Responsible Investment Policy – December 2022
1. Introduction
Phoenix is an independent private equity investor focused on working in partnership with ambitious entrepreneurs and management teams to help them grow their businesses, both in the UK and internationally.
We seek to be responsible owners. We believe that understanding the operational aspects of a business in addition to its financial profile allows us to manage risk effectively and generate value. We take an active role in our companies, going beyond board participation and working in partnership with management to grow and develop the business and solve problems together. We are signatories to the Principles for Responsible Investment (PRI), incorporating the six Principles into our ESG management approach.
Environmental, Social and Governance (ESG) considerations impact the way in which we manage the firm, our investment decisions and our management of portfolio companies. As fiduciaries we recognise that by following a broad set of policy commitments relating to ESG factors, we will better align ourselves and our investors with the broader objectives of society.
2. ESG management at Phoenix
We are committed to managing and improving the performance of ESG on our investment activities as a means of managing downside risk and growing value for our investors. To drive this forward we have allocated responsibility for specific elements of the ESG agenda to senior individuals within the firm. We believe this level of governance helps to embed our approach to ESG management and ensures that every member of the Phoenix team plays his or her part in delivering a culture of continuous improvement in this area. Our five values provide the bedrock to making this happen:
• Integrity – we embed integrity, transparency and the highest principled standards in everything we do, always determined to deliver on our promises;
• Partnership – we build open, honest relationships with businesses, and within our own team, striving and succeeding together;
• Passion – we’re as ambitious for the entrepreneurial teams we work with, as we are for Phoenix;
• Creativity – we’re constantly innovating, seeking out new ways to create value, and celebrating smart, creative thinking; and
• Sustainability – we embrace sustainability to help companies thrive over the long term and contribute to a fair, forward-looking and prosperous society for all.
3. ESG in our investing activity
We incorporate ESG factors across the investment lifecycle, alongside more traditional financial and business performance considerations. We view these activities as a way of managing not only business risk, but to deliver opportunities to increase shareholder return and create long-term sustainable value.
The process we follow to integrate ESG considerations in our investment activity is highlighted in the diagram below:
Phoenix’s sub-sector driven investment approach acts as a natural screen for any high-risk opportunities. Phoenix also has a detailed exclusion list, preventing investments in companies where the primary activity and/or principal source of revenue relates to or is connected with:
• an illegal economic activity (i.e. any production, trade or other activity, which is illegal under the laws or regulations applicable to the Partnership or the relevant company or entity), including without limitation, human cloning for reproduction purposes;
• manufacturing, selling or marketing of weapons, artillery or ammunition to be used in the act of war or military conflict; or components, the primary purpose of which is to be included in such products;
• directly involved in exploration for oil and/or gas;
• production of and trade in tobacco and distilled alcoholic beverages;
• gambling or with the manufacturing, distribution or sale of gambling machines;
• pornography; and
• high interest rate lending such as home-collected credit (doorstep lending), unsecured short-term loans (payday loans) or pawnbrokers loans.
4. Managing ESG in our portfolio companies
When assessing company ESG performance we apply an assessment framework. We apply this framework in a way which recognises the diversity of our portfolio and will focus efforts on mitigating current and future risk whilst also realising potential opportunities for enhanced business performance. We reinforce this through the monitoring of semi-annual ESG KPIs. An overview of the ESG factors we consider under each of these impact areas are outlined below:
4.1 Environmental – all portfolio companies are encouraged to identify and implement measures to reduce their environmental impact. For some businesses, energy consumption, water, waste and material recycling may be material factors both in terms of value opportunity and downside risk protection.
4.2 Social – Phoenix requires its portfolio companies to be equal opportunities employers. We do not tolerate unfair, discriminatory, illegal or immoral work practices either in the portfolio company or in its supply base. Within portfolio companies the firm encourages investment in employee development and training. We also encourage open communication and to ensure companies provide a working environment which promotes positive staff wellbeing.
4.2 Governance – We view corporate governance as the combination of processes and structures implemented by the board in order to inform, direct, manage and monitor the activities of the organisation towards the achievement of its objectives. Our focus on governance is to ensure our portfolio companies have a board which delivers strong leadership, are effective and well balanced, accountable, award sufficient levels of remuneration, behave in an ethical manner and engage with shareholders.
Other issues we explore under governance include safeguards against acts of bribery and corruption, cyber security and data protection.
5. Applying ESG to our own operations
Whilst our biggest impact in ESG is across our portfolio, managing ESG effectively in our own operations is important. The three areas that we have identified as being most material to Phoenix are:
• Environment – encouraging office recycling, reducing our use of materials and positively managing our carbon footprint.
• Health and Wellbeing – supporting the health and wellbeing of our staff, through: employee benefits, training, executive monitoring and support to enhance levels of mental and physical wellness.
• Community and Charity Outreach – allowing employees the opportunity to support charities and good causes through a range of activities and company events.
6. Stewardship
We view Stewardship as the way we work proactively with our portfolio companies during our investment period to maximise their economic value, while having regard to their positive social and environmental impact. We are active investment partners so we help our portfolio companies set and refine their business strategies and processes to add value responsibly and sustainably. We draw upon our significant in-house expertise, as investors with more than twenty years of experience of supporting similar-sized companies, and network of specialists to help companies achieve these goals.
As an investor we typically hold one or more seats on the board of each of our portfolio companies. This enables us to exercise Stewardship by contributing to discussions around strategy and ensuring that ESG matters are considered at an appropriately senior level. We aim to collaborate with portfolio companies in addressing ESG issues and opportunities throughout the investment period in line with Phoenix’s Responsible Investment policy.
7. Responsibilities
We have allocated responsibility for specific elements of the ESG agenda to senior individuals within the firm. We believe this collective engagement helps to embed our approach to ESG management and ensures that every member of the Phoenix team plays their part in delivering a culture of continuous improvement in this area.
Phoenix will review this Responsible Investment Policy periodically.