ESG Policy

The purpose of this note is to provide a high-level introduction to the concept of environmental, social and governance (ESG), what it means for Hitech Grand Prix Limited (“Hitech”) and the drivers behind adopting a company-wide strategy to address ESG issues comprehensively and meaningfully as part of our operations.

This note sets out:

• The main areas that fall within each of the ESG pillars.
• Why it is important for Hitech to review its ESG strategy and goals.
• How we should go about implementing that strategy, in broad terms.

Rapidly developing legal and voluntary frameworks, stakeholder demands and increasing environmental concerns all mean that ESG is fast becoming a top priority for businesses across the world. To keep pace with this changing environment, Hitech needs to:

• Keep abreast of the most up to date information available to it.
• Understand the associated risks and opportunities.
• Take action to ensure that Hitech continues to satisfy stakeholders and places itself in the best possible position for long-term, sustainable development.

ESG is a term used to refer to the decisions and behaviour of an organisation in relation to ESG matters, and to encapsulate the ethical corporate behaviour and social responsibility of an organisation. It is increasingly used instead of the more traditional terms “corporate responsibility” (CR) and “corporate social responsibility” (CSR) although the scope of ESG is broader, to reflect growing stakeholder interest and developing frameworks in relation to how a company is managed, directed and controlled and how it manages its environmental, as well as social, aims and responsibilities.

Given the rapid growth of stakeholder interest in corporate ESG credentials, this presents a significant opportunity for Hitech to review its ESG strategy and goals with a view to capitalising on the potential available benefits, including improved loan or financing terms, increased investor interest, opportunities to develop the customer base and opportunities to attract and retain a talented workforce as part of our long-term growth and profitability.

Examples of the types of matter that fall under each ESG pillar are set out below:

Environmental

• Climate change and greenhouse gas emissions
• Emissions to air, water and land, pollution and waste
• Biodiversity, deforestation and land use
• Energy efficiency
• Resource depletion (including water)

Social

• Human rights (including modern slavery and child labour)
• Health and safety
• Diversity, equity and inclusion (DEI)
• Conflict zones and conflict minerals
• Stakeholder and community engagement

Governance

• Bribery and corruption
• Executive pay
• Board independence, diversity and structure
• Conflicts of interest
• Anti-money laundering

The drivers for reviewing Hitech’s ESG strategy are set out below.

3.1 Demand from stakeholders

Growing concerns about the future of our planet and its people, coupled with increasing legal obligations that reflect these concerns, has led to greater interest from multiple angles in how companies do business responsibly and with a view to aligning their interests with those of both our wider society and the environment.

ESG is a term that originates from the interests of institutional investors to act in the best long-term interests of their beneficiaries, by ensuring that the companies in which they invest will:

• Minimise the risks their beneficiaries face.
• Create opportunity and achieve an operational improvement with a benefit to the environment or society and potentially to the organisation’s financial performance.

Today’s shareholders are much more proactively engaged in ESG outcomes. Shareholder activism (action taken by a proactive, agenda-driven investor, often publicly, to effect change in a company) is a growing trend among quoted companies in the UK and looks set to increase in the foreseeable future. Strategies include:

• Buying shares in a company to build a stake that can be voted to influence decisions at general meetings and be sold in the future at a profit if the activist’s objectives are achieved.
• Making a private approach to a company’s board to voice concerns and, potentially, threatening action if these are not addressed.
• Using public announcements, press articles or social media to voice concerns and propose actions that a company should take.
• Requisitioning shareholder resolutions on ESG issues (largely related to climate change) at general meetings.
• Contacting other shareholders to voice concerns and persuade them of the activist’s viewpoint, including potentially garnering support for any resolution(s).
• Threatening or taking legal action, such as a derivative action for breach of directors’ duties or a claim for unfair prejudice against minority shareholders.

As well as investors, customers, consumers, employees, NGOs and third-party contractors all play a part in holding Hitech to account. There is a growing trend for ESG requirements and compliance to be a prerequisite for contracting. If Hitech is unable to meet these requirements, this raises potential commercial barriers and risks the loss of business.

3.2 Legal requirements and non-binding codes

There are multiple laws, principles and codes of practice that impose ESG requirements, some of which are legally binding and some which are not.

Some of the key legal drivers and codes are set out in ANNEX A below.

