ESG Questionnaire Response - TorQuest

1. Please provide your ESG-related policies.

TorQuest’s ESG Policy is publicly available on our corporate website at https://torquest.com/ESG.

TorQuest’s Diversity & Inclusion Policy (August 2022 update) is being submitted with this Responsible Investing questionnaire.

2. Are sustainable investing and ESG factors integrated into your investment process and portfolio management decisions? If yes, please provide details.

Yes. TorQuest believes that evaluating ESG considerations — for itself and each potential investment — is consistent with providing the best possible returns to its investors. ESG is an effective lens for identifying risks and creating value throughout the investment lifecycle, across locations and markets, and in the transition to a low-carbon economy.

TorQuest integrates ESG into its decision making in line with these principles:

Our ESG Policy includes additional detail about the most relevant ESG considerations for TorQuest. A high-level summary of those topics is presented here:

TorQuest considers these ESG factors in its:

3.a. Are you a signatory to the UNPRI?

Yes. In 2022, TorQuest became a signatory to the Principles for Responsible Investment.

3.b. If you are signatory to other coalitions, please list them.

None

3.c. Indicate any other international standards, industry guidelines, reporting frameworks, or initiatives that guide your responsible investing practices.

TorQuest’s ESG policy, strategy and practices are informed by several international standards, leading practices, and expert advice. In particular, the TorQuest team and its advisors refer to guidance from the Sustainability Accounting Standards Board (“SASB”), PRI, TCFD and, as required, industry-specific frameworks, such as the World Bank Group’s Environmental, Health and Safety Guidelines.

TorQuest is also in the process of baselining ESG performance across holdings, which includes collecting ESG performance KPIs from portfolio companies. TorQuest has aligned its approach to the ESG Data Convergence Initiative, while also identifying industry-specific KPIs and developing more nuanced initiatives at each company. Like many investors, TorQuest anticipates this will be a collaborative, multi-year exercise creating a standardized set of ESG metrics and mechanism for comparative reporting among private companies.

4. Please describe how ESG oversight and integration responsibilities are structured at your firm, including the process for escalation of key ESG issues. How do you obtain ESG information/data (e.g. public information, third party research, reports and statements from the company, direct engagement with the company)?

TorQuest’s investment professionals are primarily responsible for integrating ESG into their work, including investment opportunities that are considered by the Investment Committee and workplace initiatives directed by the Management Committee. All staff must familiarize themselves with the ESG Policy and adhere to its objectives.

TorQuest’s Chief Legal Officer and Chief Financial Officer are accountable for the ESG Policy. TorQuest’s Director of Portfolio Management leads ESG engagement with portfolio companies, supported by TorQuest investment professionals.

Where additional subject matter expertise is appropriate, investment teams use external consultants, advisors and other resources to help assess ESG value creation opportunities and mitigate ESG risks. On a transaction-by-transaction basis, ESG information and data are obtained from information requests, management consultations and publicly available sources.

The Investment Committee reviews and considers relevant ESG factors in evaluating the merits of each investment transaction. If an investment is approved, the Investment Committee ensures that any material risks are clearly identified and appropriately monitored and actioned post closing.

Other ESG strategy initiatives to further operationalize our ESG objectives in firmwide activities — such as staff training and our ESG portfolio baselining initiative — are led by our Director of Portfolio Management, reporting to the firm’s partners, and supported by other TorQuest staff and/or external consultants.

5. What channels do you use to communicate ESG-related information to clients and/or the public? Do you produce thought leadership (written reports and publications)? If so, is the information available to the public? Please provide links, if applicable.

The primary channels for communicating ESG-related information to clients are direct engagement, quarterly communications and our corporate website. ESG-related updates to clients are provided in TorQuest’s quarterly reports, annual meetings, investor calls, and questionnaires and as discussed earlier TorQuest is working towards reporting on the six metrics outlined in the data convergence initiative. TorQuest is also pleased to discuss its ESG practices with LPs directly on an ad hoc basis, noting that ESG-related enquiries can vary considerably across investors.

Within our portfolio holdings, individual companies also may issue news releases or other publicly available ESG communications, such as an annual ESG report.

6. Do you have periodic reviews of your ESG process/approach to assess its effectiveness? What are the results? What would cause you to disregard ESG issues in your investment/analysis decisions?

Yes. TorQuest assesses its ESG Policy regularly, considering evolving international standards, peer practices and investor feedback. Updates are made when required or appropriate. TorQuest’s current ESG Policy has been in place since 2019. The most recent updates were made in January 2022. Employees are notified via e-mail when revisions are made. TorQuest is also in the process of executing a multi-year ESG strategy initiative, which includes leading practice review, staff training and portfolio company ESG engagement.

