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Environmental Social and Governance Policy

1. Purpose

The purpose of this policy is to define STAR’s approach to integrating the consideration of environmental, social, and governance (“ESG”) risks and value creation opportunities into investments made through the funds it manages. STAR commits to consider material ESG issues1 in the course of its due diligence and in the monitoring of portfolio investments to the extent reasonably practicable under the circumstances, in accordance with and subject to the provisions of the Partnership Agreements and the Confidential Private Placement Memorandums of the funds concerned, and to the duty of STAR to seek to maximize the returns on investment for all of the partners of its private equity funds.

STAR will seek to review and update the policy, as appropriate, on a regular basis.

2. Scope

This policy will apply to all fund investments considered by the relevant Investment Committee or made by STAR following the date hereof, and will be interpreted in accordance with local laws and regulations. STAR focuses on control investments, but in select cases where STAR is a minority shareholder and / or it has limited ability to control the integration of ESG consideration in the sector, it will nevertheless use best endeavours to encourage due consideration of relevant ESG-related principles within portfolio companies. Furthermore, STAR would only seek to take a minority position alongside investors with aligned interests.

3. Roles and Responsibilities

STAR’s investment professionals are primarily responsible for ensuring that the consideration of ESG issues is integrated into investment decisions.

4. Goals

In connection with its funds and subject to the scope described in Section 2, STAR 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 actively monitoring such issues 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 STAR invests for long-term sustainability and to benefit multiple stakeholders, including on environmental, social, and governance issues. To that end, STAR 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 minimizing 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 national, state, and local labour laws in the countries in which STAR 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 STAR’s investment activities and seek to confirm that STAR does not invest in companies that utilize child or forced labour or maintain discriminatory policies.
  8. Provide timely information to STAR’s limited partners on the matters addressed herein, and work to foster transparency about STAR’s and its portfolio companies’ activities.
  9. Encourage STAR portfolio companies to advance these same principles in a way that is consistent with their own fiduciary duties.

5. STAR’s Approach to ESG Integration in Fund Investments

STAR will seek to integrate the consideration and thoughtful management of ESG issues throughout the investment cycle.

5.1 Pre-investment

To ensure the integration of ESG considerations in the pre-investment phase of fund investments, and subject to STAR’s determination of what is reasonable and appropriate for each investment as described in Section 2, STAR will:

  • Undertake ESG due diligence: Involve internal subject matter experts with ESG-related competence to conduct an assessment of ESG value creation opportunities or risks for potential fund investments considered throughout the Investment Committee approval process, taking a systematic approach using a comprehensive due diligence questionnaire. When material ESG issues are identified, they may be included in discussions with the applicable Investment Committee, and external advisors may be engaged to carry out additional ESG-related due diligence as needed. Where management of, or performance on, a material issue is considered by STAR to need improvement (see Section 6 on performance standards), STAR will work with company management to support the development of a corrective action plan.
  • Documentation: Maintain records of the assessment of ESG issues (including Investment Committee papers, completed due diligence questionnaires and reports from advisers (as appropriate). In cases where material ESG-related issues are identified during the due diligence process, document the relevant findings and the matters that need to be addressed and monitored post-acquisition (where relevant).

5.2 During investment

To manage ESG risks and value creation opportunities in its fund investments post-investment, and subject to STAR’s determination of what is reasonable and appropriate for each investment as described in Section 2, STAR will:

  • Monitor progress: Where there are material issues identified during the diligence process, include the management of these issues in a 100-day plan post-close and monitor ongoing progress on ESG issues. Where management of, or performance on, a material issue is considered by STAR to need improvement (see Section 6 for performance standards), STAR will work with company management to support the development of a corrective action plan.
  • Documentation: In cases where material ESG-related risks and opportunities are being monitored or managed by STAR, STAR will document the issue, progress, and next steps, if any.
  • Engage during investment:
    • STAR 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.
    • Where appropriate and subject to the scope described in Section 2, STAR will assist portfolio companies in the development of action plans to adequately address the identified ESG-related risks and opportunities. Where applicable, this may be part of the 100-day plan. In addition, where relevant, STAR will invite portfolio companies to participate in its proactive ESG programs. The focus of these programs will be managing ESG risks and opportunities that span across sectors.
    • Where appropriate and reasonable, STAR will also support its portfolio companies’ efforts to report externally and internally on their ESG approach and performance as related to material ESG issues. STAR will communicate to portfolio companies its commitment to responsible investment, and to partnering with its portfolio companies on ESG issues.

5.3 Transparency and stakeholder engagement

Where appropriate, throughout the investment cycle STAR will seek to actively engage relevant stakeholders in an effort to make informed decisions that may affect these stakeholders.

6. Performance Standards

Where applicable, and subject to the scope as defined in Section 2, where local laws and regulations are considered to be insufficient, STAR will apply its judgment and expertise in assessing risks and opportunities related to material ESG issues. To support this effort, STAR will consider the applicability of existing voluntary performance standards as frameworks to help achieve the goals set out in Section 4 during the evaluation and ongoing management of its portfolio companies.

6.1 Review and categorization

To prioritize and focus its ESG assessment and management efforts during diligence and the life of the investment, STAR will consider the magnitude of ESG-related risks and impacts associated with each individual company as follows:

  • Magnitude of impact: When a company is being evaluated for investment, STAR will, as part of its internal due diligence, assess a company based on what STAR considers to be the magnitude of its potential ESG risks and impacts.

6.2 Applicable Standards

When making an investment decision regarding a company that STAR determines to be a high-priority company through the review and categorization process described in Section 6.1, the assessment may consider as a guide the International Finance Corporation (IFC) 2012 Performance Standards on Environmental and Social Sustainability (Performance Standards) as they apply to the STAR investment model, as well as any additional ESG guidance that STAR considers to be applicable. STAR’s ESG Policy does not, however, strictly adopt any external policy or set of standards beyond what is defined in Section 4.

STAR Capital Partnership LLP
October 2017

 

1 For the purposes of this policy, “material” ESG issues are defined as those issues that STAR in its sole discretion determines have or have the potential to have a direct substantial impact on an organization’s ability to create, preserve, or erode economic value, as well as environmental and social value for itself and its stakeholders.

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