3.3 Ethical considerations and innate business benefits

Irrespective of the raft of legislative and voluntary frameworks that we need to navigate and the pressure from stakeholders that we face, Hitech needs to consider what type of organisation it aspires to be. Doing business involves a consideration of purpose as well as profit and investing in the future of the communities in which we operate and our planet.

In fact, increasing our focus on ESG issues may lead to longer term improved performance by:

• Enabling sustainable growth.
• Attracting and retaining talent.
• Enhancing our reputation.
• Attracting investors.
• Achieving cost savings, for example by reducing waste or energy consumption.

4.1 Regulatory enforcement

ESG obligations are regulated by various bodies in the UK including:

• The FRC (which is responsible for monitoring compliance of company reports and accounts with relevant reporting requirements under the Companies Act 2006 (CA 2006)).
• The FCA (which as financial services regulator, has oversight of premium and standard listed companies’ compliance with the TCFD (Task Force on Climate-related Financial Disclosures) Recommendations and Recommended Disclosures and requires them to explain any non-compliance).
• The Environment Agency, Natural England and Natural Resources Wales (who are the environmental regulators and can impose civil sanctions or bring a prosecution for environmental offences, including against directors and officers. Environmental offences may incur a custodial sentence, a fine (unlimited for some environmental offences) and regulatory restrictions).
• The Health and Safety Executive and local authorities (which are empowered to enforce health and safety offences and may undertake criminal prosecutions and issue warnings, statutory prohibitions and improvement notices).
• The Serious Fraud Office (SFO) (which is the main prosecutor with responsibility for enforcing the Bribery Act in England and Wales).

4.2 NGO action and Litigation/Liability risk

NGOs such as ClientEarth call companies to account by making complaints to regulators and taking their own legal action in relation to alleged breaches of legislation. Other parties who suffer loss or damage from the effects of ESG issues and hold Hitech accountable could seek compensation from those they hold responsible.

Litigation risk is multifarious, but could include:

• Climate change litigation. This could arise from attribution of climate change to Hitech’s activities, or a failure to manage either or both the physical and economic transition risks associated with climate change.
• Litigation related to the adequacy and accuracy of disclosures made as part of voluntary or mandatory reporting.
• Negligence claims arising from the impact of Hitech’s business activities on local communities.
• Supply chain liability claims, that might relate to human rights or environmental issues in Hitech’s supply chain.
• Discrimination claims.

4.3 Physical risk

Examples of physical risks for Hitech if we fail to adequately manage ESG issues include:

• Fire and flooding and its effect on our infrastructure
• Contamination
• Health and safety of personnel and the local community

4.4 Commercial risk

Examples of commercial risks for Hitech if we fail to adequately manage ESG issues include:

• Availability and cost of resources and other supply chain disruption.
• Loss of business and access to capital (current/future).
• Increase in insurance premiums.

4.5 Reputational risk

Hitech’s reputation is put at risk by the materialisation of any of the risks identified above and by changing stakeholder preferences, which call for improved ESG accountability (see paragraph 3.1 above).

The following actions are proposed for the board’s consideration:

• Conduct a comprehensive risk assessment across all ESG policy areas.
• Identify priority areas based on risk assessment.
• Consult with stakeholders in relation to the risk assessment to check that views are aligned.
• Review ESG strategy and related policies and processes.

This is not intended to be a complete list of all the legal drivers behind an ESG strategy for Hitech. Following the points mentioned above please see below for further details that specifically relate to those issues:

UK CORPORATE GOVERNANCE CODE AND THE LISTING RULES

Who does it apply to?

All companies with a premium listing.

What does it say?

The Code seeks to ensure that a premium listed company operates effectively, complies with legal requirements and reports reliably, through principles of good governance in the following areas:

• Leadership.
• Division of responsibilities.
• Composition, succession and evaluation.
• Audit, risk and internal control.
• Remuneration.

The Listing Rules require UK companies with a premium listing to state whether they have applied the 2018 Code’s Principles and complied with the 2018 Code’s Provisions and to explain and justify any non-compliance.

Must we comply/what does it mean for us?

The Listing Rules require UK companies with a premium listing to “comply or explain” against a Code. Hitech is not required to comply but should consider voluntary compliance.

THE WATES PRINCIPLES

Who does it apply to?

Large private companies.

What does it say?

Six high-level principles with accompanying guidance covering:

• Purpose and leadership.
• Board composition.
• Director responsibilities.
• Opportunity and risk.
• Remuneration.

Must we comply/what does it mean for us?

