Sustainability Risk Management
Sustainability risk management is embedded in the way Endeavour Vision “Endeavour” seeks to originate investments and make investment decisions, as well as in ongoing portfolio and asset management activities. Endeavour recognises the importance of identifying, assessing and managing material sustainability risks as an integral part of conducting business. Endeavour’s sustainability risk policy provides a comprehensive framework for integrating sustainability risk management into investment decision making.
Endeavour became a UN PRI signatory in May 2019.
How does this sustainability risk policy work?
The sustainability risk Policy sets out how sustainability risks are integrated into Endeavour’s investment decision-making processes. Sustainability risk means an environmental, social or governance (ESG) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of each investment.
In evaluating investments, Endeavour performs an ESG risk assessment. Endeavour uses, among other resources, a sustainability risk matrix to categorise the ESG risk of investment opportunities. Where ESG related risks cannot be mitigated to a satisfactory extent, an investment opportunity will not proceed. Endeavour also maintains an exclusion list of harmful sectors that each fund is prohibited from investing in.
Integration of sustainability risks into investment decision-making processes
Sustainability risks are considered at all stages of each product’s investment process, in respect of each individual investment opportunity.
The investment team is required to complete a sustainability risk matrix as part of the investment committee paper submitted to the Investment Committee for consideration.
The sustainability risk matrix is a tool used to assess initial sustainability risks for a number of chosen areas relevant to the product in question, and to identify where additional investigation or due diligence into sustainability risks is required. This seeks to ensure sustainability risks are identified and mitigated during the investment process.
The sustainability risk matrix requires completion of due diligence questionnaires and requires an assessment of each deal to be conducted throughout the investment process.
Endeavour’s ESG Committee is responsible for oversight and compliance with the sustainability risk policy.
The investment team is responsible for the operation of the policy on an investment level.
No consideration of adverse impacts
The Sustainable Finance Disclosure Regulation (SFDR) requires Endeavour to make a “comply or explain” decision whether to consider the principal adverse impacts (“PAIs”) of its investment decisions on sustainability factors, in accordance with a specific regime outlined in SFDR. Endeavour has opted not to comply with that regime, both generally and in relation to the Fund. Endeavour will keep its decision not to comply with the PAI regime under regular review.
Endeavour has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the draft Regulatory Technical Standards which were published in April 2020 (the “PAI regime”). Endeavour is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors and the market, as to how financial market participants integrate consideration of the adverse impacts of investment decisions on sustainability factors. However, Endeavour is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as Endeavour believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding Endeavour’s decision not to comply with the PAI regime, Endeavour has implemented positive ESG-related initiatives and policies, as part of its overall commitment to ESG matters, as summarised in this section. For the avoidance of doubt, none of the following information is intended to suggest that Endeavour complies with the PAI regime.
Endeavour Vision (along with its subsidiaries and controlled affiliates, “Endeavour Vision”) has established a remuneration policy (the “Policy”) applicable to all Endeavour Vision entities. The Policy is developed, approved, implemented and monitored by a series of bodies within the Endeavour Vision structure. The Policy applies to all employees of Endeavour Vision, save for limited exceptions.
The Policy has been developed with the aim of supporting Endeavour Vision’s business strategy, corporate values and long‐term interests, including by facilitating the identification, assessment and management of sustainability risks when determining individual remuneration packages. The key principles of the Policy include fostering appropriate risk culture (including with respect to the management of actual and potential conflicts of interest) and compliance with applicable law and regulation.
The performance management and rewards framework envisioned by the Policy has been designed to promote effective risk management, including in particular by:
- Ensuring that assessment of performance takes full account of adherence to risk management requirements, covering all relevant types of current and future risks, including sustainability risks;
- Implementing deferral arrangements using co‐investment and carried interest arrangements for senior personnel, facilitating alignment of interests between staff‐members and third-party investors. If the value of the relevant underlying investment portfolio should decrease (whether arising as a result of a sustainability risk or otherwise), the value of the employee’s holdings will be reduced accordingly; and
- Providing for reduction of deferred variable remuneration awards to senior personnel in certain circumstances, such as in the event that the entity in which the relevant employee works suffers a significant failure of risk management, or experiences a significant downturn in its financial performance (as determined in the sole discretion of Endeavour), including in connection with a sustainability risk concerning an investment.