Sustainability risk management is embedded in the way TVM seeks to originate investments and make investment recommendations and decisions, as well as in its ongoing portfolio and asset advisory and management activities.
TVM recognises the importance of identifying, assessing and managing material sustainability risks as an integral part of conducting business. TVM’s sustainability risk policy provides a comprehensive framework for integrating sustainability risk management into the investment, ownership, and exit phases of the investment process.
TVM is of the clear view that compliance with Environmental, Social and Corporate Governance (ESG) matters is crucial for long-term value creation.
How does this Sustainability Risk Policy work?
The Sustainability Risk Policy sets out how sustainability risks are integrated into TVM’s investment decision-making and advisory processes.
In line with the UN PRI, TVM will thoroughly consider ESG issues in its investment analysis and decision-making processes and incorporate them into its ownership policies and practices. To maximise the potential impact of TVM’s ESG efforts, TVM will encourage the companies in which it invests to actively consider ESG issues and disclose their commitment and processes. TVM will provide updates on its ESG activities in annual reports and report on ESG related material events on an ad hoc basis.
This policy will apply to all venture capital investments made by TVM and will be interpreted in accordance with local laws and regulations. TVM shall conduct diligence and implement its objective is to influence and add value with regard to the integration of ESG considerations in all of its investments.
To obtain a long-term sustainable business model, TVM considers the following sustainability risks to be aligned with the SASB Materiality Map® developed by the Sustainability Accounting Standards Board (SASB), and carefully determines the materiality of each risk.
1. Environment: Recognising its enormous responsibility, TVM carefully manages its impact on the environment and encourages its portfolio companies to use energy efficiently, lower greenhouse gas emissions, use water responsibly, reduce waste, and choose sustainable materials when sourcing.
2. Social: Human rights and the employees’ health and safety are a clear priority for TVM and its portfolio companies at all times. Relationships and exchanges between managers, employees, suppliers, and business partners are actively promoted to achieve the best possible results for all parties involved. TVM rejects any form of forced, child or compulsory labour. TVM supports the promotion of diversity and inclusion and does not tolerate discrimination in any form. When working with its portfolio companies, TVM strongly promotes principles such as access and affordability, product quality and safety, and customer welfare.
3. Governance: TVM engages with its portfolio companies to encourage strong corporate governance and to encourage the implementation of a sound governance structure. TVM expects its portfolio companies and business partners to manage risks and opportunities surrounding the ethical conduct of business sensibly – working against fraud, bribery, and corruption and promoting a culture of good governance.
Integration of sustainability risks into the investment decision-making processes
Sustainability risks are considered at all stages of each product’s investment process in respect of each individual investment opportunity.
The Investment Advisor is required to assess and identify ESG-related risks in the deal screening process and in the due diligence process by completing a sustainable risk assessment tool in the form of due diligence questionnaires. The questionnaire and the results of the assessment are part of the investment advisory committee paper which is submitted to the Investment Committee for consideration. If material risks are identified in the due diligence process, a risk mitigation/action plan has to be developed by TVM’s compliance team (if necessary, with external experts) and will be added to the Investment Committee paper.
The sustainability risk assessment tool is a tool used to assess the initial sustainability risks for several chosen areas relevant to the potential investment company’s industry and to identify where additional investigation or due diligence into sustainability risks is required. This seeks to ensure that sustainability risks are identified and mitigated during the investment process. Furthermore, during the due diligence process, an external advisor will audit the target’s ESG policy and processes. A commitment to ESG and to an agreed action plan are also part of the legal investment documentation.
During the phase of its investment in the portfolio company, TVM monitors the portfolio companies’ compliance with the set of ESG goals. By using its board representation, TVM assists the portfolio company’s board of directors and management in developing a plan to address and mitigate ESG risks and exposure. TVM sets clear expectations for portfolio companies to help them address material ESG risks and opportunities. TVM regularly asks portfolio companies to report on identified sustainable risks and to report on a quarterly basis any changes to the sustainability risk questionnaire used in the due diligence process.
At the exit, TVM promotes ESG compliance by committing a buyer to continue the ESG development.
The Investment Advisor is primarily responsible for providing advice to the Investment Committee that the consideration of ESG issues is integrated into its investment decisions.
Consistent with TVM’s risk management procedures, the Compliance Officer will have oversight of this policy and be primarily responsible for recommending all ESG policies to the relevant boards.
No consideration of adverse impacts
The SFDR requires TVM to make a “comply or explain” decision whether to consider the principal adverse impacts (“PAIs”) of its investment decisions on sustainability factors, in accordance with a specific regime outlined in SFDR.
TVM has opted not to comply with that regime, both generally and in relation to the Fund.
TVM will keep its decision not to comply with the PAI regime under regular review.
TVM has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the draft Regulatory Technical Standards which were published in April 2020 (the “PAI regime”). TVM is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors and the market, as to how financial market participants integrate consideration of the adverse impacts of investment decisions on sustainability factors. However, TVM is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as TVM believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding TVM’s decision not to comply with the PAI regime, TVM has implemented positive ESG-related initiatives and policies, as part of its overall commitment to ESG matters, as summarised in this section. For the avoidance of doubt, none of the above information is intended to suggest that TVM complies with the PAI regime.
TVM (along with its subsidiaries and controlled affiliates, “TVM”) has established a remuneration policy (the “Policy”) applicable to all TVM entities. The Policy is developed, approved, implemented and monitored by a series of bodies within the TVM structure. The Policy applies to all employees of TVM, save for limited exceptions.
The Policy has been developed with the aim of supporting TVM’s business strategy, corporate values and long‐term interests, including by facilitating the identification, assessment and management of sustainability risks when determining individual remuneration packages. The key principles of the Policy include fostering appropriate risk culture (including with respect to the management of actual and potential conflicts of interest) and compliance with applicable law and regulation.
The performance management and rewards framework envisioned by the Policy has been designed to promote effective risk management, including in particular by:
- Ensuring that assessment of performance takes full account of adherence to risk management requirements, covering all relevant types of current and future risks, including sustainability risks;
- Implementing deferral arrangements using co‐investment and carried interest arrangements for senior personnel, facilitating alignment of interests between staff‐members and third-party investors. If the value of the relevant underlying investment portfolio should decrease (whether arising as a result of a sustainability risk or otherwise), the value of the employee’s holdings will be reduced accordingly; and
- Providing for reduction of deferred variable remuneration awards to senior personnel in certain circumstances, such as in the event that the entity in which the relevant employee works suffers a significant failure of risk management, or experiences a significant downturn in its financial performance (as determined in the sole discretion of TVM), including in connection with a sustainability risk concerning an investment.