FSN Capital Environmental, Social and Governance report 2020 We are decent people making a decent return in a decent way - cloudfront.net
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
FSN Capital Environmental, Social and Governance report 2020 We are decent people making a decent return in a decent way
Impact that lasts
Our objective is to create alpha return to investors, our ultimate clients,
and we will do so in a responsible and sustainable manner.
FSN Capital delivers trend shifts through transformation, creating sustainable
and resilient companies that withstand the test of time – for the benefit of both
our investors and society at large.
Transparency will keep us accountable. This is our eighth annual ESG report,
and all historical reports are available on our website.
Our historic strong focus on ESG, initiated by a clear tone from the top on the
value of responsible investing, has ensured that ESG is now deeply integrated
in our culture, investment processes, and how we govern our Portfolio
Companies.
As responsible owners we recognize that we have an obligation to use our
ownership position to drive change and impact. We want to ensure that our
Portfolio Companies also remain sustainable after our ownership period, so
our ESG approach is focused on integrating material ESG topics in the strategy,
operations, and the culture of each Portfolio Company.
FSN Capital seeks to ensure
that it will have impact that lasts beyond
our ownership period.
The Partner Group at FSN Capital Partners
Our ultimate clients
Our purpose is to contribute to
the welfare of everyday people.
Norwegian
municipal workers Swedish
pensioners
US high-tech
workers US students
Our ultimate clients are 11 million workers UK pensioners
and pensioners, and 100,000 researchers Asian
students
and students globally. US public
employees
European
steel workers
Middle Eastern South-East
citizens Asian citizens
US medical
researchers
«We are decent people making
a decent return in a decent way» Australian
nurses
Australian
pensioners
Letter from our Founder
Strong performance
in a difficult year
The year of the pandemic has required us to bring out the best in ourselves
2020 was an extraordinary year overshadowed and our management teams.
by the global pandemic of Covid-19. Countless
people have been furloughed or lost their jobs When the pandemic hit, we came together with
permanently. As I write this, the death count our management groups and worked closely as
stands at 2.7 million deaths globally. Our hearts one team to address the challenge that faced
go out to all those who have lost close ones, us. The first lockdown materialized in early
including the families of the two employees March and we held a virtual all-hands meeting
we are saddened to have lost in our Portfolio with our management teams to align around
Companies. two key priorities. Firstly, we all committed
to protect the health and safety of our people
The economic environment we have been and do whatever we could to protect the local
operating in can best be described as opaque, communities in which our Portfolio Companies
uncertain, and frustrating, with cycles of hope operate. Secondly, we focused on preserving
and disappointment. Navigating successfully the competitiveness and financial stability of
through this environment as owners and leaders our Portfolio Companies. Our management
6 FSN Capital ESG report Building Resilient Companies 7
teams rose to the occasion, we escaped any groups. Today we are inspired to see that much
larger scale outbreaks thanks to the stringent of the energy propelling the ESG flywheel is The Obton Group´s 5-year business plan implies
countermeasures that were put in place in our generated throughout our Portfolio Companies' installing solar capacity equivalent to the power
facilities, recording a low number of infections organizations, who are increasingly taking needs of ~1.5 million households*
The Obton Group today
throughout the portfolio. ownership of their ESG agendas. We share a
common understanding that ESG is simply
We believe we were well prepared going into good business.
the crisis, having taken a cautious investment
approach and prepared our Portfolio Companies The continuous improvement of our ESG work
over the last 3-4 years anticipating some kind of culminated in our first ESG-linked Credit
~1 million MWp installed Equivalent to power consum- ...or to the # of Equivalent to replacing
economic and financial correction. Moreover, Facility in 2020. Under this facility the interest tion of ~300,00 households households in Helsinki ~600,000 combustion
we are blessed with strong management teams margin we pay depends on us delivering on engine cars
who were supported by local FSN Capital teams stated ESG ambitions, the main goal being to
The Obton Group's plan for 2025
and our robust active ownership model; The accelerate the ESG transformation needed
FSN Capital Execution Framework (FEF). The to remain relevant in the future low-carbon
combination allowed us to switch focus early and economy.
implement effective countermeasures.
Impact
Having incorporated ESG factors in our In 2020 we recorded several ESG wins both
~5 million MWp installed Equivalent to power consumtion ...or to the # of Equivalent to replacing ~4
governance model proved invaluable as the within our Firm and in our Portfolio Companies. of ~1.5 million households households in million combustion
pandemic hit. Solid health and safety procedures Our «Team First» initiative aimed at fostering Los Angeles engine cars
were already in place, which facilitated trust and collaboration across our offices and
resolute implementation of effective pandemic cohorts continued to pay dividends evidenced by * Based on the assumption of 1.5 million households reached by 2025,
countermeasures. Moreover, the Portfolio the highest 360 review (employee satisfaction) and average combustion engine emissions of 0.1000 kg CO2e/km
Companies delivered unyielding performance score we have ever recorded. Driving diversity
in the face of the lockdowns, again an attribute and inclusion is a central part of the Team First
of the success of ESG integration in our active initiative. I am happy to report that gender which is signed, but not yet closed, the Obton fatigue may slip in. However, we proved our
ownership approach. diversity is improving, but much remains to be Group, a leading European developer of solar resilience in the first and second waves of the
done also in improving diversity in the broader power parks. With our focus on thematic pandemic, and we proved how to work together
The ever-evolving ESG agenda sense. sourcing of companies in sectors that contribute and navigate our companies through these
Ever since our inception 20 years ago, ESG sustainable development, we should see more stormy waters. We are confident we will ride this
has been a core part of FSN Capital’s value At FSN Capital Partners, we also purchased our investments of this character in the years to out and emerge even stronger as the pandemic
creation. As responsible owners we are dedicated first carbon offsets (see page 91) for our 2019 come**. eventually fades and becomes a thing of the past.
to continuing pushing the frontier of what and 2020 emissions. Going forward we will
constitutes good ESG governance. Over the years continue purchasing offsets for all FSN Capital In closing we would like to thank our
we have expanded our focus and approach from Partners’ emissions. We will also formalize our management groups and all our 53 team
ESG compliance to long term value creation. commitment to the Paris Agreement and look to members for their stoic efforts of stewarding Frode Strand-Nielsen
the Science Based target initiative as a potential us through a very difficult year. We are still not Managing Partner
While the ESG journey was initially driven by mean to guide our ambitions. out of the woods and it is only natural that some FSN Capital Partners
a crisp tone from the top represented by us as
owners, the commitment has quickly spread to We made four attractive investments in 2020, of
the Chairpersons, boards, and our management which I would like to highlight one investment ** A full list of Portfolio Companies is available on request.
