AQ1443 Lux Sarl

Carbon13 Fund I

This webpage contains the website disclosure required under Article 10 of Regulation (EU) 2019/2088 (“SFDR”) and Articles 37 to 49 of Commission Delegated Regulation (EU) 2022/1288 (the “SFDR RTS”) in respect of Carbon13 I SCSp (the “Fund”). The Fund is a financial product with sustainable investment as its objective within the meaning of Article 9 SFDR. AQ1443 Lux Sàrl acts as the alternative investment fund manager of the Fund. Carbon13 acts as investment adviser in respect of the Fund.

Summary

Carbon13 I SCSp is a venture capital fund with sustainable investment as its objective within the meaning of Article 9 SFDR. The Fund invests in pre-seed and seed stage ClimateTech companies whose products, services or technologies are designed to deliver measurable positive impact on Earth’s vital systems, with a particular focus on the avoidance, reduction or removal of greenhouse gas emissions. Investments are sourced primarily through Carbon13’s Venture Builder and Venture Launchpad programmes.

A minimum of 90% of the Fund’s investments will qualify as sustainable investments with an environmental objective within the meaning of Article 2(17) SFDR. Up to 10% of the Fund’s investments will be held in cash and cash equivalents for liquidity purposes. The Fund does not commit to any minimum proportion of investments aligned with Regulation (EU) 2020/852 (the “Taxonomy Regulation”) (0%) and does not commit to any minimum proportion of sustainable investments with a social objective (0%).

Each prospective investment is assessed against an ESG screening framework based on Annex I to the SFDR RTS, which takes into account the principal adverse impact (“PAI”) indicators set out in Table 1 of that Annex. Portfolio companies are required to commit to alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, and to have in place specified governance, anti-bribery and corruption, whistleblowing and DEI policies.

The attainment of the sustainable investment objective is monitored on an ongoing basis through portfolio company reporting against agreed key performance indicators (including planned impact, Scope 1–3 emissions and impact-specific KPIs), annual revalidation of the ESG screening, and engagement through information rights and board observer rights held by Carbon13.

No reference benchmark has been designated for the purpose of attaining the sustainable investment objective.

[Placeholder: link to translated summary(ies). Article 38 SFDR RTS requires the summary to be made available in at least one additional language customary in the sphere of international finance and, where the Fund is marketed in a host Member State, an official language of that Member State.]

No significant harm to the sustainable investment objective

We expect our founders to be capable and experienced in areas that will directly support the venture. We acknowledge that startups can change and pivot as they progress which might deviate them from their projected approach at the time of investment, and that projections will also be subject to sometimes significant uncertainty. That is why we also believe training founders in how to understand, manage and communicate impact such as greenhouse gas emissions, and environmental and social governance (ESG) issues, is essential for embedding impact and ESG into their organisations. Founders need to manage impact and ESG in the same way they manage their finances.

Each company seeking investment from Carbon13 must complete information on their environmental, social and governance which is reviewed so we can incorporate principal adverse impacts to investment decisions. This information includes a dashboard that identifies potential ESG risks and mitigating factors for each venture. Furthermore we require each venture to submit their understanding of what could accelerate or decelerate impact as part of a risk evaluation.

The ESG screening described above (the “ESG Screening”) is based on Annex I of Commission Delegated Regulation 2022/1288 and therefore takes into account the indicators on principal adverse impacts on sustainability factors set out in Table 1 of that Annex.

Carbon13 works to engage and support portfolio companies to align with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights which recognise the following:

  • States’ existing obligations to respect, protect and fulfil human rights and fundamental freedoms;
  • the role of business enterprises as specialised organs of society performing specialised functions, required to comply with all applicable laws and to respect human rights; and
  • the need for rights and obligations to be matched to appropriate and effective remedies when breached.

Furthermore, as described in the section “Investment Strategy” below, we also require portfolio companies to commit to the adherence to the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Sustainable investment objective of the financial product

The Fund has sustainable investment as its objective. It is a venture capital fund focused on supporting startups in the ClimateTech sector that have a measurable positive impact on Earth’s vital systems through a scalable and commercial business. Maintaining and enhancing the stability and resilience of the Earth’s system (defined below) over time means safeguarding its function and ability to support humans and all other living organisms. Interlinked processes (carbon, water and nutrient cycles) underpin these systems.

