Mandatory disclosures under Regulation of the European Parliament and of the Council on sustainable-related disclosures in the financial services sector (EU) 2019/2088 (“SFDR”).
ALSTIN II Fonds GmbH & Co. KG and ALSTIN II GmbH (hereafter collectively as “ALSTIN” or the “Fund”) considers sustainability risks as part of its investment decision-making process. Sustainability risks are environmental, social or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. ALSTIN considers sustainability risks as part of the due diligence process prior to any investment and since 2021, this also includes an assessment of ESG risks using the Invest Europe ESG Due Diligence Questionnaire. The results of this assessment are then considered in the investment decision. ALSTIN remains free in its decision to refrain from investing or to invest despite sustainability risks in which case ALSTIN can also apply measures to reduce or mitigate any sustainability risks. At all times, ALSTIN will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
ALSTIN pursues a venture capital strategy and invests mainly in companies within the digital economy sector. Given that there are rarely adverse impacts on sustainability factors within the digital economy, ALSTIN does not formally consider adverse impacts of investment decisions on sustainability, however, should there occur adverse impacts during the investment process, ALSTIN will evaluate those adverse impacts and in case of a negative outcome will refrain from an investment.
Given that the Sustainable Finance Disclosure Regulation (EU 2019/2088) and the accompanying Regulatory Technical Standards (“RTS“) are new legislative acts, there is very little or no practical experience or practice with regard to applying their respective provisions. Therefore, substantial legal uncertainties would remain when applying those provisions to the strategies pursued by ALSTIN. If and to the extent that these uncertainties will be resolved and a practicable market and administrative practice will evolve in this regard, ALSTIN will reevaluate following them in due course.
ALSTIN incorporates ESG principles within its investment processes and within its monitoring processes. The Fund also invests into sustainable start-ups, but has no primary sustainable investment objective within the meaning of Art. 9 SFDR.
a.) Environmental and/or social characteristics of the financial product
The Fund does not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies, including portfolio companies, or other entities whose business activity consists of: arms and ammunition, tobacco products, hard spirits, gambling, pornography, illegal software (hacking).
The Fund regularly screens sustainable investments and also conducts investments in companies that either actively promote environmental and/ or social characteristics or adhere to such guidelines, however, the Fund does not invest a fixed percentage of its capital commitments into such companies and the Fund does not have sustainable investments as a primary objective within the meaning of Art. 9 SFDR.
b.) Monitoring of environmental and/or social characteristics
ALSTIN monitors for the Fund ESG compliance on an ongoing basis. On an annual basis, ALSTIN provides its portfolio companies with the Invest Europe ESG Due Diligence Questionnaire to assess any potential or existing adverse sustainability impacts. ALSTIN carefully reviews such completed questionnaires upon receipt. Furthermore, ALSTIN will apply best efforts when negotiating an investment into a portfolio company, to reach a side letter agreement requiring the portfolio company to notify ALSTIN in writing on an ad-hoc basis if any adverse effects on sustainability factors become apparent. In such cases, ALSTIN reviews all information provided ad-hoc by the portfolio companies and determines in its sole discretion whether any actions need to be taken to address any potential or existing adverse impacts.
Currently, the methodologies applied comprise collecting information via the Invest Europe ESG Due Diligence Questionnaire from the portfolio companies prior to the investment and ongoing on an annual basis. To date, there is no quantitative measurement with regard to environmental or social characteristics and no sustainability indicators are currently used. The questionnaire is completed by the portfolio company. Further research and investigation by ALSTIN are not being conducted regularly.
d.) Limitations to methodologies and data
The information collected via the questionnaire as part of ALSTIN’s due diligence is externally verified only if and to the extent misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. As the Fund’s investment is made for several years, ALSTIN considers it a priority to establish and maintain a trust within a good working relationship with the portfolio company as a safeguard in light of the limitations described in this section.
e.) Due diligence
Initially, the assessment of how the Fund’s investment in the portfolio company relates to the environmental or social characteristics mentioned above is carried out as part of the due diligence process using the Invest Europe ESG Due Diligence Questionnaire. Via the questionnaire, qualitative statements of an environmental or social nature or relating to corporate governance are requested from the portfolio companies and then taken into account in the investment decision-making process. The findings relating to the environment or social or governance aspects are non-binding and being considered in light of all circumstances including the size of the investment, its strategic importance, its envisaged trajectory as well as the transactional context.
f.) Engagement policies
Should ALSTIN on behalf of the Fund determine any potential issues relating the environmental or social characteristics, it will engage the portfolio company’s manager in discussions with a view to resolving, reducing or mitigating such effects, provided that such efforts will always remain within a scope considered by ALSTIN in its absolute discretion to be proportionate in light of the size and strategic importance of the respective investment in the portfolio companies and shall take into account the respective bargaining positions and transactional context.