Sustainability Disclosures
EU Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (”SFDR” or “the Regulation”) entered into force on 10 March 2021. The Regulation requires fund managers like Volpi Capital (Volpi) as an authorised AIFM to provide information to investors with regards to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment.
This text specifically addresses Article 3 of the Regulation:
“Financial market participants shall publish on their websites information about their policies on the integration of sustainability risks in their investment decision‐making process.”
More information related to the SFDR, and Volpi’s approach to ESG (Environmental, Social, Governance factors) and Responsible Investment in general, can be found here, including:
- Remuneration policy in relation to the integration of sustainability risks
- Principal adverse impact statement
- Responsible Investment Policy
Sustainability risk
Volpi uses the definition of sustainability risk as described in Article 2 (22) of the Regulation: “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”. Volpi believes that integration of sustainability risk considerations in the investment decision-making process is an important part of risk management.
Sustainability risks include (but are not limited to) the following:
- Operational risk such as impacts of environmental events on operations.
- Governance risk such as inadequate management oversight of sustainability risk.
- Regulatory risk such as violation of ESG-related laws and regulations.
This information shall be published on Volpi’s website and will be periodically reviewed and revised. Records will be maintained to ensure version history is clear. As such, Volpi will indicate the dates of publication, where applicable, identify which content has been updated.
Integration of sustainability risks in investment processes
Volpi has fully integrated sustainability risk assessment in its investment decision-making processes, as further described below.
Initial Screening
Volpi conducts a pre-due diligence screening with the aim to identify and exclude investment in any company which is currently, or likely to in the future, generate a significant share of its revenue connected to the following harmful activities/products.
- deny human rights;
- engage child or forced labour directly or within their supply chain;
- manufacture weapons that are designed primarily for destructive purposes e.g. anti-personnel mines, cluster weapons;
- produce products that are illegal under UK or local law;
- cause serious environmental damage;
- has, as its primary business activity, the production, promotion or distribution of the following: i) adult entertainment, ii) tobacco, iii) distilled alcoholic beverages, iv) gambling products, services or platforms;
- provide research, development or technical applications relating to electronic data programs or solutions which support the above exclusions list.
Through this negative screening exercise, Volpi aims to filter out potential investments that are likely to have significant adverse impacts on sustainability factors.
Due diligence
Volpi conducts a comprehensive ESG (Environmental, Social, Governance factors) due diligence for each potential investment. Within the ESG due diligence, Volpi assesses whether there are any red flags (e.g. unmanageable sustainability risks) that should prevent Volpi from proceeding with the potential transaction. Through this process Volpi identifies key sustainability risks (and opportunities) and defines appropriate mitigating activities.
Examples of sustainability risks assessed include, where relevant, inter alia risks related to environment, health and safety, people, suppliers and customers, community and charity, and governance.
Within the proprietary ESG due diligence framework, Volpi derives the likely impacts of sustainability risks on the financial returns in a qualitative manner from the allocated risk grading on low, medium, high scale.
Business Operations
Volpi provides portfolio companies with the appropriate tools and guidance required to assess and manage sustainability risks. Throughout the ownership phase Volpi challenges and supports portfolio companies to enhance and further develop their ESG related achievements and disclosures. Specifically, Volpi encourages companies to identify and implement measures to reduce environmental impact, including energy, waste and water reduction. Volpi also requires portfolio companies to be equal opportunity employers and to provide learning and development opportunities for employees. Action plans are created, performance and progress are monitored, and the action plans are continuously revised by the Board of Directors in the portfolio companies.
Reporting
Investors in Volpi funds are provided with an annual Environmental, Social and Governance Report (ESG Report). The report highlights the key material ESG themes, which may or may not include sustainability risks where relevant, and assesses their performance on those themes using an eight-level ESG maturity scale.
The report is updated annually, to monitor progress and keep the portfolio company focussed on achieving its goal of becoming a more sustainable and future proof company over time. The reports are the result of an independent review by an external ESG & Responsible Investment consulting firm, commissioned and approved by the board and management of the portfolio companies.
The ESG framework and approach used to create the Environmental, Social and Governance Reports covers key sustainability risks. Sustainability risks are often interconnected and evolve and change over time. As such, Volpi monitors the landscape to ensure sustainability risks are being managed appropriately, ensuring that any emerging risks are taken into consideration.
Remuneration policy in relation to the integration of sustainability risks
This document specifically addresses Article 5 of the Regulation:
“Financial market participants and financial advisers shall include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks, and shall publish that information on their websites.”
