Sustainability-related disclosures

UB Forest Industry Green Growth Fund I

 

a) Summary

 

SFDR-classification*: Article 8, fund promotes environmental and social characteristics.

 

The Fund is a private equity fund investing in sustainable and resource efficient forest and bio-based industries. The Fund invests in companies focused on plastic and other fossil fuel based material replacements, higher value and more efficient use of wood and agricultural raw material side streams and greater use of these raw materials across a wide range of intermediate and end uses. The fund seeks to promote climate change mitigation and green transition in its investments.

 

The fund focuses on impact investing and chooses investments based on how their activity promotes environmental and social goals. The environmental and social goals promoted by the fund are climate change mitigation, replacement of fossil materials, material efficiency and move towards circular economy. The fund assesses potential investments form the perspectives of their impact on carbon emissions, replacement of fossil materials, resouorce-efficiency and biodiversity, among others.

 

The fund promotes environmental and social factors by integrating information on sustainability factors and principal adverse impacts into the investment analysis, by engagement and stewardship activities, and by the use of exclusion lists and criteria. The fund follows international impact investment principles (Operating Principles for Impact Management), and selects its investments based on the positive impacts on environmental and societal characteristics.

 

The fund chooses investments that promote environmental and social goals. The fund requires that all investments are aligned with the “do no significant harm” -principle (1). The fund also requires adherence to good governance practices (the UN Global Compact).

 

The analysis of the sustainability risks and promotion of sustainability factors is carried out by the fund management team and UB ESG team. The analysis is based on investment-specific due diligence studies, and follows the impact investment process of the fund that is based on the Operating Principles of Impact Management -principles. The fund complies with the United Bankers Principles of Responsible Investment, including UB’s general exclusion principles. In case the analysis reveals substantial unresolved sustainability risks, the investment will

 

The fund’s reporting includes information on responsible investment, sustainability factors and sustainability risks on fund-specific reports. The fund has no designated reference benchmark index.

 

(1) For economic activity to be deemed environmentally sustainable in accordance with the EU Taxonomy Regulation, it must substantially contribute to one or more of the environmental goals of the EU Taxonomy Regulation, and the activities must not, alongside the promotion of one or more environmental goals, cause any significant harm to any of the other environmental goals mentioned in the regulation. The application of the ’Do No Significant Harm’ -principle is mandatory to the investments that consider the EU criteria for environmentally sustainable activities. This fund requires adherence to this principle form all investments of the fund.

 

*Pursuant to EU’s Sustainable Finance Disclosure Regulation 2019/2088 (SFDR), United Bankers’ funds have been classified into three categories in terms of sustainability factors: mainstream Article 6 funds consider sustainability risks in their activities, Article 8 funds promote environmental and social characteristics alongside other characteristics. Furthermore, some of these funds are committed to having a portion of their investments in sustainable investments. The investment objective of Article 9 funds is sustainable investments.

 

b) No sustainable investment objective

 

This product promotes environmental and social characteristics, but it has no sustainable investment objective. However, the fund requires that all of its investments fulfill the following criteria required from sustainable investments:

  • Alignment with the ”do no significant harm” principle is assessed prior to investment in the due diligence -process using due diligence studies, global ESG databases (Sustainalytics, Morningstar, Bloomberg) and information made available by the prospective investee. If the prospective investment does not align with this principle, the investment is not made.
  • The principal adverse impacts on sustainability factors: The principal adverse impact indicators are analyzed in connection with sustainability risks and as part of due diligence processes prior to making investment decisions. Principal adverse impacts are monitored during the investment and reported regularly in the fund’s periodic reports. United Bankers’ approach to analyzing principal adverse impacts is risk-based and is based on principal adverse impact indicator data available in Sustainalytics & Morningstar ESG databases or data collected from the investments. The following indicators are considered, subject to data available at different stages of the investment process:

 

Table 1 Indicators applicable to investments in investee companies

  1. GHG emissions
  2. Carbon footprint
  3. GHG intensity of investee companies
  4. Exposure to companies active in the fossil fuel sector
  5. Share of non-renewable energy consumption and production
  6. Energy consumption intensity per high impact climate sector
  7. Activities negatively affecting biodiversity-sensitive areas
  8. Emissions to water
  9. Hazardous waste and radioactive waste ratio
  10. Violations of UN Global Compact principles and Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
  11. Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises
  12. Unadjusted gender pay gap
  13. Board gender diversity
  14. Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)

 

Table 2 Indicators applicable to investments in investee companies

  1. Investments in companies without carbon emission reduction initiatives

 

Table 3 Indicators applicable to investments in investee companies

  1. Lack of human rights policy

 

  • Alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, is analysed as part of due diligence processes prior to making investment decisions, monitored during the investment period, and reported upon in the fund’s periodic reports. In case of listed assets, the analysis, monitoring, and reporting is based on ESG data provided by Sustainalytics & Morningstar (Global Standards Screening) and on information collected during the due diligence and monitoring directly form the investees. The fund does not invest in investment objects that breach the abovementioned norms and conventions. In case norm breach or a high risk of breach occurs during the investment period, the fund seeks to engage with the investee to remedy the situation within a reasonable timeframe, or if not possible, exits the investment.

 

c) Environmental or social characteristics of the financial product

 

The environmental and social characteristics that the fund promotes include climate change mitigation, substitution of fossil-based raw materials, material efficiency and transition to circular economy. The fund assesses the impact of potential investments from the perspective of GHG emissions, substitution of fossil materials, resource efficiency and biodiversity, among others. This way the fund seeks to promote climate change mitigation and green transition.

d) Investment strategy

 

The Fund is a private equity fund investing in sustainable and resource efficient forest and bio-based industries. The Fund invests in companies focused on plastic and other fossil fuel-based material replacements, higher value and more efficient use of wood and agricultural raw material side streams and greater use of these raw materials across a wide range of intermediate and end uses.

