SFDR Disclosure On Extantia Website
Disclosures Pursuant To The Sustainable Finance Disclosure Regulation (EU)
Extantia Capital Management GmbH (“Extantia”, “we”, “us”, “our”) and its affiliates are advancing breakthrough climate technologies by investing directly and indirectly in daring entrepreneurs developing economically viable solutions that can significantly reduce greenhouse gas emissions.
CLASSIFICATION OF EXTANTIA FUNDS (ARTICLE 9)
European regulation SFDR 2019/2088 (“Disclosure”) and 2020/852 (“Taxonomy”) introduced new regulatory obligations for financial markets participants, to increase transparency of financial products and actors with regards to sustainability.
All direct investment funds managed by Extantia are classified under Article 9 (dark green), which means they have a sustainable investment objective. The intention of Extantia is that 100% of Extantia’s investments follow an environmental objective. We invest in deep decarbonization technologies that lead us to a world beyond fossil fuels. Our minimum target for emissions reduction potential per invested company is 100Mt of CO2e a year and we are actively searching for companies that have even a reduction potential of over 1,000Mt of CO2e a year. The latter are called “Gigacorns”, that is, companies capable of saving at least 1Gt of CO2e a year and are commercially viable with a unicorn potential.
We meet this requirement by:
1. assessing the greenhouse gas emissions reduction potential of companies as part of the standard investment process and due diligence activity.
2. assessing and monitoring the social activities of our portfolio companies with regards to social policies, diversity, employee satisfaction and fulfillment, and workplace accidents,
3. assessing and monitoring the governance practices of our portfolio companies with regards to sustainability risks, governance KPIs, management diversity, and data management.
These measures are covered in the Extantia Projected Impact Calculation (EPIC) methodology (see below for further details). When being assessed through the EPIC methodology, target/portfolio companies’ contribution to environmental objectives, compliance with the UNGC Principles, as well as social and governance practices are evaluated.
Extantia takes an active engagement in portfolio companies to promote ESG practices. This includes dialogues with companies, board meetings, shareholder voting, and partnerships with the Extantia’s Net Zero circle. We encourage portfolio companies to include responsible practices by regularly assessing and monitoring their environmental footprint, social policies and governance practices. We implement an ESG Clause in all our Term Sheets and investment agreements to which portfolio companies need to adhere.
Our investment strategy aims at a reduction in worldwide carbon emissions. It is aligned with the Paris Agreement by investing in climate solutions to reach Net Zero GHG emissions by 2050. In this race to Net Zero, Extantia has initiated and built the “Net Zero Circle”, a community of visionary investors that share a common passion for climate action. More information about the community can be found here: https://extantia.com/the-net-zero-circle/
Extantia is also aligned with the Principles of Responsible Investing (PRI) set out by the United Nations. Through our investments, we support the following UN Sustainable Development Goals:
- SDG 3: Ensure healthy lives and promote well-being for all at all ages
- SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all
- SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
- SDG 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
- SDG 12: Ensure sustainable consumption and production patterns
- SDG 13: Take urgent action to combat climate change and its impacts
The EPIC Methodology (Article 3)
EPIC is a framework designed by Extantia to calculate the emissions reduction potential of new technologies and make this “carbon math” an integral part of our investment lifecycle. The entire methodology can be found on our website under this link: https://extantia.com/impact/
EPIC is deployed in three steps:
Step 1: Estimate the order of magnitude of CO2e savings potential of the solution
This step, at the beginning of Extantia’s investment process, ensures that we focus only on companies that meet our threshold of 100Mt CO2e reduction potential (per annum) by 2050. We employ here a top-down calculation approach taking into account the improvements the technology offers and the size of the sector it targets. In this way we assess the Carbon Total Addressable Market (CTAM) of the company.
Step 2: Detailed calculation of carbon savings per year, and of the long-term (2050) potential of the technology
This step involves a Life Cycle Analysis and Inventory, at the unit level and on a 2050 projection based on Extantia’s energy mix model. From this analysis, dynamic CO2 reduction projections are drawn. They are based on some hypotheses concerning green premium projections, technology maturity readiness and time to impact assessment, as well as Extantia’s carbon pricing model. As part of step 2, we also conduct a do-no-harm analysis that is in line with EU Taxonomy.
Step 2 is conducted during our deep dive phase.
