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Sustainability Related Disclosures
SEF Ventures Management GmbH (“SEF Ventures ”) is an alternative investment fund manager within the meaning of the German Capital Investment Act (Kapitalanlagegesetzbuch, KAGB) and as such publishes the following information in light of the consideration of sustainability-related aspects in accordance with Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosure requirements in the financial services sector (the “SFDR ”). The following disclosures have been carefully prepared in accordance with the SFDR, the Commission Delegated Regulation (EU) 2022/1288 and additional guidance issued by the European Commission, the European Supervisory Authorities and the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht). However, certain ambiguities remain in the interpretation of the regulatory framework, and there are ongoing discussions regarding the need to amend the SFDR. As a result, the text below may need to be adjusted in response to future interpretative guidance or legislative changes.
Art. 3 SFDR – Integration of sustainability risks
SEF Ventures integrates Sustainability Risks into its investment decisions as outlined below. “Sustainability Risk ” means an environmental, social, or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment. Sustainability Risks are not only limited to the financial situation and operations of the Portfolio Company; they could also have an effect on the market environment, competitors, or regulatory landscape. SEF Ventures is therefore considering Sustainability Risks in the due diligence process of the investment and regularly following up on the risk assessment during the investment period.
Environmental Sustainability Risks (incl. climate-related risks) are categorized into physical risks and transition risks. Physical risks are e.g., extreme weather conditions which could cause a disruption of the supply chain of the Portfolio Company or lead to a significant increase in e.g., raw material prices. Transition risks are e.g., regulatory risks, which could lead to e.g., an increase in energy prices which is impacting the financial situation of a Portfolio Company. A shift in technology could lead to e.g., stranded assets or significant changes in the market potential of a technology/product or service. Depending on the stage of the investment, physical risks are more or less material. E.g., for early-stage investments, physical risks are not considered, in case of investments which include a pilot stage physical risks are considered for a site-selection. Transition and physical risks may also interact in unpredictable ways, a complexity that is not accounted for in the due diligence process.
Sustainability Risks could also stem from social and governance issues and cause a potential or actual negative impact on the financial value of an investment and the reputation of the Portfolio Company and/or the Fund.
Such issues could be tax fraud or fines, imposed to the Portfolio Company due to incompliance with regulations.
Risk Management Process:
Risk Identification:
SEF Ventures applies exclusion criteria as a first filter in the risk management process. During the pre-investment due diligence phase the potential Portfolio Company is asked to indicate Sustainability Risks which could affect their operations or supply chains and markets.
Sustainability Risk Assessment
Based on the input of the Portfolio Company and enriched by internal references a Sustainability Risk Assessment on the impact of the technology/product/service which is offered by the potential Portfolio Company is conducted, including the life cycle stages of the technology/product or service. In addition a Risk Assessment for ESG (environmental, social, and governance) related risks stemming from the operations of the potential Portfolio Company is conducted.
Consequences of Sustainability Risk Assessment
In case significant and material risks are identified, the investment is not further pursued. A scoring system is applied to evaluate the significance and importance of risks;
In cases where SEF Ventures holds a lead investor position or has sufficient influence, the following process is applied to encourage Portfolio Companies to comply.
Development of Action Plan and Targets:
At the beginning of the investment period, a risk mitigation plan for manageable risks, which were identified during the due diligence phase, is developed together with the Portfolio Company and targets are agreed upon. Regular follow-ups will provide information on the progress of the action plan and lead to respective measures. Beyond this, SEF Ventures employs and will consult experienced experts to obtain a holistic risk perspective on the investment.
SEF Ventures carefully evaluates and strives to mitigate the impact of potential sustainability-related risks on the investments during the due diligence phase and during the investment period to minimize undesired potentially negative effects on the financial evaluation of the Portfolio Companies.