More specifically, the investments will back commercial solutions which seek to address environmental objectives such as mitigating greenhouse gases, adaptation to climate change and the broader framing of the Earth’s system. Mitigation includes the avoidance and/or removal of greenhouse gas emissions (CO2, CH4, N2O and other gases). This is in line with the objectives of the Paris Agreement of the United Nations Framework Convention on Climate Change 2016. Adaptation to climate change in human systems refers to the process of adjustment to actual or expected climate and its effects, in order to moderate harm or exploit beneficial opportunities.

The “Earth’s system” is a framework for sustaining the global commons that regulate the state of the planet, protect other species, generate nature’s contribution to people, reduce significant harm to humans and support inclusive development. This includes solutions to maintain and enhance the biosphere (natural ecosystems), water systems, nutrient cycles and the atmosphere.

The goal is to deliver environmental benefits through backing businesses with new technologies and business models which can accelerate environmental progress. In order to achieve their environmental objectives, Carbon13 believe ventures must have a commercial proposition which supports a viable business and a team capable of scaling up the business. Carbon13 will not invest in companies that are unable to pursue outcomes which have a beneficial impact on the environment.

Investment strategy

The Fund will seek to invest, primarily directly, in a portfolio of pre-seed and seed stage investments in the ClimateTech sector, each with the potential to mitigate 10 million tonnes of CO2e per annum, and other technologies focused on positively impacting the climate and environment. Portfolio companies will be sourced primarily through Carbon13’s Venture Builder and Venture Launchpad programmes (each a “Carbon13 Programme”), with the principal objective of providing investors with returns by means of long-term capital appreciation.

Good governance

In order to assess good governance, Carbon13 is often involved at the very beginning of a venture which means we are working with very early-stage companies. Nonetheless, as a result of our programmes, we are able to provide content on good governance to ventures and require certain documentation from ventures prior to investment. In addition to standard company documentation (e.g. Articles of Association) we also require a Founder Agreement or Shareholder Agreement, Anti-Bribery and Corruption policies and a commitment to an employee option scheme.

We ask founders to report annually against the diversity of their founders, employees and board and make a commitment to developing an inclusive place of work and a pathway to good governance which includes having sustainability as a standing item on the board agenda.

Portfolio company representations and commitments

We require each venture to sign a representation under which they make the following reporting commitments:

  • Scope 1–3 emissions;
  • follow-on funding (debt, equity or grants);
  • company accounts; and
  • conflicts of interest and/or breaches of directors’ fiduciary duties, including a requirement to share board minutes.

Ventures will report immediately if they change their business objectives and are in breach of our sustainable investment objectives, at which point we will engage with the venture to understand if this is a temporary or permanent breach. If the latter, we will divest at the earliest opportunity. For completeness, even in circumstances where protections have been included in investment agreements it might practically be difficult to exit ventures.

In addition, ventures commit to:

  • adhere to the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises; and
  • having the following policies in place within the first 12 months of operation: a DEI policy, a whistleblowing policy and an anti-bribery and corruption policy.

Proportion of investments

90% of the Fund’s investments will be sustainable investments with an environmental objective aligned with the objectives set out in the investment strategy as described above. Up to 10% of the Fund’s investments will be held for cash and liquidity purposes. The Fund will not make any sustainable investments with an environmental objective that is taxonomy aligned (0%) or any sustainable investments with a social objective (0%).

Monitoring of sustainable investment objective

Portfolio companies must provide a statement of additionality which is updated on a regular basis. Based on the Carbon Case, the portfolio companies will select key performance indicators which directly link to the core problem they are addressing and their additionality. They are required to update this information on a bi-annual basis. Portfolio companies are also required to inform us each year of significant changes to their environmental, social and governance criteria and associated mitigations as initially captured in pre-investment screening, and provide Scope 1–3 emissions when possible.

