SFDR DISCLOSURES

The Regulation (EU) no. 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“SFDR”) requires financial market participants such as Xpand Partners (“Xpand Partners”) to provide information to investors with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the remuneration in relation to sustainability risks and the promotion of environmental or social characteristics, and sustainable investment.

It should be noted that the first fund, imec.xpand Comm.VA (“imec.xpand I”) managed by Xpand Partners was formed prior to the entry into force of the SFDR and does not promote environmental or social characteristics in accordance with article 8 of the SFDR.

We do believe that in order to make good investments environment and/or social factors should not be overlooked and for the second fund managed by Xpand Partners, imec.xpand II Comm.V (“imec.xpand II”), we intend to promote certain environment and/or social characteristics.

To avoid any misunderstanding, we clarify that neither imec.xpand I nor imec.xpand II have sustainable investments, in accordance with article 9 of the SFDR, as their purpose.

You will find under Part I the Xpand partners AIFM level disclosures and under Part II the article 8 SFRD disclosures for the financial product imec.xpand II.

1. IMEC.XPAND AIFM LEVEL DISCLOSURES

The information below regarding the policies of Xpand Partners on sustainability is made in accordance with articles 3, 4 and 5 of the SFDR (last updated in December 2022).

Integration of sustainability risk in the investment policies

A sustainability risk means "an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment". For imec.xpand II, sustainability risks are risks which, if they were to become reality, would cause a material negative impact on the value of its portfolio companies (“sustainability risk”).

As imec.xpand I neither promotes environmental nor social characteristics, nor has sustainable investments as its purpose, Xpand Partners does not formally integrate an assessment of sustainability risks in our decision-making process for imec.xpand I in accordance with article 3 of the SFDR and we do not plan to do so in the future. We do however perform an annual reporting on ESG performance of our imec.xpand fund I portfolio companies, with the aim to monitor the impact of our portfolio companies on environmental, social, and governance aspects, to educate our portfolio companies on ESG matters, and to take action where required.

Consideration of sustainability risks is embedded in the decision making and risk monitoring of imec.xpand II in accordance with Article 3 of SFDR, and as included in Imec.xpand II’s Responsible Investment Policy which sets out imec.xpand II’s approach to ESG issues in the context of the investment decision-making process.

Prior to making any investment, we conduct a thorough due diligence research on target entities. Alongside traditional due diligence information, Xpand Partners incorporates important environmental, social and governance data and insights into its investment decision-making. Consideration of sustainability risk does not imply that a fund has a sustainable investment objective, but rather describes how sustainability risk is considered as part of the overall investment process. The outcome of the due diligence findings are taken into consideration when an investment decision is made by us.

Xpand Partners includes ESG information, where relevant or available in the (i) initial screening of an investment opportunity, (ii) due diligence in relation to a potential investment, (iii) investment committee approval, and (iv) monitoring of the portfolio companies. This includes thematic sustainability information sourced from trustworthy sources and the use of a proprietary ESG due diligence questionnaire to identify, analyze and document sustainability matters. This information is used when reviewing and approving an investment opportunity. Xpand partners considers sustainability criteria during post-investment monitoring and conducts regular portfolio risk reviews.

Principal adverse impact of investment decisions on sustainability factors

Adverse sustainability impacts relate to the risk that the business of a portfolio company may have on sustainability indicators.

Xpand Partners considers that the venture capital industry can have a significant impact on a number of sustainability indicators in relation to the society and the environment. Xpand Partners is of the opinion that the consideration that the business of an investee company may have an adverse impact on sustainability indicators should form part of the investment process. Therefore, Xpand Partners has formalized its approach to assess investment opportunities against these potential adverse impacts. Xpand Partners commits to consider certain potential adverse sustainability impacts without, at this point in time, considering all adverse sustainability impacts under the SFDR.

In accordance with article 4.1(b) of the SFDR, Xpand Partners states that it does not consider the adverse impacts of investment decisions on all of the sustainability factors as referred to in article 4.1(a) of the SFDR and does not make the disclosures as described in article 4.1(a) of the SDFR.

