Sustainability-Related Disclosures
This disclosure ensures compliance with the Sustainable Finance Disclosure Regulation (SFDR 2019/2088 and 2022/1288).
As these regulations have not yet been fully consolidated, the first part of this disclosure addresses SFDR 2019/2088 and the second part SFDR 2022/1288.
SFDR Statement (2019/2088)
The following disclosure relates to ECONA Management GmbH (“identity.vc”), LEI: 39120090VHB4YB0SEI33.
This statement includes three sections:
Transparency of sustainability risk policies (2019/2088 – 3-1)
Transparency of adverse sustainability impacts (2019/2088 – 4-1-b)
Transparency of remuneration policies in relation to the integration of sustainability risks (2019/2088 – 5)
Transparency of Sustainability Risk Policies
ECONA Management GmbH (“identity.vc”) thoroughly considers and addresses sustainability risks as integral components of its investment decision-making process. Sustainability risks encompass environmental, social, or governance events or conditions whose occurrence could potentially have a material adverse effect on the value of the investment.
Identity Ventures incorporates sustainability risks into its due diligence process by utilizing an ESG Questionnaire, PAI, and DEI Policy requirement, all of which are reported through a third-party ESG tool. The results of these assessments are carefully considered in investment decisions.
Furthermore, all investments undergo negative screening based on an exclusion list to comprehensively analyze their exposure to environmental, social, and governance risks. For further details on this process and how Identity Ventures integrates Sustainability Risks at the ownership phase, please contact us for our Responsible Investment Policy and Exclusion Policy.
Identity Ventures exercises discretion when addressing sustainability risks, evaluating whether to proceed with an investment based on ‘The Principle of Proportionality’. This may involve implementing measures to mitigate identified risks. Nevertheless, Identity Ventures retains the freedom to abstain from investing or to proceed despite sustainability risks, in which case it can apply measures to reduce or mitigate these risks. Throughout, Identity Ventures considers the strategic importance of an investment and its transactional context. Additionally, Identity Ventures regularly updates its policies to address emerging risks and investor concerns.
Transparency of Adverse Sustainability Impacts
Identity Ventures considers adverse impacts of its investment decisions on sustainability factors, and reports on them annually. Sustainability factors are environmental, social, and employee concerns, respect for human rights, and the fight against corruption and bribery.
Given that the Sustainable Finance Disclosure Regulation (EU 2019/2088) (EU 2022/ 1288) ("SFDR") and the accompanying Regulatory Technical Standards ("RTS") are new legislative acts, there is very little or no practical experience or practice concerning the application of their respective provisions. Therefore, substantial legal uncertainties would remain when applying those provisions to the strategies pursued by Identity Ventures. However, a best-effort approach will be undertaken for the reporting.
Transparency of Remuneration Policies in Relation to the Integration of Sustainability Risks
As a registered alternative investment fund manager (AIFM) within the meaning of section 2(4) of the KAGB, Identity Ventures is not required to have a remuneration guideline or policy under the requirements of the KAGB.
SFDR Statement (2022/1288)
The following disclosure relates to ECONA Management GmbH (“identity.vc”), LEI: 39120090VHB4YB0SEI33.
Statement of Principal Adverse Impacts on Investment Decisions on Sustainability Factors
Kindly refer above to the headline ‘Transparency of Adverse Sustainability Impacts’ for the PAI Statement.
The present statement on PAI on sustainability factors covers the reference period from 1 January 2023 to 31 December 2023, however reporting will only begin for FY2024 with the earliest historical comparison to be provided in June 2026.
The following disclosure relates to Identity Fund I GmbH & Co. KG (“Fund”) (LEI: 39120014ZFF11OYGWA89):
Summary
The Fund will make sustainable investments with a social objective of impact investing in LGBTQ+ led companies, focusing specifically on businesses that demonstrate LGBTQ+ representation in their leadership. "LGBTQ+" is an acronym for lesbian, gay, bisexual, transgender, and queer.
Evaluation of this sustainable investment objective occurs both before and after investments with The Fund requiring all portfolio companies to make best efforts in their annual reporting via a third-party ESG tool to gather Principal Adverse Impacts (‘PAI’).
All actions and decisions described herein are undertaken by Identity Ventures on behalf of The Fund. No specific reference benchmark has been designated to achieve the Sustainable Investment Objective promoted by the financial product, owing to the absence of a universal benchmark for the mentioned objectives. Instead, it employs absolute values to determine if portfolio companies meet its criteria, expressing this as a percentage of the total number of portfolio companies in the portfolio.
