Enhancing Value through Responsible Investment

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1 Enhancing Value through Responsible Investment

2 Responsible Investment is about incorporating ESG considerations into our due diligence and ongoing monitoring. Effective integration contributes to real value creation. Chris Meads, Partner and Head of Investment

3 01 A Leader in Responsible Investment ( RI ) RI has become a key focus for Pantheon and we have formalised and developed our approach over recent years. 2012: Inaugural Pantheon GP Responsible Investing Award 2011: Host RI workshops in 7 countries across Europe with a total of 66 LP attendees Implement pioneering Environmental, Social and Governance ( ESG ) risk reporting for clients Rank in top quartile for all six principles of the Principles for Responsible Investment ( PRI ) Endorse the ILPA Private Equity Principles 2010: Speak at first ever Private Equity RI conference Join EVCA Responsible Investment Working Group ESG risk management formally included in all due diligence and post-investment monitoring Host our first RI workshop for LPs 2009: Join PRI Steering Committee Host our first RI workshops for GPs Formally integrate RI in investment decision-making Roll out RI training programme internally for all investment professionals 2008: Establish internal RI committee comprised of senior investment professionals 2007: Signatory of the PRI

4 02 An Integral Part of Pantheon s Approach What is RI? RI is about incorporating the consideration of ESG issues in investment decision-making and the ongoing ownership of assets. We believe that mitigating ESG risk should form a crucial element of overall risk management. Embracing ESG matters creates real value. Mitigating ESG Risk Pre-Investment Pantheon takes an active approach through: Integrating ESG factors into our due diligence process, analysing potential risk; Maintaining active and ongoing monitoring of ESG risk within our portfolios; and Working with our GPs to improve their understanding of ESG risk and providing guidance for them to formally adopt appropriate procedures. Working with our GPs Enhancing Value Post- Investment

5 03 Our clients demand excellent returns and robust risk management, and our business is long-term oriented and relies on a solid reputation. RI is therefore a natural fit with our philosophy and culture. Kevin Albert, Partner and Head of Global Business Development

6 04 Mitigating ESG Risk Pre-Investment We take account of ESG risks at all stages of the due diligence process, forming a key element of the overall analysis of an investment opportunity. Actions taken during due diligence 1. Source, screen & initial due diligence Preparation Understand if GP will follow spirit of responsible investing and seek to improve ESG in companies Initial awareness of key ESG risks in deal under consideration Advance Notice memo to include reference to ESG risks 2. Advanced due diligence 3. Commercial negotiation Detailed Due Diligence Understand how GP tackles ESG risks Rate ESG risk of company Review DD undertaken and GP s action plan to mitigate ESG risks Review governance arrangements between GP and company Discuss ESG risks with company management and, if relevant, cover during on-site due diligence Specific ESG risks section included in Investment Recommendation High ESG risk cases/sensitive sectors to be fully formally discussed for assessment of potential reputational impact to Pantheon Seek to influence GP to commit the portfolio company to meet minimum ESG standards Reminder to GP of importance of sound ESG practices

7 05 Pantheon conducts detailed ESG due diligence prior to co-investment, contributing to positive outcome Background Pantheon co-invested in a leading consumer debt purchase and collection firm in the UK Pantheon conducted additional due diligence to alleviate concerns about weak compliance practices ESG due diligence carried out by Pantheon Interviewed senior management to discuss regulatory issues Listened to live conversations between debt collection agent and debtors during onsite visit Discussed plans with the GP to strengthen compliance, including the addition of compliance review matters to the responsibilities of non-executive chairman and improvement of ongoing communications between the Company and regulatory bodies ESG initiatives undertaken by the Company Commissioned compliance and regulatory review by specialist consumer credit legal counsel prior to acquisition Hired Consumer Champion as part of an increased focus on fair treatment of customers this was the first appointment of its type in the UK debt purchase industry at that time Management set up regular visits by regulators and fostered relationships at a senior level Outcome Debt vendors and funding providers generally view the company s strong reputation for compliance as a valuable point of differentiation this supported rapid growth of portfolio acquisitions Solid historic compliance track record was noted by potential buyers and positioned the company as an attractive acquisition target

8 06 For us it is not about negative screening but is rather a vital tool in value creation Dushy Sivanithy, Principal and Co-chair of Responsible Investment Committee

9 07 Enhancing Value Post Investment We maintain close relationships with GPs to evaluate their investment activity effectively and to protect client interests. We aim to raise any ESG issues both informally in our interactions with our GPs as well as more formally in our role on Advisory Boards. ESG Risk Ratings As part of our comprehensive post-investment monitoring programme we maintain ESG risk ratings across all portfolios which are reviewed and reported to Pantheon s clients on a bi-annual basis. This includes: Rating GPs. Pantheon talks to all its GPs to find out whether they have a real RI policy, what the GP s attitude to RI is, and to what extent Pantheon needs to continue to engage with the GP to help improve their performance in this area. Rating funds. The templates used in monitoring all funds include RI information, so that Pantheon can identify risks. Rating portfolio companies. The company ESG rating reflects both organisation-specific issues and the broader nature of the sector in which it operates.

