SFDR
DISCLOSURES FOR THE EU SUSTAINABLE FINANCE DISCLOSURE REGULATION (SFDR)
The purpose of this Supplement is to provide certain disclosures for the purposes of the SFDR in relation to PREMIUM and the two Funds PREMIUM Mittelstandsfonds I and PREMIUM Mittelstand Fund II.
I. STATUS UNDER THE EU SUSTAINABLE FINANCE DISCLOSURE REGULATION (SFDR) AND FRAMEWORK REGULATION
This section summarises PREMIUM's and the Funds’ statuses under SFDR.
I) SUSTAINABILITY RISKS
In advance of 10 March 2021, PREMIUM will be implementing a Sustainability Risks Policy, which sets out PREMIUM's policies in respect of the integration of sustainability risks in its investment decision-making process, as required by the SFDR. Herewith, PREMIUM makes its Sustainability Risks Policy publicly available on its website (from 10 March 2021).
II) PRINCIPAL ADVERSE IMPACTS
PREMIUM does not currently consider the principal adverse impacts of its investment decisions on sustainability factors pursuant to Article 4 of the SFDR as explained further below under "NO CONSIDERATION OF ADVERSE IMPACTS".
III) ARTICLE 8 AND 9 SFDR; THE FRAMEWORK REGULATION
While PREMIUM may choose at its discretion to apply exclusionary screening criteria for particular industries and geographies, on the basis of sustainability characteristics, such exclusionary screening criteria are not binding.
However, the Funds do not have as their objective sustainable investment and do not promote environmental or social characteristics for the purposes of the SFDR. The Funds are therefore not subject to the additional disclosure requirements for financial products referred to in Article 8 or Article 9 of the SFDR.
For the same reason, the Funds are not subject to the requirements of the EU Regulation on the establishment of a framework to facilitate sustainable investment (the "Framework Regulation").The investments underlying this financial product do not take into account the EU criteria for environmen- tally sustainable economic activities.
II. NO CONSIDERATION OF ADVERSE IMPACTS
The SFDR requires PREMIUM to make a "comply or explain" decision whether to consider the principal adverse impacts ("PAIs") of its investment decisions on sustainability factors, in accordance with a specific regime outlined in SFDR. PREMIUM has opted not to comply with that regime, both generally and in relation to the Funds.
PREMIUM will keep its decision not to comply with the PAI regime under regular review.
PREMIUM has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the draft Regulatory Technical Standards which were published in April 2020 (the "PAI regime"). PREMIUM is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors and the market, as to how financial market participants integrate consideration of the adverse impacts of investment decisions on sustainability factors. However, PREMIUM is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as PREMIUM believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding PREMIUM's decision not to comply with the PAI regime, PREMIUM has imple- mented positive ESG-related initiatives and policies, as part of its overall commitment to ESG matters, as summarised in this section. For the avoidance of doubt, none of the following information is intended to suggest that PREMIUM complies with the PAI regime.
III. ADDITIONAL ESG INFORMATION
PREMIUM acknowledges and affirms its commitment to the Six Principles of Responsible Investment developed by the United Nations in conjunction with leading global institutional investors, as set out below:
I) PREMIUM will incorporate ESG issues into investment analysis and decision-making processes.
II) PREMIUM will be value adding owners and incorporate ESG issues into its ownership policies and practices.
III) PREMIUM will seek appropriate disclosure on ESG issues by the entities in which it invests.
IV) PREMIUM will promote acceptance and implementation of the principles within the investment industry.
V) PREMIUM will work to enhance its effectiveness in implementing the principles.
VI) PREMIUM will report on its activities and progress toward implementing the principles.
PREMIUM has incorporated ESG considerations into all aspects of the investment decision-making process, including all of the three key investment phases. Specifically, in phase 1 (the Pre-Investment Period), due diligence should include an in-depth assessment of ESG criteria and an ESG Due Diligence Checklist may be referenced for such an analysis. In phase 2 (the Investment Holding Period), PREMIUM seeks to ensure that ESG risks in a Portfolio Company are minimized and opportunities for adding ESG value are implemented. An ESG Monitoring Checklist may also be used so that a range of actions is undertaken at the PREMIUM level with respect to monitoring ongoing compliance. Within phase 3 (the Preparation for Exit Period), PREMIUM should assess the ESG credentials of a prospective buyer and should consider whether any potential is committed to continuing a Portfolio Company's ESG progress. A Checklist for Assessing ESG Credentials of Prospective Buyer on Exit is also available for reference for such an analysis.
For an illustrated example, sample questions from PREMIUM's ESG Due Diligence Checklist include PREMIUM asking and considering:
> Is the target subject to specific environmental regulation?
> Does the target have environmental policies in place?
> Has the target experienced any environmental incidents?
> Does the target have fair work practices?
> Does the target have health and safety procedures in place?
> Does the target take into account ESG issues when engaging and dealing with suppliers, contractors, sub-contractors?
Furthermore, sample ESG questions from the Checklist for Assessing ESG Credentials of Prospective Buyer on Exit include PREMIUM inquiring:
> Are there concerns over the business integrity of the buyer (e.g. corruption)?
> Is there any evidence that the buyer is or will be overtly non-compliant with PREMIUM's ESG policies?
> Is there any evidence that ESG management will significantly negatively change?
PREMIUM also has various ongoing ESG-related disclosure obligations to Limited Partners. Limited Partners receive sufficient information regarding the status of ESG compliance so that sound and reasonable assessments are possible with respect to making informed investment decisions. An annual ESG report for each Portfolio Company (including its subsidiaries) is made available to each Limited Partner, upon request, so that transparency is upheld. Furthermore, PREMIUM will inform Limited Partners as soon as possible after becoming aware of an event that has or is likely to have a material adverse impact on the ability of the Portfolio Company to comply with social and environmental laws. The disclosure includes conveying a description of the incident as well as:
> Who was affected (e.g. employees, with names (to the extent permissible in view of data protection and similar such laws));
> Material impacts or potential material impacts arising from or likely to arise from the relevant incident;
> (Potential) causes;
> Status of investigation (e.g. ongoing, concluded (in which case, outline conclusion)); and
> Parties to investigation (e.g. health and safety executive, police, etc.).
PREMIUM Equity Partners, 10 March 2021