Sustainable Finance Disclosure Regulation (SFDR)
Entity-level disclosure in accordance with Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector.
Transparency of sustainability risk policies
Paragon believes that the thoughtful management of ESG issues is an essential part of long-term success in a rapidly changing world. Due to this conviction, Paragon has committed itself to the integration of ESG into its investment principles, among others, through the signing of the United Nations Principles for Responsible Investment (UN PRI) already in 2015.
Companies that carefully manage sustainability risks and opportunities today, will be better positioned in the future as diminishing resources, changing consumer demands and increased regulation are expected to pose greater challenges. To be most effective, ESG initiatives should be considered as best practices for operational excellence.
As investment partner, Paragon seeks to help companies finding solutions to their biggest challenges and aims to invest in companies with clear value creation potential. Unlocking this value can often include the thoughtful management of ESG risks and opportunities. Paragon analyses the company’s operations, identifies efficiency improvement potentials and drives positive change, whether on the company´s environmental impact, in its supply chain, among its employees or in its corporate governance.
To identify potential ESG risks and opportunities, Paragon follows a two-step process – firstly assessing risks in the due diligence process, and secondly creating ESG value during the holding period.
Initially the target company undergoes an ESG risk assessment during the due diligence including (i) a risk assessment of the main countries of operations, (ii) an industry specific governance risk assessment as well as (iii) an environmental and social risk assessment of the industry. The results of this assessment are considered in the investment decision.
In case Paragon decides to invest in a company and conducts a post-closing due diligence, the ESG practices of this company will be reviewed in greater detail and, if available, tangible opportunities for ESG value creation will be initiated. In addition, and in all of Paragon’s portfolio companies, ESG will be discussed as part of the board meetings to monitor and ensure that ESG receives the necessary attention.
The importance of creating ESG awareness and competence across the organization and the integration of ESG management as part of the education of investment professionals is a growing priority of Paragon. Members of the investment and portfolio teams act as Paragon´s “ESG Champions” and ensure that ESG processes are considered and followed in all investment decisions and throughout the holding period.
As the integration of ESG principles into the investment process and into business operations are dynamically evolving areas, Paragon will continuously review and improve its ESG practices.
Transparency of adverse sustainability impacts
Paragon´s investment process generally considers the principal adverse impacts (PAIs) on environmental, social and governance aspects. Paragon seeks to obtain information on potential sustainability risks and impacts during the general ESG risk assessment and due diligence phase and takes potential adverse impacts into consideration in the investment decision. Should potential impacts conflict with Paragon´s ESG investment principles, investment opportunities may be rejected.
Paragon will gradually build up its reporting capacities regarding PAIs and will introduce reporting on key performance indicators as stipulated within the Regulatory Technical Standard to the EU Sustainable Finance Disclosure Regulation.
Transparency of remuneration policies in relation to the integration of sustainability risks
Paragon´s compensation policies are structured in such a way that it incentivizes investment professionals to promote sustainable growth within investments. The remuneration model at Paragon includes a variable component that qualitatively considers compliance with the organization’s sustainability principles. In addition, the remuneration model comprises a carried interest component which naturally depends on the sustainable growth of the investment.
Product-level disclosure for financial products referred to in Article 8 of Regulation (EU) 2019/2088.
The information described below applies to all of Paragon’s funds unless stated otherwise.
No sustainable investment objective
Although all of Paragon´s funds promote environmental, social and governance characteristics (as defined under Art. 8, SFDR), it does not have a sustainable investment as its objective (as defined under Art. 9, SFDR).
Paragon assesses and promotes specific ESG characteristics in its investments.
Besides the exclusion of investments in industries which principal businesses go against the ESG principles of Paragon, the following key ESG aspects are considered in the investment decision process:
- Environmental: climate change, pollution, waste management, resource management, environmental footprint in the supply chain
- Social: staff wellbeing, fair working conditions, health and safety, supply chain and human rights, product integrity, safety and quality, community impact
- Governance: business ethics, anti-corruption and anti-bribery, code of conduct, board and management structure, internal controls, governance in supply chain, data protection, stakeholder engagement and reporting
By means of a materiality analysis, ESG aspects that are of particular importance for the investment are identified and taken into consideration when determining ESG risks and opportunities.
Methodology, Due Diligence Process & Monitoring of ESG characteristics
Paragon applies a two-phased ESG methodology.
In the pre-investment phase, a risk based ESG assessment and due diligence is conducted, in which material ESG risks are identified and evaluated. In this phase, the ESG assessment is part of the general due diligence process which comprises extensive desk research, relevant document review, personal interviews with the management of the target investments as well as site visits. External ESG consultants may support the ESG assessment, where deemed necessary. ESG findings in the pre-investment phase are considered in the investment decision process.
In case Paragon decides to invest in a company and conducts a post-closing due diligence, the ESG practices of this company will be reviewed in greater detail and, if available, tangible opportunities for ESG value creation will be initiated.
In all of Paragon’s portfolio companies, ESG will be discussed as part of the board meetings to monitor and ensure that ESG receives the necessary attention.
Information collected during the pre- and post- investment ESG due diligence build the foundation of company specific ESG KPIs which will be regularly monitored by ESG Champions within Paragon and the portfolio company. The ESG progress and related initiatives are discussed at least annually in board meetings.
The annual reporting under the EU disclosure regulations as well as additional, targeted ESG reports to investors inform about the evolving ESG management of Paragon and the ESG performance of portfolio companies.
Data Sources and Processing
ESG data is derived from the general ESG risk assessment, the due diligence process, as well as from the continuous monitoring of portfolio companies. The data is processed by Paragon and, where appropriate, its external ESG consultants.