ICOS Capital (hereafter also “the Manager”) is a Financial Market Participant as defined in the Sustainable Financial Disclosure Regulation (EU) 2019/2088 (hereinafter: "SFDR") and amending Regulation (EU) 2020/852 (hereafter the "Taxonomy Regulation") as in force since March 10, 2021.
SFDR is a European Regulation that promotes disclosures made by market participants with regards to incorporating sustainability risk in the investment process so investors can see how sustainability and social impact of investments are taken into account. In this manner sustainable investing will be promoted in the EU.
EuVECA managers like ICOS Capital need to comply with the requirements of SFDR and the Taxonomy Regulation with respect to the fund(s) that are managed.
ICOS Capital manages a Fund with a sustainable investment objective as well as funds that promote environment benefits. The first is called an article 9 SFDR fund (ICFIV), the latter an artice 8 SFDR fund (ICFIII).
The following definitions are relevant:
- A "sustainable investment" is defined as an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.
- ‘No significant harm’ means that for each environmental objective, uniform criteria for determining whether economic activities contribute substantially to that objective should be laid down. One element of the uniform criteria should be to avoid significant harm to any of the environmental objectives. This is in order to avoid that investments qualify as environmentally sustainable in cases where the economic activities benefitting from those investments cause harm to the environment to an extent that outweighs their contribution to an environmental objective.
- ‘Environmental objective’ means the objectives as laid down in Article 9 Taxonomy Regulation meaning the Fund will have one or more of the following objectives:
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- climate change mitigation (Art. 10), the process of holding the increase in the global average temperature to well below 2 °C and pursuing efforts to limit it to 1,5 °C above pre-industrial levels, as laid down in the Paris Agreement ;
- climate change adaptation (Art. 11), the process of adjustment to actual and expected climate change and its impacts;
- the sustainable use and protection of water and marine resources (Art. 12);
- the transition to a circular economy (Art. 13), an economic system whereby the value of products, materials and other resources in the economy is maintained for as long as possible, enhancing their efficient use in production and consumption, thereby reducing the environmental impact of their use, minimising waste and the release of hazardous substances at all stages of their life cycle, including through the application of the waste hierarchy;
- pollution prevention and control (Art. 14);
- the protection and restoration of biodiversity and ecosystems (Art. 15).
Some economic activities have a negative impact on the environment, and reducing such negative impact can make a substantial contribution to one or more environmental objectives. An economic activity shall qualify as contributing substantially to one or more of the environmental objectives by directly enabling other activities to make a substantial contribution to one or more of those objectives, provided that such economic activity does not lead to a lock-in of assets that undermine long-term environmental goals, considering the economic lifetime of those assets and has a substantial positive environmental impact, on the basis of life-cycle considerations.
- ‘Promoting sustainability’ means a fund promotes among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments of the fund are made, follow good governance practices. These are called article 8 SFDR products.
- ‘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.
- ‘Sustainability factors’ mean environmental or social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters. This is what is or can be impacted by investment decisions
Risk integration by ICOS Capital
The manner in which sustainability risks are integrated into the investment decisions on the level of the Manager is through explicit integration of investment in sustainability accelerating companies with positive impact on 3 pillars of EU Taxonomy regulations, i.e. green house gas emission (GHG), circular economy or biodiversity. The focus is on technology companies that promote sustainability and none of these companies would have activities where sustainability risks are present. Prior to making an investment, each investment opportunity will be evaluated via sustainability matrix includes PAI. This sustainability matrix is updated on annual basis to ensure full compliance. The investment documentation shall include provisions to require full compliance with this policy.
The Manager will integrate impact on sustainability factors by way of including sustainability matrix screening, that includes PAI and ESG criterion, as part of necessary due diligence that positive results are required in order for an investment be qualified as “investment worth opportunity”.
Declaration
The “do no significant harm” principle applies only to those investments underlying the financial product that take into account the EU criteria for environmentally sustainable economic activities.
The investments underlying the remaining portion of this financial product do not take into account the EU criteria for environmentally sustainable economic activities’.