Art. 4 SFDR – Consideration of principal adverse impacts
SEF Ventures considers principal adverse impacts on an entity level. “Principal Adverse Impacts” (“PAI ”) are impacts of investment decisions on sustainability factors, i.e., negative impacts on environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.
SEF Ventures strives to consider all principle adverse impact indicators (“PAIIs ”) of Table 1 of Annex I of the Commission Delegated Regulation (EU) 2022/1288 (“SFDR RTS ”) and selected PAIIs from Annex I Tables 2 and 3 of the SFDR RTS.
The selection of Table 2 and 3 PAIIs is done based on a materiality assessment considering the sector of the investment, the stage of the investment and the life cycle stage.
For the Sustainable Economy Fund I GmbH & Co. KG, SEF Ventures applies a standardized Sustainability Assessment Questionnaire, which is discussed with potential portfolio companies during the Due Diligence (“DD ”) phase.
During the investment period an ESG Assessment is applied. The portfolio companies regularly report on the status and progress regarding the PAIIs, as discussed during the DD phase and during an annual sustainability meeting. The consolidated results of the ESG assessments of the portfolio companies will be published annually in the periodic report and on the website of SEF Ventures in accordance with legal requirements.
SEF Ventures is currently not yet a signatory partner for e.g. UN Global Compact but the Partnership applies the principles of OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights in the ESG assessment.
The availability of data is very much dependent on the stage of the company. In seed phase investments the likelihood to obtain reporting data with a reasonable effort might be lower than for Series A phase companies. In case the data are not available, SEF Ventures will transparently disclose this with the help of comments.
Art. 5 SFDR – Remuneration Disclosure
As a registered alternative investment fund manager within the meaning of the German Capital Investment Act (Kapitalanlagegesetzbuch, KAGB), SEF Ventures does not have and does not need to have, a remuneration guideline or policy in accordance with the requirements of the KAGB. Sustainability risks are not considered with respect to the determination of remuneration.
This information was last updated in July 2024.
Art. 10 SFDR – Sustainability-related information about financial products that promote environmental or social characteristics
SEF Ventures Management GmbH (“SEF Ventures”) is the alternative investment fund manager of Sustainable Economy Fund I GmbH & Co. KG (“Fund”) within the meaning of the German Investment Code (Kapitalanlagegesetzbuch, KAGB) and as such publishes the following information in light of the consideration of sustainability-related aspects in accordance with Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosure requirements in the financial services sector (the “SFDR”).
Summary
The Fund invests in European start-ups, with a focus on sustainable and environmental technologies that can be attributed to at least one of the four sectors:
Bio-Economy, Circular Economy, Green Energy, and Enabling Technologies
The Fund will primarily invest in early stage (Seed & Series A) companies but may occasionally invest in later stages. The Fund’s regional focus within Europe is mainly on Germany, the Nordics, and the BeNeLux countries.
The Fund has sustainable investments as its objective. All investments must contribute to an environmental objective, and it must be ensured that they do not significantly harm any other environmental and/or social objective. In addition, and as a minimum safeguard, the portfolio company must follow good governance practices. The Fund’s internal experts apply an integrated assessment system for financial and sustainability aspects during the investment process. The Sustainability Assessment refers to an impact assessment based on technology and an ESG assessment at the portfolio company level. Risks and opportunities are addressed. The attainment of the sustainable investment objectives is measured by key performance indicators (“KPIs ”), which are individually defined with each portfolio company, depending on the material sustainability factors to be addressed and availability of measurable data. The Fund is also engaging external experts like Life Cycle Assessment consultants if needed.
Zusammenfassung Der Fonds investiert in europäische Start-ups, wobei der Schwerpunkt auf nachhaltigen und umweltfreundlichen Technologien liegt, die mindestens einem der folgenden vier Sektoren zuzuordnen sind:
Bioökonomie, Kreislaufwirtschaft, grüne Energie und Enabling Technologies
Der Fonds wird in erster Linie in Unternehmen in der Frühphase (Seed & Series A) investieren, kann aber gelegentlich auch in spätere Phasen investieren, je nach Bewertungspotenzial, Nachhaltigkeitspotenzial, Beitragspotenzial und Anlagezeitpunkt des Fonds. Der regionale Schwerpunkt des Fonds in Europa liegt vor allem auf Deutschland, den nordischen Ländern und den BeNeLux-Ländern.
