Date of publication: August 7, 2023
Date of latest update: August 7, 2023
As part of the Sustainable Finance Disclosure Regulation EU 2019/2088 (SFDR), Fair Capital Impact Investing B.V. (hereafter: Fair Capital) as manager of the Fair Capital Impact Fund (hereafter The Fund) provides information on how we integrate sustainability risks in our investment decisions, consider potential adverse impacts, promote certain environmental or social characteristics, or aim to achieve sustainable investment objectives.
The Regulation aims to improve transparency between financial market participants (“FMPs”). In addition, we provide an overview of the relevant sustainability related information associated with the underlying fund that is currently managed by Fair Capital.
Fair Capital Partners Impact Investing is an impact fund manager bridging the gap between wealth holders who want to deploy their wealth to make a positive environmental impact and companies with a mission that is aligned with the transition to a sustainable economy. In our work we strive to make a scalable impact within three themes: sustainable energy, sustainable food systems and circular economy.
We make sustainable investments that offer solutions for some of the most pressing environmental challenges, including climate change and depletion of the natural resources and biodiversity of the planet. As an impact investor we do this by investing in growing companies that contribute to our purpose with their products and services and inspire customers and others at the same time. The companies should have sound business models to eventually not only deliver high societal impact but also generate a financial return for our investors.
FCPII is registered with the AFM as an exempt manager under the AIFM directive (Alternative Investment Fund Managers Directive) under AFM id BKF714. FCPII acts as manager of the Fair Capital Impact Fund with AFM id 50024566. On the basis of its registration, FCPII is not supervised by the Netherlands Authority for the Financial Markets (AFM) or The Dutch Central Bank (De Nederlandse Bank).
We define sustainability risks as environmental, social and governance events or conditions, which if they occur could cause a negative material impact on the value of an investment.
This Sustainability Risk Policy spells out Fair Capital’s framework for identifying, measuring, managing and reporting on sustainability risks. Also, it explains how these sustainability risks impact the remuneration at Fair Capital. Fair Capital regularly reviews its sustainability risk policies to ensure alignment with current regulatory and market best practices as they may evolve over time.
Fair Capital does consider principle adverse impacts (PAIs) of its investment decisions on sustainability factors at the Fund level. However, as set forth in article 4 sub 1 (a) of the Disclosure Regulation, the fund opted out of publishing such disclosure. Due to the early-stage nature of target investments, qualitative information on sustainability factors is available whereas quantitative data collection on the mandatory PAIs is not always possible. Our typical investment companies are likely to be inherently conscious about their potential adverse impacts and strive to mitigate these where possible. Thus we have decided to opt out of publishing a PAI Statement until we are more confident in the data collected.
At Fair Capital we do not believe in financial bonuses as a means to optimize investment results. On the contrary, we feel that financial bonuses for a manager or individuals working at a manager often lead to irresponsible risk taking. It stimulates behavior focused on maximizing individual financial return potential that might negatively impact the sustainability goals of a fund. Hence, as a manager we do not share in any financial upside of the investments of the fund. Our investment thesis is founded on the principle of achieving both financial and impact targets. For our investors. The remuneration policy at Fair Capital aims at effective risk management. It takes into account careful and diligent decision making. It therefore lacks any form of incentives for its employees in excessive risk taking that might hamper or reduce sustainability outcomes. Remuneration is aligned with the long-term interest of the fund. Fair Capital’s remuneration is based on a fixed monthly salary and benefits for all employees and does not involve bonuses. While revising remuneration at the end of each year, the performance of employees over the previous year is considered, which includes a consideration of how actively they integrated sustainability risks in their decision making.
Fair Capital manages a fund with a sustainable investment objective focused on early-stage companies that contribute to a sustainable economy in areas such as sustainable energy, fair food systems, and circular economy. The fund invests in companies that align with its impact and financial return objectives, primarily through equity stakes or convertible loans during the early and growth stages. Investments are carefully monitored, and companies failing to meet sustainability criteria must agree to corrective action or risk being excluded. The fund measures its impact through indicators such as CO2 emissions avoided, waste reduction, and number of sustainable products sold, using methodologies like comparing emissions per unit or the number of sustainable products sold. Data for sustainability indicators is collected from investees and other sources, with efforts to ensure accuracy and reliability. Fair Capital engages with investee companies actively to limit adverse impacts and enhance sustainability practices. The fund’s primary objective is to significantly reduce global carbon emissions, supporting the goals of the Paris Agreement to achieve Net Zero greenhouse gas emissions by 2050.
