Sustainability-related disclosures

Sustainability-related disclosures pursuant to the European Commission’s Regulation (EU) 2019/2088 on Sustainable Finance Disclosure Regulation (“SFDR”)

I. Sustainability Risks

Pursuant to the SFDR, “sustainability risks” are defined as environmental, social, or governance (ESG) events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of an investment. 

Galvanize Climate Solutions LLC (“Galvanize”) is a climate-focused investment firm seeking to accelerate climate solutions and create long-term value for investors. As such, with respect to sustainability risks, Galvanize’s focus across its strategies will be more heavily weighted to sustainability risks related to climate impact.

Galvanize integrates sustainability risks in its decision-making process, in each case specific to the strategy’s investment processes. Sustainability risks form part of Galvanize’s risk evaluation and management process in connection with investment due diligence and portfolio management, in each case, in light of Galvanize’s evaluation of materiality to the investment and the circumstances of the investment (e.g., investment strategy, asset type, investment size, and stage of investment). Galvanize may elect to invest despite the existence of sustainability risks, such as where the sustainability risks may be mitigated or solved, or where such risks are determined to be immaterial or outweighed by other benefits.

II. Remuneration

The remuneration of team members is generally based on a combination of fixed and variable remuneration, which may be adjusted for performance. Galvanize encourages sound and effective risk management; however, we recognize that a willingness to take calculated risks is important to address the urgency of the climate crisis. With respect to senior investment professionals, investment performance may impact variable compensation via carried interest or incentive allocations. Sustainability risks may impact remuneration to the extent a material failure to consider sustainability risks adversely impacts investment performance. 

Certain members of the team are also awarded carried interest, which may be based on performance or, in certain cases, achievement of sustainability metrics.

III. Galvanize Global Equities Cayman, LP

(a) ‘Summary’

“Fund” refers to Galvanize Global Equities Cayman, LP, and “Galvanize” refers to Galvanize Climate Solutions LLC, Galvanize Climate Solutions UK LLP, and Galvanize Global Equities GP, LP, together with their affiliates (other than the Fund, Galvanize Global Equities, LP or Galvanize Global Equities Master Fund, LP).

The Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment. The Fund intends to invest in equities of companies across global equity markets, whose activities, Galvanize believes, will contribute to delivering the abatement in greenhouse gas (“GHG“) emissions required to meet the Paris Agreement targets (the “Transition“) or whose activities will benefit from participation in the Transition.

As part of its investment strategy, the Fund’s investable universe are separated into three categories based on their Transition characteristics, summarised as follows:

  • Transition Franchises are scaled, market-leading companies that Galvanize believes can offer sustainably high returns on capital, strong alignment to the Transition in capital allocation and accelerating top line growth in these activities.
  • Transition Improvers are companies with an important role to play in the Transition and that are early in their journey of adaption. They include companies with significant emissions in their operational activities and legacy companies attacking the opportunity of the Transition with significant capital allocation to new business lines that have not yet scaled.
  • Transition Enablers are companies that Galvanize believes are allocating (or will allocate) a significant portion of their capital towards services, technologies or products specifically intended to deliver the Transition.

In addition, Galvanize will engage with portfolio companies to accelerate and support the Transition along four potential dimensions, summarised as follows:

  • Measure, disclose and target carbon emissions – Galvanize will request portfolio companies measure, disclose, and target GHG emissions using industry frameworks such as the Task Force on Climate-Related Financial Disclosures and the Science Based Targets initiative to guide corporate behavior.
  • Advocate for change of capital allocation policies and corporate strategy – for select investments in the Funds’ portfolio (in many cases, these will be from the Transition Improvers category), Galvanize will seek to have more direct influence on capital allocation to accelerate the Transition.
  • Aligned executive compensation – Galvanize believes aligning executive compensation with a company’s decarbonization targets is critical for corporate commitments to be effectively executed.
  • Value-added ownership – Galvanize has access to a powerful set of technological and regulatory resources, and is part of a broad set of commercial and industry networks focused on decarbonization. Galvanize may also help portfolio companies access these resources and facilitate and accelerate the benefits of the Transition.

In order to assess the Fund’s performance against its environmental and social characteristics, Galvanize will use a proprietary composite scoring system to assign a score to each portfolio company.

This score will help inform the transition risk assessment or alignment of each portfolio company, including the extent to which each portfolio company is aligned with the goals of the Transition and/or is on a trajectory consistent with any public commitment it has made in respect of the Transition, as well as the team’s level of conviction that they can engage with a company towards climate alignment to the extent engagement may be required.