More information related to the SFDR, and Volpi’s approach to ESG and Responsible Investment in general, can be found here, including:
- Sustainability risk policy
- Principal adverse impact statement
- Responsible Investment Policy
Volpi Capital’s Remuneration Policy
This text provides as summary of Volpi’s Remuneration Policy. The full Remuneration Policy is available upon request at Volpi’s registered office.
Volpi’s Remuneration Policy aims to promote sound and effective risk management, and to discourage risk-taking which is inconsistent with the risk profiles, rules or instruments of incorporation of the alternative investment funds the Manager manages, and to avoid conflicts of interest.
The Remuneration Policy has been adopted by the Board of Volpi Capital in accordance with binding rules implementing EU directive 2011/61/EU on Alternative Investment Fund Managers and relevant implementing regulations (together, the AIFMD), and in accordance with the principle of proportionality.
Remuneration policy considerations in relation to the integration of sustainability risks
Volpi’s Remuneration Policy promotes sound and effective risk management with respect to sustainability risks, ensuring that the structure of remuneration does not encourage excessive risk-taking with respect to sustainability risks. Volpi also considers the effect of potential conflicts of interest on remuneration in a way that is consistent with the integration of sustainability risk, including (but not limited to), any activities that give rise to greenwashing, misselling, or misrepresentation of investment strategies.
Remuneration
Remuneration of the employees having a material impact on the managed funds’ risk profile comprises of fixed and variable remuneration. Remuneration levels shall be justified according to performance of the individual concerned. The total amount of variable remuneration shall be based on a combination of the assessment of the performance of the employee and the overall results of the fund, as well as the conduct of the employee under the internal procedures and compliance requirements applicable.
This includes an assessment of the performance of the employee under Volpi’s Responsible Investment Policy. Assessment of performance under the Responsible Investment Policy is discretionary, and shall be based on (i) how the employee integrates sustainability risk into investment decisions, and (ii) the extent to which the employee promotes the principles set out in Responsible Investment Policy in the management of the portfolio, thereby reducing sustainability risk and contributing to the sustainability objectives.
Board approval and revision
The Remuneration Policy is approved by the Board of the Manager. It shall be reviewed by the Board at least annually and updated if deemed necessary or desirable.
Principal Adverse Impact Statement
This text specially addresses Article 4 of the Regulation:
“Financial market participants shall publish and maintain on their websites a statement on due diligence policies with respect to principal adverse impacts of investment decisions on sustainability factors, taking due account of their size, the nature and scale of their activities and the types of financial products they make available”.
More information related to the SFDR, and Volpi’s approach to ESG (Environmental, Social, Governance factors) and Responsible Investment in general, can be found here, including:
- Sustainability risk policy
- Remuneration policy in relation to the integration of sustainability risks
- Responsible Investment Policy
Summary
Volpi considers principal adverse impacts of its investment decisions on sustainability factors. The present statement is the consolidated principal adverse impacts statement of Volpi. This principal adverse impacts statement covers the reference period from 10 March 2021 to 31 December 2021.
Volpi uses the definition of principal adverse sustainability impacts as described in Article 20 of the Regulation: “Those impacts of investment decisions that result in negative effects on sustainability factors, with sustainability factors referring to environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.”
Volpi believes that investment decisions that negatively impact climate or other environment-related resources, or have negative implications for society, are detrimental to value creation. To this end, Volpi, considers the principal adverse impacts of its investment decisions on sustainability factors throughout all major steps of the investment and portfolio management process.
Description of Principal Adverse Impacts
Volpi will take necessary preparations to gather, monitor and report the principal adverse sustainability impact indicators listed below. Volpi will provide an updated version of this statement by no later than 30 June 2023, with the indicators reported over reporting year 2022. From 2024 onwards, Volpi will provide historical comparisons with previous reference periods. Volpi will also seek to detail actions taken and actions planned for the future, as well as targets set for each PAI indicator to avoid or reduce the PAI identified where possible.
- GHG emissions
- Carbon footprint
- GHG intensity of investee companies
- Exposure to companies active in the fossil fuel sector
- Share of non-renewable energy consumption and production
- Energy consumption intensity per high impact climate sector
- Activities negatively affecting biodiversity-sensitive areas
- Emissions to water
- Hazardous waste ratio
- Violations of UN Global Compact principles and OECD Guidelines for Multinational Enterprises
- Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises
- Unadjusted gender pay gap
- Board gender diversity
- Exposure to controversial weapons
Description of policies to identify and prioritise principal adverse impacts
Volpi will report on all indicators related to principal adverse impact on sustainability factors as set out in Table 1 of Annex I of the Regulatory Technical Standards of the Regulation.