The Manager discloses the relevant information regarding the article 8 fund hereafter:
a. ‘Summary’;
The fund is an article 8 SFDR fund with an objective to promote sustainability. The fund invests in areas of Climate Tech such as Food Tech and sustainable materials. The fund invests in early growth stage companies primarily in Europe with minority investments in rest of world.
b. ‘No sustainable investment objective’;
“This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.”
c. ‘Environmental or social characteristics of the fund’;
Investment in sustainability accelerating companies with positive impact on at least one environmental pillar of EU Taxonomy regulations, i.e. green house gas emission (GHG), circular economy or biodiversity, or a social objective. On the portfolio level, ICF III targets companies with technologies and business plans that are sustainability focused or are enabling technologies that can have a positive impact on achieving sustainability targets.
The indicators used to measure the attainment of that sustainable investment objective are benchmarked during due diligence and included in the Icos sustainability matrix.
d. ‘Investment strategy’;
Icos invests in scale-up phase sustainability oriented and enabling technology companies. Geographical focus is in Europe and Israel. The fund takes a collaborate venturing approach whereby corporations will take a strategic approach to provide technical or commercial collaboration to support growth.
e. ‘Proportion of investments’;
100% of the investments will be aligned with article 8.
f. ‘Monitoring of environmental or social characteristics’;
Methodologies used to assess, measure and monitor the environmental or social characteristics or the impact of the sustainable investments selected include: weighted average carbon intensity calculation by using data sources, avoidance / reusage of wastage would be important parameter. All methodologies will comply with EU taxonomy.
g. Methodologies’;
Methodologies focused on weighted average carbon impact (removal, avoidance or reduction) with data obtained from the company and market resources.
Methodologies to evaluate carbon efficient impact of circular economy propositions that valorize secondary or side streams through reuse, recover or recycle technologies
Methodologies to evaluate measurement tools, systems or process technologies that improve transparency in value chain or effectiveness of the value chain in the interest of at least one environmental pillar of EU Taxonomy regulations, i.e. green house gas emission (GHG), circular economy or biodiversity, or a social objective.
h. ‘Data sources and processing’;
Data sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure the environmental or social characteristics or the overall sustainable impact of the financial product are public and proprietary information sources.
i. ‘Limitations to methodologies and data’;
Reliability of data obtained from external sources cannot be guaranteed. Some sustainability metrics are difficult to measure with current technology.
j. ‘Due diligence’;
Technology and business due diligence to be conducted to confirm environmental impact as well.
k. ‘Engagement policies’;
Board meetings and information on incidences.
Periodic reporting and discussion with portfolio companies (annual).
l. Where an index is designated as a reference benchmark to attain the environmental or social characteristics promoted by the financial product, ‘Designated reference benchmark’.
Each environmental (2020/852 article 9) and social objective has been aligned with a measure success of achieving that particular objective as directed by artle 10-16. The objectives are also calculated as percentage of global emission reduction targets as indicated by the Paris Agreement.
Remuneration
A minimum CO2 impact target is set for 5Mt Carbon Dioxide Equivalents (CO2e) in the way of removal and/or avoidance from the portfolio companies in the fund term. 25% of the fund carried interest is contingent on this target with conditions outlined below. This shall work as follows:
-1. An impact of 1Mt CO2e is to be achieved as a minimum with a linear earn out from 1Mt-5Mt CO2e
-2. Results are to be audited by independent consultants identified by the Sustainability Committee when requested to do so by the Fund Manager
-3. If this target is not achieved, then unclaimed carried interest will be used to buy carbon offsets for the fund or invested into similar non-profit mechanism that benefit the environment
The 5Mt target is addressing cumulative impact over the Fund Term, as defined in the Limited partnership agreement (LPA) of the Icos Capital Fund IV Growth (ICF IV or the Fund).
Impact reporting
The annual impact report is available upon request.
a. Summary of the fund
The fund is an article 9 SFDR fund with a strict sustainability investment objective to accelerate sustainability. The fund invests in areas of Climate Tech such as food tech and sustainable materials. The fund invests in early growth stage companies primarily in Europe with minority investments in rest of world. The fund considers investments that contribute to (at least) one of the environmental objectives of the EU Taxonomy, or (at least) one social objective. All investments are assigned an objective that may also adhere to an SDG or Planetary Boundary. All investments are screened on Principle Adverse Impacts and reviewed annually for success in regards to the objective and PAI.
b. No significant harm done to the sustainable investment objective
The investments do not significantly harm any of the sustainable investment objectives, including all of the following: environment, human rights.