Das Ziel des Fonds sind nachhaltige Investitionen. Nachhaltige Investitionen müssen zu einem ökologischen Ziel beitragen, und es muss sichergestellt werden, dass sie andere ökologischen und/oder sozialen Ziele nicht wesentlich negativ beeinträchtigen. Darüber hinaus und als Mindeststandard muss das Portfoliounternehmen gute Unternehmensführung praktizieren. Die fondsinternen Experten wenden während des Investitionsprozesses ein Bewertungssystem für finanzielle und Nachhaltigkeitsaspekte an. Die Nachhaltigkeitsbewertung bezieht sich auf eine technologiebasierte Impact- und ESG-Bewertung auf der Ebene des Portfoliounternehmens. Dabei werden sowohl Risiken als auch Chancen berücksichtigt. Die Erreichung der Nachhaltigkeitsziele wird anhand von Leistungsindikatoren (Key Performance Indicators – KPI) gemessen, die für jedes Portfoliounternehmen individuell festgelegt werden, je nachdem, welche wesentlichen Nachhaltigkeitsfaktoren zu berücksichtigen sind und je nach Verfuegbarkeit messbarer Daten. Der Fonds zieht bei Bedarf auch externe Experten wie Berater für Lebenszyklusanalysen hinzu.
No significant harm to the sustainable investment objective
The Fund applies as a first step exclusion principles for investment selection. Sustainability Assessments are conducted during the pre- due diligence and due diligence phase of the investments to further assess environmental or social risks.
Exclusion principle list
The Fund may not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies or other entities:
whose business activity consists of an illegal economic activity (i.e., any production, trade or other activity which is illegal under the laws or regulations applicable to the Partnership or the relevant company or entity, including without limitation, human cloning for reproduction purposes;
which substantially focus on:
the cultivation, production of and trade in tobacco;
any activities related to weapons and ammunition of any kind, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;
casinos and equivalent enterprises;
the production or trade in any product or activity subject to national or international phase-out or prohibition regulations or to an international ban, for example certain pharmaceuticals, pesticides, herbicides and other toxic substances (under the Rotterdam Convention, Stockholm Convention and WHO “Pharmaceuticals: Restrictions in Use and Availability”), ozone depleting substances (under the Montreal Protocol), protected wildlife or wildlife products (under CITES / Washington Convention) prohibited transboundary trade in waste (under the Basel Convention);
the production or trade of significant volumes of hazardous chemicals (this also refers to the storage or transportation of those chemicals and includes gasoline, kerosene, and other petroleum products)., or commercial scale usage of hazardous chemicals; whereas “hazardous chemicals” shall mean the chemicals listed in Annex I of the regulation (EU) No 649/2012 of the European Parliament and of the Council of 4 July 2012 concerning the export and import of hazardous chemicals;
the prduction or trade of unbound asbestos. This does not apply to the purchase or use of cement linings with bound asbestos and an asbestos content of less than 20%;
destructive fishing methods or drift net fishing in the marine environment using nets in excess of 2.5 km or any activities related to shark finning and commercial whaling;
fur farming or trading/manufacturing fur products;
commercial logging operations for use in primary tropical moist forest;
any kind of research, development or technical applications related to human germline gene editing under any circumstances in any jurisdiction or, except to the extent that appropriate legal regulatory and ethical allowances/documents are in place, somatic gene editing. The Partnership shall ensure the appropriate control of legal, regulatory, and ethical issues linked to such somatic gene editing;
the research, development or technical applications relating to electronic data programs or solutions, which (x) aim specifically at supporting any activity referred to under (i) and (ii) (aa) to (cc) and (ff) to (jj) above; internet gambling and online casinos; or pornography; or which (y) are intended to enable to illegally enter into electronic data networks or to illegally download electronic data;
that benchmark administrators find in violation of the United Nations Global Compact (UNGC) principles or the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises;
that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite;
that derive 10% or more of their revenues from the exploration, extraction, distribution or refining of oil fuels;
that derive 50% or more of their revenues from the exploration, extraction, manufacturing or distribution of gaseous fuels;
that derive 50% or more of their revenues from electricity generation with a GHG intensity of more than 100 g CO2 e/kWh;
that derive revenue from the production of and trade in distilled alcoholic beverages and related products;
that could be associated with the destruction in or significant impairment of areas particularly worthy of protection (without adequate compensation in accordance with international standards).
