Mandatory disclosures under the Regulation of the European Parliament and of the Council concerning sustainability-related disclosure requirements in the financial services sector (EU) 2019/2088 („Disclosure Regulation“):
Sustainable Risk Policy
Sustainability risk management is embedded in the way EOS seeks to originate investments and make investment decisions, as well as in ongoing portfolio and asset management activities.
EOS recognises the importance of identifying, assessing, and managing material sustainability risks as an integral part of conducting business.
EOS‘ sustainability risk policy provides a comprehensive framework for integrating sustainability risk management into investment decision making
How does this Sustainability Risk Policy work?
EOS commits to the Six Principles of Responsible Investment developed by the UN. The Sustainability Risk Policy sets out how sustainability risks are integrated into EOS‘ investment decision-making processes:
The risks which are identified in the Sustainability Risk Matrix using guidance from the Sustainability Accounting Standards Board framework, which identifies financially material ESG risks by asset class. The following sustainability risks are considered:
- Environmental: climate change, pollution, waste management, resource management, environmental footprint in the supply chain
- Social: staff wellbeing, fair working conditions, health and safety, supply chain and human rights, product integrity, safety and quality, community impact
- Governance: business ethics, anti-corruption and anti-bribery, code of conduct, board and management structure, internal controls, governance in supply chain, data protection, stakeholder engagement and reporting
By means of a materiality analysis, ESG aspects that are of particular importance for the investment are identified and taken into consideration when determining ESG risks and opportunities.
Integration of sustainability risks into 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 team is required to use a sustainability risk assessment tool as part of the investment committee paper submitted to the Investment Committee for consideration.
The sustainability risk matrix is a tool used to assess initial sustainability risks for a number of chosen areas relevant to the product in question, and to identify where additional investigation or due diligence into sustainability risks is required. This seeks to ensure sustainability risks are identified and mitigated during the investment process.
The sustainability risk matrix requires completion of due diligence questionnaires by a EOS Investment professional and requires an assessment of each deal to be conducted two times throughout the investment process: at Preliminary Investment Approval, Final Investment Approval. EOS is committed to ensuring compliance with its ESG standards at the level of its management and advisory entities, funds and other investment products and portfolio companies. To the extent that ESG risks should materialise, EOS shall prepare an ESG action plan, in cooperation with any such portfolio company, to ensure that full compliance with ESG objectives and standards is achieved. Where a material risk has been identified that cannot be remedied by an ESG action plan, the compliance officer, together with the investment committee, shall re-evaluate the investment and decide on appropriate action.
The Sustainability Risk Policy concerns the entire EOS organization, and it is the responsibility of all investment professionals to observe it. The investment team is required to apply EOS’ ESG standards during all stages of the investment process, from the initial approval through the holding period until and including the exit.
EOS Compliance Officer, Thomas Oberfrank, oversees the implementation of the Sustainability Risk Policy to ensure that the investment professionals fulfil their ESG obligations throughout the investment cycle. Thomas Oberfrank regularly reviews the operations of the investment professionals to ensure optimal practices. Together with the respective portfolio company and responsible EOS member, Maximilian Mang prepares bespoke ESG action plans if any sustainability risks are identified.
Principal Adverse Impact
The SFDR requires EOS 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. EOS has opted not to comply with that regime, both generally and in relation to the Fund.
EOS will keep its decision not to comply with the PAI regime under regular review.
EOS has carefully evaluated the requirements of the PAI regime in Article 4 of the SFDR, and in the Regulatory Technical Standards which were published in April 2020 (the „PAI regime“). EOS 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, EOS is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as EOS believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding EOS‘ decision not to comply with the PAI regime, EOS 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 following information is intended to suggest that EOS complies with the PAI regime.
EOS (along with its subsidiaries and controlled affiliates, „EOS“) has established a remuneration policy (the „Policy“) applicable to all EOS entities. The Policy is developed, approved, implemented and monitored by a series of bodies within the EOS structure. The Policy applies to all employees of the EOS, save for limited exceptions.
The Policy has been developed with the aim of supporting EOS‘ 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 EOS), including in connection with a sustainability risk concerning an investment.