SFDR DISCLOSURE
RESPONSIBLE INVESTMENT POLICY
SUSTAINABLE FINANCE DISCLOSURE REGULATION
ZUSAMMENFASSUNG (DE)
EBG Investment Solutions AG bietet professionellen Anlegern wie Pensionskassen, Versicherungen, Vorsorgeeinrichtungen, kirchlichen Institutionen, Stiftungen und Family Offices weltweit Zugang zu den qualifiziertesten spezialisierten Investment Managern und ausgewählen Co-Investments, indem wir massgeschneiderte Lösungen und Portfolios für unsere Kunden erstellen. In unserer Rolle als Portfoliomanager oder Anlageberater legen wir für jede Anlage Impact-Ziele fest, während wir die Portfolios unserer Kunden mit nachhaltigen alternativen Anlagen sinnvoll diversifizieren.
Die Anlagen von EBG fördern ökologische oder soziale Merkmale, haben aber nicht das Ziel, nachhaltig zu investieren. Die EBG strebt mit ihren Anlagen an, positive soziale und ökologische Eigenschaften im Sinne von Artikel 8 (1) SFDR zu fördern und diese positiven Eigenschaften nicht wesentlich zu beeinträchtigen. Um positive soziale und ökologische Eigenschaften zu fördern, investiert der Fonds nur in Zielfonds und Einzelanlagen, deren zugrunde liegende Investments im Bereich bestimmter Anlagethemen tätig sind. Um sicherzustellen, dass diese Investitionen „do no harm“, hat EBG eine Ausschlussstrategie eingeführt (die mit den OECD-Leitsätzen für multinationale Unternehmen und den UN-Leitprinzipien für Wirtschaft und Menschenrechte im Einklang steht). Darüber hinaus berücksichtigt er, soweit möglich, die wichtigsten Indikatoren für negative Auswirkungen auf Nachhaltigkeitsfaktoren. Daher wird das Finanzprodukt den EU-Kriterien für ökologisch nachhaltige Wirtschaftstätigkeiten Rechnung tragen und damit den Grundsatz der EU-Taxonomie „Do No Significant Harm“ anwenden.
SUMMARY (EN)
EBG Investment Solutions AG offers professional investors such as pension funds, insurance companies, benefit plans, faith-based institutions, foundations, and family offices global access to the highest-qualified specialist investment managers and select co-investments as we create customized solutions and portfolios for our clients. In our roles as Portfolio Manager and Investment Advisor, we set forth impact objectives for each investment as we meaningfully diversify our clients’ portfolios with sustainable alternative investments.
EBG’s investments promote environmental or social characteristics but does not have as its objective sustainable investment. With its investments, EBG aims to promote positive social and ecological characteristics as defined in Article 8 (1) SFDR and to not significantly harm these positive characteristics. In order to promote positive ecological and social characteristics the fund only invests in target funds and assets whose underlying investments are active in the field of specific investment themes. To ensure that these investments do no harm, EBG has put in place an exclusion strategy (aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights). Additionally, where feasible, it considers principal adverse impact indicators on sustainability factors. Therefore, the financial product will take into account the EU criteria for environmentally sustainable economic activities, thereby applying the principle of the EU Taxonomy to “Do No Significant Harm” (DNSH).
INVESTMENT STRATEGY
EBG operates on the core belief that sustainability drives value. We engage in responsible investment because we believe that resilient and prevention-focused systems and activities reduce vulnerability and contribute to the betterment of natural and human ecosystems. We therefore invest in private markets that act as an accelerator of innovation and growth within the impact space. To inform sophisticated asset diversification of our portfolios, EBG invests in a variety of asset classes across venture capital/private equity (multi-stage from early growth (Series B) through to buy-out stages), real estate, timberland, and infrastructure. While the geographical focus is Europe and North America, EBG has and will continue to seek opportunities for investment in developing and frontier markets including East Asia, South Asia, South America, and Africa. In terms of approach, our organization considers and applies responsible investment principles at each stage of the investment process from sourcing through to due diligence, closing, and then asset management and reporting.
PROPORTION OF INVESTMENTS
EBG will only invest in line with its investment strategy as outlined above.
Methodologies
Investment-specific sustainability indicators are typically designed between the Fund Manager and its portfolio companies within each fund. EBG verifies each external managers’ measurement methodologies and then discloses the YoY achievements of their KPIs. EBG aggregates all KPIs across all investments and then categorizes them by UN Sustainable Development Goals (SDGs) to report on impact achieved at portfolio-level.
