ESG Policy – Oraxys

Definitions and glossary of terms

“DNHS” : Principle of Do No Significant Harm under SFDR 2019/2088
“ESG Factor” : Under SFDR 2019/2088 Art.2 (24) ‘sustainability factors’ mean environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.
“ESG Investment” : Sustainable investment under SFDR 2019/2088 means an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.
“ESG or Sustainability Risk” : An ESG or Sustainability Risk means under SFDR 2019/2088 (14) an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment, as specified in sectoral legislation, in particular in Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2013/36/EU, 2014/65/EU, (EU) 2016/97, (EU) 2016/2341, or delegated acts and regulatory technical standards adopted pursuant to them.
“PASI” : Principal Adverse Sustainability Impacts whether material or likely to be material, of investment decisions on sustainability factors.
“SFDR” : Regulation 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector

1. Introduction

1.1 Background

Oraxys was created as a Private Equity specialist in the “clean tech” thematic for profitable Small and Mid-sized Enterprises. Moreover, Oraxys has a long-standing belief (i) that material1 Environmental, Social and Governance (ESG) Factors2 which have a positive impact for people and the planet are an important driver of long-term investment returns from both an opportunity and a risk-mitigation perspective and (ii) that the ability to identify, assess and manage ESG considerations can provide sustainability and a positive ethical impact on investment and corporate performance, local communities and society at large.

In this respect, Oraxys created in 2008 a first fund specialized in sustainability alongside with investors for whom the positive environmental impact of their portfolio is an important consideration in conjunction with investment performance. Further to the success of this first fund and building up on its learning curve, Oraxys incorporated a second fund (together with the first fund, “Oraxys’ funds”) with the aim to professionalize itself and to reinforce its positioning as a fund manager supporting only companies focused on environment-friendly products or services taking into account the current context and the norms which significantly evolved since 2008. Therefore, Oraxys now wants to formally materialize its willingness to do its best efforts to include the integration of ESG criteria throughout all stages of its investment process.

In this respect, it is noted that Oraxys’ approach on its second fund is in alignment with Article 8 of the EU Sustainable Finance Disclosure Regulation (hereinafter “SFDR”) 2019/2088 due to its investments with Environmental characteristics. .

Furthermore, the present ESG policy is for internal use only of Oraxys and therefore in no case may be a ground for any counterparts, stakeholders, third party, etc. to trigger any liability of Oraxys.

¹ “Material” ESG factors are defined as those factors that Oraxys in its sole discretion determines to have, or to have the potential to have, a direct substantial impact on an organization’s ability to create, preserve, or increase economic value, as well as environmental and social value for itself and its stakeholders.
² ESG or sustainability factors mean environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters as introduced under (EU) SFDR 2019/2088 Art.2 (24). These are further identified in Section 2.3 of this document.

1.2 Mission statement

Oraxys’ mission is to support the development of companies which market environment-friendly products or services in connection with Oraxys’ three environmental impact’s pillars: nature preservation and/or resource efficiency and/or health.

Oraxys notes that the contemplated companies are growing and profitable, challengingly competing with traditional groups, and that their CEOs, considering the stage of development of their companies, are pragmatic and primarily focused on developing their technical and marketing competitive advantage; in addition Oraxys understands the challenge for such companies to implement an ESG policy; nevertheless Oraxys encourages such CEOs to consider ESG factors and the related impact on the business. Oraxys’ ambition is therefore as far as possible to play a role of mentor/guide for the targeted companies to monitor and manage ESG factors.

2. Environmental, Social and Governance Policy

2.1 Objectives and scope

This policy shall serve as a guideline for Oraxys to do its best endeavours to ensure that risk factors and opportunities are considered throughout its investment process.

The aim is to progressively extend the implementation of this policy to its portfolio companies. In this respect, Oraxys will progressively and continuously support its portfolio companies to improve their ESG practices and policies.