Private companies may (but are not required to) adopt them as an appropriate framework when making a disclosure about their corporate governance arrangements. They are intended to be followed using an “apply and explain” approach. Hitech is not required to comply.

UK STEWARDSHIP CODE 2020

What does it apply to?

Asset owners, asset managers, and service providers.

What does it say?

Sets out good practice for institutional investors and service providers on engagement with investee companies. The 2020 Code has a greater focus on ESG (including climate change) matters than the previous version.

Must we comply/what does it mean for us?

These are “apply and explain” principles, with reporting expectations. In applying the principles, signatories should consider (among other things) environmental and social issues, including climate change. Hitech is not required to comply.

SECTION 172, CA 2006

Who does it apply to?

Company directors.

What does it say?

Directors have a duty to promote the success of the company. This means that a company director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

Must we comply/what does it mean for us?

Hitech is required to comply.

SECTION 172(1) STATEMENT, CA 2006

Who does it apply to?

All public and private companies required to prepare a strategic report, except those companies that qualify as medium-sized under sections 465 to 467 of the CA 2006.

What does it say?

Companies must include a separate “section 172(1) statement” in their strategic report describing how the directors have had regard to the matters set out in section 172(1)(a) to (f) of the CA 2006 when performing their duty under section 172.

Unquoted companies must publish their section 172(1) statement on a website (maintained by or on behalf of the company).

Must we comply/what does it mean for us?

Hitech is required to comply.

STRATEGIC REPORT, CA 2006

Who does it apply to?

Large and medium-sized companies and traded and banking LLPs, with additional requirements for quoted companies and certain large companies with more than 500 employees (see below for specific additional requirements).

What does it say?

Large and medium-sized companies and traded and banking LLPs must prepare a strategic report providing:

• A fair review of the company’s business and description of the principal risks and uncertainties facing the company.
• A balanced and comprehensive analysis of the development and performance of the company’s business.
• Analysis using financial and other KPIs, including information relating to environmental matters.

This is also a requirement under DTR 4 of the Disclosure Guidance and Transparency Rules.

(Medium-sized companies are exempt from reporting non-financial KPIs.)

The government response to the BEIS consultation on restoring trust in audit and corporate governance: reforms may affect these requirements.

Must we comply/what does it mean for us?

Hitech is required to comply.

STRATEGIC REPORT, CA 2006

Additional requirements for quoted companies

What does it say?

The report must also include:

• Description of the company’s strategy and business model.
• Main trends and factors likely to affect future development, performance and position of the company’s business.
• Information about environmental matters (including impact of company’s business on the environment), company’s employees and social, community and human rights issues, including information about any company policies in relation to those matters and effectiveness of those policies. (If the report does not contain this information, it must state those kinds of information it does not contain.)

Must we comply/what does it mean for us?

Hitech is not required to comply.

Additional requirements for traded companies, banking companies and insurance companies with more than 500 employees

The report must also include a non-financial information statement (or from 6 April 2022, a non-financial and sustainability information statement (NFSI statement) as explained below) containing information on:

• Environmental matters (including the impact of the company’s business on the environment).
• The company’s employees.
• Social matters.
• Respect for human rights.
• Anti-corruption and anti-bribery matters.
  

STRATEGIC REPORT, CA 2006 (COMPANIES (STRATEGIC REPORT) (CLIMATE-RELATED FINANCIAL DISCLOSURE) REGULATIONS 2022) AND (LIMITED LIABILITY PARTNERSHIPS (CLIMATE-RELATED FINANCIAL DISCLOSURES) REGULATIONS 2022) (CRFD)

Additional requirements for large entities that have more than 500 employees and are one of the following:

• Traded companies.
• Banking companies.
• Authorised insurance companies.
• Companies carrying on insurance market activities.
• AIM companies.
• High turnover companies and LLPs (with more than £500 million turnover).
• Traded LLPs and banking LLPs.

For financial years beginning on or after 6 April 2022, mandatory climate-related financial disclosures (covering governance, strategy, risk management, metrics and targets) are to be included in a non-financial and sustainability information statement (NFSI statement) for companies and in the strategic report or the energy and carbon report for in-scope LLPs.

Must we comply/what does it mean for us?

Hitech is required to comply.

STATEMENT OF ENGAGEMENT WITH EMPLOYEES, LARGE AND MEDIUM-SIZED COMPANIES AND GROUPS (ACCOUNTS AND REPORTS) REGULATIONS 2008 (2008 REGULATIONS)

Who does it apply to?

