Sustainability-Related Disclosures

Verdant Capital Hybrid Fund I GmbH & Co. KG (the “Fund”)

Website disclosure for an Article 9 fund, in accordance with Sustainable Finance Disclosure Regulation (SFDR)

SFDR Website Disclosures Summary – German

Summary

No significant harm to the sustainable investment objective

In order to ensure that the investments of the Fund do not significantly harm (“DNSH”) any environmental or social sustainable investment objective, the Fund will screen each investment against the 14 mandatory Principal Adverse Impact (PAI) indicator, after which compliance of the Fund’s investments with minimum “sustainability” safeguards of the OECD Guidelines are assessed and monitored. While the OECD Guidelines for MNEs do not apply due to the ultimate beneficiary of the investments of the Fund, the Fund applies other due diligence principles reflecting the transversal standards of the OECD guidelines through the in-house assessment tools and the Fund’s Exclusion List in line with international standards set forth by development finance institutions.

Sustainable Investment objective of the financial product

The Fund’s sustainable investment objective is creating jobs and livelihoods through supporting Inclusive Financial Institutions (IFIs) funding Micro, Small and Medium-sized Enterprises (MSMEs) and micro-entrepreneurs in Africa.

Investment strategy

All the investments of the Fund are subject to a comprehensive and systematic assessment and monitoring of social aspects, which is completed from the perspective of both measuring social performance and impact. In addition, the Fund applies an Exclusion List, which is benchmarked off Development Financial Institutions (“DFIs”) and IFIs. The Fund does not offer financing for new projects or purposes included in that Exclusion List. Furthermore, IFIs are required, in their respective agreements with the Fund, to make ESG representations towards the Fund, meet the Fund’s ESG requirements at the level of such IFI and provide a copy of their environmental and social management system (ESMS).

Proportion of Investments

The Fund will have a minimum proportion of 80% sustainable investments (#1 Sustainable). All these investments will be considered as socially sustainable. The remaining of the Fund (<20%) will be invested in cash and derivatives (#2 Not sustainable).

Monitoring of sustainable investment objective

The Fund has defined an extensive set of sustainability indicators which are used to measure the attainment of the sustainable investment objectives of the Fund. Further information on the tools used and approach taken can be found in the “Methodologies” section.

Methodologies

The Fund actively monitors investments via customer surveys and portfolio monitoring – including required reporting, periodic calls, and annual visits.

Any “amber” flags on social performance identified during post-investment monitoring (or pre-investment evaluation) will utilise a range of tools for mitigation and improvement. External resources will be utilised as required in applying low- and high- touch interventions.

Data sources and processing

VC Germany Management GmbH (the “Manager”) will typically consider client protection, information on which is usually retrieved directly from the investee companies. Alternatively, the Manager may instead consider external ratings. The Manager will also consider other benchmarks if relevant to the specific business model of the prospective Portfolio Company. While the Manager relies on the third-party vendors to ensure data quality, the multiple, high quality and verified nature of these sources combined with data sourced directly from investee companies ensure a high level of confidence in the acquired information. Additionally, while a precise quantification of estimated data is not possible at this stage, measures are in place by the Manager to keep such data to a minimum, as reported data is prioritized.

Limitations to methodologies and data

The Manager may encounter limitations in relation to data availability or quality, yet multiple layers of “safeguards” are in place, up to and including direct interaction with the investee companies, so as to ensure that such issues do not affect the attainment of the Fund’s sustainable investment objective.

Due diligence

The initial screening at the desktop due diligence stage involves checking the prospective investee’s activities against the Exclusion List. The Manager will also apply its E&S Risk classification system at the outset of evaluating each prospective investee. Each prospective investee is classified into one of the four risk categories in its E&S classification system, which are then appraised how to categorise each investment by considering a number of different factors.

Engagement policies

While the Fund uses engagement, it is not part of the sustainable investment objective of the Fund.

Attainment of the sustainable investment objective

No specific index has been designated as a reference benchmark to meet the sustainable investment objective of the Fund.

No significant harm to the sustainable investment objective

How have the indicators for adverse impacts on sustainability factors been taken into account?