2.2 Guiding principles

Before considering any relationship and/or investment, Oraxys analyses to which extent the following principles are met by all parties:

Complying with the laws, wherever it applies including environmental and social legislation and align with good international industry practices;
Respecting human rights, taking care of prohibition of slavery and child labour;
Acting with ethics at all times respecting the applicable cultures as much as possible;
Acting with integrity, transparency, accountability and probity in the management structures, policies and processes;
Non-discriminating (whether on grounds of gender, race, age or disability) in the recruitment process at all levels of the organisation (employees, boards, committees, etc.);
Considering environmental, public health, safety, social and governance issues associated with the contemplated companies when evaluating the investment opportunity as well as during the period of ownership;
Promoting businesses with a positive impact on Nature preservation, Resource efficiency and/or Health;
Being accessible to, and engaging with, relevant stakeholders either directly or through representatives, as appropriate;
Acting responsibly with respect to the environment.

2.3 Environmental, Social and Governance Standards

Oraxys’ major investment criteria is the environmental impact of the contemplated company’s products or services in connection with Nature preservation, Resource efficiency or Health. Hence, “E” of ESG is the main focus. In addition, Oraxys examines the activity of each targeted company to evaluate if it contributes to one or several Sustainable Development Goals (SDGs) of the United Nations and the related targets.

Environmental

1. To check the environmental impact of the products or services of the contemplated companies/portfolio companies in connection:

Nature preservation
Example of targeted impacts:
CO2 Management1
Ecotoxicity Reduction (alternative : Benignity of Components)
Biodegradability Increase
Soil and Water Conservation
Resource Efficiency
Example of targeted impacts:
Energy Efficiency
Materials Optimization
Storage
Infrastructure Efficiency
Health
Example of targeted impacts:
Public Health
Hygiene Increase
Sustainable Living
Noise and Air Control

2. To check that there is no substantial negative impact2 in the same scope where these companies operate i.e. the adequacy between the activity of these companies and the criteria of sustainability will be checked. For the avoidance of doubt, Oraxys seeks to avoid, and where it is not possible, minimize adverse impacts and enhance positive impacts on the environment.

Social

To check the preservation of human rights, especially ensuring there is no exploitation of child labor or slavery;
To check that there is no discriminatory employment policies;
To check the health and safety guidelines;
To check the evolution of employment in the portfolio companies.

Corporate Governance

To check for good management practices and control structures.
To appoint a recognized and independent audit firm as auditor of the annual accounts.
To check the Politically Exposed Person’s status of the main shareholders and directors of the board.
To check and discuss the remuneration of the leadership team members at the Board level every year.
To check that the structuring of the organizational relationships and the procedures align the interests among the shareholders and/or among the managers.

No index has been designated as reference benchmark. However, the standardized approach mentioned above and the alignment with the SDGs provide a reference point for meeting Oraxys ESG characteristics and objectives.

2.4 Exclusion List

Oraxys exclusion policy includes companies that are involved in design, development, production, maintenance, marketing and/or trade of the following list of activities:

Any product or activity subject to national or international phase -out or prohibition regulations or to an international ban
Weapons and munitions
Tobacco
Gambling casinos and adult entertainment
Money laundering
Terrorism

Oraxys also excludes companies from investment that develop, produce or sell key and dedicated components, or offer essential services, for the use of the activities mentioned above.

2.5 Approval and Review

Oraxys ESG policy is reviewed by the Investment Committee of each of Oraxys’ funds and is approved by its Board of Directors.

Oraxys is committed to reviewing, and as the case may be, updating its ESG policy annually to address evolutions in the firm’s profile, growth and investment strategy, external best practices, business drivers and relevant regional/global legislation.

Oraxys keeps a track-record of each update approved by the above mentioned Board of directors.

3. Roles, Responsibilities and oversight

The overall responsibility for the determination of Oraxys’ ESG policy and its carrying out lies within Oraxys’ Board of Directors and the Investment Committee of each Oraxys’ fund. Ultimately, the Board of Directors of Oraxys is responsible and will monitor compliance with this policy.

