SFDR Disclosures

Transparency of sustainability risk policies (SFDR Art. 3)

Commitment to ESG

Wellington Partners is convinced that responsible investment not only creates a closer alignment of objectives among investors, investee companies and society at large, but also leads to enhanced and more sustainable financial returns in the long run. Understanding ESG risks and opportunities can be critical when assessing a company’s value and addressing ESG risks systematically after investment can act as an important lever to add value to our portfolio.

Since Wellington Partners makes investments in the life science sector – one of the most regulated industries with high ethical standards – many important ESG issues have always been an integral part of our investment considerations. Nevertheless, Wellington Partners is committed to further broaden its perspective on ESG in line with stronger societal demands. Therefore, with the support of independent, external ESG advisors, Wellington Partners has established a customized ESG framework and respective processes.

ESG Framework & Processes

In order to evaluate the ESG compliance of investment targets during the due diligence process, Wellington Partners applies a customized ESG rating tool that allows us to engage with the investee companies’ management to identify and evaluate relevant ESG risks and opportunities. The tool also allows us to define specific ESG targets and performance indicators and track the progress over time. An appraisal of the prospective portfolio company’s ESG status will be incorporated into Wellington Partners’ internal investment documentation and discussed as part of the approval process. We will seek firm commitments from the investment targets to track and report on applicable ESG performance indicators, which will be monitored during the holding period and regularly assessed and discussed at the board level. Wellington Partners will periodically report on the status and progress of ESG implementation in its portfolio against pre-defined KPIs. The periodic ESG report will become part of internal discussions on portfolio progress and will be shared with interested LPs.

ESG at Wellington Partners

Wellington Partners’ ESG activities are coordinated by an internal ESG team, which is supported by independent, external ESG consultants. This ESG team is responsible for developing the ESG Policy, establishing analytical ESG frameworks and processes, and leading internal advocacy. Since each investment manager is responsible for ensuring that ESG criteria are integrated into an investment decision and followed through by the portfolio company, the ESG team will organize regular trainings for the investment team to stay informed on current regulatory requirements, investor expectations, market developments and internal sustainability commitments. All team members at Wellington Partners have signed up and adhere to the firm’s compliance regulation, which comprises several separate policies adopted by Wellington Partners according to its commitment to responsible investment and compliance management.

Transparency of adverse sustainability impacts at entity level (SFDR Art. 4)

Consideration of adverse impacts

The SFDR requires Wellington Partners to make a “comply or explain” decision whether to consider the principal adverse impacts (“PAIs”) of its investment decisions on sustainability factors, in accordance with a specific regime outlined in the SFDR. Wellington has decided to comply with these requirements and to publish a principal adverse sustainability impacts statement once the regulatory technical standards and respective reporting templates have been finalized. In addition, Wellington has implemented an ESG management approach across all its investment processes in order to consider PAIs on sustainability factors. For example, exclusion criteria are applied, material ESG aspects are identified for each potential investment and sustainability-related risks and opportunities are assessed as part of the ESG due diligence. A roadmap with recommendations is established and followed up by Wellington during the holding phase. Furthermore, Wellington is committed to collecting the PAI indicators as part of its ESG due diligence. However, Wellington cannot exclude that some data gaps could remain, especially in the first reference periods due to the early development stage of the companies. Nonetheless, Wellington is committed to fill these gaps through active engagement with the portfolio companies. To undermine its commitment to avoiding adverse sustainability impacts, Wellington Partners is a signatory of the UN Principles for Responsible Investment and its ESG due diligence approach is aligned with the Ten Principles of the UN Global Compact.

Transparency of remuneration policies in relation to the integration of sustainability risks (SFDR Art. 5)

Wellington Partners’ compensation policies are structured to incentivize investment managers to promote sustainable growth within investments. Consequently, the remuneration model includes a variable component that qualitatively takes into account compliance with the firm’s sustainability principles, such as successful internal training on these principles, the application of ESG processes and methodologies in the investment process, and the regular monitoring and communication of ESG measures.

Furthermore, the compensation model of Wellington Partners’ includes a carried interest component which, among others, reflects the sustainability performance of investments.

Product-level disclosure (SFDR Art. 8)

The information described below applies to Wellington Partners Life Sciences VI GmbH & Co. KG (“WPLS-VI”).

No sustainable investment objective

WPLS-VI promotes environmental, social and governance characteristics (as defined under Art. 8, SFDR), but it does not have sustainable investment as its objective (as defined under Art. 9, SFDR).

Environmental or social characteristics of the financial product

This financial product does not invest in companies

  • whose primary activities involve exploration for oil and/or gas;
  • that are involved in production, storage, transport or trade of significant volumes of hazardous chemicals, or commercial scale usage of hazardous chemicals;
  • whose business activity, having made due inquiries, consists of
    • any economic activity, which is illegal under applicable laws or regulations including, human cloning for reproduction purposes;
    • the production of and trade in tobacco and distilled alcoholic beverages;
    • production of and trade in weapons and ammunition of any kind;
    • casinos;
    • the research, development or technical applications relating to electronic data programs, which:
  • aim at supporting any activity referred to under (i) to (iv), internet gambling and online casinos, or pornography;
  • are intended to enable to illegally enter into electronic data networks or download electronic data;
    • fossil fuel-based energy production and related activities; and
    • energy-intensive and/or high CO2-emitting industries (unless environmentally sustainable).
  • that are headquartered or based in any country included in the list of Non-Cooperative Countries and Territories (NCCT) maintained by the Financial Action Task Force (FATF) or which undertakes a substantial amount of its business in such a country.

