Sustainability-related disclosures pursuant to Regulation (EU) 2019/2088 (“SFDR”)

Date of publication: March 2021

Date of update: September 2023 (implementation of recent legislative and regulatory developments as well as editorial amendments, addition of new fund under “IV. Sustainability-related disclosures”)

Atlantic Food Labs Manager GmbH („AFL“) takes into account sustainability risks in its investment decision-making process. Sustainability risks are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investments. As part of its standard procedure, AFL conducts a due diligence prior to investing. Such due diligence includes a range of questions relating to environmental, social or governance-related aspects, thereby also providing a basis for assessing potential sustainability risks. The outcome of the due diligence, including any information on sustainability risks revealed through the due diligence, guides AFL’s investment decisions. In its free discretion, AFL may decide to make an investment even if sustainability risks have been determined. In such case, AFL may in its sole discretion decide to apply appropriate mitigation measures. At all times, AFL will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.

AFL does not consider adverse impacts of investment decisions on sustainability factors within the meaning of Art. 4 SFDR of the SFDR, i.e. environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. The information that would need to be obtained from portfolio companies in connection with the disclosures required under Art. 4 SFDR is quite extensive and there is currently no market practice or no practical experiences with how the market, in particular co-investors and investees react to and deal with such new disclosure obligations and information requirements. In addition, legal uncertainties remain regarding the applicability of the SFDR and the scope of its obligations. In light of these uncertainties, AFL currently refrains from committing to consider adverse impacts on sustainability factors within the meaning of the SFDR. If and to the extent that these uncertainties will be resolved and a practicable market and administrative practice will evolve in this regard, AFL will re-evaluate following them in due course.

As a registered alternative investment fund manager within the meaning of section 2 (4) of the KAGB, AFL 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 the remuneration.

‍Summary

Atlantic Food Labs Fund I GmbH & Co. KG (the “Fund”) is a venture capital fund managed by AFL. AFL considers environmental and social characteristics as part of its investment decisions by incorporating certain investment exclusions (negative screening) during its decision-making process. Moreover, AFL invests at least 70% of the Fund’s capital in impact-driven enterprises (i.e. enterprises that, i.a ., have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach and expressly state such purpose in their articles of association or other corporate documents). Such investments are impact oriented but do not represent sustainable investments within the meaning of Art. 2 no. 17 SFDR or Art. 3 of the EU Taxonomy Regulation (EU 2020/852) (“EU Taxonomy”), because adverse effects and significant harm to other sustainability objectives are not assessed systematically. AFL applies its impact methodology and ESG policy to ensure a structured approach towards ensuring a level of protection with regard to environmental, social and governance related aspects of its business. Acting for the Fund, AFL will at all times apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.

‍

Zusammenfassung

Atlantic Food Labs Fund I GmbH & Co. KG (der "Fonds") ist ein von AFL verwalteter Risikokapitalfonds. AFL berücksichtigt bei seinen Investitionsentscheidungen ökologische und soziale Merkmale, indem es bestimmte Investitionsausschlüsse (negatives Screening) in seinen Investitionsentscheidungsprozess einbezieht. Darüber hinaus investiert AFL mindestens 70 % des Fondskapitals in wirkungsorientierte („impact-driven“) Unternehmen (d. h. Unternehmen, die u. a. das Ziel verfolgen, eine gesellschaftliche Wirkung zu erzielen, indem sie unternehmerische Lösungen für ein gesellschaftliches Problem auf der Grundlage eines marktbasierten, skalierbaren Ansatzes anbieten, und die diesen Zweck ausdrücklich in ihrer Satzung oder anderen Unternehmensunterlagen angeben). Solche Investitionen sind wirkungsorientiert, stellen aber keine nachhaltigen Anlagen im Sinne von Art. 2 Nr. 17 SFDR oder Art. 3 der EU-Taxonomie dar, da negative Auswirkungen und erhebliche Beeinträchtigungen anderer Nachhaltigkeitsziele nicht systematisch geprüft werden. AFL wendet seine Impactmethodologie und ESG-Policy an, um einen strukturierten Ansatz zur Gewährleistung eines Schutzniveaus in Bezug auf umwelt-, sozial- und governancebezogene Aspekte seiner Geschäftstätigkeit sicherzustellen. Dabei berücksichtigt AFL jederzeit den Grundsatz der Verhältnismäßigkeit und berücksichtigt sowohl die strategische Bedeutung einer Investition als auch ihren Transaktionskontext.

