Sustainability-related disclosures pursuant to Regulation (EU) 2019/2088 (“SFDR”)
10x Founders GmbH (“10x”, LEI: 3912002ZVYOTIRQX7717) considers sustainability risks as part of its investment decision-making process.
Sustainability risks are environmental, social or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. 10x considers sustainability risks as part of its due diligence process prior to any investment. This also includes an assessment of sustainability risks. Such assessment is being conducted through an informal process as appropriate in light of the circumstances of the individual case. The results of such assessment are taken into account when the investment decision is being taken.
However, 10x remains free in its decision to refrain from investing or to invest despite sustainability risks, in which case 10x can also apply measures to reduce or mitigate any sustainability risks. At all times, 10x will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
10x does not consider any adverse impacts of its investment decisions on sustainability factors and, hence, does not use the sustainability indicators listed in Annex I of the Delegated Regulation (EU) 2022/1288 (as amended from time to time, “RTS”) to identify and assess potential adverse impacts. Sustainability factors are environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery.
Given that the SFDR, the Regulation(EU) 2020/852 (“EU Taxonomy”) and the accompanying RTS, which determine the sustainability indicators to be used and provide details on mandatory processes to obtain the respective data at portfolio company level, are relatively new legislative acts, there is – as of now – only little practical experience with regard to the application of their respective provisions. Therefore, substantial legal uncertainties would remain when applying those provisions to the strategies pursued by 10x. Moreover, the burden associated with considering adverse impacts on sustainability factors by using sustainability indicators is disproportionate in light of the very limited relevance that such impacts could have in the context of 10x’s investment strategy: 10x pursues an active venture capital strategy and invests in Portfolio Companies in the digital tech sector with innovation capacity and growth potential. Such early-stage companies are unlikely to cause severe adverse impacts on sustainability factors and, as a result, 10x’s investment decisions are expected to hardly ever have an impact on sustainability factors.
Furthermore, the consideration of principal adverse impacts will largely depend on the availability of the relevant data from the underlying portfolio companies. Especially on early-stage companies, the collection and provision of such data might put an undue burden. Given that the fund(s) managed by 10x will only hold minority interests in their portfolio companies which are generally not sufficient to encourage the companies to collect and report the relevant data, it is currently not foreseeable for 10x whether the information for the identification and assessment of principal adverse impacts can be obtained from all portfolio companies on are gular basis as required by Art. 4 SFDR.
If and to the extent that the legal uncertainties will be resolved, a practicable market and administrative practice will evolve and data availability can be ensured, 10x will re-evaluate considering principal adverse impacts of its investment decisions in due course. In the meantime, 10x remains free in its decision to use part of the sustainable indicators listed in Annex I of the RTS and/or an own set of indicators.
As a registered alternative investment fund manager within the meaning of section 2 (4) of the German Investment Code (Kapitalanlagegesetzbuch,“KAGB”) and a manager of a qualifying venture capital fund as defined inArt. 3 (b) of Regulation (EU) No 345/2013 (“EuVECA-Regulation”), 10x does not have and does not need to have a remuneration guideline or policy in accordance with the requirements of the KAGB or the EuVECARegulation.
Financial product: 10x Founders Fund GmbH & Co. KG (the“Fund” / der “Fonds”)
LEI: 391200R7PP52PP6UF316
Summary
The Fund considers certain environmental and/or social characteristics as part of its investment decisions and monitoring processes but does not seek to make sustainable investments as defined in the SFDR. The consideration of environmental and/or social characteristics is carried out both before and after an investment. For this purpose, information is initially and regularly obtained from the portfolio companies by means of qualitative queries. The Fund incorporates exclusion (negative screening) aspects during the decision-making process. Thereby the Fund considers several ESG themes to be the key to responsible investing. The actions and decisions described in the following section are each made by 10x Founders for and on behalf of the Fund.
Zusammenfassung
Der Fonds berücksichtigt bestimmte ökologische und/oder soziale Merkmale im Rahmen seiner Investitionsentscheidungen und Monitoring-Prozesse, strebt aber keine nachhaltigen Investitionen im Sinne der SFDR an.
