LHNL AM B.V. (“LHNL”) as an Alternative Investment Fund Manager (AIFM), currently manages two Alternative Investment Funds (“AIFs”) registered in Luxembourg, an EU member state:
As such, LHNL AM B.V. is required by the Sustainable Finance Disclosure Regulation (Regulation 2019/2088) (the “SFDR”) to make certain entity-level disclosures on its website, as follows:
The LHNL-managed AIFs have Environmental, Social and Governance (ESG) policies (sustainability risk policies) that are implemented across each fund’s investment cycle. These policies include a risk-adequate Environmental and Social Management System (ESMS) designed to adequately address its ESG risks.
The purpose of the ESG policies is to formalise the commitment to responsible and thoughtful management and integration of sustainability considerations throughout the investment processes, to reduce risk and enhance value creation. The ESG integration processes embedded in the policies are intended to occur in parallel with credit due diligence, legal due diligence, and other investment activities, and are of equal importance to these other processes in determining how investments are made and managed. The section below provides an overview of each fund’s ESG policy. However, full details of the funds’ ESG integration can be found in each fund’s ESG policy available on their respective websites.
AGG’s ESG policy is rooted in the IFC Performance Standards (“IFC PS”) on Environmental and Social Sustainability as well as other relevant guidelines and standards integrated within the IFC PS such as the World Bank EHS guidelines and the ILO core labour standards. To ensure proper implementation of the policy, the fund has a dedicated ESG team responsible for ensuring that the procedures prescribed by the ESMS are implemented appropriately. In addition, a senior officer of the AIFM holds the role of ESG Manager and has overall management responsibility for ensuring adherence to the ESG policy.
Implementation across the investment cycle begins at the preliminary screening stage, where the investment teams screen the opportunity against the fund’s sustainability requirements and ensure the business/project under review has no exposure to any activities listed on the exclusion list. At this stage, the investment team will also seek to identify the potential investment's primary ESG risks and their initial ESG risk categorisation. Should the risk level warrant it, the AIFM may engage subject matter experts to conduct an enhanced ESG due diligence of the business/project and identify key ESG risks/opportunities for further consideration by the investment team. Otherwise, the investment team is responsible for conducting full ESG due diligence following the procedural requirements outlined in the Fund’s ESMS.
Following the completion of the due diligence process, findings from the ESG appraisal are included in the investment proposal that is presented to the Fund’s independent investment committee. Where ESG issues were identified, the investment proposal will also include a proposal for mitigation measures. The Fund can provide support in the form of Technical Assistance to attain the mitigation measures post investment. Investment agreements will also typically include ESG clauses to ensure compliance by the investee with the Fund’s ESG requirements. Lastly, the Fund conducts regular monitoring of its portfolio companies on various aspects of the transaction, including both financial and non-financial performance. On non-financial performance, the Fund monitors, among other things, ESG performance against its ESG requirements, and reviews emerging ESG risks on a regular basis.
LCEF’s ESG policy and strategy sets out objectives, procedures, and guidelines to express the Fund’s desired development impact, as well as how the Fund will manage risks, monitor, and report on the Fund’s impact achievements in line with the aims of its principal shareholders.
The policy incorporates various international ESG standards and frameworks, primarily the IFC performance standards and the EDFI's Harmonised ESG Standards. To manage the ESG risks of investments, the policy is implemented across its investment cycle.
At the origination phase, the Fund screens each opportunity against its ESG requirements and the exclusion list, in addition to conducting a preliminary risk assessment to identify material ESG risk factors and assign a preliminary ESG risk categorisation. These factors are taken into consideration by the Funds Investment Committee prior to issuing a no-objection to the Fund to proceed to conducting full due diligence on the investment opportunity and structuring the investment opportunity.
Following the due diligence, the Fund will draft likely risk mitigation measures, if needed, and document the ESG risk categorisation rationale. If ESG issues require significant mitigation, the Fund will re-evaluate the investment proposal with revised economics, taking into consideration the financial implication of the mitigation measures.
Following the final approval to proceed with the investment, the Fund ensures ESG clauses are inserted into its investment agreement, including E&S Action Plans and climate action plans (to allow for appropriate alignment to EU Taxonomy and SFDR) commensurate to the level of ESG risk identified. On an ongoing basis, the Fund monitors its portfolio companies on its ESG requirements including an annual evaluation of the PAIs, positive contribution to its impact objectives, and a review of compliance with its general ESG requirements.