For the Sustainability Assessments the Fund is applying all principle adverse impact indicators (“PAIIs ”) of Table 1 of Annex I of the Commission Delegated Regulation (EU) 2022/1288 (“SFDR RTS ”) and selected PAIIs from Annex I Tables 2 and 3 of the SFDR RTS.
The selection is done based on a materiality assessment, determining whether the PAIIs are relevant for the sustainable investment case or not.
The materiality assessment considers the sector of the investment, the stage of the investment and the life cycle stage.
Screening Phase/Deeper Analysis
Potential portfolio companies in the deal flow are screened for:
alignment with exclusion principles
general fit to Fund’s sustainability objectives
the general sustainability objective of the start-up company’s management
the potential impact of technology/product/service
This is done by a Hot Spot Sustainability Assessment during a first interview.
Due Diligence Phase
During the due diligence phase of the investment a comprehensive questionnaire (Due Diligence Sustainability Assessment) is applied during an interview, which includes material PAIIs and selective sector-based indicators.
The assessment includes all life-cycle stages of the technology/product/service and includes the ESG assessment of the potential portfolio company. The assessment ensures that potential risks and opportunities are captured and documented.
There are two risk categories available for the assessment:
Risks which can be mitigated throughout the investment process
Risks which are serious and create a red flag for the investment decision and lead to a de-selection of the investment).
A scoring system is applied to identify the risk category.
During a workshop with the potential portfolio company risks under category a) are discussed and mitigation plans developed, which will be contractually agreed on with the potential portfolio company.
Identified opportunities are aimed to be maximized and action plans discussed. The Fund is at this stage also discussing selected targets with the potential portfolio company, ensuring the alignment of the investment with the Fund’s investment objective. Individual KPIs are discussed which will be used during the investment period to monitor the attainment of respective targets. In some cases, also external experts for Life Cycle Assessments are brought in to support the target setting process.
A commitment to regular sustainability reporting including evidence as well as an agreement to set KPIs and quantitative targets for the KPIs during the first six months after signing the investment contract are part of the shareholder agreement.
Investment phase
The Fund together with the portfolio companies, defines within the first six-month quantitative targets for the KPIs to track the attainment of the sustainable investment objectives. During the investment period, the Fund leans on the Invest Europe ESG reporting template and applies an ESG Assessment, where each portfolio company is requested to provide regular updates to PAII’s, which are mentioned in the SFDR RTS Annex I, Table 1 plus the material PAIIs from Table 2 and 3. Moreover, the Fund also requests each portfolio company individually to inform regularly on those indicators for which action plans have been discussed and agreed upon during the due diligence phase.
Alignment with international principles and standards
The Fund encourages the portfolio companies to implement respective policies like a HSE policy, HR policy and Procurement policy to establish a good company governance. Moreover, a supplier code of conduct is recommended.
The Fund also recommends and supports the portfolio companies to adhere to international standards, like OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights, the eight conventions in the ILO Declaration, and International Bill of Human Rights depending on the maturity of the start-up.
