Mandatory disclosures under Regulation of the European Parliament and of the Council on sustainability-related disclosures in the financial services sector (EU) 2019/2088 (“SFDR”)
A. Redstone Management GmbH
Date of Publication: June 1st 2023
I. Transparency of sustainability risk policies (Article 3 SFDR)
Redstone Management GmbH (the “Fund Manager”) is a long-term investor that embraces its responsibility towards investors, portfolio companies and stakeholders in the wider ecosystem in which the firm and its portfolio companies operate. The Fund Manager manages sustainability risks through a combination of committed participation on the boards of directors of its portfolio companies as well as ongoing monitoring of the progress of each company. Furthermore, sustainability risks will be considered as part of the due diligence and risk assessment processes in advance of each investment.
II. Statement on principal adverse impacts of investment decisions on sustainability factors
Art. 4 SFDR provides for a framework aimed at achieving transparency with regard to any principle adverse impacts of investment decisions on sustainability factors. For this purpose, financial market participants such as the Fund Manager must disclose certain information (taking into account the Commission Delegated Regulation (EU) 2022/1288 (“RTS”) with regard to regulatory technical standards). Currently, the Fund Manager does not consider Principal Adverse Impact Indicators (“PAIs”) on the Fund Manager level. The Fund Manager considers PAIs on the Fund level.
III. Transparency of remuneration policies in relation to the integration of sustainability risks (Article 5 SFDR)
As a registered AIFM within the meaning of section 2(4) of the German Capital Investment Code (Kapitalanlagesetzbuch), the Fund Manager does not have a remuneration guideline (remuneration policy) in accordance with the requirements of the German Capital Investment Code (Kapitalanlagesetzbuch). Accordingly, the integration of sustainability risks is not considered with respect to the determination of the remuneration.
B. Human Impact Capital Vermögens GmbH & Co. KG
I. Disclosure of sustainability-related information about financial products
Human Impact Capital Vermögens GmbH & Co. KG (“The Fund”), managed by the Fund Manager, intends to promote social characteristics and hence envisages to invest only in ethically and socially sound portfolio companies. The Fund focuses on equity and equity-related investments in startups in the DACH region and Europe. The Fund strictly applies a binding exclusion list, the exclusion covers inter alia weapons and ammunition or tobacco. 100% of the invested capital will be in line with the exclusion list which will be taken into account during the entire investment process.
2. No significant harm to the sustainable investment objective
The Fund will not significantly harm any investment objective by considering principal adverse impacts on sustainability factors in the investment decision making process. The Fund considers sustainability risks and takes Principal Adverse Impact Indicators (“PAIs”) into account as stated in Commission Delegated supplementing Regulation (EU) 2019/2088 (“SFDR RTS”) Annex I into account.
The Fund collects all PAIs stated in Table 1 of the SFDR RTS that are related to Social and Employee, Respect for Human Rights, Anti-Corruption and Anti-Bribery Matters. As the majority of the PAIs stated in Table 1 are related to the environment and is thus not in line with the social impact focused investment strategy of the Fund, the Fund does not take into consideration all PAIs. Additional PAIs out of Table 1 that are taken into account are all indicators related to Greenhouse Gas Emissions.
Out of Table 2 (“Additional climate and other environment-related indicators”) no PAIs are considered. Out of Table 3 (“Additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery matters”), the two PAIs “Incidents of discrimination” and “lack to anti-corruption and anti-bribery policies” are considered.
In addition to PAIs, the Fund has developed a standardized ESG questionnaire collecting additional ESG metrics. These metrics are complementary to the PAIs and cover the following areas:
- Greenhouse Gas Emmissions
- Diversity, Equity & Inclusion
- Data Privacy & Security
Being a responsible investor, the Fund attributes great importance to good governance practices both internally as well as in the portfolio companies. The compliance of portfolio companies with OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights are thus monitored as well.
3. Sustainable investment objective of the financial product
The Fund commits to make sustainable investments within the meaning of the SFDR. The Fund aims to invest in digital start-ups that address the biggest societal challenges and thus drive digital progress in the social sector.
The fund puts people at the center and strives for a strong focus on the social economy to shape equal opportunities and the future of every individual in a sustainable society with the help of innovation. The fund invests in start-ups that have the potential to improve the well-being of individuals with digital, innovative solutions.
Based on the 17 Sustainable Development Goals (SDGs), 5 SDGs have been selected that the Fund will focus on:
- SDG 1 | No Poverty | End poverty in all its forms and everywhere.
- SDG 3 | Good Health and Well-Being | Ensure a healthy life for all and people of all ages and promote their well-being.
- SDG 4 | Quality Education | Ensure inclusive, equitable and quality education and promote lifelong learning opportunities for all.
- SDG 5 | Gender Equality | Achieve gender equality and empower all women and girls.
