Sustainability Related Website Disclosures (Article 37 to 49, SFDR Delegated Regulation (EU) 2022/1288)
Summary
This summary aims to provide information on the sustainable investment objective of Obligo Nordic Climate Impact Fund (“the fund”) and how the objective is attained. The fund is labelled an Article 9 product according to EU SFDR regulation (2019/2088). The fund aims to invest in companies and assets with a net positive impact on climate and society. The investments must align with one or more of Obligo’s targeted UN Sustainable Development Goals (the “SDGs”). All investments undergo impact due diligence with the goal of identifying the company’s positive contribution to the SDGs and ensure that it does no significant harm to the sustainable investment objective. As an active manager, Obligo works closely with portfolio companies to promote strategies aligned with the sustainable investment objective and implement relevant measuring and reporting schemes.
This “Summary” section (below) has been translated into Norwegian. Translations in other languages can be made available to our investors upon request. Considering that the fund is a closed-ended fund with only professional investors, we have assessed that information in English and Norwegian would be sufficient for our investors.
Denne oppsummeringen har som mål å gi informasjon om det bærekraftige investeringsmålet til Obligo Nordic Climate Impact Fund III (“fondet”) og hvordan målet oppnås. Fondet er merket som et Artikkel 9-produkt i henhold til EU SFDR-reguleringen (2019/2088). Fondet har som mål å investere i selskaper og eiendeler med en netto positiv innvirkning på klimaet og samfunnet. Investeringene må være i samsvar med ett eller flere av Obligo’s målrettede FN bærekraftsmål (“SDG-ene”). Alle investeringer gjennomgår påvirkningsdiligens med mål om å identifisere selskapets positive bidrag til SDG-ene og sikre at det ikke gjør betydelig skade på det bærekraftige investeringsmålet. Som aktiv forvalter samarbeider Obligo tett med porteføljeselskapene for å fremme strategier som er i tråd med det bærekraftige investeringsmålet og implementere relevante målings- og rapporteringssystemer.
No significant harm to the sustainable investment objective
The manager will conduct impact due diligence of all investments in an appropriate manner in order to seek to ensure that the sustainable investments of the fund do not cause significant harm to the sustainable investment objective of the fund in accordance with SFDR. The manager has developed its own methodology for sustainability due diligence which is outlined in the due diligence section in this document.
The fund seeks to invest in small companies where significant adverse impacts rarely arise. In any event, if significant adverse impacts are uncovered in the assessment of the Principal Adverse Impact indicators of a company, the manager will not invest. If risks are uncovered after the investment decision, the manager will closely monitor the investment, plan actions, and set targets for the next reference period to reduce adverse impact. Given that the asset classes we invest in are relatively illiquid and long-term investment, the manager believes it is more beneficial to first exercise active ownership and engage with the company to reduce adverse impact rather than exit from the investment, if any such adverse impact occurs.
As part of the impact due diligence, the investment manager aims to uncover issues or risks related to the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The manager verifies whether policies and processes are aligned with the guidelines, and whether the company has had any past issues related to human and labour rights. Early-stage or small companies may not have implemented all the processes required to comply with the standards, Obligo will endeavour to encourage implementation during the ownership period.
Sustainable investment objective of the financial product
The fund will seek to establish a diversified portfolio of investments with positive climate impact. Sectors that will be considered for investments are (based on the manager’s consideration) “sustainable energy and decarbonization”, “transmission and distribution”, “clean mobility” and “digital infrastructure”. The fund will seek to make investments that will contribute to the achievement of the United Nations Sustainable Development Goals (SDGs) number 7 (which focuses on affordable and clean energy), number 8 (which focuses on decent work and economic growth), number 9 (which focuses on industry innovation and infrastructure), number 11 (which focuses on sustainable cities and communities) and number 13 (which aims to take urgent action to combat climate change and impacts). The fund will seek to make investments in companies/assets that contribute towards climate change mitigation and adaption, and reduced GHG emissions in line with the Paris Agreement.
The ambition of the manager is to, on behalf of the fund, make investments into companies/assets so that, measured on a portfolio basis (when the fund is fully invested), the majority of the revenue, capex and/or opex stems from/are linked to/used to finance economic activities where technical screening criterias have been prepared and included in the EU Taxonomy (i.e. taxonomy eligible activities). However, the manager makes no representation and does not guarantee that this ambition will be met.
