Sustainability Related Disclosures
Luxembourg Microfinance and Development Fund
Objectives
The objective of the Sub-Fund is to make sustainable investments (or “dark green”) within the meaning of article 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector by contributing to the alleviation of poverty in developing countries through the provision of permanent and adapted financial services to marginalised communities and individuals.
The Sub-Fund invests in promising microfinance institutions (“MFIs”) that have a positive social impact so that these institutions reach financial autonomy. In pursuance of its objectives, the Sub-Fund may invest in MFIs, in networks or associations of MFIs, in regional funds, in microfinance vehicles (“MIVs”) and in other microfinance-related products.
The Sub-Fund has two principal objectives, social and financial: help socially oriented MFIs to become long term viable enterprises that reach more poor people and offer better services, and generate sufficient income to sustain its own operations and give its Shareholders a financial return that at least compensates for inflation.
The Sub-Fund will strive to provide tailor-made and innovative solutions to needy MFIs, coupling its own financial assistance with technical support from external consultants. It will deliberately focus on niche activities, activities where potential needs of MFIs are large, but current supply is scarce.
The Sub-Fund invests in the developing countries of Africa, Asia and Latin America.
The decision to invest will be based less on the overall level of development of the country in question, but rather more on the merits of the individual cases, i.e., the potential benefit for the local population and the prospects of autonomy for the MFI.
The Sub-Fund is not pursuing an environmental objective as defined in the EU Taxonomy , but does take measures (including the adoption of an exclusion list) to ensure no significant harm is caused in this regard.
The Sub-Fund’s investment strategy is not aligned to any reference benchmark.
To monitor the social performance of the Sub-Fund, the proportion of assets invested in MFIs is carefully monitored and reporting is provided on through a quarterly factsheet and annual and semi-annual reports. These also provide a series of other key performance indicators which are used to monitor the outreach of the Sub-Fund. The key performance indicators used to measure the attainment of the sustainable investment objective are segmented both at the portfolio, investees, and end clients’ level.
At the level of the portfolio and investee level, the following key performance indicators are defined:
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Total amount of portfolio in EUR invested in microfinance providers
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of microfinance institutions directly financed
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Geographical distribution of investees (i.e., Latin America, Sub-Saharan and North Africa, Southeast and Central Asia, Developed countries)
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Percentage of financing in microfinance institution local currency
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Average financing for microfinance institution
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Share of investments in low and medium Human Development Index (HDI) countries
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Key performance indicators gathered on a quarterly base at end client level are the following:
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Gender disaggregated data by borrower (i.e., percentage of women and men)
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Geographical disaggregated data by borrower (i.e., number of clients in rural and urban areas)
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Lending methodology disaggregated data by borrower (i.e., loan disbursed by group and individual lending)
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Loan disbursed by GNI/per capita during the period (i.e., number of loans disbursed below or above GNI/capita during period and average loan disbursed / GNI per capita)
Additional key performance indicators are also gathered and analysed to measure the Sub-Fund contribution to the Social Development Goals (SDGs). The Sub-Fund strives to provide contribution to many of the goals focusing on People and Prosperity, traditionally defined as goal N° 1 – No Poverty, goal N° 4 – Quality education, goal N°5 – Gender equality, goal N° 8 – Decent work and economic growth, goal N° 10 – Reduced inequality, and goal N° 17 – Partnership for the goals.
The Sub-Fund’s investments may be subject to Sustainability Risks. Sustainability Risks are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the Sub-Fund’s investments.
Specific Sustainability Risk can vary for each product and asset class. Such risks are further described hereunder:
(i) Environmental Risk: The risk posed by the exposure to issuers that may potentially be (a) causing or affected by environmental degradation and/or depletion of natural resources or (b) negatively affected by the physical impacts of climate change. Environmental risks may result from air pollution, water pollution, waste generation, depletion of freshwater and marine resources, loss of biodiversity or damages to ecosystems, extreme weather events such as storms, floods, droughts, fires or heatwaves, changing rainfall patterns, rising sea levels and ocean acidification.
(ii) Social Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by social factors such as poor labour standards, human rights violations, damage to public health, data privacy breaches, or increased inequalities.
(iii) Governance Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by weak governance structures. For companies, governance risk may result from malfunctioning boards, inadequate remuneration structures, abuses of minority shareholders or bondholders rights, deficient controls, aggressive tax planning and accounting practices, or lack of business ethics. For countries, governance risk may include governmental instability, bribery and corruption, privacy breaches and lack of judicial independence.
Key potential sustainability risks are monitored, via appropriate due diligence conducted during the investment process, through dedicated due-diligence tools and the SPI Online ALINUS (an abridged version of Cerise + SPTF’s SPI social and environmental performance audit tool).