In order to ensure that the investments of the Fund do not significantly harm (“DNSH”) any environmental or social sustainable investment objective, the Fund will screen each investment against the 14 mandatory Principal Adverse Impact (PAI) indicators of Table 1 Annex 1 of the Delegated Regulation (EU) 2022/1288. The analysis will be performed mainly qualitatively during the due diligence.

#PAIsConsideration
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GHG emissions
Carbon footprint
GHG intensity of investee companies
Exposure to companies active in fossil fuel sector
Share of non-renewable energy consumption and production
Energy consumption intensity per high impact climate sector		1. Through its Exclusion List, the Fund commits not to offer financing for new projects or purposes related to the prospection, exploration and mining of coal; land-based means of transport and related infrastructure essentially used for coal; power plants, heating stations and cogeneration facilities essentially fired with coal, as well as associated stub lines.

2. Additionally, the Fund commits not to offer financing for new projects or purposes related to nuclear power plants (apart from measures that reduce environmental hazards of existing assets) and mines with uranium as an essential source of extraction.
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8		Activities negatively affecting biodiversity-sensitive areas
Emission to water		Through its Exclusion List, the Fund commits not to invest in MSMEs/ IFIs that could be associated with the destruction or significant impairment of areas particularly worthy of protection (without adequate compensation in accordance with international standards), and in commercial logging operations for use in primary tropical moist forest/ commercial logging operations or the purchase of logging equipment for use in a primary forest or forest areas with high biodiversity value, nor any other activities that lead to substantial clear cutting of such forests. Here ‘destruction’ is interpreted as (i) the destruction or severe deterioration of the integrity of an area caused by a major and prolonged change in the use of land or water or (ii) alteration of a habitat which leads to the inability of the affected area to perform its function.
9Hazardous waste and radioactive waste ratio1. The Fund does not offer financing for new projects or purposes related to the production or trade in any product or activity subject to national or international phase-out or prohibition regulations or to an international ban, like for example:
1.1. certain pharmaceuticals, pesticides, herbicides, chemical and other toxic substances
1.2. prohibited transboundary trade in waste.

2. Additionally, the Fund commits to not offer financing for new projects or purposes related to the handling or treatment of toxic waste.
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11		Violations of UN Global Compact Principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises (MNEs)
Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact (GC) principles and OECD Guidelines MNEs		1. The Fund addresses these aspects both in its exclusion list and when using the SPI tool in the due diligence process.
2. Indeed, through the use of the SPI tool, the Fund analyses how business is conducted responsibly by the MSMEs/IFIs, including the level of transparency and accountability regarding employees, clients, business practices.
3. In accordance with the Fund’s Exclusion List, the Fund ensures that investments respect host country laws or regulations or international conventions and agreements and exclude production or activities involving harmful or exploitative forms of forces labour/ harmful child labour.
4. Then, through diverse indicators, as part of the following dimensions: “Treat Clients Responsibly” (Dimension 4), “Treat Employees Responsibly” (Dimension 5) and “Balance Social and Financial Performance” (Dimension 6) within the SPI tool, the Fund conducts a thorough due diligence of these aspects.
12Unadjusted gender pay gapThe Fund uses the SPI tool. Thus, during the due diligence, the Fund analyses Dimension 5 of the tool, entitled “Treat Employees Responsibly”. Specific indicators within this dimension address the issue of gender inequality and transparency about salary.
13Board gender diversityThe Fund uses the SPI tool. Thus, during the due diligence, the Fund analyses key indicators about the organization including the board composition, for which the number of women among board members should be specified. The Fund also complies with the 2X Challenge, which helps ensuring that gender diversity remains key in the investment decisions of the Fund.
14Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons)In its Exclusion List, the Funds commits not to offer financing for new projects or purposes related to the production or trade in weapons and munitions (any investment associated with weapons and munitions, including sporting firearms, defence systems, military installations, military equipment including uniforms and the training and physical support of military personnel), in the production or trade in controversial weapons or critical components thereof (nuclear weapons and radioactive ammunition, biological and chemical weapons of mass destruction, cluster bombs, anti-personnel mines, enriched uranium) and in mining companies using mercury.