Investment strategy
The fund’s strategy is to invest only in activities that enable the reduction or avoidance of CO2 emissions. Sectors that will be considered for investments are (based on the managers consideration) “sustainable energy and decarbonization”, “transmission and distribution”, “clean mobility” and “digital infrastructure”. The fund will make direct investments in Nordic climate impact assets, a minimum of 60% in operating assets when the fund is fully invested, the rest in developing and construction phases (max 40%). Up to 100% of the investments will be made in Nordic countries, a maximum of 20% can be in Western European counties.
The fund will seek to make investments that will contribute to the achievement of the targeted SDGs mentioned in the previous section. The investment strategy is implemented in a set of processes, amongst others (1) in the pre-investment processes (identification and sourcing of investments, due diligence, risk management etc.), (2) in strategically follow up of the investments through for example board representation etc., (3) in the exit phase.
To ensure the investee companies follow good governance practices, investments undergo financial, tax, legal and sustainability due diligence. We monitor good governance practices regularly through Board participation and dialogue with management. This includes, but is not limited to sound management structures, employee relations, remuneration of staff and tax compliance. If risks related to sustainability or good governance are identified, the manager will seek to make concrete improvements and follow up through active engagement with the company. If significant harm is uncovered in the assessment of Principal Adverse Impact indicators of a company, the manager will not invest.
In addition, the Manager is a signatory of the UN Principles for Responsible Investments, a supporter of the TCFD, a UN Global Compact participant, and a member of NORSIF. The Manager is committed to the guidelines of the Norwegian Corporate Governance Board. Through these commitments we ensure that our sustainable investments are aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The ESG guidelines on our website further detail how we assess good governance practices of investee companies.
Proportion of investments
The minimum share of sustainable investments is 100%, excluding some amount of cash which may be held in the Fund accounts at the end of any reporting period. Due to the nature of the investment activities, this is expected to be achieved when the fund is fully invested. The fund will seek to establish a diversified portfolio of investments with positive climate impact.
The fund does not have a minimum requirement of investments that are aligned with the EU taxonomy. The ambition of the manager is to, on behalf of the fund, make investments into companies/assets so that, measured on a portfolio basis (when the fund is fully invested), the majority of the revenue, capital expenditure and/or operating expenditure stems from/are linked to/used to finance economic activities where technical screening criteria have been prepared and included in the EU Taxonomy (i.e. taxonomy eligible activities). However, the manager makes no representation and does not guarantee that this ambition will be met. The fund does not have a minimum share of investments in transitional and enabling activities.
The sectors that will be considered for investments are (based on the manager’s consideration) “sustainable energy and decarbonisation”, “transmission and distribution”, “clean mobility” and “digital infrastructure”, with a maximum of 60% allocated to a single industrial sector and a maximum of 30% in any one asset.
Monitoring of sustainable investment objective
The fund’s sustainable investment objective will be monitored by collecting and reporting data on sustainability indicators related to measuring the investments’ contribution to climate change mitigation. Sustainability indicators and principle adverse impact indicators are monitored throughout the Fund’s lifecycle. In addition, the SFDR and EU taxonomy reporting requirements are regularly reviewed to ensure that the investments fulfil the requirements prior to the investment decision and are managed during the Fund’s lifetime.
To supplement the Principal Adverse Impact indicators, the fund will report on the following:
- Contribution score to SDGs (as defined by Obligo’s proprietary SDG impact framework)
- % of investments eligible under the EU Taxonomy regulation
Further, the manager will identify suitable key performance indicators for each sector to measure the impact of the investment relative to the sustainable investment objective. The manager will base these indicators on the IRIS+ Core Metric Sets, developed by the Global Impact Investing Network.
Methodologies
Obligo’s Responsible Investment and ESG policy outlines our commitments, procedures, and expectations as a responsible and sustainable investor in detail. To ensure a strong foundation for investment decisions, our framework aims to have a holistic picture of a company’s impact and risks, by using a variety of different tools in our assessment. Fundamental research is also a core component of our investment process, and we regularly publish research notes on methodologies and frameworks used, and we reassess our approach in line with market practices.
