SFDR – Sustainable Finance Disclosure Regulation

In 2015, the adoption of the United Nations (“UN”) 2030 Agenda for Sustainable Development and the Paris Agreement marked a significant shift in global attitudes towards climate change and sustainability by setting global goals for sustainability and climate action, aiming to limit global warming and promote economic, social, and environmental resilience.

Launched in 2018, the European Union’s Action Plan for Sustainable Finance translates these commitments into financial regulations aiming to (i) redirect capital flows towards sustainable investments, supporting the UN Sustainable Development Goals (SDGs) and the Paris Agreement’s climate targets, (ii) manage financial risks stemming from climate change, natural disasters, environmental degradation and social issues and (iii) foster transparency and long-termism in financial and economic activity.

The delegated regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“Sustainable Finance Disclosure Regulation” or “SFDR”), one of the key initiative adopted as part of the EU’s Action Plan for Sustainable Finance, is a European framework designed to enhance transparency in sustainable finance, especially by requiring financial market participants and financial advisers to disclose to end investors (i) whether and, if so, how they integrate sustainability risks in their investment decision-making process, (ii) whether and, if so, how they consider principal adverse impacts of investment decisions on sustainability factors, and (iii) provide clear and detailed information on the sustainable investment objectives of, or on the promotion of environmental and/or social characteristics by, their financial products.

SFDR establishes clear rules on the nature, scope, and format of sustainability-related disclosures for financial products and their financial market participants, ensuring that investors receive standardized, comparable, and reliable ESG information.

While SFDR does not define what qualifies as a sustainable financial product, it sets strict disclosure requirements to prevent greenwashing and ensure that any financial product marketed as “sustainable” or as promoting environmental and/or social characteristics provides specific, clear and transparent details on its environmental, social, and governance (ESG) credentials.

To this end, SFDR distinguishes the following three main categories, each being subject to specific applicable disclosures.

• Article 6 Financial products which correspond to all financial products not falling in scope of the two below categories.
• Article 8 Financial products (“light green”) which correspond to financial products promoting environmental and/or social characteristics while ensuring the investee companies adhere to good governance practices.
• Article 9 Financial products (“dark green”) which correspond to financial products having a sustainable investment objective while ensuring compliance with the do not significantly harm (“DSNH”) principle and the investee companies follow good governance practices.

By improving transparency, SFDR empowers investors to make informed, responsible investment choices, contributing to the transition towards a greener, more sustainable economy.

At AX Partners G.P. S.à r.l., sustainability is at the heart of our investment approach. Most of our financial products are classified as Article 8 or Article 9, reflecting our strong commitment to responsible investing.

This page contains the following (i) SFDR regulatory disclosures for AX Partners G.P. S.à r.l., including entity-level disclosures required of affiliates of AX Partners G.P. S.à r.l., as well as (ii) additional sustainable-related policies that aim to complete and further detail the synthetic information contained in the SFDR regulatory disclosures and/or provide additional essential information on the way sustainable-related provisions and risks are dealt with by AX Partners G.P. S.à r.l.:

1. Integration of Sustainability Risks in the Investment Decision-Making Process (Article 3 of Regulation (EU) 2019/2088 – SFDR L1)

AX Partners G.P. S.à r.l., as the alternative investment fund manager (AIFM) of the AX Partners investment structures, has adopted a policy on the integration of sustainability risks in its investment decision-making process. This policy outlines how environmental, social and governance (ESG) risks are identified, assessed, and monitored as part of the investment analysis and due diligence procedures.

Sustainability risks may, if they materialize, have a negative impact on the value of an investment. The manager considers such risks alongside other material risks during the decision-making process.

According to Article 2(22), a sustainability risk is an environmental, social or governance (ESG) event or condition that, if it occurs, could cause a material, potential or actual negative impact on the value of an investment.
Our investment analysis considers risks such as:

Environmental factors:
– Climate change (physical and transition risks)
– Efficient use of resources, energy and water
– Stranded asset risk
– Biodiversity and land use
– Energy Performance Certificates (EPCs), green building standards

Social and governance factors:
– Health and well-being of occupants
– Social impact of real estate assets (affordability, community cohesion)
– Corporate governance, transparency and ethical business practices

These factors are applied proportionally according to each investment strategy.

2. Sustainability-Linked Remuneration Policy (Article 5 of Regulation (EU) 2019/2088 – SFDR L1)

In compliance with Article 5 of the SFDR, AX Partners G.P. S.à r.l.’ remuneration policy promotes responsible and sustainable practices.
Currently, the policy includes:
– Integration of non-financial indicators (ESG KPIs) into individual and collective performance evaluations.
– Alignment of incentives with the achievement of sustainability objectives over short, medium, and long terms.
– Periodic review of variable remuneration components, considering sustainability risk mitigation.

AX Partners G.P. S.à r.l. ensures that its remuneration policy is consistent with the integration of sustainability risks. The remuneration structure does not encourage excessive risk-taking and promotes sound and effective risk management, including consideration of sustainability factors where relevant.

The relevant section of the remuneration policy is available upon request at: ax@axpartners.com

3. The Exclusion Policy

Which details for each investment strategy the exclusions applied by AX Partners G.P. S.à r.l. on sectors, activities, and companies to ensure alignment with ESG characteristics or sustainable objectives of the funds while mitigating sustainability risks. The Exclusion Policy aims to provide additional detailed information to, and must be read alongside, the Sustainability Risk Management Policy.

4. The Stewardship Policy

Which provides additional essential and detailed information on AX Partners G.P. S.à r.l.’s engagements that complement the synthetic ones contained in the Statement on Principal Adverse Impacts of Investment Decisions on Sustainability Factors.

5. The Impact Investment Policy

Which provides additional essential and detailed information on the impact strategy regarding the sustainable investments definition and methodology, the governance, and the integration of impact and sustainability-related aspects throughout the investment process and investment lifecycle. This policy complements the Sustainability Risk Management Policy for the impact strategy (Article 9 funds) and must be read in parallel with it.

6. Statement on Principal Adverse Impacts (Article 4(1)(b) of SFDR L1 and Articles 4 to 10 + Annex I of SFDR L2)

In accordance with Article 4(1)(b) of Regulation (EU) 2019/2088, AX Partners G.P. S.à r.l. declares that it currently does not consider principal adverse impacts (PAI) of investment decisions on sustainability factors at entity level.
AX Partners does not exceed the average employee threshold of 500 required for mandatory disclosure and currently lacks sufficient access to the necessary data to comply with the requirements set out in:
– Articles 4 to 10 of Delegated Regulation (EU) 2022/1288, which outline the technical standards for disclosure and transparency, and
– Annex I of the same regulation, which defines standardised indicators covering negative impacts on climate, water resources, biodiversity, human rights, governance, and more.
AX Partners G.P. S.à r.l. will periodically review this decision and assess the feasibility of applying these metrics and technical requirements in the future.

Legal Notice:
This information is provided solely for compliance with Regulation (EU) 2019/2088 and Delegated Regulation (EU) 2022/1288, and does not constitute legal, tax, or financial advice.