SFDR

Entity-Related Information

The following disclosure relates to Vireo Ventures Management GmbH (“Vireo Ventures”), LEI: 529900SWM3OG7S0YJY66.

This statement includes four sections:

1. Transparency of sustainability risk policies (EU 2019/2088 – 3-1)

2. Transparency of adverse sustainability impacts (EU 2019/2088 – 4-1-b)

3. Statement of Principal Adverse Impacts on Investment Decisions on Sustainability Factors (EU 2019 – 4)

4. Transparency of Remuneration Policies in relation to the Integration of Sustainability Risks (EU 2019/2088 – 5)

1. Transparency of Sustainability Risk Policies

Vireo Ventures Management GmbH (“” or the “”) considers and addresses sustainability risks as integral components of its investment decision-making process. Sustainability risks encompass environmental, social, or governance events or conditions whose occurrence could potentially have a material adverse effect on the value of the investment.

Vireo Ventures incorporates sustainability risks into its investment processes by utilizing a thorough ESG due diligence approach that includes multiple steps including a negative screening. Furthermore, Vireo ventures collects Principal Adverse Impacts (‘PAI’) on an annual basis through a third-party ESG tool (ImpactNexus).

For further details on this process and how Vireo Ventures integrates Sustainability Risks during the ownership phase, please contact us for our Responsible Investment Policy and Exclusionary Policy.

Vireo Ventures exercises discretion when addressing sustainability risks, evaluating whether to proceed with an investment based on ‘The Principle of Proportionality’. This may involve implementing measures to mitigate identified risks. Nevertheless, Vireo Ventures retains the freedom to abstain from investing or to proceed despite sustainability risks, in which case it can apply measures to reduce or mitigate these risks. Throughout, Vireo Ventures considers the strategic importance of an investment and its transactional context. Additionally, Vireo Ventures regularly updates its policies to address emerging risks and investor concerns.

2. Transparency of Adverse Sustainability Impacts

Vireo Ventures considers the adverse impacts of its investment decisions on sustainability factors and reports on them annually. Sustainability factors include environmental, social, and employee concerns, respect for human rights, and the fight against corruption and bribery.

As the SFDR and the accompanying RTS are relatively new legislative frameworks, there is limited or no practical experience with the application of their provisions, particularly in relation to the Venture Capital asset class. Consequently, significant legal uncertainties remain regarding the application of these provisions to the strategies pursued by Vireo Ventures. Nonetheless, a best-effort approach will be employed for all reporting requirements.

3. Statement of Principal Adverse Impacts on Investment Decisions on Sustainability Factors

Vireo Ventures considers the adverse impacts of its investment decisions on sustainability factors and reports on them annually. Vireo Ventures’ risk management processes and annual reporting include the consideration of indicators for adverse impacts on sustainability factors as part of the investment process, especially regarding GHG Emissions (PAI 1, 3), Exposure to Fossil Fuels (PAI 4), Carbon Footprint (PAI 2) and Renewable Energy Consumption and Production (PAI 5).

The Fund Manager takes into consideration all mandatory 14 environmental and social PAIs. In addition, the Fund Manager has chosen ‘Breakdown of energy consumption by type of non-renewable sources of energy’ from the additional environment indicators and ‘Number of days lost to injuries, accidents, fatalities and illnesses’ from the additional social indicators. These indicators are then prioritized based on relevance to the Fund and investment thesis (further information in the engagement policies section) to determine current and potential adverse impacts on sustainability factors and to avoid investment in portfolio companies deemed to do significant harm.

The present statement on PAI on sustainability factors covers the reference period from 1 January 2023 to 31 December 2023. As this will be the first reporting period, the earliest historical comparison can be provided for the reporting period of 2024.

