This is intended to explain that Impact KPIs are just the very final step of a longer process in which Impact is well-analyzed and assessed. In particular, we run some sessions with the entrepreneurs to understand the impact of the business model of their companies. We are committed to set metrics that are precise but at the same time ambitious to foster an increased implementation of impact. We want to bring founders to the following mind-shift: we now measure not only what the company “has done” (i.e. performance metrics), but what the company “has changed” towards its beneficiaries. 

1.5 Impact across our investment process

While we have a dedicated impact team, we run an impact analysis across the whole investment process.

The intention is the one to remain light, so to speak, at the very initial phase of process, namely the screening, just questioning whether the company is answering to an impact problem and/or addressing a relevant social or environmental challenge. At the beginning of the analysis, the investment team has to assess thoroughly the impact goal of the company, who are the stakeholders impacted and the expected outcomes (i.e. positive changes) on them. 

When evaluating an investment, the investment team therefore assesses not only the validity of the business model, the management team and the economic sustainability in the medium term, but also the social impact that the investment may generate. In the investment committee a discussion about the company takes place, resulting in a no-go decision whether the company is considered not impactful enough (as well as all the other business topics). Where the investment team is intended to progress with the analysis, an impact due diligence takes place internally, intended to: analyze all aspects of the business, provide data on the social / environmental challenge, benchmark with comparable companies also when invested by other impact funds to assess the impact angle that is being undertaken, clearly define outcomes and comprehend whether the solution is actually contributing to the problem in an innovative and additional way. 

During the analysis a pre-set of Impact KPIs is identified together with the entrepreneurs. Once Impact KPIs are identified, discussed, tested and analyzed with the entrepreneurs, they have to be approved by the Advisory Board. After that, data collection happens yearly and their reporting takes place in our impact report, dropped yearly. 

We think that impact measurement is never enough, hence we have an internal impact management plan, to continuously push our entrepreneurs to deliver more impact, in various ways. 

As better clarified in the paragraph 2 “ESG Commitment”, before the final investment decision an ESG due diligence takes place. At this stage, several sustainability risks specifically referred to the target company are taken into account and PAI indicators are assessed, as of the SFDR regulation.

2. ESG Commitment

Despite we are aware that Impact and ESG are two very different topics that must be assessed separately, and despite Oltre Impact mission is one to invest in companies that are intentionally targeting social or environmental impact, we are committed to carefully include Environmental, Social and Governance factors in our decision making. 

In this sense, our ESG policy foresees a measuring at the level of the Management Company and at its investees one, with the support and certification of a leading independent auditing firm at all stages of analysis and investment and divestment processes. 

Before the investment, an ESG due diligence is carried in parallel with the legal and financial due diligences and an external independent auditing firm carries out an assessment of the company on all the ESG factors, providing us with a final reporting that confirms the possibility to invest. Out of that, an action plan is delivered to the company intended to identify key areas of improvement for their environmental, social and governance practices. 

We continually strive to promote the adoption of ESG practices at the level of the management company and with our investee companies, beginning with the appointment of an internal ESG manager in the companies and within our team. Finally, according to EU Taxonomy we apply the “Do No Significant Harm” principle, by investing in companies that provide no harm to environment or people. 

Besides that, our board members have an extensive experience in Impact Investing and are able to understand and properly asses sustainability and environmental risks in relation to each investment opportunity. Their long expertise in this sector allows them to have a clear idea on how measuring the impact and what KPIs fit best for each investee. During the last two years, the board decided to introduce two dedicated roles in the company: a ESG responsible, in charge of implementing supervising the ESG Policy, and a Head of Impact, who supervises all analysis and measurement impact-related activities. The communication between the team and the board is assured by the CEO who reports on a regular basis to the BoM. All the people involved in the process have access to courses and ad-hoc learning session on an annual basis, at the least.

Oltre is also working with external advisors to strengthen research and collecting of specific data coming from investee companies and from Oltre itself. This allows to regularly monitor their performance in term of impact.

Oltre is strongly committed to keep the investors up to speed: the annual reporting is integrated to show the evolution of the KPI for each company in portfolio and an Impact Report is published yearly in Oltre’s website.

In February 2022, Oltre subscribed the UN PRI with purpose to asses Oltre’s status quo in terms of governance, business model and strategy, risk systems and remuneration policies, reporting.

Introduction

The objective of Regulation (EU) 2019/2088 is to strengthen the protection of the final investor, by improving disclosure with respect to attention to risks related to sustainability, in order to be able to more fully assess the risk of one’s investment.

Impact Investing goes one step further, since in addition to not considering investment projects that can have negative effects on the environment and people, it proactively moves to seek investment projects that can have a positive impact on people’s lives, the environment, and society.

3. Sustainability Risks (SFDR Art. 3) 

“Policies on the integration of sustainability risks in investment decision-making processes”

By “sustainability risk” we mean an environmental, social or governance event or condition that, if it occurs, could cause a significant negative impact on the value of the investment.