Limitations to methodologies and data
The wide scope of EBG’s investments across different assets, sectors and geographies makes it challenging to quantify all possible sustainability outcomes associated with our investment objective. Given our investment strategy in funds, we are particularly dependent on the data produced by the fund manager. While capturing data at a fund-of-fund level has its challenges, corporate sustainability reporting is a sector-wide challenge for many FMPs as there remains significant gaps, and a lack of relevant, comparable, reliable, publicly available sustainability data and sector research.
Due diligence
In terms of approach, EBG considers and applies responsible investment principles at each stage of the investment process from selecting external managers or co-investment managers through to due diligence, asset management, and reporting. Particularly with due diligence, EBG engages in two-tiers of diligence first through desktop screening and then through confirmatory due diligence. In this second phase, EBG uses its 5-pillar system evaluating the commercial/financial, sustainability, operational, tax, legal components of the prospective investment. Outside of the financial terms, EBG assesses risk and opportunities with an ESG lens. We review the motivation, expertise, experience and commitment of the fund manager to invest and manage the assets within the framework of ‘providing material solutions to the sustainability transition’ and the team’s ability in principal to excel in comparison to mainstream managers in their space. We review past and prospective deals and underlying business models in the context of their industry sector and associated ESG opportunities and risks.
ENGAGEMENT POLICIES
Given EBG’s decade-long experience in the industry, and deep sector network, we have built strong relationships with our fund managers, allowing us to remain hands-on and apply an active approach to portfolio management. EBG monitors all investments for any ESG risks/issues which may arise in the life of the fund. Should EBG determine any potential issues regarding the environmental, social, or governance characteristics of a portfolio company, EBG engages with the fund manager in discussions with a view to resolve, reduce, and mitigate such effects, provided that such efforts are within the scope considered by EBG.
Post-investment, we monitor the fund manager’s or the co-investment management team’s success in meeting its ESG goals through impact metrics. EBG continues to develop a comprehensive impact methodology for systematically capturing, categorizing, measuring and monitoring the impact objectives of each fund or investment. To this end, our proprietary EBG impact database has been built, linking asset classes, sustainability themes, SDGs, categories (Articles) under SFDR and/or the Impact Management Platform, as well as impact metrics. As a prerequisite for an Investee Fund, it must be able to demonstrate a strategy and track record such that at least the vast majority of portfolio assets can credibly demonstrate that their business model, or products and services, make a positive contribution to achieving the Sustainability Goals, and thus can be assigned to one of the EBG sustainability themes, as well as one or more SDG. The relevant sustainability impact criteria and metrics depend on the investment and the specific sector within which it operates. To the extent that they are reported on, the corresponding data, as the Investment Advisor, in its sole discretion, deems it to be material, is captured, aggregated, and then assessed through the fund’s lifecycle for YoY improvement.
EBG Investment Solutions
RESPONSIBLE INVESTMENT POLICY
Introduction & Investment Strategy
EBG operates on the core belief that sustainability drives value. We engage in responsible investment because we believe that resilient and prevention-focused systems and activities reduce vulnerability and contribute to the betterment of human and natural ecosystems. Since 2008, we have been enabling our clients to build future-proof, stable and market return portfolios that combine economic success with meaningful environmental and social value add. We believe that fund managers whose investments have a positive impact on the environment benefit from a strong long-term competitive advantage and are more likely to deliver positive financial returns as well. We recognize the importance of ESG factors as they are linked to value creation and believe that assessing investment opportunities in just financial terms is no longer the only approach to measure investment risks and opportunities.
The transgression of planetary boundaries, for example, climate change, loss of biodiversity, novel entities and land-system change decreases ecosystem services and thereby creates significant imbalances and shortages in many social areas, such as nutrition, healthcare and education, which need to be addressed urgently. Crossing tipping points in the earth system may accelerate these processes. Furthermore, these developments are associated with rapidly increasing costs and impaired prosperity. Most industry sectors and consumers have a significant way to go in their transition required for the economy and society to achieve sustainability in respect of economic, environmental and social dimensions. On the other hand, those companies and organizations that have developed a business model around the provision of solutions, in the form of products or services, for the transition to a humanity that operates within planetary boundaries may be well positioned from an investor’s perspective. The multiple push factor encompassing governments, regulators, courts, insurance, investors and NGOs in combination with the pull from the public and private sector, consumers and investors creates a significant and secular opportunity for growth, return and hence value creation for innovators and leaders in the respective sub-sectors.