Given the size of Xpand Partner’s organization with limited resources and personnel, we are not capable of determining precisely what the adverse impacts of our investment decisions would be based on the different criteria set forth in the SFDR and the legislation implementing the SFDR. In addition, we are currently not in a position to obtain and/or measure all the data which would be required by the SFDR to report, or to do so systematically, consistently, and at a reasonable cost with respect to all our investment strategies.

Integration of sustainability risk in the remuneration policy

‍Xpand Partners, as a sub-threshold manager of the Alternative Investment Funds (AIFs) imec.xpand I and imec.xpand II, does not have an obligation to have a formal remuneration policy in accordance with article 40 and following the Belgian law of April 19, 2014 on alternative entities for collective investments and their managers.

In practice, in accordance with general private equity remuneration and award processes, a significant portion of an investment professional's compensation is typically in deferred instruments aligned to the performance of investments, meaning that the value of an investment professional's compensation will be negatively impacted by a sustainability risk that impacts the value of the underlying investment.

2. IMEC.XPAND II ARTICLE 8 SFDR DISCLOSURES

Summary

Imec.xpand II Comm.V (the “Fund”) is a financial product that promotes environmental and/or social characteristics, but does not have as its objective sustainable investment and does not invest in sustainable investments. No reference benchmark has been designated for the purpose of attaining the environmental and/or social characteristics promoted by the Fund.

The Fund is an early-stage and growth venture capital fund with a game-changing approach to expand hardware-driven nanotechnology innovation into successful global companies. The Fund is independently managed by a team of entrepreneurs, seasoned venture capitalists, and business experts, and is targeting ambitious tech start-ups that meet all the criteria to become successful, scalable ventures with the potential to change the world.

The Fund will boost those ventures by supporting them operationally and financially from seed to exit, by enabling capex-light innovation in a capex-heavy environment, and by giving them access to the unique knowledge, expertise, network, and state-of-the-art infrastructure of imec.

The Fund is committed to creating a more sustainable, diverse, and inclusive technology ecosystem. We target ventures that tackle global transformational challenges, address global unmet needs with innovative technologies. Our investment scope focusses on early-stage ventures in deep tech, health tech, and food- & ag-tech. We believe that these sectors will have a lasting impact on our society and will create long-term financial returns.

No sustainable investment objective

This financial product promotes environmental or social characteristics, but does not have sustainable investments as its objective.

Environmental or social characteristics of the financial product

The Fund targets investments in ventures that tackle global transformational challenges, and address global unmet needs with innovative technologies. The investment scope is focused on early-stage ventures in deep tech, healthtech, and food- & ag-tech.

Since there is not yet sufficient transparency about all six objectives under the 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, and amending Regulation (EU) 2019/2088 (the “EU Taxonomy Regulation”), it is not yet possible to make a complete connection with the EU Taxonomy Regulation.

It is expected that future investments may be partly linked to the following sustainability indicators:

Environment: Climate change mitigation, climate change adaption, transition to a circular economy, pollution prevention and control.
Social: Good health & wellbeing (SDG 3), zero hunger (SDG 2), the treatment of employees including their pay, health and safety, labour conditions, human rights, any form of discrimination, harassment or victimization, diversity and inclusion, supply chain management.
Governance: ESG management, good governance, anti-bribery and corruption measures, business ethics, accountability, transparency, conflicts of interest, whistle-blowing.

Investment strategy

The Fund is committed to creating a more sustainable, diverse, and inclusive technology ecosystem. We target early-stage and growth ventures that tackle global transformational challenges, address global unmet needs with disruptive technologies, and where imec’s knowledge, expertise, network, and state-of-the-art infrastructure can play a determining role in the success of the company.

Semiconductor & System Technologies are the bread and butter of the semiconductor industry. They are the building blocks of every advanced semiconductor innovation.

It is clear that superior innovation these days is happening on the crossroads of hardware and software. To maximize the potential of superior hardware innovation there is a strong need for advanced software, networking, and algorithms. The Digital Technology Platforms at imec provide exactly those software and networking capabilities necessary to turn technology into a product.