8 FSN Capital ESG report Building Resilient Companies 9
we have gained valuable learnings and insights
Letter from our Chairperson into what will be the «new normal» out of this
crisis. 2020 was also a year with significant
Times they are a-changin’
pressure on democratic institutions around
the world that remind us about the fragility of
the societal structures that businesses operate
within. The free marketplace where rule of law
prevails cannot be taken as given. Businesses
50 years have passed since Milton Friedman sighted and focusing on the bottom line may lead must contribute to the pillars of the marketplace
wrote the influential article, «The Social to failure. Key elements of EU Green Deal are itself by always acting with high integrity and
Responsibility of Business is to Increase Its directives on treating waste and adapting to the trustworthiness. The prospects of business and
Profits». Over the years most investors as well as circular economy. They will impact hugely on the foundation of rule of law goes hand in hand.
business leaders have nuanced their positions. the development of products and markets in the
The purpose of business goes beyond increasing future and enhance awareness among customers. «S» in ESG stands for Social. Businesses are
its bottom line. This ESG report is an example of EU is also raising the bar for transparency and dependent on the societies where they operate,
times that are a-changin’. reporting. like access to highly trained and motivated
employees – as it also thrives better in societies
Friedman builds his theses on quite rigid and As you will read from this year’s report, both with high level of trust. The pandemic, like
theoretical assumptions. Time has proved that our Portfolio Companies and we at FSN Capital global warming, shows that companies must be
such models are not necessarily a reflection of are on the alert. We need to future-proof our conscious of how they affect societies as they are
Photo by Håvard Solerød, for the newspaper Øyene.
reality. The main reason is what economists business models against the new low-carbon deeply dependent upon the actions and feedback
call «externalities». Global warming is such world and ensure that we meet new reporting from their surroundings.
an example - the biggest market failure of all requirements. This is in the best interest of the and clear was natural for us as a Firm since we
time. This potential threat to humanity is not longevity and long-term profitability of our Firm 15 years ago I took part in drafting the base all our activities on a strong sense of ethical
built in with realistic pricing of greenhouse gas and Portfolio Companies. UN Principles of Responsible Investment values. It has helped us to stretch. This ESG
emissions. Governments have so far failed to (UN PRI). At the time it was pioneering to report is miles ahead of the first one with regards
address this by sufficiently high carbon taxes. The pandemic has reminded us that no business underline the mutual dependencies between to reporting and tangible actions. Being specific
is an island sheltered from society. It emphasized business, societies and the environment. But on targets and KPIs makes us more accountable.
Over the last year, however, we have seen mutual dependency between the corporate and time has changed and today more than 3,000
significant step-ups by some governments. civil societies, as it also revealed strengths and investors representing above USD 100 trillion The fundamental driver of our work is our values
In particular, the EU European Green Deal weaknesses in social and political structures. in assets, have signed on to the principles. of integrity and decency and a sincere ambition
with the target of carbon neutrality by 2050 Societies with high level of trust in government FSN Capital was among the early signatories. to ensure that all businesses we own in the
sends strong signals on policy changes. EU and mutual trust between the citizens have Going forward, this massive support makes future will be well aligned with preferences and
emphasizes that the transition towards a low tended to tackle the Covid-19 outbreak better me optimistic that investors and business will requirements from their customers, employees
carbon society needs to be just, and by this than other societies. contribute positively to solving the challenges and society at large. To survive and prosper in
highlighting the importance of social equality. posed on us by global warming and social the time ahead of us, businesses must apply a
The Green Deal will reduce the physical risks A year has passed since the first lockdowns. All distrust. mindset and take responsibility that stretches
of climate change but increases the transition our Portfolio Companies have shown strong beyond increasing its profit.
risk as it requires businesses and consumers resilience during this exceptional time. Faster FSN Capital is a learning firm. We were early
to change behavior. For example, carbon taxes than ever before they have had to adapt to adopters when we published our first ESG report Knut N. Kjær
are expected to increase, posing existential changing technology and market structures, eight years ago. Back then we knew we still had a Chairperson
challenges to most business. Just being short- much of which is irreversible. At FSN Capital, long way to go. But making the ambitions visible FSN Capital Partners
10 FSN Capital ESG report Building Resilient Companies 11
About FSN Capital Table of Contents
Established in 1999, FSN Capital Partners (FSN us to implement transformational initiatives
Capital) is a Northern European private equity and create sustainable lasting change within the
investment advisor. We advise the FSN Capital Portfolio Companies. Impact that lasts 3
Funds (FSN Funds), four active funds with a total Letter from our Founder 7
committed capital of more than EUR 2 billion. FSN Capital focuses on making control Letter from our Chairperson 10
investments in companies operating in Northern
About FSN Capital 12
FSN Capital has been entrusted with the Europe with enterprise value between EUR 50
management of financial resources of our clients. million and EUR 500 million.
