Initial Screening: Focuses on growth potential with positive environmental/social impact

• Sylvan focuses on industries and companies where we see strong growth potential and environmental-social impact along with our investment themes (Climate and Environmental Action, Inclusive Growth, and Innovation for Sustainable Life) and UN SDGs.
• Another primary function of the pre-investment screening process is negative screening. It helps the investment team avoid investing in or financing companies that cause significant environmental or social harm.

ESGI Assessment: Due diligence for ESG and environmental/social impact assessment

• Target companies go through an initial screening process. They are then further scrutinized under a DD process to assess their management of ESG issues and impact potential through international standards.
• Sylvan uses value chain issues screening as well as environmental/social impact potential assessments, and ESGI assessment questionnaires & a rating system during the assessment process. We have our own assessment methodology to evaluate environmental/social impact potential, identifying ‘impact identification’, ‘impact thesis’, and ‘impact verification’. These leverage international standards such as IMP, IRIS+, and 3PL analysis. ESGI rating and risk assessment are done through Sylvan’s ESGI DD questionnaires and management interviews. DD questionnaires are directly aligned with the MSCI ESG Industry Materiality Map, selected for corresponding sub-industries.
• Findings from the DD process, including ESG-related risks and/or opportunities, are subsequently presented to the investment review committee for discussion and consideration.
• Upon completion of the assessment, the Investment Committee thoroughly reviews the result and will ultimately propose suggestions to the portfolio management team.

• We identify social and environmental impacts with an impact thesis and quantify them through IMP and IRIS+ standards, concretely verifying the potential impacts our portfolio company can contribute to our goals.
• After impact verification, we conclude the impact assessment potentials with 3 categories: “Act to Avoid Harm,” “Benefit People & Planet,” and “Contribute to Solutions”, and encourage our target companies to maximize impact potential by providing various tools and support.
• Sylvan assesses the ESG risks and opportunities, leveraging global ESG-related standards and initiatives. If the ESG risks identified during the DD process are manageable over time, we allow our investment team to proceed the investment.

• If Sylvan is confident that the sustainability risks identified during the DD process are acceptable or manageable over time, and ESGI potential is sufficient and well-aligned with UN SDGs, we may proceed with the investment with a strong belief in the achievement of a double bottom line: financial returns and impact realization.

ESGI Planning & Risk Management: Management planning including ESG and impact implementation

• Before finalizing an agreement to become part of our sustainable investment fund, we set KPIs to be reached during ownership. We also measure and manage the recommended actions to follow an agreed monitoring plan.
• We actively contribute to the portfolio company’s ESGI transformation. Following a successful investment decision, we continue to work closely with the portfolio company’s management teams to guide ongoing ESGI assessment and supervision. Here are some ways we do that:

Investment Agreement: Consensus build-up

• As a socially responsible fund, Sylvan continues in an advisory capacity to help prepare for the sale of the portfolio company and eventual exit. We conduct an ESGI reassessment and embark on a partner build-up operation. We confirm the magnitude of impact and ESG at the operational level and seek suitable partners that understand the importance of ESGI realization.

Engaging and Monitoring Process: ESGI management

• Following the investment decision, the Sylvan team will monitor impact KPIs and major ESG indexes with implementation status on a regular basis. Periodic interviews, on-site visits, and management seminars will help portfolio companies reach their established impact creation goals. Furthermore, investors will be updated with an annual impact report
• Not limited to ESGI assessment and supervision, the Sylvan team actively contributes to the portfolio company’s ESGI transformation. The team will work closely with the portfolio company’s management teams to set up a baseline for ESGI performance and develop ESGI targets and action plans to mitigate key ESGI risks and/or leverage opportunities for sustainable value creation.