Process

Our efforts of calculating CO2e baselines for our private equity portfolio companies and Polaris Management A/S were initiated in 2020. Our standard process is supported by external advisors and the calculations are made according to the Greenhouse Gas (GHG) Protocol and are built as line-by-line bottom-up exercises which we believe is necessary to properly support reduction initiatives and build understanding and ownership of the estimates in the organisations. At any given time, some of our portfolio companies might not yet have been onboarded onto our CO2e emissions calculation process. In order to be able to provide an estimate of the complete emissions for our private equity funds, we estimate the emissions of these companies with the help of external benchmarks. We are also continuously working to onboard new companies that have not yet measured their CO2e emissions and our ambition is to complete this within the first twelve months after closing.

Boundary setting and consolidation approach

For the organizational boundary setting, Polaris uses the 'Operational Control' approach. We do this because our investment strategy typically includes us exercising majority control through taking majority ownership. In doing so we acknowledge that we have the mandate to introduce and implement operating policies in our portfolio companies, and we therefore also take full responsibility for the emissions thereof in our CO2e baseline. Although we do not technically have majority ownership in all portfolio companies, the consolidation approach is taken for all portfolio companies, acknowledging the influence we have across all the companies, nonetheless.

Consequently, when consolidating CO2e emissions, we do this first by including the portfolio companies’ emissions per relevant private equity fund and then for Polaris Private Equity as a whole, where we also include Polaris Management’s own emissions although these should also be allocated to some extent to Polaris’ other investment strategies.

Quality and comparability

While emissions are consolidated across-portfolio companies to estimate the full Polaris private equity emissions (including Polaris Management and all private equity portfolio companies), we acknowledge that the baselines individually are not directly comparable.

For the companies that have been through our process, these may still vary greatly with respect to complexity, both with regard to the type of operations, but also with regards to procurement and reporting being more decentralized in some companies compared to others. This means that the data available for some companies may not be as readily available for others, why the same activity may have been estimated with a different calculation method across- portfolio companies, or may not have been included in the base year for some companies due to lack of available data. While these portfolio companies have defined their own organizational boundaries, to ensure it reflects their operations and business model, all companies have selected the operational control approach. They have also gone through all the Scopes and categories of the GHG Protocol and assessed their relevance and feasibility based on the principles of relevance, completeness, accuracy, consistency, and transparency.

We have mainly used one specialized advisor to support our portfolio companies in setting up their CO2e emission calculations and they supported nine of our sixteen private equity portfolio companies with the calculations for 2024 and their methods are described below. Other specialists support five of the remaining companies and have also generally followed the same methodology although there might be variations. Two companies did not perform their own calculations (Cepheo and Awardit) and for these, we made top down estimates of their Scope 1, 2 and 3 emissions based on external benchmarks.

In our process, the CO2e emissions have been calculated through a combination of calculation approaches, hereunder the activity-based method (based on activity data such as total weight of a product, total passenger-kilometers flown or other relevant metrics), the spend-based method (based on spend on a specific activity or category) and the supplier-specific method (based on actual emissions per SKU or supplier provided data).

Each baselining process has been initiated with establishing a spend-based baseline, which has been used to prioritize further data collection efforts with the aim of increasing accuracy through moving towards more detailed calculation methods.

Data has been extracted from the respective ERP-systems, invoices and collected from key suppliers when relevant (especially purchased energy services, logistics services, waste management services etc.). Where data for applying these methods have not been available, emissions for selected categories have been estimated based on proxy data. For example, for selected portfolio companies, where actual energy consumption was not available, the energy consumption has been estimated based on the size of facilities and average annual national energy consumption per square meter for a specific facility type (such as office spaces).

Similarly, emissions from employee commuting have been based on central assumptions, publicly available data on local commuting patterns and in some cases on company specific employee survey data.

CO2e intensity is calculated based on revenue when consolidating the baseline across-portfolio companies or otherwise in accordance with industry standards on portfolio company level to allow for comparisons against competition to the greatest extent possible – knowing that a complete “apples to apples” comparison is not possible due to differences in especially Scope 3 coverage and methodology between different companies.

CO2e intensity and totals are calculated as the total of Scope 1, Scope 2 (location-based) and Scope 3 emissions. Polaris has chosen the location-based approach as the main approach in alignment with the GHG Protocol’s guidance. If any companies purchase energy attribute certificates it will be accounted for in the market-based emission calculations, which is also communicated in this report in alignment with the dual Scope 2 reporting requirement.

For each portfolio company that have completed our standard process, the baselining process has been concluded with the development of a CO2e road map. We acknowledge that the quality of each companies' baseline will improve over time and there will be uncertainties and gaps in the baseline due to lack of sufficient data. We strive to have more and more complete and accurate GHG inventories over time, and so, the roadmap includes plans for improving the breadth and depth of the data gathered in the coming years. This includes integrating categories that have been deemed to be significant in terms of the size of emissions, but where sufficient data is not yet available. 

Further, the road maps include a plan for the initiatives that are to be launched to reduce CO2e emissions. At Polaris we request that the road map, together with the baseline itself, is approved by the Board of Directors of the portfolio company to ensure commitment to and accountability of the efforts planed. We encourage and support our portfolio companies to set reduction targets in-line with, and approved by, the Science Based Target Initiative (SBTI).

Emission factors have been collected via supplier specific environmental product declarations (EPDs), research-based Life-Cycle-Analyses (LCAs), from the UK Department for Environment, Food & Rural Affairs (DEFRA), International Energy Agency (IEA) or otherwise known and qualified emission factor databases. To the extent possible we have gathered multiple datapoints for each emission factor to validate the sources used.

When working with the spend-based DEFRA database the following steps have been taken to adjust for VAT, inflation (since the DEFRA database is from 2011) and currency: 1. Exclude VAT from the DEFRA factor, 2. Converted from GBP to local currency (exchange rate in the year of the emissions factor) and 3. Adjust for inflation based on local inflation rates.

For Scope 2 electricity calculations, for Danish electricity consumption we have used Energinet’s (the Danish Transmission System Operator) emission factor based on consumed electricity from the grid, while we for all other countries have used IEA’s database and emission factors for produced electricity within the respective countries. The decision to select a more accurate emission factor for Denmark is driven by the fact that most portfolio companies have facilities located in Denmark, and as such we see it as a means to improve the accuracy of the GHG inventory across the portfolio.

We calculate our CO2e emissions on Scope 2 using the 'Location-based' approach but also disclose the results based on a 'Market-based' approach.

• Scope 2 (location-based) approach is calculated based on average emission factors for each country
• Scope 2 (market-based) approach takes the green power purchased into account and assumes that the non-green power is delivered as residual power where the green part has been taken out

At Polaris we recognise that we will continuously improve our understanding of our emissions and we will over time both refine and adjust our Scope and calculation method to increase the accuracy of our calculations and in turn our CO2e baseline. Furthermore, given the nature of our operations, the composition of our portfolio will change over time as new companies are acquired and current companies are exited. As such, we have defined a recalculation policy in line with the GHG Protocol.

The Recalculation Policy states that, in the case of structural changes, for example, acquisitions, divestments, mergers, outsourcing or insourcing, we will clearly indicate in the report added or subtracted parts of the baseline, which can then not be used for year-on-year comparisons. The same applies to the inclusion of more Scope 3 categories. In the case of methodological change, for example, a change in emission factors, data accuracy, discovery of a significant error (or similarly, a number of cumulative errors that collectively have a significant impact on the CO2e baseline), it will trigger a recalculation of the previous 2-3 years to ensure CO2e baselines are comparable over time.