Sustainability-related Disclosures

PCF III promotes environmental or social characteristics for its entire portfolio, but does not have as its objective sustainable investment.

PCF III will make efforts to not significantly harm any of the sustainable investment objectives described in Annex I of the SFDR Delegated Regulation (EU) 2022/1288. Nonetheless, PCF III does not guarantee that portfolio companies’ business activities will not have any material adverse environmental and social impacts. PCF III will aim to eliminate, minimize or mitigate adverse impacts, including those described in Annex I, by assessing and taking into account potential adverse impacts and through the implementation of corrective actions.

PCF III is aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

PCF III promotes various environmental and social characteristics with the main focus for targeted impact being the following Sustainable Development Goals (SDGs): gender equality and reduced inequalities (SDG 5 and SDG 10); decent work and quality jobs (SDG 8); and climate action (SDG 13).

Additionally, PCF III is a Flagship Growth Fund of the 2X Collaborative, a structured network of the world’s leading gender impact investors. As a Flagship Growth Fund, PCF III has undertaken to ensure that it meets the 2X Challenge Criteria at two levels: i. management of the Investment Advisors; and ii. at the Fund portfolio level. The criteria establish gender thresholds in the following categories: entrepreneurship; leadership; employment; and consumption and also consider other qualitative indicators. Meeting a criteria threshold renders an investment ‘2X eligible’ thereby permitting the investment to be counted by an investor towards its public 2X funding commitment.

Other environmental and social characteristics are promoted through the implementation of PCF III’s environmental and social management system. The team identifies environmental and social risks and impacts at portfolio company level, and measures are taken to make improvements on various environmental and social characteristics. Examples include: biodiversity, stakeholder engagement, human rights, pollution prevention and reduction, waste management, climate change, occupational health and safety, internal and external grievance mechanisms, supply chain management, or emergency prevention, preparedness and response.

PCF III’s investment strategy includes two ways of promoting environmental and social characteristics. First, by intentionally investing with an impact focus as well as measuring and managing targeted impact, and investing in industries and sectors crucial for development (such as MSME lending, telecom, agri-food businesses, consumer services, and healthcare). Secondly, PCF III has implemented a comprehensive Environmental and Social Management System (“ESMS”), which sets out the policies and procedures in respect of the integration of sustainability risks and impacts in the investment continuum. The ESMS is compliant with the Performance Standards of the International Finance Corporation (“IFC”). Both the impact strategy as well as the implementation of the policies and procedures of the ESMS promote improved environmental and social characteristics at portfolio company level.

The ESMS defines the details for screening, assessing, classifying, managing and monitoring all relevant environmental and social characteristics, including employee relations and rights as well as remuneration. The PCF III team is actively involved in the Board of portfolio companies. Through legal documents and active Board involvement, PCF III seeks to ensure good governance practices including appropriate board composition, audited financial statements, requisite governance policies including risk management, tax compliance, information security and data privacy, anti-money laundering and anti-corruption as well as robust internal controls.

This following section is a summary description of the key steps of the environmental and social policy and ESMS:

Screen

Identify

Classify

In measuring sustainability risk, the “physical” or tangible risks of a sustainability event (for example, the impact of severe climate events leading to business disruption or losses for its investment positions) are taken into consideration. In addition, “transition” risks are also considered, which focus on the risk to investments as the world moves towards a more sustainable environmental and social model.

Manage

Monitor

The ESMS covers also good governance practices that will be assessed per portfolio company. Topics include employee related matters such as remuneration, benefits, worker’s organization (overall working and labour conditions), clear and effective management structures, or tax compliance. The good governance practices of investee companies are assessed prior to making an investment and periodically thereafter. The good governance practices set minimum standards against which investee companies will be assessed and monitored prior to making an investment and on an ongoing basis. Post-investment we actively support our investee companies to further improve the governance of their business.

Furthermore, we are a signatory to the UN Principles for Responsible Investment (the “UNPRI”). As a signatory to the UNPRI, the good governance practices of investee companies are assessed prior to making an investment and periodically thereafter.

