A. Sustainability Risks
Atlantic Food Labs Manager GmbH („AFL“) takes into account 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 impact on the value of the investments. As part of its standard procedure, AFL conducts a due diligence prior to investing.Such due diligence includes a range of questions relating to environmental, social or governance-related aspects, thereby also providing a basis for assessing potential sustainability risks. The outcome of the due diligence, including any information on sustainability risks revealed through the due diligence, guides AFL’s investment decisions. In its free discretion, AFL may decide to make an investment even if sustainability risks have been determined. In such case, AFL may in its sole discretion decide to apply appropriate mitigation measures. At all times, AFL will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
B. No Consideration of Sustainability Adverse Impacts
AFL does not consider adverse impacts of investment decisions on sustainability factors within the meaning of Art. 4 SFDR of the Sustainable Finance Disclosure Regulation (EU 2019/2088) ("SFDR"), i.e. environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. The information that would need to be obtained from portfolio companies in connection with the disclosures required under Art. 4 SFDR is quite extensive and there is currently no market practice or no practical experiences with how the market, in particular co-investors and investees react to and deal with such new disclosure obligations and information requirements. In addition, legal uncertainties remain regarding the applicability of the SFDR and the scope of its obligations. In light of these uncertainties, AFL currently refrains from committing to consider adverse impacts on sustainability factors within the meaning of the SFDR. If and to the extent that these uncertainties will be resolved and a practicable market and administrative practice will evolve in this regard, AFL will re-evaluate following them in due course.
C. Renumeration Disclosure
As a registered alternative investment fund manager within the meaning of section 2 (4) of the KAGB,AFL 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.
D. Sustainability-related Disclosures”
Atlantic Food Labs Fund I GmbH & Co. KG (the “Fund”) is a venture capital fund managed by AFL. AFL considers environmental and social characteristics as part of its investment decisions by incorporating certain investment exclusions (negative screening) during its decision-making process. Moreover, AFL invests at least 70% of the Fund’s capital in impact-driven enterprises (i.e. enterprises that, i.a ., have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach). Such investments are impact oriented but do not represent sustainable investments within the meaning of Art. 2 no. 17 SFDR, because adverse effects and significant harm to other sustainability objectives are not assessed systematically. Nonetheless, AFL applies its impact methodology and ESG policy to ensure a structured approach towards ensuring a level of protection with regard to environmental, social and governance related aspects of its business.Acting for the Fund, AFL will at all times apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
No sustainable investment objective
The Fund focusses a large part of its investment strategy on achieving positive impact, i.e. 70% of theFund’s capital are to be invested in impact-driven enterprises (i.e. enterprises that, i.a ., have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach). However, such investments are impact oriented but do not represent sustainable investments within the meaning of Art. 2 no. 17 SFDR, because adverse effects and significant harm to other sustainability objectives are not assessed systematically.
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 whose business include:
a) Performing research and innovation activities considered as illegal according to the applicable legislation in the country of the portfolio company;
b) An illegal economic activity (i.e., any production, trade or other activity, which is illegal under the laws or regulations applicable to the Fund or the relevant portfolio company or other entity, including without limitation, human cloning for reproduction purposes);
c) The production of, and trade in, tobacco and distilled alcoholic beverages and related products;
d) The financing and production of, and trade in, weapons and ammunition of any kind;e) Casinos and equivalent enterprises;
f) The research, development or technical applications relating to electronic data programs or solutions, which:
— Aim specifically at: (i) supporting any activity referred to under b) – e) above; (ii) internet gambling and online casinos; or (iii) pornography; or
— Are intended to enable to illegally (i) enter into electronic data net-works; or (ii) download electronic data.
Moreover, the Fund will invest at least 70% of its funds in impact-driven enterprises (i.e. enterprises that, that (i) have the purpose to achieve societal impact by providing entrepreneurial solutions to a societal issue based on a market-bases scalable approach, and expressly state such purpose in their articles of association or other corporate documents; (ii) have a business model which enables them to fund themselves on a non-grant basis to develop self-sustainable business models enabling them 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 societal purpose, define ex-ante their societal impact objectives within their business plans and specify associated metrics for directing operations and monitoring their impact ex-post; (iv) intend to use their own business growth to advance its pre-defined societal targets; and (v) are managed in an accountable and transparent way, taking into account the interests of employees, customers and other stakeholders affected by its business activities).
The Fund will invest in portfolio companies stablished or operating mainly in the EU member states and engaged in sectors with innovation capacity and growth potential. At least 70% of its capital will be invested in impact-driven enterprises (see above) that are SMEs in their early stage and active or based in an EU member state.
Proportion of investments
The Fund will invest fully in line with its investment restrictions and its investment strategy.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 sustainable investment objective
AFL’s screening and monitoring of the Fund’s investments is mainly based on questionnaires. Thosequestionnaires are used initially within the due diligence process. Following an investment, AFL monitorsthe progress of the impact-driven enterprises regularly in line with its impact methodology.
AFL applies its impact methodology which has been drafted in negotiations with the Fund’s anchor investor (i.e. a large European public institutional investor). The key components of the impact methodology may be summarized as follows: for each impact-driven enterprise AFL sets one or more impact goals and target values. AFL 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, AFL 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, AFL monitors and reports on the portfolio impact goal to reflect societal performance of the Fund’s portfolio of impact-driven enterprises.For this purpose, AFL 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
When setting impact goals and target values, AFL anticipates the potential impact of a possible investment based on its own research and assumptions about the portfolio company’s growth. Additionally, AFL will use data obtained from the portfolio company.
Limitations to methodologies and data
Since AFL will apply external verifications in exceptional circumstances only, e.g . if substantial facts suggest data provided by the portfolio company is false or misleading or if important data cannot be obtained or replaced with reasonable assumptions, there remains a risk that inaccurate data may not be detected in some cases.
AFL performs due diligence which includes an ESG due diligence. Additionally, the due diligence may include questions and subject matters which help inform the process of setting impact goals and target values later on. 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. AFL willa ctively 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 following an investment, i.e. during the holding period, AFL intends to build and maintain trust and a strong working relationship with the management teams of its portfolio companies. Such relationships form the basis for cooperation and effective engagement.