Sustainability in Polaris Management

Section

Management summary
Sustainability metrics
The Sustainable Development Goals
Our methodology

We are committed to actively promote sustainability throughout Polaris.

Through our portfolio companies, we have a significant combined revenue, thousands of employees and operations in many countries across the world and a responsibility towards a broad range of stakeholders. As we work with our portfolio of companies we are also commited to addressing sustainability in our own organization at Polaris Management.

Read sustainability statement

Polaris Management is the fund manager of Polaris’ funds. We are an investment company focusing on supporting mid-sized companies in the Nordics through complementing investment strategies that share the same focus, objective and approach. Although our own operation is small, the funds we manage are owner of, or lenders to, a number of portfolio companies with a significant combined revenue, thousands of employees and operations in many countries across the world. We therefore have a responsibility towards a broad range of stakeholders such as investors, employees, customers, suppliers, business relationships and the communities in which Polaris Management and our portfolio companies operate.

We take this responsibility seriously and we are committed to actively promoting sustainability throughout Polaris. Our commitment to sustainability is executed broadly across our operations. The main opportunity we believe that we have to promote sustainability is through our investment activities. We therefore work to incorporate sustainability throughout our investment process and our portfolio management process in the active ownership period.

Our ambition is to improve the sustainability performance of our portfolio companies during our ownership. Especially in our main private equity investment strategy, where most of our capital is deployed, we are majority investors and are able to have a significant impact on our portfolio companies. In the scope of sustainability we include environmental, social and economic factors. In addition to working with sustainability in our investment activities, we also promote sustainability in our own daily operations. In this work we apply the principles, structures and focus areas for promoting sustainability as those we have set out for the whole of Polaris and our portfolio companies. In Polaris Management, we are therefore committed to reducing our own environmental footprint, continuously improve our working environment and promoting gender equality. We conduct our business with the highest ethical standards and expect the same from our business partners and we employ and promote best practice international standards as the foundation for our work with sustainability. We have made a commitment to engage with peers and industry associations to promote sustainability in the investment industry in Denmark, Sweden and in Europe.

Key statistics 2022

CEO: Jan Johan Jühl

Chairman: Erik G. Hansen

HQ: Copenhagen, Denmark

# of FTEs: 36

Revenue (DKKm): 135

Revenue (EURm): 18

Management summary

As a fund manager, sustainability is executed through a large number of components that continously need to be developed and adapted. During 2022, we continued this development process at the fund manager level, the portfolio company level and at Polaris Management level.

Fund manager level

During 2022, we completed our 'Polaris Sustainability Due Diligence' as an integrated part of our investment process in several transactions, which resulted in the investment in Esoft in our Private Equity Strategy. We continue to see increasing interest from the management teams in sustainability and our ability to support them in this area can help make us a more attractive buyer. During the the year, many of our new investments also implemented 'Polaris Sustainabiluty Program' supported by our expert advisors. This includes the implementation of the UN/OECD Guidelines for Responsible Business Conduct and as part of that an impact due diligence to determine each company's impact on environmental, social and economic sustainability. This process provides us and our companies with a definition of sustainability and we are very happy that these guidelines are now being built-into the new EU Regulations: the SFDR, the CSRD, the EU Taxonomy and the upcoming CSDDD. We are continously developing 'Polaris Sustainability Due Diligence' and 'Polaris Sustainability Program' together to ensure they reflect the same underlying standards and guidelines and approach towards sustainabilty. Both are fundamentally based on an assessment of the material impacts of each company which is well in-line with the concept of 'Double Materiality Assessment' in the CSRD.

Portfolio level

In the period, North, Stronger, G&O Maritime and Esoft implemented 'Polaris Sustainability Program' which was in-line with our ambition. They are now also in the process of publishing their own individual sustainability reporting in-line with our standards and most of investments in Fund V have published a publicly available report already for 2022. The purpose of the reporting is to allow external stakeholders to evaluate the position and work of each company in sustainability but it is also an important driver for internal development and important preparation for the upcoming Corporate Sustainability Reporting Directive (CSRD). During the year, Contour Design became the first company to receive an approval of their Science Based Target for CO2 emission reductions by the Science Based Target Initiative (SBTI). Futur Pension and Link Logistics are also in the process of getting their targets approved by the SBTI. Link Logistics is also our largest emitter och CO2 emissions in the private equity portfolio.

