Product-level disclosure for financial products referred to in Article 8 of Regulation (EU) 2019/2088.
capiton seeks to act with the highest level of integrity, taking a responsible approach when interacting with our portfolio companies, our advisors, our investors, local communities and the environment. The cornerstone of our business is to deliver superior risk adjusted net returns to our investors. They have entrusted us with funds to be managed over a considerable time horizon, and they expect that we use our influence as owners to protect and enhance the value of the companies we invest in.
We acknowledge that long-term financial sustainability is not only about financial dimensions, like avoiding excess leverage. It is also much about the quality of the management of portfolio companies and the integrity in the way they interact with their investors, employees, customers, central and local governments, other key stakeholders and the environment.
As part of our investment strategy, we also consider sustainability risks. These include environmental, social and governance (ESG) events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. We counter these risks with the following strategies, among others.
capiton respects and adheres to local environmental laws in the regions in which it operates. Before we invest in a company, we analyze – as far as possible and material – the environmental management, – compliance and the resource efficiency and the environmental impact. After an acquisition, capiton focuses on improving the environmental performance of our portfolio companies. We further acknowledge that climate change is one of the decisive challenges of our time. We therefore perform a dedicated climate-risk assessment for all our portfolio companies to analyze transitional and physical climate-related risks of their business. We strongly encourage that our portfolio companies should develop and implement their own environmental policy and climate management tools in accordance with capiton’s policy.
capiton strongly believes that the firm and its portfolio companies will only be successful if the workforce enjoys a good working environment. Accordingly, we analyze the social management, health and safety situation and the aspects of supply chain and engagement before we invest in a company and aim to improve ESG performance in this respect during the development phase. capiton aims to promote human rights practices in the portfolio companies it owns. We strongly encourage that all our portfolio companies should develop and implement their own Code of Conduct, in accordance with capiton’s Code of Conduct.
An essential part of capiton’s value creation model is the governance and management structure that is put in place for each portfolio company. Consequently, we analyze organization, implementation and control of governance as well as the stakeholder management and communication in the acquisition phase and plan to improve the ESG performance in this respect during the development phase. Supported by the advisory board, the management of each portfolio company is responsible for defining strategy and policy, and capiton expects this to include the setting of sound environmental, social and governance standards.
We take our obligations to all stakeholders in our portfolio companies and capiton AG seriously, and we believe that through operating in a responsible and transparent manner we are able to build stronger, more profitable entities. Our long-term perspective is core to our investment approach. Through partnership and transformation, we seek to create fundamentally better businesses that are competitive both locally and internationally. At capiton, we have developed a strong Code of Conduct and a Responsible Investment Policy (see also the Responsible Investment Policy in our section philosophy). The values and elements outlined therein are fully integrated with our investment processes. To underpin and further develop our responsible investment claim, we became a signatory to the United Nations Principles for Responsible Investment in 2019.
Art. 4 SFDR provides for a framework aimed at achieving transparency with regard to any principle adverse impacts of investment decisions on sustainability factors. For this purpose, financial market participants such as capiton must disclose certain information (taking into account the Commission Delegated Regulation (EU) 2022/1288 (“RTS”) with regard to regulatory technical standards). Currently, capiton does not take into account the principle adverse impacts of investment decisions on sustainability factors as provide for by the RTS, as it believes that the information provided to it by the portfolio companies in relation to the investments is not sufficient to allow it to do so. capiton will monitor developments with regard to available information and consider whether it is reasonably possible in the future to disclose the information required by the Art. 4 SFDR-framework (including the RTS).
The promotion of sustainable growth within our portfolio companies as part of the value generating measures is currently not a component of our remuneration policies for our deal team members.
Product-level disclosure for financial products referred to in Article 8 of Regulation (EU) 2019/2088 for the following funds managed by capiton: capiton VI Beteiligungs GmbH & Co. geschlossene Investment-KG, Unisono Parallel Beteiligungen VI GmbH & Co. geschlossene Investment-KG, capiton Quantum GmbH & Co. geschlossene Investment-KG, Unisono Quantum 1 GmbH & Co. geschlossene Investment-KG, Unisono Quantum 2 GmbH & Co. geschlossene Investment-KG.
