A sustainability risk refers to an environmental, social or governance (ESG) event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment. No single regulatory definition governs which events or conditions qualify; the EU Taxonomy sets out the following reference criteria.

Adriatic Horizon GP S.à r.l. (the “AIFM”) reviews and assesses potential sustainability risks within the meaning of SFDR as part of its decision-making process and ongoing risk monitoring with respect to investments made, or to be made, by the Fund, and has integrated such review within its internal procedures and policies, as further detailed below.

Sustainability risks may affect the Fund’s performance, having regard to the types of investments made or to be made in accordance with its investment policy and objectives — meaning that, should any such risk materialise, returns on investments may be adversely affected as a result.

The AIFM generally considers materially relevant sustainability risks in the investment process alongside other material factors. The degree to which sustainability risks are considered may vary from one product to another, depending on that product’s scope and structuring.

The AIFM treats sustainability-risk assessment as a means of identifying investment opportunities and of managing and monitoring investment risk, integrating this assessment into its investment decisions and due-diligence processes in order to maximise long-term risk-adjusted return. In deciding whether ESG data are material to a particular investment, the AIFM evaluates the relevance of that information and its likely impact on financial return in the context of the fund’s investment strategy — even where the fund does not pursue or promote ESG objectives, it remains exposed to sustainability risks. Identification and assessment of risks, including sustainability risks, take place on an ongoing basis as investments are made in accordance with the Fund’s investment policy.

Review sequence

1. Prior to any investment decision on behalf of the Fund, the AIFM identifies the material risks, including sustainability risks, associated with the proposed investment.
2. These risks form part of the overall investment proposal submitted to the board of managers of the AIFM.
3. Following its assessment, the AIFM makes the relevant investment decision having regard to the Fund’s investment policy and objectives, subject to the board of managers’ approval.

The identification, assessment and, to the extent possible, mitigation of sustainability risks is embedded throughout this process.

For the purposes of Article 5(1) SFDR, the AIFM declares that it has not put in place a remuneration policy addressing the integration of sustainability risks, on the basis that it qualifies as a registered Alternative Investment Fund Manager and therefore does not fall under this requirement of the AIFMD.

Article 4(1) SFDR requires fund managers such as the AIFM to state clearly whether they consider the “principal adverse impacts” of investment decisions on sustainability factors — i.e. environmental, social and employee matters, respect for human rights, and anti-corruption and anti-bribery matters.

Although ESG and sustainability risks are important to the AIFM, it does not consider the adverse impacts of investment decisions on sustainability factors in the manner prescribed by Article 4(1) SFDR, for the following reasons:

• No reliable and sufficiently available or accessible data currently exist to perform such impact measurement and provide the mandatory reporting imposed by the regulatory technical standards in a consistent manner.
• The investment strategy and objectives of the fund managed by the AIFM, and thus its overall portfolio, are neither ESG-focused nor, in the AIFM’s opinion, likely to have an impact on sustainability factors.
• The underlying investments are not generally required to, and may not currently, report on such factors.

This position remains subject to ongoing review in line with regulatory developments.

With reference to Article 7 of Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, amending Regulation (EU) 2019/2088 (the “EU Taxonomy”), and supplementing Article 6 SFDR, it should be noted that the investments underlying this financial product — the assets of the fund under management by the AIFM — do not currently take into account the EU criteria for environmentally sustainable economic activities.