ESG Policies
Cusp Capital Partners GmbH (“Cusp Capital”) strives to be a responsible and professional alternative investment fund manager (“AIFM”), and recognizes the importance of professional policies and standards that guide and shape the conduct and actions of its employees and management in day-to-day business actvites.
C. Code of Conduct
1. General Remarks
Cusp Capital strives to be a responsible and professional AIFM. To meet this standard, Cusp Capital acknowledges that it is necessary to act responsibly and fairly towards investors, business partners, competitors, supervisory authorities, and employees.
2. Purpose of the Code of Conduct
This Code of Conduct summarizes the behavior required to live up to the envisaged standard of responsibility and, thus, constitutes a critical component of the corporate culture of Cusp Capital.
3. Compliance with Law and Respect of Integrity
It is the corporate responsibility and corporate values of Cusp Capital and its employees to ensure compliance with the laws and regulations applicable to the respective business in the respective legal systems in which Cusp Capital operates. Therefore, each individual is responsible for compliance with statutory as well as internal regulations within the scope of its respective tasks.
Cusp Capital will not tolerate any disregard of relevant regulations or criminal acts, as these could endanger the reputation of Cusp Capital and impair the thriving of fruitful business relationships. Violations of legal requirements, as well as internal regulations, can lead to legal sanctions as well as labor law consequences.
Cusp Capital and its employees always perform their professional tasks and the associated responsibility within Cusp Capital’s operations with the greatest possible professionalism, competence, care, and integrity. Cusp Capital and its employees are required to refrain from any behavior that could lead to damage to investors, business partners, authorities, the alternative investment funds (“AIF”) managed by Cusp Capital, their respective portfolio companies, or Cusp Capital itself. Every employee is aware of this responsibility.
Compliance with this Code of Conduct is understood as a joint task by all employees and the management of Cusp Capital. Management and executives are required to ensure appropriate awareness. Employees are in any case required to draw the attention of the management to circumstances which might constitute or only indicate a violation of this Code of Conduct. Such circumstances may be reported to the management and/or the Contacts referred to in this Handbook and/or anonymously via Phoenix Whistleblowing (see Part A Sec. 2 and 3 of this Handbook).
Furthermore, Cusp Capital has appointed a CCO with the authority to monitor and to take the appropriate measures to ensure compliance with this Code of Conduct. In this regard, the CCO is independent and not subject to instructions by the managing directors of Cusp Capital. The CCO is a fully qualified lawyer in Germany.
4. Prevention of Money Laundering
An essential goal with which Cusp Capital identifies itself in connection with its investment activities is the prevention of money laundering and terrorism financing. Cusp Capital is subject to the German Anti-Money Laundering Act (Geldwäschegesetz) and will – as a minimum standard – observe the statutory requirements at all times.
When investors are admitted to an AIF managed by Cusp Capital, Cusp Capital and its employees’ pay attention to suspicious criteria that could indicate money laundering and/or terrorist financing and carry out identification in accordance with the provisions of the German Anti-Money Laundering Act. Information on the underlying transactions behind the exposures is included in the decisions and analyzed just as critically as the respective investor or business partner. Cusp Capital also expects this care from its investors and other business partners. Justified cases of suspicion are always and immediately reported by Cusp Capital to the responsible authorities.
5. Data Protection
Cusp Capital is obliged under the General Data Protection Regulation (GDPR) and the Federal Data Protection Act (Bundesdatenschutzgesetz) to protect personal data and inform on the processing of personal data and the rights of data subjects. As a minimum standard, Cusp Capital will at all times adhere to the statutory requirements set forth under such laws and has appointed an external Data Protection Officer to ensure compliance with all applicable data protection rules.
In addition, Cusp Capital is convinced that the basis for being a trustful business partner, hence, for its business success, is to ensure the greatest possible care in dealing with the Internet, electronic data exchange, electronic business transactions and data protection. The progress of data processing technology entails growing risks in the misuse of stored and sensitive data. Being aware of this risk, Cusp Capital and its managers, the IT management and all employees go to great lengths to take effective precautions against these risks.