Polaris Management level

The work in our own organization continued in 2022. On Gender Equality we continued our engagement in the sector through our sponsorship and support of Level 20 and Kvinder i Finans. Through Level 20, we again participated in outreach activities aimed at attracting female finance students to private equity, mentor programs for female investment professionals and local networking events. We also continued our efforts to ensure that our process for recruitment of board members promotes diversity. We expect this to yield future improvements in the gender balance at the board level of our portfolio companies. The share of women in our investment team increased from 21% to 27%. This is still below our target of 40% but above the private equity industry average in Denmark which remains at 10% and where 23% of firms still have 'All male' investment teams. We continue to develop our working environment which is now supported by regular employee satisafaction measurements. As a result of this input, we launched a more extended feed-back process during the year. On the environmental side, our emissions reduced significantly due to a reduced purchase of external consultants and communication equipment during the year. Business travel increased, but is still at a low level following structural changes post Covid-19. We will continue to try to keep the level of travel at a low level and work to reduce our own emissions continously.

Martin Bang-Löwgren
Head of Sustainability

Sustainability Metrics

Sustainability metrics

Polaris sustainability focus area KPIs

Climate Action

Gender Equality

Employer Responsibility

Climate Action

The main CO2e emissions in Polaris Management are indirect Scope 3 emissions from the use of external advisors and purchase of communication and IT hardware. These constitute around 69% of our total emissions in 2022 but were significantly lower than in 2021 due to lower use of external consultants. This resulted in a reduction of total emissions of 52% in the period. The intensity decreased even more as the organization grew at the same time. We do not expect that this low spend level and emission level is sustainable but we will continue to work to reduce and limit our emissions.

GRI: 305-1a, 305-2a, 305-3a, 305-4a

Climate Action Management

Scope 1 & 2

Spend-based calculations with national statistics on fuel and energy prices. Driven by use of electricity and heating in our office.

Scope 3

Combination of spend and activity-based calculations for selected categories. Driven by spend from use of external advisors and purchase of communication and IT hardware.

Strategy & targets

Targets for CO2e reductions should be science-based and in-line with the Paris Agreement. This is being discussed at Polaris Management level.

Initiatives

Move to electric vehicles executed but has limited impact. Structural leveraging of digital alternatives continues to limit travel post Covid-19 compared to historic levels.

TCFD

Not conducted on Polaris Management as climate-related risks & opportunities primarily are associated with the portfolio.

Gender Equality

Board and management team gender distribution remained essentially unchanged compared to last year while it improved slightly among the 'Investment staff' to 27% by adding one more female member out of a total of three new hires in the year. This is still well below our ambition of 40% but the combined gender distribution of management and investment staff of 21% is in-line with the private equity industry average for the region which is 10% and 22% for Denmark and Sweden respectively (based on research by Level 20).

GRI: 405-1(i)

Gender Equality Management

Tracking

Tracking in place on gender across the organization, at different tenures.

Strategy & targets

Targets have been defined and approved by the board of directors.

Initiatives

Initiatives on-going to improve Diversity & Inclusion in Polaris and we spend considerable resources to work together with our peers to improve the industry in Denmark, the Nordics and at a European level.

Employer Responsibility

Polaris organization again grew and the headcount increased from 39 to 41 during 2022 and the voluntary employee turnover remained at a low level with only one employee chosing to leave the organisation during the year. We expect Polaris organization to continue to grow in the future and we will continue to monitor our employee turnover.

SASB: Adapted from HC-DY-330a.1

Employee Turnover Management

Tracking

Tracking in place on employee-initiated turnover.

Strategy & targets

Strategy to maintain structurally low historic levels below 8-10% or 2-4 individuals per year.

Initiatives

Initiatives defined to ensure good work environment and employee engagement which is supported by three employee satisfaction surveys and pulse checks during the year.

