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© 2015, South Central Ventures

Responsible investing

Mandatory disclosures under Regulation of the European Parliament and of the Council on sustainable-related disclosures in the financial services sector (EU) 2019/2088 (“SFDR”)

SCV Fund Mangement B.V. (“SCV”) is using its best efforts to ensure that appropriate standards of governance are in place and are implemented across the alternative investment funds under its management, i.e. those for which SCV is acting as the general partner (beherend vennoot) and manager (beheerder), on the level of funds as well as their respective investments.

SCV employs responsible investing approach that integrates sustainability risks in all stages of the investment process, to better manage risks and to generate sustainable long-term returns. Sustainability risks comprise environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investment.

This document sets out SCV’s approach to investing responsibly and to the management of Environmental, Social and Governance (“ESG”) goals within our business operations and the operations of the investee companies and makes the necessary disclosures according to the SFDR.

ESG policy

SCV actively applies Invest Europe’s Best Practice Guide and European Bank’s for Reconstruction and Development Performance Requirements in the identification of the material Environmental, Social and Governance risks and opportunities, both for the internal operations of SCV as well as for the investee companies of all of the funds managed by SCV, throughout all stages of investment process, prior to the investment, during the ownership period of the investee companies as well as during divestment stage.

Environmental

We protect our climate and strive to reduce our emissions to combat climate change in the course of our day to day business operations. We strive to increase our own awareness for sustainable risks and challenges, and we strongly encourage founders to act so as well and work towards sustainable operations.

SCV has relatively lower environmental impact from its own operations. Accordingly, no specific procedures have been developed on environmental management.

Social

We strive to create an inclusive community, encourage diversity, continuous education and female leadership within SCV and portfolio companies.

Any form of discrimination or harassment is strongly discouraged and not tolerated both internally and within portfolio companies. SCV is an equal opportunities employer, and we aim to provide a working environment that promotes both inclusion and equality. SCV maintains human resources policy, management systems and practices and relevant occupational health and safety requirements.

Through investments in companies within the Balkan region, SCV supports and promotes the employment and economic growth of the region.

Governance

We adhere to high standards in terms of business ethics, leadership, transparency, risk management and shareholder rights. Strict conflict of interest and anti-money laundering (AML) policies are implemented and followed at all times.

SCV has established good governance practice regarding sustainability issues based on:

  • Clear organization structure and accountability,
  • Defined roles and responsibilities,
  • Organization wide objectives and monitoring, and
  • Resource management.

We strongly believe that responsible business practices help generate superior long-term performance.

As active board members and professional shareholders we strive to provide the founders with the knowledge and tools to build good corporate governance processes in their own businesses.

SCV adopted a “step-by-step” approach in incorporating environmental and social risk management procedures in its investment activities. These steps include:

  • Screening of the potential investee companies on E&S risks and against any eligibility exclusion criteria,
  • Assessing the companies for E&S risks and how these are managed,
  • Deciding whether to invest and adopting appropriate E&S risk control measures,
  • Monitoring the companies for material E&S risks throughout the transaction / investment period, and
  • In preparation for exiting an investment, consider the company’s E&S performance in exit strategy and provide disclosure to potential buyers.

Pre-investment phase

SCV considers sustainability risks as part of the due diligence process prior to any investment. During the pre-investment screening of a target company, SCV actively assesses relevant ESG risks on one side and ESG growth/value creation related opportunities for business on the other side.

The assessment of sustainability risks is conducted using a checklist. The results of such assessment are taken into account when the investment decision is being taken.

If the ESG risks of the potential investee company are too significant and cannot be appropriately mitigated or reduced in a reasonable timeframe, SCV can refrain from investing in such company.

At all times, SCV applies the principle of proportionality taking due care of its investment strategy, the strategic relevance of an investment as well as its transactional context.

Investment phase

In the ownership phase, SCV conducts continous ESG review to determine/verify the status of policy implementation at the company level and to determine what improvement actions, if any, are required. SCV has monitoring processes in place towards portfolio companies in order to ensure that ESG risks and opportunities are appropriately managed. Monitoring is focused on relevant and material key performance indicators. Portfolio companies report annually to SCV on ESG issues. SCV sets clear expectations on how to promote corporate and social responsibility within all portfolio companies and supports them by providing guidance and tools.

