Responsible Investment Policy

1. INTRODUCTION

Art. 1

Introduction

Capvis will act in the best long-term interest of all stakeholders and places great emphasis on Responsible Investment (“RI”). We support the United Nations Principles of Responsible Investment (“UNPRI”) by applying its six principles outlined in Appendix 1. The main purpose of this policy is to translate these principles into the Capvis investment lifecycle which has always been focused on the sustainable and long-term success of our port- folio companies. As such, sustainability is part our ethos and the reason why Capvis has developed the “ESG-ITM improvement programme". Implementation is along the dimensions of “ESG” - environmental, social and governance – but puts a further focus on Innovation “I”.

To continue to be at the forefront of mid-market private equity investors we set clear expectations for both, ourselves and our portfolio companies regarding the four ESG-I pillars. Thus, the application of the principles and our ESG-I approach helps to align our investment and value creation activities with the long-term objectives of our investors as well the broader society. The aim of the programme is to help Capvis’ portfolio companies drive their own sustainable development by fostering a dialogue between the management, the GP boards and the shareholders on how to best ensure sustainable and long-term success as well as installing a monitoring process which ensures implementation of agreed improvement initiatives.

2. RESPONSIBLE INVESTMENT POLICY

Art. 2

What RI means to Capvis

Capvis adheres to the highest standards and values of business conduct, acting responsibly as investor, business partner and employer.
Capvis and its portfolio companies will adhere to the laws, regulations and best practices in all countries of operation.
Capvis aims to make a positive contribution to our community, to encourage development of our employees and to mitigate the environmental impact of our operations.

Art. 3

How responsible investment is implemented and governed

Capvis RI principles are implemented by applying the six UNPRI principles and the pillars of ESG-I in the whole investment cycle:

Art. 4

1. Sourcing

Capvis sourcing practice is guided by ESG principles with a strong focus on drivers for innovation.
Negative screening is performed for illegal and harmful products and services.
Generally, Capvis does not undertake investments in certain industries that are listed in the Appendix 2.

Art. 5

2. Pre-Investment

ESG is firmly integrated in the preliminary and final investment recommendation process. As part of the pre-investment process, Capvis engages external consultants to conduct a full ESG Due Diligence review with the focus to detect deal breakers, “material” risk and to assess value creation opportunities.
Capvis’ deal team and its advisors will evaluate each investment to identify opportunities for innovation with regards to ESG (e.g. digitalisation, potential or risk for disruptive innovation, etc.).
For the purposes of this policy, materiality is defined to have the potential to have a direct and substantial impact on an organisation’s ability to create, preserve, or erode economic value, as well as environmental and social principles for Capvis, its Limited Partners and other stakeholders.

Art. 6

3. Post-Investment

If any non-material issues are identified during the due diligence process (excluding deal breakers), a project plan is established and implemented within 12 months following acquisition.

Art. 7

4. Holding period

Capvis encourages each portfolio company to follow our principles and relevant ESG-I standards by adopting its ESG Policy accordingly.
Capvis assists each portfolio company with the initial launch of the ESG-I improvement programme as well as continuous annual monitoring to measure improvements.
The board of directors of each portfolio company is responsible for defining and implementing an ESG-I policy and strategy.
Monitoring or managing of ESG-I topics requires the identification of risk and value creation areas. This includes establishing meaningful key performance indicators (“KPIs”) by defining the next steps and reporting on their progress on a monthly basis.
Capvis encourages the board of each portfolio company to formally discuss ESG-I matters at least once a year and to sequentially implement improvement projects and objectives.
The progress on the ESG-I improvement programme is presented at least annually to the Capvis Portfolio Review Committee (PRC).

Art. 8

5. Exit

As part of the exit readiness programme, completed ESG-I initiatives and achievements are summarised in a case study and made available to prospective buyers.

3. ESG-I PILLARS

Art. 9

ESG-I Pillars

The ESG-I concept with its four pillars has been established on seven underlying principles, which are included and further outlined in Appendix 4. The programme is structured in an initial questionnaire to create a baseline in terms of value creation opportunities and risk mitigation.

The aim is to identify key priority areas, recommended actions and corresponding KPIs. Based on these findings, the management and the board of directors of each portfolio company decide what concrete actions shall be taken and how to monitor their implementation.

Art. 10

“E” for Environmental

Capvis’ activities and those of its portfolio companies have an impact on the environment. Therefore, Capvis is committed to ensure that its portfolio companies:

are environmentally compliant with respective law & regulations;
enhance energy efficiency;
reduce emissions and climate change;
systematically review material ingredients/ product development;
consider circular economy, and
understand and minimise historical liabilities.