The due diligence process includes an institutional and contextual analysis of the MFI, drawing upon qualitative as well as quantitative criteria. This analysis will look into the institutional structure of the MFI (history, governance, legal structure, human resources, etc.), it will assess its social profile (social mission, targeted clients, product offering, quality of established links with customers, etc.), and it will examine its financial robustness (cost coverage, capital structure, dependency on donors, portfolio quality, credit methodology, reserves and provisions, etc.).
During the investment process of the Sub-Fund, key potential Sustainability Risks are categorised on the basis of the level of their potential adverse social and environmental impacts (i.e. significant, limited or minimal impact) and reasons, taking into account the possibly to implement mitigation measures are taken into account.
Investments will be approved and made by the Sub-Fund after due consideration of the level of the relevant Sustainability Risks
Forestry and Climate Change Fund
Objectives
The objective of the Sub-Fund is to make sustainable investments within the meaning of article 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector by investing in a diversified portfolio of unlisted forestry management companies and forestry management operations of secondary and degraded forests (“SDF“) by financing such entities via SDF Investment Instruments.
The Sub-Fund aims at generating financial returns for the Shareholders of the Sub-Fund, aligned to different risk and return profiles of its investments in debt and equity. The Sub-Fund aims at protecting and restoring the biodiversity and ecosystems (namely through sustainable forest management, including practices and uses of forests and land use that contribute to enhancing biodiversity or to halting or preventing degradation of ecosystems, deforestation and habitat loss) and also seeks an environmental impact and in particular the mitigation of climate change through the sequestration and preservation of carbon in forest biomass. The Sub-Fund balances economic considerations with forestry management models adapted to the different ecological conditions of SDF to ensure the long-term sustainability of its interventions.
The Sub-Fund aims at financing and developing entrepreneurial activities in the forestry sector and as such it will not acquire directly forests or land.
The actions of the Sub-Fund should contribute to climate change mitigation, adaptation to the consequences of climate change, the preservation of soil, the functioning of the hydrological cycle and the harbouring of biodiversity as well as strengthening local communities through increasing employment and self-employment opportunities.
The Sub-Fund is aligned with the objectives of the Paris Agreement and supports Nationally Determined Contributions in investee geographies, to which it contributes in the following regards:
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providing new forest management concepts that will reduce Greenhouse Gas (“GHG“) emissions of the land use sector;
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by providing proof-of-concept through its investments and increase national capacities for the implementation of these new concepts; and
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by accounting for all GHG sequestration within its scope of activities.
The Fund addresses the Sustainable Development Goals with a particular focus on sustainable forest management (SDG 15), climate change mitigation (SDG 13), poverty alleviation (SDG 1), gender equality (SDG 5), decent work conditions (SDG 8) and promotion of wood as a local, low-carbon material (SDG 9).
The Sub-Fund’s investments may be subject to Sustainability Risks. Sustainability Risks are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the Sub-Fund’s investments.
Specific Sustainability Risk can vary for each product and asset class. Such risks are further described hereunder:
(i) Environmental Risk: The risk posed by the exposure to issuers that may potentially be (a) causing or affected by environmental degradation and/or depletion of natural resources or (b) negatively affected by the physical impacts of climate change. Environmental risks may result from air pollution, water pollution, waste generation, depletion of freshwater and marine resources, loss of biodiversity or damages to ecosystems, extreme weather events such as storms, floods, droughts, fires or heatwaves, changing rainfall patterns, rising sea levels and ocean acidification.
(ii) Social Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by social factors such as poor labour standards, human rights violations, damage to public health, data privacy breaches, or increased inequalities.
(iii) Governance Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by weak governance structures. For companies, governance risk may result from malfunctioning boards, inadequate remuneration structures, abuses of minority shareholders or bondholders rights, deficient controls, aggressive tax planning and accounting practices, or lack of business ethics. For countries, governance risk may include governmental instability, bribery and corruption, privacy breaches and lack of judicial independence.
During the investment process of the Sub-Fund, key potential Sustainability Risks are categorised on the basis of the level of their potential adverse social and environmental impacts (i.e. significant, limited or minimal impact) and reasons, taking into account the possibly to implement mitigation measures.
Key risk factors related to the project are as follows:
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The Fund is financing operations in settings with social conflicts around access to land and resources. Financing certain actors may deepen these social conflicts;
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The Fund is pioneering forest management concept which are outside of the established practices and may not prove to be unsustainable management practices for certain SDF leading to further degradation;
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Road access created by SDF forestry operations financed by the Fund lead to deforestation and invasion of illegal settlements;
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Inadequate health and safety measures lead to accidents causing harm to employees and contractors of the Fund’s investees;
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Minimum social standards such as payment of minimum wages and legal employment are not respected by investees who employ staff informally and pay below minimum wages. This is notably a concern with respect to gender, given that the forestry industry has typically been male dominated, and that actions taken by the Fund could inadvertently accentuate gender imbalances already prevalent among local communities.
