Lighthouse ESG Framework

At Lighthouse, we believe that finding “world class” operators in not simply about scale, quality and profitability. We seek out and back businesses that uphold the highest standards of human and labor rights; ethics and governance; and environmental and social responsibility. We firmly believe that it is in the best long term interests of our businesses, and a true indicator of the entrepreneurs’ integrity and mindset. While we must maintain a flexible outlook, we believe it is generally consistent with our fiduciary duties to commit to the following environmental, social and corporate governance (ESG) framework.

Categories of ESG Evaluation

Lighthouse approaches ESG issues in terms of relevance and materiality. Consideration of these issues is used as a framework to avoid risk, including reputational risk, and to identify opportunities. Lighthouse’s ESG due diligence requires that investments should not cause environmental damage, breach human rights, be liable of gross corruption or be culpable of other violations of fundamental ethical norms. Governance risks are considered in terms of shareholder rights, board composition, director skills and alignment of performance with remuneration. Broadly, we look for businesses that uphold the highest standards or strive to achieve the highest standards in the following areas:

• Labor, Human Rights and Respect: At all times, companies must pay a fair, living wage, and comply with all government mandates such as pension fund and overtime payments. Child labor in not acceptable and even the governmental definition of minimum age (14) is not sufficient. Further we seek out management teams who demonstrate respect and understanding of all team members, even to the lowest level employee, and demonstrate respect and appreciation for their contributions.

 

• Professional Ethics and Governance: At all times, the integrity of the entrepreneur and the company we are backing has to be of the highest caliber. If there is any concern, we will not invest. We seek businesses that have or will implement checks and balances and internal controls across this system, seeking best practices in corporate governance (e.g., avoidance of corruption, fraud, etc.).

 

• Environmental and Social Awareness and Care: We find that entrepreneurs that are mindful and respectful of how their operations impact the environment and the communities around them are not only responsible individuals, but inspirational leaders. Manufacturing companies must be sensitive to responsible waste and scrap management and disposal, though environmental awareness also touches service companies when one thinks about recycling and power practices. All companies need to be mindful of the social impact they have on their communities and stakeholders (e.g., providing busing, providing educational advancement opportunities, etc.).

 

Up-front and On-Going

Prior to making any investment, we take steps to evaluate the quality of a prospective organization and its adherence to the categories above. These steps include formal checks (including examination of financial records, tax records, KYC checks for money laundering, sanction lists, etc.) as well as informal checks with stakeholders (including customers and shareholders) and members of the local community who can comment on a business’s track record and reputation. We discuss our findings (and limited short comings) with our prospective investee companies and receive assurances that adequate steps will be taken to address any issues prior to our investment.

On an on-going basis, we look to hold our companies to the highest standards. Legally, we ensure compliance with all local laws as well as the standards of the United States Foreign Corrupt Practices Act. Further, we monitor the organization both via on-going financial audits, as well as by ‘walking the street’ to ensure that our businesses are truly operating at the standards we expect of them – be it financial, labor or environmental. Any perceived issues are addressed at quarterly board meetings.

People and Culture

We recognize that it is easy to make statements about ESG. The critical aspect is to partner with people whose standards and expectations are consistent with our own. We begin by looking within and ensuring that all members of the Lighthouse team adhere to these standards and live by them both within the organization and outside. Second, we ensure that we select partners with the right approach and mindset. We seek entrepreneurs who strive for best practices, want to improve and take a long term view on building great businesses that benefit not only themselves but the communities in which they operate.