The Regulation (EU) no. 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“SFDR”) requires financial market participants to provide information to investors with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the remuneration in relation to sustainability risks and the promotion of environmental or social characteristics, and sustainable investment. Information is to be provided at the entity level (i.e. Fund Manager) and/or product level (i.e. the Fund).
Qbic consists of three funds, Qbic I, II and III, which were formed in 2012, 2016 and 2022, respectively. Each of these Funds is managed by a different Fund Manager. Consequently, disclosure and reporting obligations of Fund Managers are congruent with those of the managed Funds.
The first two funds, Qbic I and II, were formed prior to the entry into force of the SFDR. These funds therefore do not promote environmental or social characteristics in accordance with Article 8 of the SFDR, nor do they commit to making sustainable investments in accordance with Article 9 of the SFDR. Although sustainability factors were included into the decision-making process of the investment strategies of these Funds from the beginning, integration of such risk has been formally implemented since the Regulation (EU) no. 2021/1255 came into force. Adverse impacts of investment decisions on sustainability factors as referred to in Article 4.1(a) of the SFDR are also not considered for these funds.
The information below therefore regards the most recent fund Qbic III (the “Fund”) and Qbic Venture Partners III (QVP III), the Fund Manager of Qbic III.
A “sustainability risk” means an environmental, social or governance event or condition that, if it occurs, may negatively affect the value of an investment. A sustainability risk is a type of financial risk that firms may be expected to consider in the course of their investment decision-making, to the extent relevant to the investment strategy.
Qbic Venture Partners III (QVP III), the Fund Manager of Qbic III, is convinced that mitigating sustainability risks by taking material ESG factors into account improves investment decisions and lowers the financial risks for our investors. The integration of a sustainability risk policy in accordance with Article 3 of the SFDR Regulation is therefore a natural step in its investment process.
Investment proposals will describe how companies are exposed to ESG risks (if applicable) based on the set of evaluation and scoring parameters listed in our ESG Screening Table. We will consider the company’s publicly disclosed evidence as well as data directly requested from companies to capture ESG opportunities and mitigate risks where relevant. The outcome of these findings are taken into consideration when an investment decision is made.
Principal adverse impact factors are the potentially harmful impacts of a firm’s investment decision on a range of environmental, social and governance matters.
The above-mentioned ESG Screening Table not only compiles information on ESG risks but also surveys how companies comply with ESG base indicators. The ESG Screening Table is therefore also used post-investment for assessing ESG performance, setting ESG goals and monitoring progress against ESG targets.
The goal is to create more awareness around ESG issues that could be material to the company and to guide portfolio companies overall to a more sustainable organization in terms of ESG compliance. To this aim, a dialogue will be established with the portfolio companies to set ESG policies and to promote ESG disclosures. Portfolio companies will be yearly surveyed on ESG issues pertinent to their business. The ESG screening Table will also be used for monitoring of the companies’ ESG standing and reporting and for keeping track of the evolution of the scoring related to the applicable ESG base indicators. ESG performance and progress will be annually reported to the shareholders in the annual report.
Therefore, QVP III has formalized its approach to consider certain potential adverse sustainability impacts, without, at this point in time, considering all adverse sustainability impacts under the SFDR, as it lacks the relevant data sources for completing the Principal Adverse Sustainability Impact Statement. By consequence and in accordance with article 4.1(b) of the SFDR, QVP III states that it does not consider the adverse impacts of investment decisions on all of the sustainability factors as referred to in article 4.1(a) of the SFDR and does not make the disclosures as described in article 4.1(a) of the SDFR.
QVP III, as a sub-threshold manager of the Alternative Investment Funds (AIFs) Qbic III, does not have an obligation to have a formal remuneration policy in accordance with article 40 and following the Belgian law of April 19, 2014 on alternative entities for collective investments and their managers.
Consistent with general venture capital remuneration policies, a portion of the total compensation of the investment managers of QVP III is linked to the performance of the investment product, i.e. the Qbic III fund. This also holds true for QVP I and II, fund managers of the first and second Qbic funds. Therefore, sustainability risks and/or ESG issues that impact the value of one or more of the portfolio companies will also negatively affect the investment manager's compensation.
Qbic III is an early-stage venture capital fund that invests in spin-offs from its knowledge partners, being universities, research institutes and hospitals. Its mission is to transform cutting-edge research into innovative products and services. Qbic III will invest in technologies that could lead to innovations with impact on either climate, environment or health. In addition, the Fund will invest in enabling and digital technologies, which often have a broad scope of applications and therefore cannot be linked to a specific sustainability objective.
2. No sustainable investment objective
Qbic III (“the Fund”) is an Article 8 fund that promotes environmental or social characteristics, but does not have sustainable investments as its objective.