In addition:

  • when providing support to the financing of the research, development or technical applications relating to (i) human cloning for research or therapeutic purposes or (ii) genetically modified organisms (“GMOs”), the appropriate control of legal, regulatory and ethical issues linked to such human cloning for research or therapeutic purposes and/or GMOs will be taken; and
  • any animal experimentation shall be carried out in accordance with EU- and/or US regulations and portfolio companies shall follow the “three R-principles” (replacement, reduction, refinement) industry standard.

Furthermore, this financial product considers the following ESG topics as part of its ESG duewhistleblowing diligence assessment of any potential investments:

Environment

Social

Governance
  • Climate protection and mitigation (e.g. reducing greenhouse gas emissions);
  • Climate change resilient business models and raising awareness;
  • Transition to a circular economy (e.g. limiting production of waste, improving recycling);
  • Responsible handling of hazardous materials;
  • Avoidance and reduction of environmental pollution (to air, land and water);
  • Responsible use and protection of water and maritime resources;
  • Protection of biodiversity and healthy ecosystems;
  • Sustainable resource management.
  • Employment safety and health protection;
  • Appropriate remuneration and fair working conditions;
  • Diversity, equal opportunity, training and development opportunities;
  • Compliance with labor standards (no child labor, forced labor or discrimination);
  • Adequate product safety incl. health protection;
  • Customer welfare;
  • Safety and wellbeing of clinical trial participants;
  • Replace, reduce and refine animal testing (3Rs principle);
  • Fair preliminary market access strategy;
  • Ethical Marketing, fair selling practices and product labelling;
  • Access & affordability (fair pricing policies);

.
  • Business ethics and sound ethical mission and values;
  • Board independence, quality and diversity;
  • Adherence to prevailing principles of ethics in biomedical research;
  • Anti-bribery and -corruption measures;
  • Data protection and privacy;
  • Transparent information disclosure;
  • Independent and qualified clinical oversight;
  • Quality assurance and internal controls;
  • Facilitation of whistle blowing.

 

Investment strategy

With WPLS-VI, Wellington Partners focuses on the development of innovative therapeutics, medical technology, diagnostics and digital health products addressing high unmet medical needs and will selectively consider opportunities in the field of industrial biotechnology. The above-mentioned investment exclusions, the understanding of ESG risks and opportunities of investment targets in detail during due diligence and systematically monitoring and addressing ESG compliance after the initial investment will be a standard component of our investment strategy. The integration of ESG considerations along the whole investment process is described in our ESG Policy and includes an assessment of environmental, social and good governance practices of the investee companies as part of our ESG due diligence as well as during annual ESG updates.

Proportion of investments

The consideration of environmental and social characteristics is an integral part of our investment strategy. Therefore, 100% of investments within the WPLS-VI fund are aligned with the fund’s ESG policy and all investments are direct investments. While the focus is not to set specific environmental or social characteristics, all portfolio companies are assessed with regards to a large set of sustainability criteria (see table above) and the improvement of their overall ESG performance is actively supported through respective recommendations and monitoring of their implementation.

Methodology, due diligence process & monitoring of ESG characteristics

The consideration of environmental and social characteristics is carried out both before and after the investments:

Wellington Partners incorporates the above-mentioned exclusion (negative screening) aspects during its decision-making process.

In order to evaluate the ESG compliance of investment targets during the due diligence process, we are using a customized rating tool. The rating tool follows the recommendations for financial advisors by Principles for Responsible Investment and Invest Europe and reflects healthcare-specific sustainability issues, such as access to medicine and patient safety as provided by the Sustainability Accounting Standards Board.

An appraisal of the prospective portfolio company’s ESG status is incorporated into our internal investment documentation and discussed as part of the approval process.

After the investment the ESG status is monitored during the holding period and information is regularly obtained from the portfolio companies using the rating tool.

With the ESG rating tool each ESG aspect is assessed on a scale from 0-4 and an overall ESG score is calculated for each portfolio company which is tracked during the holding period. The rating tool is adapted to the context of early-stage companies and structured along essential business model components. In addition, relevant KPIs (based on the PAIs) are collected and monitored on a yearly basis.

Data sources and processing

The main data sources regarding ESG data are internal documents and information provided by the portfolio companies. These are complemented by public information, e.g. from their website or press releases. To ensure data quality and due to a common lack of documentation in early-stage companies, interviews are held with the company’s management as part of the ESG due diligence and regular update process. Furthermore, a four-eye principle is applied in the sourcing and processing of the data.  The information collected within these processes then serves as input into our rating tool.

Relevant ESG data is processed and aggregated through the ESG rating tool and serves as a basis to prepare periodic reports. In case of data gaps relevant data will be estimated or indicated as not available. We will periodically report on the status and progress of ESG implementation in our portfolio against pre-defined KPIs. The periodic ESG report will become part of our internal discussion on portfolio progress and will be shared with interested LPs.

Limitations to methodologies and data

The information collected via the due diligence process for the fund is externally verified only if and to the extent misrepresentations are suspected. Thus, it cannot be ruled out completely that false information may remain undetected in certain cases. Furthermore, due to the early stage of the portfolio companies, data availability and quality may be limited. However, Wellington applies reasonable effort to improve data availability and quality through active engagement with the portfolio companies to increase their awareness of ESG topics and related data.

Engagement policies

We engage with the investee companies’ management to define specific ESG targets. Our ESG rating tool will allow us to engage with the investee companies’ management to define specific ESG targets. We seek firm commitments from the investment targets to track and report on applicable ESG performance indicators, which will be monitored during the holding period and regularly assessed and discussed at the board level. In case any sustainability-related controversies or incidents are identified in investee companies, a clear reporting procedure has been established as part of Wellington’s ESG policy which defines the content to be disclosed to investors as soon as practicable after becoming aware of any such event.