Finally, the combination of Semiconductor & System Technologies and Digital Technology Platforms creates Application Domains that are the perfect seeds to grow companies rooted in game-changing innovations.

Out of all those opportunities the Fund has identified 3 domains that create particular impact because of their embedded potential to be disruptive. Our investment scope focusses on early-stage ventures in deep tech, health tech, and food- & ag-tech. We believe that these sectors will have a lasting impact on our society and will create long-term financial returns.

Deep tech:
Today the deep tech shift has begun. Advanced enabling technologies are on the verge of mass adoption, impacting and transforming massive markets. Imec has been driving the global semi-conductor roadmap for over 30 years. Combining leadership in microchip technology with profound software and ICT expertise has allowed to build the foundation of numerous emerging technologies ranging from next-generation logic and memory devices to artificial intelligence. The Fund has exclusive access to imec know-how and expertise in this field.

Healthtech:
Healthcare as we know it today will become unsustainable, the aging population and increasing disease burden drive the cost upwards while government agencies are putting pressure on the healthcare budgets. In order to address this, a focus on prevention and early diagnosis will be necessary. Through the relationship with imec, the Fund offers its portfolio companies access to the complete innovation value chain with a number of underlying concepts and disruptive technologies including wireless wearable devices and sensors, health data analytics, genomics, etc.

Ag-tech:
Chip and digital technologies are seen as the key enablers to develop ground-breaking innovations to feed the rapidly growing population in a healthy and sustainable manner. Imec partners with Wageningen and Radboud University in the OnePlanet initiative “Sense To Sustain”. This project aims at bridging the gap between major developments in all aspects of our food production and emerging chip and digital technology. The Fund can fully leverage the insights generated under the OnePlanet initiative as well as the created network.

The domains listed above are not exhaustive we will continue to re-visit other fields, and eventually add other domains.

A pre-investment analysis of the good governance practices of investee companies is an integral part of the risk and impact screening for ventures of the Fund. Good governance, including but not limited to sound management structures, employee relations, remuneration of staff, and tax compliance are an integral part of the transaction documentation for investments, and are discussed in detail during the investment negotiations.

Post-investment good governance is monitored during the annual ESG monitoring and regular board meetings, since, by being an active investor, the Fund managers take a board seat in the majority our portfolio companies. The investment managers have received training regarding good governance practices and should be in a position to monitor the company’s compliance as well as advise them on appropriate governance standards, taking into account the early stage and size of their business.

A detailed overview of our good governance practices is provided in our:

ESG policy
Anti-harassment and discrimination policy

Proportion of investments

All investments of the Fund can be categorized as “Aligned with E/S characteristics”, on a best effort basis.

In addition, out of the “Aligned with E/S characteristics”, the Fund targets to invest on a best efforts basis an amount equal to at least 20% of the aggregate invested amounts in portfolio companies in accordance with the environmental indicators set forth below.

Environmental:

Climate change mitigation 4%
Climate change adaptation 8%
Sustainable use and protection of water and marine resources 2%
Transition to a circular economy 1%
Pollution prevention and control 3%
Protection and restoration of biodiversity and ecosystems 2%

Our investment strategy leads us to invest in companies at a very early stage in development, often just consisting of a few team members and a technology prior to proof of concept. As a result, we consider the direct impact on environmental factors still relatively low for almost all our portfolio companies. We believe that their positive impact will be larger on the social and governmental characteristics, hence we expect the accurate proportion of our investments to evolve over time, as the additional SFDR related frameworks regarding social and governmental characteristics are rolled out.

Our ESG policy and assessment are tailored to the needs of, and requirements for, early-stage companies. Our approach is detailed in two procedures: an ESG assessment (pre-investment) and an ESG monitoring and reporting (post-investment).

Monitoring of environmental or social characteristics

We believe that following ESG guidelines not only mitigates business risks, but also creates long-term value for businesses, resulting in better financial return for the Fund. Hence, the Fund strongly encourages its portfolio companies, their founders and CEOs to actively incorporate ESG principles in their daily business activities.