As discussed above, the Fund expects portfolio companies to display some or all of the following attributes:

  1. Public Commitment – Company management will have identified publicly that the Transition is a major part of the portfolio company’s strategy;
  2. Capital Allocation – A significant portion of new capital will be allocated towards Transition aligned activities; and
  3. Ripple Effect – Impact will be amplified by actions to influence supply chain and customer behavior to enhance societal Transition alignment.

 

95% of the Fund’s investments will be aligned with the environmental or social characteristics promoted by the Fund. In particular, 20% of the Fund’s investments will be sustainable investments in accordance with Article 2(17) of the Sustainable Finance Disclosures Regulation (although the Fund does not pursue sustainable investments with environmental objectives that are aligned with the EU Taxonomy). All or part of the remaining 5% of investments may be invested in assets that do not align with any environmental or social characteristics.

Galvanize will utilise a mix of: (a) primary and secondary research, (b) analyst sector, industry and geographic expertise and (c) industry-accepted ratings methodologies as part of the vetting process for potential investments.

To ensure data quality, Galvanize identifies reputable data providers, such as industry-accepted ratings methodologies, research, and analysis. Galvanize may use both reported and estimated data in its evaluations, which includes reported and estimated data from portfolio companies and third party data providers. The proportion of data that is estimated will depend on the portfolio company and data sources available.

Data sourced directly from portfolio companies or third-parties may vary in quality, completeness and/or availability. In addition, there is no standard approach to measuring or reporting environmental, social and governance (“ESG”) data. Galvanize’s evaluation of ESG data may be based on estimates, assumptions or projects and may therefore be unreliable. Nevertheless, Galvanize believes that this would not be a strong limitation to promoting the Fund’s environmental characteristics, given that the Galvanize will review the third party data sources and assess and engage with its portfolio companies.

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the Fund.
(b) ‘No sustainable investment objective’
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.

(c) ‘Environmental or social characteristics of the financial product’

The Fund intends to invest in equities of companies across global equity markets, whose activities, Galvanize believes, will contribute to delivering the abatement in GHG emissions required to meet the Paris Agreement targets (i.e. the Transition) or whose activities will benefit from participation in the Transition.

(d) ‘Investment strategy’

Galvanize undertakes to take into account both pure economic performance and alignment with the goals of the Transition. Galvanize believes that companies aligned with the Transition can reap significant economic rewards in our rapidly changing world.
Investable Universe

The Fund generally intends to segment the investable universe of potential portfolio companies into three categories based on their Transition characteristics:

  • Transition Franchises are scaled, market-leading companies that Galvanize believes can offer sustainably high returns on capital, strong alignment to the Transition in capital allocation and accelerating top line growth in these activities.
  • Transition Improvers are companies with an important role to play in the Transition and that are early in their journey of adaption. Transition Improvers include companies with significant emissions in their operational activities, such as large Scope 3 footprints that need addressing, and legacy companies attacking the opportunity of the Transition with significant capital allocation to new business lines that have not yet scaled.
    Galvanize will seek to influence the speed and ambition of this improvement by bringing the resources of Galvanize to bear in order to deliver rigorous, informed and constructive engagement intended to have an impact on the corporate outcome.
  • Transition Enablers are companies that Galvanize believes are allocating (or will allocate) a significant portion of their capital towards services, technologies or products specifically intended to deliver the Transition. Transition Enablers will typically exhibit faster growth and less maturity in their profit path – and so may present greater investment risk – but will be attacking a very large addressable market with an innovative approach to delivering carbon abatement. Galvanize will also generally include renewable developers in this category, excluding those with other generation technologies in their portfolio. Galvanize believes that its science team’s domain expertise will prove a crucial, differentiating resource when evaluating companies in this category.

Engagement

Galvanize undertakes to engage with portfolio companies to accelerate and support the Transition along four dimensions, in each case at its discretion:

