Sustainability Related Disclosures

Pursuant to EU 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 (the “SFDR”), Audentia Capital Management Limited (“Audentia” or the “Company “) is required to disclose the manner in which sustainability factors are integrated into the investment decisions and the assessment of the likely impacts of sustainability risks.

Responsible and Sustainable Investing

The Company’s investment team always strives to promote, where applicable and appropriate, the promotion of awareness and understanding of ESG considerations and integrate the same into our investment decision making process and engagement efforts. As a result, and where appropriate, information on ESG factors and the related ESG risks are incorporated into the Company’s processes at an asset selection stage when undertaking due diligence on such asset class. Furthermore, and whenever possible, an assessment is also carried out in terms of the potential financial impact in the long-term.

When undertaking the ESG analysis, we will seek to obtain information from a variety of sources, including, but not limited to:
i. the target company itself;
ii. third party specialist data providers;
iii. brokers; and
iv. academics.

We have adopted various approaches to integrate the consideration of environmental, social, and governance (ESG) factors into our investment decision-making process.

Negative and positive screening

The Company will actively engage with its clients to understand whether they have concerns about specific activities and / or industries in order to maintain such exclusions on an on-going basis.

The Company also screens target companies/ products that promote and provide solutions that are consistent with ESG Factors and aims at including such products in the portfolios that it manages and positively recommends such products on an on- going basis.

No consideration of adverse impacts of investment decisions on sustainability factors

Audentia, due to its relatively small size and the type of assets which it includes in its investment process does not consider the Principle Adverse Impacts (“PAIs”) in its investment decision making/management process in relation to sustainability factors indicated in article 4 of the Regulation (EU) 2019/20881. PAIs are understood as those impacts of investment decisions and advice that result in negative effects on sustainability factors. Whilst Audentia supports the objectives of SFDR with respect to transparency of due diligence policies and reporting against relevant quantitative metrics in respect of portfolio investments it has chosen not to consider these impacts at this time, predominantly due to the lack of quality, consistent and readily available data with which to meet these obligations without disproportionate cost or resource implications, which may serve to impact the funds negatively.

Audentia shall keep its decision not to consider the adverse impacts of its investment decisions on sustainability factors, under regular review, and will re-evaluate the decision at least annually.

Remuneration Policy

In line with the Remuneration Policy of the Company, no variable remuneration is paid to the staff unless it is determined to be justified following a performance assessment based on quantitative (financial) as well as qualitative (non-financial) criteria.

Due to this very limited impact on the risk-profile of its clients, as well as the nature of its business, Audentia deems that there is no risk of misalignment with the integration of the sustainability risks, if any, in its investment decision making process of the Company with respect to the Collective Investment Schemes.

As such, the Company believes that its existing structures are sufficient to prevent excessive risk taking in respect of sustainability risks.

Kindly contact [email protected] for a full copy of the Company’s Sustainability Risk Policy.

Document last reviewed in August 2023

1. Summary

The investment objective of the Fund is to produce positive returns and capital growth by investing its assets directly or indirectly through SPVs as set out in the Offering Memorandum.

Investments in the renewable energy industry will be predetermined. However, instruments will be made in light of the circumstances and market conditions in which investment opportunities arise. The Fund’s aim is to acquire mid or late-stage development projects which present attractive risk profiles. For these types of development projects, mid or late “greenfield” stage with strong market knowledge, operating expertise and positive development characteristics will be used. To make this assessment, The Fund shall rely on industry experience to analyze land rights, technical studies, project design, permits, environment, project finance components, project arrangements and construction.

 These targeted investments focus on “ready to build” projects. Investments in mid-stage projects include construction, start-up and operation.

2. No significant harm to the sustainable investment objective

Investments made by the fund will not lead to an increased adverse impact of the current climate and expected future climate on the activity itself.

The Fund only invests into clean energy assets, thus only investing in sustainable assets. The first control mechanism of the sustainability risks and the adverse impacts of the sustainability risks is based on the limitation of the range of assets which the Fund can invest in. The investments were defined based on the following investment approaches:

• Negative/exclusionary screening – only investing in clean energy real assets;
• Sustainability-themed investing – Focused on decentralized clean energy assets.
• Active ownership – In most cases, the Fund will be the owner of the assets and the
  contracts serving those assets.

Impact Investing – Selection of deals will be done based on the positive impact generated by investing into the assets owned (in some cases not only limited to their environmental impact, but also impact on the local economy and society).