The investors provide long-term capital allowing 1. FSN Capital's ESG engagement 14
Validating our commitment to ESG 16
FSN Capital in numbers
4 53 42 142 2. ESG integration through the investment process
Pre-investment 21 — The ownership period 29 – The exit process 37 –
20
offices across Norway, employees in investments advised by add-ons advised by
Sweden, Denmark, and FSN Capital Partners FSN Capital since 1999 FSN Capital The annual FSN Capital ESG Award 38
Germany (excluding interns)
3. ESG developments in the Portfolio Companies 40
2,206 18 11,291 132 Skamol 42 — Active Brands 44 — EET Europarts 46 — Fibo 48 — Kjell & Company 50 –
million EUR active Portfolio Companies employees in our institutional investors
total committed capital (one additional company Portfolio Companies
Holmbergs 52 — Gram Equipment 54 — Mørenot 56 — SNS 58 — Nordlo 60 — Saferoad 62 –
signed, but not closed) Rameder 64 — Fellowmind 66 — iMPREG 68 — ViaCon 70 — Håndverksgruppen 72 –
MHP 74 — TASKING 75 – ESG KPIs for FSN Capital Portfolio Companies 76
4. ESG in FSN Capital Partners 78
FSN Capital Portfolio Companies The Portfolio Companies
Improving Diversity & Inclusion 80 — UN Principles for Responsible Investment 82 –
increased total revenues increased total EBITDA
by 11% in 2020* by 35 % in 2020* UN Sustainable Development Goals 84 — FSN Capital´s climate change approach 86 –
Actively promoting ESG 94 — Giving back 95 — Delivering on our commitments 98
Number of people employed by
FSN Capital employee Net
FSN Capital Portfolio Companies
Promoter Score of 66 in 2020
increased by 25 % in 2020
Appendix I – FSN Capital Partners’ Code of Conduct - short version 102
Appendix II – Code of Conduct for FSN Capital 103
* Past performance is not necessarily indicative or a guarantee of future results. Appendix III – Responsible Investment Policy for FSN Capital Partners 107
12 FSN Capital ESG report
Became signatory of the Principles for
2012
Responsible Investment
1.
FSN Capital's ESG engagement
Conducted the first stakeholder
assessment and published the first ESG 2014
report (for FY 2013)
FSN Capital
Why ESG opportunities for value creation. Firstly, FSN
FSN Capital FSN Capital
Environmental, Social and Governance report 2017 Environmental, Social and Governance report 2018
Building Resilient Companies Building Resilient Companies
Environmental, Social and Governance report 2013 BUILDING RESILIENT COMPANIES BUILDING RESILIENT COMPANIES
Building Resilient Companies
BUILDING LASTING VALUE
Private equity investing is about managing Capital has a long-term horizon that not only
risk and creating value and returns by active spans our 5-7 year investment period, but
ownership. also into the investment period of the next
owner and beyond. This puts us in a unique Awarded the prize for
ESG is simply good business. Done right, we position to capitalize on ESG initiatives that 2017 Corporate Citizenship at the European
believe our ESG focus will mitigate risks, drive have an impact on long-term value creation. Private Equity Awards in London
returns and create resilient companies. As an Secondly, FSN Capital´s active ownership model
example, our Portfolio Companies thrive long enables us to support and drive long-term
after our ownership period. Our IPO track change and to facilitate real implementation of
record shows that the companies we have listed ESG improvement programs in our Portfolio
significantly outperforms the comparable indexes Companies.
Introduced the FSN Capital ESG Strategy
(see page 37).
Framework, based on the EU Non-financial
The UN Sustainable Development Goals (SDG) 2018 Raw material supply Production Management Customer /
Reporting Directive (NFRD), supporting Portfolio and marketing end user
ESG has been part of FSN Capital's DNA and are described by the UN as «a universal call
Companies in developing tailormade ESG strategies
value creation approach since the inception of to action to end poverty, protect the planet
the Firm. In the beginning ESG was part of the and ensure that all people enjoy peace and
broader prudent risk management, while now prosperity». Since 2017 the SDGs have been part
it is a cornerstone of every Portfolio Company’s of how we engage with Portfolio Companies on
strategic considerations. ESG.
Introduced the FSN Capital Climate Module, based on
In 2014 we conducted our first stakeholder As a Firm we see ourselves as a learning 2019 recommendations from the Task force on Climate-related
assessment on ESG, and also published our first organization with continuous improvement Financial Disclosures (TCFD)
annual ESG report. Already then it was evident processes in everything we do, including our
that our investors cared deeply about their ESG approach. As responsible owners, we are
returns being generated in a responsible manner, dedicated to continuing to push the frontier of
a focus that has increased ever since. what constitutes good ESG governance. The
illustration on the next page shows our historic
The private equity governance model can be strong focus on ESG and key milestones in our
Rolled out climate change due diligence approach
very effective in transforming ESG issues into developments to date. 2020
ESG-linked Credit Facility launched
14 FSN Capital ESG report
Validating our commitment to ESG
The KPIs of the ESG-linked Credit Facility are
linked to FSN Capital's current ESG approach
As PRI signatories we are serious about The three main KPIs and targets agreed under
promoting sustainable business practices in our the ESG-linked Credit Facility are built on FSN
industry. In 2020, FSN Capital reached yet Capital’s ESG Frameworks for driving long-term
another milestone when launching our first change in our Portfolio Companies. Under the
1. ESG Strategy and Governance KPIs
ESG-linked Credit Facility. This means that the Facility, the aggregate success rate across the
Roles and Preventive
responsibility measures
Annual
interest rate paid and ESG performance are portfolio determines the interest rate - both A ESG Strategy and Climate Assessment
review
Follow-up Controls
with an upside and downside included in the
and
linked. Each Portfolio Company develops an ESG strategy reactions
w/ annual targets
targets agreed. We therefore see the ESG-linked
B ESG Ownership
An ESG-linked facility sends a strong signal to Credit Facility as an additional tool to further
Identify ESG risks Analyze climate risks Develop
and opportunities and opportunities ESG strategy
Designate political (Board) and operational (mgmt)
the market, our team, and Portfolio Companies incentivise full implementation of our ESG ownership per Portfolio Companies FSN Capital Governance Framework
about the positive correlation between returns Frameworks. and FSN Capital ESG Strategy Framework
C ESG Board Meeting Status Report
and sustainability performance. We are happy to Semi-annual confirmation that ESG has been
be early movers – utilizing debt financing as an discussed by the board of directors of the Portfolio
Companies
instrument to transform our Portfolio
Companies.