No Significant Harm to The Sustainable Investment Objective
The Financial Product will select and monitor the portfolio companies in terms of the social sustainable investment objective. Before investing in a portfolio company, the portfolio company is asked to fill out an ESG questionnaire. A follow-up questionnaire with set DEI targets and PAI is distributed annually to portfolio companies to monitor their impact. This allows the Financial Product to know how the portfolio companies are performing according to various ESG KPIs – with an emphasis on Social and Diversity indicators.
The Fund Manager conducts a sustainability assessment, based on an ESG Questionnaire, for each investment, as further detailed below, which includes identifying where companies may cause significant harm through the products and services that they offer, but also through their entire value chain. The assessment includes:
taking into account PAI and other relevant ESG indicators to identify if a company has any sustainability risks;
screening for any violations of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, as detailed below;
Identification, using third-party data, of any severe controversies. The Fund Manager may carry out a more detailed assessment of any portfolio company which operates in an industry or sector that could be considered more harmful with a view to ensuring that either the practices the portfolio company has in place limit the amount of harm or that the portfolio company is being engaged on that topic.
Sustainable Investment Objective of The Financial Product
The Financial Product is designed with the sustainable investment objective of impact investing in LGBTQ+ led companies, focusing specifically on businesses that demonstrate LGBTQ+ representation in their leadership. "LGBTQ+" is an acronym for lesbian, gay, bisexual, transgender, and queer.
This investment strategy aims to support LGBTQ+ entrepreneurs as role models, strengthen the LGBTQ+ investor and entrepreneur community, and promote diversity, equity, and inclusion (DEI). The objective is to generate attractive returns by investing in LGBTQ+ led technology companies, recognizing that diverse leadership teams are key drivers of value creation.
The Financial Product allocates 10% of its received Management Fee to strengthen the European LGBTQ+ founder and investor community and 10%. Additionally, 10% of the Carried Interest is donated to LGBTQ+ organizations.
Investment Strategy
The Financial Product will build, hold and manage a portfolio of equity and equity-related investments. The investments will have an emphasis on seed and early-stage companies with LGBTQ+ representation in the leadership team during the entire investment process.
During the entire investment process the Financial Product is applying different methods to implement the investment strategy on a continuous basis.
Proportion of Investments
The Financial Product plans to make investments with a share of 100% meeting the sustainable investment objective.
Monitoring of Sustainable Investment Objective
The Fund requires all Portfolio Companies to annually share via a third-party ESG tool their 14 mandatory PAI, 2 additional PAI from the Environment and Social table along with any DEI targets set. The first reporting period for these will be FY24, which will be reported before June 30th 2025.
However, the consideration of these indicators strongly relies on the availability of relevant data. Due to the investment focus on pre-seed and seed stages, the relevant data may not always be sufficiently available and/or of adequate data quality. Depending on the individual data situation Identity Ventures might not always be able to track all KPIs. When tracking KPIs, Identity Ventures will rely on the information provided by the individual (potential) portfolio companies who undertake a best-effort approach.
The Fund has an increased awareness of the impact of sustainability risks on risk management and, thus, on the value potential of investments. Therefore The Fund also consults with the companies on an ad-hoc basis and will carry out further checks if there are indications of potential issues with the Fund’s exclusion criteria. Therefore, the Fund monitors compliance with the ESG requirements on an ongoing basis.
Methodologies
Currently, the Fund applies qualitative assessments concerning the Sustainable Investment Objective and reported PAIs. The Fund conducts its initial assessment in the course of its due diligence. The Fund’s due diligence is conducted through an informal process as appropriate in light of the circumstances of each individual case that the Fund asks its portfolio companies to complete. After the first reporting period data is analyzed internal benchmarks will be created based on average portfolio companies and any additional data points researched from external sources.
Data Sources and Processing
Information is obtained from the respective portfolio companies via a third-party ESG assessment tool. An external review or verification of the information obtained will only be carried out if misrepresentations are suspected. Data processing is exclusively internal and GDPR compliant.
Limitations to Methodologies and Data
The information collected from the portfolio companies as part of the due diligence on behalf of the Fund 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, the Fund considers it a priority to establish and maintain a trustful working relationship with the Fund’s portfolio companies to ensure compliance with the restrictions described in this section.
