Melior has adopted a commitment to responsible investment, with particular focus upon Melior’s Environmental, Social and Governance (“ESG”) processes. Our approach to responsible investing involves incorporating ESG factors not only into decisions about what to invest in, but also into the role we play as sponsors of companies. We believe that ESG issues can affect the performance of investment portfolios and it is therefore in the best interests of our investors to incorporate ESG issues into our investment analysis and decision-making processes. We also recognise that applying these processes better aligns our investments with the broader objectives of society and thus will lead to better returns over the longer term.
Our approach to implementing responsible investing across the investment process includes:
- Identifying ESG issues during our investment analysis and due diligence at the deal sourcing stage;
- Incorporating material ESG issues into the decision-making processes including the investment memorandum and negotiation of the investment agreement; and
- Managing ESG issues during the monitoring of portfolio companies with the intention of reducing risk and enhancing company value.
A sustainability risk means “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment”. In the context of Melior Equity Partners (“Melior” or “Firm”), sustainability risks are risks which, if they were to crystallise, would cause a material negative impact on the value of the portfolios of the Melior’s funds.
Before any investment decisions are made on behalf of any funds that the Firm manages, the Firm will have completed a process that identifies the material risks associated with each such proposed investment; these may include relevant and material sustainability risks. Consideration of all these risks is part of the risk management processes of the Firm relating to the relevant fund, starting with an overall assessment of the likely risks associated with investments pursuant to the relevant fund’s investment policy and objectives and leading to specific investment proposals submitted to the Firm’s investment committee. The investment committee assesses all the identified risks alongside other relevant factors set out in the proposal. Following its assessment, the investment committee makes relevant investment decisions having regard to the relevant fund’s investment policy and objectives. Throughout the entire process, relevant sustainability risks are identified and assessed using the same process as is applied to other relevant risks affecting the funds and investments made on their behalf.
The Firm does not consider the principal adverse impacts of its investment decisions on sustainability factors in the manner prescribed by article 4 of the EU Sustainable Finance Disclosure Regulation (2019/2088) (“Disclosure Regulation”). Article 4 of the Disclosure Regulation requires fund managers to make a clear statement as to whether or not they consider the “principal adverse impacts” of investment decisions on sustainability factors. Although the firm takes sustainability and ESG very seriously, the detailed requirements were not settled by 10 March 2021, when we were required to decide and publish our initial approach. We are continuing to assess the mandatory data collection and disclosure requirements which are applicable to firms which opt in to consider the principal adverse impacts of their investment decisions. In particular, we are considering whether: (i) opting in would be the right strategic decision for us as a firm, and would help us to effectively facilitate our broader ESG and sustainability objectives; and (ii) we could gather and/or measure the mandatory data on which we would be obliged to report systematically, consistently and at a reasonable cost to our investors.
Accordingly, the Firm does not currently intend to consider the prescribed adverse impacts of their investment decisions on sustainability factors within the meaning of article 4 of the Disclosure Regulation; however, the Firm keeps this situation under ongoing review.
The Disclosure Regulation also requires the Firm to include in its remuneration policy information on how its policy is consistent with the integration of sustainability risks. Sustainability risk means “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment”. The same information (or a summary of it) must be published on the Firm’s website.
The Firm is for these purposes a financial market participant. Accordingly, sustainability risks are risks which, if they were to crystallise, would cause a material negative impact on the value of the investments made by the funds managed by the Firm.
The Firm pays identified staff a combination of fixed remuneration (salary and benefits) and variable remuneration (including bonus). Variable remuneration allocated to team members reflects personal, team and firm performance. Compliance with all the Firm’s policies and procedures, including policies and procedures relating to the impact of sustainability risks on the investment decision making process, shall be taken into account as part of that overall assessment.