With regard to all data that Cusp Capital receives from investors, business partners, authorities and employees, Cusp Capital will pay the highest attention to compliance with data protection and guarantee of data security. Data from investors, business partners and employees are protected by responsible handling. Data will only be collected, processed, used, or passed on if Cusp Capital is entitled to do so. For those affected, transparent data processing is carried out in compliance with the legal requirements and safeguarding their rights to information, correction, blocking or even deletion.
All employees of Cusp Capital are required to provide a data protection commitment statement upon entering into an employment agreement with Cusp Capital. Furthermore, all employees will receive regular training by the Data Protection Officer.
6. Fair Dealings and Communication
It is the self-conception of Cusp Capital to be a fair partner and competitor. This includes exercising a high degree of care in the selection and ongoing monitoring of investments in portfolio companies by the AIFs it manages. Furthermore, investments may only be made in qualified portfolio companies which Cusp Capital knows and understands to an appropriate degree.
Cusp Capital also attaches significant importance to professional, respectful, and fair dealings, because this not only corresponds to its understanding, but is also necessary from its point of view to operate successfully in a competitive, increasingly globalized market. It is also part of fair treatment of investors that no investor receives preferential treatment over other investors. Exceptions will only be tolerated where such preferential treatment is provided for in the organizational or other fund documents of an AIF managed by Cusp Capital.
Cusp Capital values the trust of its investors, business partners, employees as well as the public and government agencies as a valuable asset, which is why it attaches great importance to ensuring that its reporting is always transparent, correct and truthful.
7. Independence
In order to make investment decisions independently and objectively, it is necessary to draw a line between the normal framework of a business relationship and private interests. Private interests, friendly relationships and family ties must not influence decisions and lead to a loss of objectivity. The acceptance of benefits which may affect independence is prohibited. Benefits, services, or other advantages or favors which give rise to the hope of future business or official favors may not be demanded, nor may they be of a binding nature. Business relations of Cusp Capital are defined by the objectively measurable criteria efficiency and competence, integrity, experience, and reliability.
8. Conflicts of Interest
It is the concern of Cusp Capital and its employees to meet the highest possible standard in all business relationships. In order to avoid that external interests influence the investment decision, Cusp Capital has committed itself and its employees to care and honesty, lawful and professional conduct, observance of market standards and consistently observing the investors’ interests.
Conflicts of interest may arise whenever the persons involved in a transaction pursue different objectives. In principle, conflicts of interest may arise between Cusp Capital, the AIFs managed by Cusp Capital, their respective portfolio companies, the managing directors or employees of Cusp Capital, other persons affiliated with Cusp Capital, and investors.
In order to determine and identify conflicts of interest, the intended investment is reviewed as part of the decision-making process by the CCO. The identification of potential conflicts of interest is therefore part of the overall due diligence process. Any potential conflict of interest has to be reviewed and cleared by the CCO before any transaction is carried out.
In certain cases, the investor advisory board (representing the investors) of an AIF managed by Cusp Capital also has to be involved in this process, which then has the right of a veto. In any case, the investor advisory board must be informed immediately and unequivocally about the general nature or sources of conflicts of interest by Cusp Capital before any transaction is carried out. Therefore, Cusp Capital has committed itself to disclose all conflicts of interest to an AIF’s investor advisory board (if established) without delay and to set up an organizational structure for this purpose in order to effectively identify, immediately uncover and counter conflicts between the legitimate interests of the various parties.