UK incorporated companies with an average number of more than 250 employees in both the current year and preceding year.

What does it say?

The directors’ report must contain a statement:

Describing the company’s action taken during the financial year to introduce, maintain or develop arrangements aimed at:

• Providing employees systematically with information of concern to them as employees;
• Consulting employees or their representatives on a regular basis to account of their views in making decisions likely to affect their interests;
• encouraging employees’ involvement in the company’s performance through employee share schemes or other means;

and

• achieving a common awareness of all employees of financial and economic factors affecting the company’s performance.

Summarising how directors have:

• engaged with employees;

and

• had regard to employee interests and the effect of that regard on the company’s principle decisions taken during financial year.

Must we comply/what does it mean for us?

Hitech is required to comply.

STATEMENT ON ENGAGEMENT WITH SUPPLIERS, CUSTOMERS AND OTHERS IN A BUSINESS RELATIONSHIP WITH THE COMPANY, 2008 REGULATIONS

Who does it apply to?

All UK incorporated companies, except those that meet two or more of:

• Annual turnover not more than £36 million.
• Balance sheet total not more than £18 million.
• Average number of employees not more than 250.

What does it say?

The directors’ report must include a statement summarising:

• How directors have had regard to the need to foster the company’s business relationship with suppliers, customers and others.
• The effect of that regard on the principle decisions taken by the company during the financial year.

Must we comply/what does it mean for us?

Hitech is not required to comply.

STATEMENT OF CORPORATE GOVERNANCE ARRANGEMENTS, 2008 REGULATIONS

Who does it apply to?

UK incorporated companies that have either:

• 2,000 or more global employees.
• A turnover of over £200 million globally and a balance sheet total over £2 billion globally.

(Premium listed companies are excluded as they are already required to provide a corporate governance statement. Charitable companies and community interest companies are also exempt from this requirement.)

What does it say?

The directors’ report must include a statement of corporate governance arrangements which states either:

• Which (if any) corporate governance code the company applies and the reasons for any departure from that corporate governance code.
• If the directors have decided not to apply any corporate governance code, the reasons for that decision and an explanation of what corporate governance arrangements have been applied for the financial year.

Unquoted companies to make available the statement of corporate governance arrangements on its website.

Must we comply/what does it mean for us?

Hitech is not required to comply.

REPORTING ON GREENHOUSE GAS (GHG) EMISSIONS AND ENERGY USE, 2008 REGULATIONS AS AMENDED BY THE COMPANIES (DIRECTORS’ REPORT) AND LIMITED LIABILITY PARTNERSHIPS (ENERGY AND CARBON REPORT) REGULATIONS 2018 (SECR)

Who does it apply to?

Quoted companies and large unquoted companies.

Large LLPs (that do not satisfy two of the three (employee numbers, turnover and balance sheet) thresholds to qualify as medium-sized).

What does it say?

For companies, the directors’ report must include certain information on the company’s GHG emissions, an intensity metric, energy use, and energy efficiency steps. The specific requirements vary according to the type of company.

LLPs are required to produce an energy and carbon report which forms part of their annual report.

Must we comply/what does it mean for us?

Hitech is not required to comply.

TCFD RECOMMENDATIONS

Who does it apply to?

All businesses.

What does it say?

The recommendations aim to create a framework for voluntary, consistent climate-related financial disclosures for businesses to provide information to investors, lenders, insurance underwriters and other stakeholders. It is intended that organisations use the recommendations in their publicly available annual financial reports.

Recommendations relate to governance, strategy, risk management and metrics and targets, with recommended disclosures in each area.

Must we comply/what does it mean for us?

Hitech is required to comply.

EU SUSTAINABLE FINANCE PACKAGE, CONSISTING OF THE:

• Taxonomy Regulation.
• Sustainable Finance Disclosure Regulation (SFDR).
• Low Carbon Benchmark Regulation.

Who does it apply to?

These are EU Regulations, which have been only partially onshored in the UK. However, EU financial services firms that invest in UK listed companies will require investees to comply. For reputational reasons, large UK public interest entities may wish to comply with Article 8 of the Taxonomy Regulation.

What does it say?

The SFDR imposes requirements on financial services participants and financial advisers in relation to disclosure of sustainability information. This in turn will mean that EU financial services firms are likely to request sustainability information from UK investee companies.