2. Greenhouse gas (GHG) emission KPIs
A GHG Reporting System
Set up CEMAsys (or equivalent) system
B GHG Emission Scope 1 & 2
Report Scope 1 and 2 emissions
«Being a part of a collaboration where our clients share C GHG Emission Scope 3
Report Scope 3 to the extent deemed relevant
how they address sustainability is both enriching and insightful.
The structure FSN Capital has built to address both ESG D GHG Emission Target FSN Capital Climate Module
Set ambitious GHG reduction target
opportunities and challenges is impressive.
FSN Capital has shown how effective change can be
successfully implemented in accordance with meeting the Paris
Agreement. We are grateful for FSN Capital selecting SEB as its 3. Diversity Ratio KPIs
Sustainability Coordinator to ensure a well-structured incentive
A Diversity Ratio
framework aligned with international goals and standards.» Incentive for having % of female Portfolio Company
board members above 25%, margin increase if below 20%
C HR I ST O P HE R F L E NS BO RG FSN Capital Diversity initiative
(in aggregate)
He ad o f Su st a i n a bl e Fi n a n c e a t S E B
“We are decent people making
a decent return in a decent way”
The FSN Capital Ethos
Our ethos is at the core of how we approach By decent returns we mean an internal rate
decision-making every day. of return which substantially outperforms
that which our investors could achieve by
By decent people we mean people of investing in the public market.
character and integrity, the FSN Capital
team operates according to our ethos and Generating returns in a decent way is
values. achieved by implementing the FSN Capital
Code of Conduct, which is based on the UN
Global Compact, in all Portfolio Companies.
We believe that culture is the most important ingredient in driving
the ESG agenda. FSN Capital is the sum of our people, and we invest
significant time and resources to find and recruit talented individuals
who share our values and who fit well with our culture.
J E S P E R I SA KS E N
He ad of Ta l en t a n d Pa r t n er a t F S N Ca pi t a l
18 FSN Capital ESG reportSourcing
Sourcing Investment decision Ownership period
Megatrends and ESG included in risk framework Identify, prioritize, monitor
exclusion criteria and investment decision material and measure
Pre-investment
Due diligence Onboarding Exit
Identify ESG and Setting Remain sustainable and
climate risks and the tone resilient bussinesses Sourcing – Applying a long-term perspective Consideration of emerging ESG megatrends, such
opportunities FSN Capital targets high-quality companies as inter alia climate change and resource scarcity,
operating in Northern Europe with limited is thereby naturally integrated when evaluating
exposure to uncontrollable beta risks, as the attractiveness of a potential investment. Our
2. explained in our Risk Framework on page 26, goal is to identify companies which we believe
ESG integration through and with the potential to double EBITDA. are best positioned to capitalize on emerging
trends at sector level, and to avoid companies
the investment process We apply a long-term perspective when exposed to either transitional and physical
evaluating potential investment opportunities. climate risks. We will prioritize investment
Megatrends are always used to challenge our opportunities that have tailwinds from major
current perception of reality and identify macro- and megatrends.
both systemic risks and areas for growth.
In line with UN PRI and our Responsible board of directors of such Portfolio Company.
Investment Policy, we integrate ESG into every They contribute in setting the tone from the top,
phase of the investment cycle. Integrating ESG ensuring compliance with our ESG Governance
considerations is part of FSN Capitals’s broad and and ESG Strategy frameworks. At the Portfolio
long-term view when evaluating and managing Company level, the respective Chairperson and Exclusion criteria › Have contributed to systematic denial of
investment risks and opportunities. board members remain fully accountable for the Exclusion criteria filter out investments that human rights
implementation plan for ESG policies, the ESG are clearly not in line with our ethos and › Demonstrate a pattern of non-compliance
We have developed mandatory standard ESG strategy, and monitoring status of integration. The values. with environmental regulations
procedures and requirements for all stages CEO is fully responsible for the daily management › Show a pattern of engaging in child labor
of the investment cycle. FSN Capital’s ESG of his / her Portfolio Company. It is important to Our Responsible Investment Policy defines or forced labor
approach seeks to identify, prioritize, monitor, acknowledge that ESG efforts require time and our formal exclusion criteria, stating that we › Have an unacceptable high greenhouse
and measure material commercial, reputational, resources, hence, going forward we will ensure shall not invest in companies that: gas footprint and have failed to take
and operational ESG risks and opportunities. that named individuals have ESG included in reasonable steps to reduce these emissions
Our strength lies in our ability to combine a their formal job description. › Produce weapons that through their
standardized ESG approach while establishing normal use may violate fundamental
personal relationships with Portfolio Companies’ FSN Capital’s ESG team is responsible for humanitarian principles (e.g. anti-
management to drive lasting change. defining FSN Capital’s ESG expectations, personnel land mines, production of
developing tools and frameworks, supporting cluster munitions, production of nuclear
Clear roles and responsibilities Portfolio Companies in their ESG work, and arms)
The basis of our ESG work is accountability and monitoring ESG status and progress. The ESG › Are directly related to adult
a clear definition of roles and responsibilities. team also supports deal teams in climate change entertainment, tobacco, gambling or
Each FSN Capital pointperson* is responsible and ESG due diligences and onboarding of new Our Responsible Investment Policy alcohol
for the development of his / her Portfolio Portfolio Companies.
