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Risk Management

ARCH’s ESG Policy ensures that we manage ESG risks and opportunities effectively across the whole investment lifecycle.

Managing ESG Risks

In addition to requiring compliance with national laws and regulations pertaining to ESG, we conduct investments in alignment with international ESG management standards and practices including:

  • The International Finance Corporation (IFC) Environmental & Social Performance Standards 1 and 2 as well as its associated Guidance Notes
  • The World Bank Group’s general guidelines as well as relevant sector and Environmental, Health & Safety (EHS) guidelines
  • The International Labour Organization (ILO)’s core standards

ARCH regularly monitors, reviews and reports on the Funds’ and investments’ ESG performance in alignment with Environmental and Social Management Systems (ESMS). Each ESMS is fit-for-purpose in relation to each investment theme and includes policies, procedures and tools to:

  • Integrate a rigorous ESG lens at each stage of the investment process.
  • Evaluate the Fund’s ESG risk level – such as fatal flaws and alignment with applicable ESG standards – and the company’s ability to close gaps – such as manage unacceptable risks and realise value creation opportunities.
  • Monitor and report on the ESG framework for investments and Funds, including material ESG metrics.
  • Provide sufficient, expert ESG resources to dive deeper into specific issues or if an Environmental and Social Impact Assessment (ESIA) is needed.
  • Incorporate ESG terms into investment agreements.
  • Oversee the development and agreement of a tailored ESG action plan based on outcomes of the due diligence process and how it should be implemented during the investment period.

The Funds‘ ESMS also define actions for active ESG stewardship, including supporting ARCH’s investments by sharing knowledge, building internal capacity, and leveraging board/shareholder influence. They outline prohibited investment activities based on the IFC’s Exclusion List, at minimum, as well as requirements from Limited Partners (LPs).

As part of ARCH’s Fund strategies to minimise adverse ESG impact, we seek to avoid involuntary physical and economic displacement where possible, or conduct it in line with IFC’s Performance Standard 5 to minimise impact. We also strive to avoid negatively impacting critical cultural heritage; Indigenous Peoples; legally protected and internationally recognized areas; and critical habitats.

ARCH is committed to upskilling investment teams on, and developing a tool to support them with pre-screening targets’ climate risk exposure. We are also committed to conducting climate risk scenario analysis at the portfolio company level in line with disclosure recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).