How are the sustainable investments aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights? Details:

Compliance of the Fund’s investments with minimum “sustainability” safeguards of the OECD Guidelines are assessed at due diligence stage and monitored thereafter. The Fund’s investment process ensures alignment with the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

The OECD Guidelines for MNEs do not apply due to the ultimate beneficiary of the investments of the Fund (micro-entrepreneurs and SMEs in Africa, served by MicroFinance Institutions (MFIs) and IFIs); however, the Fund applies other due diligence principles reflecting the transversal standards of the OECD guidelines such as human rights, employment, environment, combating bribery, consumer interests, through the in-house assessment tools and the Fund’s Exclusion List in line with international standards set forth by development finance institutions.

Potential IFI investees that are found to be in breach of one of these standards will not be eligible for investment by the Fund.

Sustainable investment objective of the financial product

What is the sustainable investment objective of this financial product?

The Fund’s sustainable investment objective is creating jobs and livelihoods through supporting Inclusive Financial Institutions (IFIs) funding Micro, Small and Medium-sized Enterprises (MSMEs) and micro-entrepreneurs in Africa.

In particular, the Fund aims to invest in best-in-class operators implementing best-practices and available technologies, to originate, distribute and risk-manage their financial services offering.

It is believed that creating jobs and livelihoods provides Africans at the “bottom of the pyramid” with an opportunity to provide developmental outcomes, including nutrition, health, water and sanitation, education, and gender equality.

Therefore, the Fund’s investments contribute to the development objective of creating economic opportunities and jobs through MSMEs aligned with the United Nations Sustainable Development Goal (SDG) 8: Decent Work and Economic Growth- Where such contribution cannot be ensured, investments should contribute to at least one of the following development objectives aligned with the United Nations Sustainable Development Goals (SDGs):

  1. Increasing educational opportunities (SDG 4: Quality Education)
  2. Increasing female employment and educational opportunities for girls, SDG 5: Gender Equality, SDG 4: Quality Education)
  3. Alleviating rural poverty (SDG 1: No Poverty, SDG 2: Zero Hunger)
  4. Increasing youth employment (SDG 10: Reduced inequalities, SDG 8: Decent Work and Economic Growth)
  5. Access to renewable energy (SDG 7: Affordable and Clean Energy),
  6. Use of new technologies to increase access to financial services (SDG 9: Industry, Innovation and Infrastructure).

Investment strategy

What investment strategy does this financial product follow?

All the investments of the Fund are subject to a comprehensive and systematic assessment and monitoring of social aspects as well as other relevant development aspects. This evaluation is completed from the perspective of both measuring social performance and impact. The Fund’s methodology is summarised in the following workflow chart, including post-investment portfolio monitoring and reporting and – if necessary – value-add initiatives.

Verdant Capital

In an effort to attain its sustainable investment objective, the Fund uses the following tools during its analysis:

  1. Verdant Capital Hybrid Fund ESG Questionnaire: designed to collect information on a financial institution’s potential impact in ESG areas.
  2. SPI: used to measure the level of an IFI investee’s implementation of the Universal Standards for Social and Environmental Performance Management, developed by CERISE+SPTF.

In addition, the Fund applies an Exclusion List, which is benchmarked off Development Financial Institutions (DFIs) and IFIs. The Fund does not offer financing for new projects or purposes in the following sectors:

  1. Production or trade in any product or activity subject to national or international phase-out or prohibition regulations or to an international ban, for example:
    1. Certain pharmaceuticals, pesticides, herbicides, chemical and other toxic substances (under the Rotterdam Convention, Stockholm Convention and WHO “Pharmaceuticals: Restrictions in Use and Availability”)
    2. Ozone depleting substances (under the Montreal Protocol) and products containing PSBs
    3. Protected wildlife or wildlife products (under CITES/ Washington Convention)
    4. Prohibited transboundary trade in waste (under the Basel Convention) investments which could be associated with the destruction2 or significant impairment of areas particularly worthy of protection (without adequate compensation in accordance with international standards).
  2. Production or trade in controversial weapons or critical components thereof (nuclear weapons and radioactive ammunition, biological and chemical weapons of mass destruction, cluster bombs, anti-personnel mines, enriched uranium).
  3. Production or trade in radioactive material. This does not apply to the procurement of medical equipment, quality control equipment (measurement) equipment and any equipment/application where Verdant Capital considers the radioactive source is insignificant/trivial and/or adequately shielded.
  4. Production or trade in unbound asbestos. This does not apply to the purchase or use of cement linings with bound asbestos and an asbestos content of less than 20%.
  5. Destructive fishing methods or drift net fishing in the marine environment using nets exceeding 2.5 km.
  6. Nuclear power plants (apart from measures that reduce environmental hazards of existing assets) and mines with uranium as an essential source of extraction.
  7. Prospection, exploration and mining of coal; land-based means of transport and related infrastructure essentially used for coal; power plants, heating stations and cogeneration facilities essentially fired with coal, as well as associated stub lines.3
  8. Non-conventional prospection, exploration and extraction of oil from bituminous shale, tar sands or oil sands.
  9. Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements.
  10. Production or trade in:
    1. Weapons and munitions (any investment associated with weapons and munitions, including sporting firearms, defence systems, military installations, military equipment including uniforms and the training and physical support of military personnel)
    2. Production or trade in alcoholic beverages (excluding beer and wine)
    3. Production or trade in tobacco
    4. Gambling, casinos and equivalent enterprises
  11. Production or activities involving harmful or exploitative forms of forced labour5/ harmful child labour.
  12. Commercial logging operations for use in primary tropical moist forest/ commercial logging operations or the purchase of logging equipment for use in a primary forest or forest areas with a high biodiversity value, nor any other activities that lead to substantial clear cutting of such forests.
  13. Production or trade in wood or other forestry products other than from sustainably managed forests.
  14. Any investment associated with the handling or treatment of toxic waste.
  15. Mining companies using mercury.
  16. Real estate (except for commercial and industrial real estate to be made available through long leases).
  17. Pornography.
  18. Public administration.
  19. Social welfare.
  20. Professional and trade bodies, trades unions, etc.

All financial intermediaries (FIs), except those engaged in activities specified below*, must apply the following exclusions, in addition to the Fund’s Exclusion List:

  1. Production, trade, storage or transport of significant volumes of hazardous chemicals or commercial scale usage of hazardous chemicals. Hazardous chemicals include gasoline, kerosene and other petroleum products.
  2. Production or activities that impinge on the lands owned or claimed under adjudication, by Indigenous Peoples, without full documented consent of such peoples.

When investing in microfinance activities, FIs will apply the following items in addition to the Fund’s Exclusion List.

These tools, including the Exclusion List, aim to ensure that the Fund invests in IFIs aligned with its sustainable investment objective and that it does not significant harm to other sustainability factors.

The binding elements of the investment strategy used to attain the sustainable investment objective of the Fund are:

  1. Exclusion List: the Fund shall not invest in any of the activities as part of the Exclusion List described above.
  2. ESMS at IFI level: IFIs are required, in their respective agreements with the Fund, to make ESG representations towards the Fund, meet the Fund’s ESG requirements at the level of such IFI and provide a copy of their environmental and social management system (“ESMS”), commensurate with the IFI’s risk profile and to notify the Fund of any amendments to their ESMS. Whilst the Fund does not exclude IFIs that do not yet have a full ESMS, it actively engages its IFIs to ensure that they have minimum standards in place, assesses the ability of the IFIs to comply with the Fund’s ESG requirements, takes corrective actions to the extent applicable, and puts in place or monitors the implementation of ESMS in accordance with agreed schedules. The social performance of the Fund’s investment in IFIs is periodically evaluated based on evolving social performance standards.
  3. Monitoring and covenants: the Fund monitors and reports on ESG external factors with respect to its IFIS, or their underlying clients, that could reasonably materially impact the IFIs’ compliance with the Fund’ requirements and the IFI’s profitability and risk profile. The loan covenants between the Fund and the IFIs notably requires IFIs to implement corrective measures in case underlying client activities are inconsistent or in breach of the Fund’s ESG requirements.
  4. The average investee MSME percentage shall not be less than 33%. This is considered an absolute minimum and does not include loans supporting other sustainable investment objectives, such as access to clean energy.
  5. The Fund’s investments should at least have a SPI score of 60% or either:
    • Have at least a BB rating for Social Rating by MFR (ranging from AA to D) or the equivalent rating by one of the other established social rating agencies; or
    • Have at least a bronze client protection accreditation as per the SPTF / Cerise certification methodology from a rating agency accredited by SPTF / Cerise.

