Sustainable Finance Disclosure Regulation (SFDR)*
Frog Capital wholeheartedly supports the regulatory drive to transparency of the financial sector to its environmental, social and governance (“ESG”) obligations.
As a European software investor, Frog Capital does not encounter significant environmental issues in Portfolio Companies and has clear investment criteria that exclude companies with negative environmental and social impacts so to avoid sustainability risks in the Fund performance. Frog Capital seeks to back companies with a sustainable investment thesis which aligns with trends in the economy supporting environmental and social good and it seeks to promote good governance.
Notwithstanding the above and although ESG and sustainability risk is important to Frog Capital, the current fund, Frog European Growth II LP, was not launched as a vehicle to promote environmental or social characteristics (so-called “Article 8 product” under the SFDR), nor is it classified as a product that has sustainable investments as its objective (so-called “Article 9 product” under the SFDR). Our next fund is likely to be an Article 8 fund.
Frog Capital has taken the view that the investments to be made by the Partnership are not likely to be affected by sustainability risks and that those risks are not relevant in the context of the Partnership’s policy. Investors should note that it is very difficult to assess with any reasonable certainty whether there exists, or the likely outcome of, any sustainability risk on the investments and/or the risk of occurrence of any such risk.
Article 4 of the SFDR requires fund managers to make a clear statement as to whether or not they consider the “principal adverse impacts” of investment decisions on sustainability factors. Frog Capital considers the adverse impacts of investment decisions on sustainability factors in the manner prescribed by Article 4 of the SFDR because there is no sufficient and satisfactory data available to allow Frog Capital to adequately assess the potential adverse impact of its investment decisions on Sustainability Factors.
Article 5 of the SFDR requires fund managers to publicly provide information on remuneration policy consistency with the integration of sustainability risks. According to the Frog Capital Remuneration policy section on Risk Management, variable compensation awards are required to take note of key risk indicators and compliance by employee to regulations and best practice in order to promote effective risk management and discourage risk taking that exceeds tolerated levels. We consider ESG to be part of best practice and it is included within key risk indicators.
*Transparency of the integration of sustainability risks Art 4 and 6 of Regulation (EU) 2019/2088