Sustainability-Related Disclosures
1. Disclosures relating to the Alternative Investment Fund Manager pursuant to Art. 3, 4 and 5 of Regulation (EU) 2019/2088
a) Sustainability Risks
The Matterwave Ventures Management GmbH, being an Alternative Fund Manager (“AIFM”) of alternative investment funds (“Financial Products“), takes sustainability risks into account when investing in unlisted and growth-oriented companies from the industrial technologies sector in their early stages (“Investee Companies“). Currently, sustainability risks are integrated in the investment decision process as part of the standard due diligence and risk assessment processes.
In accordance with the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (“Sustainable Finance Disclosures Regulation” or “SFDR”), “sustainability risk” means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment.
Sustainability risks such as a progressing climate change may lead to negative impacts on the assets of the Financial Products or their Investee Companies. With respect to climate change, there are in particular actual physical risks (e.g., extreme weather events) and transition risks (e.g. costs for the transformation of the energy system). In the field of good governance and with regards to social characteristics, there are, for example, risks concerning the reputation of Investee Companies or potential claimed damages. Corresponding political and regulatory measures may also lead to considerable costs and the reduction of asset values.
To the extent that sustainability risks materialize, this may result in a significant reduction of the Financial Products’ net asset value and thus have a strong adverse impact on returns.
b) No consideration of adverse impacts of investment decisions on sustainability factors
The AIFM does not consider principal adverse impacts of its investment decisions on sustainability factors as set out in the SFDR.
Principal adverse impacts according to the SFDR are the most significant negative impacts of investment decisions on sustainability factors relating to environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Considering these impacts would require the AIFM to report according to a set list of indicators for which there is no sufficient data available to the AIFM. Until there is more practical guidance with regard to applying the detailed provisions on principal adverse impacts with insufficient data, the AIFM will regularly review the possibility to consider principal adverse impacts.
At this point, however, due to the blind pool-character of the fund portfolios, the AIFM is not able to determine ex ante whether all of the Financial Products’ Investee Companies will be providing sufficient data to properly consider all principal adverse impacts. As the AIFM is managing Financial Products, which will be minority shareholders in Investee Companies, the AIFM is not in the position of power to ensure the adherence to standards or high-quality reporting on all necessary data for the assessment of principal adverse impacts on sustainability factors. Moreover, gathering data from early-stage Investee Companies would put a disproportionate burden on the relatively small management teams.
c) Remuneration policies in relation to the integration of sustainability risks
The AIFM integrates sustainability risks in its remuneration policies. As a sub-threshold manager, the AIFM is not required to have a comprehensive remuneration policy.
2. Disclosures relating to the Financial Product pursuant to Art. 10 of Regulation (EU) 2019/2088
a) Summary / Zusammenfassung
Matterwave Industrial Technologies II GmbH & Co. KG (“Financial Product”) promotes environmental and social (“E/S”) characteristics but does not have a sustainable investment objective.
Specifically, the Financial Product promotes the following E/S characteristics:
- Resource efficiency (use of energy, renewable energy, raw materials, water and land)
- Reduction of production of waste and pollution
- Measurement and offsetting or reduction of greenhouse gas emissions
- Circular economy
- Addressing Inequality
- Diversity
The Financial Product invests in unlisted and growth-oriented companies from the industrial technologies sector in their early stages. Of these investments, none are targeted as sustainable investments but all are targeted to promote E/S characteristics.
The attainment of the E/S characteristics promoted by the Financial Product is being monitored throughout the lifecycle of an investment. The Financial Product will use different methods for the attainment and monitoring of the E/S characteristics, for example structured interviews with as well as quantitative and qualitative questionnaires for Investee Companies. The collected data will be reviewed and evaluated and, on this basis, the methodology used will be refined. By this, existing limitations to the methodologies and data are being addressed.
The Financial Product carries out a due diligence process with every investment, among other things including negative screening lists.
To ensure an appropriate reaction to sustainability-related incidents, the Financial Product has implemented measures and internal procedures.
b) No sustainable investment objective
This Financial Product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
c) Environmental or social characteristics of the Financial Product
The Financial Product promotes environmental and social (“E/S”) characteristics through the incorporation of ESG considerations within its investment processes.
Specifically, the Financial Product promotes the following environmental characteristics:
- Resource efficiency (use of energy, renewable energy, raw materials, water and land)
- Reduction of production of waste and pollution
- Measurement and offsetting or reduction of greenhouse gas emissions
- Circular economy
Further, the Financial Product promotes the following social characteristics:
- Addressing Inequality
- Diversity
The above listed factors are not considered as conclusive or final, since the investments of the Financial Product will only be entirely determined at the end of the investment phase (so-called “blind pool”). Thus, the factors may have to be refined at a later date.
d) Investment strategy
i. Investment strategy
The Financial Product promotes E/S characteristics and incorporates ESG principles in the entire investment processes. The investment process consists of the following phases:
- Pre-Investment (sourcing and screening)
Investment (due diligence) - Holding (portfolio management, monitoring, reporting)
- Exit (performance evaluation, disclosure)
The investment strategy guides investment decisions based on factors such as investment objectives and risk tolerance.
The purpose of the Partnership is to build, hold and manage (including, but not limited to, to divest) in its own name and for its own account a portfolio of equity and quasi-equity investments in selected growth-oriented companies from the industrial technologies sector in their early stages. The Partnership’s investments will have a geographical focus in Europe.
