The Executive Manager is aware of the impact that its investments may have on the communities it serves. As an investor in innovative best-in-class and first-in class life sciences companies, the Executive Manager believes that its investments, if successful, can bring meaningful improvements in the diagnosis and the treatment of the targeted patient populations and the public health system. In line with the awareness of its responsibilities towards society, the Executive Manager points to the investment strategy, which is to invest in portfolio companies that address a clear unmet medical or health-related need and that focus on true disease relieving or life-saving therapies. Investment targets that focus only on incremental improvements over existing products are therefore out of scope.
Society as a whole has become more aware of the positive impact that investment funds can have. Over the last few years, society has come to expect more and more that investment funds also need to be responsible and create a positive impact in the ecosystems they operate in.
In this respect, the Executive Manager points first of all to its investment strategy, which is to invest in portfolio companies that address a clear unmet medical or health-related need and that focus on true disease relieving or life-saving therapies. Companies with so-called “me-too” products with only incremental improvements over existing products are not the focus.
Policymakers, governments have developed frameworks targeting ESG matters of funds. The Executive Manager is very much aware of the objectives pursued by the ESG frameworks and tries to achieve these objectives in a way that is adapted to the size and the reality in which it operates.
The transition to a low-carbon, more sustainable, resource-efficient and circular economy will affect all operators of the economy including the portfolio entities that the SICAR invests in. By taking sustainability factors into consideration when making investment decisions, the Executive Manager cannot only contribute to a more sustainable economy and society, it also believes that, in order to make good investments, sustainability factors should not be overlooked.
The life sciences industry is in all respects a highly regulated one. The legislator has put in place a stringent framework of rules applicable to the companies the SICAR invests in and which are also monitored through many regulatory agencies. When considering and executing an investment, the (Managing) Partners uphold those high regulatory standards for themselves, the co-investors and service providers and verify that all stakeholders adhere to these regulatory standards. With an investment focus in Europe, the Executive Manager and the SICAR operate in countries where the compliance with those standards is embedded in adequate legal and regulatory frameworks and where proper oversight is exercised.
In the below paragraphs more detail is provided on the classification of the SICAR under the SFDR and the Taxonomy Regulation; and how the Executive Manager mitigates the ESG events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the SICAR’s investments. Lastly, more detail is provided as to the reasons why the Executive Manager is not taking into account sustainability factors in the investment decision-making process of the SICAR for the purpose of article 7 (and 4) of the SFDR.
1 SFDR classification
The SICAR is a financial product within the meaning of Article 6 of the SFDR.
The investments underlying this financial product do not take into account the EU criteria for environmentally sustainable economic activities. This concerns the criteria laid down in article 7 of the Taxonomy Regulation. Furthermore, the SICAR is not a financial product that promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics within the meaning of article 8 of the SFDR nor a financial product that has sustainable investments as its objective within the meaning of article 9 of the SFDR.
Although the SICAR is a financial product within the meaning of Article 6 of the SFDR, it envisages to be an active investor and the Executive Manager seeks representation on the governance bodies of the portfolio entities. Throughout the lifespan of the investments, the Executive Manager monitors portfolio entities’ management of Sustainability Risks (as specified below), compliance with (ESG) legislation and human rights and encourages them to take initiatives that lead to reducing carbon emissions, contributing to a more sustainable, resource-efficient and circular economy and increasing diversity (including, but not limited to, representation of minorities and people with disabilities and striving for gender equality). However, the Executive Manager does not promote environmental and/or social characteristics within the meaning of Article 8 of the SFDR. It complies with ESG standards/legislation on a “best effort basis”.
2 Integration of sustainability risks (article 6(1) (a) SFDR)
Investing responsibly and avoiding Sustainability Risks will enhance the value of the investments: certain ESG-related events or conditions could potentially have a (negative) impact on the value of the SICAR’s investments.
The Executive Manager therefore integrates an assessment of Sustainability Risks in its decision-making process when considering an investment. Part of the investment decision-making process is that the Executive Manager assesses the risks attached to a potential investment opportunity, which includes Sustainability Risks. This includes a thorough due diligence research on target entities. Identified Sustainability Risks are taken into account by the Executive Manager when making investment decisions where needed. The outcome of the due diligence findings and is taken into consideration when an investment decision is taken. In case the Executive Manager identifies shortcomings in terms of Sustainability Risks, it will propose the investment targets remediation before investing.
3 Likely impact of sustainability risks on return (article 6(1) (b) SFDR)
The Executive Manager expects that Sustainability Risks if they occur, could have an impact on the return of the SICAR.
The Executive Manager, however, intends to mitigate Sustainability Risks by carefully selecting potential portfolio entities for investments, as well as the sectors that they are active in. In addition, through the long-term investments that the funds the Executive Manager manages take in portfolio entities, it may influence such portfolio entities’ activities and policies relating to sustainability and thereby diminishing Sustainability Risks for the SICAR’s investments.
4 Transparency of adverse sustainability impacts (article 7(2) SFDR))
The Executive Manager is aware that its investment decisions, as well as its portfolio entities’ activities may have an impact on sustainability factors. By selecting portfolio entities for investment and monitoring them during the lifespan of our investment in relation to ESG matters as set out above, the Executive Manager tries to reduce any sustainability adverse impacts that its investments may have and contribute to a more sustainable economy.
However, for the purpose of article 7 (and 4) of the SFDR, the Executive Manager does not consider the adverse impacts of its investment decisions on sustainability factors.
The Executive Manager does not consider those adverse impacts because:
- (i) its investment scope is limited to an industry and a geography that, in its opinion, entails limited adverse impacts on sustainability: companies active in Biopharma and HealthTech do not have a significant environmental impact;
- (ii) the industry it invests in is, as mentioned, highly regulated in every aspect and regulatory authorities impose very high standards on e.g. the development of new drugs, the use of animals for testing, the conduct, monitoring and conduct of clinical trials, drug manufacturing (manufacturing processes are subject to certification and standards such as CGMP (Current Good Manufacturing Practice)), the disposal of (hazardous) waste or the use of GMOs. As written in section 1, the Executive Manager will closely monitor its portfolio entities’ (and their suppliers’) compliance with the regulatory frameworks and good practice;
- (iii) it invests in small entities and start-ups that, due to their size and limited resources, are not capable of providing the information required to determine precisely the adverse impacts of its investment decisions in accordance with the SFDR and the legislation implementing the SFDR, and
- (iv) the Executive Manager is a small organisation with limited resources and personnel and it is not capable of determining precisely what the adverse impacts of its investment decisions would be based on the different criteria set forth in the SFDR and the legislation implementing the SFDR.
The Executive Manager does not intend to consider adverse impacts of investment decisions on sustainability factors in the future in accordance with article 7 (and 4) of the SFDR for the aforementioned reasons.