(Update April 2023: Specification of the relevant funds managed by capiton)
The Partnership’s investment strategy takes environmental and social risks into account in its investment decision-making process. The Partnership meets the requirement of Article 8 SFDR on the promotion of environmental or social characteristics by generally excluding investments in companies with certain business activities and evaluating and tracking (1) environmental, (2) social and (3) governance criteria throughout the development and holding phases. capiton also employs a dedicated risk assessment to identify and mitigate risks from climate change.
This strategy is implemented at the investment level in the form of a three-stage process. First, potential portfolio companies are reviewed and assessed in line with capiton’s overall ESG concept. In a second step, the business model of the portfolio company is reviewed for any adverse sustainability impacts. In a third step the results are summarized and evaluated in a special ESG section of the Investment Memorandum.
The outlined strategy above does not only form an integral part of the investment decision but is also part of the continuous management process in the development phase (ownership) of the portfolio companies.
100% of the investments promote these ESG characteristics.
(Update December 2022: the summary of the investment strategy has been reinserted in accordance with Art. 24 RTS).
All of capiton’s financial products (funds) promote environmental or social characteristics, but do not have as their objective a sustainable investment.
capiton’s products promote Environmental, Social and Governance twofold: First capiton generally excludes investment in companies that
- Have contributed to a systematic denial of basic human rights.
- Demonstrate a pattern of non-compliance with environmental regulations.
- Show a pattern of engaging in child labor or forced labor.
- Are primarily engaged in the manufacturing, sales, or marketing of weapons, artillery, and ammunition to be used in the act of war or military conflict, (collectively, “Military Products”) or components of the same, if the primary purpose of such component is to be included as a component in any Military Products.
- Have its principal business activities in the field of:
- the manufacturing, distribution or sale of pornography.
- the manufacturing, processing, distribution or sale of tobacco products.
- the operation of casinos or other gambling facilities.
- the extraction, refinement, sale and/or distribution, and power generation from coal.
- the manufacturing, distribution or sale of distilled alcoholic beverages.
- the mining or extraction of tar sands or oil sands.
- the production, distribution and/or sale of palm oil, unless they are certified or committed to be certified by the Round Table on Sustainable Palm Oil, or a similar internationally recognized organization.
- dealing in agricultural or marine derivatives.
- research, development or manufacturing of technical application relating to electronic data programs or solutions which
- aim specifically at:
- supporting any activity refer to under items above
- internet gambling and online casinos; or
- aim specifically at:
- are intended to enable to illegally
- enter into electronic data networks; or
- download electronic data.
- are intended to enable to illegally
Second, the following criteria are evaluated in a due diligence process conducted in the development phase and then tracked throughout the holding phase (ownership).
Each of the nine categories above is based in turn on several sub-criteria which are evaluated during the ESG due diligence on the potential portfolio company in the acquisition phase.
Additional to these nine categories, capiton employs a dedicated climate risk assessment within its due diligence process to identify and mitigate (transitional and physical) risks from climate change. An example of this assessment including potential recommended actions can be seen below:
The ESG characteristics are reviewed and assessed as part of the screening and due diligence process within the pre-investment phase in line with capiton’s overall ESG concept. Within the due diligence, each potential investment receives a materiality analysis in which the impacts of sustainability risks on the investment are assessed. The results of the due diligence are summarized and evaluated in a special ESG section of the Investment Memorandum. If ESG risks from the past and climate risks harbour excessive risks for the future, capiton will not make the investment.
Continual implementation of the strategy within the investment process:
The outlined strategy above does not only form an integral part of the investment decision but is also part of the continuous management process in the development phase (ownership) of the portfolio companies. It is the stated aim of capiton’s ESG concept for the portfolio companies to comply fully with capiton’s ESG standards (including climate risk management) at the time of divestment. We are convinced that this approach will add value and reduce risk in the long term with respect to our portfolio companies.
Binding elements for the investment selection:
As stated above, capiton employs the exclusion criteria outlined within the section “Environmental and Social Characteristics promoted by the financial product”. These exclusion criteria are binding. Moreover, as stated before, if the ESG due diligence exhibits excessive future-related risks, investments will not be made.
Policy to assess good governance practices of the investee company:
An essential part of capiton’s value creation model is the governance and management structure that is put in place for each portfolio company. An investment’s organization, implementation and control of governance are analyzed as well as the stakeholder management and communication in the acquisition phase. It is envisaged to improve the ESG performance in this respect during the development phase.
