Sustainable Financial Disclosure Regulation (“SFDR”)
The European Commission adopted a package of measures on sustainable finance in May 2018. One component of this package is the Sustainable Finance Disclosure Regulation (the “SFDR”) which aims to standardise disclosure requirements on how financial market participants integrate environmental, social and governance (“ESG”) factors in their investment decision-making and risk processes. It allows investors to identify the impact on sustainability factors and the associated risks and opportunities of their investments.
The SFDR gives rise to disclosure requirements at both the entity and product level.
In terms of Fengate’s SFDR compliance at the entity level, Fengate has established a rigorous investment process which comprises (i) sourcing, (ii) diligence and approval; and (iii) asset management.
Fengate takes a holistic approach to considering ESG factors during the investment decision-making process and avoids investments in projects that violate human rights, run afoul of local law, damage the environment or have unfair labour practices. In addition, Fengate performs an initial ESG screening and assessment prior to making any investment decisions, with a view to ensuring that any areas of improvement are identified and implemented post-acquisition. Therefore, while Fengate broadly considers the adverse impacts of investment decisions in relation to sustainability factors, this is not strictly in the rigid manner prescribed by Article 4 of the SFDR.
During the investment decision-making process, sustainability risks are identified during the due diligence phase and the results are presented to the Investment Committee and taken into consideration prior to proceeding with an investment. Additionally, Fengate carries out negative screening against exclusion lists. Accordingly, Fengate’s investment processes have been designed to ensure that sustainability risks are identified and assessed so that they are considered as part of all investment decisions taken on behalf of Fengate’s funds.
Fengate’s team are organised and incentivised to ensure the fund is complying with their ESG approach. If the fund fails to meet the impact goals, then a portion of the funds overall carried interest entitlement, regardless of their financial performance, is sacrificed. Fengate believes that ESG compliance must be embedded in remuneration, as well as the fund’s actions.
In addition, Fengate makes specific product level disclosures in relation to the Fengate Infrastructure Fund IV (International) LP and Fengate Infrastructure Fund IV (International) USQ LP. These product disclosures can be found in the downloadable PDFs below. Fengate reports annually on its ESG activities as part of the UNPRI assessment. This information can be found in the public transparency report on the PRI website.