The Taxonomy Regulation will also require EU investors and asset managers to disclose additional sustainability information about their portfolio companies which in turn, will require any UK portfolio companies to disclose more information about sustainability and climate change risks and opportunities.

The Low Carbon Benchmark Regulation imposes increased disclosure requirements on EU benchmark administrators, which will lead to increased pressure on relevant UK companies to provide more detailed and transparent information.

Must we comply/what does it mean for us?

Hitech is not required to comply.

MODERN SLAVERY ACT 2015

Who does it apply to?

Commercial organisations that carry on business in the UK and have a total turnover of £36 million or more.

What does it say?

Requirement to publish an annual modern slavery statement on action taken to ensure business and supply chains are slavery free. Changes planned to mandate the content requirements for a modern slavery statement, require organisations to publish their statement on a government-run reporting service, mandate a single reporting deadline of 30 September, clarify approval and sign off requirements and extend the requirements to public bodies.

Must we comply/what does it mean for us?

Hitech is not required to comply.

EQUALITY ACT 2010

Who does it apply to?

Employers with at least 250 relevant employees.

What does it say?

Mandatory gender pay gap reporting.

Must we comply/what does it mean for us?

Hitech is not required to comply.

BRIBERY ACT 2010

Who does it apply to?

Commercial and public sector organisations.

What does it say?

Requirement to explicitly prohibit bribery in any form and commit to implementing systems to counter bribery.

Must we comply/what does it mean for us?

Hitech is required to comply.

PROPOSAL FOR EU CORPORATE SUSTAINABILITY DUE DILIGENCE DIRECTIVE

Who does it apply to?

• Large EU companies (with more than 500 employees and a net worldwide turnover of over EUR 150 million).
• EU companies operating in high impact sectors (agriculture, textiles or extraction of minerals) that have more than 250 employees and a net worldwide turnover of over EUR 40 million.
• Non-EU companies that meet the same criteria in respect of their net turnover generated in the EU will also be covered.

What does it say?

• A new due diligence duty requiring prescribed companies to identify adverse human rights and environmental impacts in their own operations, in their subsidiaries and in established direct or indirect business relationships in their value chain.
• Requirement to take steps to prevent or mitigate potential impacts and minimise or bring to an end actual adverse impacts.
• Requirement to have a climate transition action plan to ensure compatibility with the transition to a sustainable economy and with limiting global warming to 1.5°C.
• Requirement for directors to integrate due diligence into their corporate strategy, as well as to take into account the human rights, climate and environmental consequences of their decisions as part of their general duty to act in their company’s best interests.

Must we comply/what does it mean for us?

UK companies will be directly or indirectly affected by the proposed Directive, either because the activities of a branch in the EU generate significant turnover or because they are supplying goods or services to businesses who are themselves caught by the Directive’s provisions.

Assuming that the transposition deadline and application dates do not change, large companies will have to apply member state laws immediately from the end of the transposition deadline (which would not be before 2024).

Hitech is not required to comply.

CORPORATE SUSTAINABILITY REPORTING DIRECTIVE

Who does it apply to?

Reporting requirements apply on a staggered basis, starting with financial years starting on or after 1 January 2024. In scope companies include:

• Large EU undertakings that are also public interest entities and that exceed an average of 500 employees during the financial year
• EU public interest entities that are parent undertakings of a large group that exceed an average of 500 employees during the financial year.
• Other large EU undertakings and other EU parent undertakings of large groups.
• Companies with securities listed on an EU-regulated market (whether established in the EU or a non-EU country).
• EU SMEs that are listed on an EU-regulated market (except micro-enterprises).
• Small and non-complex credit institutions and captive insurance or captive re-insurance undertakings that are large EU undertakings or EU public interest entity SMEs (except micro-enterprises).
• Non-EU companies with substantial activity in the EU market (EUR 150 million annual turnover in EU) and which have a large or listed EU subsidiary or EU branch (net turnover over EUR 40 million).

What does it say?

• Requirement to report information on a full range of ESG issues relevant to the company’s business, in accordance with mandatory EU sustainability reporting standards currently being developed (simpler standards for SMEs).
• Introduces a general EU-wide audit (assurance) requirement for reported sustainability information.

Must we comply/what does it mean for us?

UK companies that are listed on EU regulated markets and the EU subsidiaries or branches of UK companies will be affected.

Non-listed SMEs may choose to adopt standards on a voluntary basis.

Hitech is not required to comply.