1.Disclosures relating to the Alternative Investment Fund Manager pursuant to Art. 3, 4 and 5 of Regulation (EU) 2019/2088
a. Sustainability Risks
Auxxo Fund Management GmbH (LEI: 391200NQE5D2Z69PCV45) being the Alternative Investment Fund Manager (“AIFM“) of an alternative investment fund („Financial Product“) partially takes sustainability risks into account as part of the risk analysis when investing in unlisted and growth oriented companies in their early stages (“Investee Companies”).
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 Product or its 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 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.
According to Art. 4 of the SFDR, the AIFM is obliged to provide information on the consideration of negative impacts of investment decisions on sustainability factors, i.e. negative effects in particular on environmental, social and employee issues, respect for human rights and the fight against corruption and bribery (“Principal Adverse Impacts” / “PAI”).The Sustainable Finance Regulation and especially the Regulatory Technical Standards (EU) 2022/1288, which includes the detailed sustainability indicators for reporting on adverse impacts, are new. Due to this and the lack of established industry practices, substantial legal uncertainty remains.
Furthermore, consideration of the PAI is largely dependent on the availability of relevant information on the market. In the area of financing business start-ups, the data required for this is often not available in sufficient volume and in the required quality. The collection and reporting of this information puts an undue burden on early-stage startups, such as those in the Auxxo Female Catalyst Fund’s portfolio.
As the Auxxo Female Catalyst Fund invests in European start-ups that operate largely in the digital economy, they are unlikely to cause severe adverse impacts on sustainability factors.Nevertheless, the AIFM takes into account the influence of the investments on some of the sustainability factors (especially diversity, inclusion and equity) and excludes investments in specific sectors, industries and businesses that would affect environmental, social, ethical or governance factors. Going forward, the Auxxo Female Catalyst Fund reserves the right to use the sustainability indicators detailed in the Annex I of the Regulatory Technical Standards partly or fully.
c. Remuneration policies in relation to the integration of sustainability risks
As a registered AIFM within the meaning of section 2(4) of the German Investment Code (Kapitalanlagegesetzbuch, “KAGB”), Auxxo Fund Management GmbH does not have a remuneration policy or guideline in accordance with the requirements of KAGB of the EuVECA Regulation. The sustainability risks are not integrated in remuneration.
2. Disclosures relating to the Financial Product pursuant to Art. 10 of Regulation (EU) 2019/2088
Auxxo Female Catalyst Fund GmbH & Co. KG (LEI: 391200YG4J9TD5 RNX071) (“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:
Advancing diversity, inclusion and equitable treatment and participation of women in the start-up and venture capital industry.
The Financial Product invests in early-stage female (co-)founded businesses in Europe. 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 primarily achieved through investment decisions. The fund only invests into companies with at least one female founder holding a minimum of 20% of the founder shares. The diversity of the whole investee company team is expected to develop through the promotion of female ownership.
The Financial Product carries out a due diligence process with every investment. Due diligence includes among other things a negative screening list, meaning a list of sectors, business activities and business practices that are excluded due to their acknowledged harm to the society and/or environment. The E/S characteristics are 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, which may include interviews as well as quantitative and qualitative questionnaires for Investee Companies.
To ensure an appropriate reaction to sustainability-related incidents, the Financial Product is creating an internal procedure.
Auxxo Female Catalyst Fund GmbH & Co. KG (LEI: 391200YG4J9TD5 RNX071) (“Finanzprodukt”) fördert ökologische (environmental) und soziale (social) (“E/S”) Merkmale, hat jedoch kein direktes nachhaltiges Anlageziel.
Im Einzelnen fördert das Finanzprodukt die folgenden E/S-Merkmale:
Förderung der Vielfalt, der Eingliederung und der gerechten Behandlung und Beteiligung von Frauen in der Start-up- und Risikokapital-Branche.
Das Finanzprodukt investiert in frühen Unternehmensphasen in von Frauen (mit-)gegründete Unternehmen in Europa. Diese Investitionen zielen auf die Förderung von E/S-Merkmalen ab, sind jedoch nicht als rein nachhaltige Investitionen gedacht.
Die Erreichung der durch das Finanzprodukt geförderten E/S-Merkmale wird in erster Linie durch Investitionsentscheidungen erreicht. Der Fonds investiert nur in Unternehmen mit mindestens einer Gründerin, die mindestens 20 % der Gründeranteile hält. Dies hat unter anderem das Ziel, die Diversität im gesamten Unternehmen zu erhöhen. Es wird davon ausgegangen, dass sich durch die Förderung von einer weiblichen Beteiligung unter den Gründer:innen eine erhöhte Diversität im Team des investierten Unternehmens entwickeln wird.