In some instances, TorQuest may have limited ability to control or significantly influence the integration of ESG considerations. This may occur where TorQuest is a minority shareholder or where other circumstances affect TorQuest’s ability to assess, set or monitor ESG-related performance. In these cases, TorQuest makes reasonable effort to encourage investment partners and portfolio company management to consider TorQuest’s ESG-related principles. If the investment does not align with TorQuest’s ESG standards, it would be removed from consideration.

7. Describe how you identify, assess, and manage climate-related risks.

TorQuest’s policy commitment to addressing climate change is included in its ESG Policy. TorQuest believes that climate change presents diverse challenges and opportunities for the private equity industry including physical and transition risks. The policy is to integrate climate change considerations across each stage of the investment lifecycle.

For example:

• At the screening stage, we do not make investments directly in interests in oil, gas or mineral rights or commodities, or in issuers where their primary business is in these areas.
• For ESG due diligence, our approach includes specific questions and data requests related to climate change and related topics, such as air emissions, energy consumption and fuel usage.
• In asset management, TorQuest is currently in the process of establishing the foundations for a climate initiative support program for our portfolio companies that is resilient to differing climate scenarios and market developments. Similar to many investors of our scale, this will be a multi-year exercise tailored to the unique considerations of our portfolio companies. (Additional detail provided below.)

Our initial focus is on identifying and baselining ESG performance across TorQuest’s holdings, which includes an assessment of the carbon footprint of portfolio holdings, climate-related risks and the opportunities presented by the global transition to a low carbon economy. TorQuest is in the process of collecting six ESG metrics to monitor annually. Aligned with the ESG Data Convergence Initiative, this includes two climate-related KPIs: GHG emissions and renewable energy consumption. The initiative is led by our Director of Portfolio Management, supported by each investment team, and includes direct engagement with portfolio company leadership. Subsequent phases of this initiative will focus on emissions forecasting, target setting and operationalization at the firmwide and individual holding levels.

TorQuest has also prioritized the sustainability and carbon intensity of our own operations. In particular, we have taken steps to reduce business travel where possible, encourage a paperless environment, replace the use of plastic water bottles with water stations, and minimize food waste.

8. Describe the climate-related risks and opportunities you have identified over the short, medium, and long term.

Our investment and asset management activities related to current and potential portfolio holdings consider potentially material transition risks and opportunities (created by the global drive to decarbonize the world’s economy) and physical risks and opportunities (created by the impacts of increasingly frequent and severe acute weather events and chronic conditions including heatwaves and drought).

Opportunities include the role our portfolio holdings can play in enabling the low-carbon transition or increasing the world’s ability to adapt to physical climate impacts. These risks and opportunities related to the short, medium and longer-term are considered in the context of our planned hold periods and the potential impacts on exit conditions.

9. Describe the resilience of your investment strategy, taking into consideration different climate-related scenarios.

See response to item 7.

10. Do you track the carbon footprint of portfolio holdings?

Yes. TorQuest is in the process of measuring GHG emissions (tCO₂e) across its portfolio — Scope 1 emissions and Scope 2 emissions — and building the foundations for a climate initiative support program for our portfolio companies. TorQuest is working with leading external advisers to support our efforts in this area.

If yes, please describe the methodology and metrics used, and whether you have a set target for reducing the portfolio's footprint.

See above.

11. What are your firm's emissions? Please demonstrate how/whether you are taking steps to reduce these emissions.

TorQuest is still in the process of calculating its carbon footprint.

12. For the mandate you manage for Queen’s, what percentage of equity holdings (if applicable) have credible net zero commitments?

None today.

13. How do you assess the credibility of a company’s emission reduction targets?

See response to item 7.

14. What forward-looking metrics do you use to assess an investment’s alignment with global temperature goals?

See response to item 7.

15. Please provide the composition of your senior leadership team and board of directors, including women and visible minorities. How do you encourage diversity of perspectives and experience?

TorQuest strives to be an inclusive employer and values the many benefits that diversity leads to for our Company culture, such as new ideas, fresh perspectives, employee wellbeing and a sense of belonging. TorQuest believes that the promotion of diversity makes prudent business sense and leads to better investment outcomes. We acknowledge the impact of systemic racism on Canada’s Black citizens, along with the need to create greater opportunities for Black people and other minorities within corporate Canada.

TorQuest supports efforts to increase diversity in the talent pipeline for the investment community. For example, we are proud to support the BlackNorth Initiative, which is working to combat anti-Black systemic racism in Canada, and to be a Visionary Sponsor of The DMZ at Ryerson University’s Black Innovation Fellowship Program. Moreover, to ensure we are making a direct, hands-on impact, we started a multi-year TorQuest Scholars Program. The program provides internship opportunities to candidates from diverse backgrounds, while also supplying them with years of mentorship in support of an eventual transition to a meaningful career in private equity or a similar field. Additional information on this program is publicly available on our corporate website at https://torquest.com/scholars.