Polaris specific sustainability KPIs

Polaris sustainability due diligence

A comprehensive and dedicated sustainability due diligence was implemented as of the first investment in Fund V in 2020 (Contour Design). We have since then completed this comprehensive review prior to all investments made in Fund V. In addition to being an integrated part of the investment process and evaluation, it also lays the foundation for the future work with our portfolio companies post closing of the transaction. We are working to continously develop and improve this process.

SASB: Adapted from FN-AC-410a.1

UN/OECD principles for responsible business conduct

We aim to have all of our private equity portfolio companies to be aligned with UN/OECD principles for Responsible Business Conduct and implement this as part of 'Polaris Sustainability Program' within 12 months after closing. During 2022, more companies continued to implement this management system and at the end of the year, 71% (10 out of 14 companies), had been through the onboarding. We will continue to push for the implementation of this program towards our goal of 100% compliance. We are however aware that it might not always be possible, or advisable, to do this during the first year of our ownership due to conflicting priorities and lack of resources which will make it very difficult to reach this objective in practise.

SASB: Adapted from FN-AC-410a.1

Employee engagement

We are a competence-based organization relying on our employees to fulfill our goals, including our sustainability objectives. Our working environment and employee satisfaction and engagement is consequently critical to our success and a key indicator. During the year, we continued to conduct employee satisfaction surveys and we now also conduct regular shorter pulse-checks as complements to the more comprehensive annual surveys. At the end of 2022, we were happy to register a slight improvement compared to the previous measurement and we will continue to monitor this development and use the feedback to guide our development initiatives.

SASB: Adapted from FN-AC-410a.1

Whistleblower Policy

Description of policy and procedure

Polaris Management has had a whistleblower policy since 2014 which allows employees to file anonymous reports on irregularities in our operations. The policy also protects whistleblowers from retributions. The reports are sent anonymously directly to Polaris’ compliance office or chairman in a purpose made system for review, feed-back and potential actions. We consider the whistleblower function as an important opportunity for us to receive important information about our operations that can enable us to address issues that we might be connected to as early as possible to limit damage to ourselves and our stakeholders.

All Polaris employees review Polaris whistleblower policy as part of annual policy updates. During 2022, no reports were filed. During 2022, we continued to work to implement an external whistleblower system which is also made publicly available to allow external parties like suppliers, partners and portfolio companies to also be able to file reports.

SASB: FN-AC-510a.2

Sustainability competencies in Polaris management

Our work with sustainability is described in Polaris Responsible Investment policy which is approved, and regularly reviewed, by the Partner Group and Board of Directors in Polaris Management. Sustainability is also integrated into Polaris Excellence Model and executed mainly through 'Polaris Sustainability Due Diligence' and 'Polaris Sustainability Program'. We provide regular training and communication regarding our work in the following ways in Polaris Management:

Quarterly investment team updates: We provide information on updates to our work with sustainability quarterly to our investment staff (as part of Polaris Excellence Program)
On-boarding of new staff: We provide onboarding on our sustainability work to all new employees
Investment team project support: We support, and educate, all investment teams, in our sustainability structure in the final investment evaluation phase (due diligence)

We are in process of complementing the training of Polaris Management staff to also include regular training sessions with the investment staff.

Sustainability competencies in portfolio companies

The onboarding and training of Polaris Portfolio companies start already in the due diligence phase and continues in the ownership phase through the following components:

Sustainability due diligence introduction: We conduct a digital meeting in the due diligence process in all potential investment opportunities with key management team members dedicated to sustainability. The call is lead by Polaris Head of Sustainability together with any dedicated advisors used in the process. The meeting includes an introduction to Polaris sustainability work, approach, standards and expectations as well as a discussion of material impacts and future plans which serves as a basis for the future business plan for future sustainability work.
Onboarding: We conduct a full day onboarding for the management team and board members of all new investments at Polaris office where we introduce them to the components of Polaris Excellence Model. This includes a session dedicated to sustainability.
Implementation of UN/OECD guidelines: Each portfolio company is onboarded on the UN/OECD guidelines for responsible business conduct. This is initiated in a 5-day workshop process, which also serves as an education of the participating management team members of the company. During the workshop, each company implement CSRCloud which is a cloud-based solution for identifying and managing adverse sustainability impacts.
Annual workshops: We conduct annual digital workshops for the board members and management teams in all of our private equity portfolio companies
Polaris Sustainability Group: We gather all sustainability-leads in a working group who meet every other month to discuss new developments and share best practises in sustainability. This includes discussions of topics like sustainability indicators, CSRD, carbon footprint measurements, supply chain management etc.

