Mobeus Income & Growth 2 VCT | ESG

The Board of Mobeus Income & Growth 2 VCT plc considers environmental, social and governance (“ESG”) matters to form a key component of its investment decisions. The Board and the Company’s Investment Adviser, Mobeus Equity Partners LLP (“Mobeus”) believe that the application of high standards of ESG practice is a core element in the evaluation of new and follow-on investment opportunities, as is encouraging best practice across its existing portfolio. The Board has delegated the application of its ESG policy to Mobeus (as outlined below) and receives regular updates regarding ESG developments.

The ESG information on this page and policies here reflect those of the investment manager, Gresham House.

Gresham House has a clear commitment to sustainable investment as an integral part of its business strategy. Sustainable investment considerations are applied across the investment process for all assets and involve the integration of ESG factors as well as the application of active stewardship responsibilities, including engagement and voting (where applicable). 

Our Sustainable Investment Framework is based on ten core ESG themes and is used as the basis for the ESG assessment during the due diligence stages before an investment decision is made, as well as being used as a way to structure engagement activity carried out throughout the holding period.

The asset class specific ESG Decision Tools builds on these themes by supporting the investment teams in identifying potential, material ESG risks that need to be managed and mitigated, and to help shape the due diligence process for individual companies prior to investment. The Tools also provides a way of summarising material ESG issues, which can then be tracked and monitored over time, and include actions that can be taken to mitigate those risks throughout the holding period.

At Gresham House, our approach to sustainable investment is embedded across our business and involves ESG analysis, active stewardship, and outcome measurement.

Our commitment is demonstrated through the integration of sustainable investment practices across our strategies, through our proactivity in seeking to make a positive social, economic, or environmental impact alongside delivering strong financial returns and by being a responsible and ethical employer.

Our approach to sustainable investment across each asset division is based on five core components:

01 Sustainable Investing Committee (SIC)

02 Sustainable investment commitments

03 Sustainable investment policies

04 Sustainable Investment Framework (SIF)

05 Asset class specific ESG Decision Tools

We are also members of a range of industry bodies which inform and support our sustainable investment approach, and work with some service providers who develop and implement certain aspects of our sustainable investment activities.

These aspects are all managed within our sustainability governance structure which includes our Board, Management Committee, and Sustainable Investing Committee. 

Our Public and Private Equity teams target superior long-term returns, by applying an active private equity approach, engaging with companies, and applying rigorous due diligence and developing a deep understanding of each investment.

The ‘G’ (Governance) of ESG is the most important factor in our investment processes for public and private equity. Board composition, governance, control, company culture, alignment of interests, shareholder ownership structure, remuneration policy etc. are important elements that will feed into the fund manager’s analysis and the company valuation.

The E and S (Environmental and Social) are assessed as risk factors during due diligence to eliminate companies that face environmental and social risks that cannot be mitigated through engagement and governance changes.

We integrate ESG considerations into the lifecycle of each investment as follows:

01 Initial appraisal

Identify material ESG matters requiring further investigation during the due diligence stage. If certain risks are unlikely to be sufficiently managed or mitigated, then we may choose not to proceed at this stage.

02 Due diligence

The ESG Decision Tool and meetings with management are used to assess material ESG risks that need to be mitigated and ESG opportunities that could drive value. Specialised consultants may be used to provide additional information.

03 Investment appraisal

A summary of the ESG analysis is included in every Investment Committee submission. Appropriate risk mitigation approaches will be referenced and assurance that the business is open to making improvements is sought.

04 Holding period

During this stage, our periodic engagement with the management teams of our investments includes discussion of ESG performance and progress aimed at identifying key concerns and to give us a clearer view of ESG management within our portfolio.

Public Equity: We engage regularly with boards, focusing on strategic, financial, and operational matters, including ESG factors, and consistently use our voting rights.

Private Equity: A 100-day post-investment plan will be developed to address shorter term risks uncovered in our due diligence stage. We will then use our position as a board member and active investor to influence management to proactively address longer term risks and opportunities.

Mobeus will not invest in companies which are directly involved with:

• adult entertainment;
• gambling products, services or platforms;
• production of tobacco;
• manufacturing and trade of weapons; and
• fur production.

Furthermore, Mobeus will not invest in businesses which have been shown to have:

• knowingly and repeatedly breached legislation and regulation, including exploitation of child labour; and
• knowingly been involved in corruption, bribery, fraud or breach of anti-money laundering laws and regulations.

Whilst the requirements under company law to detail ESG matters are not directly applicable to the Mobeus VCTs, Mobeus and the Boards of the Mobeus advised VCTs are conscious of its potential impact on the environment as well as their social and corporate governance responsibilities.  Mobeus has therefore developed its ESG strategy in collaboration with ESG sector experts and provides regular updates regarding the ESG responsibilities of its portfolio of investee companies.

All Mobeus staff have received specialist ESG training and ESG matters form a key consideration in investment decisions. This ranges from initial investment appraisal and due diligence through to ultimate exit.

Mobeus is an active investor and seeks to be closely involved with all the companies that it backs.  Although the Mobeus VCTs typically take minority stakes, Mobeus and the VCT Boards encourage and expect our portfolio companies to be run to the highest standards.  To this end, Mobeus staff take up a non-executive board (“NXD”) seat on all new investments and attend regular monthly board meetings.  The investment documentation typically contains requirements, consents and protections which ensure that companies operate to the required standards.  An independent non-executive Chair is also appointed in the majority of cases and together these elements form a class leading stewardship framework.

Mobeus typically agrees commercial and financial objectives with each company as part of the business planning activity when considering a new investment. These are then verified through diligence and translated into board level action plans post completion. Mobeus will also agree that the company will develop an ESG plan and report against it at the board level. Such a plan will typically be developed during the first 100 days after investment.

The VCTs’ portfolios cover a wide range of industries with c. 40 companies at present ranging from software to hair colourants.  Each has very different ESG challenges, opportunities and priorities.  The companies range in size from less than ten employees to over 250. ESG therefore has a different practical meaning and interpretation in each.  Mobeus NXDs therefore work at the individual portfolio company Board level to ensure relevance to the companies concerned. In practical terms, management teams are encouraged to use tools such as the Mobeus ESG framework to plan and review their ESG priorities and to address any key points arising from the initial ESG due diligence.  Specific issues arising in the deal process are typically addressed through a 100 day post completion plan, after which issues and actions are tracked via a plan for the year with quarterly Board updates and annual summary reporting.