Responsible Investment Policy

This document (the “Responsible Investment Policy” or the “Policy”) has the objective to formulate our commitment to a responsible investment strategy and how we incorporate Environmental, Social & Governance (“ESG”) considerations into our investment procedures and decision-making processes. Drafted under the responsibility of the Board of Directors, it must be read in parallel with the other documents describing our investment strategy, and notably our Mission statement.

The commitment to responsibly create enduring value lies at the heart of Sofina’s culture. Our role as a long-term shareholder and investor is to foster sustainable growth. We believe that assessing the effect of our actions and those of our portfolio companies on all dimensions of society and environment, as well as trying to have a positive impact on our communities is the foundation of any long-term sustainable value creation.

Building upon these founding principles and with the support of our controlling shareholder, we are committed to pursue our investment activity as a Responsible Investor as per the UNPRI definition, considering ESG factors in our investment decisions and through our behaviour as a shareholder and member of numerous governing bodies. We firmly believe that a focus on ESG matters can lower risks and enhance financial returns, whilst creating a net benefit for the society. Even though we invest as a minority shareholder and do not therefore have a direct control on ESG initiatives at the level of our portfolio companies or fund managers, ESG factors are considered and discussed with our partners at the time of our investment and promoted during the life of our investments through our role in the governing bodies and as a shareholder.

1. Sofina’s commitment

1.1 Formal commitment to UNPRI

Consistent with its commitment to act as a Responsible Investor, Sofina signed the UN Principles for Responsible Investment (the “UNPRI”) in 2019. These Principles urge investors to integrate Environmental, Social and Governance (“ESG”) issues into their decision-making to better manage risk, generate sustainable and long-term returns, and benefit society. 

Sofina is committed to applying the six principles from the UNPRI:

  • 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 adhesion to the UNPRI is a pledge to Sofina’s wider commitment to responsible investment. Sofina’s variety of investment activities necessitates a structured approach, based on internationally recognized guidelines as provided by the PRI, active collaboration with stakeholders from the industry, combined with a more tailored organization model within Sofina.

1.2 Organization and internal resources

Backed by a deep and shared conviction at Sofina to act as a Responsible Investor, Sofina established a Green Committee and issued a Green Book which contains Sofina’s ESG commitments, built on four pillars: our Investments (that refers to the UNPRI), our People, our Communities and our Environment.

The Green Committee is composed of representatives of our teams (Investment, HR, Corporate and Tax & Legal) across our three offices. It meets monthly to discuss, launch and monitor projects implementing Sofina’s ESG commitments and provides input to the present Responsible Investment Policy and its required evolution. The members of the Green Committee rotate to improve the awareness on broader ESG topics and ownership of the PRI across the organization.

The implementation of the Responsible Investment Policy falls within the direct responsibility of the Investment team, with the support of the Green Committee when needed and under the supervision of the Executive Committee.

Based on recommendations from the Green Committee, and under the responsibility of the Board of Directors, the Executive Committee will also review this policy yearly, and as applicable, define and review ESG objectives and KPIs for the targets and portfolio funds/companies.

1.3 Assessment and communication

Sofina’s performance as a Responsible Investor is assessed by the PRI every year. This assessment is based on responses given annually in the Transparency Report1 and benchmarked against peers in the industry. It is available on the website of the UNPRI (www.UNPRI.org).

Sofina also commits to dedicate a significant part of its communication (annual report, website, newsletters,…) to its ESG initiatives, including its internal initiatives, actions as a Responsible Investor and those of its portfolio companies.

After having completed its first official reporting to the UNPRI during the Spring 2021, Sofina intends to open a constructive dialogue with the ESG rating agencies, depending on the state of the Regulation on ESG (see, inter alia the Taxonomy Regulation – 2020/852, the Sustainable Finance Disclosure Regulation – 2019/2088 and the review of the Non-Financial Reporting Directive – 2014/95) and the initiatives actually taken by the international organizations and leading independent global framework and standard-setters (see inter alia the White Paper published in September 2020 by the World Economic Forum and the statement of intent it drafted with the Impact Management Project). Sofina is indeed convinced that a comprehensive reporting system would increase uniformity and comparability in terms of ESG disclosure.

2. Responsible investment in practice

Sofina is committed to integrate ESG considerations into its investment activities, while tailoring its approach according to each of its three investment styles to ensure an appropriate and effective practice. Whatever the investment style, the company or fund’s performance on sustainability, ESG risk/opportunity assessments are analysed and monitored throughout our whole journey as investor and owner from origination to exit. Depending on the investment style, tailored actions can be taken based on this ESG assessment, keeping in mind that Sofina invests as a minority shareholder.

