HQ Capital (Deutschland) GmbH
If you would like to receive the Transparency Statement under Article 10 of the Sustainable Finance Disclosure Regulation (EU) 2019/2088 (SFDR) for Auda Deep Impact Fund, please reach out to clientservice@hqcapital.com.
Disclosure Statement pursuant to Article 3(2), Article 4(5) (b) and Article 5 of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector.
HQ Capital (Deutschland) GmbH (“HQ Capital DE”) is a member of HQ Capital Group and an investment firm (Finanzdienstleistungsinstitut) with the license to provide, amongst other services, investment advice (Anlageberatung) under the German Banking Act (Kreditwesengesetz) and in such capacity provides investment advice in respect of certain private equity commingled investment vehicles and managed account mandates for institutional investors. This statement sets out the disclosure that HQ Capital DE is required to make pursuant to Article 3(2), Article 4(5) (b) and Article 5 of the EU Sustainable Finance Disclosure Regulation (“SFDR”). While the below disclosure is made in respect of HQ Capital DE, the processes and procedures described below are also followed by the broader HQ Capital Group and HQ Capital Group inclusive of HQ Capital DE is referred to herein as “HQ Capital”.
Transparency Statement in respect of Sustainability Risk Policies pursuant to Article 3(2) of SFDR:
In providing investment advice, HQ Capital takes into account sustainability risks and the potential impact of such risks on the expected returns of an investment. A “sustainability risk” is an environmental, social or governance (“ESG”) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment.
HQ Capital considers sustainability risks and factors throughout the investment process, beginning with initial due diligence through to the monitoring of an investment until the point of exit where appropriate to the relevant mandate. The sustainability risk assessment is undertaken by the respective investment deal team, assisted by the HQ Capital ESG team, which includes senior members of the investment and compliance teams and other staff from across the HQ Capital business.
As a fund of funds investment adviser, HQ Capital generally has limited engagement with the underlying portfolio companies and investments and therefore HQ Capital focuses its assessment of sustainability risks on the portfolio managers and general partners (each an “Underlying GP”) of the potential underlying fund investment (each an “Underlying Fund”) rather than on the portfolio companies and investments in which the relevant Underlying Fund invests.
Pre-investment
Sustainability risks applicable to an Underlying Fund are evaluated through HQ Capital’s due diligence process including the use of due diligence questionnaires and the evaluation of the proposed Underlying GP in accordance with a proprietary ESG ranking framework.
HQ Capital has developed an internal ESG pre-investment questionnaire, which is used as a screening guide when evaluating an Underlying GP’s ESG practices. Based on findings from the ESG questionnaire, as well as additional information gathered from discussions with the Underlying GPs, HQ Capital then applies a proprietary ranking-based framework that factors in both positive and negative criteria with respect to (i) the existence and implementation of an ESG policy, (ii) the integration of ESG factors by the relevant Underlying GP when sourcing deals and during the investment process, and (iii) the activities, monitoring and reporting of ESG key performance indicators (“KPIs”) post-investment.
The results of the analysis, including the Underlying GP ESG ranking, form an integral part of HQ Capital’s investment proposal that is submitted to HQ Capital’s Investment Committee for approval.
HQ Capital dealbreaker catalogue
Prior to making an investment recommendation, HQ Capital screens the Underlying Funds against a dealbreaker catalogue that sets out the industries in which HQ Capital does not invest and business practices which it does not support. If an Underlying Fund or its underlying investments operate in one of the industries or countries, or participates in one of the business practices listed below, HQ Capital will recommend that either (i) an investment should not be made with that Underlying Fund, or (ii) if possible, require the Underlying GP to exclude such investment from the Underlying Fund in respect of an HQ Capital advised investor.
