SUSTAINABILITY - RELATED DISCLOSURE
POLICIES ON THE INTEGRATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISION - MAKING PROCESS
Collateral Good investments are directed at addressing and solving some of the primary sustainability challenges emerging in the food industry. For this reason, many of the classical sustainability risks, such as resource scarcity, regulatory, economic, and technological conditions are translated into opportunities for Collateral Good investments.
However, there may naturally be sustainability risks that can constitute financial risks for Collateral Good investments. For this reason, Collateral Good considers those risks an integral part of the pre-investment phase for all investment cases. Sustainability risks are divided into Environmental (E), Social (S), and Governance (G) risks, and assessed on a red-yellow-green scale. This is summarized into an overall sustainability risk assessment that feeds into the Investment Committee’s (“IC”) final investment decision.
CONSIDERATIONS OF PRINCIPAL ADVERSE IMPACTS OF INVESTMENT DECISIONS
Collateral Good considers Principal Adverse Impacts (“PAI”) of investment decisions.
The PAI indicators are an integral part of the pre-investment assessment. They are assessed by evaluating the investee company’s impact on the 14 mandatory PAI indicators set out in table 1, indicator 14 in table 2, and indicator 4 in table 3 in Annex 1 (1) of the EU Commission’s Regulatory Technical Standard (“RTS”), supplementing the Regulation (EU) 2019/2088. If any additional indicators from tables 2 and 3 are deemed material, these are also included in the analysis. The indicators are assessed in terms of whether the investee company has a significant negative impact on the indicator and whether mitigating actions are in place. If the investee company lacks sufficient mitigating actions, this is listed as a yellow flag, and correction will be a focus area during ownership. In case of any identified red flags (2), Collateral Good will not proceed with the investment unless the red flag can be corrected prior to closing. As data availability in Collateral Good investment space is generally limited, Collateral Good always conducts a qualitative assessment supplemented with quantitative data if available.
Collateral Good reports on the PAI indicators of investment decisions. Portfolio Company (“PC”) reporting of data on the PAI indicators is an ownership requirement for PCs that had above 1 million EUR round size in the latest financing round in which Collateral Good has invested. For less mature PCs (3) , data is estimated by Collateral Good. For PCs acquired shortly before the reporting deadline, data may also be estimated by Collateral Good in the first reporting year, depending on the PC’s resource availability.
- Annex 1 to the RTS
- A red flag is defined as an incident or practice that is deemed deficient to an extent that there is a great likelihood of breaches or misalignment with Collateral Good definition of a sustainable Investment
- Defined as the latest financing round (in which Collateral Good has invested) being below 1 million EUR
TRANSPARENCY OF REMUNERATION POLICIES IN RELATION TO THE INTEGRATION OF SUSTAINABILITY RISKS
Collateral Good has linked its remuneration policies, specifically the carried interest of the Fund (s), to the achievement of the fund-wide impact indicators based on the performance of the Fund’s PCs on those. Targets for the impact KPIs are set for each PC during ownership, in close collaboration with the PC’s management. In case there is any unearned carried interest, Collateral Good will donate or invest the respective amount in grant support to a cause in line with Collateral Good impact objective.
Promoting sound and effective risk management with respect to sustainability risks is an integral part of Collateral Good portfolio management.