Hence, EBG finds value in fund and direct investments in the private markets:
- Private markets asset classes:
- Private Equity: early growth, late growth, buyout
- Infrastructure
- Diversifying cross-over equity strategies (real assets such as sustainable forestry or real estate)
- SME assets, with fund sizes typically in the range of EUR 100 million to 750 million
- Differentiating, specialist strategies with sustainability as a key driver of return, value and positive environmental and/or social impact, thus providing ‘strategic resilience’ in a world under increasing pressure to change, making the investment portfolio meaningfully more ‘fit for the future’
- Fundamental and broad diversification across the traditional elements but including sustainability factors (within the boundaries of the scope of the investment strategy and investments restrictions).
Integration of Sustainability & ESG in the Investment Process
Exclusion Policy
In order to “do no significant harm” (DNSH) through our investments, EBG has put in place proceedings to identify and exclude investments in specific business activities which are considered controversial.
The Fund seeks to avoid investment in target funds whose underlying investments have exposure to the controversial business activities and practices defined in Tables 1 and 2 below. At the stage of screening for target funds, EBG already begins to filter through fund managers. EBG begins to assess a fund manager’s integrity, ownership, and sustainability procedures are assessed. Furthermore, during due diligence, EBG seeks to obtain a high level of comfort that the fund managers’ pipeline, current investments, and past investments are impact related by determining whether the fund managers have a track record of investing in controversial businesses, whether the pipeline of future investee companies may overlap with controversial business activities/processes.
In this regard, the controversial business activities at level of the underlying investments should not exceed a certain revenue threshold. These thresholds are specified for each activity and part of the supply chain in the table below. EBG reserves the right to accept revenues up to 10% of underlying investments in these activities provided the fund manager has in good faith determined that there is clear overall benefit in favour of environmental and social betterment achieved through this investment or shows a strong responsible ownership and has established strong sustainability guidelines.
Table 1. Exclusion criteria list of controversial business activities (based on the International Finance Corporation’s (IFC) list and includes additional criteria for thorough and impactful coverage)
| Controversial business activity | Part of the supply chain | Exclusion threshold (revenue-based) |
|---|---|---|
|
Controversial and conventional weapons
|
Production or trade (dual use products not included) |
0% |
|
Fossil fuels |
Mining / upstream of any fossil source Production – coal / unconventional fossil source Production – conventional oil and gas Downstream / transport of any fossil source |
5% 5% 5% 5% |
|
Nuclear energy (incl. radioactive materials) |
Any part of the supply chain |
0% |
|
Radioactive materials |
Production or trade |
0% |
|
Addictive substances and alcohol |
Production or trade in alcoholic beverages (excluding beer and wine), Production or trade in tobacco |
5% |
|
Gambling |
Gambling, casinos and equivalent enterprises |
5% |
|
Adult entertainment |
Production or trade |
5% |
|
Intensive livestock farming |
Operation of intensive livestock farming facilities |
5% |
|
Fur |
Production of fur materials |
5% |
|
Harmful materials |
Production or trade in unbonded asbestos fibres as well as organochlorinated mass-market products like PVC and international restricted substances (in accordance with OSPAR List of priority substances, Stockholm Convention on Persistent Organic Pollutants, UNEP 12) |
5% |
|
Biocides and pesticides |
Production, use and trade of biocides and pesticides classified by the World Health Organization (WHO) as particularly acutely or chronically toxic or harmful to human health (e.g., causing cancer, genetic defects, or reproductive issues) |
5% |
|
Embryonic research |
Human embryonic or embryonic cell research or if the use of embryonic cells is likely |
10% |
|
Genetically modified plants and animals |
Business opportunities in respect of genetically modified plants and animals, or in businesses that do not address the risks of genetically modified organisms for biodiversity and the planetary boundaries where relevant. The exclusion includes in particular, i) production of genetically modified organisms (GMO and gene-editing) that modify the genetic material of seeds or animals for outdoor application, and ii) the release of such genetically modified plants and animals into the environment. This exclusion is based on the concern of potential risks, including from spill over effects, of harming biodiversity or changing local ecosystems. The exclusion does not apply to companies which are using GMO / gene-editing exclusively in a contained environment such as a laboratory for the production of, for example, enzymes, vaccines, ingredients for food & beverage or similar non-living substances |
10% |
Table 2. Exclusion criteria list of controversial business practices
| Controversial business practice | Definition |
Degree of controversy (minor, medium, or severe/systematic) |
|---|---|---|
|
Violation of human rights of the UN Global Compact |
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: make sure that they are not complicit in human rights abuses. Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: the elimination of discrimination in respect of employment and occupation. Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies. Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. |
Severe / systematic |
|
Net fishing (destructive resource extraction practice) |
Drift net fishing in the marine environment using nets in excess of 2.5 km. in length. |
Medium |
|
Logging (destructive resource extraction practice) |
Commercial logging operations for use in primary tropical moist forest |
Medium |
|
Animal testing |
Animal testing that is not legally required and animal testing for non- pharmaceutical purpose |
Medium |
Investment Process
EBG has embedded sustainability/impact and ESG across its entire value chain and is committed to continuously improving it as the practice evolves further. We regularly consult with other leading players in the industry, including private organizations, NGOs, and regulatory bodies.