Obligo’s sustainable investment objectives are aligned with the SDGs to contribute closing the investment gap by 2030, drive better decision making and effective impact management, as well as reducing climate risk for investors. Mapping our investments against the relevant SDGs and underlying targets enables us to identify risks and measure our commitment and impact, hence we use them to measure attainment of the sustainable investment objective.
The manager considers climate risk due diligence early in the investment phase to identify potential climate risks, avoid stranded assets and capture investment opportunities. Based on the assets Obligo invests in, the manager has identified material topics. These are sourced from the SASB materiality finder and guide our overarching framework for measuring the attainment of the sustainable investment objective. In addition, we integrate sustainability risks in the investment decision-making process and have developed a framework for assessing the financial impact of sustainability risk within the categories of climate and environment, social and employee, respect for human rights, and governance.
Data sources and processing
Obligo uses various sources of information in our assessment of investments. The data sources used to measure the attainment of the sustainable investment objective of the financial product include company information and insights; peer-reviewed and industry research; international public good resources related to impact such as GIIN, SASB, UN SDGs, TCFD, etc. The manager will strive to use reliable, science-based sources,
The collection of indicators is an ongoing learning processes and under the manager’s discretion, third-party experts and external data sources may be used for quantitative and qualitative analysis as well as for the monitoring of sustainable impact. To address data gaps, estimates may be used, however the proportion and an explanation of the estimated data will be reported in compliance with the SFDR regulation. The manager will follow the calculation methods specified in the SFDR regulation (2022/1288). Reported indicators will be disclosed as aggregated figures. Top of Form
Limitations to methodologies and data
Principal Adverse Impact indicators are reported directly to the fund by the portfolio companies. Where there is no data available, the manager relies on estimates proportional to the scope of the activity invested, based on industry practice. It is possible that despite best efforts, the reported figures are not accurate or exact figures. The manager does not believe that reporting estimates will affect the attainment of the sustainable investment objective, as the estimates should describe in enough detail the magnitude and scale of the impact.
Due diligence
The manager has developed its own methodology for sustainability due diligence which is applied when managing the fund and is as follows:
- Defining contribution to sustainable investment
- SFDR Article 9 definition: sustainable investment objective
- EU Taxonomy environmental objective: climate change mitigation
- Contribution to targeted UN SDGs: 7, 8, 9, 11, 13
- Do no significant harm
- Minimum safeguards: OECD Guidelines for Multinational Enterprises and UN Guiding Principles
- Principal Adverse Impact indicators
- ESG materiality and risk analysis
- Good governance practices
- Obligo’s ESG and Responsible Investment Policy
- Comprehensive assessment of governance practices
- Obligo’s Code of Conduct
The due diligence undergoes internal controls, information is verified by the portfolio company, and may undergo external control if required. As part of the due diligence, the investment manager aims to uncover issues or risks related to the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. The manager verifies whether policies and processes are aligned with the guidelines, and whether the company has had any past issues related to human and labour rights. Early-stage or small companies may not have implemented all the processes required to comply with the standards, Obligo will endeavour to encourage implementation during the ownership period.
Engagement policies
The fund’s engagement policies aim to ensure that the sustainable investment objective of the fund is realised and that the investments of the fund do not cause significant harm to society and employees, do not violate human- or workers’ rights, nor participate in corruption and bribery. The fund manager is committed to responsible investment and business practices as outlined in Obligo’s Code of Conduct and Responsible Investment and ESG Policy. The fund manager will use best efforts to reduce the principal adverse impacts on the sustainability factors of investments.
As active owners, we regularly engage with portfolio companies in order to improve sustainability practices and to reduce the risk of adverse impacts. Obligo conducts sustainability workshops with portfolio companies where we align expectations and priorities, identify material topics and areas for improvement. Our contribution as investors is not just financial, we aim to share expertise, implement policies, and improve sustainability practices in a portfolio company such that we maximise our impact.
Attainment of the sustainable investment objective
The fund has not defined any reference benchmark as the manager considers that no appropriate benchmark for the fund exists. The continued effort of attaining the objective of reducing carbon emissions is ensured in view of achieving the objectives of the Paris agreement as outlined in the investment strategy.