- SDG 10 | Reduced Inequalities | Reduce inequalities within and between countries.
Based on these 5 SDGs, the fund focuses on three core areas of the startup market:
- Health: Solutions that create digital, personalized and data-driven offerings throughout the entire patient journey (prevention, diagnosis, treatment, follow-up care).
- Education: Solutions that have the potential to improve people's education throughout their lifetime, promote lifelong learning, and complete and strengthen the education system.
- Living: Solutions that have the potential to significantly improve the quality of life of the individual in and around their living spaces.
4. Investment strategy
The Fund intends to build, hold and manage in its own name and for its own account a portfolio of equity and equity-related minority investments in digital startups in the areas of health, education and living from Pre-Seed to Series A stage in Europe with a focus on the DACH region.
The Fund intends to invest in companies where the social impact of the company is inherent to the business model. In this respect, the impact of the respective company scales together with commercial progress.
To ensure the best possible governance of portfolio companies, the Fund is actively managing the portfolio and is regularly taking on board mandates.
5. Proportion of investments
The Fund commits to make 100% sustainable investments with a social objective.
6. Monitoring of the sustainable investment objective
During the assessment of a potential investment, the Fund evaluates the Impact of the target following the Impact Management Framework (IMP Framework): A model, which structures the intended impact measurement on the basis of five dimensions.
Post investment, individual Impact KPIs and goals are defined per portfolio company. The Fund together with the Management of the portfolio company at hand first defines a Theory of Change (TOC): TOC is a globally recognized impact measurement methodology that uses causal analysis to describe how and why a desired change should occur in a given context. The Fund will use TOC as part of a deeper impact measurement review. After the investment, the TOC will be used to define relevant impact KPIs and goals for continuous monitoring.
The Fund collects the individually defined Impact KPIs together with the regular financial reporting of the respective portfolio company on a per-quarter basis. PAIs are collected on an annual basis. The impact performance is measured and monitored on the company level as well as on portfolio level. On portfolio level, the impact performance of each individual company is calculated as a weighted average based on the capital invested.
8. Data sources and processing
Apart from its due diligence (as described below under 10. in further detail), monitoring and regular communication between the Fund Manager and the Fund’s portfolio companies, the Fund Manager does not conduct further research or investigations on a regular basis, at least as long as the data reported by the portfolio companies does not give raise to any reasonable doubts.
9. Limitations to methodologies and data
The Fund relies on data reported by the portfolio companies to measure the attainment of the sustainable investment objectives. Given the early stages of the portfolio companies, some limitations may arise because some metrics may be based to a certain extent on estimations or assumptions. Moreover, since the impact KPIs are closely linked to the respective business model of the portfolio companies, they might have to be redefined in case of a pivot.
To mitigate these limitations and to ensure that the attainment of the sustainable investment objective is not affected, the Fund cooperates with experienced external impact measurement advisors.
10. Due diligence
The assessment of how the Fund’s potential investment in the potential portfolio company relates to the promoted social characteristics is carried out as part of the due diligence process prior to the investment. Further reviews may be conducted beyond such due diligence process and regular monitoring if, and to the extent, the Fund Manager deems it appropriate to conduct an ad hoc review in a specific case. The Fund Manager does not foresee to engage external service providers to assess the social characteristics of a potential investment prior to the investment.
During the assessment of a potential investment, the Fund prepares an investment memorandum summarizing all relevant results of the due diligence. As part of this investment memorandum, the Fund dedicates a section to impact-relevant topics and presents the intended impact of the investment. The Fund uses the IMP Framework as overarching structure for the impact assessment. This framework carries out a structured assessment based on five impact dimensions and makes the intended impact measurement tangible:
- What depicts what outcome the startup contributes to, whether it is positive or negative, and how important the outcome is to stakeholders.
- Who tells which stakeholders experience the outcome and how underserved they are in relation to the outcome.
- How much tells how many stakeholders the outcome addresses, the degree of change they experience and how long they can benefit from it.
- Contribution tells whether a startup's and/or investor's efforts have led to outcomes that are likely to be better than what would otherwise have occurred.
- Risk provides information about the likelihood that the impact will be different than expected.
Based on this assessment, the Fund provides an assessment of the intended impact.
11. Engagement policies
The assessment of good governance practices of portfolio companies is partially incorporated in the Fund’s legal due diligence as far as good governance practices have been adopted by law.
In general, the Fund’s goal is to actively engage with the portfolio companies with regards to good governance practices relating to the Environment, Health, Safety and Social Inclusion.
12. Attainment of the sustainable investment objective
Not applicable. No reference benchmark for attaining the sustainable investment objective has been designated for the Fund.
 ““Sustainability risk“ means „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 the investment“ (Sec. 2 no. 22 SFDR).