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Sustainable Investment
Initiative & Finance seeks to promote both at the level of the Management Company and the companies in the Funds’ portfolio:
ESG issues are integrated at every stage of an investment project. Sustainability risks are taken into account through Initiative & Finance’s ESG approach and actions aimed at:
Initiative & Finance also pays particular attention to four specific issues: climate change, professional training, integration of young people, diversity, and gender equality.
Initiative & Finance also takes into account the principles of Responsible Investment in its investment policies. Certain sectors are excluded due to environmental, social, or societal risks deemed too great, such as the manufacture of weapons and anti-personnel mines, tobacco, pornography, human cloning, gambling, coal-related activities, etc.
The Tomorrow fund also excludes products and services related to tobacco (e-cigarettes and tobacco products, next-generation nicotine, filters, smoking rooms, etc.).
This approach is adapted and more or less exhaustive depending on the Initiative & Finance funds and strategy involved. Initiative & Finance manages 4 funds classified article 6 SFDR and 1 fund classified article 9 SFDR.
Initiative & Finance is also sensitive to ESG issues as a management company and has put in place concrete measures to train its teams and improve its environmental footprint.
For Initiative & Finance, the inclusion of environmental, social and governance criteria in its investment policy contributes to the sustainability and value of our portfolio companies: improving their risk profile, seizing additional growth opportunities and, ultimately, creating more value.
Initiative & Finance Gestion (IFG) is subject to Regulation 2019/2088 of November 27, 2019, concerning the publication of information relating to sustainability in the financial services sector (“Disclosure Regulation”).
SFDR EU 2019/2088 Article 3 – Transparency of sustainability risk policies.
Sustainability risk is defined as an event or situation in the environmental, social or governance field which, if it occurs, could have an actual or potential significant negative impact on the value of the investment. Environmental, social and governance (“ESG”) and sustainability factors can affect the value of companies and their selected securities. Thus, we believe that all these factors deserve to be taken into consideration in the exercise of our activity as professional investors and shareholders.
SFDR EU 2019/2088 Article 4 – Transparency of adverse sustainability impacts at entity level
IFG considers environmental, social, personnel and governance factors, respect for human rights and the fight against corruption and bribery (“Sustainability Factors”) as part of its investment processes. Nevertheless, our monitoring does not currently consider the negative impacts of investment decisions on Sustainability Factors, except for the entity Tomorrow Private Equity Fund I.
The management company monitors regulatory developments and assesses its position on an ongoing basis.
SFDR EU 2019/2088 Article 5 – Transparency of remuneration policies in relation to the integration of sustainability risks
IFG is aware that the management of sustainability risks is intrinsically linked to the activity of an asset manager, for whom it is necessary to take these long-term issues into account in its management strategies, particularly in view of the length of time its portfolio assets are held.
Against this backdrop, the asset management company’s remuneration policy is consistent with the need to take sustainability risks into account.
It promotes sound and effective risk management, including sustainability risks. It does not encourage risk-taking by the management company’s employees, including sustainability risks, which would be incompatible with the risk profiles and constitutive documents of the funds under management.
IFG is currently considering qualitative and quantitative criteria for assessing the performance of its relevant employees, which could be incorporated into its remuneration practices with a view to promoting the mitigation of sustainability risks.
SFDR EU 2019/2088 Article 10 – Information on sustainability risks in accordance with Article 9 of the Disclosure Regulation: Information relating to Tomorrow, a fund with the objective of sustainable investment.
In accordance with Articles 10 of Regulation (EU) 2019/2088 “SFDR” and Articles 37 to 49 of Regulation (EU) 2022/1288, the elements below describe how the sustainable investment objective of the Initiative & Finance Tomorrow Private Equity Fund I (“Tomorrow”) is implemented. These elements are further specified in the documentation provided on a confidential basis to investors and potential investors in the fund, including details of the methodologies implemented.
Summary
Tomorrow aims to contribute to a more sustainable economy by supporting the environmental transition of mid-sized companies. The fund takes majority or minority shareholdings, with a systematic presence in the company’s governance bodies. The sustainable investment objective is clearly specified to the management team during the acquisition process.
Tomorrow invests in 2 types of companies:
100% of Tomorrow’s investments are sustainable investments within the meaning of Article 2(17) of Regulation (EU) 2019/2088, with a focus on environmental aspects. Tomorrow’s minimum investment in activities eligible for the European taxonomy is 0%. Tomorrow takes adverse impact indicators (PAI) into account in its investment decisions.
Pre-acquisition due diligence enables us to identify and validate the existence of a sustainable investment objective, and to verify the absence of any significant prejudice. After acquisition, the sustainable investment objective is specified, quantified, and integrated into the company’s strategy and roadmap.
Performance indicators are put in place to monitor progress. The entire process (due diligence; strategy; definition, collection, and evaluation of indicators) is supported by third-party Partners specialized in ESG monitoring and measurement.
Tomorrow falls within the scope of Article 9(2) of Regulation (EU) 2019/2088 on sustainability reporting in the financial services sector (“SFDR”).
No significant detriment to the sustainable investment objective
Tomorrow takes adverse impact indicators (PAI) into account in its investment decisions. The 14 main indicators are systematically analysed as part of due diligence, based on available data. The other 28 indicators are considered where relevant. Non-compliance with any indicator requires, at the very least, the implementation of corrective actions, and may even result in Tomorrow’s refusal to invest.