TorQuest has the following policies and procedures that promote a positive culture and an inclusive, equitable, and diverse workforce:

• Relevant policies include the Diversity & Inclusion Policy, Workplace Harassment and Discrimination Policy, Compliance Manual, Code of Ethics, and Human Resources Manual.
• Diversity & Inclusion initiatives and achievements are included in the firms quarterly reporting.
• Communications to portfolio company leadership describing TorQuest D&I initiatives.
• Extended hybrid work environment to provide personal and family care flexibility.

TorQuest’s senior leadership team comprises 10 partners, including 1 woman.

16. After making the decision to invest in a fund/company, what is your process for monitoring the investment’s ESG performance during your ownership period?

TorQuest’s process for monitoring ESG performance is based on active and continuous engagement with portfolio companies’ leadership teams and through our representation on boards of directors. In 2022, we standardized our ESG performance management approach resulting in a more formalized portfolio company onboarding processes with respect to ESG performance standards and increased consistency of ESG metrics across companies and/or industries.

TorQuest works with each portfolio company to improve and optimize ESG value creation opportunities. TorQuest’s ESG workstream aims to: (i) understand material ESG factors related to the portfolio company’s business; (ii) conduct a baseline assessment of the portfolio company’s ESG approach to date; (iii) and identify possible next steps towards enhancing their ESG approach (e.g., ESG policy, framework, strategy).

In 2023, TorQuest continued the process of baselining ESG performance across holdings, which includes an assessment of ESG efforts and value-creation opportunities. Like many investors of TorQuest’s scale and given the middle-market, entrepreneurial nature of the portfolio companies TorQuest owns, this will be a multi-year exercise tailored to the unique considerations of TorQuest portfolio companies. This initiative is led by TorQuest Director of Portfolio Management, supported by each investment team, and includes direct engagement with portfolio company leadership.

This baselining of ESG performance includes collecting a minimum of six ESG performance KPIs from portfolio companies to monitor annually. The six KPIs align with the ESG Data Convergence Initiative, which includes: (i) greenhouse gas (GHG) emissions; (ii) renewable energy consumption; (iii) health and safety; (iv) diversity, equity, and inclusion (DEI) efforts; (v) attraction, retention and employee engagement; and (vi) employee engagement. These metrics will be commonplace across all TorQuest’s portfolio companies, with additional industry specific metrics tracked at management’s discretion.

Progress against ESG strategy and deployment is discussed regularly by company boards, with several portfolio companies choosing to report and track progress against hard metrics. The same information, in a less formal capacity, has been a part of quarterly updates for each portfolio prior to the standup of TorQuest’s ESG strategy and ESG Policy.

17. How do you ensure that your investments’ management devotes sufficient resources to ESG factors?

TorQuest’s evaluation of an investment company’s ESG approach, policies and practices begins in ESG due diligence at the transaction stage and continues through the hold period, as also described in items 16 and 18.

The ESG baselining exercise, outlined in the response to item 16, is intended to improve and optimize value creation opportunities such as ensuring management devotes sufficient resources to manage relevant ESG factors. Where management does not have sufficient expertise, TorQuest will facilitate introductions to various 3rd parties (e.g., strategic ESG advisors, support for GHG measurement) to ensure ESG priorities are met with the appropriate attention. Moreover, ESG is also a board level agenda item reviewed quarterly and, as such, is a priority for TorQuest management teams.

18. Do you engage with your investments’ management teams on ESG issues? If so, please provide a recent example including the ultimate outcome.

Yes. As one example, in January 2023, we hosted an ESG roundtable among our portfolio companies’ management teams to share current practices, challenges and opportunities. The session was attended by 24 representatives from 15 portfolio companies. Coming out of the session, TorQuest established a Microsoft Teams site dedicated to ESG that all management teams could access for relevant ESG resources, such as how to stand-up an ESG committee, decarbonization strategies for small to medium-sized businesses and TorQuest’s ESG Policy, among other topics.

Also, as mentioned above, TorQuest is in the process of engaging each management team on the collection of consistent ESG metrics and company-specific opportunities.

19. Does ESG performance influence your decision to exit an investment and/or reinvest with a fund manager?

ESG performance is among the considerations that influence our investment decisions.

20. Do you measure whether your approach to ESG affected the financial performance of your investments? If yes, please describe your approach.

Given the pervasive nature of ESG risks and opportunities, attributing overall financial performance to specific ESG factors is difficult. TorQuest more broadly ensures that its Board representatives and portfolio managers are knowledgeable about ESG and opportunities to integrate ESG into portfolio company strategy, governance, risk management and performance measurement.