Foreword
STS Co-Investment Fund Management GmbH (hereinafter referred to as “STS Ventures”) is is registered as an alternative investment fund manager (“AIFM”) with and supervised by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, “BaFin”) pursuant to section 2 para. 4 German Capital Investment Code (Kapitalanlagegesetzbuch, “KAGB”) and acts as management company for several venture capital funds. As such we publish the following information regarding sustainability-related disclosure obligations in accordance with Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27th of November 2019 on sustainability disclosure requirements in the financial services sector (“SFDR”).
Sustainability risk policies and integration of sustainability risks in the investment process (Art. 3)
STS Ventures considers 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 effect on the value of the investments. As part of its standard procedure, STS Ventures conducts due diligence prior to investing that includes an assessment of sustainability risks. STS Ventures aims to identify, consider, and prevent the occurrence of sustainability risks as early as possible in the investment decision-making process in order to minimize their possible impacts on investments and the return of the funds managed by us. We incorporate and assess environmental, social or governance (“ESG”) risks within its investment and portfolio management processes as described in our ESG policy. The results of these assessments guide our investment decisions.
In its free discretion, STS Ventures may decide to make an investment even if sustainability risks have been determined. In such cases, STS Ventures may apply appropriate mitigation measures.
Principal adverse sustainability impacts statement (Art. 4 SFDR)
Art. 4 SFDR provides a framework aimed at achieving transparency with regard to any principal adverse impacts of investment decisions on sustainability factors. For this purpose, financial market participants such as STS Ventures must disclose certain information.
Currently, STS Ventures does not consider the principal adverse impacts of its investment decisions on sustainability factors as set out under the SFDR as the relevant supplemental framework and required information to assess such impacts have not been finalized yet. We will constantly monitor and review the evolution around such regulations and standards and intend to change our position on adverse impacts once (i) a best practice has evolved among market participants, (ii) there is clear guidance by the administrations on the application of such regulations and (iii) the consequences of a commitment towards the consideration of principal adverse impacts are reasonably clear to STS Ventures.
Remuneration policies in relation to the integration of sustainability risks (Art. 5 SFDR)
As a registered alternative investment fund manager (“AIFM”) within the meaning of the German Investment Code (Kapitalanlagegesetzbuch, KAGB), STS Ventures does not have a remuneration guideline (remuneration policy) in accordance with the requirements of the KAGB. The integration of sustainability risks is not considered in STS Ventures’ employees remuneration. The consideration of sustainability risks is not decisive for the evaluation of our employees’ work performance and has no influence on future salary development. As part of our compensation strategy, we ensure that the performance of our employees is not remunerated or evaluated in a way that conflicts with our duty to act in the best interests of our clients. In particular, there are no incentives to take disproportionately high risks.
List of amendments:
Last updated: July 31, 2023.
Summary
At STS Ventures, we are committed to maximizing fund returns while ensuring that we are considering the long-term sustainability of our investments. STS Ventures strives to promote environmental or social characteristics (cf. Art. 8 SFDR) but does not have sustainable investment as its objective (Art. 9 SFDR). The following paragraphs contain information regarding the sustainability-related disclosure obligations for the Fund pursuant to Art. 10(1) SFDR.
For the Fund we invest in pioneering companies that pursue sensible and sustainable growth strategies and which can be active in a wide variety of industries. Accordingly, a wide range of environmental and social characteristics will be considered by our investments in such companies.
We do not designate an index as a reference benchmark for the purpose of attaining environmental or social characteristics promoted by the Fund.
In order to meet our high standards with regard to the promotion and consideration of environmental, social, and corporate governance characteristics, we identify and evaluate these both before and after the investments throughout the whole investment process. For this purpose, we incorporate exclusion (negative screening) aspects during the investment decision-making process. In addition, we make use of an ESG Due Diligence checklist to identify risks and opportunities. After being invested in a target company, we monitor compliance with the ESG criteria relevant to the Fund in relation to this target company and, where possible, work to ensure that the target company continues to comply with these criteria within the scope of opportunities to exert influence at management level and /or within the scope of a side letter agreed at the time of investment. We have established no standardized process for monitoring compliance with the environmental and social characteristics and with the principles of good corporate governance. However, we request corresponding information from the companies on a regular basis as far as possible.
For being able to assess and monitor ESG criteria, we are generally dependent on information provided to us by the target companies which bears the risk that in case information is incomplete or missing the monitoring of ESG criteria is not possible or not possible to a sufficient extent. Unless sufficient information is available, we do not use estimates, but work exclusively with the information available to us.
Since the Fund has just been launched, we have not yet made any investments, but will do so in line with our investment strategy. Against this background currently all assets are still held in bank deposits.
Zusammenfassung
Bei STS Ventures sind wir bestrebt, die Rendite des Fonds zu maximieren und gleichzeitig sicherzustellen, dass wir Nachhaltigkeitsaspekte bei unseren Investitionen langfristig berücksichtigen. STS Ventures ist bestrebt, ökologische oder soziale Merkmale zu fördern (vgl. Art. 8 SFDR), hat aber keine nachhaltigen Investitionen zum Ziel (Art. 9 SFDR). Die folgenden Absätze enthalten Informationen zu den nachhaltigkeitsbezogenen Offenlegungspflichten für den Fonds gemäß Art. 10(1) SFDR.
