Sustainable Finance Disclosure Regulation (“SFDR”)
Date: February 23rd, 2022
I. Art. 3 – Sustainability Risks
Rethink Manager GmbH (“Rethink”) considers sustainability risks as part of its investment decision-making process. Sustainability risks are environmental, social or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. Rethink considers sustainability risks as part of the due diligence process prior to any investment. This also includes an assessment of sustainability risks. Such assessment is being conducted through an informal process as appropriate in light of the circumstances of the individual case. The results of such assessment are taken into account when the investment decision is being taken. However, Rethink remains free in its decision to refrain from investing or to invest despite sustainability risks in which case Rethink can also apply measures to reduce or mitigate any sustainability risks. At all times, Rethink will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
II. Art. 4 – No Consideration of Sustainability Adverse Impacts
Rethink does not consider the adverse impacts of its investment decisions on sustainability factors and does not use sustainability indicators. Sustainability factors are environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. Given that the Sustainable Finance Disclosure Regulation (EU 2019/2088) (“SFDR“) and the accompanying Regulatory Technical Standards (“RTS“) are new legislative acts, there is very little or no practical experience or practice with regard to the application of their respective provisions. Therefore, substantial legal uncertainties would remain when applying those provisions to the strategies pursued by Rethink. Moreover, the burden associated with considering adverse impacts on sustainability factors (particularly if sustainability indicators are used) is disproportionate in light of the very limited relevance that such impacts could have in the context of Rethink’s investment strategy: Rethink pursues an active venture capital strategy and invests in young start-ups with their focus on business models, products and services in the field of mobility. As a result, Rethink’s investment decisions will have a limited impact on sustainability factors. If and to the extent that the legal uncertainties will be resolved and a practicable market and administrative practice will evolve in this regard, Rethink will re-evaluate considering principal adverse impacts of its investment decisions in due course.
III. Art. 5 – Renumeration Disclosure
As a registered alternative investment Rethink within the meaning of section 2 (4) of the KAGB, Rethink 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.
IV. Art. 10, 8 – Sustainability-related Disclosures
Rethink Mobility Fund I GmbH & Co. KG (the “Fund”) considers certain environmental and social characteristics as part of its investment decisions but does not seek to make sustainable investments as defined in the SFDR. For purposes of considering environmental and social characteristics both before and after the investments, information is initially and regularly obtained from the portfolio companies by means of qualitative queries. The Fund incorporates exclusion (negative screening) aspects during the decision-making process. Furthermore, the Fund shall target to invest at least 70% of its invested amounts into impact-driven enterprises. The actions and decisions described in the following section are each made by Rethink for and on behalf of the Fund.
Rethink Mobility Fund I GmbH & Co. KG (der “Fonds“) berücksichtigt im Rahmen seiner Investitionsentscheidungen bestimmte ökologische und soziale Merkmale, strebt aber keine nachhaltigen Investitionen im Sinne der SFDR an. Zur Berücksichtigung ökologischer und sozialer Merkmale sowohl vor als auch nach den Investitionen werden zunächst und regelmäßig Informationen von den Portfoliounternehmen durch qualitative Abfragen eingeholt. Der Fonds bezieht Ausschlussaspekte (negatives Screening) in den Entscheidungsprozess mit ein. Darüber hinaus strebt der Fonds an, mindestens 70 % seiner investierten Beträge in wirkungsorientierte Unternehmen zu investieren. Die im folgenden Abschnitt beschriebenen Maßnahmen und Entscheidungen werden jeweils von Rethink für und im Namen des Fonds ausgeführt.
No sustainable investment objective
The Fund promotes environmental or social characteristics but does not have sustainable investment as its objective. However, the Fund focuses 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. An impact-driven enterprise shall refer to a company which, in view of the Fund, (i) has the purpose to achieve social, environmental or climate impact by providing entrepreneurial solutions to a societal, environmental or climate issue based on a market-based scalable approach, and confirms the existence of such purpose towards the Fund; (ii) has business models which enable it to fund itself on a non-grant basis to develop self-sustainable business models making them able 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 social, environmental or climate purpose, defines ex-ante their impact objectives within its business plans and specifies associated metrics for directing operations and monitoring their impact ex-post; (iv) inter alia, intends to use its own business growth to advance their pre-defined social, environmental or climate targets; and (v) is managed in an accountable and transparent way, taking into account the interests of employees, customers and other stakeholders affected by their business activities. However, as adverse effects and significant harm to other sustainability objectives are not assessed systematically, such investments are impact oriented but do not qualify as sustainable investments within the meaning of Art. 2 no. 17 SFDR.