Legal regulations represent the minimum standard. Cusp Capital has entrusted the CCO with the task of avoiding and managing conflicts of interest. The authorities of the CCO comprise, inter alia, the monitoring of and the implementation of appropriate measures with respect to:
- the disclosure of certain relevant employee transactions;
- work and conduct guidelines for the investment process, investor relations in general and for dealing with conflicts of interest;
- separation of responsibilities and areas of responsibility;
- keeping an observation list which serves to monitor the sensitive volume of information and to prevent the misuse of insider information;
- training and information of employees;
- keeping a blacklist, which serves in particular to counter possible conflicts of interest;
- regulations governing the acceptance and granting of benefits and the disclosure of benefits.
9. ESG Policy
Cusp Capital has committed itself to investing socially responsible and to paying great attention to a responsible investment approach throughout the entire investment process, including the investment, ownership, and exit phases of the investment process. Cusp Capital believes that attention to Environmental, Social and Governance (“ESG”) matters is a prerequisite for long-term value creation. To manifest its ambition, Cusp Capital has implemented a separate ESG Policy (see Part E of this Handbook) to which it will always adhere in its role as an AIFM.
10. Principles for Dealing with the Workplace and with Third Parties
Human and personal rights are respected by Cusp Capital as fundamental values of the community. The conduct of its employees within Cusp Capital as well as towards investors, business partners and authorities must be responsible and within the law. A respectful and cooperative interaction with each other should guarantee a trusting working environment.
All forms of mobbing and sexual harassment will be resolutely countered, and all necessary measures are taken against perpetrators. Cusp Capital rejects any discrimination and endeavors to treat all people fairly, regardless of their ethical origin, gender, religion, ideology, disability, age, or sexual identity.
E. ESG Policy
1. General Remarks
Cusp Capital acknowledges the importance of responsible investment, and that sustainability plays a major part in the way Cusp Capital builds long-term business success. Cusp Capital believes that attention to ESG (Environmental, Social and Corporate Governance) matters is crucial for long-term value creation and future-proof companies. As part of its responsible investment approach, Cusp Capital is a signatory to the United Nations Principles for Responsible Investment (UN PRI) and integrates the principles and reporting requirements of the UN PRI into its ESG framework and investment processes.
2. Purpose of the ESG Policy
The purpose of this policy is to outline Cusp Capital’s approach to responsible investment throughout the investment, ownership, and exit phases of the investment process.
3. Responsible investment focus areas
To maximize the potential impact of Cusp Capital’s ESG efforts, Cusp Capital aims to encourage its portfolio companies to strive for long-term value creation by providing guidance and resources to help them develop sustainable business practices. Cusp Capital believes that the creation of a long-term sustainable business model requires a company to be aware of its ESG processes and its impact on the environment and society, and, thus, becomes able to manage associated risks and/or opportunities. Therefore, we have established the following ESG guidelines (which will be reviewed and updated on a regular basis):
3.1 Environment
Cusp Capital acts as a responsible investor by placing a high priority on combating climate change and the broader planetary crisis. Encouraging portfolio companies to use energy efficiently, track, and measure GHG emissions and try to lower GHG emissions where possible, use water responsibly, reduce waste, and choose sustainable materials when sourcing.
3.2 Social
Cusp Capital respects the rights of workers and believes that good relationships between managers, employees, suppliers, and business partners lead to better results. Respecting labor rights, providing a safe work environment, and protecting consumers are prioritized within each portfolio company. Cusp Capital rejects the use of any form of forced, child, or compulsory labor. Cusp Capital encourages the promotion of diversity and does not tolerate discrimination based on age, gender, marital or parental status, sexual orientation, ethnic or national origin, political affiliation, physical ability, appearance, education, or religious background.
3.3 Governance
As an essential part of its value creation model Cusp Capital engages early on with its portfolio companies to ensure that a strong corporate governance structure will be established. The board of directors (management) of each portfolio company is responsible for defining a(n) (ESG) strategy and policy, and Cusp Capital expects this to include the setting of sound ESG processes and standards. Cusp Capital expects its portfolio companies, as well as their suppliers and business partners, to conduct their business in an ethical manner at all times, including, but not limited to, working against corruption in all of its forms, promoting a culture of good governance, and fostering a strong engagement with key stakeholders.