Wir investieren für den Fonds in zukunftsweisende Unternehmen, die sinnvolle und nachhaltige Wachstumsstrategien verfolgen und in den verschiedensten Branchen tätig sein können. Dementsprechend berücksichtigen wir bei Auswahl unserer Investitionen in Unternehmen ein breites Spektrum an ökologischen und sozialen Merkmalen.
Wir benennen keinen Index als Referenzmaßstab für die Erreichung der vom Fonds geförderten ökologischen oder sozialen Merkmale.
Um unserem hohen Anspruch in Bezug auf die Förderung und Berücksichtigung von Merkmalen bzgl. Umwelt, Soziales und Unternehmensführung gerecht zu werden, ermitteln bzw. bewerten wir diese sowohl vor als auch nach den Investitionen während des gesamten Investitionsprozesses. Zu diesem Zweck beziehen wir für den Fonds Ausschlusskriterien (negatives Screening) in den Investmententscheidungsprozess mit ein. Weiterhin verwenden wir eine ESG-Due-Diligence-Checkliste zur Ermittlung von Risiken und Chancen. Nach der Investition in ein Zielunternehmen überwachen wir die Einhaltung der für den Fonds relevanten ESG-Kriterien in Bezug auf dieses Zielunternehmen und setzen uns, soweit möglich, im Rahmen von Einflussmöglichkeiten auf Managementebene und / oder im Rahmen einer zum Investitionszeitpunkt vereinbarten Nebenabrede dafür ein, dass das Zielunternehmen diese Kriterien weiterhin einhält. Wir haben kein standardisiertes Verfahren zur Überwachung der Einhaltung der ökologischen und sozialen Merkmale sowie der Grundsätze guter Unternehmensführung etabliert. Wir fragen entsprechende Informationen aber soweit möglich regelmäßig bei den Unternehmen ab.
Um ESG-Kriterien bewerten und überwachen zu können, sind wir in der Regel auf Informationen angewiesen, die uns von den Zielunternehmen zur Verfügung gestellt werden, was das Risiko birgt, dass bei unvollständigen oder fehlenden Informationen die Überwachung von ESG-Kriterien nicht oder nicht in ausreichendem Maße möglich ist. Sofern nicht ausreichend Informationen vorliegen, stellen wir keine Schätzungen an, sondern arbeiten ausschließlich mit den uns vorliegenden Informationen.
Da der Fonds gerade erst aufgelegt wurde, haben wir noch keine Investitionen getätigt, werden dies aber im Einklang mit unserer Anlagestrategie tun. Vor diesem Hintergrund werden derzeit auch noch alle Vermögenswerte in Bankguthaben gehalten.
No sustainable investment objective
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
Environmental, social and governance (ESG) characteristics are considered within the investment decision through a dedicated ESG due diligence checklist. The Fund promotes environmental and/or social characteristics by implementing certain investment exclusions during the decision-making process. Depending on product/ innovation type, stage, and industry of the company, we consider a multitude of material ESG topics including carbon emissions, climate change, resource efficiency, diversity, inclusion, labor standards along supply chains, business ethics, anti-bribery, and corruption.
When taking environmental and social characteristics into account, investments shall be made in assets of issuers that follow good corporate governance practices.
Investment strategy
We invest in pioneering companies that pursue sensible and sustainable growth strategies. In this context, we believe that careful attention to ESG matters is a prerequisite for long-term value creation. Thus, we are committed to maximizing fund returns while also ensuring that we are taking into account the long-term sustainability and impact of our investments.
Companies that pursue sensible and sustainable growth strategies need to be aware of ESG risks and opportunities that are material for their business model. Consequently, we purposely seek out companies that proactively address relevant ESG topics and consider these factors when evaluating potential investments.
As part of our investment process, we consider and carefully assess a company’s ESG-related risks and impacts related to environmental topics such as climate change, resource efficiency, or pollution, social topics such as diversity, inclusion, or labor standards along supply chains and governance topics such as business ethics, anti-bribery, and corruption.
For the Funds’ investments STS Ventures considers ESG criteria throughout all phases of its investment decision-making process, from the initial screening of potential investments, deal evaluation, due diligence and term negotiations to portfolio company management and engagement until exit.
STS Ventures engages in negative screening and maintains a list of non-investment areas for the Fund. This list comprises industries and business segments that are excluded from consideration for potential investments due to non-compliance with ESG criteria and our core values at STS. Specifically, the fund shall not invest, guarantee or otherwise provide financial or other support, directly or indirectly to companies or other entities which substantially focus on
We regularly review and update this list. For investments of the Fund, we will screen each investment opportunity against its investment exclusions and no investments will be made in the area of such exclusions.
As part of our ESG due diligence checklist, the investment team will review whether a potential portfolio company has good governance practices in place. We assess whether the prospective investee company demonstrates a good track record with regard to governance, on issues such as business ethics, corruption, health, and safety and labor rights.