Company and is always represented on the
* The partner or principal responsible for a particular Portfolio Company. Building Resilient Companies 21Sourcing
Obton Group
In the final weeks of 2020, FSN Capital signed an In Obton Group's five year business plan the
agreement to acquire a 45 % stake in the Obton goal is to expand operations and increase solar
Group, entering a partnership with the founders capacity by a factor of five, as illustrated on
and management team. The Obton Group is page 9. In 2025, one year’s production could
a specialized alternative investment provider cover the power needs of 1.5 million household,
developing, structuring, and managing solar the equivalent of removing 4 million combustion
photovoltaic (PV) and real estate projects. With engine cars from the roads*.
operations in eight markets, the company is one
of the largest solar PV managers in Europe. The solar energy sector is highly interesting
from an ESG perspective. While the sector has
The investment supports FSN Capital’s view a significant positive impact as it accelerates
of the low-carbon economy as an investment the share of renewable energy, transparency
«At FSN Capital, we have a strong belief that the opportunity. The investment will contribute to on also biodiversity and responsible supply
green transition of the energy system to renewable energy FSN Capital’s commitment to UN Sustainable chain management will be important topics
is one of the most interesting investment themes for the coming Development Goal 13 «Climate action». to highlight going forward. We really look
forward to partnering with the Obton Group
decades. As one of the largest and most experienced developers,
management team.
administrators, and investors in solar energy in Europe, the Obton
* Based on the assumption of 1.5 million households
Group is very well positioned in this fast-growing industry» reached by 2025, and average combustion engine
emissions of 0.1000 kg CO2e/km.
L A R S D E N KOV
Pa r tn er a t F S N Ca pi t a l
Building Resilient Companies 23Due diligence Due diligence
Climate change due diligence – Identifying will be included in their Investment Proposal. ESG due diligence – Identifying ESG risks and pricing considerations and transaction documen-
climate risks and opportunities Depending on findings, their recommendation opportunities tation; and (iii) to identify the status quo and use
In 2020, we developed a high-level climate may be that external experts should be engaged An ESG due diligence conducted by external this as a baseline in planning the onboarding and
change due diligence approach which is now a to conduct a more detailed climate due diligence. experts is a standard requirement for all new continuous improvement during the ownership
standard requirement in all our transactions. The potential investments. The due diligence scope phase.
objective is to test the robustness of the strategy We have internally developed the climate depends on the risk profile of the specific
and value chain of a potential investment in change due diligence tool and templates, and a investment opportunity, but will always include To ensure that we understand the underlying risk
different climate scenarios. mandatory training video. The video underlines anti-corruption, sanctions, and integrity drivers we always ask the external ESG experts
the importance of understanding the impact background checks. to comment on specific risks related to jurisdic-
With the objective of building relevant ESG com- of climate change and goes through the four- tions in target’s value chain (where they typically
petence internally, we decided that the climate step process (illustrated below). We have also The objective of this is threefold: (i) to identify use Transparency International ratings as basis)
change due diligence will be completed by the developed a longer version video which includes potential “show-stoppers”; (ii) to ensure that and any industry specific ESG risks.
deal teams themselves. This will be done early in a practical example on how to use the climate ESG risks and opportunities are included in the
the pre-investment phase, and deal teams’ con- change due diligence tool.
clusions from the climate change due diligence
The ESG due diligence
The climate change due diligence
The scope of the due diligence depends on relevant jurisdictions,
industry and company specifics. However, it always includes anti-
Our climate change due diligence evaluates transition and physical risks and
corruption and sanction due diligence, as well as integrity due
opportunities along all stages of the company's value chain. Transition risks and
diligence of management.
opportunities are assessed based on sector-specific properties, while physical risks and
opportunities are assessed based on the geographical reach of the company's value chain.
What we do How we do it
Transition risks and opportunities Physical risks and opportunities
Sector-based assessment of transi- Location-based assessment of physical
tion risks as companies in the same risks as companies in the same Integrity background checks of Discreet sources
sector share similar: jurisdictions are exposed to similar: target, management and seller(s)
› Industry standards › Climate and temperature change
› Technology › Acute weather events
Questionnaire
› Markets and customers
Risk based ESG due diligence
– focus on key areas (depending on
the specifics of the case)
On-site due diligence
Transition risk Physical risk and
Value chain Conclusion and
and opportunity opportunity
mapping IP summary
assessment assessment
Anti-corruption due diligence
and sanction screening Management session
24 FSN Capital ESG reportInvestment decision Investment decision
FSN Capital´s risk categories Investment decision – Including ESG in extent identified ESG risks could result in a
investment materials potential or actual adverse effect on the value
FSN Capital seeks to limit exposure to of any investment and these findings are
The FSN Capital Risk Framework is used for detailed analysis of alpha and beta uncontrollable beta risk factors and instead focus subsequentially discussed by, amongst others, the
risks in a due diligence process. Alpha risks can be managed actively by our on understanding and dealing with the alpha Investment team, Executive Advisors, and the
guidance, while beta risks are beyond our control. risks that can be controlled or mitigated. Investment Committee.
The FSN Capital Risk Framework forms the basis To the extent relevant, investment materials
for any investment decision, and a summary of include countermeasures and plans to address
key findings from the ESG and climate change identified ESG risks, and/or for how to capture
due diligences are also always included in ESG opportunities. This will then also form the
Macro Operational Environmental the formal investment documentation. Our basis for a tailormade ESG onboarding plan.
› Cyclicality * › Management risk › Toxic emissions Risk Framework thereby considers to what
› FX * › Integration risk › Harmful industrial waste
› Commodity * › Internal / External › Deforestation
Industry Financial Social
› Political * › Liquidity › Labor conditions
› Competitiveness › Leverage › Forced / Child labor
› Substitution › Covenants › Harm to health and safety
Commercial Exit Governance
› Operating leverage › Multiple › Bribery / Fraud
› Concentration sustainability * › Political interference *
› Visibility › Marketability * › Criminal convictions
› Dependency on trend shift › Regulatory relations
Weather * Active ownership
› Majority shareholder
› Ultimate control
* Beta risk
26 FSN Capital ESG report Building Resilient Companies 27Onboarding Onboarding
The ownership period
Onboarding ViaCon* Onboarding – Partnering to create long always have a kick-off meeting, preferably in-
term value person, between the Portfolio Company CEO,
ViaCon was divested from FSN Capital Portfolio and implementing the ESG strategy? ViaCon’s The standard ESG onboarding program marks management team, FSN Capital deal team and
Company Saferoad in 2019. To ensure that ViaCon products have a clear environmental profile with the first step toward continuous improvement ESG team. Here we present FSN Capital’s ESG
built an ESG approach on a stand-alone basis, we high durability, where we also offer installations throughout the ownership period. The purpose expectations, share material from the ESG and
decided to give ViaCon a new ESG onboarding that are more efficient than customer offerings in of the onboarding program is to set clear climate change due diligence and discuss how
in 2020. We spoke with Mattias Hakeröd, relation to work site interruptions. It is important expectations as majority owners and to align the Portfolio Company is currently working with
ViaCon’s Chief Human Resource Officer, about for us to highlight and advance these aspects, with management on ESG ambitions. ESG.