To mitigate the most serious Sustainability Risks, no investments will be made if there is evidence of the following (which, for the avoidance of doubt, are considered to be key risk factors in the forestry sector):
(i) Important forest conversion or deforestation associated to the project proponent since 1994; the definition of what is considered important is provided by the principles and criteria elaborated by the Forestry Stewardship Council (ii) Unclear land tenure and high risk of conflict over land tenure, potentially involving resettlement;
(iii) Child labour or forced labour;
(iv) Important governance risks when investing in communities, including, for example, unresolvable internal conflict; and
(v) Any illegal activity or violation of national, regional or local rules, regulations or laws.
Considering the applicable policy regarding the integration of the sustainability risks and the investment process, it is not anticipated that Sustainability Risks will negatively impact the financial returns of the Sub-Fund. However, climate change and the increase of extreme weather event such as storms, heat and shift in precipitation may nevertheless affect the Sub-Fund and its’ financial returns.
Female Entrepreneurship Fund
Objectives
The objective of the Sub-Fund is to make sustainable investments (or “dark green”) within the meaning of article 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (the “SFD Regulation”) by contributing to the financial inclusion of women by improving their access to financial services. The Sub-Fund invests in mature financial institutions (“FIs”) so that these intermediaries improve the provision of services to female entrepreneurs in countries who are member of the Central American Integration System (“SICA”), specifically Guatemala, El Salvador, Honduras, Belize, Nicaragua, Costa Rica, Panama, and the Dominican Republic. In pursuance of its objectives.
The Sub-Fund invests principally in debt instruments issued by FIs. The FEF’s investment strategy is aligned to the microfinance and financial inclusion strategies to provide access to quality financial services for excluded individuals and small and medium sized companies in order to foster social and economic development.
The Sub-Fund has two principal objectives, social and financial. Specifically, increase access to financial services, especially to enhance access to credit for women-led businesses in the SICA region, as well as generate sufficient income to sustain its own operations and give its Shareholders a financial return.
The Sub-Fund will strive to provide tailor-made and innovative solutions to FIs, coupling its investments with technical support from an associated technical assistance programme. The Sub-Fund aims to create permanent changes in the underwriting practices by which FIs evaluate the risk of small and medium-size enterprises led by women. The Sub-Fund aims to facilitate positive demonstration effects within financed FIs and from communicating the impact metrics collected by FEF from financed FIs.
The Sub-Fund aims to increase the number and volume of loans and the amount of credit that the financed FIs offer to women-led Small and Medium Enterprises (“SMEs”), and that despite such increase, the quality of the loan portfolio of those FIs remain the same (or improve). FEF focuses on niche activities where its participation might help achieve the desired demonstration effect.
Although the definition of SMEs may differ in different Target Countries and among different FIs, the Sub-Fund typically considers enterprises having between 11 and 50 employees as small and between 51 and 200 employees as medium in size. Women led SMEs are those where the leader or principal decision maker is a woman or where the majority of the ownership is held by women.
The Sub-Fund is not pursuing an environmental objective as defined in the EU Taxonomy , but does take measures (including the adoption of an exclusion list) to ensure no significant harm is caused in this regard.
No index has been designated since FEF’s investment model is not comparable to any existing index.
The Sub-Fund’s investment strategy is not aligned to any reference benchmark.
The Sub-Fund’s investment focus is on FIs with an interest in having a positive social impact and a proven business model. FIs are expected to have reached financial sustainability and have a strong social vision and mission focused on positive impact for the ultimate clients. The Sub-Fund focuses on the financial sustainability of the credit activity and solvency of the FI. The commitment of the FI, its board of directors, shareholders and other stakeholders is important to ensure alignment with the Sub-Fund’s vision.
The Sub-Fund has established a series of key performance indicators at the level of the FIs and the level of the end client intended as the SMEs.
The key performance indicators used to measure the attainment of the sustainable investment objective at the FI are grouped in three main areas
Impact indicators at the level of the FI – Client outreach
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Percentage of women clients, including SMEs led by women.