The fund aims to spur greenhouse gas (“GHG”) reductions (environmental objective) by encouraging corporate and industrial entities, local financial institutions, and other businesses (“Partner Institutions” or “PIs” ) which are developing and/or investing in eligible energy efficiency (“EE”) and renewable energy (“RE”) projects through provision of medium and longterm debt financing, guarantees and specific technical assistance aimed at maximising learning-by-doing opportunities, facilitating deals and encouraging the long-term sustainability of the EE and/or RE market in the target region (“Sustainable Investments”). The Fund’s investment activities are expected to contribute to the long-term global warming objectives of the Paris Agreement. The fund’s target Sustainable Investments are expected to contribute significantly to the Climate Change Mitigation Environmental Objective as defined in the Taxonomy Regulation.
The fund considers the principal adverse impacts of investment decisions on sustainability factors through its due diligence and investment structuring processes which include an assessment of the Principal Adverse Sustainability Indicators (PASIs), in addition to reviewing other ESG risks. The Fund also considers the level of significance of these adverse impacts in its assessment of compliance with the “Do No Significant Harm” Principle. Periodically, the Fund requires investees to report on the PAIs as part of their annual reporting obligations to the Fund.
The fund practices active ownership and engagement throughout its portfolio, through the following measures:
AGG is committed to the alignment and implementation of best ESG local and international practices for the Fund. Primarily, the fund’s ESG Policy is rooted in the IFC Performance Standards (“IFC PS”) on Environmental and Social Sustainability as well as other relevant guidelines and standards integrated within the IFC PS such as the World Bank EHS guidelines and the ILO core labour standards. In addition, the fund’s policy is aligned with other responsible business standards and guidelines such as the UN principles for Responsible Investing, the International Bill of Human Rights, and the OECD Principles of Corporate Governance among others. Lastly, the Fund’s investment strategy is aligned with the goals and objectives of the Paris Agreement.
The Fund aims to invest in early-stage innovative businesses that are primarily low-carbon in nature and that promote climate resilience and adaptation. Some of these investments are expected to contribute to the following sustainable investment objectives:
The Fund’s pre-investment ESG due diligence framework (which includes a full ESG due diligence as detailed below) includes an assessment of the impacts of its potential investments against each of the 14 primary principal adverse impact indicators (PAIs) (climate and other environment indicators) and at least 1 indicator from table 2 (additional climate and other environment-related indicators) and table 3 (additional indicators for social and employee, respect for human rights, anti-corruption and anti-bribery matters) of Annex 1 of the SFDR, in addition to reviewing other ESG risks. This data will be tracked periodically on an annual basis to measure the progression of these indicators.
The Fund also considers the level of significance of these adverse impacts in its assessment of compliance with the “Do No Significant Harm” Principal. Periodically, the Fund requires investees to report on the PAIs as part of their annual reporting obligations to the Fund.
Lastly, the IFC Performance Standards and other safeguards defined in the Fund’s ESMS ensure that all potential impacts of project activities on indigenous peoples, vulnerable groups, gender inequality, cultural heritage preservation, community consultation and engagement, as well as potential transboundary and regional impacts are evaluated, monitored and managed.
The Fund Manager has in place policies, procedures and practices to enable the identification, measurement, management and monitoring of risk. These are regularly reviewed considering the needs of the business and its clients. The policies are designed to be proportionate given the nature, scale and complexity of the Fund Manager's activities and risk tolerance as considered by the board.
The Fund Manager’s remuneration policy (the “Policy”) promotes sound and effective risk management and does not encourage risk-taking which is inconsistent with the risk profile, including sustainable investment objective, rules or instruments of incorporation of (i) investment funds managed by the Fund Manager, or (ii) clients serviced by the Fund Manager.
The Policy is intended to align remuneration with effective risk management. It also considers the split between variable and fixed remuneration and further seeks to ensure appropriate alignment (and the avoidance or management of any conflicts of interest) of the interests of the Fund Manager and its Staff on the one hand and the Fund Manager's clients or investors on the other.