PCF III has only direct exposure to portfolio companies by acquiring equity shares of a company.

Above 99% of the portfolio will be used to attain the environmental and social characteristics promoted by PCF III under category “#1 Aligned with E/S characteristics”, which will also comply with the IFC Performance Standards (i.e. the environmental and social safeguards). A negligible portion, less than 1%, will be cash held as ancillary liquidity (working capital for PCF III) falling under category “#2 Other”. Under the category “#1 Aligned with E/S characteristics”, 100% of the Fund’s portfolio will fall under the sub-category “#1B Other E/S characteristics”.

After finalizing the transaction and signing agreements, the PCF III team starts actively managing and monitoring a portfolio company. PCF III’s dedicated environmental and social team holds a kick-off meeting with the portfolio company. This meeting is part of a series of capacity-building efforts to ensure the environmental and social characteristics relevant to the business and the requirements of the environmental and social action plan (including sustainability impact indicators) are understand and owned by the portfolio company. Following the initial environmental and social training, the PCF III team supports the portfolio company in developing its own environmental and social management system (“ESMS”), which covers the targeted environmental and social characteristics and impact indicators. Once the portfolio company’s ESMS is developed, the PCF III team ensures that the ESMS is in implementation and the sustainability impact indicators are being achieved through regular monitoring calls, Board oversight, and where needed, site supervision visits. Additionally, as part of the internal control mechanisms, every portfolio company is required to provide annually an Environmental and Social Monitoring Report as well as an Impact Indicators Report covering all relevant impact indicators. PCF III’s active management and monitoring work continues throughout the investment continuum and ends with the exit of the portfolio company. An exit interview includes the environmental and social characteristics that have been promoted throughout the investment cycle and the value of continuing with the implementation of the established ESMS.

The external control mechanisms are two-fold. Environmental and social experts of the Limited Partners, which also include Development Finance Institutions and Multilateral Development Banks, are part of the ESG committee that meets quarterly. During these meetings the PCF III team shares all updates related to environmental and social matters. The same environmental and social experts usually accompany site supervision visits performed by the PCF III team. Additionally, portfolio companies are audited by local authorities on various environmental and social characteristics; audit results are shared with the PCF III team.

The PCF III team measures the promotion of the targeted environmental and social characteristics through two methodologies. The first methodology is directly through setting specific environmental and social targets and impact indicators (including interim targets) during deal negotiation with a potential portfolio company following the environmental and social due diligence. Throughout the investment cycle, and to a minimum annually, the specific impact indicators are measured and compared to defined targets. The second methodology is through the implementation of the company’s environmental and social management system (“ESMS”). A key part of the ESMS development is a comprehensive and detailed assessment of environmental and social risks and impacts. For each portfolio company, all relevant environmental and social risks and impacts are identified, rated according to likelihood of occurrence (for risks), severity, leverage of company, and a priority is assigned to develop adequate actions. A negative impact will be addressed either by eliminating, reducing, or mitigating the impact, which is being measured as corrective actions are implemented. For medium and high risks with a high likelihood or severe potential impact, preventive measures are taken.

The environmental and social risks and impacts are re-assessed as the business evolves, new trends merge, or opportunities arise, and additional actions are implemented and measured as needed.

(a) PCF III uses the following data sources to attain the environmental or social characteristics promoted:

Data from portfolio companies such as environmental licenses/permits, environmental or social certifications, policies, procedure manuals, training plans and materials, financial reports, Human Resources data and reports, occupational health and safety plans and reports, collective bargaining agreements, measurements taken of emissions/effluents, waste data and waste management plans, audit reports from local authorities, or environmental and social impact assessments. Databases for protected areas (protectedworld.org) and endangered species (IUCN lists). Reputational risk check performed for the portfolio company. (b) PCF III uses the following measures to ensure data quality:

Data from portfolio companies: Wherever possible, we use externally audited or produced data such as audited financial reports, environmental audit reports of local authorities, environmental and social impact assessments, or certification reports. Databases used are widely recognized and reputable. Web search on typical reputational risk related words, and whenever possible, a reputational monitoring application from the International Finance Corporation.

