SFDR Disclosures
Regulation (EU) 2019/2088 of 27 November 2019 on sustainability‐related disclosures in the financial services sector (“SFDR”)
No consideration of adverse impacts of investment decisions on sustainability factors
Transparency of sustainability risk policies (SFDR Art. 3)
We acknowledge that ESG-related events or conditions could potentially have a negative impact on the value of our investments. At Expon Capital, we do not formally integrate an assessment of sustainability risks in our decision-making process in accordance with article 3 of the SFDR.
That being said, Expon Capital is focused on investing responsibly through its funds in (i) companies that solve the world’s greatest challenges and unmet needs in a profitable, scalable and measurable way and (ii) companies that contribute to the development of the Luxembourg startup ecosystem. We do carefully select potential portfolio entities for investments, as well as the sectors that they are active in. In addition, through the long-term investments that our funds take in portfolio entities, we may influence such portfolio entities’ activities and policies and thereby diminishing (sustainability) risks for our investments.
As set out in the documentation governing our funds, no investments will be made in entities active in certain ‘restricted sectors’ (which, among others, are sectors that may entail sustainability risks). Also for potential investments in portfolio entities active in other than the restricted sectors, a careful selection is made. Prior to making any investment, we conduct a thorough due diligence research on target entities. The outcome of the due diligence findings is taken into consideration when an investment decision is taken by us.
Transparency of adverse sustainability (SFDR Art. 4)
The SFDR requires Expon Capital 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 the SFDR.
Expon Capital has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the final report on draft Regulatory Technical Standards which were published on February 2nd, 2021 (the “PAI regime”). Expon Capital 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, Expon Capital is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as Expon Capital believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime. Furthermore, companies in their early stages of development, especially, may not be able to provide the required data as it is not applicable to them in these stages and could only be estimated and scaled up to represent potential future adverse impacts of their business models.
Taking these considerations into account, at this stage Expon Capital has opted not to comply with that regime, both generally and in relation to the Funds. However, Expon will continuously seek to obtain relevant information on potential sustainability risks and evaluate to which extent this information can fulfill the PAI requirements. Therefore, Expon Capital will keep its decision not to comply with the PAI regime under regular review.
Transparency of remuneration policies in relation to the integration of sustainability risks (SFDR Art. 5)
Expon Capital’s remuneration policy is consistent with the integration of sustainability risks. The compensation structure does not include variable components incentivizing investment managers to take excessive risks, including sustainability risks. The remuneration is composed primarily of a fixed management fee based on capital commitments, subject to a cap, which is not linked to ESG-related performance indicators.
Co-investments by Expon Capital’s team in portfolio companies align interests with investors and are based solely on financial performance, not ESG criteria. A robust risk management process ensures that sustainability risks are adequately considered in investment decisions without promoting excessive risk-taking.