  • Measure, disclose and target carbon emissions – Galvanize will request portfolio companies measure, disclose, and target GHG emissions using industry frameworks such as the TCFD and the SBTi (or others that may be developed in the future) to guide corporate behavior. Galvanize believes that such data is a critical requirement for the Transition, to help provide companies with a baseline analysis of their activities for comparative measurement thereafter. Galvanize also believes that, with an analysis of the impact of a company’s activities across the value chain, a company could direct capital towards solutions that accelerate the Transition.
  • Advocate for change of capital allocation policies and corporate strategy – for select investments in the Funds’ portfolio (in many cases, these will be from the Transition Improvers category), Galvanize will seek to have more direct influence on capital allocation to accelerate the Transition. This may include, e.g., working to persuade certain portfolio companies to reduce their allocations to polluting activities and/or increase allocations to remedies/adaption. The Funds will aim to collaborate with our investments rather than fight proxy battles.
  • Aligned executive compensation – Galvanize believes aligning executive compensation with a company’s decarbonization targets is critical for corporate commitments to be effectively executed. Galvanize believes an aligned executive compensation plan:
    • Ties short and long-term climate goals to a measureable and defined portion of compensation;
    • Sets decarbonization-linked compensation targets that are a sufficiently meaningful portion of total compensation;
    • Includes LTIP equity awards; and
    • Sets annual, quantifiable sustainability targets as the basis for determining whether executives earn the related compensation.
  • Value-added ownership – Galvanize has access to a powerful set of technological and regulatory resources, and is part of a broad set of commercial and industry networks focused on decarbonization. Galvanize may also help portfolio companies access these resources and facilitate and accelerate the benefits of the Transition.

Investment strategy used to meet the environmental or social characteristics

ESG data and due diligence

Galvanize utilizes (a) primary and secondary research, (b) analyst sector, industry and geographic expertise and (c) industry-accepted ratings methodologies as part of the vetting process for potential investments.

The investment team performs due diligence using some or all of the following: primary contact with companies, competitors and suppliers; third-party confirmations via industry experts; and interaction with investment banking analysts, other participants in the companies’ ecosystems and resources at Galvanize.

In addition, the team reviews a company’s annual filings, quarterly filings, and/or sustainability reports. With this information, Galvanize analysts review the company’s progress on its decarbonization commitments, if any.
Proprietary composite scoring system

Galvanize will draw from the ESG data that it considers to be reliable from the sources listed above, to create a proprietary composite score for each portfolio company. This score will help inform the transition risk assessment or alignment of each portfolio company, including the extent to which each portfolio company is aligned with the goals of the Transition and/or is on a trajectory consistent with any public commitment it has made in respect of the Transition, as well as the team’s level of conviction that they can engage with a company towards climate alignment to the extent engagement may be required.

As discussed above, the Fund expects portfolio companies to display some or all of the following attributes:

  1. Public Commitment – Company management will have identified publicly that the Transition is a major part of the portfolio company’s strategy;
  2. Capital Allocation – A significant portion of new capital will be allocated towards Transition aligned activities; and
  3. Ripple Effect – Impact will be amplified by actions to influence supply chain and customer behavior to enhance societal Transition alignment.

Because Galvanize will evaluate and monitor the portfolio companies from the perspective of their lifetime emissions, the Fund may continue to hold investments in portfolio companies that have failed to meet their stated emissions targets, or that have revised and/or extended their deadlines for achieving those targets.
Policy to assess good governance practices

Galvanize will assess governance factors for each portfolio company based on third party data. Specifically, the team reviews industry-accepted ratings that incorporate governance considerations as part of the vetting process for potential investments.

Governance considerations include:

  1. Sound management structures
  2. Employee relations
  3. Remuneration of staff
  4. Tax compliance (including penalties, fines or other liability arising from breaches of applicable tax law).

(e) ‘Proportion of investments’

The Fund expects 95% of investments to promote environmental or social characteristics. In particular, 20% of the Fund’s asset allocation will be sustainable investments in accordance with Article 2(17) of the Sustainable Finance Disclosures Regulation. However, the Fund does not specifically pursue sustainable investments with environmental objectives that are aligned with the EU Taxonomy.

The remaining 5% of investments that are not expected to promote environmental or social characteristics, may include any hedging instruments, such as foreign exchange (“FX”) derivatives used to mitigate the effect of FX rates (and volatility in those rates), and cash or cash equivalents held as ancillary liquidity.

(f) ‘Monitoring of environmental or social characteristics’

With respect to each portfolio company, Galvanize intends to periodically monitor such company’s abatement against net zero targets and periodically update the proprietary composite score to reflect relevant changes. Notably, some of the Fund’s portfolio companies, particularly those in the improvers category, may be relatively large generators of greenhouse gas emissions, at least at the time of an initial investment. In addition, Galvanize may hold investments in portfolio companies that fail to meet stated emissions targets, or which have revised and/or extended their deadlines to achieve those targets.

(g) ‘Methodologies for environmental or social characteristics’
Galvanize undertakes to understand and monitor portfolio companies’ abatement against net zero targets. Galvanize intends to place more emphasis on rates of change in portfolio companies’ carbon emissions against current emissions levels and on those companies’ long-term plans.