Furthermore the investment universe for the Fund is carefully screened, seeking to ensure that it does not contribute to human or labour rights violations, corruption, serious environmental harm and other actions which may be perceived to be unethical. The Fund’s investments were considered in relation to social, environmental and ethical criteria based on the following internationally recognised guidelines and principales:

• the UN Global Compact;
• the OECD Guidelines for Multinational Enterprises;
•  the United Nations Guiding Principles on Business and Human Rights
• the Ottawa Convention (international agreement on the prohibition of anti-personnel mines); and
• the Convention on Cluster Munitions.

The Fund does not invest in companies involved in the production of tobacco, production of pornography, or weapons which through normal use violate basic humanitarian principles. In addition, emphasis shall be placed on forward-looking assessments of the underlying companies, including any plans which will change the level of power generating capacity.

The sustainable investments of the Fund are aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

The Fund follows the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

3. Sustainable Investment Objective of the Financial Product

The sustainable investment objective of the Fund is to have an impact on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions. Additionally, the whole investment scope of the Fund has, as an ultimate benefit, the reduction of carbon emissions, as it is supporting the upgrading of real estate assets into the use of clean energy assets for generation, consumption and energy efficiency.

Therefore, by investing in the Fund the investor will be contributing to a reduction of carbon emissions, as the Fund’s investments will actively help to increase the use of renewables.

4. Investment Strategy

For the achievement of its investing objective the fund invests its assets directly or indirectly through SPVs (as set out in the Offering Memorandum), however, always investing in transferable securities, in securities issued by companies that invest in wind farms and/or solar plants whose equity securities are not listed on a stock exchange in compliance with the requirements applicable to regulated financial instruments.

The Fund may also make investments in equity securities, equity related securities (including preferred equity, convertible debt or similar securities) fixed income securities, any other interest, investments or rights in companies operating in the renewable energy sector and any other sector in which an opportunity could be identified. These investments may be made in the context of acquisitions, raising of venture capital and mezzanine financing. Investments are mainly made in the Canary Islands, Spain.

The sustainable investment objective of the Fund is to have an impact on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions. Additionally, the whole investment scope of the Fund has, as an ultimate benefit, the reduction of carbon emissions, as it is supporting the upgrading of real estate assets into the use of clean energy assets for generation, consumption and energy efficiency.

5. Proportion of Investments

The Fund shall only invest in sustainable products in the renewable energy sector. It is to be noted that all sustainable investments are made indirectly through SPVs.

6. Monitoring of Sustainable Investment Objective

The Investment Manger, will, on an ongoing basis, evaluate if the sustainable investment objective has been attained.

7. Methodologies

As indicated in section 3 “Sustainable Investment Objective of the Financial Product”, the Fund’s investment strategy to attain its sustainable objective will be achieved by assessing potential investments via proprietary environmental, social and governance (“ESG”) investment methodology.

This methodology incorporates investment standards according to an ESG database, which uses data from multiple leading ESG data providers as well as internal and public sources to derive proprietary combined scores for various environmental and social objectives. In order to achieve this objective, the Fund’s investments should make a net positive contribution to sustainability. The aim is that the Fund’s sustainable goals will be met if the portfolio, as a whole, will make a net contribution to sustainability based on the investments. For avoidance of doubt, a net contribution to sustainability should be understood as a positive environmental outcome.

The following sustainability indicators are used to measure the attainment of the sustainable investment objectives of the Fund:

• Avoided emissions are “emissions that would have been released if a particular action or intervention had not taken place”. Avoided emissions can appear throughout third parties’ value chains depending on the type of product or service offered and how this product or service affects operations.
• To quantify an amount of potential avoided emissions (“PAE”), a baseline must be established. The baseline describes what would have occurred if the product or service had not been made available. The PAE are obtained from the difference in greenhouse gas emissions (“GHG”) emissions between the baseline level and the scenario where the product or service is made available.
• The Fund considers principal adverse impacts on sustainability factors as referred to in Article 7(1)(a) of SFDR.

