Sustainable Finance Disclosure Regulation

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1. Oraxys S.A. – Entity level website Sustainability-related disclosures

1.1. Transparency of sustainability risks policies

Oraxys S.A., the Fund’s manager (the “Fund Manager”) integrates sustainability considerations at all stages of the investment process of the Fund.  This means that the Fund Manager assesses the sustainability risks which could have an actual or potential material negative impact on the value of the investee company before and after investment decisions have been made. The assessment of sustainability risks and potential negative externalities is an important component of the due diligences for any contemplated and current investee company. The outcome of the due diligences is documented in the Portfolio Company Investment Report to be carefully reviewed and approved by the Investment Committee of the Fund and the Board of the Fund Manager.

1.2. Transparency of principal adverse impact on sustainability factors

The Fund Manager screens all contemplated investee companies and monitors existing investee companies against the mandatory principal adverse sustainability impact indicators set out in the Regulatory Technical Standard of the SFDR Regulation (“PAIs”). It also voluntarily screens and monitors two additional PAIs. No investment shall knowingly be approved if it is expected or determined to do significant harm.

1.3. Transparency of remuneration policies in relation to integration of sustainability risks

The Fund Manager’s approach to remuneration is designed to support the long-term business interests of its shareholders and its Fund’s investors, to reflect the risk management approach and to deliver long-term sustainability. The Fund Manager’s compensation approach is underpinned by a common philosophy and guiding principles and is structured to align the interests of its employees with the interests of the strategy. It is consistent with and promotes effective risk management, including (amongst other things) sustainability risks and the interests of both its investee companies and shareholders.

2. Oraxys Environment 2 S.C.A. – Product level website Sustainability-related disclosures

2.1. Summary

In accordance with Article 8 of the Regulation EU 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (the “SFDR Regulation”), Oraxys Environment 2 S.C.A. (“OE2”) promotes Environmental characteristics but does not have as its objective a sustainable investment. As such, it targets to have a minimum proportion of 80% of sustainable investments with an environmental objective in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy.

Through equity investments, OE2 supports the development of small and medium-sized European companies which market solutions (products or services) that have a positive impact in one or more of the following three pillars (the “Pillars”): (i) Nature Preservation, (ii) Resource Efficiency and (iii) Health. These Pillars relate but are not limited to climate change mitigation or adaptation, water and waste management, energy efficiency, and health. Specific information on the three Pillars and on the ESG approach implemented by OE2 to reach its targeted environmental characteristics can be found below and in Oraxys’ Environmental, Social and Governance Policy (the “ESG Policy”) available on Oraxys’ website.

Oraxys S.A. (the “Fund Manager” or “Oraxys”) targets investee companies in compliance with environmental, social and governance (“ESG”) practices and monitors and reports investee companies based on tailored Key Performance Indicators (“KPIs”) aligned to the Sustainable Development Goal of the United Nations (“SDG”) and Principal Adverse Impacts (“PAIs”) on sustainability factors.

OE2 has put in place robust screening, due diligence and monitoring procedures and tools to integrate ESG across the whole investment process based on specific exclusion and eligibility criteria, safeguards, standards, and guidelines in addition to investee companies’ specific KPIs and the above-mentioned SDGs.

Additionally, the Fund Manager supports its investee companies by designing a tailored ESG Action Plan for each of them to enhance their sustainability characteristics and bridge any potential gaps.

2.2. No Sustainable investment objective

OE2 promotes environmental characteristics but does not have as its objective a sustainable investment where Sustainable Investment is defined per stricto sensu by the Regulation EU 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation« ).

OE2 screens all contemplated investee companies and monitors existing investee companies against the principal adverse sustainability impact indicators set out in the Regulatory Technical Standard of the SFDR Regulation.

No investment shall knowingly be approved if it is expected or determined to do significant harm on other ESG factors.

2.3. Environmental or social characteristics of the financial product

In line with Article 8 of the SFDR, OE2’s portfolio presents environmental characteristics. Through equity investments, OE2 supports the development of small and medium-sized European companies which market solutions (products or services) that have a positive impact in one or more of the following three pillars (the “Pillars”): (i) Nature Preservation, (ii) Resource Efficiency and (iii) Health. These Pillars relate but are not limited to climate change mitigation or adaptation, water and waste management, energy efficiency, and health. Specific information on the three Pillars and on the ESG approach implemented by OE2 to reach its targeted environmental characteristics can be found below and in Oraxys’ Environmental, Social and Governance Policy (the “ESG Policy”) available on Oraxys’ website. In particular, OE2 presents the following Environmental characteristics:

  • Screening of contemplated and current investee companies as per its Exclusion list
  • Selection of contemplated and current investee companies in line with one or more of OE2’s key Pillars
  • Assessment of contemplated and current investee companies based on pre-defined sustainability criteria (defined in the ESG Policy) including contribution to one or more SDG.

OE2 targets investees in compliance with ESG practices such as the Minimum Safeguards[1] in alignment with OE2’s Exclusion and Eligibility criteria, as detailed in the ESG Policy.

OE2 wishes in the future, if possible, to get compliance of its investments with the EU Taxonomy thus making sustainable investments per stricto sensu of such Taxonomy Regulation.