(c) The available data is internally processed by the environmental and social team.

(d) Data in use to assess environmental or social characteristics is seldomly estimated. The PCF III team requests the data from the portfolio companies, and during supervisions data is discussed. PCF III estimates the proportion of the estimated data to be below 5%.

(a) There are no major limitations to the methodologies and data used to ensure environmental and social characteristics are met. The active management and monitoring work of the PCF III team creates a close follow-up with portfolio companies. Through frequent contact and site supervision visits the PCF III team measures continuously the progress of the company’s environmental and social performance. Additionally, the PCF III team uses audited and externally verified data, wherever possible. Nonetheless, PCF III cannot guarantee that all data provided is 100% accurate.

(b) For the main targeted environmental or social characteristics promoted by PCF III – such as gender related data at Board, senior management and employment level, or technical environmental data – there are no major limitations. It is ensured that data for reaching these specific environmental or social targets is accurate.

The due diligence is preceded by an initial screening in the early stages of considering a company for investment. During this screening phase, the PCF III team ensures no activities from the Exclusion List are supported by the operations of the company. The team analyzes the environmental and social risks and impacts typical for the industry and country, and any environmental and social information of the company already available at this early stage. Additionally, a screening of protected areas and species nearby the company’s locations is performed, as well as a reputational check of the company. Based on these results, potential material environmental and social risks and impacts are defined, and a preliminary environmental and social category determined. Additionally, potential positive impacts are deducted, focusing on the 2XChallenge criteria and the targeted Sustainable Development Goals. The results of the environmental and social screening and impact potential are included in the Initial Project Review document.

Once the Investment Committee approves the investment for in-depth due diligence, the detailed environmental and social due diligence questionnaire (which also includes questions related to gender and diversity) is shared with the company. The questionnaire is based on IFC’s Performance Standards, the general Environmental, Health, and Safety Guideline, the industry/sector specific Environmental, Health, and Safety Guideline (if available), the 2XChallenge criteria, as well as the Women’s Empowerment Principles. Depending on the industry/sector, additional standards or guidelines are included. The due diligence questionnaire is adapted to the specifics of the company’s operations as well as to the environmental and social issues typical for the country. The questionnaire includes also quantitative social (male/female/youth employees or senior managers, community spending, customer data) and environmental data (such as air emissions, effluents, solid waste). Additional to the questionnaire, any documentation related to sustainability is required (such as Environmental Policy, Business Code of Conduct/Ethics Policy, Human Resources Policy/Manual, Employee Handbook, Non-discrimination and Anti-Harassment Policies, Operational Manuals/Plans, OHS Plan, waste related documentation, or Emergency Preparedness, Response, and Recovery Plan). Evidence of implementation is also required, where possible (such as evidence on training provided, air emissions measurement data, or waste recycling/disposal data). For companies categorized as high environmental and social risk, an appraisal site visit is performed. Based on the analysis of all the information available, also the potential for positive impact – especially related to the 2XChallenge criteria and targeted Sustainable Development Goals – is projected, and targets determined and discussed with the company. Results of the due diligence are documented in the environmental and social due diligence report, which includes an environmental and social action plan with detailed corrective actions and the sustainability targets. The environmental and social action plan as well as standard environmental and social covenants are incorporated into the legal agreements with the company.

The environmental and social due diligence report is shared with the investment team. The environmental and social team is represented in the Investment Committee to discuss the due diligence findings, actions and targets, and to share its vote on the final investment decision.

The environmental and social due diligence report and action plan are also shared with Limited Partners, which provide their feedback on the findings and adequacy of corrective actions. For companies categorized as high environmental and social risk, Limited Partners usually join the appraisal site visit.

The PCF III team actively works with portfolio companies on all relevant environmental and social matters, and the engagement approach is mainly defined in the environmental and social management system. After deal close, the PCF III team works as an active partner with each portfolio company to improve the environmental and social performance and achieve the environmental and social impact targets. Details on the engagement approach and strategy are described under the sections “Investment Strategy” and “Monitoring of Environmental and Social Characteristics”.

PCF III has not designated a reference benchmark.