Silence Fund I GP Sarl ("Silence", LEI Code 9845009B6FDB4A08FD15) acts as the registered alternative investment fund manager ("AIFM") of two Luxembourg alternative investment funds: Silence Fund I SCSp ("Silence Fund I", LEI # 9845007S4C601BA2D514), which promotes environmental characteristics within the meaning of Article 8 of Regulation (EU) 2019/2088 ("SFDR"); and Needle FoF 1 SCSp ("Needle FoF 1"), a venture fund of funds classified as an Article 6 fund under SFDR. Silence considers sustainability risks as part of its investment decision-making process in respect of both funds. Sustainability risks are environmental, social, or governance events or conditions, the occurrence of which could have an actual or potential material adverse effect on the value of the investment. Silence evaluates these risks as part of the due diligence process prior to any investment, including a self-assessment of sustainability risks. This self-assessment is tailored to the circumstances of each individual case. The results are carefully considered when making investment decisions. However, Silence retains the discretion to refrain from investing or to proceed with investments despite identified sustainability risks, applying measures to reduce or mitigate such risks where appropriate. At all times, Silence adheres to the principle of proportionality, taking into account the strategic relevance and specific context of each investment.
Silence does not currently consider the adverse effects of its investment decisions on sustainability factors as specified in Annex I of the Regulatory Technical Standards (Delegated Regulation (EU) 2022/1288, "RTS"). These sustainability factors encompass environmental, social, and employee concerns, respect for human rights, and the fight against corruption and bribery.
Given the recent introduction of the SFDR, the Regulation (EU) 2020/852 ("EU Taxonomy"), and the accompanying RTS, there is limited practical experience and established practices regarding their application. Consequently, substantial legal uncertainties remain when applying these provisions to the strategies pursued by Silence.
Furthermore, the burden of considering adverse impacts on sustainability factors, particularly through the use of sustainability indicators, is disproportionate given their limited relevance to Silence's investment strategy. Silence engages in an active venture capital strategy, investing in early-stage startups within the digital economy, primarily in Europe and the United States. Due to this business and geographic focus on digital business models in highly regulated jurisdictions, Silence's investment decisions are unlikely to have severe adverse impacts on sustainability factors. This makes it challenging to provide comprehensive and accurate data according to the indicators listed in Annex I of the RTS.
Additionally, the early-stage nature of Silence's investment strategy means that there are typically few, if any, adverse impacts that can be assessed using the sustainability indicators in Annex I of the RTS. Silence also recognizes the significant burden it would place on its early-stage portfolio companies, which generally have limited resources for measurement and reporting, to collect and report the data required by the SFDR and the RTS.
If and when the legal uncertainties are resolved and practicable market and administrative practices evolve, Silence will re-evaluate the consideration of principal adverse impacts in its investment decisions. In the meantime, Silence retains the flexibility to use part of the sustainability indicators listed in Annex I of the RTS or an alternative set of indicators as deemed appropriate.
As a registered alternative investment fund manager within the meaning of Art. 3 (2)(b) of the Luxembourg law dated 12 July 2013 on alternative investment fund managers, Silence does not have and does not need to have a remuneration guideline or policy in accordance with the requirements of the CSSF.
The Fund is dedicated to building, holding, managing and ultimately divesting from a portfolio of equity, and equity related venture capital investments in pre-seed, seed and Series A start-up companies that are developing emerging and transformative technologies that have the capacity, if developed to scale and commercialized, to potentially reduce or mitigate greenhouse gas emissions or otherwise combat climate change, or enable others to do so (the "Investee Companies"). The Fund aims that all of its investments will be aligned with the promoted environmental characteristics. The Fund is closed-ended meaning that once an investment is made, it is difficult to dispose of the asset apart from specific liquidity events which are expected to be outside the control of the Fund. The AIFM will use its best efforts to monitor the sustainability indicators of its Investee Companies, however, as with many funds dedicated to early-stage investing, the availability and quality of information and data is limited, incomplete or even non-existing at the point of investment. Furthermore, the Fund is expected to be a minority shareholder in its Investee Companies meaning that it may not have contractual rights to receive sufficiently granular and detailed information or KPI's to accurately and reliably monitor and measure sustainability indicators.
Resumen
El fondo de inversión alternativo Silence Fund I SCSP (el "Fondo", LEI # 9845007S4C601BA2D514), gestionado por Silence Fund I GP S.a.r.l, siendo el Gestor de Fondos de Inversión Alternativos ("AIFM") del Fondo, promueve características ambientales, pero no tiene como objetivo la inversión sostenible. Específicamente, el Fondo promueve las siguientes características ambientales: reducción de emisiones de gases de efecto invernadero y eliminación de carbono de la atmósfera.