Oraxys Team is responsible for the day-to-day implementation of Oraxys’ ESG policy across the investment lifecycle and for inspiring the portfolio companies to adhere to and spread the spirit of Oraxys ESG policy internally.

When deemed necessary by the Board of directors of Oraxys, Oraxys shall appoint an external ESG Officer to assess compliance of ESG practices with its guidelines.

Prior to investing, the Investment Committees may appoint a recognized external ESG Officer to process assessments of one or several of the ESG criteria in the targeted companies to support Oraxys Team in its analysis. In addition, the Investment Committees may from time to time request that a follow-up ESG audit be implemented.

Oraxys Team	ESG Officer	Investment Committee of each fund
Develop/update the procedures and documents	Assist Oraxys’ Team in identifing and monitoring ESG Risks at portfolio and company levels	Review the ESG policy to make recommendations to the Board of Oraxys and commit to the ESG policy
Evaluate the ESG Risks pre and post investments and prepare the investment papers	Assist Oraxys’ Team to evaluate the ESG factors and performance at portfolio and company levels	Evaluate the ESG Risks of companies and portfolio, and decides if ESG Risks are acceptable
Evaluate the ESG factors at portfolio and company levels		Instruct third party Due Diligence
Dialogue with the different stakeholders on ESG factors

4. ESG Management Process

4.1 Overview: ESG throughout the investment cycle

Early integration of ESG factors is set-up in the investment process (from the initial deal sourcing to the investment management phase) to ensure that material ESG matters are properly prioritised in risk management and in the value creation of Oraxys’ funds.

4.2 Initial Deal Sourcing and Screening

ESG policy and criteria are taken into account in the deal sourcing and screening stage.

Oraxys assesses whether the activity of the targeted companies are in line with this ESG Policy, notably that they (i) do not violate the exclusion list and (ii) do not make any significant harm to any other ESG factors.

4.3 Initial evaluation and ESG Risk categorization

Oraxys conducts a preliminary assessment and rating of the main ESG‐related risks and opportunities of the targeted companies. This initial evaluation and ESG Risks categorization is made to identify “red flags”, breaches, priority KPIs and key competitive advantages.

A matrix is set-up with 3 levels of risk based on international good practices:

Category A: with potential significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented; Category A is not investable by Oraxys’ funds;
Category B: with potential limited adverse social or environmental impacts that are few in number, generally site specific, largely reversible and readily addressed through mitigation measures; or
Category C: with minimal or no impacts

Materiality maps to assess the risks are also set-up based in international good practices.

4.4 Term sheet

The term sheet of each investment proposal mentions a reference to the ESG policy of Oraxys and the fact that an ESG due diligence will be driven.

4.5 ESG Due Diligence

Oraxys will subcontract to recognized independent consulting firms to manage an external ESG due diligence prior to investing in a portfolio company of an Oraxys’ fund. The main conclusions drawn from such an ESG due diligence are presented to the Investment Committee of the relevant fund.

If material ESG issues or risks are identified during the investment process or the management process, Oraxys prioritises those which are most material to determine on a case-by-case basis whether further assessment is required. In such a case it may seek independent analysis and expert advice from specialist external consultants, for instance environmental experts, if required.

Oraxys then considers whether it deems the risk(s) unacceptable, and thus rejects the investment opportunity on those grounds, or determines that any risk(s) or weaknesses identified need to be addressed and/or managed. In cases where material ESG risks/weaknesses are identified and deemed acceptable, a plan is agreed between Oraxys and the management of the targeted company to remedy the selected issues and for ESG improvements, with actions required, timeframe, proposed responsibilities and costs involved.

Currently, Oraxys does not take into account the Principal Adverse Sustainable Impacts (PASI) approach within its investment cycle but might consider introducing such considerations in the future.