In order to evaluate the above, Galvanize will draw from research into a portfolio company’s practices, which may include a company’s annual filings, quarterly filings, sustainability reports, or third party research. In addition, Galvanize will draw from trusted ESG data sources to create a proprietary composite score for each portfolio company.

This proprietary composite score will help inform the transition risk assessment or alignment of each portfolio company, including the extent to which each portfolio company is aligned with the goals of the Transition and/or is on a trajectory consistent with any public commitment it has made in respect of the Transition, as well as the team’s level of conviction that they can engage with a company towards climate alignment to the extent engagement may be required.
(h) ‘Data sources and processing’

Data source

Please see sub-section “ESG data and due diligence” under “(d) Investment Strategy” above for details on the data sources.
How is data quality ensured?

To ensure data quality, the Galvanize investment team reviews its work to identify reputable data providers, such as industry-accepted ratings methodologies, research, and analysis. In addition, where appropriate, the investment team may leverage the Galvanize science team’s domain expertise to help evaluate and digest data.
How is data processed?

Galvanize will draw from the data sources listed above, to create a proprietary composite score for each portfolio company.
What proportion of data is estimated?

Galvanize may use both reported and estimated data in its evaluations, which includes reported and estimated data from portfolio companies and third party data providers. The proportion of data that is estimated will vary depending on the individual portfolio company and data sources available. For example, Scope 3 emissions data is often difficult to measure and therefore may often be estimated.
(i) ‘Limitations to methodologies and data’

Data sourced directly from portfolio companies or third-parties may vary in quality, completeness and/or availability, and Galvanize cannot guarantee the accuracy or completeness of such data. In addition, there is no standard approach to measuring or reporting ESG data, and Galvanize’s evaluation of ESG data may be based on estimates, assumptions or projects and may therefore be unreliable. Nevertheless, Galvanize believes that this would not be a strong limitation to promoting the Fund’s environmental characteristics, given that the Galvanize will review the third party data sources and assess and engage with its portfolio companies throughout the lifecycle of the Fund.
(j) ‘Due diligence’

Please see sub-section “ESG data and due diligence” under “(d) Investment Strategy” above for details on the due diligence process. Galvanize’s investment team will use a traditional “fund manager, analyst” research model, with a fundamental research approach to portfolio construction. The Galvanize investment team holds regular research meetings to discuss existing positions and potential investments. They form views by consensus, with the Chief Investment Officer having the final say on all decisions and ensures quality control of fundamental and quantitative research.
(k) ‘Engagement policies’

Galvanize undertakes to engage with portfolio companies to accelerate and support the Transition along four dimensions, in each case at its discretion:

  • Measure, disclose and target carbon emissions – As detailed above (see “(h) Data sources and processing” – “Primary data”), Galvanize will request portfolio companies measure, disclose, and target GHG emissions using industry frameworks. Galvanize believes that such data is a critical requirement for the Transition, to help provide companies with a baseline analysis of their activities for comparative measurement thereafter. Galvanize also believes that, with an analysis of the impact of a company’s activities across the value chain, a company could direct capital towards solutions that accelerate the Transition.
  • Advocate for change of capital allocation policies and corporate strategy – for select investments in the Funds’ portfolio (in many cases, these will be from the Transition Improvers category), Galvanize will seek to have more direct influence on capital allocation to accelerate the Transition. This may include, e.g., working to persuade certain portfolio companies to reduce their allocations to polluting activities and/or increase allocations to remedies/adaption. The Funds will aim to collaborate with our investments rather than fight proxy battles.
  • Aligned executive compensation – Galvanize believes aligning executive compensation with a company’s decarbonization targets is critical for corporate commitments to be effectively executed. Galvanize believes an aligned executive compensation plan:
    • Ties short and long-term climate goals to a measurable and defined portion of compensation;
    • Sets decarbonization-linked compensation targets that are a sufficiently meaningful portion of total compensation;
    • Includes LTIP equity awards; and
    • Sets annual, quantifiable sustainability targets as the basis for determining whether executives earn the related compensation.
  • Value-added ownership – Galvanize has access to a powerful set of technological and regulatory resources, and is part of a broad set of commercial and industry networks focused on decarbonization. Galvanize may also help portfolio companies access these resources and facilitate and accelerate the benefits of the Transition.

(l) ‘Designated reference benchmark’

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the financial product.

Additional SFDR Translations