Estari Management SARL (the “Investment Fund Manager” or “IFM”, together with Estari Ltd and any entities of the group “Estari”) is the management company of Estari Lotus SCSp (the “Fund"), registered as an AIFM by the Commission de Surveillance du Secteur Financier of Luxembourg. It publishes the following information on its website in accordance with SFDR.
The page contains both entity and product-level disclosures.
Integration of sustainability-related risks into the investment decision process (art. 3 SFDR)
When screening an investment opportunity and during the due diligence phase, the investment team identifies the material sustainability-related risks associated with the business operated by the target company. Sectorial, geographical and any other dimensions are considered to assess the materiality of the sustainability-related risks associated with the business. The investment team uses its proprietary sustainability-related risk review checklist which forms part of its Sustainability Framework. This includes Environmental, Social and Governance related risks. This checklist is populated with information supplied by the target company, and additional inquiries are conducted during dedicated sessions arranged by the investment team with the target company as necessary. The investment team may revert to experts or consultants’ points of views for its sustainability-related risk assessment. Also, the investment team would consider the potential existing mitigation plans for these risks at the target company level.
To make the investment decision, the investment team duly considers the sustainability-related risks identified and assessed during the first steps of the investment decision process.
During the investment period and at least annually, Estari engages with the company to address and minimize identified sustainability-related risks, where necessary, through risk mitigation plans. This collaborative approach ensures the effectiveness of any sustainability-related risk mitigation plans. Estari reports annually on sustainability-related risks and their related mitigation plans.
The investment team is responsible for implementing and overseeing the sustainability-related risk integration in the overall risk assessment process of any investment decision. The sustainability risks used are reviewed on an annual basis, unless a more frequent review is necessitated by specific regulatory or industry developments to keep up-to-date and aligned with fast evolving regulatory landscape and sustainability risk management practices.
No consideration of principal adverse impact of investment decisions on sustainability factors (art. 4 SFDR)
In accordance with art. 4 sub 1 (b) SFDR, the IFM states that it does not consider adverse impacts of investment decisions on sustainability factors as set forth in art. 4 sub 1 (a) SFDR and therefore does not make the disclosures as described in art. 4 sub 1 (a) SFDR. Given the small size of the organisation of the IFM, such disclosure as set forth in art. 4 sub 1 (a) SFDR and the administrative burden in connection therewith would not be proportional.
Remuneration policy in relation to the integration of sustainability risks (Art. 5 SFDR)
As a de-minimis registered AIFM, the IFM does not have, and does not need to have, a remuneration policy in accordance with the requirements of the Alternative Investment Fund Manager Directive (AIFMD).
Product-Level Sustainability-related Disclosures for financial products promoting Environmental and/or Social characteristics (Art. 8 SFDR)
Product Name: Estari Lotus SCSp (the “Fund”)
Date of publication/update: March 2024
Summary
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No sustainable investment objective: the Fund promotes environmental or social characteristics (“E/S”) but does not have as its objective sustainable investment.
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Environmental or social characteristics: the Fund promotes environmental or social characteristics and therefore falls under Article 8 SFDR.
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Investment Strategy: Estari Management SARL (the “Investment Fund Manager” or “IFM”) only considers investment opportunities:
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that are in any of the following 6 investment themes: Energy Transition, Mobility and Logistics, Urban resilience, AgTech & Food systems, Industry 4.0 or Economy 2.0;
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that are contributing to the attainment of at least one of 8 principles, as assessed by Positive Purpose criteria (“PP”); and
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whose core business activity is not adversely impacting any of 8 principles, as assessed by break even criteria (“BE”).
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Proportion of investments: 90% of the asset allocation of the Fund is intended to be aligned with the E/S characteristics promoted by the Fund. This may however temporarily fall short of 90% due to liquidity management of the Fund, eg, bridge the period between capital calls and the effective investment date in target companies.
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Monitoring of E/S characteristics: the attainment of the E/S characteristics promoted by the Fund are regularly measured by the IFM through sustainability indicators (KPI), and their level relative to targets. Dialogue and engagement with the portfolio companies are constant and aim to ensure portfolio companies are on track or taking the relevant steps towards improvement and the timely provision of relevant data and information.