8. Data Sources and Processing

• Data sources used to attain the sustainable investment objective of the Fund;

1.  Internal due diligence documentation
2.  Experts reports available online, including periodic reports on the renewable energy sector issued by governing bodies and non-profit organizations among others
3.  External due diligence reports prepared by reputable sources, in some cases
4. Informal conversations with experts
5. Information available on the Spanish Government website and various portals (primarily on the Ministry of Energy as well as the Ministry for Ecologic Transition)
6.  Publicly available information from websites such as https://globalwindatlas.info/ and https://globalsolaratlas.info/
7. Spanish Government permits and licenses to develop new renewable energy plants

• The measures taken to ensure data quality;

1. We strive to maintain data of the highest quality possible. In this regard, the information that is available to the AIFM to assess the sustainability of an investment is run by the Investment Committee as well as informally run by experts in the matter. Additionally, in some cases, the information can be submitted for a full external due diligence, the objective of which would be to ensure that the information contained therein is true and accurate, that the potential investment will contribute to the environment and that the economics of the investment are sound.

• Proportion of data estimated:

1. When planning the construction of a new renewable energy plant, some information such as the potential output of the plant has to be estimated based on historical averages of the solar irradiation in the area or the wind strength. This is always an estimation, but historically these figures tend not to vary much and therefore should be good indicators as to the potential output of the plant.
   Furthermore, the tons of CO2 emissions avoided as a consequence of renewable energy generation is also estimated according to the methodology of the Spanish Energy Department.

9. Limitation to Methodologies and Data

Assessing a company’s sustainability status may have challenges related with the need for improved quality of the sustainability data available. Challenges include:

1. Sustainability analysis requires a broad range of supplementary data and data quality enhancements to ensure robustness, as sustainability data may initially be insufficient and incomplete
2.  Sustainability is a dynamic process and changes over time.
3. Sustainability should be measured based on the companies’ current position as well as the forward-looking trajectory, and if possible with the addition of measures of sentiments and perceptions of the companies’ sustainability standards but backward looking information fails to capture direction of travel.

These challenges are addressed by:

1. Use of varied data sources and sustainability dimensions; and
2. Real time controversies screening to ensure potential issues are addressed early.

In addition, the Investment Manager aims to always measure sustainability factors using various data sources and cover different aspects of such factors. The philosophy behind is that sustainability is multi-dimensional and dynamic, and no single data point can capture all aspects of any environmental factor.

10. Due Diligence

Investments are mostly carried out in unlisted equity or debt securities from SPVs which willcarry out projects to develop new renewable energy plants, primarily wind and solar. In this regard, most of the due diligence carried out is specific to each project and may vary depending on the typology, but below are some of the primary considerations taken when considering a new investment:

1. Availability of land rights to develop, build and operate the renewable energy project. Actually, regarding wind farms and whenever possible, we look forward to sharing land agreements under which traditional farming activities are able to go on, and “co-habit” with the new energy infrastructure. This helps increase sustainability of the projects, as we are able to maintain the traditional activities carried out in the area and which generally have a positive effect on society and the environment. We reject projects located on conservation areas.
2. the wind blow or solar irradiation metering, allowing for a profitable development. This is one of the key factors to consider when building a renewable energy plant and the reason why many of the projects in which the fund invests are in the Canary Islands, as it’s one of the regions with highest solar irradiation rates and constant strong winds. a) https://globalsolaratlas.info/ provided by The World Bank Group is a good reference for solar, using data from Solargis which combine a series of global, regional and country GIS data layers and poster maps, to support the scale-up of solar power in the world) b) https://globalwindatlas.info/ is similar but for wind information
3. based upon the above, a figure for the tons of CO2 greenhouse emissions avoided are calculated, according to Spanish Energy Department methodology
4. obtention of the environmental permit, checking out the mitigation measures to be carried out along with the construction.
5. Project design: electric lines must be buried underground so as to minimize negative landscape and environmental impact

11. Engagement Policies

Company dialogue is an important part of the Investment Manager’s sustainability framework, as they believe engagement is generally the best strategy for contributing to improving sustainability and responsible behaviour in companies. As a general rule, the Investment Manager intends to exercise its voting rights in investee companies. 

The Investment Manager aims to protect and grow the value of investments by ensuring that the portfolio companies diligently mitigate risks and have the lowest possible capital costs, by acting responsible, and at the same time encouraging companies to grow earnings by pursuingsustainable opportunities that support the goals of society and the global community. This forms the basis for the principles for exercising the voting rights.

12. Attainment of the Sustainable Investment Objective

The Fund has not designated a reference benchmark for the purpose of attaining its sustainable investment objective. The Fund’s investment strategy to attain its sustainable objective will be achieved by assessing potential investments via proprietary ESG investment methodology.

Document last reviewed in August 2023