ESG integration

Michael Lukin: Jen, I know we've developed the ESG Playbook and the ESG Maturity assessment over the past 12 months. Can you tell me how this all comes together?

Jenna Lindbeck: Yeah, absolutely. It's two developments I think we're really proud of from the past 12 months, and I might start with the ESG Maturity framework first.

So we've always done ESG due diligence (DD), taken those ESG DD findings and integrated them into either the 100 day plan or an ESG action plan for the broader whole period of the investment.

So we've kind of taken that approach and developed it into creating a more of a baseline assessment and that's the purpose of the ESG maturity framework. So it originated because our Managing Partner of Investment Services, Lance sat down and said, I'd really like a framework to understand what are the baseline expectations and the minimum requirements we have for our portfolio companies throughout our ownership.

And it also helps create a consistent approach to assess performance throughout our entire portfolio.

So what Sam and I developed over the last 12 months was this maturity framework, which has 10 baseline ESG factors that Roc Partners consider as material. And then on an investment-by-investment basis, we also introduce company specific and industry specific material factors.

If I can talk to an example such as Pace, we introduced animal welfare as a material factor. And if we look at any of our childcare businesses, for example, SHEL, it's child health and safety.

So what we do is we use this framework as a baseline and then we look to introduce more sophisticated ESG factors based on the maturity and the needs of the business on a bespoke basis.

So enter the ESG playbook. What the ESG playbook is, is a comprehensive, pretty robust, clear guidance that our deal teams and also portfolio companies use to enhance their ESG performance beyond the maturity assessment.

We start to look at things that are more specific to the business and it's really focused on value creation, and we think of it as a really pragmatic and scalable tool. So depending on the size of portfolio company, you can tailor the approach, whether it be health and safety, employee engagement, climate reporting, whatever the factor may be based on the size and maturity of the business to really drive ESG performance improvement.

What we also like about it is it's really customizable. We know every ESG journey is different and every business is different, so it provides flexibility and agility to develop bespoke approaches whilst also folding a really consistent Roc view on what we think drives value for our portfolio companies.

Michael Lukin: Great, great. And Sam, one of the key factors within our ESG framework is cybersecurity. Can you explain a little bit about our approach there?

Sam Bayes: Absolutely, Mike. ASIC has made it very clear that they expect company directors to be across this factor and that cybersecurity should be integrated within the risk management framework of the business.

So we've been working with a trusted operating partner to really develop our approach and framework for cybersecurity. We are using the Cybersecurity Maturity Model framework, CMMC, another acronym, as the key framework that's really leading both internationally and in Australia to determine a baseline cybersecurity maturity we expect our portfolio companies to meet.

So that's a maturity level 1. And over time, we expect that maturity level to increase over time.

And what we've started with is what we're calling a cybersecurity diagnostic. So this is really a baseline evaluation of a company's cybersecurity posture and framework and maturity. And then we look to increase that maturity using the CMMC framework from a maturity level 1 to maturity level 5.

Michael Lukin: Fantastic, and what about natural capital? What are we doing in that space as well?

Sam Bayes: Another key focus of ours - we know that natural capital, 55% of the global GDP is linked to natural capital which equates to about US$55 trillion.

So we've actually developed an in house natural capital framework, most like really tailored for agriculture portfolio because we know the agriculture sector has unparalleled opportunity to really realise decarbonization efforts both from a carbon abatement and sequestration perspective.

Our framework, we've really tried to keep it simple. It's focused on five key factors, air, water, soil, biodiversity and vegetation. And we've mapped those five key factors to the TNFD Taskforce on Nature related Financial Disclosures, those key indicators. So over time, we would expect our agriculture portfolio companies to determine which of those five factors are most material to their business and then which of those factors can they report on against the TNFD reporting framework.

Michael Lukin: No, that's great. And I think as an extension of that, obviously we've moved into the carbon space with our Silver Capital joint venture. And you know, the focus of that joint venture is to provide opportunities for reforestation in order to generate high quality, high integrity carbon credit units in the Australian market, which obviously is a key way to get to net zero over the course of the next decade and beyond.

Sam Bayes: And I think that's a perfect example, Mike, where we are actually using natural capital indicators, so carbon abatement, native reforestation, number of plants that are actually planted and the species. So we're using a natural capital framework to report to our investors on the impact that that fund will have.

Michael Lukin: Yeah, no, that's brilliant. Great, thanks, Sam.