An integral aspect of our fund policy is our commitment to long-term investment. We aim to deliver superior risk-weighted returns in the funds we manage by incorporating a thorough evaluation of ESG (Environmental, Social, and Governance) factors into our investment process. We firmly believe that considering ESG factors is essential when investing for the long term in portfolio companies.

There’s a clear and noticeable trend in both the investment landscape and society at large: sustainability (or ESG) is increasingly becoming a crucial theme. In light of current developments, this means that external factors can impact the performance of companies that fall short in this area. Moreover, the sale of a portfolio company may be at risk if it fails to meet the ESG requirements of potential buyers. As investors, it’s imperative to take this into consideration, not only from a sustainability standpoint but also with regard to returns.

The Sustainable Finance Disclosure Regulation (‘SFDR’), a European regulation, mandates financial market participants like MKB Fonds to provide ESG-related information to (potential) investors. This information covers the integration of sustainability risks into policy, the assessment of adverse sustainability effects, the remuneration policy concerning sustainability risks, and the disclosure of sustainability risks. In accordance with Articles 3, 4, and 5 of the SFDR, MKB Fonds would like to disclose the following:

In Article 2 of the SFDR, “sustainability risk” is defined as an event or circumstance in environmental, social, or governance areas that, if it occurs, may cause an actual or potential material negative impact on the value of the investment.

For MKB Fonds, sustainability risks encompass risks that, if realized, could significantly diminish the value of its alternative investment funds (AIFs) portfolios. These risks include:

• Environmental risks, such as the physical consequences of climate change like extreme drought or heat.
• Social risks, including the repercussions of non-compliance with labor regulations by portfolio companies.
• Governance-related risks, such as inadequate oversight of the governance of portfolio companies.

Before making an investment decision in a fund managed by MKB Fonds, a rigorous decision-making process is followed. This involves conducting a thorough due diligence analysis and having the Investment Committee of an MKB Fonds fund review the investment proposal and provide advice on it. As part of this investment process, MKB Fonds identifies and assesses all risks, including sustainability risks, associated with an investment. Subsequently, the likelihood of these risks materialising and their potential negative impact on the investment’s value are evaluated. Hence, sustainability risks are addressed and mitigated in this comprehensive process.

MKB Fonds compensates its employees through a blend of fixed remuneration (comprising salary and fringe benefits) and variable compensation (including a bonus). The variable compensation for eligible employees adheres to MKB Fonds’ policies and procedures, including its ESG policy.

Article 4(1) of the SFDR mandates financial market participants to disclose on their website whether they assess the adverse sustainability impacts of their investments. If they do, they must clarify how their due diligence policies align with this. Furthermore, they are required to measure and report on the principal adverse impacts of investment decisions based on sustainability factors.

Due to the modest scale of MKB Fonds’ operations, considering the principal adverse impacts of investment decisions on sustainability factors and the associated administrative burdens would not be proportionate. Consequently, MKB Fonds does not evaluate the adverse effects of investment decisions on sustainability factors as outlined in Article 4(1) of the SFDR, and is therefore not obliged to make disclosures.