DBAY ADVISORS’ RESPONSIBLE INVESTMENT & ENGAGEMENT POLICIES

Our Responsible Investment (RI) policy was developed and produced in accordance with PRI guidance, stakeholder consultation and external ESG advisory. The policy will evolve over time, in response to changing events, the maturation of ESG integration into DBAY Advisors’ decision-making processes and DBAY Advisors’ investment schedule.

Motives
Our motives for developing a Responsible Investment (RI) policy are guided by our commitment to sustainable practices, the necessity for sectors to adopt responsible policies, and our fiduciary duties to our partners, beneficiaries, stakeholders, and society.

Background
Our RI policy was developed in consultation with internal fund managers, relevant stakeholders and external ESG advisors, specialised in the formation and practical implementation of RI policies. The policy’s main objective, as defined by those that contributed to its formation, was the need for it to be practically applicable to day-to-day activities and our long-term investment strategy.

Reference
As long-term, active investors in European and UK small caps, our RI policy is the evolution of our main investment policy and as such, reinforces and compliments our established strategy, approach and values.

Policy scope & compliance
Our RI policy applies to all investments considered by the Investment Committee or made by us and interpreted in accordance with local laws and regulations. In cases where we determine it has limited ability to conduct diligence or to influence and control the integration of ESG considerations in the investment – for example, in cases where we are a minority shareholder, or where other circumstances affect our ability to assess, set, or monitor ESG performance goals – it will not necessarily be feasible to implement ESG principles. In such instances where we believe it to be appropriate, reasonable efforts will be made to encourage such portfolio companies to consider relevant ESG principles. Our investment and operational personnel uphold the RI policy in their day- to-day actions, investment approach and decisions, in collaboration with our COO.

Risks associated with the policy
We recognise that we are exposed to several investment and operational ESG risks. In accordance
with our RI policy, we give qualitative and quantitative consideration to these risks when deciding strategic asset allocation and other aspects of the ongoing management of the Fund’s investments. The Fund endeavours to set clear and realistic long-term investment objectives with a focus on maximising financial and non-financial value and returns for our partners and beneficiaries. We monitor the Fund’s risks carefully, undertake stress testing and scenario analysis as part of our decision-making process and seek to minimise what we perceive to be unrewarded risks where it is cost effective to do so, while adhering to our RI policy.

Policy approval & review
Our Board approved this policy and will update the policy continually, as appropriate.

Responsibility for the policy
Our investment and operating professionals are primarily responsible for ensuring that the consideration of ESG issues is integrated into investment decisions, in collaboration with our COO.

Definitions

Responsible Investment
Our definition of responsible investment refers to the University of Cambridge Institute for Sustainability Leadership definition as follows:

Responsible investment is an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance factors and of the long-term health and stability of the market. It recognises that the generation of long-term sustainable returns is dependent on stable, well-functioning and well-governed social, environmental and economic systems.

We interpret this definition of responsible investment as investment that correctly prices social, environmental and economic risks to identify, support and benefit from sustainable financial and non- financial value creation.

ESG integration
Our definition of ESG integration refers to the definition created by the UN Principles for Responsible Investment (PRI), as follows:

The systematic and explicit inclusion of material ESG factors into investment analysis and investment decisions.

We interpret the PRI’s definition of ESG integration as the routine consideration of material ESG issues, relative to the investment type and asset class, when performing investment analysis and making holistic, informed investment decisions.

Responsible Investment Guidelines

We maintain diligent guidelines that reflect our investment strategy, approach and values. Our guidelines detailed below focus on ESG standards for investee companies, investment practices for listed equities and fund management processes: Consider environmental, social and corporate governance issues associated with a target company when evaluating whether to invest in said company, as well as during the period of ownership.

  • Be accessible to and actively engage with relevant stakeholders, either directly or through representatives of portfolio companies.
  • Grow and improve the companies in which the Fund invests, for long-term sustainability and the benefit of multiple stakeholders.
  • Work through appropriate portfolio companies’ governance to address ESG issues with the goal of improving performance and minimising adverse material impacts.
  • 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.
  • Remain committed to compliance with applicable laws and regulations in the countries in which we invest.
  • Provide a safe and healthy workplace in accordance with national and local law.
  • Respect the rights of employees to decide whether to join a union and/or engage in collective
    bargaining.
  • Encourage the highest-level executive and executive board in portfolio companies to maintain strict policies that prohibit bribery and other improper payments to public officials consistent with the UK Bribery Act, U.S. Foreign Corrupt Practices Act, similar laws in other countries and the OECD Anti-Bribery Convention.
  • We are committed to responsible investing and maintaining ethical business practices by acknowledging and mitigating the risks of modern slavery and human trafficking within our operations and supply chains.
  • Provide timely information to our limited partners on the matters addressed herein and be transparent about our activities.
  • Encourage our portfolio companies to advance these same principles in a manner that is consistent with their fiduciary duties.

