Sandwater focuses on investments in venture companies who are in a growth phase and developing & scaling new technologies. Such companies present a range of opportunities to contribute positively to environmental and social challenges. We consider that we have a duty to our investors, and to the wider public, to contribute to environmental and social challenges by integrating a strong ESG strategy in our operations and thereby encourage our portfolio companies to operate in an environmentally and socially responsible manner.
In order to achieve this overall objective, Sandwater has adopted an ESG Investment and Risk Policy, which integrates ESG-related factors and risks into Sandwater's investment management activities. The policy is available here.
The EU has adopted legally binding measures on sustainable finance applicable to alternative investment fund managers such as Sandwater. These measures include Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (the "SFDR"), which sets out disclosure and reporting obligations.
The below paragraphs provide specific information required under the SFDR on how we integrate sustainability into our investment decisions, risk assessments, and core policies.
SFDR Article 3 requires alternative investment fund managers such as Sandwater to publish information about their sustainability policies on their websites.
When we screen potential new investments, we analyze the company’s potential to generate positive environmental and social impact. We also evaluate the potential sustainability-related risks related to the company in line with our ESG Investment and Risk Policy. Sustainability risks are environmental, social or governance events or conditions that could cause a material negative impact on the value of the investment (as defined in the SFDR).
Based on our ESG analysis, we calibrate for potential changes in future earnings, balance sheet effects and risk premiums in all our investment assessments. Furthermore, we exclude companies from our portfolios that violate international norms or that produce or promote products with specific negative characteristics. If we consider the sustainability 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.
Within our portfolios, we also actively seek opportunities to improve identified sustainability risks to reduce the vulnerabilities and improve the potential of our portfolio companies. Although Sandwater holds minority ownership shares in underlying portfolio companies, our investment strategy entails active ownership and engagement with portfolio companies to ensure continuous improvement in our portfolio. ESG-related factors are promoted both through Sandwater exercising its ownership rights and through dialogue and engagement with the management teams at the portfolio companies. We also employ quantitative analyses to track the exposure of our portfolio towards e.g. carbon intensive sectors.
At this time, Sandwater does not consider principal adverse impacts in the manner set out in article 4 of the SFDR of its investment decisions on sustainability factors.
Sandwater applies its ESG Investment and Risk Policy and thus observes its portfolio companies’ sustainability impact. However, Sandwater has currently chosen not to report adverse impacts of its investment decisions on sustainability factors in the manner set out in article 4 of the SFDR. These sustainability factors could include environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters, etc.
The reason for this is that we expect significant challenges in obtaining information of sufficient quality and level of detail from potential portfolio companies as would be required to meaningfully report on the principal adverse impact indicators set out in the regulatory technical standards accompanying the SFDR. . Sandwater will therefore not be issuing a principal adverse impact statement under article 4 of the SFDR.
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 forming the basis for awarding remuneration:
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 disclosure section on its website, pursuant to article 10 of SFDR. The below paragraphs provide the information as required under that article.
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 its investment process.
The ESG investment and risk policy integrates ESG factors into Sandwater's investment management activities. In summary, this entails:
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 its management, including the Fund.
This financial product promotes environmental or social characteristics, but does not have sustainable investment as its objective.
The following environmental and social characteristics are promoted by the Fund:
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, which is implemented in the investment process on a continuous basis.
The investment analysis also includes an assessment of good governance practices, such as management structures, employee relations, remuneration of staff and tax compliance.
To that end, Sandwater will apply indicators such as the portfolio companies' compliance with international standards and conventions (i.e., the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights), accurate reporting to markets and the public, taxation and accounting practices, and respect of shareholder rights.
Sandwater will apply the ESG Investment and Risk Policy and the Fund's exclusion criteria in relation to all of the Fund's investments. Accordingly, 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 environmentally sustainable economic activities as defined in the EU Taxonomy Regulation.
In order to measure the Fund’s attainment of its promoted environmental and social characteristics, Sandwater will monitor:
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 to norm- or industry/product based exclusion, unmanageable sustainability risks or unacceptable principal adverse impacts.
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 establish a dialogue with potential portfolio companies and 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 situation as closely as possible.
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 and the exclusion criteria specific to the Fund will be integrated in the investment process with respect to any potential investments.
For every potential investment, Sandwater will perform an assessment and screening process of the portfolio companies. An ESG analysis forms an integral part of this process. As a result of this analysis and screening, Sandwater may exclude companies that do not follow fundamental international and national laws and norms, as well as companies investing in certain product categories and industries inconsistent with the environmental and social profile of the Fund. 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 the potential to make positive environmental and social contributions and which do not entail unacceptable principal adverse impacts.
The ESG assessment will usually be performed by Sandwater, and 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.
The Fund will have a minority ownership share in underlying portfolio companies, and Sandwater will 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 through dialogue with the management teams of the Fund's portfolio companies.
Sandwater will focus on influencing and improving the behaviour in the underlying portfolio companies, and may engage with portfolio companies to:
Stay in the loop - sign up for our newsletter