The indicators for adverse impacts in Table 1 of Annex I and any relevant indicators in Tables 2 and 3 of that Annex, are taken into account by way of a sustainability matrix to assess risk of impact.
c. Sustainable investment objective of the fund
Investment in sustainability accelerating companies with positive impact on at least one environmental pillar of EU Taxonomy regulations, i.e. green house gas emission (GHG), circular economy or biodiversity, or a social objective. On the portfolio level, ICF IV targets companies with technologies and business plans to realize a potential reduction of 10 M Tonne CO2e target in 10 years, 50 M Tonne CO2e outlook target for 2050 and 1 B Tonne CO2e ultimate outlook target.
The indicators used to measure the attainment of that sustainable investment objective are benchmarked during due diligence and included in the Icos sustainability matrix
d. Investment strategy
Icos invests in scale-up phase sustainability oriented companies with technologies and business plans to realize rapid decarbonization, circular economy and improvements for people and planet. Geographical focus is primarily in Europe and minority of investments in rest of the world including North America and Israel. The fund will take a collaborate venturing approach whereby corporations will take a strategic approach to provide technical or commercial collaboration to support growth.
e. Proportion of investments
100% of the investments
f. Monitoring of sustainable investment objective
Methodologies used to assess, measure and monitor the environmental or social characteristics or the impact of the sustainable investments selected include: weighted average carbon intensity calculation by using data sources, avoidance / reusage of wastage would be important parameter. All methodologies will comply with EU taxonomy.
g. Methodologies
Methodologies focused on weighted average carbon impact (removal, avoidance or reduction) with data obtained from the company and market resources.
Methodologies to evaluate carbon efficient impact of circular economy propositions that valorize secondary or side streams through reuse, recover or recycle technologies
Methodologies to evaluate measurement tools, systems or process technologies that improve transparency in value chain or effectiveness of the value chain in the interest of at least one environmental pillar of EU Taxonomy regulations, i.e. green house gas emission (GHG), circular economy or biodiversity, or a social objective.
h. Limitations to methodologies and data
Reliability of data obtained from external sources cannot be guaranteed. Some sustainability metrics are difficult to measure with current technology.
i. Data sources and processing
Data sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure the environmental or social characteristics or the overall sustainable impact of the financial product are public and proprietary information sources.
j. Due diligence
Technology and business due diligence to be conducted to confirm environmental impact as well.
k. Engagement policies
Board meetings and information on incidences.
Periodic reporting and discussion with portfolio companies (annual).
l. Attainment of the sustainable investment objective
At the time of each new investment, sustainable investment objective will be identified and tracked throughout the holding period. Additional efforts will be spent by the Icos team to help each investee companies in achievement of their targeted sustainable investment objective. At the fund level, ICF IV will set targets based on the EU Taxonomy and that contribute to emissions reductions as per the Paris Agreement. ICF IV currently has a target of a 10M Tonne CO2 reduction within 10 years and 50M CO2 reduction in 20 years. If these are achieved earlier than expected, the target may be raised.
m. Engagement policies
Board meetings and information on incidences.
Periodic reporting and discussion with portfolio companies (annual).
n. Attainment of the sustainable investment objective
At the time of each new investment, sustainable investment objective will be identified and tracked throughout the holding period. Additional efforts will be spent by the Icos team to help each investee companies in achievement of their targeted sustainable investment objective. At the fund level, ICF IV will set targets based on the EU Taxonomy and that contribute to emissions reductions as per the Paris Agreement. ICF IV currently has a target of a 10M Tonne CO2 reduction within 10 years and 50M CO2 reduction in 20 years. If these are achieved earlier than expected, the target may be raised.
Remuneration
A minimum CO2 impact target is set for 5Mt Carbon Dioxide Equivalents (CO2e) in the way of removal and/or avoidance from the portfolio companies in the fund term. 25% of the fund carried interest is contingent on this target with conditions outlined below. This shall work as follows:
An impact of 1Mt CO2e is to be achieved as a minimum with a linear earn out from 1Mt-5Mt CO2e
Results are to be audited by independent consultants identified by the Sustainability Committee when requested to do so by the Fund Manager
If this target is not achieved, then unclaimed carried interest will be used to buy carbon offsets for the fund or invested into similar non-profit mechanism that benefit the environment
The 5Mt target is addressing cumulative impact over the Fund Term, as defined in the Limited partnership agreement (LPA) of the Icos Capital Fund IV Growth (ICF IV or the Fund).
Impact reporting
The annual impact report is available upon request.