Disclosures pursuant to Regulation (EU) 2019/2088 (“SFDR”)
I. Sustainability risks (Art. 3 SFDR)
FLEX Capital Management GmbH (“FLEX Capital”) considers sustainability risks as part of its investment decision-making process. Sustainability risks are environmental, social or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. FLEX Capital considers sustainability risks as part of its due diligence process prior to any investment. This also includes an assessment of sustainability risks. Such assessment is being conducted through an informal process as appropriate in light of the circumstances of the individual case. The results of such assessment are taken into account when the investment decision is being taken. However, FLEX Capital remains free in its decision to refrain from investing or to invest despite sustainability risks, in which case FLEX Capital can also apply measures to reduce or mitigate any sustainability risks. At all times, FLEX Capital will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
II. Remuneration disclosure (Art. 5 SFDR)
As a registered alternative investment fund manager within the meaning of section 2 (4) of the German Investment Code (Kapitalanlagegesetzbuch, “KAGB”), FLEX Capital does not need to have a remuneration guideline or policy in accordance with the requirements of the KAGB. However, FLEX Capital considers sustainability risks with respect to the determination of the variable component of the remuneration: Employees who take high sustainability risks in their investment decisions or who contribute to such risks being taken shall not receive such variable remuneration component.
III. Sustainability-related disclosures
1. Statement on principal adverse impacts of investment decisions on sustainability factors (Art. 4 SFDR)
Financial market participant: FLEX Capital Management GmbH (“FLEX Capital”)
FLEX Capital considers principal adverse impacts of its investment decisions on sustainability factors. The present statement is the consolidated statement on principal adverse impacts on sustainability factors of FLEX Capital.
As this is the first statement on principal adverse impacts on sustainability factors, FLEX Capital is currently implementing the processes described below and will be collecting the relevant data from its portfolio companies as of 1 October 2022 for the first reference period, i.e., from 1 January 2022 to 31 December 2022.
Sustainability factors include environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. FLEX Capital will apply a pre-defined set of sustainability indicators at portfolio company level. This contains the mandatory indicators as set forth in no. 1 to 14 of Table 1 of Annex I of the Regulatory Technical Standards (C(2022) 1931 final, “RTS”), as well as the indicators no. 4 of Table 2 and no. 15 of Table 3 of Annex I. At all times, FLEX Capital will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context. As of now, no adverse impacts have been identified by FLEX Capital.
FLEX Capital berücksichtigt die wichtigsten nachteiligen Auswirkungen seiner Investitionsentscheidungen auf Nachhaltigkeitsfaktoren. Bei der vorliegenden Erklärung handelt es sich um die konsolidierte Erklärung zu den wichtigsten nachteiligen Auswirkungen auf die Nachhaltigkeitsfaktoren von FLEX Capital.
As this is the first statement of material adverse impact on sustainability factors, FLEX Capital is still establishing the processes described below and collecting the relevant data from its portfolio companies from October 1, 2022 for the first reference period of January 1, 2022 to December 31, 2022.
Nachhaltigkeitsfaktoren sind Umwelt-, Sozial- und Arbeitnehmerbelange, Achtung der Menschenrechte und die Bekämpfung von Korruption und Bestechung. FLEX Capital wird eine Reihe von vordefinierten Nachhaltigkeitsindikatoren auf Ebene der Portfoliounternehmen anwenden. Diese beinhalten die in Nr. 1 bis 14 der Tabelle 1 in Annex I der Regulatory Technical Standards (C(2022) 1931 final, „RTS“) vorgegebenen Indikatoren, sowie die Indikatoren Nr. 4 der Tabelle 2 and Nr. 15 der Tabelle 3 in Annex I. FLEX Capital wird stets den Grundsatz der Verhältnismäßigkeit anwenden und sowohl die strategische Bedeutung einer Investition als auch ihren Transaktionskontext berücksichtigen. Bisher wurden von FLEX Capital noch keine nachteiligen Auswirkungen festgestellt.
Description of the principal adverse impacts on sustainability factors
FLEX Capital considers the adverse sustainability indicators as set forth in the table below. FLEX Capital will be collecting the relevant data from its portfolio companies as of 1 October 2022, thus, the first reference period will run from 1 October 2022 until 31 December 2022. The results will be disclosed by 30 June 2023. Hence, no adverse sustainability impacts have been identified yet. When FLEX Capital identifies principal adverse impacts on sustainability factors at portfolio company level, it will discuss on a case-by-case basis with each portfolio company appropriate actions to mitigate such adverse impacts in light of the circumstances of the individual case, in particular considering other impacts of the investment, its size, strategic importance and transactional context.
