Lafayette Mittelstand Capital

ESG Responsibility

Lafayette acknowledges and has begun to reflect the increasing importance of its Corporate Social Responsibility through the design and sequential implementation of its social, environmental and corporate governance (ESG) strategy across all aspects of its investment approach.

We have developed a robust system with clear policies and guidelines to foster an equal opportunity working environment within our portfolio companies. Increasing operational risks from climate and environmental changes are aimed to be addressed by a set of actions based on and in line with the Task Force for Climate related Financial Disclosure (TFCD).

 

In accordance with the Sustainable Finance Disclosure Regulation (SFDR), Lafayette has established a checklist addressing sustainability risks and opportunities included in Lafayette’s investment decision-making process. Vis-à-vis its investors Lafayette has also committed to not invest in industry segments that tend to materially violate its ESG investment criteria, notably:

  • We will not invest into any form of illicit economic activities

  • We will not invest into the production or distribution of tobacco

  • We will not invest into the manufacture of or trade in arms or ammunition of any kind

  • We will not invest into any aspects of sex industries (incl. pornography and prostitution)

  • We will not invest into any aspects of gambling and any other related businesses

Lafayette aims to avoid investment decisions that result in negative effects on sustainability factors, i.e. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters (Article 20 of the SFDR).

We monitor, report and for subsequent actions assess all recorded information with regards to specific potential adverse sustainability impacts (PAI). The recorded ESG information is subsequently aggregated into monthly indicators to track its development over time. We aim to further imprioce This statement will be updated by 30 June 2023 and has been in effect since 30 June 2021.

The following are the tracked PAIs in line with table 1 of Annex I of the Regulatory Technical Standards (RTS) of the Regulation:

  • Share of non-renewable energy consumption and production

  • Activities negatively affecting biodiversity-sensitive areas

  • Hazardous waste and radioactive waste ratio

  • Violations of UN Global Compact principles and OECD Guidelines for Multinational Enterprises

  • Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises

  • Unadjusted gender pay gap

  • Exposure to controversial weapons (antipersonnel mines, cluster munitions, chemical weapons and biological weapons)

In addition, Lafayette considers GHG emissions and Carbon footprint as further relevant PAIs. However, at present Lafayette’s portfolio companies are still in the process of setting up the tools and processes to be able to track the chosen GHG indicators in accordance with the formulas required under the RTS. 

Although not formally enshrined in our investment policies, we believe that following ESG principles implies the commitment from each and all individuals of the Lafayette Team to support Lafayette’s portfolio companies and to steadily increase the degree to which Lafayette’s portfolio companies meet the requirements of SFDR (incl. helping our portfolio companies to formulate action plans to improve further). However, at this stage there are no specific ESG objectives for the portfolio as a whole.

We believe that many ESG related issues and risks are interconnected. We consider the following guiding principle and sub-goals as particular relevant:

Sustainable Financial Disclosure Regulation
Enhancing ESG Engagement on Portfolio Company Level
LMC ESG.jpg
LMC ESG guiding principle and subgoals.jpg

In order to quantify the ESG development on a portfolio company level, we have developed our own scoring system closely linked to Thomson Reuters ESG Score.  Lafayette’s ESG scoring system is currently based on 85 different KPI’s originating from key ESG standards and regulation, notably:

  • EU Taxonomy (2020) by the European Commission

  • Sustainable Development Goals (SDGs 2015) United Nations

  • Task Force for Climate Related Financial Disclosure (TCFD 2015) by Task Force on Climate-Related Financial Disclosures

  • Sustainable Financial Disclosure Regulation (SFDR 2019) by European Commission

  • UNGC GRI Standards (2016) by United Nations

 

We have assigned weights to each ESG category depending on ESG attributes of Lafayette portfolio companie’s industries. Lafayette’s ESG score is thus a weighted average of its scores in each recorded ESG category.  Scores range between 0 and 100. Portfolio companies’ individual scores are benchmarked against its industry and its peers to compare the Company’s ESG performance and development against the broader market.

As of Q3|2022 we can confirm that Lafayette’s portfolio as a whole as received a “B” sore. "B" Score indicates good relative ESG performance and above-average degree of transparency and reporting material ESG data.

We regularly monitor ESG developments in each category and each quarter. We subsequently draw comparisons of Lafayette’s latest ESG performance with the prior quarters. In addition, ESG implementation plans have been formulated for every portfolio company in order to actively shape and create improvements over time.

ESG Picture.jpg