Oltre Impact SGR SpA – EuVeca Manager (“Oltre Impact” or the “Management Company”) takes into account the sustainability risks in the investment decision-making process, analyzing in particular the risks and opportunities associated with ESG issues relevant to the company itself, with particular reference to the sector and the context in which it operates, through a careful and in-depth assessment of its positioning in the area of sustainability.

In this regard, the Company has prepared a pre-investment ESG checklist that is used by the Management Team in order to investigate the sustainability aspects relevant to the target Company and evaluate its positioning in terms of ESG, also by means of interviews with the Target management team.

During the compilation of the pre-investment Checklist, for each ESG area subject to analysis, the Management Team performs a qualitative analysis in terms of ESG and, on the basis of this, assigns a score on a scale from “low level” to ” high level “.

Following the identification of the ESG risks and opportunities that have emerged as the most relevant in terms of scoring, the members of the Investment Team in charge for the Portfolio Company prepare a corrective action plan, the so-called “ESG Action Plan” together with the management of the Portfolio Company. This ESG Action Plan is divided into a set of qualitative-quantitative objectives with related actions and will be implemented during the investment period, on the basis of a reasonable time schedule. Oltre Impact, as an Impact Investing operator, promotes products with social impact objectives, promoting investments which, in addition to respecting the principle of “do not harm”, generate a positive impact for all stakeholders of the company.

4. Adverse Sustainability Impacts (SFDR Art. 4) 

“Disclosure on the main negative effects (PAI) on sustainability”

(Publication on the website – ad hoc section “adverse sustainability impacts not considered”)

Oltre Impact SGR, with reference to the provisions of Regulation (EU) 2019/2088 Art. 4 (SFDR Regulation) relating to the disclosure on sustainability in the financial services sector, adopts its own methodology for measuring social impact and undertakes to implement policies that take into account the adverse impacts (PAI) of investment decisions on sustainability factors, based on the type of financial products it intends to make available.

With reference to the due diligence policies, as regards the negative effects (PAI) identified during the investment phase (ESG pre-investment checklist and ESG Action Plan), taking due account of the size, nature and scope of the Portfolio Companies, Oltre Impact SGR compiles a post-investment ESG checklist including possible additions to the indicators for monitoring purposes. This post-investment ESG checklist aims to measure the “KPIs” or sustainability indicators to which the adverse impact indicators (PAI) of investment decisions on sustainability factors are added, in line with the schemes envisaged by the Final Report on draft Regulatory Technical Standards (hereinafter RTS) soon to be published in its final version.

To date, the aforementioned KPIs have been identified on the basis of international reporting frameworks, such as the Sustainability Accounting Standards Board Standards (SASB) published by the Sustainability Accounting Standards Board and the Global Reporting Initiative Sustainability Reporting Standards (GRI Standards) published by Global Reporting Initiative (GRI) in 2016 and subsequent developments. The KPIs include both indicators common to all the Portfolio Companies (cross-portfolio KPIs) and indicators selected on the basis of company-specific KPIs.

The Management Team of the Management Company therefore encourages and promotes the adoption of ESG practices in the Portfolio Companies in relation to the operating sector, monitors the adoption and implementation of the aforementioned ESG Action Plan and the annual collection of the reported KPIs within the post-investment Checklist.

As the regulatory framework is still being defined with regard to the technical aspects, Oltre Impact SGR is adopting a gradual alignment approach to the SFDR Regulation, in order to integrate the indicators of the adverse impacts (PAI) of investment decisions on sustainability, in line with the schemes envisaged by the RTS.

5. Remuneration (SFDR Art. 5) 

Oltre Impact mission has always been at the very core center of the investment strategy. To us the impact intentionality of our companies and, majorly, their capability to deliver positive change towards beneficiaries is a crucial aspect which aligns the research of a solid financial performance. The investment thesis bets on the possibility to achieve both financial and impact return and this is in the belief of our founding partners since ever. The Founding partners have been working together since 2006 and the Partners all together have been working alongside since 2016, holding 50+ cumulative years of experience in the field. The same Team has managed the previous initiative of Oltre II. 

For these reasons, the compensation to the team is aligned to the investment strategy: 

The management team of Oltre is rewarded (so-called carried interest) not only on the basis of the 

achievement of a minimum financial return, but also on the achievement of a minimum target social impact of the portfolio. The 70% of the carried interest is tied to the achievement of the impact KPIs. In this way, the management team has a strong commitment to build a portfolio of companies that aim in equal measure to achieve good financial and social or environmental returns. 

To be more specific the share of the maximum additional return of 20% allocated to the management team of the fund, which also holds carried interest units (the B Units), depends for 30% on the achievement of a minimum financial return and for the 70% on the achievement of a minimum portfolio social impact goal. 

To get the portion of carried interest linked to the achievement of impact goal, it is necessary that the portfolio as a whole achieves at least 61% of the goals. 