Information relating to any of the indicators used is primarily obtained from the portfolio companies. However, if information is not readily available, FLEX Capital will use its best efforts to obtain the information by carrying out additional research, cooperating with third party data providers or external experts or making reasonable assumptions. Thus, errors cannot be excluded completely. Yet, FLEX Capital will always endeavour to identify such errors or inaccuracies and to intervene as appropriate.
The so described policies will be re-evaluated on a regular basis, i.e., annually, in particular to reflect any legal or regulatory changes as well as data availability and further developments in the market. Hence, in the future, FLEX Capital may also use other indicators to identify and assess additional principal adverse impacts.
FLEX Capital established an engagement policy to reduce the (principal) adverse impacts assessed through the indicators set forth in the table above in accordance with its set targets: FLEX Capital will engage with its portfolio companies and organize, for instance, individual workshops for the respective portfolio companies to support them in avoiding or mitigating such adverse impacts. Where there is no reduction of principal adverse impacts over more than one period, FLEX Capital will conduct an enhanced analysis to identify potential areas of improvement.
References to international standards
FLEX Capital is, as of today, not a member of any international bodies, organizations or required by any national or international convention or standard to comply with any further requirements. FLEX Capital has, as of today, not committed to comply with the objectives of the Paris Agreement.
FLEX Capital does not use a forward-looking climate scenario because of the significant limitations of such models due to lack of historical precedent and data insufficiency.
2. Sustainability-related disclosures for FLEX Capital Fund III GmbH & Co. KG (Art. 10, 8 SFDR)
Financial product: FLEX Capital Fund III GmbH & Co. KG (the “Fund” / der “Fonds”)
The Fund considers certain environmental and/or social characteristics as part of its investment decisions and monitoring processes but does not seek to make sustainable investments as defined in the SFDR. The consideration of environmental and/or social characteristics is carried out both before and after an investment. For this purpose, information is initially and regularly obtained from the portfolio companies by means of qualitative queries. The Fund incorporates inclusion (positive screening) as well as exclusion (negative screening) aspects during the decision-making process. Thereby the Fund considers several ESG themes to be the key to responsible investing. The actions and decisions described in the following section are each made by FLEX Capital for and on behalf of the Fund.
Der Fonds berücksichtigt bestimmte ökologische und/oder soziale Merkmale im Rahmen seiner Investitionsentscheidungen und Monitoring-Prozesse, strebt aber keine nachhaltigen Investitionen im Sinne der SFDR an. Die Berücksichtigung von Umwelt- und/oder Sozialmerkmalen erfolgt sowohl vor als auch nach einer Investition. Zu diesem Zweck werden zunächst und regelmäßig Informationen von den Portfoliounternehmen durch qualitative Abfragen eingeholt. Der Fonds bezieht sowohl Inklusions- (positives Screening) als auch Exklusionsaspekte (negatives Screening) in seinen Entscheidungsprozess ein. Dabei betrachtet der Fonds mehrere ESG-Themen als Schlüssel für verantwortungsvolles Investieren. Die in diesem Abschnitt beschriebenen Handlungen und Entscheidungen erfolgen jeweils durch FLEX Capital für den Fonds.
No sustainable investment objective
The Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
The Fund promotes environmental and/or social characteristics by implementing certain investment exclusions (see section ‘Investment strategy’) and by considering certain ESG factors during the decision-making process.
Whilst identifying suitable investment opportunities, the Fund takes into consideration the following ESG factors:
Climate change: Consideration of climate change risks and commitment to reduce climate change impact, in particular in relation to travel and company fleet management
Waste management: Reduction of the amount of waste generated and of the environmental impact of waste disposal through reuse and recycling
Eco- and resource efficiency: Responsible and efficient use of resources including water and energy as well as use of sustainable energy sources
Treatment of stakeholders and communities: Respect for the communities in which FLEX Capital and the portfolio companies operate
Data privacy and security: Appropriate information protection practices regarding all private data and compliance with local regulations
Labor rights and conditions: Respect for labor rights and practices of working conditions that surpass the basic health and safety standards
Diversity and equal opportunities: Diversity of talent and equal opportunities independent of gender, ethnicity, disability or religion
Governance and business ethics: Conduct of good governance practices and ethical behavior, in particular in relation to corruption, harassment and other malpractice behaviors
Compliance and regulations: Compliance with laws and regulations as per applicable local specifications
Transparency and accountability: Transparency regarding FLEX Capital’s ESG commitments and progress of policy implementation, including regular reporting
The purpose of the Fund is to build, hold and manage (including to divest) a portfolio of equity and equity-related investments in portfolio companies. Thereby, the Fund will primarily focus on direct growth and buy-out investments in small and medium-sized enterprises in the digital internet and software industry which (i) are headquartered or have the majority of their business in the DACH region (Germany, Austria and Switzerland), and (ii) can demonstrate (A) top-line growth potential and/or untapped growth potential through M&A; (B) capital efficient approach to growth to date; and (C) positive EBITDA with annual revenues exceeding EUR 5 million.