[1] Minimum Safeguards include the following: OECD Guidelines for Multinational Enterprises, UN Guiding Principles on Business and Human Rights, International Bill of Human Rights and the Declaration of International Labor Organization on Fundamental Principles and Rights at Work.

2.4. Investment strategy

Early integration of ESG factors is set-up in the investment process (from the initial deal sourcing to the investment management phase) to ensure that material ESG matters are properly prioritized in risk management and in the value creation of OE2.

Stage Sustainability considerations
Screening
  • Screening of the company against
    • the Exclusion List
    • positive impact on one or more Pillars
    • principal adverse impacts on sustainability factors
  • Preliminary ESG Risk assessment
  • Plan due diligence (« DD« ) process and allocate resources
Due Diligence
  • Confirm the contemplated investee company’s compliance with the ESG Policy
  • Perform desk review, conduct an ESG DD (including site visit) and prepare ESG Action Plan
  • Assessment of the contemplated investee company based on the Minimum Safeguards and Good Governance Practices
  • Finalization of ESG Risk Assessment
  • KPIs and PAIs are discussed/negotiated and agreed with the contemplated investee company management
Approval IC
  • Present summary of findings in the form of an ESG Investment Company Report for the IC to ensure an informed investment decision that takes ESG factors and risks into account
Closing
  • The ESG Action Plan is included in the legal documentation (Shareholders Agreement)
Monitoring and Reporting
  • Oraxys will annually monitor directly or through an external expert the progress against the ESG Action Plan, KPIs and PAIs
  • Generation of an ESG Annual Company Report for stakeholders on each investee company
  • A separate ESG Annual Fund Report will be issued every year for investors (Annex IV under SFDR)
  • An ESG Principal Adverse Impacts Report will be issued every year for investors (Annex I under SFDR)
Exit
  • Investee company sustainability assessment at maturity of investment presented in an ESG Divestment Company Report

2.5. Proportion of investments

More information about the Environmental characteristics as well as the asset allocation of OE2 is available in Annex II of pre-contractual product disclosures.

2.6. Monitoring of environmental or social characteristics

The investee company specific KPIs and PAIs selected to measure the attainment of the E characteristics are monitored by the Fund Manager on an annual basis. KPIs are monitored and reported on in line with the SDGs and SDGs’ targets.

Additional information on the methodology implemented to identify KPIs can be found below. Further information on the monitoring practices is outlined in the ESG Policy.

2.7. Methodologies

Any contemplated investee company identified by OE2 is reviewed and evaluated against the ESG Policy commitments including the following ESG standards and frameworks:

  • Exclusion List
  • SFDR Minimum Safeguards
  • Principal Adverse Impact indicators
  • ESG Risk Framework
    • Identification of Flags
    • Category A: with potential significant adverse social and/or environmental impacts that are diverse, irreversible, or unprecedented hence not investable by OE2
    • Category B: with potential limited adverse social or environmental impacts that are few in number, generally site specific, largely reversible and readily addressed through mitigation measures; or
    • Category C: with minimal or no impacts
  • Applicable national and international laws, regulations and conventions on environment, labour, health, safety and social issues.

The above ESG standards and frameworks are all assessed during the sustainability due diligence of the contemplated investee company.

In depth ESG contemplated investee company requirements are further outlined in the ESG Policy.

2.8. Data sources and processing

Based on the sector OE2 invests in, OE2 will be assessing its Pillars through bespoke KPIs for each company in alignment with relevant SDGs and SDGs targets.

The indicators selected to measure the attainment of Environmental characteristics promoted by OE2 are collected directly or through an external ESG services provider and monitored by the Fund Manager on an annual basis. Data will be collected with direct engagement with each investee company whereby a baseline will be created for benchmarking purposes. Data collected, once cleaned and aggregated, will be inserted to a portfolio database enabling the tracking of positive and adverse impact generated by OE2’s investments.

Data collection process and data inclusion to the database process are supervised by the Fund Manager which is assisted by an external ESG service provider.

2.9. Limitation to methodologies and data

To the extent possible, OE2 will look to set KPIs that are aligned with the UN SDGs framework and retrieve PAIs as per indicators provided by the SFDR. However, the Fund Manager anticipates a limited portfolio coverage for PAIs given the recent investment in its investee companies, hence it will be limited to provide certain PAI Proxies to cover any gaps.

2.10. Due diligence

See Section 2.4. on Investment Strategy.

2.11. Engagement policies

The Fund Manager, when deemed necessary, works with the investee companies to implement best practices based on a pre-defined ESG Action Plan, aiming to strengthen their ESG approach in order to reach an increased level of environmental impact. In addition, if any investee company breaches any of the reporting requirements, then a series of remediation measures will be put in place to bring the investee company back into compliance with its reporting requirements as soon as practically possible.

2.12. Designated reference benchmark

OE2 does not designate an index as reference benchmark at this stage. However, the monitoring and evaluation framework implemented by OE2 and its ESG scoring of the contemplated and current investee companies provide a reference to track impact on the environment as represented by the identified KPIs. When appropriate standards are available, OE2 will use its monitoring and impact data to transition to an index for benchmarking purposes.