Background

Regulation (EU) 2019/2088, known as the Sustainable Finance Disclosure Regulation (“SFDR”), was adopted on 27 November 2019 and deals with sustainability-related disclosure in the financial services sector. The Regulation aims to improve transparency between financial market participants (“FMPs”) on how they integrate sustainability risks in their investment decisions, consider potential adverse impacts, promote certain environmental or social characteristics, or aim to achieve sustainable investment objectives.

The Yield Lab Europe (YLE) is a venture capital fund investing in early-stage companies that revolutionise agriculture and food systems seeking to sustainably feed the world. Besides having a financially healthy business model, these companies must have a positive and measurable impact on people and nature.

As such, YLE aims to solely select sustainable investments across its fund portfolio. What follows from the SFDR is that we need to transparently communicate to potential investors on our website on:

  • Our consideration of sustainability risks in our investment decision-making process (“Article 3 SFDR”); and
  • Our policy on considering and mitigating potential negative impacts of our investment decision-making on sustainability factors (“Article 4 SFDR”); and
  • Our integration of sustainability goals within our remuneration policies (“Article 5 SFDR”); and
  • The processes within our Funds on how we measure the performance of our sustainable investment objectives (“Article 10 SFDR”)

We believe all made by Yield Lab Europe investments qualify as sustainable investments with an environmental objective (‘climate change mitigation’) as referred to in the EU Taxonomy Regulation (“TR”).

Investment strategy

The sustainable investment objective is attained by investing in companies that have the potential to impact and/or accelerate the transformation of food and agriculture systems and support transparent business practices. The strategy integrates sustainability and ESG criteria as part of the investment process and only companies whose business models support the fund’s objective are selected. This is supported by an extensive and very detailed exclusion list in the Limited Partnership Agreement of the fund, additional exclusions inside further agreements with investors and an internally agreed list of exclusions.

Integration of ESG and sustainability risk

All investments go through an initial screening of whether they “positively impact the future of food and agriculture”. In addition to the screening and monitoring of ESG risk (or ‘internal’ sustainability risk), this process ensures that any external sustainability vulnerabilities of the companies are identified and considered. Sustainability risk, both internal and external, is therefore integrated from the beginning of the investment decision process by means of the positive and negative screening process as described. It is also incorporated into the individual valuations of Yield Lab Europe products.

Sustainability indicators

The overall impact of the sustainability investment objective of the product is measured by several sustainability indicators.

– 100% of the investments are made in line with the exclusion policy (e.g. excluding investments in illegal activities, weapons, tobacco, palm oil, fossil fuel, nuclear power, gambling and adult entertainment)

– All companies have an inherent requirement to have a positive impact on food and agricultural supply chains

– All investments are measured by environmental impact targets which are approved by the YLE Limited Partner Advisory Committee and reported on in an annual Impact Report. Investments are only made in companies that incorporate and are willing to (further) improve on their ESG capabilities as based on an ESG Action Plan.

The sustainability objective and impact indicators are monitored on a regular basis as part of the investment process. All of YLE’s investments are measured on a periodic basis against environmental impact KPI’s that were determined at the time of investment.

Sustainability risk linked to remuneration

The carry of YLE Fund I is linked to Impact KPIs of each portfolio company, the specific targets of each being established at investment and in consultation with the Limited Partner Advisory Committee.