SCV works closely with the portfolio companies to identify company/sector specific risk management and value creation initiatives and continuously provides guidance and support to portfolio companies on the importance of introduction and development of appropriate ESG system through SCV’s ESG resources, board representative and regular monitoring.

Exit Phase

SCV discloses all relevant ESG information to potential buyers, asseses ESG value creation during holding period and additional ESG requirements needed to support the exit process.

Sustainability-related disclosures on Fund level

ENIF operates as closed investment fund with primary activity of making active equity investments in companies from the ICT sector. The tenure of the fund is 10 years.

The ESG principles are incorporated within the investment strategy and the monitoring process with the aim of improving investment returns and ensuring long-term value creation.

While ENIF invests in companies that take due care of sustainability risks, it has no sustainable investment objective within the meaning of Article 9 of SFDR. The Fund does not invest a fixed percentage in portfolio companies aligned with environmental and/or social characteristics.

However, certain sectors are completely excluded from investment on environmental, social or governance grounds.

Investment strategy

ENIF invests in companies with sufficient innovation capacity and growth potential, that are primarily active in information technology applied across industries. All companies are genuinely focussed on doing well for all stakeholders including their own employees, customers, suppliers, shareholders and the environment.

When evaluating a potential investment, our investment professionals identify and assess material risks and opportunities related to ESG matters. Reasonable steps are taken to mitigate ESG related risks.

The Fund does not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies, whose business activity consists of:

  • illegal economic activity,
  • the production of and trade in tobacco and alcoholic beverages,
  • the production and trade in weapons and ammunition,
  • casinos and equivalent enterprises,
  • speculative investment activities such as real estate, commodities, commodity contracts and forward currency contracts, or
  • any other activity listed in EBRD’s Environmental and Social Exclusion List and / or in EBRD’s List of Ineligible Entities.

Monitoring of environmental and/or social characteristics

Monitoring is performed on an ongoing basis by implementing the E&S risk management system as well as to identify any material E&S risks which arise during the investment period.

Portfolio companies are highly encouraged to comply with EBRD’s PR 2 – Labour and Working Conditions and PR 4 – Occupational Health and Safety. Having in mind sector within which portfolio companies predominantly operate, occupational health and safety risks are relatively low. On the other side, portfolio companies are highly encouraged to introduce and further maintain human resource policy, management system and practices as well as to address all labour issues outlined in PR 2.

Monitoring is performed continuously throughout the year in regular meetings with portfolio companies / accountants / consultants and ESG report is prepared annually.

Applied Methodologies

The methodologies applied comprise collecting information via a questionnaire from the portfolio companies prior to the investment, i.e. within the due diligence process, and on an annual basis following the investment. Additionally, SCV is using the EBRD Responsible Investment Index and EBRD E&S Risk Management Toolkit for financial intermediaries. Currently, no quantitative measurement with regard to environmental characteristics and no sustainability indicators are in use.

Principle adverse sustainability impact statement (PAI)

SCV invests the ENIF’s funds mainly in companies within the digital economy sector.

Given that there are rarely adverse impacts on sustainability factors within digital economy, SCV (including ENIF) does not formally consider principal adverse impacts of investment decisions on sustainability factors.

However, prior to the investment due care is given to identifying any potential adverse impact during a due diligence stage. Should adverse impact be identified, SCV would thoroughly assess such adverse impacts and could either refrain from an investment or invest despite the sustainability risks, in which case the measures would be applied to reduce or mitigate such risks.

SCV considers that there is a lack of readily available data to comply with many of the reporting requirements of the PAI regime, since the information provided by the portfolio companies in relation to the sustainability risks of the investments is not yet sufficient to take into account any principle adverse impact of investment decisions on sustainability factors as specified in the SFDR.

However, SCV will monitor developments with regard to available information and trends in the economy sector in which the investee companies are operating and will consider whether it is reasonably possible in the future to disclose the information required by the Art. 4 SFDR-framework (including the future RTS).

Notwithstanding SCV’s decision not to consider the principal adverse impacts, SCV has a strong commitment towards ESG matters and has implemented positive ESG-related initiatives and policies.