Supported by the advisory board, the management of each portfolio company is responsible for defining strategy and policy, and capiton expects this to include the setting of sound environmental, social and governance standards. Each company’s management is responsible for executing the strategy and running the daily operations of the company according to the policies established by the advisory board / shareholder resolution. capiton supports management to promote a culture of compliance.
All caption investments follow the ESG characteristics outlined above, such that 100% of investments promote these ESG characteristics. Moreover, all of capiton’s investments are direct or indirect holdings.
The ESG characteristics outlined above are assessed and graded within caption’s proprietary ESG rating process during the initial ESG due diligence in the pre-acquisition phase (as outlined within the section ‘Methodology’). Following this initial assessment, annual updates of the ESG rating and climate risk assessment are conducted in the holding phase of the investment allowing for a close monitoring of each assessed environmental, social, governance and climate risk characteristic.
The due diligence and the following annual assessments are conducted by capiton’s external ESG consultant. Depending on industry and company specific issues, additional external consultants are hired to support the due diligence. The results are summarized and evaluated in a special ESG section of the Investment Memorandum. The Deal manager in charge is responsible for the ESG Due Diligence, supported by capiton’s controlling.
Additional to this rating, within its general ESG concept, capiton assesses further ESG-related KPIs on an annual basis that are tracked on fund level and on company level.
Within the ESG due diligence and annual review as outlined in the section ‘Due diligence process and monitoring of ESG characteristics’, capiton makes use of the capiton ESG questionnaire and a dedicated interview approach, in which relevant employees of the investment are questioned on ESG characteristics. Information obtained from the questionnaire and the interview is assessed and assigned a numerical grade, which then feeds the capiton ESG rating (as exemplary shown below) and the climate risk assessment. The aim of the rating is not to achieve the maximum score in each category, but a rating in the respective ESG category which is considered adequate for the analyzed company, whilst taking into account the materiality of the specific ESG aspect. Rating objectives for each category are suggested based on the analysis, therefore ensuring that the ESG concept is implemented efficiently and goal oriented.
Data for the relevant ESG characteristics are generally based on three sources: First, internal documents of the potential investment are screened for relevant ESG-related information. Second, interviews are conducted with relevant employees of the potential investment to fill-in potential data gaps and get a better understanding of the investment. Third, a desktop research is conducted, thereby gathering an external view on the potential investment. No data is estimated within this process. Data then feeds capiton’s ESG rating and climate risk assessment outlined in the sections ‘“Environmental or social characteristics of the financial product” and “Due diligence”.
Data quality is ensured through multiple safeguards: The data collection process is generally applied through an external consultant with experience in the sourcing and processing of ESG-related data. The consultant makes use of the four-eye principle within the data collection process. Moreover, the interviews serve as a mean to confirm data obtained from the internal documents and the desktop research.
capiton is active in the alternative investment market focusing on DACH mid-market companies, where standardized ESG reporting structures and ESG initiatives are only gradually being established. While capiton applies reasonable effort in ensuring data quality, data reliability and data availability, some portfolio companies may still be within the development phase of collecting relevant ESG-related data. While the lack of data-availability and quality in no case affects the ability to obtain a solid ESG understanding of these companies, capiton engages with the companies in such instances to promote increased data reporting capacities.
The actions to improve the ESG performance in the relevant portfolio companies are derived from the ESG due diligence. These actions are part of the value enhancement plan, which is determined for every portfolio company at the beginning of the development phase. The implementation of these actions is – based on the annual ESG reviews – reviewed in the advisory board meetings of the portfolio companies at least once a year as well as – if required – in the internal monthly portfolio meetings at capiton. The Deal Manager in charge is responsible for the realization of the ESG rating objectives until exit. capiton’s controlling is responsible for the analysis of the ESG reporting by the portfolio companies and the condensed ESG reporting to capiton’s investors. In case of sustainability-related controversies, a dialogue with the management team of the investment is sought to discuss remedial actions.
It is capiton’s declared goal that the portfolio company fully complies with company-specific ESG standards / ESG rating targets at the time when the investment is to be sold. In particular, this refers to
- compliance with all relevant, applicable laws (e.g. environmental legislation, social legislation, governance),
- sustainable use of natural resources and compliance with social standards (e.g. anti-discrimination, job security, health and safety) as well as
- good governance, oriented on the principles of due commercial care (e.g. code of conduct, dealing with conflicts of interest, preventing corruption and money laundering).