As an investment management business, AAC recognize that pro-active management of Environmental, Social and Governance (ESG) issues and incorporation of an ESG policy in our investment decision process and ownership practices is in the interest of all AAC stakeholders, including our investors, portfolio companies we invest in, communities where they operate and the AAC franchise.
It is our duty to manage our corporate responsibility vis-a-vis our stakeholders, and we support and strive to adhere to industry standards, such as the UN Principles of Responsible Investment, while it is our core task to deliver superior financial performance. We believe that striving to superior ESG performance contributes to these goals, and can offer a source of competitive advantage for our businesses and enhances our franchise value.
AAC has the ambition to “Create a more sustainable company at exit than we acquired at entry”. To accomplish this ambition, AAC will integrate ESG efforts in every step of the investment decision-making and ownership practice.
In 2013 AAC signed the internationally recognised Principles for Responsible Investment (PRI). Since then, AAC is a member of the PRI and demonstrates its commitment to responsible investment through its participation in a publicly available annual report on its responsible investment activity. An important benefit of being an PRI signatory is access to a platform where best practices are shared among responsible investment professionals.
For each portfolio company, the CEO and an AAC Board Member will be responsible for the overall ESG policy; increasing awareness of material ESG-related risks and opportunities at Board level and implementing the set out ESG policy on company level. AAC will integrate pre-approved key ESG KPIs into the CEOs annual budget / target.
On a regular basis all AAC Board Members responsible for ESG will be present at an internal ESG meeting to discuss the current status of ESG implementation, progress made and to share best practices.
AAC issues an annual ESG report to its investors, this report combines quantitative and qualitative information on the current status of ESG implementation, milestones achieved and targets set. Furthermore AAC reports on an annual basis to the PRI resulting in a publicly available annual report on its responsible investment activity.
AAC recognizes that the diverse universe of companies in which it invests increasingly experiences challenges and opportunities relating to ESG, particularly sustainability issues. This trend demands that our approach should entail a pro-active policy geared towards long-term sustainable value creation. Through the implementation of a pro-active ESG policy we strive to enhance the sustainability of our portfolio companies, positively impacting financial and operational results. Furthermore, we seek to reduce reputational and investment risks relating to ESG which can be characterized as low-likelihood, high impact events.
In the legal fund documentation of AAC Benelux Fund III, AAC is restricted by its investors from investing in certain non-ethical businesses. Items related to ESG on this exclusion list include: investments in weapons, tobacco, gambling, research or application of human cloning and pornography industry. For every individual investment opportunity AAC looks at the ESG impact of the company and the sector/industry in which the company operates. All identified ESG opportunities and concerns of the specific investment opportunity at hand will be evaluated and AAC will make a fact based go/ no-go decision on a case-by-case basis.
In 2012 AAC developed a tool for portfolio companies together with Spring Associates in which all ESG related risks and opportunities are captured into a single proprietary framework.
This framework enables AAC to standardise its ESG approach for all portfolio companies and keep complexity as low as possible. When AAC (together with Spring Associates) analyses a portfolio company, we start with assessing the scope and relevance of the sustainability concept in the industry. Based on our framework, we will make company ‘heat maps’ to give focus to further analysis and possible solutions. Within the focus areas, AAC will look for solutions that have value creation potential. Finally, together with management of the portfolio company, AAC sets targets throughout the investment period.