his experiences regarding FSN Capital’s ESG particularly as we see an increasing focus on
onboarding process. sustainability in EU public tenders. By uncovering As responsible owners we recognize that we have The Portfolio Company is presented with the
the link between ViaCon’s offering and material an obligation to use our impact to drive change. two pillars of our ESG work: the FSN Capital
How did you perceive the overall onboarding ESG topics, we made it easier to identify how We want to ensure that our Portfolio Companies Governance Framework (see page 30) and the
process? The FSN Capital board members clearly ESG supports the commercial objectives of each also remain sustainable after our ownership FSN Capital ESG Strategy Framework (see
transmitted their ethos: «We are decent people business unit. period, so our ESG approach is focused on page 32).
making a decent return in a decent way». These integrating key ESG topics in both the strategy
people are down to earth and will treat you with 2021 is the first year ViaCon has an ESG strategy. and operations of each Portfolio Company. A member of FSN Capital’s ESG team will
fairness and integrity, which really appealed to me We have set long-term targets and broken these participate in the first Portfolio Company
as I believe these are important characteristics of down in short-term goals with KPIs to be reported We focus onboarding on the CEO and board meeting to discuss ESG topics, share best
any leader. regularly. Progress is monitored in iNEXUS, the IT management team as they are responsible practice and set the tone from the top.
system for monitoring progress of our commercial for the daily ESG work in their company. We
Which parts of the ESG onboarding did strategy is part of our FEF* approach. We have
you find more useful? Finding the resources spent significant time defining ESG KPIs with a
needed to drive the ESG agenda was initially clear business purpose. I believe this is essential
difficult – my responsibility is divided between to motivate the internal ESG work, as it makes it
human resources, internal communications, and easier to see how ESG initiatives have direct effect
ESG. Thus, having access to the ESG team was on the bottom line. Examples include lost-time
important when defining ViaCon’s ESG strategy. incidents and waste from the production process.
In the beginning I found the ESG Strategy
Framework a bit cumbersome, as it is a new way What is your advice to others who wish to
of thinking about ESG, but with the support and get started with their ESG strategy? Focus on
guidance from the ESG team I found a way to the topics most material to value creation and
make the FSN Capital ESG Framework really define short- and long-term targets per business
work for ViaCon. area. Involvement of a broader group is also
important, valuable insight can be gathered from
ViaCon’s ESG strategy is an example of how external sources but most importantly your fellow
to integrate ESG with overall commercial employees!
objectives. How did you go on about formulating * A full list of Portfolio Companies is available on request.
** FSN Execution Framework
Building Resilient Companies 29The ownership period The ownership period
The FSN Capital Governance Framework approving ESG policies, implementation plan,
The objective of FSN Capital Governance monitoring ESG progress and status in every
Framework is to ensure that our Portfolio board meeting, and for conducting an annual
Companies operate in line with ethical standards review and update of ESG policies and plan for
with a focus on continuous improvement. We implementation. Roadmap to ESG implementation
set minimum requirements with regards to
ESG policies, implementation, and governance. As illustrated by the road map to ESG
Training of
Our Governance Framework defines roles and implementation below, our objective is Adopted by board Adopted by all relevant
responsibilities with clear expectations to the integration of ethical standards throughout each Standard policies of directors subsidiaries employees
Chairperson, board of directors, and the CEO. Portfolio Company’s organization and relevant
› Code of Conduct
operational processes – with a focus on building › Code of Conduct short Continuous
As part of the ESG onboarding program, ESG knowledge through training of employees. version
improvement
management will in close dialogue with the FSN This will ensure that we have impact beyond our › Supply Chain Code of
Conduct
Capital deal team and ESG team, tailor-fit FSN ownership period. › Whistleblower policy
› Internal control Implementation Communicated to
Capital’s standard ESG policies and minimum plan employees
requirements and prepare a proposed plan for Our focus in 2021 will be on increasing the
implementation, as illustrated on the next page. number of Portfolio Companies setting up
The Portfolio Company board of directors is electronic whistleblower channels and rolling out
responsible for setting the tone from the top, an ESG e-Learning platform to their employees.
«Ethical business practices must be very high on the agenda of any
The Governance Framework is designed to drive change in the Portfolio Company company. As Chairperson of two FSN Capital Portfolio Companies it is
my duty to ensure that these Portfolio Companies measure success not
only financially, but also ethically. Having template ESG policies as well
Adopt Implement
as passionate and dedicated colleagues on the FSN Capital team has
› Tone from the top › Governance policies
› Roles and responsibility Roles and Preventive › Authorization matrix been tremendously helpful and efficient in onboarding these Portfolio
› Align knowledge responsibility measures › Communication and training Companies regarding ESG. FSN Capital´s strong and long-standing
commitment to ESG is one of the main reason why I am thankful to be
part of the FSN Executive Advisor team.»