4.6 Documentation

ESG considerations are included in Oraxys investment papers:

ESG Due diligence mentioned in the termsheet of investment negotiated with the shareholders of each targeted company
ESG principles and objectives mentioned in the shareholders’ agreement negotiated with the shareholders of each portfolio company
ESG Investment Company Report made before investing in each portfolio company
ESG Annual Company Report made every year for each portfolio company
ESG Divestment Company Report made after divesting from each portfolio company
ESG Annual Fund Report made every year for the investors of each fund

Such investment papers are reviewed by the applicable Investment Committee. The ESG Annual Fund Reports are reviewed by the Board of directors of Oraxys.

4.7 Investment Monitoring and Management

When an Oraxy’s Fund is a shareholder of a portfolio company, Oraxys commits to making its best efforts to having the following monitoring actions with the leadership team of each portfolio company:

To review their ESG policy, or as the case may be to help them to draft an ESG policy.
To ensure that ESG considerations are regularly raised and discussed at least annually.
To identify, set-up and follow-up annually 1 or 2 KPIs, specific to each portfolio company, where a link can be made between environmental characteristics and competitive advantage or growth or value creation of the related portfolio company.

When an Oraxys’ Fund is a shareholder of a portfolio company, Oraxys commits to making its best efforts to having the following management actions with the leadership team of each portfolio company:

To support on an ongoing basis the timely implementation of ESG factors by each portfolio company (e.g. through dedicated workshops and practice sharing with other portfolio companies);
To meet at least annually with the leadership team of each portfolio company to assess progress made and to update as necessary the ESG action plan;
To ensure as a Board member of each portfolio company that ESG considerations are regularly raised and discussed, and action plans approved at least annually.

4.8 Divestment Management

The evolution of the ESG policy and parameters throughout the investment period allows Oraxys to draft an ESG Divestment Company Report for each portfolio company it sells.

5. Monitoring and Reporting

5.1 Overview

Oraxys commits to producing reports to its Investment Committees and its Board relating to its investment activities and to the evolutions achieved towards implementing its ESG policy and criteria.

5.2 Fund ESG monitoring

Oraxys will produce a report on each Oraxys’ fund (i) to monitor the evolution of the ESG performance of the Oraxys’ fund depending on the new portfolio company and (ii) to follow-up the customised KPIs of the portfolio companies.

5.3 Fund ESG reporting

5.3.1 Periodic Reporting to the Investment Committee of each Oraxys’ fund and to Oraxys Board of directors

ESG Investment Company Report: each binding decision to invest in a new company must be approved only with the support of an ESG acquisition report.
ESG Annual Company Report: an annual ESG report is made for each portfolio company by its leadership team and Oraxys Team. This report includes at least 1 or 2 KPIs (cf. section 4.7 above).
ESG Divestment Company Report: After selling the shares of a portfolio company, Oraxys Team produces an ESG Divestment Company Report.

The above reports will be summarized in an ESG Annual Fund Report for each Oraxys’ fund giving a global picture of the ESG situation of its portfolio companies.
Information contained in the ESG reports are mainly based on the data provided by the portfolio companies, but may also include data provided by external advisors, auditors or any other sources.

5.3.2 Periodic Reporting to the investors

Oraxys will communicate the ESG Annual Fund Report to the investors of the concerned Oraxys’ fund. The Report will provide the investors with clarity that:

Confirmation that the fund is managed in accordance with the ESG policy agreed at fund inception date,
Information on any material changes to the ESG Risks and opportunities for the portfolio, and
Information on any action plan to address ESG Risks and opportunities for the portfolio.

6. Effective date and review

This ESG policy is up-to-date as at 31 March 2022 and will be reviewed annually.

“Material” ESG factors are defined as those factors that Oraxys in its sole discretion determines to have, or to have the potential to have, a direct substantial impact on an organization’s ability to create, preserve, or increase economic value, as well as environmental and social value for itself and its stakeholders.
ESG or sustainability factors mean environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters as introduced under (EU) SFDR 2019/2088 Art.2 (24). These are further identified in Section 2.3 of this document.
CO₂management is referred to activities aimed at mitigating and/or adapting to climate change.
In alignment with the DNSH principle.