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Volpi Capital Sustainability Risk Policy

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 document 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 decisionmaking 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 on Volpi’s website, 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.

  1. deny human rights;
  2. engage child or forced labour directly or within their supply chain;
  3. manufacture weapons that are designed primarily for destructive purposes e.g. anti-personnel mines, cluster weapons;
  4. produce products that are illegal under UK or local law;
  5. cause serious environmental damage;
  6. 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;
  7. 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.