Sourcing
EBG seeks to identify and select specialist best-in-class funds, applying a global lens, which appear to be best qualified and positioned to build a differentiated portfolio of assets that: a) make a material contribution to the sustainability transition, b) financially benefit from it by generating at least market return and c) provide an element of resilience as they are deemed more ‘future-proof’, for instance by having a low climate footprint. In addition, EBG considers co-investments in collaboration with such funds, as well as select direct investments. EBG maintains and continuously expands and improves a global database of funds, and regularly meets with new fund managers.
Due Diligence
During initial meetings with prospective funds, EBG’s screening is done against five preliminary criteria, two of which are ESG-driven: experience, team, performance, sustainability incorporation, and impact measurement.
During (confirmatory) due diligence session, EBG leads a highly thorough due diligence process founded on 5 pillars: commercial/financial, sustainability and impact, operational, legal, and tax due diligences. Within the sustainability pillar, EBG assesses the fund manager’s commitment to impact through our proprietary Sustainability Assessment Scorecard which scores and weighs the fund manager against 25 different criteria. In doing this, EBG reviews S&I documentation provided by the fund manager, assesses the impact framework used by the manager, the Impact Reporting Standard, and the existing and pipeline investments against the SDGs and the Impact Management Project.
EBG engages in deep discussion with the fund manager and the investment team to assess motivation, expertise, experience, and commitment to invest and manage the assets and the portfolio within the framework of ‘providing material solutions to the sustainability transition’ in addition to the team’s ability to excel in comparison to mainstream managers in their space. We verify our assessment results and occasionally clarify our views in reference calls with our network of investors, investee companies or business partners. In certain cases, such as investments in timberland, EBG engages with third-party sector/sustainability experts to evaluate ESG risks and opportunities from an angle of deep sector insight and long experience in order to complement the commercial and financial assessments.
Monitoring & Asset Management
Given EBG’s decade-long experience in the industry, and deep sector network, we have built strong relationships with our fund managers, allowing us to remain hands-on and apply an active approach to portfolio management. EBG has put in place internal systems to identify, monitor and mitigate controversies as defined in Tables 1 and 2 above. Post-investment, during a media screen when a controversial business practice is identified, EBG analyses the degree of the controversy and classifies it as minor, moderate, or severe/systematic violation. In case of a severe or systematic violation, EBG engages with the Investee Fund aiming to mitigate the controversy.
In addition to the quarterly financial reviews of each investment and portfolio company, EBG monitors all investments for any ESG risks/issues which may arise in the life of the fund. Should EBG determine any potential issues regarding the environmental, social, or governance characteristics of a portfolio company, EBG engages with the fund manager in discussions with a view to resolve, reduce, and mitigate such effects, provided that such efforts are within the scope considered by EBG.