It should also be noted that in the event that the portfolio social impact goals is achieved to a greater extent than 80%, 80% would still be considered the upper limit of the premium.     

6. Transparency and reporting to investors

6.1 Pre-contractual information 

At the moment of the subscription, investors are onboarded with a complete package that includes the pre-contractual policy designed according to the standard provided by the Regulation (EU) 2019/2088 and that testifies our commitment and internal policies to be comprehended within the Art. 9 definition. 

6.2 Reporting on the website

In our website, we detain a dedicated section, called “sustainability disclosure” that clarifies all our internal methodologies and practices to address and explain all the SFDR requirements.

On the one hand, we dedicated a section to explain our internal practices regarding the impact of our investments, as explained in the previous chapter. On the other hand, the whole set of information related to the SFDR, according to the specific articles that relate to funds’ practices and methods. 

6.3 PAI reporting

As of chapter 4 of this document, we commit to fully align with SFDR Art. 4. Being 2023 the first year of reporting, we commit to begin a thorough process of assessment with our investee and we are confident to collect a significant amount of data that can not only respond to the legal standards, but support our investee to a concrete improvement of their sustainable performances.

6.4 Reporting on our Impact KPIs

On an annual bases, we report to our investors our impact KPIs calculated with our investees. We attach the information to the Annual Investor Report. Alongside with the business performances of each investee, we add a detailed sed of information on the impact KPIs and the multiple calculated for that year. 

In addition, we yearly report the impact multiple calculated at a fund level, weighted on the basis of the amount invested.

Art. 7, paragraph 1 of Regulation (EU) 2019/2088

“Statement certifying that information on the main adverse effects on sustainability factors is among the information available in the annual report”

Oltre Impact SGR, in reference to the provisions of Regulation (EU) 2019/2088 Art. 7 (SFDR Regulation) Paragraph 1 letter b) regarding the availability of information in the annual report to investors, plans to prepare, starting in 2023 (with reference to the closing data of 2022) an ad-hoc in-depth that allows the subscribers of OLTRE III and OLTRE III Italia funds access to information related to the main negative effects on sustainability factors, consistent with what is defined by the RTS.

Art. 10, paragraph 1 of Regulation (EU) 2019/2088

“Transparency on the promotion of environmental or social characteristics and of sustainable investments”

(Publication on the website – ad hoc section “Information relating to sustainability”)

According to the provisions of EU Regulation 2088/2019 (hereinafter the “Regulation” or “SFDR”) regarding financial products referred to in art. 9 of the same, “Oltre III” (the first Fund established and managed by Oltre Impact SGR) is an EuVeca closed-end Impact capital fund, reserved for qualified investors, specialized in impact investing to support the development and growth of SMEs and innovative startups. The Fund’s objective is to invest in sectors where there are social needs: healthcare, education, job placement, environment, services that improve the quality of life.

Oltre III is a reserved fund, focused on the services sector, in particular healthcare, education, well-being, tourism and agriculture, where important opportunities exist as well as significant demand from consumers. In general, the services sector presents less risk compared to start-ups of product companies, because the delivery models can be modified based on the level of development of the company, also in terms of sustainability, by intervening on the KPIs of an environmental, social and governance nature. Oltre III, therefore, is a product with low volatility compared to the Impact Capital sector and with an attractive risk/return ratio.

Oltre III aims to proactively align the sustainability objectives of its subsidiaries with its framework for measuring the impact created each year and its evolution over time.

During the due diligence phase of an investment in a Social SME, the Management Company establishes ex ante the social impact objectives (“SIG” or “Social Impact Goals”), concurrently with the business plan of the target company. When completing the investment, for the purpose of continuous monitoring, these SIGs, in addition to the sustainability indicators, are periodically provided by the portfolio company.

To date, as there is no market index to use as a benchmark for calculating the overall social impact related to the sustainability of the Fund, the Management Company has developed its own methodological framework aimed at assessing the progress of the social performance of the entire portfolio.

The Management Company undertakes to measure the progress of the sustainability indicators and the achievement of the SIGs of the entire Portfolio Companies of the Fund, according to its own methodology, the Overall Social Impact Multiple calculated for each Social SME. The Fund’s Social Impact Multiple is the weighted average of all the Social Impact Multiples per investment, taking into account the weighting assigned to each Social Impact Multiple. As an element of further commitment to achieve social impact, the Carried Interest of the aggregate Fund will be linked, at 70%, to the achievement of a Social Impact Multiple of the minimum Fund.
With reference to the SFDR Regulation and the schemes provided for by the RTS, since the latter are still being defined, the Management Company will adopt a gradual approach of aligning both its methodological framework and disclosure information, following the schemes provided by the RTS.

Based on previous explanations, we believe our fund qualifies as Article 9. Since the requirements under SFDR are subject to change, we will continue to follow them closely to verify whether updates are required in the coming months.