Regulation (EU) 2019/2088 of 27 November 2019 on sustainability‐related disclosures in the financial services sector (“SFDR”)
SFDR imposes new transparency obligations and periodic reporting requirements on investment management firms (including managers of qualifying venture capital funds within the meaning of Regulation EU No 345/2013) at both a product and firm level. SFDR forms part of the European Commission’s action plan on sustainable finance.
Catalyst II GP Sàrl a Luxembourg based alternative investment fund manager (“AIFM”) makes the following disclosure in accordance with SFDR.
Integration of Sustainability Risks
Sustainability risks, being environmental, social or governance events or conditions that, if they occur, could cause a negative material impact on the value of the investments, are considered by the AIFM in its investment processes and due diligence procedures.
The AIFM adopts and implements environmental and social due diligence and monitoring in respect of each of the target portfolio companies of a European venture capital fund managed by it. Certain sectors are completely excluded from investment on environmental, social or governance grounds. The risk management policy of the AIFM identifies sustainability risks as one of those categories of risk to be monitored in the investment and due diligence process.
No Consideration of Principal Adverse Impacts
Article 7 of the SFDR requires disclosure of how principal adverse impacts are considered at the level of the Partnership. The AIFM is supportive of the policy aims in relation to principal adverse impacts, however, given the number of uncertainties in this area, currently principal adverse impacts (as such term is understood in the SFDR) are not considered by the AIFM in the investment process. If and to the extent the relevant regulations evolve or a practicable market practice and administrative practice is established in this regard, the AIFM will consider following them in due course.
The AIFM is remunerated by means of a management fee calculated on either capital commitments to an alternative investment fund managed by them or acquisition costs of investments and is subject to a cap. Such mechanism does not encourage excessive risk taking and is thus consistent with the integration of sustainability risks into the investment decision making process. Affiliates of the AIFM is entitled to receive a special return which is dependent of the financial returns of the alternative investment fund managed by it. The risk management process in place regarding the investment decision making process ensures that excessive risk is not encouraged (including as regards sustainability risks).