Sustainability Indicators & Reporting
Post-investment, we monitor the fund manager’s success in meeting its ESG goals through impact metrics. EBG continues to develop a comprehensive impact methodology for systematically capturing, categorizing, measuring and monitoring the impact objectives of each fund or investment. To this end, our proprietary EBG impact database has been built, linking asset classes, sustainability themes, SDGs, categories (Articles) under SFDR and/or the Impact Management Platform, as well as impact metrics. As a prerequisite to investment, the fund manager must be able to demonstrate a strategy and track record such that at least the vast majority of portfolio assets can credibly demonstrate that their business model, or products and services, make a positive contribution to achieving the Sustainability Goals, and thus can be assigned to one of the EBG sustainability themes as well as one or more SDG. The challenge with fund investments is that the impact KPIs are determined by the fund managers and their portfolio companies wich are further dependent on the specific sector and stage within which the business operates). A fund-of-fund strategy adds a layer of complexity in truly reporting impact on a portfolio level. For example, in one of its portfolios, EBG tracks and reports on 133 impact KPIs. To the extent that they are reported on, the corresponding data as EBG deems it to be material, is captured, aggregated, and then assessed through the fund’s lifecycle for YoY improvement. In the event that a fund manager does not report on sustainability and impact / ESG in an adequate manner, the investment decision is in the sole discretion of EBG.
For future portfolios, EBG is rolling out a new methodology to measure and report on impact KPIs which will require the cooperation of its fund managers. In this new methodology, EBG will determine the exact impact KPIs which are to be measured by the fund manager whilst designing our client portfolios; 2 KPIs will be assigned per investment theme (the first of which will always record carbon emissions avoided). The second KPI will align with the indicators of the underlying SDGs in each of the investment themes. In the due diligence and closing periods, EBG will work with the fund manager to ensure these KPIs could be measured by the fund manager or will aid and build a rollout plan for the fund manager to eventually evolve such reporting. By assigning KPIs prior to investment, accurate and consistent measurement of impact at both portfolio and asset level is ensured.
Stewardship
EBG commits to stewardship through its contributions to the public discourse through publishing articles and presentations on impact investing through various panels and organizations such as the Swiss sustainable Finance, BAI Investor Conference, Finanz und Wirtschaft Forum, and Global Impact Investing Network (GIIN). We further maintain activities of stewardship by engaging with our fund managers, influencing, and negotiating with them to achieve higher levels of impact where the opportunity presents itself, and monitoring their YoY impact KPIs as well as major ESG deviations. For example, EBG seeks to formalize the exclusion of controversial activities and practices through a Side Letter with the fund manager, provided that such activities are not implicitly or explicitly excluded by the investment strategy and investment restrictions of EBG’s strategy. In cases, where a side letter cannot be negotiated, or where certain activities cannot be fully excluded, including for reasons of difficulty in clearly defining such activities and of doing so ahead of a multi-year investment period with technologies, materials, business models, etc. constantly evolving, EBG, in its sole discretion within its fiduciary duty, will decide whether to proceed or abstain from an investment.
Aside from these activities, our organization conducts stewardship through our external fund managers (e.g., proxy voting, board seats). Our investment managers exert influence through various forms of engagement including but not limited to:
- Board roles (therefore increasing guidance on ESG improvements):
- Develop and implement governance standards for each of the portfolio companies
- Engagement with portfolio companies to reduce direct and indirect greenhouse gas emissions, manage toxic waste, compliance with environmental regulations, etc. where and when possible
- Negotiating with and managing others in the investment chain
- Contributing to public goods (such as research)
- Engaging in public discourse and disclosures that support stewardship goals
- Engaging with policy makers and standard setters (typically only by our larger fund managers)
Because EBG’s core stewardship activities are conducted by our fund managers, prior to investment, EBG assesses the depth and breadth of the external fund managers’ stewardship activities as part of our overall ESG assessment and investment decision making.
Good Governance Policy
Across all our strategies, pre-investment due diligence for all investments is designed to contain an assessment of the governance quality of a potential investment. This assessment includes a detailed examination of management quality, which encompasses strategy, operations, culture, capital allocation, alignment, governance, and people. Concerns or controversies relating to management structures, employee relations, staff remuneration and tax compliance are considered as part of this examination under the operational due diligence pillar. As noted above, once invested, EBG’s investment and operations teams continue to monitor the governance quality of portfolio companies through the periodic review of management quality and as part of the continued monitoring of sustainability indicators.
Responsibilities
As part of their role in reviewing the investment opportunity twice prior to approval, the Investment Committee oversees investment policies, sustainable investment policies, advisor selection, strategy, and fund performance to ensure the best possible outcome for our clients. Through this, the Investment Committee and Head of Department have formal oversight over and accountability for the correct implementation of responsible investment in the clients‘ portfolios.
The EBG Investment Team considers sustainability-related risks and opportunities in every investment and at every stage of the value-chain, as the responsible investment code is highly integrated into our overall investment process.
As such, all investment professionals are responsible for carrying out their duties in accordance with this policy.
