Our impact approach

Sandwater focuses on investments in venture companies in a growth phase. Such companies present a range of opportunities to contribute positively to environmental and social challenges. We consider that we have a duty to investors, and the wider public, to contribute to environmental and social challenges by integrating an ESG strategy in our operations and thereby promote operation in an environmentally and socially responsible manner by companies in a growth phase.

In order to achieve this overall objective, Sandwater has adopted an ESG Investment and Risk Policy, which integrates ESG factors and risks Sandwater's investment management activities. The policy is available here.

The EU has adopted legally binding measures on sustainable finance and Sandwater will seek to comply with these legal measures in full. These measures include Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (the "SFDR"). The SFDR sets out disclosure and reporting obligations for alternative investment fund managers like Sandwater. The SFDR was applicable in the EU from March 2021 and is in the process of being implemented into Norwegian legislation.

The below paragraphs provide specific information required under the SFDR, about our policies on integration of sustainability risks, our remuneration policies in relation to sustainability risks and whether principal adverse impacts of our investment decisions are considered .

 

Sustainability risks

We integrate sustainability risks in all our investment strategies in line with our ESG Investment and Risk Policy.

Sustainability risks are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the investment (as defined in the SFDR).

As stated in our ESG Investment and Risk Policy, we integrate certain ESG risk factors in all our investment decisions. More specifically, ESG risk factors are part of our investment analysis and screening process. Reflecting our ESG analysis we adjust for potential changes in future earnings, balance sheet effects and risk premiums in all our investment assessments.

Within our portfolios we also actively seek opportunities to improve identified sustainability risks to reduce the vulnerabilities and improve the potential of portfolio companies. This helps lowering both the risks of the portfolio companies and the risks relating to our investments. If we consider the ESG risks to be too high, or we conclude that the companies are not willing to address any underlying ESG risks, we will elect to not make new or further investments in such companies.

Sandwater’s approach to principal adverse impacts under SFDR article 4

The underlying objective of Article 4 of SFDR is to encourage financial market participants to pursue more sustainable investment strategies in terms of reducing negative externalities on sustainability caused by their investments.

Although Sandwater by applying its ESG Investment and Risk Policy observes negative externalities on sustainability by its portfolio companies, Sandwater has currently chosen not to consider adverse impacts of our investment decisions on sustainability factors in the manner set out in article 4 of the SFDR. The reason for this is that we expect significant challenges in obtaining information of sufficient quality and level of detail from potential portfolio companies that is required to meaningfully report on the principal adverse impact indicators set out in the regulatory technical standards accompanying the SFDR, as well as other adverse impact indicators to investors. As a consequence, Sandwater will not be issuing a principal adverse impact statement under article 4 of the SFDR.

However, as noted above we actively seek to mitigate negative externalities of our investments on sustainability factors through the use of exclusions , active ownership and quantitative analyses. We exclude companies from our portfolio that violate international norms or that produce or promote products with specific negative characteristics. This includes among others companies with significant climate or environmental effects, companies that systematically violate international law or human rights or companies with challenges related to corruption or other forms of economic crime. Although Sandwater holds minority ownership shares in underlying portfolio companies, our investment strategy entails a very active ownership and continuous engagement with portfolio companies to ensure continuous improvement in our portfolio. ESG-related factors will be promoted both through Sandwater exercising its ownership rights and through dialogue and engagement with the management of the portfolio companies. We employ quantitative analyses to track the exposure of our portfolio companies towards e.g. carbon intensive sectors.

Remuneration policies

Sandwater's remuneration policy aims to promote sound and effective risk management. Sustainability risks are a part of the overall risk assessment and are therefore included in the risk references in our guidelines. In particular, sustainability risks are included in the following principles for which are the basis for awarding remuneration:

  • The remuneration policy shall promote sound and effective risk management, including in relation to sustainability risks, and be in line with the investment strategies risk-tolerance and long term objectives of Sandwater and the funds under management
  • Remuneration shall not encourage excessive risk taking with respect to sustainability risks
  • When assessing performance in relation to variable remuneration, current and future risk, including sustainability risks, for Sandwater and for the funds under management must be taken into account.
  • The effect that the remuneration scheme may have on conflicts of interest in relation to the integration of sustainability risk, including in relation to activities that involve greenwashing, incorrect presentation of investment strategies or other incorrect marketing, is considered.

Sustainability related product dicslosures for Sandwater Fund I

Sandwater is the alternative investment fund manager for the alternative investment fund Sandwater Fund I AS (the "Fund"). Sandwater is of the view that the Fund promotes, among other characteristics, a combination of environmental or social characteristics, and that the Fund is therefore covered by article 8 of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (the "SFDR").

Sandwater is therefore required to include a sustainability-related product disclosre section on its website, pursuant to article 10 of SFDR. The below paragraphs provide the information as required under that article.

Summary

Sandwater is of the view that the Fund is covered by article 8 SFDR as it promotes, among other characteristics, a combination of environmental or social characteristics as Sandwater has adopted and applies its ESG Investment and Risk Policy in the investment process.

The ESG investment and risk policy integrates ESG factors in Sandwater's investment management activities. In summary, this entails:

  • An obligation for Sandwater to integrate in its investment decision process certain ESG factors, more specifically ESG factors are part of the investment analysis and screening process of potential portfolio companies.
  • An exclusion mechanism meaning that Sandwater will not make investments with certain exposures.
  • Active ownership meaning that Sandwater will seek to exercise its ownership rights and have dialogue with the portfolio companies to promote integration of ESG factors on an on-going basis.
    Further, Sandwater integrates sustainability risks in its investment decisions, in line with the ESG Investment and Risk Policy. In this respect, the policy entails:
    1. An obligation for the Investment Manager to integrate in its investment decision process certain ESG risk factors, more specifically ESG risks factors are part of the investment analysis and screening process of potential portfolio companies and investments will not be made in portfolio companies in the event that unmanageable ESG risks are identified.