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Methodologies:the Fund’s portfolio companies are required to compile data and report sustainability performance on pre-determined sustainability indicators (KPIs) at least on an annual basis. Based on this data, either the sustainability indicators (KPI) show that the related targets are met, or the targets are not met, in which case the company shall agree with the IFM on a plan to meet the sustainability indicators (KPI) and related targets within a well-defined timeframe should the IFM be confident in the ability of the company to comply with the plan.
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Data sources and processing: the IFM collects E/S data from the portfolio companies (e.g., through questionnaires, meetings, on-site visits) and cross-checks the information with other sources (e.g., market research, peers, experts, external sources etc.). The IFM reviews the data with the company and investigates the collection methodology to ensure quality of data provision. The IFM may request external reviews of the data. Data processing: the IFM processes data in its Sustainability Framework database for data processing and reporting to investors.
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Engagement policies: the IFM seeks to actively engage in E/S matters with its portfolio companies starting from the pre-investment due diligence phase and then at least on an annual basis. The IFM collects and reviews information and seeks that the attainment of the E/S-related characteristics promoted by the Fund are discussed in Board meetings and/or Sustainability Committee meetings at the portfolio company’s level.
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Designated reference benchmark: the Fund has not designated an index as a reference benchmark for the purpose of attaining the E/S characteristics promoted by the Fund.
No sustainable investment objective
The Fund promotes environmental or social characteristics but does not have as its objective sustainable investment. The Fund is disclosing under Article 8 SFDR.
Environmental or social characteristics of the financial product
The Fund promotes 8 principles that are further characterized by sustainability criteria. Together they form the environmental and social (“E/S”) characteristics that the Fund promotes.
The 8 principles are: energy is renewable and available to all; waste does not exist ; water is responsibly sourced & available to all; the environment is free from pollution; natural resources are managed to safeguard ecosystems, communities, and animals; our physical presence protects the health of ecosystems and communities; people have the capacity & opportunity to lead fulfilling lives; social norms, global governance and economic growth drive the pursuit of a sustainable future.
Out of the sustainability criteria that further detail each principle, some answer the question ‘does the service/product developed by the investment opportunity positively contribute to the related principle?’ (‘positive pursuit’ criteria or “PP”); others answer the question 'does the service/product developed by the investment opportunity meet the minimum performance thresholds to avoid being qualified as detrimental to the attainment of the related principle?’ (‘break even’ criteria or “BE”).
By way of illustration:
Principle: “Energy is renewable and available to all”.
Sustainability criteria: “Energy is used from renewable sources” (BE01); “Others depend less on non-renewable” (PP01) and “More people have access to renewable energy” (PP02).
A sustainability criterion will only be considered if it is material from the perspective of the operating model, the product, the service, market perspectives, or any other specification of the company.
Methodologies
What are the methodologies to measure the attainment of the environmental or social characteristics promoted by the financial product?
As a reminder, the Fund’s portfolio companies are required to compile data and report sustainability performance on pre-determined sustainability indicators (KPIs) at least on an annual basis.
Based on this data, either the sustainability indicators (KPI) show that the related targets are met, or the targets are not met, in which case the company shall agree with the IFM on a plan to meet the sustainability indicators (KPI) and related targets within a well-defined timeframe should Estari be confident in the ability of the company to comply with the plan.
The list of sustainability indicators and related targets is proprietary; Estari sustainability framework draws from various sources (GRI, CSRD/ESRS, PAI in the annex to the RTS to the SFDR, InvestEurope or France Invest).
Data sources and processing
What are the data sources used to attain each of the environmental or social characteristics promoted by the financial product? What are the measures taken in order to ensure data quality? How is data processed? What proportion of data is estimated?
Data sources: The IFM collects information/data related to E/S matters from the portfolio company (e.g. via questionnaires, specific meetings, on site visit, etc.) and cross checks the information received with other information sources (eg, market & external research, industry peers, consulting firms, experts, university research).
Data quality: All the data is reviewed by the IFM with constant engagement with the company to ensure that the data collected is correct. The IFM requires full transparency regarding the methodologies and definitions used by its portfolio companies. The IFM may initiate additional internal or external reviews of the data collected to ensure its accuracy and relevance. The IFM may receive guidance and assurance from external consultant/expert on the collected data.