Step 3: Portfolio monitoring
When the decision to invest is made, we ensure that our ESG Clause is integrated in the Term Sheet. It asks the company to adopt a climate policy within the next 12 months and implement best practices. Additionally, we conduct an extensive ESG questionnaire on the policies in place and the state-of-the-art in terms of ESG practices. This questionnaire is compliant with the Regulatory Technical Standards (RTS) of the EU SFDR regulation. This allows us to see what ESG processes are still lacking and what can be improved. Another proprietary questionnaire based on the key KPIs we want to track (carbon footprint, waste and resource use, diversity, employee satisfaction, etc.) is distributed annually to portfolio companies to monitor their impact and ESG processes. Additionally, we make sure to have an interest to move ESG processes forward as the impact of the company is tied to 30% of our carry, which we will get in full solely if the Impact Carry KPIs of the company are met (at a level of minimum 80% of the target set).
The data for the Life Cycle Analysis and the ESG KPIs primarily come from each portfolio company. The data is collected by our Carbon Math / ESG expert and the respective Investment Manager. Additional data sources include scientific databases (for example, Google Scholar, Scopus, World of Knowledge, Web of Science, Institution of Engineering and Technology etc.), authoritative data sources (for example, International Energy Agency, IPCC, International Renewable Energy Agency), sector experts (for example, Extantia Global Advisory and Expert Network), authoritative life cycle databases (for example, ecoinvent), and the technology readiness framework. Proprietary models for the future projections in the Life Cycle Analysis include Extantia’s energy mix model and carbon pricing model.
As Extantia invests in young startups with innovative technologies and processes that are not yet defined, and as the fund relies on data collected from the portfolio companies, it is aware that the actual impact may differ from the impact that was estimated through the EPIC methodology. However, Extantia believes that the fund’s high level ambitions mean that even if the impact is in the end lower than estimated, it would still be significant and attain the sustainable investment objectives.
Principal Adverse Sustainability Impacts (Article 4)
Extantia considers principal adverse effects of investment decisions on sustainability factors. It invests in high growth innovative companies that can have a significant impact on GHG emissions reduction. This impact is measured, monitored and quantified through the EPIC method. Before every investment, Extantia conducts a life cycle assessment of the company’s solution to evaluate its environmental impacts. This can assess and quantify principal adverse environmental effects.
Furthermore, a questionnaire is sent annually around the main environmental, social policies and governance practices of the company. It allows Extantia to know how the company is performing according to various ESG KPIs.
Additionally, Extantia follows an initial exclusionary approach, by not investing in any venture that has the following attributes:
- Has an expected long-term net-negative impact on climate change (assessed with a lifecycle analysis and carbon calculations)
- Derives more than a third of its revenues from the extraction, manufacturing of, or trading in coal, oil, or natural gas, unless using technology intended to reduce net greenhouse gas emissions
- Is involved in the production of and trade in tobacco and distilled alcoholic beverages,
- Is involved in gambling or pornography
- Is directly involved in the production of landmines, cluster munitions, chemical or biological weapons, or nuclear weapons in contravention of the Treaty on the Non-Proliferation of Nuclear Weapons.
Sustainability Risks’ Integration In Remuneration Policies (Article 5)
At Extantia, we scientifically measure, aggregate and track the Return on Impact at fund, portfolio & team level.
To include the portfolio’s impact in Extantia’s carry allocation, we have defined Impact Carry KPIs from within the ESG sphere, and for each there will be annual values developed at company level. These Impact Carry KPIs and their weights in the calculations are:
|Number||Impact Carry KPI||ESG category||Units||Weight|
|1||GHG emissions reduction||Environmental||t CO2e||70%|
|4||Gender diversity in the company||Social||%||5%|
|5||Gender diversity in the management board||Governance||%||5%|
|6||Gender diversity in the supervisory board||Governance||%||5%|
For each KPI, there is a target metric to be achieved by the end of the fund’s lifetime, and an interim target to be reached annually. Both of these are discussed with the startup at the time of the investment.
We therefore regularly monitor these Impact Carry KPIs, and their achievement is tied to us receiving 30% of our carry.
At the time of an investment in a Portfolio Company, we define for each Impact Carry KPI a target value that will be the reference value to achieve over the lifetime of the investment. As the exact lifetime of any investment cannot be determined ex-ante, a Target Value shall be set to each of the three first years following the investment. For each Portfolio Company we will annually review the performance against the Target Value.
A detailed explanation of the calculation methodology can be found in EPIC.