Polaris Private Equity
- Signatory type: Investment manager
- Asset class: Private equity
- Operating region: Northern Europe
Responsible business conduct forms a cornerstone for all of Polaris’ investment activities. ESG applies from early assessment until exit. We apply the UN Guiding Principles on Business and Human Rights (the UNGPs) as the theoretical and practical basis for our responsible business conduct and responsible investments.
Why we use the UNGPs in our investment process
We firmly believe that companies that diligently manage and continuously optimise their business operations’ impacts on sustainable development will also yield a higher financial return.
Additionally, we fully appreciate the value of the global level playing field for responsible business conduct as enabled by the UNGPs and we have found that their proper implementation provides the most robust basis for managing the ‘S’ component of ESG. The UNGPs also paved the way for the 2011 update of the OECD Guidelines for Multinational Enterprises (OECD), establishing similar expectations for companies when dealing with risks to environmental and economic sustainability.
Work (described below) that we initiated in 2016 will, for some time, enable us, and portfolio companies, to demonstrate best practices in meeting upcoming regulatory regimes in the European Union (EU). In 2020, the EU taxonomy on sustainable investments included the implementation of the UNGPs/OECD as minimum safeguards, and the EU Commission announced upcoming regulation requiring all businesses operating in the EU to conduct human rights due diligence.
How we use the UNGPs in our investment process
Polaris first developed a list of key elements that ought to be in place for a company to meet the UNGPs. Since 2017, we have assessed all new acquisitions against the UNGPs. We committed publicly to respect human rights in 2018 under our updated Sustainability Commitment, and we have embedded our commitment in the Polaris Responsible Investment Policy, in alignment with the UNGPs’ principle 16.1
Some assessment criteria are:
- Does the company have in place a policy commitment in alignment with the UNGPs/OECD)?
- Are regular operational impact (or risk) assessments made? When was the most recent one conducted?
- Are impact (or risk) assessments made in alignment with the UNGPs/OECD?
- Does the company have grievance mechanisms (in line with the UNGPs/OECD) for employees and/or other stakeholders that may experience adverse impacts?
- Does the company have a Code of Conduct for Business Relationships in alignment with the UNGPs/OECD?
If the company assessed does not align its work on responsible business conduct with the UNGPs, Polaris concludes that the company:
1. May have risks in relation to social sustainability that are not adequately identified or managed; and
2. Will need to allocate resources after takeover to establish the required management system.
Following investment, we support the management of portfolio companies through the Polaris Excellence Model to execute business plans, including implementing the UNGPs in collaboration with industry and subject matter experts. This includes taking the first key steps (i.e. developing capacity internally on the UNGPs; policy commitment; first operational level impact assessments; Code of Conduct for Business Relationships; and an outline for grievance mechanisms).
Figure 1: Applying sustainability to all phases of investments
“It is our policy to ensure that we and our companies constantly demonstrate responsible business conduct by managing potential and actual adverse impacts in relation to internationally agreed principles for sustainable development”
- We follow the International Principles of Responsible Investment (PRI)
- We assess against the UNGPs/OECD
- CSR Due Diligence part of our investment risk assessment and decision making
- Secure compliance with UNGPs/OECD
- Provide tools, guidance, and knowledge sharing opportunities on CSR with portfolio companies
- CSR performance as part of performance review
- Annual CSR impact assessment
- Key principles under sustainable development, including UN’s 17 Sustainable Development Goals
Example: Contributing to the implementation of the UNGPs at the portfolio company level
In 2019, Polaris acquired the majority shareholding of SSG A/S, a large service provider within damage services; e.g. remediating the worst damages to real estate in events such as fire or flooding. During the pre-acquisition assessment, we found that despite a commitment to the UN Global Compact principles, SSG had not yet started the implementation of the UNGPs. However, because SSG explicitly addressed some of its human rights risks, and was not otherwise assessed to be at risk of causing or contributing to severe unmanaged human rights impacts to a degree that could jeopardise the price evaluation, the takeover proceeded.
Once acquired, SSG introduced a new executive management team and chose to anchor the implementation of the UNGPs with the newly appointed CFO, Pernille Damm Nielsen, and Group PMO Director, Allan Tharuman. While the CFO had established knowledge and experience with CSR, the systematic implementation of the UNGPs were not part of practices applied in previous positions.
With Polaris ESG partners, GLOBAL CSR, Pernille and Allan set aside five days to participate in the UNGPs/OECD onboarding process. The onboarding process is designed to assist at minimum two representatives of the company to take ownership of responsible business conduct. It consists of both traditional training and learning-by-doing. Beyond training in implementation, the company develops a draft policy commitment, its first operational-level impact assessments and action plans, a draft Business Relationships Code of Conduct, and a draft three-year implementation plan - all in alignment with the UNGPs/OECD.
The SSG human rights impact assessment revealed that SSG’s Danish operations were at risk of impacting 19 of the 48 human rights contained in the International Bill of Human Rights. Three of the 19 risks were assessed to involve potential severe impacts: the right to safe and healthy working conditions; to health; and to rest, leisure and paid holidays. Although SSG had multiple actions to prevent or mitigate the risks of adverse impacts on these rights, possible improvements were identified and actions planned.
1As the basis for embedding their responsibility to respect human rights, business enterprises should express their commitment to meet this responsibility through a statement of policy that: (a) Is approved at the most senior level of the business enterprise; (b) Is informed by relevant internal and/or external expertise; (c) Stipulates the enterprise’s human rights expectations of personnel, business partners and other parties directly linked to its operations, products or services; (d) Is publicly available and communicated internally and externally to all personnel, business partners and other relevant parties; (e) Is reflected in operational policies and procedures necessary to embed it throughout the business enterprise.