Sustainable investment objective of the financial product
The Fund differentiates impactful business models from impactful portfolio company operations and is seeking to create the best possible positive impact with both, while mitigating negative impacts. The impact of the business model refers to the environmental and/or social impact of a technology/product or service. The impact of the operations of the potential portfolio company refers to the ESG performance of the respective company. Both types of impacts are assessed by an assessment across the life cycle of the technology/product or service, which includes the company operations. Since early-stage companies typically do not yet create a significant negative impact on the environment and the impact created by the company operation itself is mostly quite low. In contrast, the potential impact of the technology/product or service under development can have a huge effect on people and/or the environment. The size of the business model impact is evaluated by the change which is created for society and/or the environment.
Nowadays we see many innovative early-stage and seed stage companies in tech areas, which struggle to get required finance to scale the technology or product. The Fund is addressing this gap specifically for the sectors of Bio-Economy, Circular Economy and Green Energy, because these sectors will technically drive the transformation towards climate neutrality in 2050 in accordance with the Regulation (EU) 2021/1119 of the European Parliament. As a fourth sector the Fund will also focus on technologies/product or services, which enable the transformation with data insights, analytical tools or software solutions.
Consequently the Fund pursues three environmental sustainable investment objectives:
Reduction of GHG emissions
Contribution to Circular Economy
Resource Efficiency
All investments (i.e. 100%) will have to contribute to at least one sustainable investment objective.
Reduction of GHG emissions
The Fund invests in technologies, services, and products with the potential to contribute significantly to a reduction of the GHG emissions within the next 25 years. This includes technologies that can facilitate a transition to a net-zero economy, either by operating at net-zero or having a positive impact, and low-emission technologies that can replace high-emission alternatives.
Contribution to Circular Economy
The Fund invests in technologies, products, and services that have the potential to contribute to the reduction or avoidance of waste within the next 25 years. In order to decouple economic growth from the linear use of resources waste will be a key raw material in a circular economy. The Fund aims to support this transition by investing in new technologies or business models that enable circular design and a circular economy.
Resource Efficiency
The Fund invests in technologies, services, and products that have the potential to significantly save resources, such as scarce minerals or materials, over the next 25 years. Resource efficiency is a constant driver in economic development as it not only saves natural resources but is also often financially attractive.
The attainment of these three objectives is measured by sustainability KPIs, which are individually discussed with the portfolio companies during the pre-investment phase and finally defined within the first six months of the investment period.
The Fund is not considering any indices to measure the attainment of the sustainable investment objectives, since e.g., EU Climate Transition Benchmark or EU Paris-aligned Benchmark are more suitable for mature economic activities and entities, which have to reduce GHG emissions.
Early-stage businesses are small companies, which aim to grow in a sustainable manner, hence their GHG emissions and other environmental impacts are quite low at early stage and increase over the time of the investment. These companies therefore need to focus on choosing those inputs for their future operations that keep their GHG emissions at a lower level at scale, compared to existing economic activities.
The Sustainability Assessments which are regularly done to monitor should ensure that the portfolio companies are growing in a sustainable manner.
Investment strategy
The Fund will invest in European start-ups with a focus on sustainable and environmental technologies to develop new technologies/products or services, which help to achieve the transformation of the industries towards net zero by 2050. The Fund will primarily invest in early stage (Seed & Series A) but may occasionally invest in later stages depending on the valuation upside, the impact business model, sustainability potential, contribution potential, and timing of the Fund. The Fund aims to a take a lead investor role and play an active role in supporting the building and growth of start-ups and creating value. The Fund’s regional focus within Europe is mainly on Germany, the Nordics, and the BeNeLux countries.
Pre-investment phase
With the focus on the four aforementioned business sectors the Fund is selecting businesses from the deal flow, which promise outstanding financial returns and at the same time pursue to create a positive impact on the environment and society, both with their impact business model, i.e. technologies/products/services and as corporate citizens with impactful operations.
The selection is done by a 3-step approach:
Alignment with the exclusion principles of the Fund.