Under Sofina’s Executive Committee leadership, the Investment Team is responsible for implementing this Policy during the different phases of our investment process (Investment phase, Ownership phase and, as the case may be, Exit phase).

2.1 Investment phase

2.1.1 Long-term minority investments and investments of Sofina Growth

These investments relate to partnerships with entrepreneurs, families, trusted partners and management teams to support their growth path and sustainable value creation. Sofina favours investments in the Consumer and Retail, Digital Transformation, Education and Healthcare sectors (our “Focus Sectors”). Two investments styles co-exist regarding this investment strategy:

  • Long-term minority investments: Investments between EUR 75 and 300 million for a minority stake mainly in European-based companies having a global exposure. We are active and constructive members of the company’s board and are involved in the development of strategic initiatives. Our permanent capital base affords us patience and the ability to support growth through capital expenditures and/or acquisitions.
  • Sofina Growth – Investments in fast-growing businesses: We target high-growth companies active in emerging themes around our Focus Sectors with a global approach. The investment size is usually between EUR 15 and 50 million per company, as part of “late stage” venture capital or “early growth” capital rounds. Priority is given to investment opportunities where trusted partners are present within the shareholders’ base, whether they are General Partners from Sofina Private Funds’ portfolio or other reputable investors.

Pre-due diligence phase

Any such investment opportunity is assessed by Sofina on ESG aspects (the “ESG Assessment”) based on two distinct dimensions (the “ESG Dimensions”):

  • The “What” dimension: assessing the extent to which the products and services offered by the target company and its value chain positively contribute to the United Nations Sustainable Development Goals (“UN SDG’s”).
  • The “How” dimension: assessing the ESG impact coming from the way the target company operates and the extent to which Sofina can act as a catalyst/sparring partner in favour of a better management of externalities during the Ownership phase.

This is further set out in our “ESG Framework”, a tool designed by Sofina to structure the ESG Assessment of a target company on the two ESG Dimensions. As a final step of the Pre-due diligence phase, the ESG Assessment is included in the investment memorandum provided by the team in charge of the investment opportunity (the “Deal Team”) to the Investment Committee. The latter brings this preliminary ESG Assessment into its discussion, and the Executive Committee factors it in its decision to pursue its analysis and to issue a non-binding letter of interest to the target company/seller(s).

Due diligence phase

During this next phase, the Deal Team performs (or has access to) a buy-side ESG due diligence on the target company aiming at refining its assessment of the company on the ESG Dimensions (with a focus on the “How” dimension). The ESG due diligence is based on dialogues with the target company’s management team, vendor ESG due diligence, review of data room documents, onsite visits, references, etc. Depending on the sector and company, the Deal Team may decide to hire an external consultant to carry out the ESG due diligence. The quality of our future partner/majority shareholder is also assessed on ESG considerations, including its willingness to act as a Responsible Investor and/or Owner itself. ESG and climate risks are considered while modelling the business plan of the target company and in the different scenario leading to its valuation.

With the input of the ESG detailed due diligence, a final assessment on the two ESG Dimensions is carried out by the Deal Team. This assessment is incorporated into the overall analysis on the investment opportunity leading to its investment recommendation to the Executive Committee and/or to the board of directors of the relevant entity of the Sofina group in charge of the investment decision.

For Sofina Growth, the Deal Team may not be able to carry out an ESG due diligence per se. In such case, it proceeds to more information gathering and analysis to refine its assessment of the two ESG Dimensions relying on the lead investor’s due diligence package and, if possible, a dialogue with the management of the target and/or the lead sponsor, depending on the configuration of the transaction. The current shareholders are also assessed according to ESG criteria, including their willingness to act as a Responsible Investor and/or Owners.

Investment decision

This decision is taken by the Executive Committee or by the board of directors of a Sofina subsidiary, depending on the entity of the Sofina group making the investment.

The decision-making body factors in all ESG considerations when making its final investment decision including assessment of the valuation/pricing mechanics, and the terms of the transaction (such as representation and warranties, indemnities, post-closing undertakings, 100 days plan, governance, exit terms, etc.). Depending on whether material ESG risks are identified during the Due diligence phase, an action plan to address specific ESG issues or manage ESG risks is included in a post-acquisition plan for the Ownership phase.

