The European Union has introduced a series of legal measures, the primary one being the Sustainable Finance Disclosures Regulation (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 ("SFDR") requiring firms that manage investment funds and other collective investment schemes to provide transparency on how they integrate sustainability considerations into the investment process with respect to the schemes they manage.
Sustainability Risk Policy
The Sustainability Risk Policy sets out how sustainability risks are integrated into Armilar's investment decision-making processes. 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. The Sustainability Risk Policy is applicable to Armilar Venture Partners, funds under management and all portfolio activities of Armilar's investment professionals.
Integration of sustainability risks into investment decision-making processes
At Armilar we consider sustainability risks as part of the due diligence process prior to any investment and subsequently as part of our investment decision-making process. The assessment is conducted by an Armilar investment professional, based on our Sustainability Risk Policy, and requires an assessment of each deal to be conducted at preliminary investment approval.
Armilar remains free in its decision to refrain from investing or to invest despite sustainability risks, in which case Armilar can also apply measures to reduce or mitigate any sustainability risks.
At all times, Armilar will apply the principle of proportionality taking due account of the strategic relevance of an investment as well as its transactional context.
Throughout the lifespan of our investments and as an active investor with representation on the governance bodies of our portfolio entities, we engage actively with our portfolio companies so that together we identify and manage ESG risks.
Sustainability adverse impacts
Armilar is aware that its investment decisions, as well as its portfolio entities' activities may have an impact on sustainability factors. By selecting portfolio entities for investment and monitoring them during the lifespan of Armilar’s investment related to ESG matters, Armilar tries to reduce any sustainability adverse impacts that its investments may have and contribute to a sustainable economy.
Article 4 of the SFDR on sustainability-related disclosures in the financial services sector ("SFDR") requires Armilar to make a "comply or explain" decision whether to consider the principal adverse impacts ("PAIs") of its investment decisions on sustainability factors, in accordance with a specific regime outlined in SFDR (the "PAI regime”). Armilar has opted not to comply with the PAI regime, both generally and in relation to the Funds under management.
Armilar will keep its decision not to comply with the PAI regime under regular review. Armilar has carefully evaluated the requirements of the PAI Regime in Article 4 of the SFDR, and in the draft Regulatory Technical Standards which were published in April 2020. Armilar is supportive of the policy aims of the PAI regime, to improve transparency to clients, investors, and the market, as to how financial market participants integrate consideration of the adverse impacts of investment decisions on sustainability factors. However, Armilar is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime; in particular it should be noted that (i) our investment scope is limited to sectors and geographic areas that, in our opinion, entails limited adverse impacts on sustainability, (ii) we invest in small entities and start-ups that, due to their size and limited resources, are not capable of providing the information required to determine precisely the adverse impacts of our investment decisions in accordance with the SFDR and the legislation implementing the SFDR, (iii) we are a small organisation with limited resources and personnel and we are not capable of determining precisely what the adverse impacts of our investment decisions would be, based on the different criteria set forth in the SFDR and the legislation implementing it, and (iv) we believe that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.
Notwithstanding Armilar's current decision not to comply with the PAI regime, we have implemented positive ESG-related initiatives and policies, as part of our overall commitment to ESG matters.
The Remuneration Policy approved by Armilar defines the principles of the company’s remuneration system. It sets consistent standards for all staff and in relation to its directors and highest ranking officers complies with the requirements set forth in the Portuguese legislation that has implemented EU Alternative Investment Funds Manager Directive (AIFMD).
The remuneration system targets an alignment of interests between investors and the Armilar, avoids incentives for inappropriate risk taking, and is in line with the sustainable long-term financial development of the company. The remuneration system also does not reward assumption of excessive sustainability risks in accordance with the SFDR.