The Financial Product shall observe the EuVECA Regulation (Regulation (EU) No 345/2013) with regard to its investment activities, will monitor Investee Companies and will seek to obtain a seat on the supervisory/advisory boards of Investee Companies.
In order to attain each of the E/S characteristics set out above the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase. First, the Financial Product applies a negative screening on all potential investments to determine unsuitable investments. The negative screening contains exclusion lists with regards to certain branches and products. In particular, the exclusion covers weapons and ammunition, child labor, pornography or sale of alcoholic beverages, tobacco, cannabis and radioactive material, gambling or illegal software. Second, the Financial Product carries out investments only if potential Investee Companies agree to incorporate the Financial Product’s standard for a policy on the Sustainable Development Goals and Climate.
ii. Assessment of good governance practices
Good governance practices include sound management structures, employee relations, remuneration of staff and tax compliance.
The assessment of good governance practices of Investee Companies is partially incorporated in the Financial Product’s legal due diligence as far as good governance practices have been adopted by law. Furthermore, the Financial Product requires Investee Companies to commit to the Sustainable Developments Goals. Thereby Investee Companies engage themselves to promote decent work and economic growth, the reduction of inequalities as well as peace, justice and strong institutions. Also, the Financial Products continuously tracks the following indicators in its Investee Companies: Discrimination and harassment, fair and inclusive hiring, flexible work options, care taking support policies, employee benefits, data protection, employee satisfaction, remuneration, feedback, company purpose & codes and steering mechanisms.
e) Proportion of investments
The Financial Product does not make any sustainable investments within the meaning of the SFDR and the Taxonomy Regulation (Regulation (EU) 2020/852). The Financial Product targets that all investments are aligned with E/S characteristics. Since the Financial Product’s asset portfolio consists a blind pool, it reserves the discretion to make investments in “Other” assets (i.e., investments that are neither aligned with the E/S characteristics, nor are qualified as sustainable investments) in accordance with its investment strategy as provided in the private placement memorandum and accompanying marketing documents.
The Financial Product will directly hold equity and quasi-equity investments in Investee Companies.
f) Monitoring of environmental or social characteristics
The Financial Product undertakes to monitor E/S characteristics on an ongoing basis. To this end, one of the monitoring tools of the Financial Product is to obligate Investee Companies to install an ESG committee that monitors and provides information on E/S characteristics. Additionally, the performance with regard to the sustainability indicators used to measure the attainment of the E/S characteristics is monitored throughout the lifecycle of an investment.
g) Methodologies for environmental or social characteristics
The Financial Product may apply one or a combination of the following methods to collect information and to assess its alignment with the promotion of the E/S characteristics listed above:
- Structured interviews with the management team and (key) employees of Investee Companies
- Quantitative and qualitative questionnaires
- Obligate Investee Companies to submit periodic environmental and social reports
- Obligate Investee Companies to install an ESG committee that monitors and provides information on ESG compliance
- Negative screening with regards to branches and products
Based hereon, the Financial Product applies different measures to adjust its alignment with the promotion of the E/S characteristics listed above.
h) Data sources and processing
Data for measuring the attainment of E/S characteristics is provided by Investee Companies in the form corresponding to the applied method(s) of data collection listed above.
Certain measures are taken to ensure data quality including (but not limited to): enhancing the readability of questionnaires including the definition of technical terms; ensuring the questionnaire is completed or the interview is given by a qualified respondent of the Investee Company; and including the option to provide documentary evidence to support responses where appropriate.
Data is collected in both quantitative (e.g. headcount by gender split) and qualitative (e.g. description of policies or measures) forms. Data is extracted from questionnaire or interview responses and in its processing may be aggregated to form summary statements at the level of the Financial Product.
The proportion of data that is estimated by Investee Companies is unable to be quantified in advance. No external sources are used to verify the data received from Portfolio Companies.
i) Limitations to methodologies and data
An identified limitation to the methodologies described above with regard to the use of questionnaires to measure the attainment of E/S characteristics is that whilst the questionnaire may indicate trends or data points, it is limited with regard to detailed information provided on the underlying reasons for the outcome.
However, this does not affect the attainment of the E/S characteristics promoted by the Financial Product as the attainment itself will be reflected in the data. In order to address such a limitation, ongoing dialogue is maintained with Investee Companies to gain a more comprehensive understanding of E/S characteristics measured.
j) Due diligence
In order to attain each of the E/S characteristics set out above the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase. As stated above, the Financial Product applies a negative screening on all potential investments to determine unsuitable investments. Second, the Financial Product carries out investments only if potential Investee Companies agree to incorporate the Financial Product’s standard for a policy on the Sustainable Development Goals and Climate.
k) Engagement policies
The Financial Product will use the following measures to engage in ESG-related matters of Investee Companies and to adjust its alignment with the promotion of the E/S characteristics listed above:
- Discard investment opportunities
- (Contractual) Target agreements with Investee Companies
- Execution of minority shareholder rights in Investee Companies
- Execution of rights as an advisory board member to Investee Company (where available)
In order to respond to ESG related incidents or controversies appropriately, the Financial Product has implemented internal procedures where an appropriate escalation mode is identified.