2.1.2 Sofina Private Funds Investments in venture and growth capital funds

Sofina invests in venture and growth capital funds as a Limited Partner. These investments are passive as the General Partner has full discretion within the limit of its mandate to select the companies in which it invests, and on its behaviour in the governance bodies. Our commitments that rarely exceeds 5% of the funds are small compared to the total fund size. This strategy is mainly deployed in the U.S. and in Asia, with a growing presence in the European venture and growth capital segments.

Since these are indirect investments in target companies and as Sofina has no say on the direct operations of these companies, our ESG analysis consists in assessing the commitment to responsible investment of the fund managers and the level to which they integrate ESG considerations into their investment process and practice. The Deal Team undertakes its ESG due diligence based on discussions with the fund manager, its fund documentation and data room as well as third-party ESG assessments and references. This input is structured using our dedicated ESG Assessment framework to rate fund managers based on their ESG track record, approach and perceived dedication, which is ultimately an integral part of the investment decision. While selecting an advisor to help us on our fund selection, the ESG performance of such advisor is considered, along with other business-related criteria.

2.2 Ownership phase

While the constant monitoring of portfolio company’s or fund’s performance on ESG criteria is a common characteristic of Sofina’s three investment styles, our ability to influence during the Ownership phase depends on the investment style.

2.2.1 Long-term minority investments and investments of Sofina Growth

As a minority investor, Sofina has no direct control on ESG initiatives. Nevertheless, Sofina commits to use its influence through its presence in the governing bodies of the portfolio company (as a Board member or as an observer) to (i) monitor the company’s performance on ESG criteria over time, (ii) push ESG on top of the Board of Director’s agenda and ensure it is factored in strategic discussions, and (iii) actively support ESG initiatives. It also leverages on its worldwide network and extensive board experiences to share ESG best practices across its global portfolio of investee companies.

At the beginning of the Ownership Phase, Sofina presents the conclusions of the ESG due diligence both to the management and/or the leading shareholder(s). Based on this, an ESG roadmap can be drawn and agreed upon between the different parties, with defined KPI’s to monitor the progress made. In specific cases, management incentives based on performance on ESG criteria can be proposed by Sofina.

Throughout the Ownership Phase, Sofina maintains a constant dialogue with the portfolio company’s management and/or leading shareholder(s) to actively monitor the evolution of their ESG practices. It does this both directly (including through the Board of Directors) or with the support of external consultants and questionnaires discussed with the management. The results of these ESG reviews will over time serve as a basis for the issuance of recommendations and goals with concrete action plans to help portfolio companies to improve their ESG performance. The prioritization and monitoring of these concrete action plans shall be organized on an ad hoc basis for each portfolio company, depending on its governance structure. A reporting on the company’s progress on ESG to Sofina’s Executive Committee is realized at least twice a year as part of our Investment Review process (as it does for any other business aspects).

As for Sofina Growth, our limited governance rights can reduce our ability to use our influence to push ESG initiatives in the portfolio company. Our role is therefore limited to a constant monitoring on the portfolio company’s and the lead sponsor progress on ESG, taking place through discussions with the shareholders, company reporting, etc.

2.2.2 Sofina Private Funds Investments in venture and growth capital funds

During the whole fund lifetime (Investment phase, holding period, Exit phase), the Deal Team gives a focus on ESG when reviewing the fund’s performance through quarterly reports, annual general meetings, Investors’ Day and meetings with the fund managers. Sofina commits to encourage its fund managers to adopt best practices in terms of ESG. Failure to do so will be factored in our decision to subscribe or not to the next fund raised by the manager. As the case may be, we shall also raise our concerns to the relevant governance bodies of the fund (shareholders meetings, advisory committee, …).

2.3 Exit phase

Sofina is by DNA a long-term investor. Its ability to factor in ESG considerations in the Exit phase is also directly linked to its ability to control the exit, which depends on the investment style and its exit rights. As we do not control the timing of our investments in venture and growth capital funds, these are not included in this part of the Policy.

When Sofina takes the decision to exit from a Long-term minority investment or an investment of Sofina Growth, it takes the portfolio company’s long-term interests into account. Exit processes are usually planned and conducted in agreement with the portfolio company’s controlling shareholder and management. When exiting, the potential impact of the transaction on ESG issues is assessed in the review of offers made by potential buyers, in addition to other transaction terms. Even if Sofina does not control the exit process (e.g. in case of the exercise of a drag-along right or for some Sofina Growth investments), it uses its influence amongst the sellers and/or company to incorporate ESG considerations in the exit process.

1. Official UNPRI reporting