Monitor Control
Follow-up Controls CHR ISTIA N MA NGSTL
› Get information › Internal control
› Follow up incidents and › External control FSN Cap ital Executiv e Adv is or
› Evaluate reactions › Whistleblower
30 FSN Capital ESG report Building Resilient Companies 31The ownership period The ownership period
The FSN Capital ESG Strategy Framework the bigger picture and can be proactive rather
The FSN Capital ESG Strategy Framework The FSN Capital ESG Strategy Framework is than reactive to emerging sustainability trends.
our method for establishing an individualized We see that when management combine their
ESG strategy for each Portfolio Company. The deep industry expertise with the output from
objective is to ensure that Portfolio Companies the ESG Strategy Framework, their strategic
focus their resources on ESG topics most responses surpass our expectations.
material to both their stakeholders and their own
commercial strategy. With this approach ESG Each Portfolio Company’s ESG strategy focus on
Identify ESG risks Analyze climate risks Develop Annual
and opportunities and opportunities ESG strategy reveiw becomes an integral part of the value creation 3-5 key strategic ESG topics where they develop
approach, and our Portfolio Companies are long term ambitions, identify relevant KPIs and
more likely to also remain sustainable after our set annual targets. The ESG strategy of each
ownership period. Portfolio Company is included in chapter 3.
External ESG experts conduct an outside-in The ESG Strategy Framework ensures an analysis
› Identify Environmental, › Climate change analysis › Materiality assessment › Annual review and analysis under the ESG Strategy Framework. and reporting according to the EU Non-financial
Social and Governance inspired by Task Force on to prioritize the most reporting of ESG strategy, The process is designed to drive change by Disclosure Directive (NFRD) and is also inspired
risks and opportunities Climate-Related Financial important ESG topics for disclosure aligned continuously increasing ESG knowledge in our by the Task Force on Climate-related Financial
throughout the value chain. Disclosures (TCFD). the stakeholders and the with EU Non-financial Portfolio Companies. The initial discussions Disclosures (TCFD). In 2021 we will introduce
› Market (sector and peers) › Evaluate the company’s company. Reporting Directive with external ESG experts and the annual self- a sightly updated ESG Strategy Framework
and stakeholder analysis value chain in three different › Develop an ESG strategy for (NFRD). review of the ESG strategy ensures that Portfolio integrating the EU Taxonomy and the latest non-
to identify trends and climate scenarios to ensure sustainable value creation. › Annual review and Companies stay updated on key ESG topics in financial reporting trend – double materiality.
expectations. the value chain is robust, and › Define 3-5 strategic ESG reporting of climate their sector, as well as coming ESG trends and
the business relevant, in both priorities, set long term goals, management, disclosure regulatory requirements. Having a holistic ESG The ESG Strategy Framework consists of three
the short- and long-term. identify KPIs, and annual aligned with TCFD. strategy allows them to be agile because they see main steps as illustrated to the left.
Raw material supply goals to monitor progress.
Importance to Stakeholders
Production
Global warming
«Before we had a strategy, which had ESG elements by chance.
Management
and marketing Time
Today we have an ESG strategy that assist and complements our
Importance to Company
commercial strategy.»
SØR EN KNUDSEN
Customer / CEO iMP R EG
end user
Building Resilient Companies 33The ownership period The ownership period
Ownership period – monitor progress of improvement. In 2020 we asked our Portfolio
With the Governance Framework and the ESG Companies to report their ESG KPIs monthly
Strategy Framework each Portfolio Company has through our financial reporting system. During
developed an annual plan both for implemen- 2021 we will continue to make ESG reporting
tation of ESG policies and for progress towards more efficiently and seamlessly.
long-term strategic ESG ambitions.
FSN Capital's During our ownership period, we support the
ESG is a topic on the agenda in every board Portfolio Companies on ad hoc projects and in
ESG Expectations
meeting at FSN Capital’s Portfolio Companies. the annual review of their ESG Strategy. ESG
Management is required to report, and the board is however no longer a top-down initiative, we
of directors will discuss (i) status on ESG policy see an increasing request for ESG support and
implementation; (ii) progress towards annual sharing of best practices among our Portfolio
goals set out in the ESG strategy; and (iii) any Companies. A great example was the virtual
ESG incidents. Regular discussions and review FSN Capital Leadership Seminar in January
In every transaction ESG focus in Portfolio Companies of progress towards annual targets will ensure 2021 where iMPREG shared how ESG can be a
› Climate change due diligence › ESG is the first point on the agenda at continuous improvements. competitive advantage; and Mørenot shared both
› Anti-corruption and sanction due every board meeting: how sustainability is considered a key enabler
diligence • Implementation of ESG policies All our Portfolio Companies are also required to for their commercial strategy and how they
› ESG due diligence on a risk-based • Status towards annual ESG goals report their GHG emissions with the objective of use a digital tool to closely monitor employee
approach • Any ESG-related incidents setting reduction targets once the reporting cap- satisfaction.
› Integrity due diligence / background › Implement standard internal control tures material emissions (see page 76). Portfolio
check of key management and seller heat map Companies are also expected to have a proactive In 2021 we plan to establish an ESG forum where
› Integrity due diligence of all new Board approach to climate change. The annual TCFD Portfolio Companies can share experiences and
Onboarding of Portfolio Companies members and key management reporting encourages companies to take climate best practices in an informal manner.
› FSN Capital Governance Framework: › Include information on ESG status in risks and opportunities into consideration in the
Adopt standard ESG policies and monthly and quarterly reports company’s governance, strategy, and risk man-
prepare implementation plan together › Annual activities: agement.
with ESG team • Review ESG strategy and next years’
› FSN Capital ESG Framework: Develop annual goals and ambitions ESG reporting to FSN Capital is important for
tailormade ESG strategy with key ESG • Review plan for implementation of us to monitoring progress and identifying points
goals and annual ambitions, including a ESG policies
climate review • Review governance documents and
procedures
• Report on internal control from the
auditor to the board of directors
• Board of directors’ self-assessment
• Employee satisfaction rate (eNPS)
• Customer satisfaction rate (cNPS)
Building Resilient Companies 35The ownership period Exit
Holmbergs' sustainability website
The exit process
Holmbergs
Exit – Remain sustainable and resilient key ESG topics from the time of our acquisition,
Communicating progress
At the time of exit, sound ESG management which simplifies documentation of a Portfolio
has reduced risks throughout our ownership Company’s ESG progress in an exit process.