El Fondo se dedica a construir, mantener, gestionar y, en última instancia, desinvertir en una cartera de inversiones de capital y capital de riesgo relacionadas con empresas emergentes en etapas pre-semilla, semilla y Serie A que están desarrollando tecnologías emergentes y transformadoras que tienen la capacidad, si se desarrollan a escala y se comercializan, de potencialmente reducir o mitigar las emisiones de gases de efecto invernadero o combatir el cambio climático de alguna otra manera, o permitir que otros lo hagan (las "Empresas Inversoras"). El Fondo pretende que todas sus inversiones estén alineadas con las características ambientales promovidas. El Fondo es cerrado, lo que significa que una vez realizada una inversión, es difícil disponer del activo aparte de eventos de liquidez específicos que se espera estén fuera del control del Fondo. El AIFM hará todo lo posible por monitorear los indicadores de sostenibilidad de sus Empresas Inversoras; sin embargo, como ocurre con muchos fondos dedicados a la inversión en etapas iniciales, la disponibilidad y calidad de la información y los datos es limitada, incompleta o incluso inexistente en el momento de la inversión. Además, se espera que el Fondo sea un accionista minoritario en sus Empresas Inversoras, lo que significa que puede no tener derechos contractuales para recibir información o KPI suficientemente detallados y granulares para monitorear y medir los indicadores de sostenibilidad de manera precisa y confiable.
The Fund invests in Investee Companies with an expected positive climate impact that is closely tied to their economic success. The Investee Companies are expected to directly or indirectly reduce, reverse, or prepare for the effects of climate change, or enable others to do so. The Fund promotes environmental characteristics but does not have as its objective sustainable investment as defined in Article 2 of Regulation (EU) 2019/2088 (SFDR) nor does it commit to making a minimum amount of environmentally sustainable investments as defined in the EU Taxonomy Regulation, as many new technologies and processes that target or enable reduction of greenhouse gas emissions and removal of carbon from the atmosphere may fall outside the prevailing EU Taxonomy category definitions. The targeted Investee Companies of the Fund are developing solutions to significantly reduce or reverse greenhouse gas emissions and are as such highly aware of not harming any environmental or social sustainable investment objective as they themselves strive to be part of solving the climate crisis.
The Fund invests in start-up, seed and early-stage entities developing emerging and transformative technologies that have the capacity, if developed to scale and commercialized, to potentially reduce or mitigate greenhouse gas emissions or otherwise combat climate change, or enable others to do so. Concurrently, this Fund does not intend to knowingly invest capital with companies expected to have or enable others to produce a predominantly negative effect on the climate.
The Fund targets superior financial returns alongside a meaningful and transformative environmental impact. The Fund primarily makes early-stage investments (with some follow-on investments in Series A) in the form of equity, SAFE and convertible debt in Investee Companies (which may be located globally) and other business and instruments that are underpinned by the development of innovative technologies that have notably the potential of addressing climate change and enabling a resilient, sustainable future for the planet. The promotion of environmental characteristics is reflected in the investment strategy. In order to attain its investment objective while promoting its environmental characteristics, the AIFM carefully selects all investment opportunities during the pre-investment phase by applying a negative screening on all potential investments to determine unsuitable investments.
In addition, the Fund will not invest, guarantee or otherwise provide financial or other support, directly or indirectly, to companies or other entities:
Good governance practices are assessed pre and post investment through a checklist process appropriate to the stage, sector, geography and maturity level of each Investee Company. Such practices include sound management structures, employee relations, remuneration of staff, including option pools and tax compliance.
Substantially all of the investments of the Fund are expected to meet the environmental characteristics of reduction of greenhouse gas emissions and removal of carbon from the atmosphere. The Fund does not commit to a certain amount of taxonomy-aligned investments according to the SFDR. Since the Fund will invest in start-up and pre-seed companies (including those that may not be EU Taxonomy eligible), it will not, beforehand, be possible to assess what share, if any, of the investment that will be aligned with the EU Taxonomy. The minimum extent of EU Taxonomy alignment is thus 0%. The Fund aspects to make investments in sustainable investments as such term is understood in the context of SFDR however does not commit to a minimum amount. The Fund will not knowingly allocate any capital to companies that have a predominantly negative impact on the climate. The Fund may make direct and indirect investments.
The Fund will use its best efforts to monitor each Investee Company in terms of one or more company relevant environmental metrics. As the Fund will be investing in pre-seed, seed and early-stage companies focused predominantly on enabling others to potentially and ultimately reduce greenhouse gas emissions and/or remove carbon from the atmosphere, they will typically be micro-enterprises (typically > 20 employees), in research or early development and with limited operational resources. When investing at this early stage, there is limited ability to, or benefit from detailed continuous monitoring of the sustainable objective/indicators. However, at the early stages of investment, the monitoring of the Investee Companies will be based on progress against development milestones and any KPIs relevant to the specific GHG pathway (if applicable). These measurements will be subject to internal control only given the limited availability of data, materiality and level of likely impact. As the Investee Companies develop and become operational, it is expected that the measurement of the sustainable objective and associated sustainability indicators will become more material and relevant and the Fund will aggregate and report the relevant KPIs. The Fund does attempt to contractually secure impact reporting data where available from its Investee Companies via side letters. However, as the Fund is expected to be a minority shareholder in its Investee Companies, it may not always have contractual rights to receive sufficiently granular and detailed information or KPI's to accurately and reliably monitor and measure sustainability indicators.
