Sustainability Risk Policy

Sustainability risk management is embedded in the way Lakestar seeks to originate investments and make investment decisions, as well as in ongoing portfolio and asset management and fund advisory activities. Lakestar recognises the importance of identifying, assessing and managing material sustainability risks as an integral part of conducting business. Lakestar's Sustainability Risk Policy provides a comprehensive framework for integrating sustainability risk management into investment decision making.

Sustainability Risk Policy

The Sustainability Risk Policy sets out how sustainability risks are integrated into Lakestar's investment decision-making processes. The Sustainability Risk Policy is applicable to all Lakestar entities and all portfolio activities of Lakestar's investment professionals.

The risks which are identified in the Sustainability Risk Matrix using guidance from the Sustainability Accounting Standards Board framework, which identifies financially material ESG risks by asset class. The following sustainability risks are considered: climate change resilience, pollution, carbon emissions, resource efficiency and depletion of finite resource, human rights in supply chains, health and safety, labour and employment practices, diversity, risk management, bribery and corruption practices and business ethics. The materiality of each risk will be determined based on the investment in question.


Integration of sustainability risks into investment decision-making processes

Sustainability risks are considered at all stages of each product's investment process, in respect of each individual investment opportunity.

The investment team is required to complete a sustainability risk matrix as part of the due diligence paper submitted to the Investment Committee for consideration.

The sustainability risk matrix is a comprehensive survey used to assess initial sustainability risks for a number of chosen areas relevant to the portfolio company in question, and to identify where additional investigation or due diligence into sustainability risks is required. This seeks to ensure sustainability risks are identified and mitigated during the investment process.

The sustainability risk matrix requires completion of due diligence questionnaires by a Lakestar investment professional and requires an assessment of each deal to be conducted at preliminary investment approval stage and reviewed at the pre-completion stage. Lakestar is committed to ensuring compliance with its ESG standards at the level of its management and advisory entities, funds and other investment products and portfolio companies. To the extent that ESG risks should materialise, Lakestar shall prepare an ESG action plan, in cooperation with any such portfolio company, to ensure that full compliance with ESG objectives and standards is achieved. Where a material risk has been identified that cannot be remedied by an ESG action plan, the compliance officer, together with the investment committee, shall re-evaluate the investment and decide on appropriate action.

 

Governance

The Sustainability Risk Policy concerns the entire Lakestar organization and it is the responsibility of all investment professionals to observe it. The investment team is required to apply Lakestar's ESG standards during all stages of the investment process, from the initial approval through the holding period until and including the exit.

Lakestar's General Counsel, Natalia Neuman, oversees the implementation of the Sustainability Risk Policy to ensure that the investment professionals fulfil their ESG obligations throughout the investment cycle. Ms. Neuman regularly reviews the operations of the investment professionals in order to ensure optimal practices. Together with the respective portfolio company and responsible Lakestar member, Ms. Neuman prepares bespoke ESG action plans in the event that any sustainability risks are identified. It is the responsibility of Ms. Neuman to report directly to the applicable Lakestar board regarding any ESG incidents.

 

Principal Adverse Impact

The SFDR requires Lakestar 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. Lakestar has opted not to comply with that regime, both generally and in relation to the Fund.

Lakestar will keep its decision not to comply with the PAI regime under regular review.

Lakestar 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 (the "PAI regime"). Lakestar 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, Lakestar is concerned about the lack of readily available data to comply with many of the reporting requirements of the PAI regime, as Lakestar believes that companies and market data providers are not yet ready to make available all necessary data for the PAI regime.

Notwithstanding Lakestar's decision not to comply with the PAI regime, Lakestar has implemented positive ESG-related initiatives and policies, as part of its overall commitment to ESG matters, as summarised in this section. For the avoidance of doubt, none of the following information is intended to suggest that Lakestar complies with the PAI regime.

 

Remuneration

Lakestar has established a remuneration policy applicable to all Lakestar entities. The policy is developed, approved, implemented and monitored within the Lakestar structure. This policy applies to all employees of Lakestar, save for limited exceptions.

The remuneration policy has been developed with the aim of supporting Lakestar's business strategy, corporate values and long‐term interests, including by facilitating the identification, assessment and management of sustainability risks when determining individual remuneration packages. The key principles of the Policy include fostering appropriate risk culture (including with respect to the management of actual and potential conflicts of interest) and compliance with applicable law and regulation.

The performance management and rewards framework envisioned by the policy has been designed to promote effective risk management, including in particular by:

  • Ensuring that assessment of performance takes full account of adherence to risk management requirements, covering all relevant types of current and future risks, including sustainability risks; and
  • Providing for reduction of deferred variable remuneration awards to senior personnel in certain circumstances, such as in the event that the entity in which the relevant employee works suffers a significant failure of risk management, or experiences a significant downturn in its financial performance (as determined in the sole discretion of Lakestar), including in connection with a sustainability risk concerning an investment.