Das Finanzprodukt führt bei jeder Investition eine Due-Diligence-Prüfung durch. Diese Prüfung umfasst unter anderem eine Negativliste, d.h. eine Liste von Sektoren, Geschäftstätigkeiten und Geschäftspraktiken, die aufgrund ihrer anerkannten Schädlichkeit für die Gesellschaft und/oder die Umwelt ausgeschlossen werden. Die E/S-Merkmale werden während des gesamten Investitionszykluses überwacht. Das Finanzprodukt wird verschiedene Methoden zur Erlangung und Überwachung der E/S-Merkmale anwenden, die unter anderem Interviews mit Geschäftsführer:innen und Mitarbeitenden sowie quantitative und qualitative Fragebögen für die investierten Unternehmen umfassen können.
Um eine angemessene Reaktion auf nachhaltigkeitsbezogene Vorfälle zu gewährleisten, entwickelt das Finanzprodukt ein internes Verfahren.
b. No sustainable investment objective
This Financial Product promotes environmental or social characteristics, but does not have as its objective a 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 social characteristics:
- Advancing diversity, inclusion and equitable treatment and participation of women in the technology and venture capital industry.
The above listed factors are not considered as conclusive or final, since the investments the Financial Product will make, cannot be determined yet (so-called “blind pool”). Thus, the factors may be refined and revised 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 process. The investment process consists of the following phases:
- Pre-Investment (sourcing and screening);
- Investment (due diligence);
- Holding (portfolio management, monitoring, reporting); and
- 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 equity-related investments in companies. The Partnership has an emphasis on early-stage female (co-)founded businesses in Europe.
The Financial Product shall observe the German Capital Investments Act (Kapitalanlagegesetzbuch) with regard to its investment activities, and will monitor Investee Companies in order to meet the environmental and social characteristics.
In order to attain the E/S characteristics set out above the Financial Product carefully selects its investment opportunities during the pre-investment and investment phase. 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:
- Production of or activities related to exploitative forms of forced/child labor;
- Illegal activities or activities, which violate international conventions or agreements;
- Production and distribution of racist or anti-democratic media;
- Economic activity related to ammunition and weapons, their major components, military/police equipment, or penitentiary infrastructure. This limitation does not apply to the extent that these activities are part or annex of an express policy of the European Union;
- Gambling, casinos, including Internet gambling and online casinos;
- Production and trade of distilled alcoholic beverages;
- Production and trade of tobacco;
- Production and use or trading of toxic materials e.g. radioactive materials.
- Cross-border trade in waste and waste products unless in accordance with the Basel Convention and underlying national and EU legislation;
- Human cloning; and
- Production and trade of wildlife or wildlife products regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CETES).
The Financial Product monitors the development of female ownership in the Investee Companies on an ongoing basis.
(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 incorporated in the Financial Product’s legal due diligence as far as good governance practices have been adopted by law. Due diligence is often conducted in collaboration with other investors and/or utilizing external experts and third parties in evaluation. The Financial Product does not invest in any companies with lacking governance practices at the time of the evaluation or does so only conditionally.
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 pitch deck 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, the Financial Product may obligate Investee Companies to monitor and provide 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.
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:
- Negative screening with regards to branches, products and practices;
- Quantitative and qualitative questionnaires;
- Interviews with the management team and (key) employees of Investee Companies; and
- Obligate Investee Companies to submit periodic environmental and social reports.
Based hereon, the Financial Product may apply one or a combination of the following measures to adjust its alignment with the promotion of the E/S characteristics listed above:
- Discarding of investment opportunities;
- Setting target agreements with Investee Companies;
- Execution of minority shareholder rights in Investee Companies; and
- Execution of rights as an advisory board member to Investee Company (where available).
h. Data sources and processing
Data for measuring the attainment of E/S characteristics can be provided by Investee Companies in the form corresponding to the applied method(s) of data collection listed above. Data is collected in both quantitative and qualitative forms.
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 methodology referred to in subsection (g.) 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. 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 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 and only invests in companies that promote diverse, inclusive and equitable treatment and participation of women in start-ups and venture capital through its ownership structure.
k. Engagement policies
The AIFM has appointed an internal ESG representative within the partnership to ensure ESG compliance in the investment process and a team member to take on the operative ESG tasks of the fund.
In order to further develop its ESG responsibilities, the Fund Manager has developed an ESG policy setting out processes for improved analysis, monitoring and reporting of ESG related factors and risks, and to appropriately react to any potentially occurring incidents.