SFDR
Sustainability-related disclosures
Mandatory disclosures under Regulation of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector (EU) 2019/2088 (“SFDR”):
A. Future Energy Ventures GmbH (entity level)
Date of Publication: 22.07.24
Future Energy Ventures GmbH (“FEV”) is a securities institution within the meaning of the German Securities Institutions Act (Wertpapierinstitutsgesetz – “WpIG”) and therefore discloses the following information in connection with the consideration of sustainability-related aspects pursuant to the SFDR on its website.
Unless expressly stated in relation to a specific alternative investment fund (“Financial Product”) whose alternative investment fund manager (“AIFM”) FEV advises in relation to its investment activities, the following information refers to FEV’s investment advisory services in general.
I. Transparency of sustainability risk policies for financial advisors (Article 3 SFDR)
As an investment advisor to AIFM of Financial Products, FEV takes sustainability risks into account when advising the AIFM on investments. Sustainability risks are currently taken into account as part of the standard due diligence and risk assessment processes.
According to the SFDR, „sustainability risk“ means an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment. Sustainability risks, such as advancing climate change, can lead to negative effects on the assets of the Financial Products or their portfolio companies. With regard to climate change, there are in particular actual physical risks (e.g. extreme weather events) and transformation risks (e.g. costs for restructuring the energy system). In the area of good corporate governance and with regard to social characteristics, there are risks relating to the reputation of the portfolio companies or possible claims for damages, for example. Corresponding political and regulatory measures can also lead to considerable costs and a reduction in assets. If sustainability risks materialise, this can lead to a significant reduction in the net asset value of the financial products and thus severely impair the return.
In order to exclude investments with particularly high sustainability risks, FEV endeavours to the best of its ability to recommend investments to the AIFM it advises only if the investment fulfills certain sustainability preferences previously defined by the AIFM.
As part of the pre-selection (due diligence) of potential investments to be recommended, FEV assesses whether they fulfill selected environmental, social and corporate governance criteria. For the purposes of this review, the following tools are usually used by FEV: (i) ESG screening questions, (ii) ESG Due Diligence Questionnaire and (iii) consulting of external sector-specific experts. The result of the analysis is taken into account for every potential investment by the AIFMs advised by FEV as part of a risk-oriented materiality analysis and is incorporated into the investment recommendation of FEV. The relevant ESG criteria are also continuously monitored during the holding period and are taken into account in the exit recommendation.
II. Consideration of principle adverse impacts of investment advice on sustainability factors
The consideration by FEV of the principal adverse consequences of investment decisions on sustainability factors as part of its investment advisory services depends on (i) the client to whom the services are provided and (ii) in relation to which financial products.
1. Statement on principle adverse impacts of investment advice on sustainability factors (Article 4 para 5 lit. a) SFDR)
FEV considers adverse impacts of investment decisions on sustainability factors in their investment advice to the AIFM of Future Energy Ventures Fund I, SCA SICAV-RAIF (“FEV Fund”) related to portfolio companies. FEV pursues to avoid any principle adverse impact of the recommended investments by taking into account (i) the adverse impacts on sustainability factors outlined in the Table 1 of the Regulatory Technical Standards of the SFDR as well as (ii) a set of the relevant indicators in Tables 2 and 3 of the Annex I ((i) and (ii) collectively “Adverse Impacts”).
The due diligence on each potential portfolio company will focus besides decarbonization impact as a measure for the attainment of the decarbonization objective on Adverse Impacts. Each portfolio company will be required to provide information on Adverse Impacts in the ESG due diligence questionnaire and during the investment phase report on a quarterly basis on Adverse Impacts. FEV will initially work with one or more third-party ESG service providers to support the collection of ESG data. In order to determine if it is unlikely that portfolio company in question causes or will cause significant harm to other ESG factors FEV will review the company material and/or will hold meetings. FEV will also take into consideration the information collected by the FEV Fund itself or any third-party ESG providers. These third-party ESG providers align the collection of ESG data with SFDR requirements, considering in particular the Adverse Impacts.
FEV will consider the following selected set of Adverse Impacts by measuring them against predefined thresholds:
· Scope 1, 2 and 3 GHG emissions as defined in Annex I of the Regulatory Technical Standards emitted by the portfolio company;
· Carbon emission reduction initiatives aimed at aligning with the Paris Agreement at the level of the portfolio company (required answer “yes”);
· Unadjusted gender pay gap;
· Company involved in manufacturing or selling of controversial weapons (required answer „no“);
· Involvement in violations of the UNGC principles or OECD Guidelines for Multinational Enterprises (required answer “no”); and
· Policies on the protection of whistle-blowers (required answer „yes“).
These factors will play an important role in FEV’s advice regarding investment and divestment decisions of the AIFM. Therefore, the information FEV collects will be documented in FEV’s investment recommendations.
In case a portfolio company breaches a threshold within the selected set of Adverse Impacts; FEV will advise to raise the topic with management and request a plan and a timeline for improvements within the next 12 months. If the threshold is still breached and no plan or timeline is presented after a quarter, FEV Fund or FEV will give the management a reminder. After a second quarter in breach FEV advice to raise the topic at board level of the portfolio company. As a last reminder, if the breach has not been remedied after three quarters, the topic will be raised at board level for the second time. 3 months after the last reminder the it will be evaluated whether the portfolio company has made any progress. In case no significant improvement has been made, follow-on investments can be declined. If sufficient time still remains before next funding round, the Fund and FEV will continue to encourage improvement.
2. No consideration of adverse impacts of investment advice on sustainability factors (Article 4 para 5 lit. b) SFDR
FEV does not consider any adverse impacts of investment decisions on sustainability factors in its investment advice provided to all other clients. This decision is especially based on the current lack of available and reliable data and the associated costs and lack of resources. The decision is subject to regular review by the management of FEV at least once a year.
However, this approach dies not contradict FEV’s commitment to sustainability, in particular the consideration of FEV’s environmental footprint and the commitment to good governance principles while decision making processes as well as the consideration of sustainability risks. In addition, FEV pursues, if relevant and the required data is available and reliable, to avoid in line with the objectives of the respective client in relation to the respective financial product any negative sustainability impact of the investments FEV is advising on.
III. Transparency of remuneration policies in relation to the integration of sustainability risks (Article 5 SFDR)
FEV appropriately considers sustainability risks as part of its remuneration policy. The implemented remuneration system does not offer any incentives to take sustainability risks in relation to FEV or in the course of FEV’s investment advisory services.