The Sustainable Development Goals

Section

Management summary
Sustainability metrics
The Sustainable Development Goals
Our methodology

Polaris Management’s contribution to the SDGs

Employees & Organization

Investment thesis & process

Active ownership

Employees & Organization

Increasing Positive Impacts

5.5

Supporting gender diversity in Polaris and the private equity industry.

8.8

As Polaris is a people business, and our team is imperative to our success, we are committed to ensuring a good working environment.

Minimizing Negative Impacts

13.1

We are commited to minimizing our contribution to climate change by working to reduce our GHG emissions in Polaris as we also do throughout our portfolio of investments. To quantify our impact and identify concrete initiatives to reduce these, we measure and report on both our direct and indirect GHG emissions.

Investment thesis & process

Increasing Positive Impacts

Addressing both positive and negative impacts on sustainability

We address sustainability broadly across our investment process. Through defined selection criteria, we avoid certain types of investments and through a dedicated sustainability due diligence we integrate sustainability considerations in the overall investment evaluation. We consequently work to ensure that we correctly value both actual and potential positive and negative sustainability related impacts from our investments.

Minimizing Negative Impacts

See above

Active ownership

Increasing Positive Impacts

Addressing both positive and negative impacts on sustainability

To improve our portfolio companies’ sustainability practices, Polaris has developed Polaris Sustainability Program. The program details Polaris’ expectations to its portfolio companies when it comes to developing a sustainability strategy and working processes. The program is an integrated part of the Polaris Excellence Model which is Polaris’ structure for active ownership. Our objective is to improve the sustainability performance of all our investments during our ownership by maximising each companies unique positive impacts, minimizing negative impacts and improving our companies sustainability-related infrastructure.

5.5

To support gender equality among our portfolio companies we work to improve the gender balance in the Board of Directors. We also mandate all our portfolio companies to work to improve gender equality in their respective organizations and report their progress.

8.8

For Polaris as a large employer, ensuring a good working environment is a prioritized area. This focus is formalized as part of our Sustainability Program and made part of the sustainability programs of our portfolio companies who are all asked to work to continously improve their working environment.

Minimizing Negative Impacts

See above

13.1

As part of our commitment to report on and reduce own emissions, we are also committed to reducing the climate impact of our portfolio companies. We are therefore requiring all portfolio companies to report on direct and indirect CO2e emissions, and make a plan for emission reductions. The target for these reductions should be science-based and aligned with the Paris Agreement. Developing a complete inventory of emissions across a portfolio is a large task and we acknowledge that it takes time for each company to develop their footprint reporting and that it will be enriched and improved over time. To make a serious commitment to a science-based target will similarly require time and effort to establish. We will support our portfolio companies to advance these issues as quickly as possible and we support and encourage them to set Science Based Targets for their emission reductions.

Increasing positive impacts

Concrete initiatives in progress

Employee & organization

Work to support gender equality in the private equity industry in Denmark, Sweden, and Europe
Ensure a working environment supporting gender equality at Polaris Management

Status on initiatives

Employees & organization

During 2022, we continued to take an active role in Level 20 in Denmark where we arranged initiatives to attract female talent to the industry. As part of this commitment, we also led the first measurement of gender distribution of the private equity sector in Denmark together with Level 20. We also supported the local organization, Kvinder i Finans, and engaged with Level 20 in the Nordics and in Europe.
In Polaris, we worked actively with the outcome of the Employee Satisfaction Survey to support improvements in diversity and inclusion. This included the launch of a more extensive and formalized feed-back process to limit bias and ensure equal opportunity.