Environmental or social characteristics of the financial product
The Fund promotes environmental and / or social characteristics by implementing certain investment exclusions. The Fund does not invest in portfolio companies:
(a) Whose business activity consists of an illegal economic activity;
(b) Which substantially focus on:
(i) the production of and trade in tobacco and distilled alcoholic beverages and related products;
(ii) the financing of the production of and trade in weapons and ammunition of any kind, it being understood that this restriction does not apply to the extent such activities are part of or accessory to explicit European Union policies;
(iii) casinos and equivalent enterprises;
(iv) the research, development or technical applications relating to electronic data programs or solutions, which
a. aim specifically at
- supporting any activity referred to under items (i) to (iv) above;
- internet gambling or online casinos; or
b. are intended to enable to illegally
- enter into electronic data networks; or
- download electronic data;
(v) fossil fuel-based energy production and related activities, as follows:
a. Coal mining, processing, transport and storage;
b. Oil exploration & production, refining, transport, distribution and storage;
c. Natural gas exploration & production, liquefaction, regasification, transport, distribution and storage;
d. Electric power generation exceeding the Emissions Performance Standard (i.e. 250 grams of CO2e per kWh of electricity), applicable to fossil fuel-fired power and cogeneration plants, geothermal and hydropower plants with large reservoirs.
(vi) energy-intensive and/or high CO2-emitting industries, as follows:
a. Manufacture of other inorganic basic chemicals (NACE 20.13)
b. Manufacture of other organic basic chemicals (NACE 20.14)
c. Manufacture of fertilizers and nitrogen compounds (NACE 20.15)
d. Manufacture of plastics in primary forms (NACE 20.16)
e. Manufacture of cement (NACE 23.51)
f. Manufacture of basic iron and steel and of ferro-alloys (NACE 24.10)
g. Manufacture of tubes, pipes, hollow profiles and related fittings, of steel (NACE 24.20)
h. Manufacture of other products of first processing of steel (NACE 24.30, incl. 24.31-24.34)
i. Aluminum production (NACE 24.42)
j. Manufacture of conventionally-fueled aircraft and related machinery (sub-activity of NACE 30.30)
k. Conventionally-fueled air transport and airports and service activities incidental to conventionally-fueled air transportation (sub-activities of NACE 51.10, 51.21 and 52.23).
The Fund shall invest in portfolio companies with business models, products and services that shape the future of transportation of people and goods (“mobility”) and technology fields or businesses that are adjacent to and shaping mobility (for example but not limited to: Energy, finance, marketplaces, insurance, smart cities). As such, investments are expected to be spread across a wide range of economic activities and industries. The Fund intends to make the majority of its initial investments in the early stage, i.e., Seed and Series A rounds.
Good governance practices are monitored on an ad hoc basis, i.e., if the Fund becomes aware of severe governance issues in the investee companies, it will investigate them and work with all parties involved to find an appropriate solution.
Proportion of investments
The Fund invests fully in line with its investment strategy and investment restrictions. The Fund does not intend to make any investments which are not aligned with its environmental or social characteristics (i.e., its investment exclusions).
Furthermore, the Fund will invest at least 70% of its capital in impact-driven enterprises, which however do not qualify as sustainable investments within the meaning of Art. 2 no. 17 SFDR.
Monitoring of environmental or social characteristics
The Fund has an increased awareness of the impact of sustainability risks on risk management and thus on the value potential of investments. The Fund consults with the portfolio companies in regular intervals and will carry out further checks if there are indications of relevant undesirable developments. Therefore, the Fund monitors compliance with the ESG requirements on an ongoing basis. External monitoring mechanisms are not provided. With regard to the impact-driven enterprises, the Fund monitors progress in line with its dedicated impact methodology.
Currently the Fund applies qualitative assessments with regard to environmental or social characteristics. The Fund conducts its initial assessment in the course of its due diligence. The Fund’s due diligence takes the form of a questionnaire which the Fund asks its portfolio companies to complete.
Furthermore, with respect to its impact-driven enterprises, the Fund applies its impact methodology which has been drafted in negotiations with the Fund’s anchor investor. The key components of the impact methodology may be summarized as follows: for each impact-driven enterprise the Fund sets one or more impact goals and target values and defines the relative importance of each impact goal. The Fund 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, the Fund 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, the Fund monitors and reports the portfolio impact goal to reflect societal performance of the Fund’s portfolio of impact-driven enterprises. For this purpose, the Fund 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
With regard to the environmental or social characteristics a questionnaire is completed by the portfolio companies. An external review or verification of the information obtained will only be carried out if misrepresentations are suspected. Around 30% of the relevant data is estimated or supplemented by information publicly available.
When setting impact goals and target values, the Fund anticipates the potential impact of a possible investment based on its own research and assumptions about the portfolio company’s growth. Additionally, the Fund will use data obtained from the portfolio company.
Limitations to methodologies and data
The information collected via the questionnaire as well as the information obtained to apply the impact methodology 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, the Fund considers it a priority to establish and maintain a trustful working relationship with the Fund’s portfolio companies in order to ensure compliance with the restrictions described in this section.
An initial assessment of how an investment relates to the aforementioned characteristics is carried out as part of the due diligence process questionnaire. Additionally, the due diligence may include questions and topics that help in the subsequent determination of impact goals and target values. Such questions and subject matters are determined on a case-by-case basis as needed.
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. The Fund 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 subsequent of an investment, i.e., during the holding period, the Fund intends to build and maintain trust and a strong working relationship with the management teams of the portfolio companies. Such relationships form the basis for cooperation and effective engagement.