ESG Integration - Sustainability
Global General Partner S.A. (GGP) is an Alternative Investment Funds Manager (AIFM) as defined by the Directive 2001/61/UE of June 8, 2011 and by the Luxembourg Law of July 15, 2013, duly authorized by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg and managing a range of closed-ended feeder funds (the “Feeder Funds”) which grant access to Wealth Management clients to what we deem as the best Private Equity, Real Estate and Infrastructure funds across the industry.
Hence, the investment objective of GGP Feeder Funds is to invest its assets in one master fund selected through a thorough due diligence.
Due to the feeder’s nature of our Feeder Funds, environmental, social or governance events or condition that, if they occur, could cause an actual or a potential material negative impact on the value of the investments made by the master fund in which a Feeder Fund is invested (the “Sustainability Risks”) cannot be integrated “directly” into investment decisions of the underlying assets or companies since investment decisions are taken at the level of the master funds. Also, for the same reasons, GGP cannot consider adverse impacts of investment decisions on environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters (“Sustainability Factors”).
However, we do believe that unmanaged or unmitigated Sustainability Risks can impact the returns of a master fund and therefore of the Feeder Fund. Specifically, the adverse impact from Sustainability Risks can affect companies and/or assets via a range of mechanisms including:
- lower revenue;
- higher costs;
- damage to, or impairment of, asset value;
- higher cost of capital and
- fines or regulatory risks.
Due to their nature, the chance of Sustainability Risks impacting the returns of a master fund and therefore of the Feeder Fund is likely to increase over longer-term time horizon.
As a result, GGP applies the following multi-layered approach in terms of the integration of Sustainability Risks:
As part of our due diligence process of the master fund and its manager, we review its ESG (“Environmental, Social and Governmental”) approach, if applicable, focusing on the main following topics:
1) quantitative ESG factors:
a. ESG framework : PRI signatory (“Principles for Responsible Investment”), ESG policy, ESG reports, team dedicated to ESG topics, …
b. The manner in which sustainability risks are integrated into investment decisions of the master fund;
c. Outsourcing of ESG management and/or integration of diversity indicators at master fund’s general partner level and
d. Exclusions related to ESG features at portfolio companies/investment level.
2) qualitative ESG factors:
Included in the ESG disclosures provided by the master fund’s general partner.
As a BNP Paribas Group affiliate, GGP applies BNP Paribas Group’s Sustainable Investment Principles (the "BNP Sustainable Investment Principles") when we decide to select and to invest the Feeder Fund’ assets in a master fund.
As a result, GGP discloses to the Master Funds the fact that within the framework of its Corporate Social Responsibility, BNP Paribas Group has developed policies available on its website and governing its investments in the nine following sectors: defense, palm oil, wood pulp, nuclear power, coal-fired power, mining industry, oil sands, agriculture and tobacco.
These policies define a certain number of rules and standards that go beyond legal requirements and address the social and environmental issues considered as essential by BNP Paribas Group in responsibly conducting its activities in these sectors.
Any investment made by a master fund in a company with controversial practices in one of the sectors defined in the BNP Sustainable Investment Principles could generate reputational as well as financial risks for the Feeder Funds and their invertors and GGP.
In order to mitigate such risk, our subsidiary PrivAccess General Partner Sàrl, which acts as Feeder Funds’ general partner, negotiates a side-letter with the master fund’s general partner which typically includes an excuse clause provision as well as other provisions related to other topics.
By the application of such excuse clause:
1- our Feeder Fund certifies to the master fund General Partner that indirect participation of the Feeder Fund through the master fund in a defined list of investments corresponding to the categories listed in the BNP Sustainable Investment Principles (the “Prohibited Investments”) could generate a material violation of BNP Sustainable Investment Principles otherwise binding upon the Feeder Fund, and
2- the master fund’ General Partner expressly accepts that the Feeder Fund will be entitled to elect to be treated as an excused investor in the master fund with respect to any Prohibited Investment by declining to participate in the related capital calls.