Die Berücksichtigung von Umwelt- und/oder Sozialmerkmalen erfolgt sowohl vor als auch nach einer Investition. Zu diesem Zweck werden zunächst und regelmäßig Informationen von den Portfoliounternehmen durch qualitative Abfragen eingeholt. Der Fonds bezieht Exklusionsaspekte (negatives Screening) in seinen Entscheidungsprozess ein. Dabei betrachtet der Fonds mehrere ESG-Themen als Schlüssel für verantwortungsvolles Investieren. Die in diesem Abschnitt beschriebenen Handlungen und Entscheidungen erfolgen jeweils durch 10x Founders für den Fonds.
No sustainable investment objective
The Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product
The Fund promotes environmental and/or social characteristics by implementing certain investment exclusions during the investment decision-making process (see section ‘Investment strategy’).
Investment strategy
The purpose of the Fund is to build, hold and manage (including to divest) a portfolio of equity and equity-related investments in portfolio companies. The Fund will conduct investments in portfolio companies in the digital tech sector with innovation capacity and growth potential, including, but not limited to, software, AI, data, robotics, platforms, marketplaces, consumer and hardware with software components. As such, investments are expected to be spread across a wide range of economic activities. The Fund intends to make its initial investments in the early stage, i.e., pre-seed, seed and series A rounds. The Fund’s ESG approach comprises part of its investment strategy, which is consistently applied for every portfolio company investment.
The Fund does not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies, including portfolio companies, or other entities:
a) Performing research and innovation activities considered as illegal in Germany;
b) Any economic activity considered as illegal in Germany;
c) The production of, and trade in, tobacco, distilled alcoholic beverages and related products;
d) The financing and production of, and trade in, weapons and ammunition of any kind;
e) Casinos and equivalent enterprises (with, for the avoidance of doubt, the exception of gaming and e-sports);
f) The research, development or technical applications relating to electronic data programs or solutions, which aim specifically at: (i) supporting any activity considered as prohibited sectors; (ii) pornography; or (iii) are intended to enable to illegally (A) enter into electronic data networks; or (B) download electronic data.
The Fund’s investment strategy is continuously implemented as part of the investment process: Each investment opportunity will be reviewed as part of the due diligence process in light of the Fund’s investment strategy, in particular with regard to the investment exclusions. After an investment, i.e., during the holding period, the Fund will regularly monitor its portfolio companies and support them when and where deemed relevant.
Good governance practices are assessed through an informal process as appropriate in light of the circumstances of each individual case. Such practices include, in particular, sound management structures, employee relations, remuneration of staff and tax compliance within the portfolio companies. Moreover, the Fund will conduct regular monitoring of the good governance practices in its portfolio companies during the holding period. If the Fund becomes aware of severe governance issues, it will investigate them and work with all parties involved to find an appropriate solution.
Proportion of investments
The Fund will invest fully in line with its investment strategy and investment restrictions, i.e., will only make investments which are aligned with its environmental and/or social characteristics. The Fund does not make and does not intend to make sustainable investments within the meaning of Art. 2 no. 17 SFDR or environmentally sustainable investments within the meaning of Art. 3 of Regulation (EU) 2020/852 (“EU Taxonomy”); hence, no portion of its investments will be aligned with the EU Taxonomy.
Monitoring of environmental or social characteristics
The Fund has an increased awareness on the impact of environmental or social characteristics on risk management and thus on the value potential of investments. Accordingly, the Fund undertakes to monitor (compliance with) its environmental and/or social characteristics on an ongoing basis. Prior to making an investment, the Fund assesses the attainment of its environmental and/or social characteristics with respect to every (potential) portfolio company. During the holding period, the Fund uses the sustainability indicator ‘No investments in the area of investment exclusions’ and collects respective data at portfolio company level in order to monitor the ongoing compliance with its environmental and/or social characteristics. Moreover, the Fund consults with the portfolio companies on an ad hoc basis and will carry out further checks if there are indications of potential issues with the Fund’s ESG approach. External monitoring mechanisms are not in place.
