EU Sustainable Finance Disclosure Regulation
The Sustainable Finance Disclosure Regulation (“SFDR” or the “Regulation”) requires financial market participants such as HPE Growth B.V. (the “firm” or “HPE Growth”) 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 investments.
This Sustainability Risk Policy specifically addresses the obligation in Article 3(1) of the Regulation: which includes that “Financial market participants shall publish on their websites information about their policies on the integration of sustainability risks in their investment decision‐making process.”
More information related to the firm’s responsibilities under the SFDR, and the firm’s approach to Environmental, Social, and Governance factors (“ESG”) and sustainable investments, can be found on the firm’s website at:
https://www.hpegrowth.com/sustainability.
Sustainability risks
A Sustainability Risk as defined in the Regulation includes 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.
HPE Growth has identified the following Sustainability Risks relevant for HPE Growth’s funds:
Physical Risks
Physical risks arise from more frequent and severe climate events (such as droughts, floods, storms, heatwaves and changes in precipitation and sea level rises). The manifestation of these risks can be acute or chronic. These can lead to credit, market and operational risks for HPE's portfolio companies.
Transition Risks
Transition risks result from the process of adjustment towards a carbon-neutral economy. The failure to appropriately address these changes may directly increase reputational and/or liability risks for HPE Growth and its portfolio companies . These adjustments can also lead to credit, market and operational risks.
Privacy and data security
Portfolio companies may face social risks related to privacy and data security, particularly in light of data breaches and other incidents that have exposed personal information of data subjects. Insofar the investments fail to address concerns around privacy and security, user trust and engagement required to drive their business models may be negatively affected.
Ethical Risks
Each of the funds and it’s investments may face reputational and legal risks resulting from unethical business practices, such as bribery, corruption, discrimination or other actions or decisions that are deemed unethical or morally questionable.
Compliance Risks
Each of the funds and it’s investments may face legal and reputational risks when failing to comply with applicable laws, regulations, and industry standards. Furthermore, non-compliance with laws and regulations can result in penalties and legal actions.
Risk of forced divestments / exits
For funds classifying as an Article 9 for SFDR, their investments will have to meet the criteria for ‘SFDR 9’. Investments which no longer meet the above requirements will need to be divested, potentially at unfavourable terms.
Risk of SFDR Reclassification
For funds classifying as an article 8 or 9 for SFDR, in case their investments or the guidance on SFDR develops in such a way that such funds no longer meet the requirements of article 8 or 9 SFDR, HPE Growth may be required to reclassify such funds as an Article 8 or 6 SFDR product.
Integration of sustainability risks in investment processes
HPE Growth has a long-standing commitment to corporate responsibility. In recognition of the importance of sustainable and responsible investments, the firm is signatory to and integrates the United Nations-supported Principles for Responsible Investment (“PRI”). Furthermore, it maps contribution of its investments to the United Nations Sustainable Development Goals (“SDGs”). ESG risks, opportunities and performance are assessed as part of the due diligence and are taken into account throughout the investment assessment, decision-making and post-investment monitoring process.
The term ESG matters (or ESG factors) as used throughout this Sustainability Risk Policy should be interpreted, to represent ideas that have an ESG connection but are not necessarily Sustainability Risks as defined in the Regulation. Where some procedures refer to considering ESG matters rather than Sustainability Risks, is to indicate that such procedures include the consideration of matters / factors that are related to but do not fall into the specific category of Sustainability Risks as defined in the Regulation.
HPE Growth has integrated ESG into its investment process where the outcome of the ESG assessments areused to inform the Investment Committee and is discussed as part of the investment decision-making processes. As part of its ESG Framework, HPE Growth performs ESG due diligence whereby an industry and materiality assessment is conducted to identify relevant ESG risks (including sustainability risks as defined under SFDR) and opportunities. In the initial screening stage, due diligence and investment decision making phase, the product and/or service offering of investment opportunities are assessed against a clear exclusion list, whereby ESG risks and negative externalities are taken into account. HPE Growth does not consider companies active / engaging in the business sectors or controversial practices as included in its exclusion list. During due diligence, ESG opportunities, performance and ESG maturity is determined. In addition, investment opportunities are assessed based on the existence and effectiveness of their policies governing relations with employees and business practices.
The assessment of Sustainability Risks forms part of the risk management process, whereby physical and transition risks, and other risks relevant for the particular investment and at the level of each fund, are considered qualitatively. As part of an internally developed risk assessment matrix, HPE Growth identifies and classifies the nature of the risk based on the likelihood that it can materialize and determines the extent to which it accepts the risk or whether mitigating actions are required. As part of this process risks are discussed within the Management Team of HPE Growth. HPE Growth may consider investments whereby Sustainability Risks have been identified provided that the investment team can demonstrate a clear action plan to manage said risks, e.g., by implementing remedial action plans developed in the light of due diligence findings.
As part of HPE Growth’s newly established ESG Framework, the assessment of Sustainability Risks will also be taken into account as part of the investment due diligence process and will be recorded in relevant documentation to inform the Investment Committee and investment decision making. HPE Growth may reject an investment into a company if upon ESG due diligence it becomes evident that material Sustainability risks are cannot be managed.
