DEEN

Sustainability and Responsible Investment

STATUS: FEBRUARY 2015
Deutsche Beteiligungs AG is committed to sustainable corporate governance and complies with high standards in the areas of environment, social aspects, and corporate governance (hereinafter referred to as "ESG" for Environment, Social, and Governance). As a private equity company, this commitment includes both our own Company as well as the integration of the principles of responsble investing into the investment process for the investments we take care of (as a manager or advisor).

1. THE SUSTAINABILITY APPROACH OF DEUTSCHE BETEILIGUNGS AG

Within our Company, our main focus when it comes to sustainability, is placed on the following topics:

We strive to align our own actions in order to minimize the emission of greenhouse gases as well as to achieve the highest resource efficiency possible:

  • We deliberately restrict our business travel to just the amount necessary, and replace this travel as far as possible with alternative forms of communication, such as video conferencing, and have adopted an internal travel expense policy that stresses cost-efficiency and environmentally-friendly action.
  • Our offices conform to the latest environmental standards for air conditioning, heating and lighting.
  • In the procurement of consumables, such as office supplies, we pay close attention to sustainability criteria and maintain a technical office infrastructure that facilitates a significant reduction in paper consumption.
  • As part of the "Carbon Disclosure Project", we report in detail on the emission of greenhouse gases on an annual basis.

We recognize that our employees are our most important resource in a variety of ways:

  • We believe, occupational safety, the protection of our employees' health, and maintaining a non-discriminatory work environment take the highest priority.
  • We create opportunities for the training and personal development of our employees.
  • We have remuneration systems that reward success and achievement appropriately.
  • We comply with international conventions for human rights protection and for the prevention of child labor.

We are involved in society in numerous ways:

  • We have been supporting the Schirn Kunsthalle as a member of the FRIENDS OF SCHIRN E.V. Association since 2002 – also to the benefit of our shareholders. Every year, they receive a voucher for admission to an exhibition.
  • We have also created a foundation: Its principal purpose is the financial support of active and former employees of current and former portfolio companies of Deutsche Beteiligungs AG and their dependents in emergency situations. The foundation also promotes art and culture in the Frankfurt/Main area.
  • For a company of our size, we demonstrate an intense involvement in the field of education and training: For many years, we have been a training company for office clerks in the area of office communication and IT systems. We also provide dedicated interns with opportunities to gain insights into the private equity business on a regular basis.

We have extremely high standards in terms of compliance with recognized standards of corporate governance. This is not only true for the listed Deutsche Beteiligungs AG but also for management and advisory companies of the fund companies which belong to the DBAG Group and to the portfolio companies we supervise.

Solid and responsible corporate governance and control are a high priority at Deutsche Beteiligungs AG. Through open, timely, and regular information as well as transparent decision-making structures, we justify and foster the confidence of our current and prospective shareholders as well as other investors. Many requirements arise directly from the Stock Corporation Act, the Securities Trading Act, and other laws. In our opinion, these requirements have always represented the minimum standard since we exceed these standards in our own Articles of Association, Rules of Procedure and, above all, in our everyday activities. Every year we submit the so-called Declaration of Conformity pursuant to § 161 of the Stock Corporation Act and disclose this on our web page. This is how we demonstrate the extent to which we comply with the recommendations of the German Government Commission and the „German Corporate Governance Code“.

Deutsche Beteiligungs AG’s compliance with legal regulations and the compliance of the portfolio companies we supervise are essential to us. In this respect, we adhere to a „zero-tolerance“ policy. We are strictly against any form of corruption or other unethical business practices. To meet the high requirements of regular and fair conduct („compliance“) within our Company and when dealing with portfolio companies, we have implemented a comprehensive compliance system:

  • Our Code of Conduct contains what represents for us, the key values and principles of conduct.
  • Our compliance policy includes detailed provisions and implementation information on various compliance topics such as travel expenses, entertainment, dealing with gifts and invitations, employee transactions, equal treatment, and IT.
  • There are clear rules regarding the organization and control of the compliance system; these include its further development and providing of information to employees on a regular basis.
  • There are clear regulations for compliance in transaction processes, i.e., in the due diligence and purchase agreements for investments in new portfolio companies.
  • We have explicitly formulated our requirements for the compliance systems of our portfolio companies.