Since The Fund’s investments are made for a multi-year investment period, Identity Ventures places a high priority on establishing a trusting working relationship with the portfolio companies to ensure that data is submitted reliably and completely.
Identity Ventures recognizes the rapidly expanding ESG landscape, which may introduce new terminology and taxonomy that founders may find challenging to comprehend, especially if they have not been exposed to it before. Therefore, to ensure potential companies have a clear understanding of the KPIs and PAIs they must report on, they are connected with Identity Ventures’ outsourced ESG team from ACE Alternatives GmbH. This team offers one-on-one guidance on each topic, enhancing understanding and motivation among founders to fulfill both requests.
Due Diligence
During the Due Diligence process, The Fund assesses whether the respective company intends to contribute to the Sustainable Invesment Objective. This involves reviewing the company’s pitch deck, data room, and challenging the company’s founders on their thinking around Diveristy and Inclusion.
The Fund Manager will select investments to achieve the following binding criteria:
The percentage of companies analyzed prior to investment/pre-screening phase for LGBTQ+ representation at the C-level in the Financial Product will always be 100%.
If the Financial Product offers a term sheet, it will always include clauses that a DEI policy is to be implemented and DEI targets are to be set after the investment is made.
The Financial Product also utilises investment exclusions as part of its binding criteria, which is consistently applied in the pre-screening for every portfolio company investment. This is a shortened list. For the full table please contact us for our exclusion policy.
Excluding investments in any illegal economic activity (i.e. any production, trade, or other activity which is illegal under the laws or regulations applicable to the Fund or the relevant company)
Excluding investments in the research, development, or technical applications relating to electronic data programs or solutions, which are intended to enable to either illegally enter into electronic data networks or download electronic data
Reduced negative environmental or social impact.
Excluding investment in fossil fuel sector.
Excluding investments in companies involved in controversial activities (i.e. tobacco, distilled alcoholic beverages, pornography, weapons)
Good governance practices are monitored through an informal process as appropriate in light of the circumstances of each individual case as part of every due diligence. The due diligence process is not externally monitored. For the full process of our formal procedure, please request our Responsible Investment Policy.
Engagement policies
To identify and prioritize principal adverse impacts (PAIs), Identity Ventures uses a methodology that reflects its diversity-driven mission while recognizing that environmental and governance factors are crucial to a company's success. On an annual basis, Identity Ventures reviews these PAIs and through active ownership engages with portfolio companies to manage these impacts.
Enhanced Engagement
Enhanced engagement is a cornerstone of our approach at Identity Ventures, particularly with companies that severely breach the minimum standards we have established in areas of DEIB, corporate behavior, and climate change. Our evaluation of corporate behavior is grounded in the expectation that companies adhere to internationally recognized codes of conduct. These include, but are not limited to, the principles outlined in the UN Global Compact and the OECD Guidelines for Multinational Enterprises, which cover a broad spectrum of responsibilities such as corporate governance, social responsibility, environmental stewardship, and transparency.
In the realm of our engagement programs, Identity Ventures prioritizes the assessment of principal adverse impacts, focusing on key areas such as considering carbon emission reduction initiatives, reducing discrimination, and ensuring sufficient action is taken to address anti-corruption and anti-bribery breaches. This holistic approach underscores our commitment to not only holding companies accountable but also supporting them in adopting more sustainable and responsible business practices.
Stewardship Policy
Our stewardship policy is built on the principle of active ownership. At Identity Ventures, we believe in leveraging our influence as investors to encourage positive change within the companies in our portfolio, even if we are only minority investors. This involves engaging in constructive dialogue, exercising our voting rights with a focus on long-term value creation, and collaborating with other stakeholders to enhance overall corporate governance and sustainability. Our aim is to foster corporate practices that are not only beneficial to the environment and society but also conducive to the long-term success and resilience of businesses.
Attainment of Sustainable Investment Objective
In order to attain the sustainable investment objective set out above, the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase. Prior to an investment, it is verified whether there is indeed LGBTQ+ representation at the C-level. If the Fund offers a term sheet, it will always include clauses that a DEI policy is to be implemented and DEI targets to be set after an investment was made.
Date of Publication:
This document was last updated on 08.05.2024 to incorporate amendments and additions from the 2022/1288 SFDR update. If you have any questions, please do not hesitate to contact us at ESG@ace-alternatives.com