4. Transparency of Remuneration Policies in Relation to the Integration of Sustainability Risks

As a registered Alternative Investment Fund Manager (AIFM) under section 2(4) of the KAGB, Vireo Ventures is not mandated to establish a remuneration guideline or policy according to KAGB requirements. However, Vireo Ventures also incorporates ESG and sustainability objectives into carried interest payouts. Following the final close of Vireo Electrification Fund I, the concept of an impact carry mechanism will be implemented. Under this framework, specific carry payments may be contingent upon the attainment of sustainability objectives at the portfolio company level.

Sustainability-Related Disclosures (Article 9 SFDR)

The following disclosure relates to Vireo Electrification Fund I GmbH & Co. KG (“Fund”) (LEI: 529900AQX5OD6T6MYU89)

Summary

Vireo Ventures has categorized the Fund as an Article 9 SFDR fund that aims to advance the transition toward an electrified future through the Sustainable Investment Objective defined in Article 10 EU Taxonomy, “Sustainable contribution to climate change mitigation.”

This aligns with global NetZero targets for 2050 and supports several U.N. Sustainable Development Goals (SDGs): Affordable and Clean Energy (SDG 7), Industry, Innovation, and Infrastructure (SDG 9), Sustainable Cities and Communities (SDG 11), Responsible Consumption and Production (SDG 12), and Climate Action (SDG 13).

Evaluation of the Sustainable Investment Objectives occurs with the Fund requiring all portfolio companies to make best efforts in their annual reporting of the PAI and Sustainability Indicators.

All actions and decisions described herein are undertaken by Vireo Ventures on behalf of the Fund. No specific reference benchmark has been designated to achieve the sustainable investment objective promoted by the Fund, however a best-effort approach will consistently be undertaken.

For the reporting period of FY23, out of the nine investments made, all companies displayed a business model that contributed to fostering the energy transition to renewable energy sources and more efficient of use of energy in light of global net-zero objectives. Additionally, they passed the negative screening and were also transparent about their performance in both the sustainability indicators and Principal Adverse Impacts. Therefore, they 100% met the sustainable investment objective set in the pre-disclosure. Additionally, the sustainability indicators showcased the portfolio’s positive impact in renewable energy capacity build out and GHG reduced or avoided (tonnes CO2). No red flags were identified, and an average ESG score of 77.44 out of 100, based on ImpactNexus’ methodology, was calculated in the standardized ESG assessment conducted across all nine portfolio companies.

No Significant Harm to The Sustainable Investment Objective

1. Minimum Safeguards

The minimum safeguards referred to in point (c) of Article 3 EU Taxonomy shall be procedures implemented by an undertaking that is carrying out an economic activity to ensure the alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

Further, for the purposes of point (b) of Article 3 EU Taxonomy, taking into account the life cycle of the products and services provided by an economic activity, including evidence from existing life-cycle assessments, that economic activity shall be considered to significantly harm climate change mitigation, where that activity leads to significant greenhouse gas emissions.

1. Do No Significant Harm Criteria (DNSH) based on the Technical Screening Criteria (TSC) carried out

The DNSH criteria, based on the EU Taxonomy’s Technical Screening Criteria (TSC), ensure that economic activities contributing to one environmental objective, such as climate change mitigation, do not negatively impact the other five objectives. To meet DNSH requirements, an activity must avoid significant harm to areas like climate change adaptation, water and marine resources, circular economy, pollution prevention, and biodiversity. This comprehensive approach ensures that while an activity promotes sustainability in one area, it does not cause unintended damage in others.

Sustainable Investment Objective of The Financial Product

Vireo Electrification Fund I GmbH & Co. KG aims to drive the transition towards an electrified future with a focus on climate change mitigation, aligned with Article 10 of the EU Taxonomy. The Fund targets to invest in economic activities that contribute to reducing or stabilizing greenhouse gas emissions in line with the Paris Agreement's long-term goals. These activities include renewable energy generation, transmission, storage and distribution, energy efficiency improvements, clean mobility, sustainable material use, carbon capture technologies, land carbon sinks, and the development of energy infrastructure for the decarbonization of energy systems. Additionally, the Fund will invest in activities that will enable any of the activities mentioned above. Furthermore, the Fund supports sectors where low-carbon alternatives are not yet feasible but contribute to climate neutrality by adhering to best practices and avoiding carbon-intensive lock-ins.