4. Responsible investment process
Cusp Capital’s responsible investment process substantiates Cusp Capital’s investment strategy and describes how it contributes to the fulfilment of the environmental and social characteristics. The process is divided into three phases:
- Investment phase: The investment phase refers to the period from the initial engagement with a prospective portfolio company through to the execution of the investment agreement.
- Ownership phase: The ownership phase encompasses the period from the signing of the investment agreement until full divestment.
- Exit phase: The exit phase denotes the period following the completion of the investment exit.
1.1 Investment phase
1.1.1 Due diligence
The investment phase follows a two-step due diligence approach to ensure that ESG-related risks are thoroughly analyzed:
- Pre-due diligence: An essential part of the deal sourcing process is an initial review to determine whether a potential portfolio company meets Cusp Capital’s investment criteria or violates Cusp Capital’s exclusion criteria (that are part of Cusp Capital’s exclusion list). Every company that violates the exclusion criteria is not even considered as a potential investment.
- Confirmatory due diligence: The components of Cusp Capital’s confirmatory ESG due diligence are the following:
- General ESG Questionnaire,
- Initial SASB Materiality Assessment,
- Initial SDG Impact Assessment.
Based on the answers to the General ESG questionnaire, a qualitative and/or quantitative ESG analysis is performed based on Cusp Capital’s ESG Framework, to guarantee compatibility of match with its investible universe and ESG preferences. During the confirmatory due diligence process, Cusp Capital’s own ESG framework is applied and the internal team evaluates whether the potential investment has a potential to positively contribute to the three overarching ESG goals. Depending on the stage of the potential investment, established standards and frameworks (i.e., SASB, Invest Europe, VentureESG) are used to identify material ESG characteristics.
Based hereon, Cusp Capital may apply one or a combination of the following measures to adjust its alignment with the promotion of the environmental and social characteristics listed above:
The introduction of:
- ESG-specific terms in side-letters or shareholder agreements
- ESG-specific covenants and undertakings (e.g., introduction of ESG policy, Code of Conduct)
- Ongoing ESG portfolio management as well as measuring and tracking selected ESG KPIs on a regular basis within a reasonable time after signing
The ESG due diligence process is performed by the internal ESG experts together with other members of the investment team. Cusp Capital’s legal team, together with external advisors as needed, provides necessary support in conducting this pre- and confirmatory ESG due diligence.
1.1.2 Proportion of investments
Cusp Capital does not invest a fixed percentage in portfolio companies that are taxonomy-aligned. Estimating the possible degree of alignment with the Taxonomy remains difficult at this time due to the early stages of the portfolio companies and the incomplete status of the Taxonomy (such as the uncertainty around which economic activities will become eligible).
However, Cusp Capital will invest in line with its investment strategy and invest in portfolio companies that are 100% aligned with environmental and social characteristics.
No portion of capital will be allocated to other asset classes.
1.1.3 Limitations to methodologies and data
The information collected by Cusp Capital for the evaluation of a potential portfolio company as part of the ESG due diligence process as well as the reporting of the portfolio is only externally verified if and to the extent that false information is suspected. Therefore, it cannot be completely ruled out that false information may remain undiscovered in certain cases. To address this limitation, an ongoing dialogue with portfolio companies is maintained to gain a more comprehensive understanding of the environmental and social characteristics measured.
As the investment is made for several years, Cusp Capital considers it a priority to establish and maintain a relationship of trust with the portfolio companies to provide assurance in light of the limitations described in this section.
4.2 Ownership phase
1.1.1 Process
During the phase of its investment in the portfolio company, Cusp Capital’s investment professionals and ESG experts assist the portfolio company’s board of directors and management in developing a plan to mitigate ESG risks and capitalize on ESG opportunities. In an initial ESG workshop, Cusp Capital sets out clear expectations (based on Cusp Capital’s ESG Framework) for portfolio companies that are designed to ensure that (i) material ESG risks and opportunities are being addressed, and (ii) that material ESG topics and corresponding measures are being implemented and monitored. Reasonable steps are taken to mitigate ESG-related risks.