Each candidate investee company is screened and assessed by the AIFM for its climate impact potential in a manner appropriate to the circumstances of each individual case.
The data to measure the attainment of sustainability indicators and therefore the promotion of environmental characteristics will primarily come from each Investee Company. As the sustainability indicators refer to data expected to come directly from the Investee Companies, the Fund does not anticipate the necessity for further measures to ensure data quality. However, from time to time, data may be estimated if direct data is not available or sufficient. Apart from its due diligence, monitoring, and regular communication between the Fund and the Investee Companies, the Fund does not conduct further research or investigations on a regular basis, at least as long as the data reported by the Investee Companies does not give rise to any reasonable doubts.
At the time of investment into each pre-seed, seed or early-stage company, the vast majority of data is estimated. This is because the investee companies are early on their journeys and have not yet developed their respective GHG pathway or indeed the operational application of any relevant enabling technology. In addition, estimated or inferred figures will always be required as direct measurement will not be possible in many applications of carbon reduction and carbon removal technologies. The Fund is expected to be a minority investor in most if not all Investee Companies and may not have sufficient information rights to granular data and KPI's. In addition, it is expected that monitoring and reporting on sustainability KPI indicators will place an economically disproportionate burden on the usually small management teams of the early stage Investee Companies and thus deter them from dedicating resources to the gathering of such data. However, as Investee Companies develop and transition from a research and development focus into early operations, we would expect improved data and measurement methodologies to become increasingly available.
Nevertheless, the Fund expects these limitations not to affect the alignment with the promoted environmental characteristics because of the clear focus on investment only into companies underpinned by the development of innovative technologies that have notably the potential of addressing climate change and enabling a resilient, sustainable future for the planet provides significant comfort with alignment with the sustainable investment objective.
In evaluating investment opportunities during the origination, due diligence process and ongoing monitoring, the AIFM assesses all investee companies on their potential to make a positive contribution to climate change mitigation or to climate change adaptation. The assessment of how the Fund's potential investment in an Investee Company relates to the promoted environmental characteristics, is carried out as part of the due diligence process prior to an investment. The Fund attempts to secure climate and sustainability information rights from each Investee Company. The AIFM undertakes an evaluation of such data in cases where relevant KPI's are reported by Investee Companies and such data is considered in respect of follow-on investments. The AIFM does not expect to engage external control mechanisms on the due diligence process.
After the initial investment and given that the Fund is a closed-ended fund pursuing a strategy of investing and holding illiquid private market investments, there is limited or no ability to undertake ongoing due diligence that might result in an adjustment in the Fund's holdings to impact the environmental objective.
The AIFM will encourage its Investee Companies to act as role models and leaders with respect to developing the climate positive strategies and to progressively adopt suitable policies related to good corporate governance in line with their stage of development. However, as the Fund will typically be minority owners in Investee Companies, it is recognised that its level of influence may be limited and will rely upon any reporting requirements detailed at the point of investment, the alignment of other shareholders and the relationships with senior management.
The Fund does not expect sustainability-related controversies among the Investee Companies but is prepared to react to such controversies within the legal boundaries of the position as a minority shareholder.
The Fund does not use any reference benchmark.
Needle FoF 1 SCSp ("Needle FoF 1") is managed by Silence Fund I GP Sarl as AIFM. Needle FoF 1 is classified as an Article 6 fund under Regulation (EU) 2019/2088 ("SFDR") and does not promote environmental or social characteristics and does not have sustainable investment as its objective.
The AIFM considers sustainability risks not relevant to the investment decisions of Needle FoF 1. The Fund invests exclusively in third-party venture capital fund vehicles rather than directly in operating companies. The sub-funds in which the Fund invests are typically managed by small, sub-threshold managers with early-stage portfolios, for which sustainability risk is not a material driver of risk-adjusted returns at the fund selection level. Accordingly, sustainability risks are not systematically integrated into the investment decision-making process for Needle FoF 1.
As a registered alternative investment fund manager within the meaning of Art. 3(2)(b) of the Luxembourg law dated 12 July 2013 on alternative investment fund managers, Silence does not have and does not need to have a remuneration guideline or policy in accordance with the requirements of the CSSF. Given that sustainability risks are considered not relevant to Needle FoF 1, no specific remuneration arrangements have been made in connection with such risks.