2. POLICY FOR RESPONSIBLE INVESTING

We are convinced that companies with high ESG standards are better managed, incur less business risk, and ultimately create more value. Therefore, we are committed to meeting the appropriate ESG standards in the context of our investment activities. We want to be in accordance with the interests of our shareholders and our investors in the funds we manage or advise in terms of responsible investing.

Accordingly, we have designed the investment process for the investments we are in charge of:

  • In the course of reviewing a new investment opportunity, we examine the extent to which the ESG criteria described below apply.
  • We monitor the ESG development over the entire holding period of an investment, until the time of its disposal, and try to achieve improvements in the relevant criteria in cooperation with the portfolio company and to the best of our ability.

We have developed this policy so that it may serve as a recommendation and guide within our Company. We want the portfolio companies we take care of to understand this policy as a clear expression of our expectations for dealing with ESG issues. We are aware that each portfolio company is driven by its own individual internal and external factors and may therefore place a different importance on the ESG criteria described below. Additionally, the division of roles between the portfolio companies and Deutsche Beteiligungs AG is clear: The managements of the portfolio companies are responsible for their respective conduct of business. Employees and corporate bodies of Deutsche Beteiligungs AG are not holding executive positions at the portfolio companies. They are merely represented on advisory boards or on the supervisory bodies of the portfolio companies. Through this role and its resulting influence they work towards optimally implementing this policy.

When conducting a review before entering into a new investment, and when subsequently supervising the portfolio company, we focus on the following ESG criteria:

  • Environment: Minimization and professional management of the detrimental impacts on nature
  • Labor and Social Affairs: The promotion of favorable working conditions, high social standards, and providing a positive contribution to society
  • Corporate governance and business ethics: Compliance with the best possible standards and the promotion of good business practices

2.1.1 ENVIRONMENT: MINIMIZATION AND PROFESSIONAL MANAGEMENT OF DETRIMENTAL IMPACTS ON NATURE
We strongly believe that improving the environmental balance of the portfolio companies we supervise leads to sustainable value creation. We are aware that all decisions are not free from conflicts of interest. Nevertheless, our requirement is to find the best ecological and economic solution possible.

We expect the portfolio companies to ensure that:

  • The existing environmental legislation at the respective site is strictly adhered to and that a “zero-tolerance” policy in this regard is followed.
  • Good risk management also includes the avoidance of environmental damage.
  • The aim is to use a minimum of energy, hazardous substances, and water.
  • There is an effort to avoid the formation, or at least the minimization, of waste.
  • The aim is to have the highest possible level of reutilization and recycling.

Above and beyond these key topics, we assist the portfolio companies we supervise in actively dealing with further environmental issues that may arise from their specific business area: For example, the conservation of natural biodiversity or the introduction of a sustainability-focused purchasing policy.

2.1.2 LABOR AND SOCIAL ASPECTS: PROMOTING FAVORABLE WORKING CONDITIONS, HIGH SOCIAL STANDARDS, AND PROVIDING A POSITIVE CONTRIBUTION TO SOCIETY
We are convinced that safe working conditions, opportunities for personal advancement, and attractive remuneration models are central factors for the portfolio companies we supervise when attracting and developing the best employees. We also consider it important that each portfolio company make a positive contribution to their respective environment and we explicitly support them in this endeavor.

We expect portfolio companies to deal extensively with the following topics:

  • Safety, employee health protection and the preservation of a non-discriminatory work environment are a priority.
  • Opportunities for training and personal development are offered to employees.
  • Remuneration is based on systems that reward success and achievement appropriately.
  • Free collective bargaining and collective bargaining rights are recognized and respected.
  • We expect international conventions for human rights protection and for the prevention of child labor to be observed.

If a reduction in the number of employees is required as a result of economic and / or corporate crises, we and the management teams the portfolio companies we supervise are aware of our tremendous responsibility to preserve jobs. We require that the best possible solution is found from a social and economic point of view.

2.1.3 CORPORATE GOVERNANCE AND BUSINESS ETHICS: COMPLIANCE WITH THE HIGHEST STANDARDS AND THE PROMOTION OF GOOD BUSINESS PRACTICES
The application of good corporate governance is an important part of our investment strategy. We believe it is essential that the portfolio companies we supervise comply with all legal regulations. In this respect, we adhere to a “zero-tolerance” policy. Above all, we are strictly against any form of corruption or other unethical business practices.

When reviewing investment opportunities in new portfolio companies and during the management or supervision of an investment by monitoring the portfolio company, we consider the following issues to be particularly important:

  • Compliance in transaction processes
  • Portfolio company compliance systems
  • Supervisory or advisory boards of portfolio companies

These are described in more detail in the section titled “Integration into the Investment Process”.