1.1.2 Monitoring of environmental or social characteristics
Cusp Capital monitors ESG compliance with respect to environmental and social characteristics on an ongoing basis. The KPI tracking is done by the portfolio companies through a technology platform. To this end, Cusp Capital may request portfolio companies to install an internal ESG Governance (+ internal ESG policies and processes), which is responsible for providing information (up-to-date ESG Data) on environmental and social characteristics.
Cusp Capital carefully reviews the portfolio companies’ completed ESG reports as soon as they are uploaded on the platform. However, Cusp Capital does not initiate regular reviews itself, at least if there are no reasonable doubts about the data reported by the portfolio.
Monitoring in the ownership phase is further ensured by a close exchange and communication with the portfolio company.
1.1.3 Data sources and processing
Data for measuring the attainment of environmental and social characteristics is provided by portfolio companies in the form corresponding to the applied method(s) of data collection listed above.
Certain measures are taken by Cusp Capital to ensure data quality, including (but not limited to):
- Assignment of technical and subject-matter expertise to overcome the wide range of challenges within the ESG data landscape.
- Utilization of an ESG questionnaire to be completed by the portfolio companies, and a mix of (predominantly) internal and external data points are used as the inputs of relevant ESG KPIs.
- Utilization of an ESG platform to report on the ESG performance of portfolio companies, to avoid any operational risks or unnecessary human intervention.
Data is collected in both quantitative (e.g., headcount by gender split) and qualitative (e.g., description of roles & responsibilities) forms.
The proportion of data that is estimated by portfolio companies cannot be quantified in advance. No external sources are used to verify the data received from portfolio companies.
1.1.4 Engagement policies
Cusp Capital has appointed a qualified Head of ESG to ensure ESG compliance in all stages of the investment process.
To respond to ESG-related incidents or controversies appropriately, Cusp Capital has implemented internal procedures where an appropriate escalation mode is identified.
If Cusp Capital determines any potential issues relating to environmental or social characteristics, it will engage with the portfolio company’s management and/or ESG manager (if appointed) in discussions with a view to resolving, reducing or mitigating such effects, provided, however, that such efforts will always remain within a scope considered by Cusp Capital in its absolute discretion to be proportionate in light of the size and strategic importance of the respective investment in the portfolio company.
1.2 Exit phase
In preparation for the exit phase of an investment, reasonable steps are taken to ensure the portfolio company is well-positioned to continually improve its ESG performance. The value generated by ESG improvements made during the ownership phase aim to be clarified and realized upon exit.
F. Good Governance Policy
1. General Remarks
Cusp Capital acknowledges the importance of Good Corporate Governance (“Good Governance”), and that solid governance structures play a major part in building long-term business success.
The Governance Policy applies to all financial products of Cusp Capital classified under Article 8 of the Sustainable Finance Disclosure Regulation (“SFDR”) (currently Cusp Capital Fund 2021; hereinafter the “Fund”). It sets out Cusp Capital’s definition of Good Governance and the expectations to be fulfilled and to be complied with by portfolio companies receiving an investment from the Fund.
2. Purpose of the Good Governance Policy
The purpose of this policy is to outline our way of thinking and operating regarding Good Governance practices. Cusp Capital’s team members conceive that attention to Good Governance is crucial for long-term value creation, leading to better portfolio companies and benefiting society at large.
3. Good Governance Definition
Cusp Capital considers Good Governance to be processes, practices and policies regarding management structures and decision making, accountability to stakeholders, corporate culture and compliance with applicable law and the absence of negative events which are likely to have a material adverse impact on the portfolio company, its environment, or society.