What is the policy to assess good governance practices of the investee companies?

During the pre-investment due diligence phase, the Fund pays particular attention to management structures and to conditions of employees (employee relations, remuneration policies etc), as well as ensuring the safety of employees and visitors within its premises. Therefore, it evaluates the IFI’s internal human resource policies and workplace safety policies and procedures as well as the ESMS of the IFI and its capacity to measure and mitigate E&S portfolio risks. Particular attention is also paid on compliance with all applicable laws, local or otherwise, including taxation matters. The Fund will require the IFIs to address any identified gaps in line with its ESMS.

2 “Destruction” means (i) the destruction or severe deterioration of the integrity of an area caused by a major and prolonged change in the use of land or water or (ii) the alteration of a habitat which leads to the inability of the affected area to perform its function.

3 Investments in power transmission grids with significant coal-based power feed-in will only be pursued in countries and regions with an ambitious national climate protection policy or strategy (NDC) or where the investments are targeted at reducing the share of coal- based power in the relevant grid. In developing countries, heating stations and cogeneration facilities (CHP) essentially fired with coal can be co-financed in individual cases based on a rigid assessment, if there is a particularly high sustainability contribution, major environmental hazards are reduced and if there demonstrably is no more climate-friendly alternative.

Proportion of investments

What is the asset allocation and the minimum share of sustainable investments?

The Fund will have a minimum proportion of 80% sustainable investments (#1 Sustainable). All these investments will be considered as socially sustainable. The remaining of the Fund (<20%) will be invested in cash and derivatives (#2 Not sustainable). Given the strategy of the Fund, the investments undertaken will result in direct exposure to the investee entities, while the Fund will have indirect exposure through 1) investments through holding companies for further investment in subsidiaries, and 2) by investing through SPVs.

Verdant Capital Investments

Monitoring of the sustainable investment objective

How are the sustainable investment objective and the sustainability indicators monitored throughout the lifecycle of the financial product and what are the related internal/external control mechanisms?

Pre-investment, sustainable investment objectives and all ESG related matters are addressed in the investment committee meetings (which includes five members). Environmental and Social Action Plans (ESAPs) are developed for each investment based on the environmental and social needs identified during due diligence (DD). The ESAP consists of environmental and social investment measures for implementation post investment, which could include Technical Assistance (TA) areas identified in DD for achieving certain ESG deliverables (that are underpinned by sustainability indicators) and certain monitoring, evaluation and learning objectives.

Post-investment, monitoring of TA and sustainability indicators is conducted as a component of more broadly tracking whether the investment is aligned with the Fund’s commitment to sustainable investment objectives. Regular meetings on investee progress against the ESAP might include the identification of additional sustainable investment needs to be addressed through TA. ESG reporting and monitoring of progress against the ESAP is also addressed in the annual review meeting. Over and above this, the Fund will be deploying an impact measurement TA project to measure baseline, midline and endline impact of its investments through the tracking of progress towards the sustainability indicators.

The sustainability indicators used to measure the attainment of the sustainable investment objectives of the Fund are:

UN SDGsSustainability indicator (Impact Metric)
SDG 1: No Poverty, SDG 8: Decent Work and Economic Growth, SDG 10: Reduced Inequalities1. Number of MSMEs, active borrowers reached;
2. Number of jobs created annually via MSMEs financed;
3. Number of clients of Fund investees living in rural areas;
4. Percentage of investees operating as non-banks, and serving a smaller-sized market;
5. Number of investees offering voluntary deposit saving products to clients;
6. Percentage of investment into countries that are Low Income (“LI”).
7. Number of active financial/ non-financial products designed by the investees to serve economically disadvantaged groups of MSMEs.
SDG 5: Gender Equality1. Unweighted average of female active borrowers (%);
2. Unweighted average of female management, staff, board members (%);
3. Unweighted average of investees’ female full time employees (%);
4. Number of investees providing credit products designed for women.
5. Number of active financial/ non-financial products designed by the investees to serve women-led businesses.
SDG 2: Zero Hunger1. Percentage of lending by investee to agricultural sector;
2. Average percentage of client of Fund investees living in rural areas.
SDG 9: Industry, Innovation and Infrastructure1. Number of investees utilising technology driven product in field;
2. Number of investees with technology driven product, distribution channel in development (i.e. mobile banking).
3. Average of technology driven borrowers.
SDG 4: Quality Education1. Number of investees providing vocational training.
2. Average of Education driven borrowers.
SDG 7: Affordable and Clean Energy1. Number of investees providing credit products in renewable energy or energy efficiency;
2. Average number of solar home systems installed;
3. Average kWh renewable energy produced;
4. Average number of homes and businesses served.

A Fund’s investment might not provide data on all the sustainability indicators listed above. Nonetheless, it will be ensured that each investment contributes to the development objective of creating opportunities and jobs through MSMEs (SDG8: Decent Work and Economic Growth) or at least to one of the development objectives, and hence to the related SDGs as described further above. Further information on the tools used and approach taken can be found in the “Methodologies” section below.

Methodologies

What are the methodologies used to measure the attainment of the sustainable investment objective?

The Fund actively monitors investments via customer surveys and portfolio monitoring – including required reporting, periodic calls, and annual visits.

Any “amber” flags on social performance identified during post-investment monitoring (or pre-investment evaluation) will utilise a range of tools for mitigation and improvement, as outlined in the following table. External resources will be utilised as required in applying low- and high- touch interventions.

Figure LVII: Overview of Post-Investment Monitoring tools

Tool or MechanismDescription
Customer Surveys• Mandatory, with Technical Assistance funding to be provided for third-party preparation;
• Important to confirm adherence to client protection principles;
• Important to understand use of loan and developmental outcomes, i.e., how the end-client is using the loan (i.e., for small business, housing, school fees, PAYGO home solar systems), and overall social performance;
• Surveys are also a valuable tool as investees look to refine their product design and risk management;
• Verdant Capital also believes it is important, where practical, that the actual surveys themselves are conducted by external consultants rather than employees of the investee institution.
Recommendations from the ManagerEven institutions performing strongly from a development and social performance perspective may benefit from specific recommendations from the senior team at the Manager, building on the extensive experience.
Portfolio Reporting• Includes the specific E&S reporting and loan portfolio segmentation;
• Typically reported annually;
• Social performance metrics and results of screenings from the SPI4 Audit Tool will also be contributed to CERISE and other industry networks like the GIIN/IRIS+, the GRI Standards and the SPTF for updating benchmarks ultimately used by investors and other stakeholders
Annual VisitsMandatory, and to include E&S due diligence checks.
Governance• For more equity-like investments from the Fund (i.e., AT1C and Holding Company Debt), the Fund will typically appoint a Board Observer.
• This will be used to monitor and influence appropriate social performance and development impact initiatives.

Data sources and processing

What are the data sources used to attain the sustainable investment objective of the financial product including the measures taken to ensure data quality, how data are processed and the proportion of data that are estimated?

During the investment appraisal process, the Manager will consider SPI5, which is a social and environmental performance audit tool developed by Cerise, to assess the level of implementation of the “universal standards” or the seven (7) dimensions for social and environmental performance management. These seven (7) dimensions are Social Strategy, Committed Leadership, Client-Centered Products and Services, Client Protection, Responsible Human Resource Development, Responsible Growth and Returns, and Environmental Performance Management. The Manager’s SPI qualified external auditor(s) take the lead with the support of the investment team in completing the audit tool during the onsite due diligence and remote meetings with the investee companies or by referring to the data previously shared by the investee companies.