Data processing: The data obtained from portfolio companies is processed by the IFM. Information/data collected by the IFM is recorded in its proprietary Sustainability Framework database and used as such or after manipulation/computation/adaptation for reporting purposes to the Fund’s investors (Annual Sustainability Report).
Data estimation: If a portfolio company did not report the required data to assess attainment of a specific sustainability indicator (KPI), or if the data is deemed to be unreliable or inaccurate (data from all sources considered, company, market or other external sources), the IFM may engage an external provider to add to it, and estimations may be used in exceptional circumstances.
Limitations to methodologies and data
What are the limitations to the used (i) methodologies and (ii) data sources? How do such limitations not affect the attainment of the promoted environmental or social characteristics?
Limitations to the methodologies and data referred to in the above sections could include:
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Limited capacity to measure or report from the portfolio companies : procedural difficulties on the gathering or reporting of information from the portfolio company, a lack of exploitability of the quantitative/qualitative information
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Discrepancies from different methodologies, reporting periods, and group perimeters: changes in reporting needs over time, variations in methodologies and definitions used, and differences in reporting frequency or variability in the scope of portfolio company activities
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Human error in collection and provision of data: unintentional omissions of information by the providers of information, loss of information during the change of a service provider, such as reporting tool or portfolio management services.
As part of the initial due diligence, the capabilities of the portfolio companies to report on the selected sustainability indicators (KPI) are assessed by the IFM. The IFM continuously actively engages with portfolio companies and supports them in the improvement of their data recording process. While one portfolio company may in exceptional circumstances fail to report on one indicator, this should not affect the attainment of the E/S characteristics at the Fund level.
As a long-term investor, the IFM is dedicated to achieving a high standard of quality of the information disclosed throughout the investment period, enhancing trust and confidence in the attainment of the promoted E/S characteristics.
Due diligence
What is the due diligence carried out on the underlying assets of the financial product, and which internal and external controls are in place?
A due diligence on the underlying assets focusing on E/S characteristics is carried out at least annually by the IFM during the entire investment period. During such a due diligence, the IFM reviews the list of sustainability criteria retained as well as their materiality. It also considers sustainability risks and good governance practices, as it would for a pre-investment due diligence (see Pre-investment due diligence sub-section above).
The IFM might rely on an external assessment or engage a consulting firm to conduct a more in-depth investigation as part of this due diligence process.
On the basis of its annual due diligence, the IFM is in a position to assess the overall attainment of the E/S characteristics to be met by the underlying asset. It could decide to adapt its engagement strategy accordingly, and in an extreme case make the decision to divest (see Engagement policies section below).
Engagement policies
The IFM is a long-term investor which highly values active engagement with its portfolio companies.
Such engagement starts during the pre-investment due diligence of the investment opportunity where the IFM assesses the ability of the company to meet the targets relating to the sustainability indicators (KPI) retained for the opportunity alongside assessments on governance practices and sustainability risks. An action plan and a set timeframe are discussed with the company where necessary, which will become, as the investment is made, a commitment to a clear roadmap for the company to improve attainment of E/S characteristics over the investment period.
The IFM regularly checks that the portfolio companies have met or are in the process of meeting the targets retained. It reports on attainment and/or progress in the annual sustainability report shared with the Fund’s investors. To that effect, it evaluates the capacity of the investment opportunity to deliver on the data recording process and continuously works with the portfolio company to improve that process where necessary. In that context, it regularly holds meetings with relevant people inside the investee company to make sure that data identification, collection and verification will happen smoothly.
The IFM’s engagement in portfolio companies would also generally materialize by holding a board/observer seat or chairing the dedicated sustainability committee of the portfolio company to ensure constant efficient flow of information as well as effective attainment of the targets and input on the sustainability strategy of the company.
In the unlikely case that the IFM determines that the information related to E/S characteristics of an underlying asset enters a situation of misalignment to the Fund's commitment to promoting E/S characteristics over the investment period, the IFM could initiate a strict stewardship plan to remediate the situation in a timely fashion. If there is no improvement despite the IFM’s engagement, the Fund may sell its shares of the company.
Designated reference benchmark
No reference benchmark has been designated for the purpose of attaining the environmental or social characteristics promoted by the Fund.
This document is issued to disclose sustainability-related information on this product, in relation to Article 10 SFDR. Please contact us should you be interested in Estari Group and the Fund before making any final investment decisions.