Sustainability-related disclosures

Sustainability-related disclosure requirements in the financial services sector pursuant to Regulation (EU) 2019/2088.

Tilia Impact Ventures Fund  II:

 

Summary

Tilia Impact Ventures Fund II (“the Fund”), managed by Tilia Impact Ventures II GP S.à r.l. (“Tilia”) is an impact fund, and therefore seeks not only to analyse and mitigate sustainability risks, but also to go one step further, by proactively seeking to invest in companies that have a positive impact on people and the planet. The Fund pursues a venture capital strategy and invests in impact companies, i.e. companies with the intention to generate social or environmental impact alongside a financial return. More specifically, Tilia embraces all aspects of sustainability in the following manner.

Sustainable investment objective of this financial product 

The Fund has sustainable investments as its objective. Sustainable investment means an investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any environmental or social objective and that the investee companies follow good governance practices.

The Fund objective is to achieve attractive risk-adjusted returns and generate a measurable social and environmental impact. Tilia has defined two interconnected “impact themes” of environmental sustainability and social equity and, i.e. sustainable investments with positive impacts on People & Planet, each representing min 40% of the Fund’s investments: i) climate & sustainability transition (“Planet”), ii) education, empowerment, health and wellbeing in an inclusive and equitable society (“People”).

The Fund contributes to the objectives of creating positive impact by building, holding, and managing a portfolio of investments in portfolio companies whose business success is directly linked to positive change, e.g. by contributing to one of the two above-mentioned objectives. This impact needs to be clearly measurable and inherently engrained into the business model of the portfolio companies.

No significant harm to the sustainable investment objective

The Fund will not significantly harm any sustainable investment objective by means of considering principal adverse impacts (PAIs) on sustainability factors in the investment decision process and in its investees, according to their size and nature and the scale of their activities, as well as the types of financial products offered. The Fund takes into account all the PAIs in Table 1 of Annex 1 of the Regulation and any relevant indicators in Tables 2 and 3 of Annex 1 of the Regulation.

The Impact-Specific Diligence Screening and Post-Investment Monitoring Process seeks to ensure that any investments do not significantly harm any of the environmental objectives of article 9 of the Taxonomy Regulation or any social sustainable investment objective. With regards to ESG, Tilia commits to consider material ESG issues during the pre- and post-investment phase. Therefore, ESG factors are integrated alongside the impact assessment as part of the investment process at Tilia.

As a responsible investor, the Fund strives to ensure that good governance practices are in place and adhered to during and after investment. This includes the portfolio company’s compliance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Additionally, the Fund does not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies or other entities:

1. whose business activity consists of 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 company or entity, including without limitation, human cloning for reproduction purposes); or which substantially focus on:
2. the production of and trade in tobacco and distilled alcoholic beverages and related products;
3. 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;
4. casinos and equivalent enterprises;
5. the research, development or technical applications relating to electronic data programs or solutions, which (1) aim specifically at supporting any activity referred above; internet gambling and online casinos; or pornography, or (2) are intended to enable to illegally enter into electronic data networks or download electronic data.
6. Fossil fuel-based energy production and related activities, as follows (1) Coal mining, processing, transport and storage; (2) Oil exploration & production, refining, transport, distribution and storage; (3) Natural gas exploration & production, liquefaction, regasification, transport, distribution and storage; (4) 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.
7. Energy-intensive and/or high CO2-emitting industries, as follows (1) Manufacture of organic and inorganic basic chemicals, (2) Manufacture of fertilisers and nitrogen compounds, (3) Manufacture of plastics in primary forms, (4) Manufacture of cement, (5) Manufacture of basic iron and steel and of ferro-alloys, (6) Manufacture of tubes, pipes, hollow profiles and related fittings, of steel, (7) Manufacture of other products of first processing of steel, (8) Aluminium production, (9) Manufacture of aircraft and related machinery, (10) Air transport, airports and service activities incidental to air transportation.

Investment Strategy

The Fund seeks to make investments with a dual objective of generating attractive risk-adjusted returns as well as a measurable social and environmental impact. The Fund intends to make investments that satisfy the definition of “Impact Investing”, that is, investments in companies, organisations and funds with the intention to generate a social and environmental impact alongside a financial return. The Fund invests in companies that are typically in seed of startup/Series A stages.

The Fund seeks to invest in enterprises where the social or environmental impact of the organisation’s activities is tightly integrated into the enterprise’s business model. In other words, the activities carried out by the enterprise must be inherently socially or environmentally impactful.

Investment decisions are subject to a structured selection process with clearly defined investment criteria, particularly regarding the social impact and economic viability of a business model.