Concrete initiatives in progress

Active ownership

Ensure initiatives to improve gender equality in Polaris’ portfolio companies
Expand Polaris’ female network and recruitment base for projects, board, and management team positions

Status on initiatives

Active ownership

For the 3rd year we follow-up on gender distribution in our portfolio companies and this topic was made part of the agenda in the portfolio companies that implemented Polaris Sustainability Program in the year.
We continued to work to recruit more diverse boards and during the year, two female board members joined Futur Pension. The overall gender distribution remained unsatisfactory and will require an intensified effort going forward.

Concrete initiatives in progress

Employee & organization

Initiative to support employee health
Process to foster culture of feedback and personal
development

Status on initiatives

Emplyees & organization

We initiated plans to expand and improve our office and physical working environment.
Based on the results from our annual Employee Satisfaction Survey and Pulse Checks, we identified areas of improvement. This included continued work with our more extensive and more formalized feedback process. We also ramped up the social activities in the office.

Concrete initiatives in progress

Active ownership

Ensure initiatives to improve working environment in Polaris’ portfolio companies

Status on initiatives

Active ownership

With working environment as one of our sustainability focus areas, we included this topic of the board agenda of the new portfolio companies who implemented 'Polaris Sustainabilty Program'

Concrete initiatives in progress

Investment thesis & process

Integrate sustainability in Polaris’ investment process

Status on initiatives

Investment thesis & process

Our expanded Sustainability Due Diligence standard was an integrated part of the evaluation processes preceding all the potential investments in the final due diligence process of which one was signed in 2022.

Concrete initiatives in progress

Active ownership

Ensure that our portfolio companies address relevant sustainability related risks and opportunities and continously improve their performance through implementation of 'Polaris Sustainability Program'.

Status on initiatives

Active ownership

We continued to implement 'Polaris Sustainability Program', which is part of our Excellence Model, among our portfolio companies and our four most recent investments implemented the program during 2022.

Minimizing negative impacts

Concrete initiatives in progress

Status on initiatives

Employee & organization

Implement initiatives to reduce climate impact in Polaris Management based on calculations of CO2e emissions

Employees & organization

We continued to leverage the high level of digital interactions in 2022 which makes a lot of physical travelling unnecessary. Company cars to be replaced with electric vehicles.

Concrete initiatives in progress

Active ownership

Ensure initiatives to reduce climate impact in Polaris’ portfolio companies based on calculations of CO2e emissions

Status on initiatives

Active ownership

During 2022, a number of our most recent acquisitions started to measure their CO2 emissions on Scope 1,2 and 3 and get plans in place to reduce these. During the year, the first of our portfolio companies also got their Science Based Target approved by the Science Based Target Initiative (SBTI). Two others are still in process to get their targets validated.

Concrete initiatives in progress

Investment thesis & process

See “Increasing Positive Impacts”

Status on initiatives

Investment thesis & process

See “Increasing Positive Impacts”

Our methodology

Section

Management summary
Sustainability metrics
The Sustainable Development Goals
Our methodology

Sustainability concept applied to Polaris Management

We have applied the same sustainability principles to our own organisation Polaris Management A/S as those we apply to all of our private equity portfolio companies. We have therefor implemented 'Polaris Sustainability Program' in Polaris Management. These are described in more detail in the Polaris Private Equity section of this report.

Methodology for CO2e accounting in Polaris Management

As part of the implementation of Polaris Sustainability Program in Polaris Management, we also perform annual CO2e measurements according to the GHG protocol and in-line with the principles applied to our portfolio companies. These are described in more detail in the Polaris Private Equity section of this report.

To follow the GHG protocol, we also consolidate the total CO2e emissions for Polaris which, in addition to Polaris Management’s emissions, also include our portfolio companies’ Scope 1, 2 and 3 emissions. Although we do not have majority equity ownership in all portfolio companies, the consolidation approach has been applied to all companies, acknowledging the influence we have across all the companies.

Below you can find the total consolidated emissions for Polaris, an overview of the status of the included companies in the calculation and a list of the Scope 3 categories that have been excluded for Polaris Management.