 

Through its investments the fund supports forest- and bioindustry in creating solutions that mitigate climate change. The fund is committed to the international principles of impact investment (Operating Principles of Impact Management) and reports on the impacts of its investments, especially environmental- and climate impacts. This way the fund seeks to promote climate change mitigation and green transition. Assets of the fund are invested in companies in Europe. A maximum of 15 % of the assets of the fund can be invested outside Europe.   The fund promotes environmental and social characteristics as part of its investment activities by integrating information on sustainability factors and principal adverse impacts into the investment analysis, by engagement and stewardship activities, and by use of exclusion lists and criteria. The fund follows international impact investment principles (Operating Principles for Impact Management), and selects its investments based on the positive impacts on environmental and societal characteristics. All investments of the fund are aligned with the “do no significant harm” -principle.

 

The fund does not invest in objects that are in the United Bankers’ exclusion list (Exclusion list available on the page Responsible investing at unitedbankers.com

 

Good governance practices are assessed in line with United Bankers’ principles for responsible investment. Alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, as well as their underlying conventions and declarations is analysed as part of due diligence processes prior to making investment decisions, monitored during the investment period, and reported upon in the fund’s periodic reports. The analysis, monitoring and reporting is based on ESG data provided by Sustainalytics & Morningstar (Global Standards Screening), and on information collected from the investments. The fund does not invest in companies that breach the abovementioned norms and conventions. In case norm breach or a high risk of breach occurs during the investment period, the fund seeks to engage with the investee to remedy the situation within a reasonable timeframe, or if not possible, exits the investment.

 

e) Proportion of investments

 

This fund promotes environmental and social characteristics. This fund is not committed to making sustainable investments.

 

f) Monitoring of environmental or social characteristics

 

Because the fund can within its mandate invest in very different types of activities, the set of sustainability indicators used to monitor the environmental and social characteristics is defined for each investment. The indicators are chosen so that they best reflect the impacts on climate change mitigation, material efficiency and transition to circular economy. On portfolio level the fund aims at reporting the carbon footprint, carbon emissions and avoided emissions, and the avoided use of fossil products and raw materials. Monitoring of the environmental and social characteristics promoted by the fund is carried out by monitoring the development of the investment specific and portfolio level sustainability indicators. In addition, the fund reports on sustainability risks.  

 

g) Methodologies

 

Monitoring of the environmental and social characteristics promoted by the fund is carried out by monitoring the development of the investment specific and portfolio level sustainability indicators. The selection of the investment-specific and portfolio level sustainability indicators is based on the international best practice of impact investment defined in Operating Principles for Impact Management (OPIM) -principles and IRIS+ recommendations and methodologies. Information on the selected sustainability indicators is collected directly from the investees, and when necessary additional studies, such as GHG footprint calculations according to GHG Protocol and product lifecycle analysis, are carried out based on international best practices.

 

h) Data sources and processing

 

The analysis, monitoring and reporting of environmental and social information is based primarily on specific studies data gathered from the investees during due diligence -processes, and data collected during the monitoring of the investments. In addition, international ESG databases such as Sustainalytics, Morningstar, Bloomberg, and data published by the Carbon Disclosure Project can be used. In addition, portfolio management may use other sources of information that United Bankers considers of good quality.

 

The data is processed carefully by United Bankers and the relevant ESG-service providers. To ensure good data quality, global and reputable ESG-databases and analysis methods, and suppliers are used. Some data contained in these databases is based on information reported by the investment objects, and some is based on estimated made by the ESG-data providers, the fund may also use data provided by expert consultants. The share of data that is based on estimates depends on the ESG database in question.

 

i) Limitations to methodologies and data

 

It is possible that the ESG databases contain only limited information or no information on some investment objects, or that there are gaps in the data coverage of the reporting available from the investment objects. In these cases, it is possible to assess and report the sustainability factors based on available information only. It is also possible that the information in the ESG databases is updated with months of delay.  Both data coverage and data update periodicity can have an impact on the analysis reporting. In case of unlisted investment objects information is based on information available from the investment objects. In reporting, the data coverage and data sources are communicated and reported transparently.

 

j) Due diligence

 

The investment objects of the fund are diligently analyzed prior to investment decision (a due diligence process). In this process the risks and opportunities are analyzed from the sustainability factors and sustainability risks perspective. Regarding sustainability factors the due diligence process typically includes the analysis of how the alignment of the potential investment with the United Bankers Principles of Responsible investment, the investment strategy and goals of the fund, sustainability risks, principal adverse impacts on sustainability factors, climate aspects of the investments, alignment with EU taxonomy, good governance, and international norms.  The due diligence process is carried out according to United Bankers due diligence guidelines.

 

k) Engagement policies

 

The fund requires that all investees fulfill the fund’s ESG criteria. The ESG criteria requires for example appropriate Code of Conduct documents and practices, and appropriate measures, skills and processes to manage sustainability risks. The requirements based on the fund’s ESG criteria are included in the investment agreements. The fund also seeks to appoint a board member into the investee company board. The role includes among other matters promotion of good governance practices and environmental and social responsibility in the company operations. In addition, United bankers ESG team monitors the development of the investee companies and supports the investees in sustainability-related matters as needed.

 

In addition, the investments are included in the general stewardship and engagement activities of United Bankers. These include among others the Carbon Disclosure Project -initiative (CDP) that encourages companies to set ambitious science-based climate targets based on the SBTi -framework, and to increase transparency and reporting of their carbon emissions.

 

Further information on stewardship and engagement activities: Responsible Investing at unitedbankers.com

 

l) Designated reference benchmark

 

This fund has no designated reference benchmark index.