ESG

Smile Invest - Team

ESG

1. Sustainability-related disclosures

 

2. Article 3 SFDR Disclosure - Transparency of sustainability risk policies

Policies on the integration of sustainability risks in the investment decision-making process

SFDR maintains the requirements for AIFMs to act in the best interest of end investors, notably via the integration in their processes (such as their due diligence processes) and the assessment on a continuous basis of not only, all relevant financial risks, but also all relevant sustainability risks that might have a relevant material negative impact on the financial return of an investment.

Sustainability risks refer to an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the relevant portfolio companies’ value.

The Company is aware of the potential impact that sustainability risks can have on the value of its investments and considers sustainability risks as relevant to all managed investment funds. Smile Invest Management Company NV integrates sustainability risks in its investment decision-making process as provided by Article 3 of SFDR through the process described below:

  • In accordance with Article 22 of AIFMD Delegated Regulation, the Company retains the necessary resources and expertise for the effective integration of sustainability risks ;
     

  • The Company performs the risk management function and therefore will monitor the sustainability risks. Sustainability risks are included in the Company’s risk management policy, along with market risks, liquidity risks, counterparty risks, credit risks, operational risks and compliance risks and key risk indicators have been defined in this regard :
     

Sustainability risks (at the portfolio company level)
Risks Potential Key Risk Indicators (KRI’s)
Environmental event or condition Identification of any negative environmental impact on the portfolio company (e.g. physical risks related to climate change or non-compliance with measures introduced by governments to foster a low-carbon economy and more broadly to reduce pollution and waste)
Social event or condition Identification of any negative social impacts on the portfolio company (e.g.  lack of diversity, incidents of discrimination and non-respect of fundamental employee rights within the value chain, such as human rights violations, modern slavery, workforce health and safety issues)
Governance event or condition Identification of any negative governance aspect at the level of the portfolio company (e.g. lack of institutional governance structure, as well as the lack of appropriate policies and processes ensuring the highest standards of governance)

 

Sustainability risks (at AIF level)
Risks  Potential Key Risk Indicators (KRI’s)
Investment Themes Share of investments in portfolio companies active in two of its investment themes, namely healthcare & well-being and environment.
Sustainability on agenda board meetings Check that sustainability topics are, at least once a year, on the agenda of the portfolio companies’ board meetings.
Pre-investment due diligence Check that a red flag sustainability analysis is performed before making any investment.
Excluded sectors Number of investments in excluded sectors (e.g. alcohol, fast food, tobacco, production of fossil fuels etc.)
Reporting questionnaire Check that a sustainability reporting questionnaire has been established once a year.

 

  • Before any investment, the Company performs a red flag sustainability analysis (pre-investment due diligence process) where it identifies the investment opportunity’s level of exposure to sustainability risks and opportunities, based on its sector, business model and geographical location. The outcome of this assessment is systematically included in a sustainability section in the investment note and is discussed within the relevant investment committee. If an investment opportunity critical risk in terms of sustainability, the Company, on behalf of the AIFs it manages, will refrain from investing in such an investment opportunity. To make this decision, the Company takes into account the level of risk identified, the level of maturity of the target company on sustainability issues and more importantly, the willingness of its management to improve the company’s sustainability performance. If significant but remediable sustainability risks are identified, mitigating actions are integrated in the sustainability roadmap and objectives of the relevant portfolio companies.
     

  • An annual reporting and monitoring of the portfolio companies is conducted to assess the evolution of potential sustainability risks. The Company established a sustainability reporting questionnaire in this regard so as to enable it to evaluate the portfolio companies’ progress, best practices and areas of improvement on sustainability topics and on their sustainability action plan, when applicable. This post-investment due diligence process covers, amongst other things, the following topics:
     

    • Environment:
      • Environmental Management
      • Climate Change
      • Natural Resources Consumption
      • Biodiversity
      • Pollution & Waste
    • Social
      • Employment
      • Diversity
      • Compensation & Benefits
      • Labor Relations
      • Training
      • Work Accidents 
    • Governance
      • Shareholder Governance
      • Operational Governance
      • Sustainable Purchasing
      • Taxes & Litigation

 

3. Article 5 Transparency of remuneration policies in relation to the integration of sustainability risks

Within the meaning of SFDR, the concept of sustainability risk refers to 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 – namely, the impact of the world on the value of the portfolio companies.

Sustainability risks are duly integrated and taken into account within the Company’s processes, systems and internal controls in line with the requirements of the Delegated Regulation. The Senior Management is responsible for the integration of sustainability risks in the Company’s activities as provided for under Article 60 of the Delegated Regulation.

Pursuant to Article 5 of SFDR, the Company shall include in its remuneration policy information on how such policy is consistent with the integration of sustainability risks :

  • The Policy aims to (i) promote sound, efficient, appropriate and effective risk management with respect to all types of risks (including sustainability risks) so as to ensure that the structure of the remuneration does not encourage excessive risk-taking with respect to risks such as sustainability risks and to (ii) link the remuneration to risk-adjusted performance ;
     

  • Within the framework of the appraisal process, the assessment of the individual performance of the relevant staff member includes qualitative criteria related, amongst others, to (i) the consideration of sustainability risks in the performance of their duties and notably in the context of the investment decision-making process (when relevant in view of their respective tasks and role) as well as to (ii) their implementation of and compliance with Smile Invest sustainability policy. Particular attention is given to whether the staff member promotes sustainability, thereby reducing sustainability risks for the Company and contributing to the Company’s related sustainability strategy ;
     

  • Bonuses may be withheld in the event of evidence of misbehaviour or serious error by the staff member such as the breach of rules related to the consideration of sustainability risks (e.g. in the due diligence process related to investment opportunities) ;
     

  • When identifying the types of conflicts of interest that may arise in the course of managing an AIF (in relation to the remuneration of the staff as the case may be), the Company includes the types of conflicts of interest that may arise as a result of the integration of sustainability risks in its processes, systems and internal controls.