The Manager may consider an external social rating and Client Protection Pre-Certification (Pre-CPC) if there hasn’t been one conducted, through external consultants such as MicroFinanza, MicroRate, or Inclusion Rating (again, always ensuring that the client protection principles are adhered to), typically at least a BB- rating for social rating by MicroFinanza or the equivalent rating by the other established social rating agencies. The Manager shall also pay attention to the results of the client protection modules of the social rating. A Pre-CPC is an independent analysis of gaps, which should be filled so that the investee companies’ policies and practices fully comply with the Client Protection Certification (CPC) standards. The objective of a Pre-CPC is to increase the chances of successfully passing a subsequent CPC. The social rating and Pre-CPC, and CPC for the investee companies can be funded through the Manager’s Technical Assistance Facility (TAF).

The Manager will also consider other external data providers or platforms to which it is subscribed, mostly for benchmarking and research purposes. The benchmarking exercises include financial and portfolio performances of the benchmarked institutions. Examples of such data platforms include S&P Capital IQ, PitchBook and ATLAS. S&P Capital IQ is a single platform for essential market intelligence which provides access to deeper data on global financial markets and companies. PitchBook is a comprehensive database that provides data, research and technology covering private capital markets, including venture capital, private equity and M&A transactions. ATLAS is a data platform which provides validated data on financial institutions’ pricing, client protection, social, portfolio and financial performance.

The Manager has non-disclosure agreements with its investee companies to allow information sharing. Privately owned companies have limited data available on public platforms and the best way to get the data is to request it directly from the investee companies. While the Manager can request data directly from public listed investee companies, some of the data can be found published on the investee companies’ websites which makes it easier for the data platforms to gather such data for the subscribers to have access to it.

Estimated data may be used by third-party providers. While the Manager prioritises reported data, estimated data may also be used when reported data are not available. While a precise quantification of the estimated data is not available at this point, the multiple data sources cited above support the effort of the Manager to limit their use as much as possible.

Limitations to methodologies and data

What are the limitations to the methodologies and data sources?

The Manager may encounter challenges related to lack of data availability on the platforms to which it is subscribed. This challenge is mainly related to privately owned companies which don’t disclose their data on their websites or other public domains. Some of the data that is available on the data platforms may also be very old, which makes it difficult for the Manager to perform any financial and portfolio benchmarking exercises based on more recent data, for example. Should issues of this nature be encountered, the Manager will attempt to acquire the data needed via other means, such as by directly interacting with the investee companies.

Due diligence

What is the due diligence carried out on the underlying assets and what are the internal and external controls on that due diligence?

The initial screening at the desktop due diligence stage involves checking the prospective investee’s activities against the exclusion list (comprising the exclusion lists of IFC, KfW, EIB). This is conducted and (re)verified throughout the DD process; the Verdant Capital ESG DD Questionnaire helps facilitate this screening. If at any point the Fund investment team evaluates and verifies investee activities that overlap with the exclusion lists, then the prospective investment will be rejected, and the investment process will be stopped.

The Manager will also apply its E&S Risk classification system at the outset of evaluating each prospective investee. Each prospective investee is classified into one of the following four risk categories: “A” (high risk); “B+” (substantial risk); “B” (moderate risk), or “C” (low risk), according to the rating of the potentially adverse environmental and social impacts and risks of an IFI’s activities. The Manager team appraises how to categorise each investment by considering factors including the following:

  1. Detailed review of the business model, product mix, sector mix;
  2. Corporate control structure and the degree of oversight by senior management on higher risk activities;
  3. The outputs of the Verdant Capital ESG DD Questionnaire; and
  4. The IFC Environmental and Social Performance Standards.

These appraisal standards are modelled off KfW’s latest “Sustainability Guidelines”, as well as the IFC’s latest sustainability policy, each of which utilise a risk-rating approach to categorising investments. The IFC categorisation overlays with the Verdant Capital categorisation framework, as outlined in the table below. As with the Fund’s categorisation, the IFC also considers the type, size, and sector exposure of the FI’s existing and proposed portfolio in determining its sub-categorisation.

Where, during due diligence, the Manager identifies sub-standard adherence to the principals of responsible finance in a prospective investee company with adequate social performance and alignment to the developmental mission of the Fund, the Manager may invest subject to the Manager agreeing with the investee a specific environmental and social action plan (ESAP) supported by technical assistance.