Alignment with at least one of the three sustainable investment objectives, without harming any of the other two.
Impact and ESG assessment during the screening and due diligence phase on different levels of depth to assess sustainability-related risks and opportunities.
The collected information is summarized and considered in the Investment Committee decision for investment. The Investment Committee decides unanimously.
Investment Phase
During the investment phase regular ESG and Impact assessments are performed with the portfolio companies to track progress and change for the material sustainability indicators. The Fund is also encouraging the portfolio companies to develop policies for the relevant governance aspects, for example HR policies, HSE policies, good governance policies, remuneration policies, supplier code of conduct, procurement policy and also whistleblower, anti-bribery and anti-corruption policies.
The application of the Sustainability Assessments during the pre-investment and post-investment phases will support the value creation of the portfolio companies by fostering positive impacts and mitigating negative impacts (financial, environmental, social and governance impacts), which stem from sustainability-related risks.
Proportion of Investments
The Fund aims for investments which meet the definition of a sustainable investment with respect to at least one environmental objective and create a positive impact. Some of the Fund’s investments might fall into the scope of the EU Taxonomy (Regulation (EU) 2020/852). However, the Fund is not actively intending to invest in economic activities, that are eligible or aligned with the EU Taxonomy. Nevertheless, the technical screening criteria and DNSH requirements might be considered as inspiration for setting targets and defining the ambition level of the economic activity.
Investments
#1 Sustainable
100%
#2 Not sustainable
0%
Environmental
100%
Other
100%
#1 Sustainable covers sustainable investments with environment or social objectives. #2 Not sustainable includes investments which do not qualify as sustainable investments.
Monitoring of the sustainable investment objective
Like financial performance, the sustainability performance will be monitored throughout the investment period.
The attainment of the three environmental objectives of the Fund will be measured by key performance indicators with respective targets. During the due diligence phase, in a workshop, the most material impact indicator(s) to measure the attainment of the Fund’s sustainable objectives are evaluated. The portfolio company agrees to set final KPI and target definitions within the first six months of the investment period. This agreement is part of the shareholder agreement.
As each portfolio company has its own business model, KPIs are individually discussed and defined with the portfolio companies. Targets will be defined, which go hand-in-hand with the economical performance KPIs and ensure that as the business grows, the positive impact of the technology/product or service of the portfolio company will also grow, while the environmental and social footprint of the company will be kept as low as possible and economically justifiable.
The Impact KPIs of the portfolio companies will be clustered under the three environmental objectives of the Fund and individual progress of the KPIs will be measured against the target.
The portfolio company agrees to regularly monitor, manage progress and report on the respective Impact KPIs and also on the ESG performance. The periodic reporting is done quarterly in accordance with Article 11 SFDR. This process ensures that in addition to the financial performance, also the sustainability performance will be monitored throughout the investment period.
The Fund’s attainment of the sustainable investment objective is assessed by accumulating the individual portfolio company reports and target achievements at the Fund level.
Two kinds of sustainability-related reports will be published:
Report on progress on sustainable investment objectives (aggregation of the Impact KPI performance of each PC and assigned to one of the three Fund investment objectives)
Report on PAIIs according to SFDR.
The investment managers are collecting the information from the portfolio companies regularly. The analysis of the data is done by controlling and the investment managers. The quarterly summary of the impact performance is done by the function, which also prepares the financial reports.
In a quarterly meeting with the Internal Sustainability Committee the impact data are reviewed and potential actions discussed with the investment managers which in turn will discuss with the portfolio companies.
Methodology
The performance of the Fund to achieve the three sustainable investment objectives is measured by the performance of the portfolio companies related to the defined Impact KPIs and targets.