The excluded industries and business practices include:
• Weapons
• Pornography and related businesses
• Exploitation of childhood labour
• Violations of human rights
• Support of repeated/systematic corruption
• Speculation with agricultural commodities
• Support of businesses in countries tied to terrorism
HQ Capital ESG ranking framework
In applying HQ Capital’s ESG ranking framework, an Underlying GP will receive a ranking between (0) to (5). An Underlying GP must obtain a minimum ranking of (1) to be considered further in HQ Capital’s investment process. A summary of the HQ Capital ESG risk analysis and ESG ranking is included in the written investment proposal that is presented for approval to the HQ Capital Investment Committee. The assigned ranking is inserted in the HQ Capital database and it is subject to annual review in connection with material changes. Further information regarding HQ Capital’s ESG ranking framework may be found in HQ Capital’s Sustainability Report which can be found here.
Post-investment
HQ Capital continues to monitor sustainability risks post-investment. In particular, HQ Capital undertakes semi-annual portfolio reviews which consist of detailed update calls with the Underlying GPs whereby their ESG policies, processes and progress are discussed. Where appropriate, HQ Capital encourages and supports the Underlying GPs to evaluate changes or improvements to their ESG practices.
As noted above, an Underlying GP’s ESG ranking is subject to review on an annual basis.
Escalation Procedure
During the due diligence, screening and post-investment processes, concerns or issues relating to sustainability risks or ESG factors are escalated by the deal team to the ESG team for resolution, which will in turn escalate to HQ Capital’s Investment Committee as needed.
No Consideration of Adverse Sustainability Impacts of investment advice pursuant to Article 4(5) (b) of SFDR:
HQ Capital began incorporating ESG criteria, including sustainability factors, into its global investment process a decade ago, having become an early signatory and supporter of the UN principles for Responsible Investment (“PRI”) in 2011. HQ Capital believes that Underlying GPs can enhance long-term risk-adjusted performance of investments by understanding and integrating ESG standards into the value creation process. HQ Capital therefore sees collaborating with Underlying GPs to encourage ESG best practices, including the consideration of sustainability factors, as key to their investment advisory activities. In this way, sustainability risks and sustainability factors are considered both within HQ Capital’s initial investment selection process and as part of HQ Capital’s ongoing relationships with Underlying GPs. “Sustainability factors”, as set out in the Disclosure Regulation, mean environmental, social and employee matters, respect for human rights, and anti-corruption and anti-bribery matters. For further information, please refer to HQ Capital’s Sustainability report.
Since HQ Capital, as a fund of funds manager, relies on data from third parties and not all companies are currently required to report on sustainability factors or provide non-financial reporting on these topics, there is insufficient data available to comprehensively identify and evaluate the adverse sustainability impacts. The availability of data is regularly monitored to check whether the most important adverse impacts on sustainability factors can be taken into account when providing investment advice. In light of the foregoing, the size of HQ Capital’s operations, the nature of the investment on which it advises, and the resources required to put in place the necessary processes in order to track and report on the adverse impacts of investments on sustainability factors, HQ Capital has determined that it will at this time not consider the impact of their investment advice on sustainability factors pursuant to Article 4(5) (b) of SFDR.
Additional information on responsible business codes and international standards
HQ Capital has been a signatory to the PRI since 2011 and supports the UN Environment Programme Finance Initiative, the UN Global Compact, the Task Force on Climate-Related Financial Disclosures and Level 20 (improving gender diversity in European private equity).
Transparency Statement in relation to Remuneration Policies and the Integration of Sustainability Risks pursuant to Article 5 of SFDR:
HQ Capital requires that its staff comply with its policies on the integration of sustainability risks as set out in HQ Capital’s “Transparency Statement in respect of Sustainability Risk Policies pursuant to Article 3(2) of SFDR” above. To the extent that the same is relevant for the performance of their function, compliance with the same is taken into account in the establishment of such staff’s fixed and variable remuneration.
Last updated: December 2023 (Amendment of section "No Consideration of Adverse Sustainability Impacts of investment advice pursuant to Article 4(5) (b) of SFDR" due to the new Regulation (EU) 2022/1288, which supplements Regulation (EU) 2019/2088 and provides clarity with regard to regulatory technical standards specifying the details of the content and presentation of information in relation to the Adverse Sustainability Impacts).