Sustainable investment is conducted in accordance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions cited in the ILO Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
Sustainable investment objective of the financial product
Tomorrow aims to contribute to a more sustainable economy by supporting the environmental transition of mid-sized companies.
Investments are focused on four main themes that cut across ten UN Sustainable Development Goals:
For each investment made, one or more specific objectives are determined and quantified with the partner company. The sustainable investment objective is one of the main pillars of the company’s strategy.
Investment strategy
Tomorrow invests in 2 types of companies:
Tomorrow acquires majority or minority shareholdings, systematically accompanied by a presence on governance bodies.
Acquisition due diligence and the implementation of a post-acquisition action plan include an assessment of the companies’ good governance practices, particularly regarding sound management structures, employee relations, staff remuneration and compliance with tax obligations, with corrective action in the event of any significant shortcomings.
The objective of sustainable investment is discussed as early as the due diligence phase with the company’s management team and mentioned in all or part of the contractual documents produced at the time of acquisition.
Proportion of investments
100% of Tomorrow’s investments are sustainable investments within the meaning of Article 2(17) of Regulation (EU) 2019/2088.
Tomorrow’s minimum investment in activities eligible for the European taxonomy is 0%.
Monitoring the sustainable investment objective
Each of the fund’s investments has one or more sustainability objectives, which are measured and monitored throughout the investment period.
In the months following the closing of the transaction, indicators are put in place. These are then collected and reported on an annual basis to the fund’s investors. This entire process is carried out with the help of external partners specialized in measuring environmental performance (“Partners”).
These indicators are used by the management team to drive the company’s environmental strategy, with the support of Tomorrow. Achievement of the objectives measured by these indicators determines part of the variable remuneration of the companies’ management teams, as well as part of the added value attributed to the management team.
Methods
Several indicators are applied to the entire Tomorrow portfolio, measuring in particular:
In addition, specific indicators are set up within each company. They measure the progress and achievement of sustainable objectives specific to the company.
Data sources and processing
The data sources used to achieve the sustainable investment objective are essentially:
The data is systematically reviewed by Tomorrow’s ESG team and the Partners. Wherever possible, estimates are made explicit and/or focused on less material issues.
ESG data common to all companies is collected by a dedicated platform managed by a Partner.
The proportion of estimated data may vary considerably from one company to another, depending on their business model. The aim is to improve data quality and reduce the estimated proportion over the duration of the investment, giving priority to data covering impacts with a high materiality.
Limits to methods and data
Measuring environmental performance is a complex and multifaceted subject. Some activities may have a positive impact on certain environmental indicators, while having a negative impact on others.
When it comes to corporate data, standard reporting methodologies are often ill-suited to environmental issues. In particular, they focus on financial flows rather than physical flows, which generally determine a company’s environmental impact. The data available may be incomplete or imprecise.
Standard data also vary according to scientific progress and methodological choices. For example, Tomorrow uses 100-year Global Warming Potential (“GWP”) indicators for different greenhouse gases (“GHGs”) to compare their impacts. In line with most international reports and treaties, this choice nevertheless impacts the relative importance of the different GHGs in the assessments. Moreover, 100-year GWPs evolve over time, in line with scientific measurements and estimates.
The analysis of environmental impacts therefore requires the use of complex tools to measure a variety of flows.
Methodologies are likely to evolve to reflect as accurately as possible the company’s impact on the environment. In the event of such a development, historical figures may be re-evaluated in line with methodological changes, in order to maintain objective and transparent monitoring of changes in impacts. The scope of application of the indicators may be adjusted, for example to take account of company acquisitions.
Notwithstanding these limitations inherent in any impact measurement exercise, Tomorrow seeks to obtain a relevant measure of the impact of the companies in the portfolio by prioritizing:
Due diligence
During the pre-acquisition review phase, Tomorrow systematically conducts environmental due diligence. It aims to confirm the company’s potential for improvement in terms of sustainability, and the fact that this potential is value-creating. It also analyses the 14 main indicators relating to adverse impacts (PAI), and if necessary other indicators relating to the company’s activity.
This due diligence is integrated into the investment analysis documents and taken into account in the investment decision. The existence of an improvement trajectory identified with the company in terms of sustainability is an essential criterion for the investment decision.
Commitment policies
The commitment of the companies we work with is the essence of Tomorrow’s sustainable investment approach. The sustainable investment objective is formally explained during the investment phase.
Tomorrow’s systematic presence in decision-making bodies, as a majority or minority reference shareholder, enables it to make a significant contribution to defining the company’s sustainability strategy, structuring its implementation, and monitoring the results obtained.
Right from the start of the investment phase, the sustainable investment objective is defined as one of the company’s strategic pillars and included in its value creation plan. The actions to be taken are specified, and a series of indicators are put in place. These elements are monitored by a dedicated team within Tomorrow, and regularly reviewed by the decision-making bodies.
In social matters, the implementation of value sharing with employees is proposed to the management team and co-shareholders, possibly within the framework of the 2019-486 “Pact” law. Tomorrow also pays particular attention to team diversity, the employment of young people and ongoing training.
Finally, the added value for the investment teams is conditional on achieving the sustainable objectives of the companies supported.
Achieving sustainable investment objectives
Given the diversity of its investments, Tomorrow has not defined a benchmark index. Similarly, the carbon trajectory of investments is defined on a case-by-case basis according to the specificities of each company. Tomorrow therefore complies with paragraph (2) of Article 9 of Regulation (EU) 2019/2088.