Several aspects to measure the progress towards the sustainable investment objectives are considered:
Definition of Impact KPIs and targets
e.g. GHG emission reduction:
Portfolio companies who contribute with their technology/products or services to this goal will most likely define in their business model an improvement delivered by their technology/product or service compared to a market standard via an Life Cycle Assessment and GHG emissions saved/avoided. If data for such a Life Cycle Assessment are not available yet, best efforts for estimations are done (see Data sources and processing).
e.g. Contribution to Circular economy:
Portfolio companies who contribute with their technology/products or services to at least one of the circular economy design principles could be measured by e.g. the potential amount of material kept in the loop.
e.g. resource efficiency:
In case a portfolio company is developing a technology or product or a service, which helps to reduce the use of scarce minerals or materials by e.g. improving the performance of a technology or product, a potential KPI could be the amount of saved minerals/materials compared to market standard.
For all three environmental objectives the following applies:
As early-stage companies are often still in the development phase and not in the market yet, the aforementioned KPIs cannot be applied. Instead, the progress of the company towards market introduction could be a KPI or the technological readiness level (TRL).
Targets are set, if applicable also linked to milestones.
Weighting of contribution
In case portfolio companies contribute to more than one sustainable investment objective or considers more than one KPI, a weighted share will be defined depending on the impact contribution. The share of contribution is determined by the portfolio companies depending on their business model.
Validation of Impact KPIs and Targets
The Fund uses scientific background data and collects scientific and expert views to review and validate the impact KPIs and targets in order to get a third party opinion.
Approval of Impact KPIs and Targets
The Impact KPIs, target values and for each investment are approved by the Investment Committee.
Annual Reporting and Review
The measurement of progress towards the targets for each Impact KPI is part of the annual reporting of the Fund and will be reviewed and approved by the Managing Partners.
Review of Methodology
The methodology will be regularly monitored and continuously improved based on the learnings acquired during the investment period. This will be reviewed in an annual meeting with the Internal Sustainability Committee and the investment managers.
Aggregation of the results on Fund level
The Fund aggregates the annual impact performance of the portfolio companies against the set targets and calculates a weighted contribution to the Fund’s overall annual impact performance by respecting the size of the investment.
Data sources and processing
The Fund acknowledges the data ownership of the portfolio companies. Data inputs for the first screening and Sustainability Assessment as well as Impact KPI and target setting is provided by the portfolio companies in joint discussions. As the target investments are early-stage, the Fund strives to obtain as accurate data as possible and reduce the level of uncertainty by consulting independent experts. The Fund challenges and validates the data by in-house research and third party expertise. The investment managers refer to scientific studies, internal and external technical experts in the area of the investment sectors and also on the input of the venture managers. In case of GHG emission reductions the Fund consults external Life Cycle Assessment experts together with the portfolio companies, unless the start-ups already have Life Cycle Assessment related data available.
The data are stored in the Fund’s documentation system.
Knowing that sometimes assumptions and best estimates are required to assess financial and sustainability performance, the Fund strives to transparently report on the quality of data. Data transparency is only possible to achieve in cases where the Fund has a lead investor role or is able to request such information from the portfolio company.
Limitations to methodologies and data
The investment strategy of the Fund targets early-stage companies that develop complex innovative technologies/products or services. Given the nature of this investment focus, it is inherent that data availability is limited and data accuracy is often still deficient. There are three main areas to differentiate, which generate limitations to methodologies and data:
Uncertainty About the Business Model and Impact
Innovative technologies/products and services often lack a market standard or historical data against which their potential impact performance can be compared. Moreover, there is uncertainty about the final market application, which might be amended during the investment period. Estimations and relative comparisons will be applied, depending on the stage of information available at that point in time. This might also lead to potential amendments of impact targets of the companies during the investment period.
Uncertainty About Input Data
Early-stage companies might not be able to provide the required sustainability-related information at the time of the investment decision. Thus, assumptions about impact and ESG data are considered, based on the best available information. During the investment period, the Fund aims to consult and support the portfolio companies to improve data reliability and quality.
