Sustainability Risks Integration Policy
Statement about the integration of sustainability risks in investment and portfolio monitoring activities and transparency of remuneration policies in relation to the integration of sustainability risks
Pursuant to Article 3 and Article 5 of 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 (Disclosure Regulation or SFDR).
YARD Fund Management (YFM) integrates relevant sustainability risks in all aspects of its investment strategies, client solutions and organization.
A sustainability risk is an environmental, social or governance (ESG) event or situation which, if it occurs, could have an actual or potential material adverse impact on the value of an investment.
The purpose of this policy is to define the framework by which YFM will manage sustainability risks in its business activities. This policy aims at fostering an operating culture that promotes sustainable and ethical behavior in conducting YFMs own business. It also aims at making sure that YFMs investment products are protected from or can cope with material sustainability risks which might have a negative effect on environment, society, performance, or reputation.
The Sustainability Risks Integration Policy applies to the management of YFM and to the investment products that are managed by YFM. It only includes business operations and investment decision-making processes relating to YFMs Funds with an inception date after November 2023.
3. Sustainability Risks Integration into investment decisions (Art 3 SFDR)
Sustainability risks considerations are integrated into our investment decision framework as part of the overall risk assessment.
The stages at which sustainability risks are integrated into the investment decision-making process occurs at these points:
In the intake and screening phase we ensure that the company has a good fit with the investment theme and impact criteria.
(2) Due Diligence
The impact potential of the company should be substantial, and will be measured on KPI’s such as (i) reduction of CO2 and other harmful emissions; (ii) other efficiency outputs that are linked to the energy transition and (iii) behavioral change with both companies and consumers. The impact analysis will be developed in close dialogue with the company and should result in clear reporting KPI’s for the company. Also, YFM will conduct a wider ESG analysis with more focus on social and governance elements. Topics of such assessment are: safe place to work, equal opportunities resulting in an environment in which diversification of personnel is either established or targeted, equal pay, good governance, etcetera.
(3) Term sheet and Legal Documents
The definitive transaction documents typically include a subscription agreement and a shareholders agreement or a convertible loan agreement. It is ensured that these documents contain the required paragraphs that give YFM a legal basis to monitor ESG during the ownership period.
(4) Ownership and Monitoring
On a yearly basis, the portfolio companies will provide ESG reporting on the basis of a tailor-made questionnaire. The fund will use the ESG reporting from the portfolio companies as input for its annual ESG reporting. The periodic KPI reporting by the portfolio companies will enable YFM to monitor progress with the respective management teams.
4. Sustainability Risks Assessment Approach (Art 3 SFDR)
YFM assesses, integrates and manages the likely impacts of sustainability risks on financial returns. Sustainability factors cover a broad range of issues, including (but not limited to):
- Environmental factors: climate change vulnerability, carbon pricing, biodiversity, water, waste management, pollution, etc.
- Social factors: compliance with recognized labor standards, compliance with employment safety and health protection, fair working conditions, diversity, and development opportunities, product safety and customer welfare, infectious diseases, etc.
- Governance factors: risk and business continuity management, integrity and ethical behavior, information security and data protection, board composition and remuneration, regulatory and tax compliance, political instability, etc.
As part of our broader risk management processes when investing, YFM has implemented procedures to identify, measure, manage, and monitor sustainability risks.
YFM has separately reviewed the sustainability risks which are potentially likely to cause a material negative impact on the value of its products’ investments. For this, we run an analysis of potential sustainability risks relevant to our business activities. We will use market standard frameworks.
Sustainability risks are considered in the investment decision process together with traditional investment risks (for example market, credit, or liquidity risk). Sustainability risks may have a significant impact on traditional investment risks and be a factor that contributes to their materiality.
YFM treats sustainability risk as a standalone risk.
Sources of sustainability risk include, but are not limited to:
- Reputational risk to the investment
- Regulatory risk to the investment
- Litigation risk to the investment
- Operational risk to the investment
Capital adequacy for sustainability risk should be assessed based on an internal assessment of the material risks that may impact the capital position.
At this end, YFM use the following tools and processes to assess the sustainable risks linked to its investments:
- ESG questionnaires applied to all potential investments
Risk management & monitoring
YFM takes the following risk management measures to reduce / mitigate sustainability risks on portfolio level:
- Adherence to international standards (e.g. requiring investee entities to adhere to the UN Global Compact Principles)
- Active ownership to influence the activities or behavior of investee entities
- Excluding sectors or behaviors (e.g. companies that don’t act in accordance with the UN Universal Declaration of Human Rights, the ILO standards, the UNGC and the OECD guidelines for multinational enterprises)
- Sustainability related thematic focus investment
Systematic sustainability risk monitoring is essential for proper risk mitigation in day-to-day business operations and throughout the various investment stages. This process refers to the action implementation such as:
- Ensuring the investment team has access to relevant information, making it possible to identify sustainability risks within the investable universe
- Allocating responsibility for sustainability risks within YFM, including adequate resources and expertise for day-to-day implementation
- Requiring portfolio companies to regularly communicate on how they mitigate key sustainability risks
- Summarizing identification of sustainability risks and action taken for LPs and / or public disclosure
5. Transparency of adverse sustainability impacts at entity level (Art 4 SFDR)
YFM does not consider principal adverse impacts (PAIs) for investment decisions. More information can be found in our PAI Statement.
6. Sustainability Risks Related Remuneration Policy (Art 5 SFDR)
YFM has defined principles relating to remuneration for all employees, taking into account the Company’s structure, strategy, objectives and risk policy, in order to remunerate and reward employees in a fair and motivating framework. These principles are described hereafter.
General remuneration principles
YFMs overall envelope of salary increases and variable remuneration depends on the ongoing year’s budget.
It takes into account the YFMs financial performance as a whole and the specific nature of tasks and responsibilities of each department. Each individual is assigned criteria and objectives to determine its performance and contribution to the YFMs performance.
Remuneration is thus based on both the assessment of the employee’s performance and the YFMs overall performance.
Principles related to sustainability risks and risk taking
Employees’ performance reviews include how well they integrated sustainability risk into their investment decisions.
Mirjam Terhorst and Frederik de Hosson, both Partner at YARD Fund Management B.V., are assigned the responsibility for implementation of this policy and any ensuring application of related procedures. The Partners assist with approving and conducting oversight of this policy along with its related procedures.
This Policy is communicated on an annual basis to all employees via the normal YFM channels, including internal rules and is introduced to all new staff at induction.
9. Policy revision (Art 12 SFDR)
This Policy is reviewed yearly or in the event of any change in related government policy.
For more information, please contact YFM by sending an email to email@example.com.
This Policy was last approved in 8-11-2023 by YARD Fund Management B.V.