Responsible Investment incorporation procedures

We adhere to a structured investment process, defined and implemented in accordance with our RI policy. To ensure the incorporation of RI and ESG considerations in all investment phases and subject to our determination of what is reasonable and appropriate for each investment, we will:

  • Undertake ESG due diligence, involving where appropriate internal subject matter experts with ESG competence to assess ESG value creation risks and/or opportunities for potential investments considered by the Investment Committee.
  • Include identified and material ESG Investment Committee discussions and, where appropriate, engage external advisors to undertake additional ESG due diligence.
  • Work with target and portfolio company management to support the development of remedial action plans, where management of, or performance on, a material ESG issue is considered by us.
  • Document the issues considered, findings and subsequent steps taken.

Engagement and active ownership procedures

We will actively engage with target and portfolio companies as an integral part of our RI approach and to actively manage or contribute to the management of ESG risks and opportunities, in accordance with the following approach:

  • 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.
  • Assist our portfolio companies in the development of action plans to adequately address identified ESG risks and opportunities.
  • Work with company management to support the development of corrective action plans, when management of, or performance on, a material ESG issue is considered by us to need improvement. In cases where material ESG risks and opportunities are being monitored or managed by us, we will seek to document the issue(s), progress and next steps.
  • Support our portfolio companies’ efforts to report externally and internally on their ESG approach and performance, as related to material ESG issues.
  • Communicate our commitment to portfolio companies’ commitment to responsible investment and actively engage relevant stakeholders to make informed decisions that may affect these stakeholders throughout the investment cycle.

Reporting

We will be transparent in our approach to incorporating ESG considerations in our investments by disclosing firm-level progress and outcomes in the Fund’s reporting.

Report formats may include public written reports, informal verbal reports, confidential fund reports or asset-level reports to our investors in the form of quarterly report updates of on any significant ESG issues or events that occurred in the applicable quarter, which we reasonably believe would have a material adverse effect on the operations of Douglas Bay Capital III Fund LP or its stakeholders.

Performance Standards

Where applicable, we will apply our judgment and expertise in assessing material ESG risks and opportunities. We will consider the applicability of existing voluntary and mandatory performance standards as frameworks to help achieve our goals, the evaluation and ongoing management of our portfolio companies. To prioritise and focus our ESG assessment and management efforts during diligence and the life of the investment, we will consider the magnitude of ESG risks and impacts associated with each individual company as follows:

  • When diligently performing target investment assessment, we will assess a company based on what we consider to be the magnitude of its potential ESG risks and impacts.
  • We will consider the registered country of such company’s operations to further prioritise its efforts for those regions where existing standards are less robust.

Further, our external ESG advisors provide annual ESG assessments of all portfolio companies, according to an assessment methodology that features 100 ESG KPI derived from core GRI KPI, UN Global Compact goals and PRI principles and including all KPI provisionally featured in SFDR detailed disclosures’ guidance. These assessments underpin monitoring and reporting of material ESG issues for all portfolio companies.

Principles for Responsible Investment

The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice. Our signed commitment is:

As institutional investors, we have a duty to act in the best, long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with the broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:

PRINCIPLE 1
We will incorporate ESG issues into investment analysis and decision-making processes.

PRINCIPLE 2
We will be active owners and incorporate ESG issues into our ownership policies and practices.

PRINCIPLE 3
We will seek appropriate disclosure on ESG issues by the entities in which we invest.

PRINCIPLE 4
We will promote acceptance and implementation of the principles within the investment industry.

PRINCIPLE 5
We will work together to enhance our effectiveness in implementing the principles.

PRINCIPLE 6
We will each report on our activities and progress towards implementing the principles.

The Principles for Responsible Investment were developed by an international group of institutional investors reflecting the increasing relevance of environmental, social and corporate governance issues to investment practices. The process was convened by the United Nations Secretary-General. In signing the Principles, we as investors publicly commit to adopt and implement them, where consistent with our fiduciary responsibilities. We also commit to evaluate the effectiveness and improve the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. We encourage other investors to adopt the Principles.

DBAY ADVISORS’ ENGAGEMENT POLICY

Our Engagement policy was developed and produced in accordance with PRI guidance, stakeholder consultation and external ESG advisory. The policy will evolve over time and be subject to regular review in response to changing events, and the evolution of DBAY Advisors’ responsible investment (RI) policy.

Engagement

We will actively engage with target and portfolio companies as an integral part of our RI approach and to actively manage or contribute to the management of ESG risks and opportunities, via communication channels including but not limited to letters, emails, meetings, calls, visits to operations, visits to suppliers from the company’s supply chain and participation in roadshows. Engagement will be in accordance with the following approach:

  • Work with company executives to support the development of action plans, when we consider management of, or performance on, a material ESG issue can be improved. We will maintain a register of ESG risks and issues that we are engaged with for each portfolio company.
  • Encourage the executive teams of portfolio companies to identify and raise material ESG issues to the relevant decision-makers, including, where appropriate, board-level individuals.
  • Support our portfolio companies’ efforts to report externally and internally on their ESG approach and performance, as related to material ESG issues.
  • Communicate to portfolio companies our commitment to responsible investment and actively engage relevant stakeholders to make informed decisions that may affect these stakeholders throughout the investment cycle.