4. Good Governance at Cusp Capital
Cusp Capital is a signatory to the United Nations Principles for Responsible Investment (“UN PRI”). In line with its fiduciary responsibilities towards its investors, Cusp Capital abides by the UN PRI, reports in accordance with the UN PRI reporting framework, and considers the Ten Principles of the United Nations Global Compact (see Part F Sections 6 and 7).
5. Assessment of Good Governance practices of (potential) portfolio companies
The SFDR requires Financial Products classified under Article 8 to refrain from investments in companies who do not follow Good Governance practices.
The investment professionals and ESG subject matter experts of Cusp Capital assess the Good Governance of the potential portfolio companies. Due to the early stage of the companies the assessment of Good Governance practices is oftentimes limited in the pre-investment phase due to non-existent structures. If a pre-investment assessment is possible, it is subjective and must be made in the context of the companies’ stage and the availability of data. The investment professionals and ESG subject matter experts are encouraged to additionally assess Good Governance using any other reasonably available information which they determine to be material to the governance practices of any company in which they invest.
After Cusp Capital invests in a company the investment professionals and ESG subject matter experts engage with its portfolio companies to encourage Good Governance. The portfolio companies are actively encouraged to start with the consideration of the Ten Principles of the United Nations Global Compact (see Sec. 7).
Furthermore, Cusp Capitals portfolio companies are urged to follow Cusp Capitals ESG framework which is based on the United Nations Sustainable Development Goals and balances the three dimensions of sustainability – Environment, Social and Governance.
An essential part of Cusp Capitals value creation model is the implementation of a governance structure by each portfolio company that is continuously being developed. The Management of each portfolio company is responsible for defining a strategy and a policy as well as proper internal governance structures (roles & responsibilities). Cusp Capital expects this to include the setting of sound ESG processes and procedures based on our ESG framework and the underlying ESG characteristics.
Cusp Capital expects its portfolio companies, as well as their suppliers and business partners, to always conduct business in an ethical manner – working against corruption in all of its forms, promoting a culture of Good Governance, and seeking necessary and positive engagement with key stakeholders. Cusp Capital expects from each portfolio company that an ESG policy and/or a Code of Conduct is being introduced within 12 months after the signing.
Cusp Capital believes that the assessment of Good Governance is an ongoing rather than a point in time assessment. The investment team and the ESG subject matter experts engage from time to time directly with the companies to seek further information, to address concerns and/or to remedy material topics with respect to governance practices.
6. Compliance with United Nations Principles of Responsible Investment
Cusp Capital commits to adhere to the UN PRI (United Nations Principles of Responsible Investment) with its fiduciary responsibilities towards its investors:
- Cusp Capital will incorporate ESG issues into its investment analysis and decision-making processes.
- Cusp Capital will be an active owner and incorporate ESG issues into its ownership policies and practices.
- Cusp Capital will seek appropriate disclosure on ESG issues by the entities in which it invests.
- Cusp Capital will promote acceptance and implementation of the UN PRI within the investment industry.
- Cusp Capital will work together to enhance its effectiveness in implementing the UN PRI.
- Cusp Capital will report on its activities and progress towards implementing the UN PRI.
7. Compliance with Ten Principles of the United Nations Global Compact
Cusp Capital abides by, and actively encourages its portfolio companies to consider, the Ten Principles of the United Nations Global Compact:
7.1 Principles 1 + 2 – Human Rights
Businesses should support and respect the protection of internationally proclaimed human rights; and make sure that they are not complicit in human rights abuses.
7.2 Principles 3-6 – Labor
Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced and compulsory labour; the effective abolition of child labour; and the elimination of discrimination in respect of employment and occupation.
7.3 Principles 7-9 – Environment
Businesses should support a precautionary approach to environmental challenges; undertake initiatives to promote greater environmental responsibility; and encourage the development and diffusion of environmentally friendly technologies.
7.4 Principle 10 – Anti-Corruption
Businesses should work against corruption in all its forms, including extortion and bribery.