Due Diligence

The Fund integrates sustainability risks in its decision-making process by carrying out an ESG risk assessment during the due diligence process and prepares an improvement plan for different aspects, which is adapted to the size, nature and scope of our investees.

These aspects are assessed from the first analysis carried out for each investment, with the aim of identifying not only any risk areas, but also the areas where a positive impact is already being seen and those where impact could be enhanced.

All potential investments for the Fund need approval from the Investment Committee , in order to be considered. The Investment Committee helps to guide and provide oversight on the Fund impact diligence. Furthermore, the Fund’s Advisory Board approves the impact KPIs, the Target Values and Weightings  for each investment.

The impact diligence focuses on five key areas of diligence (among others)  including:

• identifying the impact need or challenge, and the applicable investment’s solution to address them;
• ensuring intentionality and alignment of all stakeholders to the impact goals and the applicable investment’s ultimate success;
• determining appropriate impact metrics are tracked and managed to, and can be regularly reported;
• ensuring the value-add capital resources are directed towards or help drive the impact solution; and
• evaluating the risk/return profile of the impact investment opportunity.

To ensure that the companies meet the highest standards in terms of sustainability, we take into account the following principles when carrying out our analysis and in our decision-making process: IFC’s “Operating Principles for Impact Management”, the “Principles for Responsible Investment” (PRI), as well as the following standards: standards set forth by the Impact Management Project (IMP), the processes recommended by EVPA, and the reporting standards recommended by the “Global Reporting Initiative Sustainability Reporting Standards” (GRI Standards).

Over the life of the investment, Tilia supervises and manages both the most relevant KPIs in terms of ESG and the impact KPIs that are directly related to the impact goal and the purpose of the company. These impact KPIs and their evolution are shared with the Fund’s investors, so that they may obtain an adequate follow-up of the impact achieved through the company’s activity. In preparing these reports, the principles and standards referred to in the preceding paragraph are taken into account.

Additionally, the Fund’s goal is to ensure the best possible good governance of its portfolio companies. During the Due Diligence, the investment team completes a good governance practices assessment of investee candidates. Over the life of the investment, the Fund will work through appropriate governance structures with portfolio companies with respect to environmental, public health, safety, and social issues, with the goal of improving performance and minimising adverse impacts. The goal is to not only measure impact and ESG related topics but also to actively engage with and motivate the portfolio companies in that regard.

Proportion of investments

The intention is that 100% of the investments made by the Fund shall be aligned with the sustainable investment objective, with the minimum of 40% dedicated to environmental objectives, and minimum of 40% to social objectives.

Monitoring of sustainable investment objective

At or prior to the time of an investment in a portfolio company, one to maximum five environmental/ social impact goals together with respective impact KPIs are defined interactively between Tilia and the portfolio company. The impact goal(s) reflect the environmental/ social purpose of the portfolio company and its “Theory of Change” pursued in the portfolio company’s environmental/ social mission; “Theory of Change” is a model that specifies the desired outcomes of an activity, project or programme, evidencing the underlying logic of causality between action and result, and making transparent its assumptions, influences, and the potential risks of producing undesired effects, which shall be taken into account when establishing the level of desired outcomes achieved.

For each impact goal, one target value reflecting the ambition in proving the realisation of the portfolio company’s Theory of Change, during the holding period of the investment, is defined. This impact goal is measured, monitored, and revised on a yearly basis. The Fund’s Advisory Board provides an independent outside view and expertise in the assessment.

In order to quantify the attainment of the sustainable investment the KPI of each impact goal is collected at least on an annual basis and benchmarked against the respective target value of each impact goal. The impact performance is then calculated on three different levels: impact goal, company’s Impact Multiple and overall Portfolio Multiple.

The Fund uses reasonable efforts to quality check and pressure test the collected data. The goal is to use objective and quantitative data. However, some metrics may rely – to a certain extent – on estimations.

Limitations to methodologies and data

In general, the Fund relies on data collected from the portfolio companies to measure attainment of its sustainable objective. Some limitations may arise from the stage of the portfolio company. When the company is in an early stage, data to evaluate the impact potential might be limited or needs to be based on certain assumptions. In the event of a strategic pivot of the portfolio company, the impact KPIs or impact goals may also need to be adjusted. The adjustment follows the same process as for the initial determination. Furthermore, the Fund invests in novel or nascent technologies. In these cases, established methodologies or historical data to quantify the positive impact may not be existent.

Furthermore, the Fund actively works together with impact advisors who provide an independent outside view on potential limitations. All this assures that the limitations do not affect the attainment of the sustainable investment objective.

Attainment of the sustainable investment objective

Not applicable. A reference benchmark for attaining the sustainable investment objective has not been designated for the Fund.