Sandwater believes that operating in line with the ESG Investment and Risk Policy will have a positive impact on the risk-adjusted return of funds under management, including the Fund.

No sustainable investment objective

This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment

Environmental and social characteristics of the financial product

The following environmental and social characteristics are promoted by the Fund:

  • Investments that conflict with Sandwater's ESG related exclusion mechanism are negatively screened for (excluded)
  • Investments that are exposed to unmanageable ESG related risks are negatively screened for (excluded)
  • Investments which have the potential to contribute to an environmental and/or social objectives or goals are positively screened for, meaning that Sandwater as a main rule will seek to make investments which have the potential to make such contributions. Relevant environmental or social objectives/goal include, but are not limited to:
    1. The following selected EU Taxonomy environmental objectives: (1) climate change mitigation, (2) climate change adaption; and (4) the transition to a circular economy
    2. The following selected UN Sustainable Development Goals: (3) Good Health and Well-being; (4) Quality Education; (7) Affordable and Clean Energy; (9) Industry, Innovation and Infrastructure; (11) Sustainable Cities and Communities; (12) Responsible Consumption and Production; and (13) Climate Action.

Investment strategy

The investment strategy used to attain the environmental and social characteristics promoted by this financial product is set out in Sandwater's ESG Investment and Risk Policy

The ESG Investment and Risk Policy and thus the strategy used to attain the environmental and social characteristics set out therein is implemented in the investment process on a continuous basis.

Proportion of investment

Sandwater will apply the ESG Investment and Risk Policy in relation to all investments which entails that 100% of the investments of the Fund will be aligned with the promoted environmental and social characteristics. As noted in the introductory section, the Fund does not commit to make a minimum proportion of sustainable investments as defined in the SFDR and/or the EU Taxonomy Regulation.

Monitoring of environmental or social characteristics

Sandwater measures the attainment of each of the above mentioned environmental and social characteristics throughout the investment decision making process as part of the ESG analysis process. The indicators used in this process are:

  • Whether the investment conflicts with product/industry-based and norm-based exclusion mechanisms
  • Whether the investees have the potential to contribute to an environmental and/or social objective or goal
  • Whether the investment entails unacceptable principal adverse impacts, considering specific principal adverse impact indicators
  • Whether investees are exposed to unmanageable sustainability risks
  • Whether investees adhere to good governance practices
  • No reference benchmark has been designated for the purpose of attaining the environmental and social characteristics promoted.

Methodologies

The ESG analysis for each potential investment, including the assessment made in relation to the above parameters, will be documented for each potential investment in Sandwater's internal CRM systems.

The ESG analysis and screening process will be subject to ongoing monitoring, and regular reports will be prepared. Such reports will show performance in relation to each of the above indicators and ESG parameters, for example the number of potential investee companies which were excluded due norm- or industry/product based exclusion, unmanageable sustainability risks or unacceptable principal adverse impacts.

Data sources and processing

Information on ESG factors and risks will as a main rule be obtained directly from potential portfolio companies, and processed by the company as part of the ESG analysis and screening process. Sandwater will through dialogue with potential portfolio companies seek to ensure that the data collected is of the highest possible quality. Estimations will be used in situations where it is not possible or unduly burdensome to obtain observable data. Such estimations will be based on Sandwater's experience with similar companies, and will aim to reflect the actual as closely as possible.

Limitations to methodologies and data

The methodologies and data described above have limitations, including that estimations, which are less reliable than observable data, may be used and that observable data will in most cases not be verified by external third party sources. However, the ESG Investment and Risk Policy will be integrated in the investment process with respect to any potential investments. As the integration of this policy is the environmental and social characteristic promoted by Sandwater, these limitations do not affect the characteristics promoted.

Due diligence

For every potential investment, Sandwater will perform an assessment and screening process of the portfolio companies which integrates an ESG analysis. As a result of this analysis and screening, Sandwater may firstly exclude companies which do not follow fundamental international and national laws, and norms, as well as companies investing in unsustainable product categories and industries. Further, Sandwater will not make investments where the portfolio company is assessed to be exposed to unmanageable sustainability risks. As a main rule, Sandwater will seek to make investments that have potential to make contributions as described above and which do not entail unacceptable principal adverse impacts.

The ESG assessment will usually be performed by Sandwater. No established controls of the process has been established, but the screening and analysis process may be subject to monitoring and review by the Board of Directors of Sandwater and/or the Advisory Committee of the Fund.

Engagement policies

Sandwater will have a minority ownership share in underlying portfolio companies and will also support portfolio companies by actively contributing and providing available expertise and network. Sandwater will promote ESG-related factors both through exercising its ownership rights and by through dialogue with the management of the portfolio companies.

Sandwater will focus on influencing and improving the behaviour in the underlying portfolio companies, and may engage with portfolio companies to:

  • encourage increased focus on ESG factors, including the implementation of ESG policies and practices in the investee companies;
  • influence the investee companies to reduce adverse impact on ESG factors;
  • increase understanding and integration of ESG related risks in the investee companies; and/or
  • improve ESG disclosures and reporting from the investee companies.
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Sandwater
Universitetsgata 12
Oslo, Norway

hello(at)sandwater.com