‍

No sustainable investment objective

This financial product promotes environmental or social characteristics, but does not have as its objective a sustainable investment. 

‍

The Fund focusses a large part of its investment strategy on achieving positive impact, i.e. 70% of the Fund’s capital are to be invested in impact-driven enterprises (i.e. enterprises that, i.a ., have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach). However, such investments are impact oriented but do not represent sustainable investments within the meaning of Art. 2 no. 17 SFDR or Art. 3 of the EU Taxonomy, because adverse effects and significant harm to other sustainability objectives are not assessed systematically. 

‍

Environmental or social characteristics of the financial product

The Fund promotes environmental and / or social characteristics by implementing certain investment exclusions during the investment decision making process. Moreover, the Fund will invest at least 70% of its funds in impact-driven enterprises (see below in section “Investment Strategy” for a detailed definition).

‍

As signatory of the UN Principles for Responsible Investment (PRI) for many years, AFL integrates ESG considerations into its investment approach. The Fund‘s portfolio companies contribute to the UN Sustainable Development Goals (SDGs) and are contributing to the following environmental objectives as outlined in the EU Taxonomy: Climate change mitigation, Climate change adaptation, Transition to a circular economy, Pollution prevention and control, and Protection and restoration of biodiversity and ecosystems.

‍

Investment strategy

In general, the Fund invests in portfolio companies with business models and products that shape the future of food and sustainability, or tackle food-related health & sustainability challenges systematically, exploring opportunities across the most challenging areas of the food value chain (from agriculture to waste and post-consumption) and leveraging technology. The geographic focus of the Fund will Europe (including the UK) and Israel. The Fund will pursue its investment activity mainly in opportunities in the field of impact investing and invest an aggregate amount equal to at least 70% of the amount drawn down from investors for the purpose of investment in impact-driven enterprises in accordance with a defined impact methodology.

‍

Impact-driven enterprises are enterprises that (i) have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach, and expressly state such purpose in their articles of association or other corporate documents; (ii) have a business model which enables them to fund themselves on a non-grant basis to develop self-sustainable business models enabling them to access over time capital from return-seeking investors who hold and sell an interest in them in a way comparable to the venture capital model; (iii) in the frame of their societal purpose, define ex-ante their societal impact objectives within their business plans and specify associated metrics for directing operations and monitoring their impact ex-post; (iv) intend to use their own business growth to advance its pre-defined societal targets; and (v) are managed in an accountable and transparent way, taking into account the interests of employees, customers and other stakeholders affected by its business activities).

‍

Further, 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 includes:

‍

a) Performing research and innovation activities considered as illegal according to the applicable legislation in the country of the portfolio company;

‍

b) An 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 portfolio company or other entity, including without limitation, human cloning for reproduction purposes);

‍

c) The production of, and trade in, tobacco and distilled alcoholic beverages and related products;

‍

d) The financing and production of, and trade in, weapons and ammunition of any kind;e) Casinos and equivalent enterprises;

‍

f) The research, development or technical applications relating to electronic data programs or solutions, which:

• Aim specifically at: (i) supporting any activity referred to under b) – e) above; (ii) internet gambling and online casinos; or (iii) pornography; or
• Are intended to enable to illegally (i) enter into electronic data net-works; or (ii) download electronic data.

‍

The Fund’s investment strategy is implemented in the investment process on a continuous basis: Every investment opportunity will be tested against the Fund’s investment strategy, in particular its investment exclusions, as part of the due diligence prior to any investment made by the Fund. In addition, investments in impact-driven enterprises will be undertaken in accordance with its defined impact methodology. After an investment, i.e., during the holding period, the Fund will monitor its portfolio companies on a regular basis and provide support if and where considered relevant.

‍

Good governance practices are assessed through a questionnaire-based assessment as part of every due diligence process prior to any investment made by the Fund. Such practices include, in particular, sound management structures, employee relations, remuneration of staff and tax compliance within the portfolio companies. Moreover, the Fund will conduct regular monitoring of the good governance practices in its portfolio companies during the holding period. If the Fund becomes aware of severe governance issues, it will investigate them and work with all parties involved to find an appropriate solution.

‍

Proportion of investments

The Fund will invest fully in line with its investment restrictions and its investment strategy.