Methodologies for environmental or social characteristics
The Fund applies qualitative assessments with respect to its environmental and/or social characteristics. The Fund conducts an initial assessment of the promoted environmental or social characteristics via an informal process in the course of the due diligence. Through this, the investment exclusions and good governance practices are identified and evaluated. Based on the results of this assessment, the Fund identifies whether the environmental and/or social characteristics promoted by the Fund are met before making an investment.
During the holding period, the so conducted assessment forms the basis to measure and monitor if the characteristics are continuously being met. By using the sustainability indicator ‘No investments in the area of exclusions’, the Fund assesses and ensures the portfolio companies’ ongoing compliance with its investment exclusions. Hence, the Fund measures and evaluates the attainment of its environmental and/or social characteristics on an ongoing basis.
Data sources and processing
In order to attain each of the environmental and/or social characteristics promoted by the Fund, the Fund obtains the relevant data from its (potential) portfolio companies through an informal process in the course of the due diligence process conducted prior to each investment. Moreover, during the holding period, the Fund relies mostly on publicly available data to check the compliance with the investment exclusions. An internal or external review or verification of the data obtained will be carried out if misrepresentations are suspected.
Limitations to methodologies and data
The data collected from the (potential) portfolio companies is internally or externally verified only if and to the extent misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. Further, the data estimated might – by the very nature of estimations –not reflect the actual data situation at portfolio company level. Further limitations, in particular with regard to the accuracy of the data and reliability of the data sources used, are currently not foreseeable. As theFund’s investments are made for several years, the Fund considers it a priority to establish and maintain a trustful working relationship with its portfolio companies in order to ensure data quality and compliance with the environmental and/or social characteristics promoted by the Fund.
Due diligence
In order to attain the aforementioned environmental and/or social characteristics, the Fund carefully selects its portfolio companies during the investment decision-making process. The Fund conducts a due diligence on every(potential) portfolio company. As part of this due diligence, the Fund carefully reviews how a (potential) investment relates to the environmental and/or social characteristics promoted by the Fund. The Fund incorporates exclusion (negative screening with respect to its investment exclusions) as well as good governance aspects during the decision-making process. An internal or external review or verification of the information obtained will only be carried out if misrepresentations are suspected.
Engagement policies
Engagement is not part of the environmental or social investment strategy of the Fund.
Designated reference benchmark
No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Fund.
Financial product:10x Founders US GmbH & Co. KG (the “U.S. Entity”)
LEI: 391200F1NH8V5OR2OB59
The U.S. Entity will invest its assets entirely in a limited partner’s interest in 10x Founders Fund GmbH & Co. KG (the “Fund”). Hence, the disclosures relating to the Fund apply accordingly to the U.S.Entity, with the exception that the U.S. Entity does not invest directly in portfolio companies, but rather solely in the Fund, which in turn considers certain environmental and/or social characteristics as part of its investment decisions and monitoring processes.
Financial product: 10x Founders Fund II GmbH & Co. KG (the “Fund II”)
LEI: 391200XBS485Y1219E87
The disclosures relating to 10x Founders Fund GmbH & Co. KG (the “Fund”) apply accordingly to Fund II with the exception that the investment strategy of Fund II differs from the Fund as Fund II is targeting investments in portfolio companies active in Robotics, Automation &Infrastructure, Data, AI & Cloud Computing, Planetary Resilience and Sustainability, and B2B/SaaS & Platforms.
Financial product: 10x Founders US II GmbH & Co. KG (the “U.S.Entity II”)
LEI: 391200VZUD462NT8U204
The U.S. Entity II will invest its assets entirely in a limited partner’s interest in 10x Founders Fund II GmbH & Co. KG (the “Fund II”). Hence, the disclosures relating to the Fund II apply accordingly to the U.S. Entity II, with the exception that the U.S. Entity II does not invest directly in portfolio companies, but rather solely in the Fund II, which in turn considers certain environmental and/or social characteristics as part of its investment decisions and monitoring processes.