The Fund shall, in principle, pursue an operational investment strategy, i.e., the investments in portfolio companies will generally be accompanied by the provision of consulting services as well as administrative and management functions to the relevant portfolio companies by FLEX Capital. Thereby, FLEX Capital will also actively engage with the Fund’s portfolio companies with respect to ESG issues.
The Fund’s ESG approach (i.e., its investment exclusions and ESG factors) comprises part of its investment strategy, which is consistently applied for every portfolio company investment. The Fund shall not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies, including portfolio companies, or other entities:
a) whose principal business is property holding;
b) which FLEX Capital is aware is engaged in (i) illegal activities; (ii) the manufacturing, processing, distribution or sale of arms or ammunitions of any kind; (iii) the manufacturing, processing, distribution or sale of tobacco products or distilled alcoholic beverages, other non-alcoholic recreational drugs and related products; (iv) pornography;
c) which FLEX Capital is aware is directly linked to casinos or similar forms of gambling; or
d) which FLEX Capital is aware is engaged in the research, development or technical application relating to electronic data programs or solutions,which aim specifically at supporting any activity included in b) or c) above.
Moreover, the Fund shall only invest in portfolio companies that meet the minimum requirements set forth by FLEX Capital with regard to its ESG factors.
Good governance practices are assessed through a questionnaire as part of every due diligence process prior to any investment made by the Fund. Moreover, if the Fund becomes aware of severe governance issues in the portfolio companies, the Fund will conduct an enhanced analysis.
Proportion of investments
The Fund will invest fully in line with its investment strategy and investment restrictions, i.e., will only make investments which are aligned with its environmental or social characteristics (i.e., its investment exclusions and ESG factors). The Fund does not make and does not intend to make sustainable investments within the meaning of Art. 2 (17) SFDR or environmentally sustainable investments within the meaning of Art. 2 Taxonomy; hence, no portion of its investments will be aligned with the Taxonomy.
Monitoring of environmental or social characteristics
The Fund has an increased awareness of the impact of environmental or social characteristics on risk management and thus on the value potential of investments. In order to monitor the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions and ESG factors), the Fund obtains the necessary information in reports from its portfolio companies. Moreover, the Fund consults with the portfolio companies in regular intervals and will carry out further checks if there are indications of potential issues with the Fund’s ESG approach. Therefore, the Fund monitors compliance with its environmental or social characteristics (i.e., its investment exclusions and ESG factors) on an ongoing basis. External monitoring mechanisms are not provided.
Methodologies for environmental or social characteristics
Currently, the Fund applies qualitative assessments with regard to its environmental or social characteristics (i.e., its investment exclusions and ESG factors). The Fund conducts its initial assessment in the course of its due diligence. The Fund’s due diligence takes the form of a questionnaire which the Fund asks its (potential) portfolio companies to complete. Subsequently, the individual ESG factors are identified and evaluated. The results of such assessment are recorded in FLEX Capital’s ESG rating, which comprises a set of environmental, social and governance criteria and which informs the investment decision of the Fund.
Data sources and processing
In order to attain each of the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions and ESG factors), a questionnaire is completed by the (potential) portfolio companies. The results are considered in the investment decision. During the term of the Fund, the portfolio companies provide the Fund with reports for monitoring purposes. An internal or external review or verification of the information obtained will be carried out if misrepresentations are suspected.
Limitations to methodologies and data
The information collected from the (potential) portfolio companies via the questionnaire as part of the due diligence on behalf of the Fund is internally or externally verified only if and to the extent misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. As the Fund’s investments are made for several years, the Fund considers it a priority to establish and maintain a trustful working relationship with its portfolio companies in order to ensure compliance with the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions and ESG factors).
An initial assessment of how an investment relates to the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions and ESG factors) is carried out as part of the due diligence process using a questionnaire and, where required based on the inherent ESG risk of the portfolio company, through an enhanced analysis. As a rule, mostly qualitative statements of an environmental or social nature or relating to corporate governance are requested from the portfolio companies and then taken into account in the investment decision-making process. An internal or external review or verification of the information obtained will only be carried out if misrepresentations are suspected.
Engagement forms part of the environmental or social investment strategy of the Fund. The Fund intends to engage in managing ESG across its portfolio companies, e.g., by providing an ESG onboarding session which includes assessing the company’s maturity against FLEX Capital’s ESG framework and developing an appropriate action plan, and by implementing governance structures that provide an appropriate level of oversight with regard to ESG factors.
Designated reference benchmark
No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Fund.