For stakeholders to make informed decisions, As ESG-lingo may be unfamiliar to most, period, put Portfolio Companies in a position to More importantly, it clearly shows how ESG is an
companies are increasingly required to provide Holmbergs has taken a visual approach to the capture emerging ESG opportunities and thereby integrated part of both strategy and operations
transparency and insight into their ESG focus communication strategy. Key messages are increased the value of the company. and that the ESG ambitions are driven by the
areas. Governments and regulators place clearly illustrated and ESG topics are informed management team, not us as majority owners.
requirements on sustainability reporting and in an educational manner. We see to an increasing degree that sophisticated
customers want insight in the sustainability buyers of our Portfolio Companies appreciate In close collaboration with our management
impacts, positive or negative, products Carina Landström, CFO in the Holmbergs Group and value the development of ESG metrics over teams, we seek to create robust and sustainable
and services have on society. Good ESG notes that through communicating ESG, new time and use this as part of their assessment businesses – we have impact that lasts beyond
communication is therefore key to staying opportunities and challenges have surfaced. of the attractiveness of a company. Our ESG our ownership period.
relevant in the market going forward. New topics have been put on management’s Frameworks ensures focus on and monitoring of
agenda, shaping the strategic business plans
Holmbergs Group has taken this challenge going forward.
to heart and used the opportunity to create
a customer-oriented webpage addressing
Strong track record in developing
sustainability. Here Holmbergs informs
and preparing companies for successful IPOs
stakeholders on its sustainability targets and
relevant UN Sustainable Development Goals, as
Share price development
well as the company’s ESG impacts throughout
2y post IPO – FSN Funds IPOs vs market
the value chain. The company Code of Conduct 190 179
FSN Funds IPOs Share price (Index 100 at IPO)
is also available to all external stakeholders. 180
Average of indexed share price
Average return 2 years post IPO: 79.4 %*
performance of the six companies listed 170
by FSN Funds (Troax, Netcompany,
Bygghemma, Instalco, Green Landscaping, 160
Kongsberg Automotive) 150
140
« The ESG work has inspired Market
124
130
Holmbergs to look beyond the Index based on the average of the
performance of the relevant index 120 112
traditional financial goals and (OMX30, OMXC20CAP or OBX) at the 103
110
see the business in a larger relevant post-IPO time period for each
company. 100
context.»
90
C ARINA LANDSTRÖ M + 1 year + 2 years
CF O, Holm be rgs G roup
*) Average aggregated return for all companies.
Source: FSN Capital, Capital IQ. All data as of August 2020.The annual FSN Capital ESG Award up local business units. This sends a strong Results have already started to materialize.
signal from the top and enables identification of Mørenot has changed their fishnet drying process.
irregularities at an early stage. The industry standard diesel generators were
substituted with a solution using 25% less energy
Employee satisfaction is also high on Mørenot’s while at the same time drying the nets twice as
agenda. In 2020 they implemented Winningtemp, fast as conventional methods. The company is
an AI and cloud-based software for measuring also continuing to explore net repair, re-use and
and monitoring employee engagement. With this recycling of nets, as well as fishing solutions that
tool, employees answer a few questions every reduces the risk of bycatch.
Winner of FSN Capital’s second week on their mobile phone or laptop.
2020 ESG Award Mørenot’s middle management are responsible Going forward, the strategic ESG priorities will
for following up comments and insights from the be further operationalised. In 2021 the company
tool and including these in the monthly manage- is launching two cross-organisational groups,
Our annual ESG award is part of setting the tone Over time, Mørenot has managed to internalize ment meeting. Mørenot wants to extend the use one focusing on sustainability and the other on
from the top. Netcompany, Green Landscaping, ESG by identifying how ESG factors can support of Winningtemp to all their sites in more than 10 digitalisation. By bringing together minds across
Kjell & Company, and Saferoad are all proud win- the overall commercial strategy. In this way ESG countries on three continents. the organisation, there is a potential to identify
ners in previous years. has become a value-adding activity owned by sev- synergies and take ESG integration to the next
eral people in the company, and not a reporting «Implementing a strong ESG platform is a two- level. Arne Birkeland also sees these groups as an
The criteria for selecting the winner remain exercise to FSN Capital. phase-process.» explains CEO Arne Birkeland, important initiative to give all employees owner-
unchanged: «First you need to make sure your operations ship of the ESG agenda; «In the future Mørenot
As Mørenot has operations in high risk meet ethical standards, and then you can use ESG will consist of 800 sustainability directors!»
› Awareness and ESG efforts in daily operations jurisdictions from a compliance perspective, as a value-adding measure.» Birkland believes
› Value creation in society at large it is vital to mitigate the risk of unethical the company has just started their journey in the
› Clarity in ESG policies behavior. When it comes to strengthening second phase.
› Focus on continuous improvement and pro- business ethics and governance, Mørenot
gress has continued their implementation of ESG The fishing and aquaculture industry is depend-
› Tone from the top (i.e. management and board policies by rolling out e-Learning and making ent on responsible consumption of the ocean’s re-
engagement) anonymous whistleblowing available to all sources, and Mørenot’s customers are increasing-
› Portfolio Company’s holistic approach to sus- employees through an electronic whistleblower ly seeking sustainable solutions. Environmental
tainability channel. The e-Learning included a short video and climate impacts of the company’s operations
› Adherence to FSN Capital’s values of Mørenot’s CEO setting the tone from the top have therefore been in focus over the past year. In
› Be a FSN Portfolio Company* and emphasizing the importance of safeguarding line with Mørenot’s vision, the company has iden-
the company’s reputation by complying with tified how sustainability aspects can support each
Mørenot was acquired by FSN Capital Fund V in the company’s ethical standards. However, business unit and the overarching commercial
2018. The company has a clear vision to ensure training and policies are not enough when strategic objectives. Each target has been broken
that the oceans can feed generations to come, operating in high risk jurisdictions. Mørenot’s key down in actions assigned to specific people to
which sets ESG at the core of their operations. management has therefore also closely followed ensure they are followed up.
* A full list of Portfolio Companies is available on request.
38 FSN Capital ESG report Building Resilient Companies 39You can also read