Art. 11

“S” for Social

Capvis and its portfolio strive to ensure protection of human rights, application of suitable working conditions and compliance with laws and regulations. Furthermore, high product safety and quality are a prerequisite as well as engaging with various stakeholders/community:

Art. 12

1. Working conditions

Social & compliance Policies and standards shall be in line with international and local laws and regulations.
Safeguarding health & safety Labour and working conditions shall protect the health of all employees and prevent accidents.
Fair wage Established criteria and monitoring processes shall ensure minimum pay as a prerequisite and develop towards fair and equal pay for all employees, irrespective of gender or background.

Art. 13

2. Product safety & quality

Capvis supports the application of the EU general product safety directive, which requires:

to only sell products which are safe (avoidance of harmful items and toxic or pathogenic substances);
to inform consumers of any risks associated with the products that may be supplied;
to ensure that any dangerous products placed on the market can be traced and, if required, easily removed to prevent any risks to consumers.

Art. 14

3. Stakeholder engagement

Community engagement Capvis selects local organisations through the lenses of ESG-I and dedicates a budget for annual sponsorship and donations for social development of communities.
Value customer feedback Closed-loop feedback approach:
1. Customer experience
2. Ask for feedback
3. Listen, learn and fix
4. Share & enable structural improvement
Communication Establish guidelines and processes for effective external and internal communication channels as well as for ESG-I related matters.
Fair trade Capvis supports its portfolio companies to engage in fair trade and transparent relationships with consumers, suppliers, employees & other stakeholders.

Art. 15

“G” for Governance

Capvis is committed (and strongly encourages each portfolio company to also be committed) to respect:

Art. 16

1. Human Resources

All Capvis staff are responsible and accountable for adhering to Capvis’ code of ethics, which is out-lined in Appendix 3. Furthermore, Capvis commits to implement:

Diversity Capvis is an equal opportunity employer and considers team diversity as key for future success. Increasing diversity based on industry background, experience, educational development, nationality, gender, etc. is embedded in the Capvis Mission.
Complaint / escalation channel Put channels and processes in place that allow the timely identification of (potential) conflicts of interest to avoid or transparently ad-dress and resolve issues.
Recruiting / retention
1. Capvis invests in the identification and retention of talents by establishing a transparent, requirement driven recruitment process.
2. Identification of people is carried out by following the principles established for “Capvis DNA” listed in Appendix 5.
3. Establishing deputy and succession planning criteria which are put in place to ensure that business operations can be continuous.
Capacity /talent management Capvis actively supports its employees in their personal development and aim to reach their full-potential.

Art. 17

2. Governance & Ethics

Anti-bribery and corruption (ABC) and anti-money laundering (AML) Capvis does not tolerate active or passive bribery, corruption, collusion and money laundering and implements appropriate procedures both in- house and at portfolio company level. Please refer to Part 4) of this policy for further details.
Risk Analysis & mitigation
Capvis implements risk management within the governance framework and drives its use in its portfolio companies through the board of directors (e.g. by installing hedging policies, internal control systems following the Committee of Sponsoring Organisation (COSO) framework, enterprise risk management (ERM), etc.). Portfolio companies are strongly encouraged to incorporate ESG-I related risk assessments into their risk- management systems.
Values & Norms
Capvis has communicated with its stakeholders on its code of conduct principles listed in Appendix 2 and ensures that the code is being followed.
IT Security
Capvis recommends having an IT security policy in place as well as applying a few basic principles:
1. Check URL for authenticity
2. Password manager&regularly changing passwords (not easy to hack)
3. Use browser plugins against advertisements
4. Secure privacy settings
5. Secure WLAN with password and SSID
6. Don`t use external WLAN (e.g. in hotels, airports)
7. Regularly delete cookies
8. Cloud–usewithsecondsecuritycode (e.g. text messages)
9. Don’t throw away confidential information (rather use shredding machine, etc.)
10. Social media: Don’t accept invitations from an unknown person or source
11. Furthermore, together with a leading cyber security firm, Capvis has developed a cyber security solution for its portfolio companies which is run as ’software as a service’ (SAAS).
ESG Management
Capvis encourages its portfolio companies to install organisational structures (e.g. CSR/ESG responsible person, etc.) regarding the responsibilities for ESG topics.
From formulation to strategy implementation, KPIs need to be established and monitored over the defined time frame.
Corporate Governance (“CG”)
Capvis helps to establish a good CG by installing a board of directors at each portfolio company with clearly defined roles and responsibilities (board charter). The board is responsible for creating a system of rules, practices and processes by which a firm is directed and controlled. Essentially it involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, and banks. Furthermore, the board provides oversight in the areas of audit, risk management and remuneration. Its work practically covers every sphere of management from approving strategic plans, discussing financial performance to setting compensation.

