Through REQ Contribution we will provide 5% of our net profit to make a positive impact. It means a lot to us to know that a profitable relationship with our investors contributes in a positive manner outside our industry. We use the UN Sustainability Development goals as a guideline in REQ Contribution.
SFDR Sustainability Risk Policy disclosure
The EU Taxonomy is part of the “EU Action Plan on Sustainable Finance”. The EU Taxonomy is a common language related to sustainability. Currently, the regulatory focus is on environmental factors. The EU has enacted regulations to provide more transparency on sustainability in the financial industry.
Sustainability risk assessment is an integral part of our investment decision process. For the purpose of SFDR, the funds do not have a pure sustainable investment objective, but the funds do assessment of principal adverse impact. The funds intend to conduct principal adverse impact reporting and opt in with the scope of SFDR when the guidelines from the EU have been set. As of writing, the finalized reporting standards are pending. Currently we do monitor adverse impact reporting.
REQ Capital invests in value creators. These are companies that are growing with a significant spread between return on capital and cost of capital. We actively seek out companies that grow in a profitable manner. With the growth-oriented profile of our funds, REQ Capital believes that companies that proactively pursue sustainable development will outperform their peers. Over time, companies that place environmental, social and governance considerations at the top of their agendas will be able to capitalize on growth opportunities, increase returns on capital and reduce the cost of capital. We proactively seek to invest in these types of companies.
Our funds seek to invest in companies with a management team that is knowledgeable about sustainable development issues. As part of the due diligence process, we will seek to identify companies that are run by their original founders. By investing in many founder-led companies where the founder has a generational perspective, we believe many sustainability issues will be addressed. These founders will invest in sustainable products and services if those investments enhance growth prospects, increase return on investment and/or reduce the cost of capital. We believe that sustainable investment and increasing shareholder value are two sides of the same coin.
REQ Capital applies an exclusion list of controversial industries based on the company exclusion criteria used by the Council on Ethics for the Government Pension Fund Global, which excludes, for example, producers of coal and coal-based energy. In addition, our funds will have no exposure to economic activities associated with the production of nuclear energy, no ownership of fossil fuel reserves, no involvement in the production or sale of tobacco or military weapons, and no activities in gambling or pornography.
REQ Capital has chosen to exclude several sectors where we believe that the companies comprising these sectors will eventually face intense pressure from consumers, regulators and society as a whole. These pressures will ultimately result in negative pressure on growth, margins, return on capital and cost of capital.
When investing, we evaluate and monitor indicators that suggest the presence of material negative impacts. We address negative impacts by working closely with the companies. Material adverse impact is identified through a variety of sources, including annual reports, interaction with management, and interaction with analysts. Our priority in mitigating principle adverse impact is to pay close attention to governance structures and management incentives. We believe that many principled negative impacts can be mitigated through good governance structures and alignment of interests.
REQ Capital is a signatory to UNPRI – the United Nations Principles for Responsible Investments.
The remuneration policy at REQ Capital is consistent with the integration of sustainability risks. The remuneration policy has a long-term focus and encourages long-term investment decisions. Variable compensation is a function of long-term investment performance, and a significant portion of variable compensation is invested over several years in funds managed by REQ Capital. We believe that long-term compensation policies at REQ Capital are a prerequisite for achieving the highest standards of sustainability.
In addition to a long-term compensation policy, REQ Capital will give 5% of net profits each year to charitable organizations that seek to achieve the UN sustainability goals.