A ‘sustainable investment’ is an investment in an economic activity that contributes to an environmental or social objective, provided that the investment does not significantly harm any of those objectives and the investee companies follow good governance practices. The EU’s Taxonomy Regulation governs sustainable investments made under the environmental objectives specified in the Regulation.
3. Environmental and/or social characteristics promoted by this financial product
Qbic III will promote ESG policies in all of its portfolio companies, irrespective of economic activity or industry sector. At each investment, the Fund will screen the company against a range of environmental, social and good-governance (ESG) criteria. If a high ESG risk cannot be eliminated or adequately alleviated, the investment opportunity in question will not be pursued any further. Portfolio companies will be required to set ESG goals and to address gaps in ESG policies or in the execution thereof.
The environmental and social characteristics that are promoted by the Fund link to a broader reference framework of the Fund, i.e. the Sustainable Development Goals (SDGs) of the United Nations. Through its investments and by ESG policies, Qbic III intends to contribute to several of the following SDGs: Good Health and Well-Being (SDG3), Quality Education (SDG4), Gender Equality (SDG5), Clean Water and Sanitation (SDG6), Affordable and Clean Energy (SDG7), Decent Work and Economic Growth (SDG8), Industry, Innovation and Infrastructure (SDG9), Sustainable Cities and Communities (SDG11), Responsible Consumption and Production (SDG12), Climate Action (SDG13), Life below Water (SDG14), and Life on Land (SDG15).
4. Investment Strategy
Qbic III is an early investor, typically stepping in during the first external capital round (seed or series A). Accordingly, the Fund is prepared to accept significant technological and market risks, provided that the proprietary technology base is strong and protected and the market potential is substantial, in balance with the tolerated risk. Qbic III builds on the cutting-edge research of its knowledge partners. Most of this research come from universities and research institutes and has been funded by government grants. Therefore, by nature, this research often targets environmental and social benefits. The mission of Qbic III is to take this research further towards technology demonstration, applications, products and services. While a sound business case is a prerequisite for investment, the Fund will favourably consider investment opportunities that hold the potential of bringing substantial environmental or social benefits. The impact analysis obviously also includes an evaluation of potential harm to environmental or social objectives other than the one specifically targeted. Given the outspoken goal of positively contributing to several of the United Nations SDG goals, Qbic III applies a low risk policy with regard to sustainability risks and potential harm to sustainability objectives. Any substantial risk in this regard will need to be disclosed to both the Fund Manager and the Expert Advisory Board of the Fund.
5. Proportion of investments
There is no predetermined proportion of sustainable investments in portfolio companies with an environmental or social objective.
6. Monitoring of environmental and social characterstics
At the Fund level, the overall aim is to bring the number of portfolio companies that show high ESG risks to zero and to have in all portfolio companies adequate ESG policies implemented proportionate to the ESG exposure of their activities. Progress towards reaching this goal will be monitored and reported to the shareholders in the annual report.
7. Methodologies to measure the attainment of each of the environmental or social characteristics promoted by this financial product
For monitoring ESG policies and performance, a screening template (ESG Screening Table) is used to assess the relevance of various ESG criteria for each portfolio company as well as the maturity of the company taking into account the relevance of the different ESG items. This results in a dashboard highlighting ESG strengths and weaknesses. At the company level, weaknesses will be addressed through action plans that will be monitored over time by the Fund.
8. Data sources and processing
ESG monitoring is heavily reliable on data quality. The ESG data and performance analysis of all portfolio companies of the Fund are updated on an annual basis through a detailed interview with the portfolio companies to reflect evolutions in the company’s processes, products, or management structure. In addition, national and supranational regulations and policies that relate to ESG characteristics will be monitored to detect and include significant changes that might affect the performance of a portfolio company.
9. Limitations to methodologies and data
While our Portfolio Managers, through their Director positions, have direct insights in many of the portfolio companies, one should acknowledge that data quality still largely relies on the information provided by the portfolio companies themselves. Furthermore, the companies that the Fund invests in, are not yet at scale level, so impact statements on environmental or social characteristics are often forward-looking and therefore inherently uncertain.
10. Due diligence
An ESG-related risk assessment and impact analysis is an integral part of the due diligence performed by the Fund.
11. Engagement policies
Following an investment, Portfolio Managers assigned by the Fund Manager to a specific portfolio company will monitor ESG compliance and progress in ESG performance of such portfolio company, taking into account the stage of maturity of the portfolio company.
The Managing Partners of the Fund Manager will survey internal alignment on ESG policies and provide ESG trainings to the Portfolio Managers.
12. Index as reference
There is no reference index designated for the purpose of monitoring the environmental and/or social characteristics promoted by the fund.