Art. 18

3. Transparency

To Capvis and its stakeholders timely and adequate information is key. Capvis expects from its portfolio companies to establish financial and operational transparency and report items that substantially influence the analysis and decisions in a timely and open manner.
Capvis further commits to ensure transparency by incorporating ESG-I and to, at least annually, report on the progress and outcomes at fund or portfolio company level to investors (e.g. AGM, etc.).
Capvis benefits from ESG-I, as it gains transparency on the various sustainability initiatives in its portfolio and is better positioned to re-port progress to its investors in return.

Art. 19

“I” for Innovation

Capvis strives to create a culture that fosters innovation by applying the following roadmap:

Strategy Setting goals and priorities within innovation strategy.
Organisation
Establishing a culture of innovation in the business (right people and organisational structure).
Processes
Ensuring an effective idea generation and development processes for the business.
Selection/Development
Management of a diverse innovation portfolio that has the right size, shape and is aligned with strategy.
Scale & time to market
Effectiveness in scaling new business ideas supported by the appropriate resources.

4. FUND

Art. 20

Fund

Limited Partnership Agreements and the confidential Private Placement Memorandums of the funds concerned are set up in line with RI/ESG Standards.
Capvis’ funds are registered with the Registrar of Limited Partnerships in Jersey and are regulated by the Jersey Financial Services Commission (the “Commission”).
Capvis strongly believes that the key to the prevention and detection of money laundering and the financing of terrorism lies in the implementation of, and strict adherence to, effective systems and controls, including sound customer due diligence measures based on international standards.
Capvis’ appointed Designated Service Provider adheres to the guidelines set out within the Commission’s Handbook for the Prevention and Detection of Money Laundering and the Financing of Terrorism (the ”AML/CFT Handbook”) which establishes standards that match international standards issued by the Financial Action Task Force (the ”FATF”).
The AML/CFT Handbook takes account of the requirements of European Union legislation to counter money laundering and the financing of terrorism and its application of standards set by the FATF.

Therefore Capvis, the funds, its portfolio companies and its subsidiaries as well as its suppliers should be committed to:

Living and promoting environmental and social responsibility and sustainability standards at each level.
Promote good corporate governance.
Minimise risk or negative impact of its activities by actively managing its direct footprint.
Encourage portfolio companies to identify opportunities for value creation.
Proactively engage and strive for innovation.

The respective Capvis General Partner Company for funds II, III, IV & V mandates its exclusive advisor, Capvis AG, to implement this policy.

This policy will be reviewed and amended as appropriate.

5. APPENDICIES

Appendix 1: The six UNPRI principles

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.

Appendix 2: Prohibited industry sectors*

No investment in a company whose primary business relates to:

pornography or vice;
the manufacturing, sales, or marketing of weapons, artillery, and ammunition to be used in the act of war or military conflict (“Military Products”), or components of the same, if the primary purpose of such component is for it to be included as a component in a Military Product;
exploration for oil or gas;
real estate development or investment;
film financing;
infrastructure assets (including windparks, toll highways and toll tunnels);
micro-finance activities in developing countries;
the manufacture of tobacco products;
the operation of gambling facilities; or
the operation of nuclear power plants;

No investment in:

a company involved in (i) the production, trade and/or distribution of cluster bombs and/or anti- personnel mines (ii) the production of tobacco products or (iii) any activity of prostitution or procuring of prostitutes
a company that generates more than 20% of its revenues, from coal-based activities, including, but not limited to, (i) coal extraction, (ii) coal power generation, (iii) sale and production of electricity via a coal powered plant and/or (iv) coal mining or
any Portfolio Company which is involved in the illegal manufacture, sale or production of drugs under applicable law.

*as per Limited Partnership Agreement (LPA)

Appendix 3: Capvis code of ethics

We are proud of the values with which we conduct business. We uphold the highest levels of business ethics and personal integrity in all types of transactions and interactions.
Capvis and our portfolio companies comply with all applicable laws, rules and regulations of any jurisdiction in which Capvis or the respective portfolio company does business. This also applies to applicable standards (e.g. EVCA code of conduct) and generally accepted guidelines (e.g. Codes of Ethics and Standards of Professional Conduct of the CFA Institute).
When in doubt the following rule of thumb does help: Ask yourself whether you are willing to have any contemplated act appear the next day in the newspaper or other media with the reporting done by an informed or uniformed but critical reporter.
The respective Board of directors ensures the proper implementation of this ethics code at the level of the portfolio company.

Appendix 4: ESG-I improvement programme

ESG-I improvement programme

Appendix 5: Capvis DNA Framework

Capvis DNA Framework