ARROYO ENERGY INVESTMENT PARTNERS, LLC. - RESPONSIBLE INVESTMENT POLICY

Our Approach to Environmental, Social and Governance (ESG) Management

At Arroyo Energy Investment Partners we are committed to working alongside our portfolio companies to ensure that environmental, social and governance considerations are integrated within their operations. We recognize that environmentally and socially responsible practices can support long-term, sustainable growth.  Arroyo considers environmental and social responsibility in the investment decisions that we make.  Our due diligence activities include reviewing the environmental, health, safety and anti-corruption records and governance practices of target investments such as their compliance with applicable laws and regulations.

Our goal is an ongoing, regular assessment of our businesses under our ESG framework. Once we make an investment, we use the five pillars below to help guide our own decision-making processes, to provide an ESG framework that empowers our portfolio companies to act in a responsible manner:

  • Environment — minimizing and managing environmental impacts;
  • People — respecting and empowering employees while prioritizing health and safety;
  • Business Ethics — operating to the highest ethical standards;
  • Governance — operating to the highest standards of corporate governance; and
  • Community — delivering positive community engagement

Each of our ESG pillars is covered in greater detail below and focuses on both the management of ESG risks and realization of potential commercial opportunities. While these pillars form the basis of our expectations of portfolio company performance, we understand that they are likely to vary in relevance across our businesses and the markets in which they operate. We therefore apply these on a case-by-case basis to ensure we are managing key material ESG risks and opportunities.

We seek to effectively and transparently communicate with our investors and stakeholders on environmental, social, and governance considerations, and we encourage our portfolio companies to do the same with customers, employees and members of the communities in which they operate.

Environment – minimizing and managing environmental impacts

Minimizing and managing key environmental impacts is fundamental to good environmental stewardship, and is core to acting as a responsible investor and business. Compliance with the appropriate regulatory framework is an essential requirement, and we expect all our portfolio companies to have the appropriate monitoring systems in place to promote compliance with all current regulatory requirements.

Beyond compliance requirements, we believe there are numerous opportunities to deliver commercial value through ongoing improvements to environmental management, specifically focusing on resource efficiency and energy management.

The focus and breadth of issues will be shaped by individual companies and would be expected, in most cases, to address the following operational impact areas:

  • Energy – manage energy usage efficiently (including responsible property management and transportation choices);
  • Waste – follow the waste management hierarchy: 1) prevention 2) reuse 3) recycling and 4) disposal (with disposal to landfill being the least preferred option); and
  • Water – manage water usage efficiently and in compliance with applicable discharge regulations.

People – respecting and empowering employees while prioritizing health and safety

The health and safety of our portfolio companies’ employees is of the utmost importance. We also believe that developing appropriate people policies that focus on respecting and investing in employees will contribute toward an engaged and motivated workforce.  We seek to foster healthy, safe choices in the workplace. Where possible we encourage portfolio companies to:

  • Ensure the health and safety of all
  • Offer opportunities for learning and professional development;
  • Identify and invest in talent;
  • Promote open two-way communication with employees;
  • Encourage and promote a diverse workforce; and

This is not an exhaustive list and we expect initiatives in this area to be relevant to the individual business and the market within which they operate. At the very least we would expect portfolio companies to meet industry practice in people management and benchmark themselves on a regular basis against industry peers. Health and safety should be a key board agenda item for all portfolio companies.

Business Ethics – operating to the highest ethical standards

At all times we expect honest and transparent trading. We expect portfolio companies to:

  • Maintain high standards of business integrity at all times;
  • Have a clear anti-corruption and anti-bribery policy, supported by appropriate levels of compliance monitoring; and
  • Understand the key risks associated with suppliers’ labor practices (including the use of child labor, working conditions, wages and discrimination) and environmental impacts throughout the supply

Governance – operating to the highest standards of corporate governance

Good governance is vital and underpins the performance of our portfolio companies. We insist that companies have regular, structured board meetings with supporting papers, undertake regular strategic planning and have a clear focus on the revenue opportunities and operational improvements that will drive shareholder value.

In addition to this, and relevant to this policy, we expect our portfolio businesses to ensure that responsibility for ESG related matters is designated to an individual with suitable authority and that ESG matters are considered at board level on a periodic basis.

Community – delivering positive community engagement

Positive community engagement can offer a range of business benefits (such as recruitment, enhanced reputation and social license) and provide businesses with support from the communities within which they operate. Typical positive engagement may include:

  • Partnering with charities working in the area;
  • Sponsoring specific workplace projects;
  • Sponsoring wider community initiatives; and
  • Minimizing any adverse community

We recognize that portfolio companies work with a varied number of local and national charities, and that the reasons for each engagement are unique to each organization.  We are proud that our portfolio companies support local workforces with training and career opportunities, in addition to giving back through community involvement and charitable activities.