Investment Strategy

The Fund exclusively targets portfolio companies driving the energy transition towards renewables and efficiency in line with global net-zero objectives, focusing on sectors like renewable energy, transportation, urban development, and industry. The Fund aims to invest in highly scalable startups advancing electrification with the overarching strategy centering on technologies and business models supporting the "all-electrified world" belief, emphasizing renewable energy production, grid infrastructure, and efficiency measures across sectors like utilities, housing, mobility, and industry. The ultimate objective is to boost renewable energy production and consumption while enhancing energy efficiency to mitigate CO2 emissions. This includes sectors driving significant shifts such as green hydrogen.

Proportion of Investments

The Fund has a minimum target of 40% for investments with an environmental objective aligned with the EU Taxonomy. For the FY23 period, 100% of the Fund's investments were aligned with an environmental objective under the EU Taxonomy.

Monitoring of Sustainable Investment Objective

Vireo Ventures requires all portfolio companies to annually share via a third-party ESG tool their 14 mandatory PAI, including two additional PAI from the environmental and social indicators.

However, the consideration of these indicators strongly relies on the availability of relevant data. Due to the investment focus on pre-seed and seed stage companies, the relevant data may not always be sufficiently available and/or of adequate data quality or meaningful. Depending on the individual data situation Vireo Ventures might not always be able to track all KPIs. When tracking KPIs, Vireo Ventures will rely on the information provided by the individual portfolio companies who undertake a best-effort approach.

The Fund has an increased awareness of the impact of sustainability risks on risk management and the value potential of investments. Therefore, the Fund consults with companies on an ad-hoc basis and carries out further checks if there are indications of potential issues with the Fund’s exclusion criteria. The Fund monitors ongoing compliance with ESG requirements.

Methodologies

Presently, the Fund conducts qualitative assessments regarding the Sustainable Investment Objective, and quantitative assessments based on reported PAIs and the following Sustainability Indicators:

• Installed renewable energy capacity – GWhp per Million EUR invested

• Reduction in GHG emissions (Tonnes CO2e) per Million EUR invested

• Utilised renewable energy – GWh per Million EUR invested

Internal oversight of overall monitoring is managed by one of the senior partners of the fund management company in collaboration with Albrecht von Sydow, our ESG officer from external service provider ACE Alternatives GmbH.

After the first reporting period data is analyzed, internal benchmarks will be created based on portfolio company data and any additional data points researched from external sources.

Data Sources and Processing

Information is obtained from the respective portfolio companies via ImpactNexus a third-party ESG assessment tool, and Scope 1, 2 and 3 emissions are either self-reported by portfolio companies via their own methodology, or by using the carbon calculator provided by Normative (developed in partnership with SME Climate Hub). An external review or verification of the information will be conducted only if misrepresentations are suspected. Data processing is exclusively internal and GDPR compliant.

Limitations to Methodologies and Data

The information collected from portfolio companies during due diligence is externally verified only if misrepresentations are suspected. Therefore, it cannot be completely ruled out that false information may remain undetected in certain cases.

Since the Fund’s investments are made for a multi-year investment period, Vireo Ventures places a high priority on establishing a trusting working relationship with the portfolio companies to ensure that data is submitted reliably and completely.

Vireo Ventures recognizes the rapidly expanding ESG landscape, which may introduce new terminology and taxonomy that founders may find challenging to comprehend, especially if they have not been exposed to it before. Therefore, to ensure that companies have a clear understanding of the KPIs and PAIs they must report on, they will be supported on an as-needed basis by Vireo Ventures’ outsourced ESG team from ACE Alternatives GmbH. This team offers one-on-one guidance on each topic, enhancing understanding and motivation among founders to fulfill all requests.