10 08 Integration of sound ESG practices contributing to real value creation Paras Pharmaceuticals Company overview Paras Pharmaceuticals is an Indian company selling healthcare and personal care products Until its recent exit, it was a portfolio company owned by Actis in their fund Actis India 3, a holding in Pantheon Asia Fund V Potential ESG risks identified Actis ESG due diligence at Paras revealed issues relating to safety and working conditions and waste water treatment processes The industry is also characterised by risks around product quality and safety ESG initiatives undertaken by Actis Co-ordinated safety audit and undertook several monitoring visits to the new plant Actis dedicated ESG team drafted an Environment Health and Safety policy and recruited a local safety consultant Instituted high ESG standards with WHO, GMP and USFDA requirements at the new Baddi plant and ensured that the standards were adopted and monitored at the Board level Recruited world-class management team who supported and provided inputs to the ESG process Prior to exit, coordinated compliance certificate from international consultants (ERM), instituted strong FCPA 1 mechanisms and addressed questions around international ESG standards 1 Foreign Corrupt Practices Act Outcome exit achieved in April 2011 Successful auction process with bids from several large multi-national companies, with effective showcasing of the international ESG standards of the company

11 09 Applying and tracking ESG ratings for portfolio companies means we make every effort to keep a close eye on developments post-investment Brian Lim, Partner, Asian Investment Team

importance of Responsible Investing Ralph Guenther,

12 10 Our strong relationships with both GPs and LPs puts us in an ideal position to promote the importance of Responsible Investing Ralph Guenther, Principal and Co-Chair of the Responsible Investment Committee

13 11 Working with our GPs We take a proactive approach to provide guidance and support to GPs in implementing appropriate measures to develop their approach to RI and mitigate ESG risk in their investments. Assisting Clessidra in implementing a formal ESG approach Relationship Clessidra is a leading Italian mid-market firm with over 2bn AUM Pantheon chairs the Advisory Board of Clessidra II Background RI was not a key focus for Clessidra before Pantheon engaged with them on RI issues in early 2009 Clessidra was happy to engage in RI but clearly needed help in this area Pantheon s engagement Pantheon assisted Clessidra in understanding key ESG issues through provision of industry material and oneto-one meetings In May 2010, Clessidra attended Pantheon s educational workshop in London In August 2010, Clessidra became a signatory of the PRI Clessidra now uses ESG and sustainability issues, as well as other criteria, to identify possible new deals

Greg Little Vice President Latin America

Service Ralph Guenther Principal, Co-Chair

14 12 A Team-Based Approach Pantheon s Responsible Investment Committee, which co-ordinates our internal and external efforts, comprises key professionals across our global offices and across our Investment and Client Service teams. While the Committee is responsible for driving the RI initiative, all our professionals are committed to the same goals. Responsible Investment Committee U.S. Client Service Yokasta Segura-Baez Vice President U.S. Greg Little Vice President Latin America Jaime Londoño Principal Europe Client Service Ralph Guenther Principal, Co-Chair Europe & Africa Dushy Sivanithy Principal, Co-Chair Asia Brian Lim Partner Global Secondaries Imogen Richards Vice President Global Co-investment Erik Wong Principal Global Infrastructure Jan Pribyl Senior Associate

Disclosure This document and the information contained herein is the confidential and proprietary information of Pantheon; it may not be reproduced, provided or disclosed to others, or used for any

15 Disclosure This document and the information contained herein is the confidential and proprietary information of Pantheon; it may not be reproduced, provided or disclosed to others, or used for any other purpose, without the prior written permission of Pantheon; and must be returned promptly upon request. This document is distributed by Pantheon, which is comprised of operating entities principally based in San Francisco, London and Hong Kong. Pantheon Ventures Inc. and Pantheon Ventures (US) LP are registered as investment advisors with the U.S. Securities and Exchange Commission. Pantheon Ventures (UK) LLP is authorised and regulated by the Financial Services Authority in the United Kingdom. Pantheon Ventures (HK) LLP is regulated by the Securities and Futures Commission in Hong Kong. In Australia, this document and the information contained herein is intended only for wholesale investors under section 761G of the Corporations Act 2001 (Cth) ( Wholesale Investor ). By receiving this document you represent and warrant that you are a Wholesale Investor. Pantheon Ventures (UK) LLP is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) in relation to the provision of any financial product advice regarding the financial products which are referred to in this document and is regulated by the FSA under UK laws, which differ from Australian laws. In Europe and the United Kingdom, this document and the information contained herein is provided by Pantheon Ventures (UK) LLP solely to professional clients or eligible counterparties for the purposes of the rules of the Financial Services Authority. In all other jurisdictions, this document is intended for institutional clients and investors, to whom this document can be lawfully distributed without any prior regulatory approval or action. Nothing in this document constitutes an offer or solicitation to invest in a fund managed or advised by Pantheon or a recommendation to purchase any security or service. Nothing contained in this document is intended to constitute legal, tax, securities or investment advice. The general opinions and information contained in this publication should not be acted or relied upon by any person without obtaining specific and relevant legal, tax, securities or investment advice. In general, alternative investments such as private equity or infrastructure involve a high degree of risk, including potential loss of principal invested. These investments can be highly illiquid, charge higher fees than other investments, and typically do not grow at an even rate of return and may decline in value. These investments are not subject to the same regulatory requirements as registered investment products. In addition, past performance is not necessarily indicative of future results. Any reference to the title of Partner in these materials refers to such person s capacity as a partner of Pantheon Ventures (UK) LLP. In addition, any reference to the title of Partner for persons located in the United States refers to such person s capacity as a limited partner of Pantheon Ventures (US) LP. Copyright Pantheon All rights reserved.

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