Sustainability-related disclosures pursuant to Regulation (EU) 2019/2088 (“SFDR”)
Date of publication: 10 March 2021
Date of update: 6 December 2022 (implementation of recent legislative developments, addition of sustainability-related disclosures regarding Cherry Ventures Fund IV GmbH & Co. KG, and editorial amendments and clarifications)
I. Sustainability risks
Cherry Ventures Management GmbH (“Cherry Ventures”, LEI: 391200KFLCM0G1BON952) considers sustainability risks as part of its investment decision-making process. Sustainability risks are environmental, social or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. Cherry Ventures considers and assesses sustainability risks as part of its due diligence process prior to any investment. Such assessment is being conducted by using a questionnaire. The results of such assessment are taken into account when the investment decision is being taken. However, Cherry Ventures remains free in its decision to refrain from investing or to invest despite sustainability risks, in which case Cherry Ventures can also apply measures to reduce or mitigate any sustainability risks. At all times, Cherry Ventures will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
II. No consideration of adverse impacts of investment decisions on sustainability factors
Cherry Ventures does not consider any adverse impacts of its investment decisions on sustainability factors and, hence, does not use the sustainability indicators listed in Annex I of the Regulatory Technical Standards (Delegated Regulation (EU) 2022/1288, “RTS”) to identify and assess potential adverse impacts. Sustainability factors are environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery.
Given that the SFDR, the Regulation (EU) 2020/852 (“EU Taxonomy”) and the accompanying RTS are relatively new legislative acts, there is very little or no practical experience or practice with regard to the application of their respective provisions. Therefore, substantial legal uncertainties would remain when applying those provisions to the strategies pursued by Cherry Ventures. Moreover, the burden associated with considering adverse impacts on sustainability factors (particularly if sustainability indicators are used) is disproportionate in light of the very limited relevance that such impacts could have in the context of Cherry Ventures’ investment strategy: Cherry Ventures pursues an active venture capital strategy and invests in start-ups in the digital economy mainly in the European Union. As a result of the business and geographic focus (digital business models in highly regulated jurisdictions), Cherry Ventures’ investment decisions are rather unlikely to have severe adverse impacts on sustainability factors. Furthermore, given the early-stage investment strategy, there are usually no (or only very few) adverse impacts that could be assessed through the sustainability indicators listed in Annex I of the RTS. In addition, Cherry Ventures considers it a substantial burden for its early-stage portfolio companies to collect and report the relevant data as required by the SFDR and the accompanying RTS. However, Cherry Ventures obligates its portfolio companies to collect and report data on negative effects on sustainability factors on a mandatory and at least annual basis.
If and to the extent that the legal uncertainties will be resolved and a practicable market and administrative practice will evolve in this regard, Cherry Ventures will re-evaluate considering principal adverse impacts of its investment decisions in due course. In the meantime, Cherry Ventures remains free in its decision to use part of the sustainable indicators listed in Annex I of the RTS and/or an own set of indicators.
III. Remuneration disclosures
As a registered alternative investment fund manager within the meaning of Sec. 2 (4) of the German Investment Code (Kapitalanlagegesetzbuch, “KAGB”) and a manager of a qualifying venture capital fund as defined in Art. 3 (b) of Regulation (EU) No. 345/2013 (“EuVECA-Regulation”), Cherry Ventures does not have and does not need to have a remuneration guideline or policy in accordance with the requirements of the KAGB or the EuVECA Regulation.
IV. Sustainability-related disclosures
1. Cherry Ventures Fund IV GmbH & Co. KG
Financial product: Cherry Ventures Fund IV GmbH & Co. KG (the “Fund” / der “Fonds”)
The Fund considers certain environmental and/or social characteristics as part of its investment decisions and monitoring processes but does not seek to make sustainable investments as defined in the SFDR. The consideration of environmental and/or social characteristics is carried out both before and after an investment. For this purpose, information is initially and regularly obtained from the portfolio companies by means of qualitative queries. The Fund incorporates exclusion (negative screening) aspects during the decision-making process. Thereby the Fund considers several ESG themes to be the key to responsible investing. The actions and decisions described in the following section are each made by Cherry Ventures for and on behalf of the Fund.
