Magnesium Capital LLP (“Magnesium”) advises funds which invest in companies that are accelerating the energy transition – the shift to a decarbonised, decentralised and digitised energy system. As a result, such funds invest exclusively in companies whose core business directly and positively impact sustainability-related factors under at least one of five United Nations Sustainable Development Goals (“UN SDGs”) identified by Magnesium as core to its strategy. These are:
#6: Clean Water and Sanitation;
#7: Affordable and Clean Energy;
#9: Industry, Innovation and Infrastructure;
#11: Sustainable Cities and Communities; and
#12: Responsible Consumption and Production.
ESG and sustainability-focused impact principles are embedded across Magnesium’s investment process and portfolio company lifecycle. Magnesium continuously assesses adherence to its strategy and the core Magnesium UN SDGs from sourcing, through the due diligence, value creation and realisation phases.
As per SFDR, sustainability risk means “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment”. By definition, a sustainability risk could adversely affect the value of a fund’s investments and could negatively impact the performance and reputation of Magnesium.
Sourcing: Identifying the right companies to invest in
Given Magnesium’s clear and focused strategy to invest in companies that are directly enabling the Energy Transition, potential investments that present a sound fit with Magnesium’s strategy will have been screened against Magnesium’s five core UN SDGs (see above).
Only companies that positively impact these criteria will progress from the sourcing stage into active due diligence.
Due Diligence: Identifying Risks & Opportunities
Sustainability-related risks are considered as part of Magnesium’s due diligence process. The due diligence process is based on best practice which involves in-house desktop research, management team interviews and assessments, 3rd party independent advisory & research, and historical performance analysis of financial, operational, commercial, environmental and HR data. Magnesium typically engages independent external advisors and industry experts to carry out its due diligence. ESG issues are identified and prioritised depending on the issues’ potential impact on the investment.
The due diligence process is closely managed by a dedicated Magnesium investment team, and concludes with a comprehensive report that includes material sustainability risks. The report forms part of the broader investment memo submitted to Magnesium’s Investment Committee, which is responsible for assessing and making the ultimate investment recommendation. The Investment Committee considers all identified financial, operational and sustainability risks amongst others. If such risks cannot be effectively managed or mitigated, the IC will decide not to proceed with the investment.
Alignment with the EU Taxonomy will in the future be considered as a way to further assess positive environmental contribution. However, it will not be used as an absolute criterion as there may be impacts relevant to Magnesium’s strategy that may not be explicitly covered by the taxonomy.
Code of Conduct
All Magnesium employees and team members are expected to adhere to the firm’s corporate values, and standards of business conduct as outlined in the firm’s Compliance Manual.
Remuneration paid to employees of Magnesium generally comprises a fixed and a variable component. Variable remuneration is discretionary and is awarded on the basis of the performance of the individual and the performance of the firm and the funds it advises. Compliance with Magnesium’s policies and procedures, including where applicable, compliance with its risk management and monitoring policies relating to the impact of sustainability risks, is considered as part of the overall assessment of an employee’s performance.
Adherence to International Standards
Magnesium is a signatory of the UN PRI (Principles for Responsible Investment) which requires its signatories to integrate ESG into their investment policies and practices, as well seek appropriate ESG disclosures from investee companies.