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Percentage of portfolio disbursed to women during the period
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Average amount disbursed to women
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Percentage of loans to women with a delay of cash-flows more than 30 days (PAR 30)
Impact indicators at the level of the FI – Organization and culture
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Percentage of women in the workforce
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Percentage of women senior managers
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Percentage of women on the Board / Board gender diversity
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Gender Wage Equity / Unadjusted gender pay gap
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Non-discrimination policy
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Women career progression promotion / activities
Impact indicators at the level of women-led businesses
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No. of loans disbursed under the FEF
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Amount disbursed under the FEF
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Business founded by a woman
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Percentage of women in the workforce of the SME
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Percentage of women as senior managers of the SME
The Sub-Fund strives to deliver a positive impact and expects portfolio companies’ commitment and high environmental, social and governance standards. At the best of its capacity, the Sub-Fund will track its contribution to the following UN Sustainable Development Goals (SDGs): N° 1 – No Poverty, goal N°5 – Gender equality, goal N° 8 – Decent work and economic growth, goal N° 10 – Reduced inequality, and goal N° 17 – Partnership for the goals.
he Sub-Fund’s investments may be subject to Sustainability Risks. Sustainability Risks are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the Sub-Fund’s investments.
Specific Sustainability Risk can vary for each product and asset class. Such risks are further described hereunder:
(i) Social Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by social factors such as poor labour standards, human rights violations, damage to public health, data privacy breaches, or increased inequalities.
(ii) Governance Risk: The risk posed by the exposure to issuers that may potentially be negatively affected by weak governance structures. For companies, governance risk may result from malfunctioning boards, inadequate remuneration structures, abuses of minority shareholders or bondholders rights, deficient controls, aggressive tax planning and accounting practices, or lack of business ethics. For countries, governance risk may include governmental instability, bribery and corruption, privacy breaches and lack of judicial independence.
(iii) Environmental Risk: The risk posed by the exposure to issuers that may potentially be (a) causing or affected by environmental degradation and/or depletion of natural resources or (b) negatively affected by the physical impacts of climate change. Environmental risks may result from air pollution, water pollution, waste generation, depletion of freshwater and marine resources, loss of biodiversity or damages to ecosystems, extreme weather events such as storms, floods, droughts, fires or heatwaves, changing rainfall patterns, rising sea levels and ocean acidification.
Key potential sustainability risks are monitored via appropriate due diligence conducted during the investment process, though, among others, the Alinus, an assessment tool for impact-driven organisations that promotes a common language for measuring impact performance and implementing the Universal Standards for Social and Environmental Performance Management (SEPM). The due diligence results using the Alinus tool are submitted to the Investment Committee for revision and approval.
The due diligence process includes an institutional and contextual analysis of the FI, drawing upon qualitative and quantitative criteria. This analysis will look into the institutional structure of the FI (background, governance, legal structure, human resources, etc.), it will assess its social profile (social mission, targeted clients, product offering, quality of established links with customers, etc.), and it will examine its financial robustness (cost coverage, capital structure, dependency on donors, portfolio quality, credit methodology, reserves and provisions, etc.).
During the investment process of the Sub-Fund, key potential Sustainability Risks are categorised on the basis of the level of their potential adverse social and environmental impacts (i.e. significant, limited or minimal impact) and reasons, taking into account the possibility of implementing mitigation measures taken into account. Investments will be approved and made by the Sub-Fund after due consideration of the level of the relevant Sustainability Risks and of mitigating factors.
Although certain key risk factors, notably governance, may have a substantial effect on individual assets, the Sub-Fund investment restrictions, implying a diversification of the portfolio, limit the potential impact on returns faced by the portfolio as a whole.
Sustainability risks are therefore not anticipated to have a material negative impact on the financial returns of the Sub-Fund.
The Sub-Fund opted to collect and report data for the mandatory Principal Adverse Impact (PAI) indicators specified in Table 1 of Annex I of final draft RTS on a best-effort basis.
In relation to the mandatory Principal Adverse Impacts (PAIs) that apply to the Sub-Fund, the mandatory collection is performed on a best-efforts basis on the following indicators.
Certain risk factors would eliminate the possibility of investment; in other cases the significance and relevance of risk are considered and identified. In most circumstances, the Sub-Fund will not go ahead with investments where both the significance and relevance of a non-compliance risk is high unless steps can be taken to mitigate it.
PAIs are collected, monitored, analysed and reported on an annual basis and presented in the Sub-Fund annual report.
Engagement
The majority of assets are in asset classes which do not have voting rights. Given this, an engagement policy has not been developed for this sub-fund; however, the Fund is an active creditor where possible, and does encourage a commitment to social performance through Social Performance covenants and reporting requirements.
Business Codes
Investing for Development SICAV is a member of various groups and initiatives which support and uphold global best practice with regards to ESG.
The Fund is a signatory of the National Business and Human Rights Pact since 2023.
Remuneration
The remuneration policy of the Sub-Fund is provided and details that social targets are taken into account in the variable compensation of key staff.
These disclosures reflect current practices within the sub-fund. Should there be any evolution in these practices, this will be reflected and explained on the website.