Furthermore, Volpi will select at least one additional indicator related to principal adverse impacts on a climate or other environment related sustainability factor that qualifies as principal as set out in Table 2 of Annex I, as well as at least one additional indicator related to principal adverse impacts on a social, employee, human rights, anti-corruption or anti-bribery sustainability factor that qualifies as principal as set out in Table 3 of Annex I. Volpi will select these additional indicators based on the probability of occurrence and severity of adverse impacts (including their potentially irremediable character).
Measurement of principal adverse impacts will, to some extent, be subjective and based on judgement. Volpi will seek to ensure accuracy by implementing internal and/or external reviews where doing so would reduce the margin of error and/or increase confidence in the indicators.
Volpi have formally approved these policies by 10 March 2021. Volpi partners will be primarily responsible for the implementation of these policies. However, all investment team members will be educated with regards to principal adverse impacts on sustainability factors in order to integrate these considerations in the investment process, as detailed below.
Initial Screening
Volpi conducts a pre-due diligence screening with the aim to identify and consequently avoid any investment which is currently, or likely to in the future, generate a significant share of its revenue from harmful activities/products.
Volpi will not invest in companies that:
- deny human rights;
- engage child or forced labour directly or within their supply chain;
- manufacture weapons that are designed primarily for destructive purposes e.g. anti-personnel mines, cluster weapons;
- produce products that are illegal under UK or local law;
- cause serious environmental damage;
- has, as its primary business activity, the production, promotion or distribution of the following: i) adult entertainment, ii) tobacco, iii) distilled alcoholic beverages, iv) gambling products, services or platforms;
- provide research, development or technical applications relating to electronic data programs or solutions which support the above exclusions list.
Through this negative screening exercise, Volpi aims to filter out potential investments that are likely to have significant adverse impacts on sustainability factors.
Furthermore, Volpi looks for evidence that companies are responsible employers who look after their employees, promoting diversity and taking an interest in their local communities.
Due diligence
Volpi conducts a comprehensive ESG due diligence for each potential investment. Within the ESG due diligence, Volpi focusses on assessing whether there are any red flags (e.g. unmanageable ESG risks) that should prevent Volpi from proceeding with the potential transaction. In conducting its due diligence, Volpi pays particular attention to potential adverse impacts on sustainability factors arising from the company’s operations.
Examples of principal adverse impacts that are considered include, where relevant, climate and other environment-related indicators such as greenhouse gas emissions, energy performance, biodiversity, water and waste; and social and governance indicators such as social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.
Business Operations
Through the annual ESG review cycle, Volpi, together with an external ESG & Responsible Investment consulting firm, engages with the portfolio companies to gather data and perform analyses to identify and measure principal adverse impacts on sustainability factors. Actions taken will be commensurate with the estimated likelihood and severity of the impact on a sustainability factor.
Reporting
Investors in Volpi funds are provided an annual Environmental, Social and Governance Report (ESG Report). The report highlights the key material ESG themes and the underlying portfolio companies’ performance on those themes, and provides an action plan that aims both at reducing or mitigating risks and identifying value creation opportunities. The reports are updated annually, to monitor progress and keep the portfolio company focussed on achieving its goal to become a more sustainable and future proof company over time.
Engagement policies
Volpi proactively engages with its portfolio companies regarding principal adverse impacts on sustainability factors. Through these engagements, portfolio companies measure and report relevant information on the context of the principal adverse impacts affecting their businesses.
Volpi will exercise its fiduciary duty as responsible stewards and will aim to improve upon the identified principal adverse impacts for each portfolio company. As Volpi funds are majority owners in portfolio companies, Volpi has access to senior management and has the potential to wield significant influence with regards to the management of principal adverse impacts.
Engagements will be carried out over time in a structured format. Where applicable, Volpi will, in cooperation with portfolio companies, set targets and milestones to measure the success of the engagement as it relates to the measurable improvement in one or several of the identified principal adverse impacts on sustainability factors.
Adherence to international standards
The Volpi Responsible Investment Policy is looking to incorporate or align with several recognised global standards for responsible business operations and investment practices which include, but are not limited to, the Principles for Responsible Investment and United Nations Global Compact.