Methodologies

The General Partner uses the following sustainability indicators to measure the sustainable investment objective of investing in startups in the ClimateTech sector that have a measurable positive impact on Earth’s vital systems through a scalable and commercial business:

Planned impact

Each venture develops a proposition for planned impact as part of their Carbon Case. In order for a company to have impact it must still be in business. This is a basic measure that we monitor and report against. We collect information on funding rounds and grants that ventures go on to raise, which gives an indication of their ability to scale up impact and achieve the impact they planned. This enables us to evaluate the likelihood of achieving planned impact.

Scope 1–3 emissions

We require all our ventures to complete information on their current Scope 1–3 emissions. We then report this as part of our Scope 3 emissions. Where a venture is unable to complete this information, we use proxy data.

Reporting against KPIs

We require each venture to report against key KPIs that relate to their ability to create impact. These are selected by ventures in discussion with us on a case-by-case basis. They can draw on metrics contained in the Earth Systems Boundaries (which draws on Planetary Boundaries) and the Sustainable Development Goals or according to key functional performance metrics that determine impact. Examples of KPIs include tonnes of CO2 equivalents avoided or removed, kilometres squared of natural ecosystem preserved, increase in functional performance of biosphere, kg of microplastics removed or avoided, and kWh of renewable energy.

Revalidation of ESG screening

We will require ventures to re-validate their ESG screening each year, reporting any key changes.

Data sources and processing

The main sources of data are provided by portfolio companies through pitch decks, financials, the completed templates such as the Carbon Case, and due diligence questions on the market, technology and team. This data is reviewed internally by the Fund and may include additional external parties to review specific information from time to time. The Fund team works on improving data quality, methodologies and processes by examining validity, reliability and generalisability and reviewing credible data sets and analytical tools.

Limitations to methodologies and data

Limitations to methodologies and data arise due to technological and market uncertainty in parallel with emerging research and data on impact, in combination with incomplete data. Incomplete data refers to missing data which can occur when surveys or questionnaires are not appropriately completed or there is non-response. The Fund will continuously work with investee companies to make information requests clear and accessible and seek to monitor opportunities for improvement.

Due diligence

Pre-investment due diligence in respect of each prospective investment is built around the Carbon13 Programme through which the venture is sourced. Companies progressing towards investment must complete information on their environmental, social and governance strategy, including a dashboard that identifies potential ESG risks and mitigating factors. Each prospective investee company is also required to submit its understanding of what could accelerate or decelerate impact as part of a risk evaluation.

Investment recommendations are reviewed by a two-stage Investment Advisory Committee. In the first phase, the Carbon Case (covering the venture’s planned environmental impact, the methodology by which that impact has been estimated and the assumptions on which the estimate depends) is reviewed and forms part of the venture’s pitch, with follow-up questions to the founders. In the second phase, the venture is assessed against the Fund’s sustainable investment objective, the “do no significant harm” framework set out above, the good governance requirements set out under “Investment Strategy” and the Fund’s overall investment policy.

As part of the due diligence process, we also evaluate the risk of a venture breaching alignment with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Internal controls applicable to the due diligence process include the AIFM’s investment process, conflicts of interest policy and the terms of reference of the Investment Advisory Committee. Where appropriate, external legal, technical or commercial advisers are engaged to support specific aspects of due diligence.

Engagement policies

Following our investment we generally have the right to take up to two board observer seats, although there may be a minimum shareholding threshold below which this right will not be available. While this right is not always taken up, we will join a venture’s board meetings if we receive a report that one or more of the directors of that venture have breached their fiduciary duties. We continue to offer a sounding board and will engage with venture boards if we consider that the governance of the venture does not meet our requirements.

We also include Information Rights in our investment agreements so that portfolio companies report against their financial and environmental performance and ESG criteria. It is generally expected that portfolio companies will take active ownership of their governance and corporate responsibility matters, with Carbon13 providing example documentation and approaches when possible.

Attainment of the sustainable investment objective — designated reference benchmark

The Fund has not designated any index as a reference benchmark for the purpose of attaining its sustainable investment objective.

[Placeholder: link to most recent Annex V periodic disclosure / Fund annual report once available]

Last reviewed: [insert date]