We have integrated this policy into the investment process for both our own investments and for the investments we manage or advise. We believe that the investment process should comprise the execution of the investment, the subsequent supervision of the investment, and the divestment from the portfolio companies. This document is intended to serve as an understandable guide of action for members of the investment team and/or investment advisory team of Deutsche Beteiligungs AG, members of the investment committees, and the senior management of the portfolio companies.

2.2.1 REVIEW OF INVESTMENT OPPORTUNITIES
All investment opportunities that meet the investment program's investment criteria are analyzed. This results in an ongoing improvement in the level of information depending on the course of the investment process. Especially at the start of the process, there is usually only rudimentary information available; by default anonymous company profiles are used before the signing of the corresponding confidentiality agreements.

We ourselves do not invest in specific industries or companies (e.g., there are no investments in weapons manufacturing companies), and the observance of such exclusion criteria have been contractually committed to the investors in the investment programs we manage or advise. Such investment opportunities may not be pursued (further).

When considering new investments, the compliance regulations are applied to transaction processes (i.e., in the due diligence and purchase agreement for investments in new portfolio companies). These are a part of the Deutsche Beteiligungs AG compliance system.

2.2.2 DUE DILIGENCE
Due diligence (careful review of an investment opportunity) should include an analysis of the risks and opportunities of the fulfilment or non-fulfilment of ESG criteria. We are aware of the fact that every investment opportunity is different and that it is difficult to make generalizations. We are also aware that the ESG criteria mentioned can be of varying relevance. Nevertheless, it is useful to give the members of the investment team and/or investment advisory team the most concrete recommendations for action possible for the definition of the ESG due diligence contents, whereby the accompanying questionnaire and lists of topics may be supplemented or modified in any particular case by the contribution of consultants specialized in ESG issues. We have developed topic-lists for environmental, social and related corporate governance ESG subjects.

When necessary, the due diligence results should include recommendations on appropriate measures for improvements in terms of the relevant ESG criteria during the holding phase.

2.2.3 INVESTMENT PROPOSALS
We expect investment proposals to include a careful analysis of the risks and opportunities of ESG (core) subjects. This manual should serve as a guide to the members of the investment or investment advisory committees, respectively.

2.2.4 HOLDING PHASE
As a shareholder representative, we attach importance to the fact that a supervisory or advisory board is formed for each of the portfolio companies we supervise. These boards shall always be comprised of independent industry experts as well as board members or employees of Deutsche Beteiligungs AG. The members of the supervisory and advisory boards should be given control rights and accompany the management of the portfolio companies in an advisory capacity to the extent not already provided for by law. We expect that the portfolio companies we supervise hold routine supervisory board or advisory committee meetings. The supervisory and advisory board of the portfolio company will review the strategy and budget regularly and discuss this with management.

We have clearly formulated our expectations on the compliance systems of our managed portfolio companies (as part of the compliance system of Deutsche Beteiligungs AG), and in the case of new portfolio companies, we expect these expectations to be implemented rapidly.

Based on the knowledge gained in the due diligence process, we expect that the portfolio company management teams, with the support of their supervisory or advisory boards,

  • will take measures to improve ESG performance and deal with ESG issues on a regular basis as part of supervisory and advisory board meetings, and
  • set qualitative and quantitative indicators of ESG performance that are as objective as possible and regularly provide these to the shareholders in an appropriate manner, as well as
  • review the implementation of ESG criteria of add-on acquisitions in an appropriate manner prior to the acquisition.

Furthermore, it is our expectation that in the case of serious incidents occurring at the portfolio companies we supervise with regard to ESG, we will receive a timely report, including the actions taken to the extent that this is appropriate and legally permissible. In our view, such serious incidents include accidents involving personal injury or severe environmental pollution. We would like to report on our investment portfolio's ESG performance in an appropriate manner.

2.2.5 DIVESTMENTS
We believe that the measures taken during the holding phase are value-enhancing and that this is reflected in a corresponding higher level of divestment proceeds. In the course of preparing the divestment process, we expect to be provided with the corresponding information on ESG performance.

3. SUSTAINABILITY OFFICER

Deutsche Beteiligungs AG appoints a Sustainability Officer who reports to the Management Board. He is responsible for implementing this policy accordingly, and to regularly review the policy and revise it, if necessary.