The Regulation EU/2019/2088 of November 27, 2019 on sustainability‐related disclosures in the financial services sector (hereinafter the “SFDR”) sets out sustainability disclosure requirements for a broad range of financial market participants, financial advisors and financial products. It was enacted to improve both transparency of sustainable investment products and comparability of disclosures for end investors and to prevent greenwashing.
The present statement provides sustainability-related disclosures pursuant to the SFDR with respect to Alterfin CV (“Alterfin”)’s role as an alternative investment fund manager (“AIFM”) and with respect to the alternative investment fund it manages (the “Fund”).
Alterfin has implemented an Environmental & Social (“E&S”) Risk policy which is published on this website. The policy describes how E&S risks are considered in Alterfin’s investment process, at the due diligence stage as well as in the subsequent stages such as monitoring and renewal of investments.
Alterfin has determined that it does not, in its investment process, consider sustainability risks the way they are defined in the SFDR. However, Alterfin alternatively has a clear policy and procedure that considers sustainability/E&S risks aligned with the performance of its mission; although not fully aligned with the Principal Adverse Impacts on Sustainability (“PAIS”) factors of investment decisions as stipulated in the SFDR, as the latter are not fully relevant to Alterfin. Moreover, Alterfin believes that such reporting is not entirely feasible at this stage given the size and scope of its operations.
Article 4 of the SFDR provides for a framework aimed at achieving transparency about any PAIS factors of investment decisions as defined in the SFDR. It requires Alterfin to make a "comply or explain" decision on whether it considers in its investment decisions PAIS factors in accordance with the specific regime outlined in the SFDR.
Alterfin has opted not to comply with that regime, both in its role as AIFM and in relation to the Fund.
Indeed, Alterfin operates as a ‘missing middle’ investor often making investments that are smaller than the traditional AIFMs or impact investors. The Microfinance Institutions and agriculture Small and Medium-sized Enterprises it invests in are based in developing countries including those that are fragile and conflict-affected, and many are small-scale operations. They are not able to provide the relevant data that would be accurate enough to meet the reporting requirements on the PAIS factors. In addition to this, the integration of the PAIS factors reporting requirements at Alterfin level would entail high costs and require additional resources to collect the necessary data.
Nonetheless, Alterfin intends to continue monitoring this issue in the context of its ongoing comprehensive E&S assessments. Alterfin will revise its position should the availability of relevant data increase to allow accurate reporting on the PASI indicators as defined by SFDR, and when there are adequate resources available to undertake such reporting.
It is important to know that, as detailed in Alterfin’s E&S Risk Policy, there are robust measures in place to ensure sustainability in line with Alterfin’s mission:
(a) Negative Risk Screening: Alterfin uses a clear and well-defined list of excluded activities (the “Exclusion List”) aligned with standards set by the International Finance Cooperation (“IFC”). Any partner carrying out activities that violate said Exclusion List is not considered for investment and all existing investees are contractually bound to remain in compliance with the Exclusion List. This forms a first line defence against E&S risks.
(b) Enhanced Negative and Positive Screening: As second line of defence, Alterfin has developed a custom tool called Alterfin Environmental and Social Impact Rater (“AESIR”) that further analyses E&S risks relevant to the sector and positive impact of each potential investment. AESIR is used at the due diligence stage and informs all investment decisions -makers of Alterfin. The positive screen for creating environmental and/or social impact is further complimented by annual case studies on selected partners where the evaluation takes place at the partner and end-beneficiary level.
(c) Engagement: Alterfin uses the AESIR due diligence assessments and case studies to engage with partners and create an improvement plan where relevant and on a case-by-case basis. Additionally, AESIR allows Alterfin to track progress on E&S performance with each subsequent loan renewal.
(d) International Standards: AESIR integrates international standards relevant to the investments and sector of operations. This includes the IFC Performance Standards, Food and Agriculture Organization’s (FAO) Environmental and Social Standards (ESS) as well as Universal Standards on Social Performance Standards (USSPM) by the Social Performance Task Force (SPTF).
If you want to know more about how Alterfin measures and manages impact, please refer to the “Our Impact” section on this website.
Alterfin plans to establish a remuneration policy (the "Policy") in the coming months. The Policy will be based on the principles of fairness and will apply to all employees and consultants of Alterfin based on their skills, experience and responsibilities to ensure the alignment of interests by all stakeholders. The Policy will be developed with the aim of supporting Alterfin’s mission, vision, values, and long‐term interests as well as protecting and valorising its human capital. The other key principles of the Policy will include fostering appropriate risk culture, gender equality, transparency and will follow the applicable laws and regulations.
Remuneration of employees is currently split in several fixed components and a bonus based on results to be achieved. The performance management and rewards framework envisioned by the Policy will be designed to promote effective risk management (including E&S risks) and alignment with investment objectives.