Due Diligence

During the Due Diligence process, the Fund assesses whether the respective company intends to contribute to the Sustainable Investment Objective. This involves reviewing the company’s pitch deck, data room, and performing interviews that include challenging the company’s founders on their thinking around decarbonization and energy transition.

The Fund Manager will select investments according to the following binding criteria:

• The potential company must have a business model that contributes to fostering the energy transition to renewable energy sources and more efficient of use of energy in light of global net-zero objectives and as stated in the Fund’s investment strategy.

• Must pass through negative screening.

With regards to the latter, the Fund utilises an Exclusionary Policy which is applied in the pre-screening for every portfolio company. A summarized overview is shown below. For the full policy please contact.

• Investments in any illegal economic activity (i.e. any production, trade, or other activity which is illegal under the laws or regulations applicable to the Fund or the relevant company)

  • Investments in the research, development, or technical applications relating to electronic data programs or solutions, which are intended to either illegally enter electronic data networks or download electronic data

  • Reduced negative environmental or social impact.

  • Investment in fossil fuel sector.

  • Investments in companies involved in controversial activities (i.e. tobacco, distilled alcoholic beverages, pornography, weapons)

  • Investments in activities and energy-intensive and/or high CO2-emitting industries unless such investment qualifies as environmentally sustainable investments as defined in EU 2020/852.

Good governance practices are monitored through an assessment of ESG status, legal structure, shareholder composition, KYC checks, team composition and background, implementation of boards and/or committees and remuneration. The due diligence process is not externally monitored. For the full process of our formal procedure, please request our Responsible Investment Policy.

Engagement policies

Vireo Ventures will prioritize PAIs based on its investment objectives and strategy focused on environmental impact, while recognizing that social and good governance factors are also crucial to a company’s success.

Following data compilation annually, the Fund’s investment managers analyze and review these PAIs, and through active ownership engage with key stakeholders, including ESG representatives within investee firms, to ensure comprehensive decision-making and mitigating adverse developments or impacts when they occur. This collaborative process enhances transparency and accountability.

If necessary, actionable measures are proposed, spanning policy adjustments, operational enhancements, and engagement with investees to promote sustainable practices. Through ongoing dialogue and proactive engagement, we strive to drive continuous improvement and alignment with sustainable development goals.

Enhanced Engagement

Enhanced engagement is a cornerstone of our approach at Vireo Ventures, particularly with companies that severely breach ESG standards we have established. Further, our evaluation of corporate behavior is grounded in the expectation that companies adhere to internationally recognized codes of conduct. These include, but are not limited to, the principles outlined in the UN Global Compact and the OECD Guidelines for Multinational Enterprises, which cover a broad spectrum of responsibilities such as corporate governance, social responsibility, environmental stewardship, and transparency.

Our approach underscores our commitment to not only holding companies accountable but also supporting them in adopting more sustainable and responsible business practices.

Stewardship Approach

Our stewardship approach is built on the principle of active ownership. At Vireo Ventures, we believe in leveraging our influence as investors to encourage positive change within the companies in our portfolio, even if we are only minority investors. This involves engaging in constructive dialogue, exercising our voting rights with a focus on long-term value creation, and collaborating with other stakeholders to enhance overall corporate governance and sustainability. Our aim is to foster corporate practices that are not only beneficial to the environment and society but also conducive to the long-term success and resilience of businesses.

Attainment of Sustainable Investment Objective

To achieve the sustainable investment objective outlined above, the Fund meticulously selects investment opportunities throughout the pre-investment and investment phases. The Fund engages proactively with founders and companies, continuously striving to invest into companies that clearly contribute to the topic of climate mitigation. Additionally, a portion of the Fund management company's carry will be tied to impact performance, providing an added incentive.

Date of Publication:

This document was last updated on 01.11.2024 to incorporate amendments and additions from the 2022/1288 SFDR update. If you have any questions, please do not hesitate to contact us at ESG@ace-alternatives.com or visit www.ace-alternatives.com