The SFDR (Sustainable Finance Disclosure Regulation) aims to achieve greater transparency on the part of financial players. It establishes rules for the publication of extra-financial information in order to better assess the level of sustainability of financial products. The aim is to encourage investment players to specify their level of ESG integration (environmental, social and governance criteria) and to assess the ESG impacts on financial performance, but also to establish common standards for financial products presenting or claiming ESG or sustainable aspects.

ESG risks are integrated into the investment process and the monitoring of portfolio companies in accordance with the SFDR regulation. They consist of two elements:

• Sustainability risks arise when there are environmental, social or governance events or situations which, if they occur, could have significant negative impacts on the value of an investment. They are similar to financial risks.
• Adverse sustainability impacts are the negative impacts of investment decisions from an environmental, social or good governance perspective. PAIs (Principal Adverse Impacts) are a set of indicators detailed in the Regulatory Technical Standards Report associated with the SFDR, which enable the assessment of adverse sustainability impacts. The Regulatory Technical Standards Report is a complementary document that clarifies the application of the SFDR in practice.

The Regulation is applicable at entities level, i.e. at the level of portfolio management companies, but also at the level of products, such as investment funds.

The SFDR Regulation requires that each product be categorised according to its characteristics. The definition of each of these categories is as follows:

• Article 6 covers funds that do not integrate any form of sustainability into the investment process and could include stocks currently excluded by ESG funds, such as tobacco companies or coal producers. While these will be allowed to continue to be sold in the EU (European Union), provided they are clearly labelled as non-sustainable.
• Article 8 applies “…where a financial product promotes, among other characteristics, environmental or social characteristics, or a combination of these characteristics, provided that the companies in which the investments are made follow good governance practices.”
• Article 9 applies “… where a financial product has sustainable investment as its objective”.

Positioning of Demeter Investment Managers’ funds

Contributing to the achievement of ecological transition and sustainable development objectives is a cornerstone of Demeter Investment Managers’ mission. Our objective is to offer our investors strategies that allow them to reconcile financial returns with positive ESG impacts. This search for impact is achieved through the integration of sustainable development issues in the investment objectives of all our funds, and the systematic measurement of ESG impacts.

Investments in our three activities, Venture Capital, Private Equity and Infrastructure, are steered towards companies and projects that promote the ecological transition and provide solutions to sustainable development issues. Environmental, social and governance issues are an integral part of the investment decisions and are monitored throughout the period during which the companies are in the portfolio.

All new Demeter funds since 2021 are classified as “article 9”. The other funds from vintages prior to 2021 are classified as “article 8”. We integrate sustainability risks and adverse sustainability impacts into our investment processes for all our funds.

Demeter implements an ESG Risk Scoring which quantifies the degree of importance of the sustainability risks that our portfolio companies may present. It is carried out during the pre-investment phase and is integrated in our annual ESG questionnaire that we send to our portfolio companies. This scoring incorporates a rating system from 0 (low or no risk) to 2 (high risk), which quantifies the company’s degree of exposure to these risks. When a score is deemed high, the ESG Committee, formed by Sophie Paturle (Managing Partner) and Stéphanie Guitton Chrétien (Partner and Chief Sustainability Officer), meets to decide on the feasibility of the investment or the corrective measures to be adopted.

Adverse sustainability impacts are assessed for all our funds in accordance with the Regulatory Technical Standards associated with the SFDR regulation. 16 PAIs mentioned among these are thus taken into account in the extra-financial analysis of our funds. Specialised service providers are entrusted with the assessment of the PAIs relating to our “Article 9” funds. For the “Article 8” funds, this assessment is done internally.

To align interest of all our stakeholders and maximize impact, our management team is generally incentivized according to the financial and the ESG performance.