Fair Capital beheert een fonds met een duurzaam beleggingsdoel gericht op bedrijven in de vroege fase die bijdragen aan de transitie naar duurzame energie, eerlijke voedselsystemen en de circulaire economie. Het fonds investeert in bedrijven met een missie in lijn met impact- en financiële rendementsdoelen, voornamelijk via aandelenbelangen of converteerbare leningen tijdens de vroege en groeifasen. Investeringen worden nauwlettend gemonitord en bedrijven die niet voldoen aan duurzaamheidscriteria, moeten instemmen met corrigerende maatregelen of lopen het risico te worden uitgesloten. Het fonds meet zijn impact aan de hand van indicatoren zoals vermeden CO2-uitstoot, afvalvermindering en het aantal verkochte duurzame producten, met behulp van methodologieën zoals het vergelijken van uitstoot per eenheid of het aantal verkochte duurzame producten. Data voor duurzaamheidsindicatoren worden verzameld bij portfoliobedrijven en andere bronnen, met inspanningen om nauwkeurigheid en betrouwbaarheid te waarborgen. Fair Capital gaat actief in gesprek met bedrijven om nadelige effecten te beperken en duurzaamheidspraktijken te verbeteren. Het primaire doel van het fonds is om de wereldwijde koolstofuitstoot aanzienlijk te verminderen en de doelstellingen van het Akkoord van Parijs te ondersteunen om tegen 2050 netto nul broeikasgasemissies te bereiken.
The Fund assesses the business activities, internal policies & processes of all companies pre-investment on current or potential significant environmental or social harm based on Principal Adverse Impact Indicators (PAIs). If and when a company does not pass the threshold for a PAI, binding corrective action is agreed upon with the investee in the shareholders agreement. If such agreement cannot be reached the investment will no longer be considered.
Fair Capital manages one fund that exclusively invest in early stage companies that assist in the transition to a sustainable economy. The objective of the fund is to accelerate transition under three pillars: sustainable energy, fair food systems and circular economy. We will not consider an investment into any company of which the primary business activities do significant harm as defined by the Fund.
The investment policy of the fund focuses on making a positive contribution to a sustainable and social world. The objective is to achieve both impact and financial returns for the investors.
The Fund invests in companies that contribute to this policy through their practices, products, or services. These investments mainly consist of investments where the fund acquires an equity stake or provides a convertible loan. Investments can involve a combination of loans and equity stakes.
The Fund aims to acquire minority stakes in its investments. The investments are made in the early-stage and growth-stage of companies because these phases often require risk capital and financing for expansion. The Fund supports start-ups and scale-ups.
Fair Capital invests 100% of the Fund assets to meet its sustainable investment objective, in accordance with the binding elements of the investment strategy. On an ongoing basis, however, cash may be held for operational purposes, portfolio management activities or awaiting deployment in future sustainable investments.
The sustainability indicators used to measure the attainment of each of the environmental characteristics promoted by the Fund are:
These sustainability indicators are monitored by Fair Capital in the following way:
Investees are required to report on indicators relevant to the investee on at least an annual basis. This information is analyzed and, where necessary, enriched by Fair Capital and reported in the annual impact report.
The following methodologies are used to measure the environmental characteristics promoted by the Fund, which depends on the nature of the selected sustainability indicators:
The following data is used for the sustainability indicators:
Furthermore, the following measures are taken to ensure data quality:
Before the data is used in our reporting, various additional quality assurance checks are done, such as whether there are significant deviations (above a certain threshold, depending on the indicator, but often > 10%), for which a manual check needs to happen to validate that this is a justified change and not a mistake.
It is currently not possible to indicate what proportion of the data are estimated. The estimated data proportion changes based on the Fund composition and developments at the investees. This information will be included in the annual impact report.
We use an online database tool which provide us with an assessment of the company and its risk and compliance levels.
Methodologies and data related to measuring the attainment of each of the environmental characteristics via the sustainability indicators mentioned above can have limitations. Fair Capital is aware of the following limitations to the data that it uses:
Fair Capital believes this does not affect using such data to measure the attainment of environmental characteristics, since the methods used ensure that in these cases the measurement is at least directionally correct (i.e. one can say with confidence if it was significantly above, significantly below or around average for a sector).
Fair Capital uses the following process to initially assess the impact of potential investees:
Any investee that passes the first three assessments could be considered for an investment. In case an investee qualifies, the following DD will be performed on the contribution of the potential investee to the environmental characteristics promoted by the Fund:
Fair Capital is an active owner, working directly with investee companies in order to help them limiting adverse impacts and improving their sustainability practices to the extent possible. With every investee company the key positive environmental impacts are identified, in addition to their potential adverse impacts. As part of quarterly monitoring meetings, we provide inputs the business can make to improve its performance on these impacts. Where necessary and relevant, we exercise voting rights in favor of outcomes that reduce the adverse impacts of the investee company or maximize positive impact.
As part of the contracting with the investee, a veto right is claimed (in cases of limited shareholding often together with other investors) on any changes to the sustainable mission of the investee.
The Fund does not compare its impact performance to a benchmark or index but instead reports its contributions both quantitatively and qualitatively. The investment strategy of the Fair Capital Fund is committed to alignment with the goals of the Paris Agreement. Its primary objective is to significantly reduce global carbon emissions. This is achieved by investing in scalable low-carbon alternatives for conventional sectors. Through targeted investments in these environmentally conscious companies, Fair Capital actively supports and accelerates the process of decarbonizing these sectors. By doing so, it contributes to the overall objectives set forth by the Paris Agreement to achieve Net Zero greenhouse gas (GHG) emissions by the year 2050.