaints
• Customer privacy and data security
• Local communities & charitable support

Leadership & Governance

Deals with how a company is governed, with effective controls and risk management

• Corporate Governance and oversight
• Risk management
• Policy coverage
• Board structures and committees
• Business ethics
• Fraud, anti-bribery and corruption controls
• Management of the legal and regulatory environment
• Transparency (including financial and operational reporting)

Sustainability integration in the Investment Process

As a core part of Pollen Street’s investment process, the Firm engages with target portfolio companies and borrowers to ensure they meet with minimum standards, to identify sustainability risks and opportunities that are relevant to them and which can be mitigated or supported to accelerate lasting positive outcomes. In this way, addressing sustainability is embedded throughout Pollen Street’s investment process.

Pre-investment:

Deal teams are required to assess how sustainability risks and opportunities will affect a target investment. The deal team will undertake an initial review at the early stages of the investment process of the potential investment’s sustainability impact and any anticipated material risks, which are highlighted to the Investment Committee at the initial screening review, and then further verified during the Due Diligence phase.

Potential targets are required to complete a comprehensive questionnaire on sustainability matters, which is assessed alongside external due diligence by the Responsible Investment and deal teams. The evaluation relates both to the overall sustainability programme in place and components that link to the Pollen Street Responsible Investment framework and draws on the UN Sustainable Development Goals and Invest Europe best-practice. The due diligence is based on a detailed questionnaire which seeks to identify both potential risks, and opportunities for improvement. Data collected is input into the Pollen Street proprietary scoring mechanism which informs areas that need to be addressed to improve sustainability performance post investment.

The results of the assessment are discussed and approved by the Head of Responsible Investment, with a summary documented in the Final Investment Recommendation (“FIR”), which is reviewed and signed off by Pollen Street’s Investment Committee prior to the completion of any transaction. The same scoring is used across Private Equity and Credit strategies, to ensure a consistent measurement of sustainability across the firm’s activities.

Post-investment:

Pollen Street is committed to improving the sustainability performance and practice for the Funds’ investments during the ownership period. The primary approach of the deal team is by maintaining a close and proactive relationship with portfolio companies and their management, setting goals and ambitions for both addressing risks and supporting initiatives to drive potential positive outcomes.

We take both a qualitative and quantitative approach to monitor portfolio companies’ management of sustainability factors. In Private Equity, members of the deal team will typically become Directors and members of Board committees of investee companies and will attend Board meetings. This enables Pollen Street to ensure that Responsible Investment considerations are being addressed. We conduct quarterly monitoring of the investee companies, where Responsible Investment is a standing agenda item. This includes updates on the overall sustainability programme, specific actions linked to the sustainability scores and targets, and any risks identified.

In Credit, the monitoring of Responsible Investment factors is undertaken through annual data collection as well as reporting against agreed sustainability margin ratchets. The introduction of these ratchets is intended to increase the focus and engagement of borrower companies on sustainability factors.

On an annual basis, comprehensive portfolio company data and KPIs are collected and reported to the Responsible Investment and deal team which are input into our proprietary scoring mechanism, which allows us to track progress and improvements and supports engagement with portfolio companies.

Exit:

In Private Equity, Pollen Street actively considers positioning of each business for exit, and as part of the exit process planning this will include consideration of a number of relevant sustainability performance factors and the sustainability impact of the portfolio company. For example, a full evaluation of the governance structure of the firm shall be undertaken to ensure that this is optimised prior to exit, and we also consider the improvements made over the course of the investment.

Sustainability ratchets to strengthen borrower commitments

Pollen Street incorporates sustainability linked factors including a margin ratchet into new credit facilities as an incentive for borrowers to achieve goals.

Under this mechanism, Pollen Street provides margin reductions on credit facilities, subject to the borrower improving their sustainability score and achieving performance targets such as net zero. There is a corresponding margin increase if their scores do not improve or meet agreed thresholds.

Assessing and measuring the impacts of climate change

Pre-investment, as part of due-diligence, a high-level climate risk assessment is performed, with an assessment of the target investment’s practice and targets to reduce its environmental impact and to consider key climate risks. Each company is tasked with establishing climate action plans and targets, supported with Hub workshops to share best practice in this area.

In addition, we commission a third party to assess the carbon footprint of the Private Equity portfolio and Credit borrowers. This measures Scope 1, 2 and 3 emissions which are then used as a basis for carbon reduction plans and to set targets.

In line with the Task Force for Climate-Related Financial Disclosures (TCFD), we incorporate a framework to better understand the risks and impacts of Pollen Street’s operations on the climate and the impacts of climate change across the portfolio. We disclose this in the Pollen Street Group Limited Annual Report and Accounts.

Stewardship approach

We regularly engage with limited partners, investors, stakeholders and the industry on sustainability matters to advance collaboration, best-practice and transparency on sustainability across the industry and broader society.

As a core part of Pollen Street’s investment process, the Firm engages with target portfolio companies to ensure they meet with minimum standards, to identify improvements and areas within responsible investing that are relevant to them and which can be supported to accelerate lasting outcomes.

Responsible Investment is embedded throughout Pollen Street’s investment process. We take an active management approach to investments where deal teams ensure Responsible Investment is on the Board and Management team agenda, and there is assigned responsibility to liaise with the Head of Responsible Investment and the deal team on sustainability matters, including the provision of relevant data on an annual basis or as requested. We also leverage the Pollen Street Hub to share best practice on areas such as ESG regulations, climate change and Diversity, Equity and Inclusion.

