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 investment level, Fengate undertakes a rigorous SFDR compliance review during the investment process which comprise: (i) sourcing, (ii) diligence, (iii) approval, and (iv) asset management.
Fengate takes a holistic approach to considering ESG factors during the investment 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 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 screening process, sustainability risks are identified at the diligence phase. These risks and the approach to their assessment are presented to the Investment Committee for its consideration and approval prior to proceeding with the investment opportunity. Additionally, Fengate carries out negative screening against exclusion lists. Accordingly, Fengate’s investment process has 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 employees are organized and incentivized to ensure that each fund investment is complying with Fengate’s ESG impact goals. If a fund fails to meet its ESG impact goals, then a portion of the employees’ overall carried interest entitlement in that fund, regardless of its 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.