‍

Monitoring of environmental or social characteristics

AFL’s screening and monitoring of the Fund’s investments is mainly based on questionnaires, used initially within the due diligence process and reconducted yearly. Following an investment, AFL monitors the progress of all portfolio companies yearly in line with its ESG methodology, and of impact-companies yearly in line with its impact methodology. The Fund engages in centralized reporting to evaluate adherence to ESG criteria. Further, during the holding period, the Fund uses the sustainability indicator ‘No investments in the area of investment exclusions’ and collects respective data at portfolio company level in order to monitor the ongoing compliance with its environmental and/or social characteristics. 

‍

Methodologies for environmental or social characteristics

The Fund applies qualitative assessments with respect to its environmental and/or social characteristics. The Fund conducts an initial assessment of the environmental and/or social characteristics promoted in the course of its due diligence process by providing its (potential) portfolio companies with a questionnaire. Through this questionnaire, the investment exclusions and good governance practices are identified and evaluated. Based on the results of this assessment, the Fund identifies whether the environmental and/or social characteristics promoted by the Fund are met before making an investment. During the holding period, the so conducted assessment forms the basis to measure and monitor if the characteristics are continuously being met. 

‍

Further, AFL applies its impact methodology which has been drafted in negotiations with the Fund’s anchor investor (i.e. a large European public institutional investor). The key components of the impact methodology may be summarized as follows: for each impact-driven enterprise AFL sets one or more impact goals and target values. AFL monitors and reports on a regular basis an impact multiple (i.e.the ratio between the target value and the observed realized value). Additionally, for each impact driven enterprise, AFL monitors and reports on an overall impact-goal (i.e. the weighted average of all impact goals for a specific impact-driven enterprise). Based thereon, AFL monitors and reports on the portfolio impact goal to reflect societal performance of the Fund’s portfolio of impact-driven enterprises.For this purpose, AFL aggregates the impact goals for each impact-driven enterprise by weighting each overall impact goal of a specific impact-driven enterprise with the capital invested in each impact-driven enterprise and adding the weighted overall impact goals of each impact-driven enterprise in the Fund’s portfolio.

‍

Data sources and processing

Most data is obtained from the (potential) portfolio companies. Some data may be estimated or supplemented by information publicly available. An internal or external review or verification of the data obtained will be carried out if misrepresentations are suspected. 

‍

When setting impact goals and target values, AFL anticipates the potential impact of a possible investment based on its own research and assumptions about the portfolio company’s growth. Additionally, AFL will use data obtained from the portfolio company. Data will then be used against industry benchmarks to estimate impact targets over the lifetime of the investment and tracked on a yearly basis. 

‍

Limitations to methodologies and data

AFL aims to use a scientific approach in impact target setting when data is available. However, its investment strategy targets innovative early-stage companies for which data might be inexistent of approximative. AFL will apply external verifications in exceptional circumstances only, e.g . if substantial facts suggest data provided by the portfolio company is false or misleading or if important data cannot be obtained or replaced with reasonable assumptions, there remains a risk that inaccurate data may not be detected in some cases. As the Fund’s investments are made for several years, the Fund considers it a priority to establish and maintain a trustful working relationship with its portfolio companies in order to ensure data quality and compliance with the environmental and/or social characteristics promoted by the Fund.

‍

Due diligence

AFL performs due diligence which includes an ESG due diligence for every (potential) portfolio company. Additionally, the due diligence may include questions and subject matters which help inform the process of setting impact goals and target values later on. Such questions and subject matters are determined on a case-by-case basis as needed. 

‍

The Fund's pre-investment screening and due diligence procedures place significant emphasis on ESG factors, and these procedures are conducted for 100% of the portfolio companies. In 2022, the Fund introduced the Impact Nexus Platform, an integrated and fully technological platform solution designed for ESG assessments across the entire portfolio. This platform has facilitated a comprehensive 360-degree initial assessment for all investments made by the Fund.

‍

Engagement policies

Active engagement with portfolio companies is undertaken with the purpose of promoting and supporting their adoption of sustainable practices after the investment is made. Collaborative efforts are employed to assess the ESG performance, implement an ESG strategy, establish targets, and monitor progress through an annual ESG assessment. However, being a venture capital investor, the Fund typically holds minority interests in portfolio companies only and, therefore, has only very limited influence on the management of its portfolio companies. 

AFL will actively engage the management of the respective portfolio company in discussions to explore the cause and potential appropriate solutions to potential or existing threats to the realization of impact goals. Prior to and following an investment, i.e. during the holding period, AFL intends to build and maintain trust and a strong working relationship with the management teams of its portfolio companies. Such relationships form the basis for cooperation and effective engagement.

‍

Reference benchmarks

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Fund.