We play an active role in collaborative industry initiatives engagements. We are a signatory of the PRI, and a participant of the Initiative Climat International collaboration initiative. We are also members of the ESG Data Convergence Initiative to support consistency in reporting. These engagements provide access to best practice, expertise and guidance to help inform how we incorporate sustainability into investment decision making, including the identification of material sustainability risk factors and how to incorporate relevant measures and targets.

Fund Investment Parameters

Each of Pollen Street’s managed or advised funds will have an investment policy and / or set of investment restrictions tailored to the strategy of that fund, its investors and in line with applicable laws and regulations. Those provisions will be set out in the constituent documents of the relevant funds, including investor side letters where appropriate.

Principal Adverse Sustainability Impacts

Pollen Street’s due diligence process includes consideration of sustainability risks and opportunities using a focused questionnaire to understand and gather data on any sustainability impacts that potential investments may have across various assets. All investments are assessed by the same baseline level of sustainability due diligence, which is then amended depending on the industry, market risk exposure, and the jurisdiction in which the investment must be made. Pollen Street adopts a zero-tolerance approach to corruption, human rights violations, abuses of labour standards and any other serious violations of fundamental ethical norms.

Where adverse sustainability impacts are identified with respect to any potential investments in the due diligence process, the investment is escalated to, and is considered by, the Investment Committee. Should an identified sustainability risk fall within the scope of activities excluded under Pollen Street’s RI policy, the investment will not proceed. In cases where the risks are potentially material, but not covered by specific fund restrictions, further consideration shall be given to the exposure of risks, and the likely impact that such risk could have on the performance of the investment. Should any impact be deemed to be potentially materially adverse to the performance of the investment or the reputation of Pollen Street, or its investors, or not be capable of remediation, the investment shall not progress.

In order to mitigate potential adverse impacts, Pollen Street works with the management team of investee companies to improve their performance across a range of sustainability factors in line with a relevant fund’s investment objective. In addition, where we have identified sustainability improvement areas during the due diligence process, which can be remedied post-investment, these can also translate into recommendations for post-investment improvements.

Responsible Investment and management of sustainability risks are included in annual performance objectives, as relevant or as appropriate, for Pollen Street employees, aligned to wider Responsible Investment goals. We commit to review performance linkage to specific measures on a regular basis and will update the Group’s Remuneration Policy as applicable.

Pollen Street collects information relating to adverse sustainability impacts for the funds it manages and advises, and the specific investments made by them in line with the relevant investment strategy and expectations of its investors. It does not report on adverse impacts of investment decisions on sustainability factors at the firm level as specifically contemplated in Regulation (EU) 2019/2088 as it believes fund level reporting provides a more pertinent basis for assessing and monitoring of these Principal Adverse impacts.

Transparency & Reporting

We report on sustainability activity across our investments, to increase transparency and understanding of how we incorporate sustainability matters in our investment process, and track progress and outcomes against targets and metrics. Pollen Street is committed to taking a leadership role on transparency and disclosure. We report our responsible investment approach and activity via our website and annual Responsible Investment reports.

Pollen Street will also provide investors with more granular communication and insight into our responsible investment activity via investment reports, annual investment reviews and manager questionnaires. We are also cognisant of the sustainability priorities of our investors, and how they align with what we do. We therefore ensure that as a minimum our fund investment mandates meet those standards prescribed by our investors. How we do that in each case will be detailed in the constituent documents of those funds.

We have developed a scoring mechanism to access sustainability matters across our Private Equity portfolio and Credit counterparties. The scoring methodology has been created internally to rank companies on the areas of highest impact and importance to our stakeholders. This methodology will likely evolve but is aimed at giving us an objective view of how the portfolio is performing in relation to sustainability matters. This will be used for (1) diligence of investments, and (2) ongoing progress monitoring and scoring, as well as to use as a basis to have conversations with portfolio on how they can best drive improvements on sustainability practice.

The scoring mechanism is based on metrics collected in our annual data collection, and the ranking is currently based on internal indices and benchmarks, but informed by categories commonly used by ESG ratings agencies, investor surveys (including ESG Data Convergence Initiative), and what is relevant for Pollen Street to assess sustainability matters and practice, and to link to our targets. This is using a gating mechanism, environmental, social & governance factors.

Pollen Street became a signatory of the UN’s Principles of Responsible Investment in April 2019 and we participate annually in the PRI Reporting Framework.

Material Sustainability Incidents

Pollen Street is committed to maintaining focus on material sustainability issues, which are defined as issues with “a direct or indirect impact on an organization’s ability to create, preserve or erode economic, environmental and social value for itself, its stakeholders and society at large”. Additionally, Pollen Street considers practices which could pose a materially negative reputational risk to itself, or its investors under this definition.

We identify sustainability risks through due diligence for new investments, and ongoing performance monitoring for existing investments, including the set of defined measures as set out above. We also ensure that robust risk management processes (including three lines of defence, where applicable) are employed at both the asset manager and portfolio company level, to both detect and mitigate material risks that could impact the performance of the investment or that could have a negative impact on the environment or society.

Were any material risks or incidents identified, we would work with that company’s leadership team to both address and mitigate these, we would disclose as part of annual reporting, or more promptly if we believe we need to update investors in advance, or if required by investors in side letters while also ensuring necessary disclosure to relevant stakeholders.