Der Fonds berücksichtigt bestimmte ökologische und/oder soziale Merkmale im Rahmen seiner Investitionsentscheidungen und Monitoring-Prozesse, strebt aber keine nachhaltigen Investitionen im Sinne der SFDR an. Die Berücksichtigung von Umwelt- und/oder Sozialmerkmalen erfolgt sowohl vor als auch nach einer Investition. Zu diesem Zweck werden zunächst und regelmäßig Informationen von den Portfoliounternehmen durch qualitative Abfragen eingeholt. Der Fonds bezieht Exklusionsaspekte (negatives Screening) in seinen Entscheidungsprozess ein. Dabei betrachtet der Fonds mehrere ESG-Themen als Schlüssel für verantwortungsvolles Investieren. Die in diesem Abschnitt beschriebenen Handlungen und Entscheidungen erfolgen jeweils durch Cherry Ventures für den Fonds.
No sustainable investment objective
The Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
The Fund promotes environmental and/or social characteristics by implementing certain investment exclusions (see section ‘Investment strategy’) during the decision-making process.
The purpose of the Fund is to build, hold and manage (including to divest) a portfolio of equity and equity-related investments in portfolio companies. Thereby, the Fund will invest in portfolio companies from all sectors with innovation capacity and growth potential, with a focus on internet and software technology businesses. Early stage investments – i.e., seed stage, early stage and growth stage investments – should be a specified target segment. Hence, investments are expected to be spread across a wide range of economic activities. Particularly, the Fund will invest (i) an aggregate amount equal to at least EUR 40 million into portfolio companies which, at the time of the investment, qualify as small-or medium sized enterprises and have their registered office (Sitz), administrative headquarters (Hauptverwaltung) or focus of their business activity in the Federal Republic of Germany; and (ii) at least two thirds of the invested capital in portfolio companies that qualify as small- or medium sized enterprises and are based or active in the territory of an EU Member State.
The Fund is bound by the investment restrictions and limitations set out in the Fund’s limited partnership agreement and shall procure that such requirements, restrictions and limitations are complied with at all times. In particular, the Fund will screen each investment opportunity against its investment exclusions and no investments will be made in the area of such exclusions.
The Fund shall not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies, including portfolio companies, or other entities whose business activity consists of:
a) performing research and innovation activities considered as illegal according to the applicable legislation in the country of the portfolio company;
b) an 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 or entity, including without limitation, human cloning for reproduction purposes);
c) the production of tobacco and distilled alcoholic beverages and related products;
d) the production of and trade in weapons and ammunition of any kind;
e) casinos and equivalent enterprises;
f) the research, development or technical applications relating to electronic data programs or solutions, which (i) aim specifically at: (A) supporting any activity referred to under lit. b) through e); (B) internet gambling and online casinos; or (C) pornography; or which (ii) are intended to enable to illegally (A) enter into electronic data networks; or (B) download electronic data;
g) research activities (i) aiming at human cloning for reproductive purposes; (ii) intended to modify the genetic heritage of human beings which could make such changes heritable (excluding research relating to cancer treatment of gonads); and (iii) intended to create human embryos solely for the purpose of research or for the purpose of stem cell procurement, including by means of somatic cell nuclear transfer.
Good governance practices are assessed through a questionnaire as part of every due diligence process prior to any investment made by the Fund. Such practices include, in particular, sound management structures, employee relations, remuneration of staff and tax compliance within the portfolio companies. Moreover, the Fund will conduct regular monitoring of the good governance practices in its portfolio companies during the holding period. If the Fund becomes aware of severe governance issues, it will investigate them and work with all parties involved to find an appropriate solution.
Proportion of investments
The Fund will invest fully in line with its investment strategy and investment restrictions, i.e., will only make investments which are aligned with its environmental or social characteristics (i.e., its investment exclusions). The Fund does not make and does not intend to make sustainable investments within the meaning of Art. 2 No. 17 SFDR or environmentally sustainable investments within the meaning of Art. 3 EU Taxonomy; hence, no portion of its investments will be aligned with the Taxonomy.
