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
In relation to the consideration of principal adverse impacts, the AIFM notes that there are still a number of uncertainties regarding this obligation, in particular because the relevant regulatory technical standards have not yet been finalised and published by the European authorities. In addition, given the size of the AIFM, the necessary resources are not available to acquire the data to comply with the future requirements in this regard.
Therefore, while supportive of the policy aims of the principal adverse impact regime, the AIFM does not currently consider principal adverse impacts. This decision will be kept under review pending the publication of the final regulatory technical standards and further details will be provided 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).