Proportion of investments
As the Fund is a newly established fund, all assets are still held in bank deposits to date as set out in the chart below. However, it is STS Ventures aim to invest for the Fund in assets that are aligned with environmental and social characteristics even though STS Ventures is not obliged to invest a fixed percentage in portfolio companies aligned with environmental and/or social characteristics. STS Ventures does not intend to make sustainable investments within the meaning of Art. 2 No. 17 SFDR or environmentally sustainable investments within the meaning of Art. 3 EU Taxonomy. STS Ventures will invest for the Fund fully in line with its investment strategy and investment restrictions.
The assets of the Fund are divided into different categories as shown in the following chart. The respective proportion of fund assets is shown as a percentage.
“Investments” includes all assets that can be acquired for the fund less loans granted and other liabilities.
The category “#1 Aligned with E/S characteristics” includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product.
The category “#2 Other” includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor qualified as sustainable investments.
The category “#1 Aligned with E/S characteristics covers:
Monitoring of environmental or social characteristics
Currently, STS Ventures does not have a standardized proactive approach to monitor portfolio companies’ environmental and social characteristics. STS Ventures usually obtains a board seat within the Portfolio companies it invests in. Board members meet regularly to discuss the status, growth, and other topics that arise as part of the operation of the business. Should an issue related to environmental, social, or governance arise, it will engage with the respective portfolio company to resolve or reduce such issues, provided that such efforts will always remain within a scope considered by STS Ventures in its absolute discretion to be proportionate in light of its respective bargaining positions and transactional context.
As a member of the Board, we will continually monitor the performance development with respect to relevant ESG topics that were identified and analyzed via the ESG due diligence checklist prior to the investment.
Methodologies
Currently, the methodologies for environmental or social characteristics to measure how the social or environmental characteristics promoted by Fund are met applied comprise of collecting information via the due diligence data room provided by the target company or via inhouse research prior to any investment. Additionally, STS Ventures will apply best efforts when negotiating an investment into a portfolio company, to reach a side letter agreement requiring the portfolio company to comply with STS Ventures’ requirements as a financial market participant under the SFDR considering environmental and social characteristics. Within the scope of this side letter agreement, corresponding obligations to provide information / information rights shall be included. There is currently no quantitative measurement with regard to environmental or social characteristics and no sustainability indicators are currently used.
Data sources and processing
As a starting point, the assessment of how the Fund’s investment in the portfolio company relates to the environmental and social characteristics mentioned above is carried out as part of the due diligence process using an ESG checklist. Via this checklist, we screen for STS Ventures risks prior to any financial commitment, and should an issue be identified, the investment manager provides further insights into the investment team briefing to consider during the decision-making process. Consequently, the focus of each ESG due diligence may differ. However, in all instances, STS Ventures will examine the areas that it regards as central to understanding the ESG profile of the business in which STS Ventures is considering an investment. This also includes good governance characteristics. The ESG checklist, which includes a verification that the potential company does not operate within excluded sectors and/or non-designated countries, is completed by the investment manager for each of the targeted portfolio companies of the fund. Data is obtained from the (potential) portfolio companies and information publicly available. No (proportion of) data is assumed. Unless misrepresentations are suspected, further research and investigation by STS Ventures or external verification are not being conducted regularly.
We process the data collected from portfolio in our internal systems. We process data in accordance with all privacy laws, especially when it concerns sensitive company and employee data.
The information collected via the ESG checklist 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, STS Ventures considers it a priority to establish and maintain trust within a good working relationship with the Fund’s portfolio companies as a safeguard considering the limitations described in this section. Through active portfolio management and, in many cases, a seat on the Board of investee companies, STS Ventures continues to survey that the limitations above do not affect how the environmental or social characteristics promoted by the financial product are met.
Limitations to methodologies and data
When collecting data regarding environmental or social characteristics, STS Ventures depends on portfolio companies to provide these data. It is possible that these are not provided or not provided to a sufficient extent.
Due diligence
The Company is committed to the trustee principle and acts exclusively in the interests of the investors. This principle is integrated into the Company’s business processes. We use internal exclusion procedures that generally exclude certain companies as potential investments due to their, in our opinion, inadequate EGS consideration and correspondingly high ESG risks unless we are convinced that there are good reasons, which are also in the interest of the investors, to invest anyway.
Engagement policies
STS Ventures aims to promote the pursuit of ESG considerations among the Fund’s portfolio companies by sharing its views – in an ongoing and constructive dialogue, on matters such as social and environmental characteristics, as well as corporate governance. Should STS Ventures determine any potential issues relating the ESG characteristics, it will engage with the respective portfolio company to resolve or reduce such issues, provided that such efforts will always remain within a scope considered by STS Ventures in its absolute discretion to be proportionate considering its respective bargaining positions and transactional context.
Designated reference benchmark
STS Ventures does not designate an index as a reference benchmark for the purpose of attaining environmental or social characteristics promoted by the Fund (Art. 8(1)(b) SFDR).
List of amendments:
Last updated: July 31, 2023.