Monitoring of environmental or social characteristics
The Fund has an increased awareness on the impact of environmental or social characteristics on risk management and thus on the value potential of investments. In order to monitor the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions), the Fund consults with the portfolio companies in regular intervals and will carry out further checks in order to identify potential issues with such characteristics. Therefore, the Fund monitors compliance with its environmental or social characteristics (i.e., its investment exclusions) on an ongoing basis. External monitoring mechanisms are not in place.
Methodologies for environmental or social characteristics
The Fund applies qualitative assessments with regard to its environmental or social characteristics (i.e., its investment exclusions).
The Fund conducts an initial assessment in the course of its due diligence. Based on the results of such assessment, the Fund identifies during its investment decision-making process whether the environmental or social characteristics promoted by the Fund are met. During the holding period, the Fund monitors and consults with its portfolio companies in order to assess whether said characteristics are continuously met.
Data sources and processing
In order to attain each of the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions), a questionnaire is completed by the (potential) portfolio companies in the course of the due diligence conducted prior to each investment. Moreover, during the holding period, the portfolio companies provide the Fund with the relevant data through an ESG reporting tool implemented by Cherry Ventures on an at least annual basis for monitoring purposes. Hence, data is obtained only from the (potential) portfolio companies and no (proportion of) data is estimated or supplemented by information publicly available. An internal or external review or verification of the information obtained will be carried out if misrepresentations are suspected.
Limitations to methodologies and data
The information collected from the (potential) portfolio companies via the questionnaire as part of the due diligence carried out by the Fund is internally or externally verified only if and to the extent misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. As the Fund’s investments are made for several years, the Fund considers it a priority to establish and maintain a trustful working relationship with its portfolio companies in order to ensure compliance with the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions). Further limitations, in particular with regard to the accuracy of the data and reliability of the data sources used, are not apparent at this time.
An initial assessment of how an investment relates to the environmental or social characteristics promoted by the Fund (i.e., its investment exclusions) is carried out as part of the due diligence process using a questionnaire and, where required based on the inherent ESG risk of the portfolio company, through an enhanced analysis. As a rule, purely qualitative statements of an environmental or social nature or relating to corporate governance are requested from the portfolio companies and then taken into account in the investment decision-making process. An internal or external review or verification of the information obtained will only be carried out if misrepresentations are suspected.
Engagement is, in general, not part of the environmental or social investment strategy of the Fund. However, should the Fund determine any potential issues relating to the environmental or social characteristics promoted by the Fund, the Fund may engage the respective portfolio companies in discussions in order to resolve, reduce or mitigate any adverse effects. Yet, it remains at the sole discretion of the Fund to determine which efforts are appropriate and proportionate in light of the size and strategic importance of the respective portfolio company as well as the transactional context.
Designated reference benchmark
No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Fund.
2. Cherry Ventures Fund III GmbH & Co. KG
Financial product: Cherry Ventures Fund III GmbH & Co. KG
The disclosures relating to Cherry Ventures Fund IV GmbH & Co. KG apply accordingly to Cherry Ventures Fund III GmbH & Co. KG with the exception that the investment strategy differs. Cherry Ventures Fund III GmbH & Co KG may also invest in digital tokens.
3. Cherry Ventures Opportunities II GmbH & Co. KG
Financial product: Cherry Ventures Opportunities II GmbH & Co. KG
The disclosures relating to Cherry Ventures Fund IV GmbH & Co. KG apply accordingly to Cherry Ventures Opportunities II GmbH & Co. KG with the exception that the investment strategy differs. Cherry Ventures Opportunities II GmbH & Co KG is focused on investments in portfolio companies with a technology focus which are in the growth stage, mainly established or operating in the European Union.
4. Cherry Ventures Fund II GmbH & Co. KG
Financial product: Cherry Ventures Fund II GmbH & Co. KG
The disclosures relating to Cherry Ventures Fund IV GmbH & Co. KG apply accordingly to Cherry Ventures Fund II GmbH & Co. KG with the exception that the investment strategy and the investment exclusions differ. Cherry Ventures Fund II GmbH & Co KG is focused on investments in portfolio companies with a focus on technology, internet and IT, and, in particular, consumer internet, mobile, B2B and B2C software as a service, sales-driven marketplace models, retail and brand building models. The investment exclusions only encompass lit. b) through lit. f).