Sustainability Risks in Investment Decision-Making Process
Mangrove Capital Partners S.A. ("Mangrove" or the “AIFM”) makes the following disclosures in accordance with the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (the “SFDR”)
Pursuant to Article 3 of the SFDR, Mangrove is required to disclose the manner in which sustainability risks (as defined hereafter) are integrated into the investment decision-making process.
A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investments made by Mangrove. In the context of the AIFM, sustainability risks are risks which, if they were to crystallise, would cause a material negative impact on the value of the portfolios of the funds managed by the AIFM.
Such risks are principally linked to climate-related events resulting from climate change (i.e. physical risks) or to the society’s response to climate change (i.e. transition risks), which may result in unanticipated losses that could affect an investment. Sustainability risks can also affect companies by introducing social risks (e.g. gender gaps, social inequality) and governance risks (e.g. bribery issues, selling practices).
The impacts following the occurrence of a sustainability risk may be numerous and vary depending on the specific risk, region and asset class. Such risk could significantly impact the return of the Fund. Considering the funds' exposure to the communication services sector, data privacy is a key risk. Failure to protect people's privacy could have significant regulatory and/or reputational implications for an investee company. The funds are also exposed to the information technology sector where many IT companies collect, manage, and monetize sensitive information that is at risk of misuse. Any theft of corporate or individual information could damage an investee company's reputation and earnings prospects, and increase the risk of regulatory scrutiny and restrictions. In addition, as the investee companies in which the funds invest develop and grow, the companies may begin to have a more significant social and/or environmental impact(s) and issues relating to diversity, employee/management relations, health and safety at work as well as potential environmental liabilities may become more important and may imply reputational and regulatory risks.
Such risks are notably considered in the context of Mangrove's overall due diligence process and as a result of applying a prudent and good industry practice approach to selecting, making and subsequently monitoring investments to the extent that such risks represent potential or actual material risks and/or opportunities to maximizing the long-term risk-adjusted returns of the funds.
Notably, as part of its due diligence processes and consistent with good industry practice, Mangrove generally seeks to confirm (among other things): (i) that adequate employment agreements are in place at investee company level; (ii) whether any employment-related claims have been made or may be made against the investee company; (iii) that the investee company complies with all applicable employment and social laws and regulations; and (iv) that the investee company complies with applicable environmental laws and regulations.
In addition, Mangrove seeks to use the governance rights available to it in order to minimize sustainability risks and improve performance of investee companies. However, the fact that the funds generally hold minority stakes in investee companies means that Mangrove is not always able to influence the decisions that investee companies take with respect to these risks.
Mangrove pays its staff in accordance with its remuneration policy which takes into account compliance with all of Mangrove's internal risk management framework and internal policies, including those relating to the integration of sustainability risks. In this regard, Mangrove’s remuneration policies do not encourage risk-taking which is inconsistent with its internal risk limits or with the risk profile of the funds that Mangrove manages, including regarding sustainability risks stemming in particular from climate-related events or from the society’s response to climate change.