Fund Influence to access Data, aligned with the Fund’s Investment Framework
Only in cases where the Fund is the lead investor the data needed to conduct the Sustainability Assessment and also the definition of Impact KPIs and targets are ensured. If the Fund has a minor role as an investor, access to such data will be limited. Here, the Fund will decide whether the data is sufficient to meet the sustainability standards of the Fund.
Methodologies of Impact Assessment
Assessment methodologies for Sustainability Assessments are still not standardized and are manifold. Life Cycle Assessments conforming to ISO 14040/064 or similar standards are becoming more and more accepted as a standard and will be applied, if possible. Assessment methodologies, e.g., Contribution to Circularity, are especially for early-stage companies not yet available. Here, the Fund monitors the further development of scientific approaches to assess the sustainability performance of technologies/products or services.
Due Diligence
The due diligence process is a core process for venture capital investments and the Fund integrated the sustainability due diligence into the investment due diligence process.
Screening
During the screening stage, it is verified whether the business model of the potential portfolio company aligns with at least one of the three sustainable investment objectives of the Fund.
Pre due diligence
After meeting the founders for the first time, the pre-due diligence phase begins. In an interview with the start-up, a Hot Spot Sustainability Questionnaire identifies further alignment with the Fund’s strategy and investment thesis. Here, the first estimation of the potential impact is obtained.
Due Diligence Phase
During the due diligence phase, the main positive and negative impacts, as well as the first impression about the ESG performance of the start-up are assessed during a workshop. A Due Diligence Sustainability Assessment across the life cycle of the technology/product or service is done, which addresses material PAIIs and if applicable also sector specific indicators inspired by SASB or the EU Taxonomy.
This collected information build the foundation to discuss potential impact KPIs and targets with the start-up, which might be later used to monitor progress towards the Fund’s sustainable investment objectives. The final agreement on impact KPIs and targets is done after the investment decision.
If needed external experts will be invited to this workshop to enrich the quality of the assessment and/or support the discussion of Impact KPIs and targets.
The results of the workshop are all well documented and will be part of the investment documentation.
Engagement Policies
Depending on the share of the investment, the influence of the Fund to engage with a portfolio company on sustainability topics varies.
If the Fund takes a lead investor role and has a seat on the Board / Supervisory Board, the Fund proposes that Impact and ESG topics become part of the regular agenda, similar to financial topics, to create the opportunity to discuss potential incidents, risks, and opportunities.
The Fund also proposes that the portfolio company appoints at management level one person who is responsible for overseeing the Impact performance and ESG-related policies and processes, which ensure an active governance system within the portfolio company.
In case incidents occur that need to be discussed during the Board/Supervisory Board meeting, the Fund requests a root cause analysis to learn from the incident and to define measures for prevention.
The Fund also supports the portfolio company with expertise, if required, to help improve and manage the ESG performance.
The management of Impact and ESG Performance will be contractually agreed upon with the portfolio companies. The portfolio company will be asked to agree to install active ESG policies and processes and to regularly report on the Impact and ESG performance of the company.
Potential impact and ESG-related risks and opportunities, as well as incidents, are asked to be disclosed, and action plans for mitigation or leverage are encouraged.
If the Fund has fact-based concerns that a severe negative impact is being created by the portfolio company during the ownership period, which infringes on the sustainable investment objectives of the Fund, the Fund considers a divestment.
Attainment of sustainable investment objective
The Fund, together with the portfolio company, defines Impact KPIs and targets, which are linked with at least one of the Fund’s sustainable investment objectives. The portfolio companies commit to managing and regularly reporting on their impact performance. In case GHG emission reduction is addressed and sufficient reliable data are available to conduct a Life Cycle Assessment, this will be done in accordance with ISO 14040/44 or 14064 or similar standards.
In annual reviews, the progress is monitored and also reported to the Investors of the Fund.
This information was last updated on 24 October 2024. If you have any questions, please do not hesitate to contact us at talkto@sef.ventures .