Through an annual follow-up of the ESG performance of the portfolio companies of the Fund, the Fund aims to identify and improve, as the case may be, the environmental consequences, social and human rights issues of an investment, the observation and acknowledgement of fundamental employees’ rights, the absence of corruption and bribery by any of the parties involved in the investment, and the compliance with applicable environmental, human rights and labour rights.

The Fund takes a board seat in the majority of its portfolio companies. Therefore, the Fund should be in a position to monitor the companies’ ESG compliance, their financial and non-financial performance, and to advise them on appropriate ESG standards, taking into account the early stage and size of their business.

The executive task of monitoring the ESG commitments is assigned to the team member of the Fund dedicated to the specific portfolio company (“Portfolio Manager”). It is the daily responsibility of the Portfolio Manager to continuously monitor the performance of the portfolio company, linked to predefined indicators. The performance results are shared with the Supervisory LP board in the annual ESG reports. In case the investment performance is considered non-compliant with the ESG Guidelines, the Portfolio Manager will proactively engage with the portfolio company to mitigate issues and find a solution. In case no solution is identified the problem is escalated and addressed in the board of the relevant portfolio company.

Methodologies

Qualitative performance monitoring in the field of ESG themes is done on a regular basis through the contacts that the Portfolio Managers maintain with the portfolio companies. When observations or incidents occur at the portfolio companies related to the topics as defined in the ESG policy, these are followed up by the Portfolio Manager and, where necessary, escalated within the relevant governance structure. In addition, an annual formal screening takes place where both the risk and impact performance results are analyzed, and where necessary the dialogue is opened to realize improvements or report positive realizations correctly.

Data sources and processing

To measure the ESG performance of the Fund, data on the start-ups’ products or services are sourced from the companies themselves through interviews. The ESG methodologies were developed in collaboration with domain experts with knowledge of the possible risks and positive impact opportunities that characterize the portfolio companies of the Fund.

Pre-investment, this ESG-related risk assessment and impact data gathering is an integral part of the due diligence on the prospective ventures of the Fund. The portfolio company’s focus will be screened for any exclusion criteria or dual use applications, its ESG-related risk factors are detailed, and Anti-Money-Laundering (AML) and Know Your Customer (KYC) check are performed on all parties involved, according to the procedure described in the ESG Policy.

Where there is no specific data available on production processes and resources used, assumptions are made based on available data in reviewed scientific studies or real-world baseline data. Due to their early stage, forward-looking assumptions may be made on the growth potential of the companies. These findings are bundled into an ESG memo and presented to our Ethics Committee. The investment can be finalized only in the event the Ethics Committee does not raise ESG related objections.

In case of objections from the Ethics Committee, the case will be escalated to the Supervisory LP Board which will determine whether the relevant investment opportunity complies with the ESG guidelines.

In the definitive transaction documentation each portfolio company is required to agree to ESG related undertakings, including but not limited to sound management structures, employee relations, remuneration of staff, and tax compliance.

Post-investment, the ESG data and performance analysis of all portfolio companies of the Fund are updated on an annual basis through a detailed interview with the portfolio companies to reflect evolutions in the start-up’s processes, products, or management structure. In addition, target markets of start-ups will be continuously monitored to detect and include significant changes that might affect the environmental performance of a portfolio company. These performance data of all portfolio companies will be gathered into an annual report, that will be distributed to the investors of the Fund.

AML and KYC checks are done either annually or in the context of any subsequent follow-on investment in our portfolio companies.

Reporting on the Fund's investments will also be done in accordance with Annex IV to the Regulatory Technical Standards of the SFDR.

Limitations to methodologies and data

Data quality and reliability is largely anchored on the data gathered by the portfolio companies themselves, and the analyses of our Portfolio Managers, that is largely based on a limited set of comparison data.

However, our investment horizon is at a very early stage and the relevance of the data is relative. The companies that the Fund invests in, are not yet at scale level, so the impact on the environmental or social characteristics is not always representative.

Due diligence

The Fund conducts due diligence on the company’s technology, team, commercial roadmap, financial and legal status, intellectual property strategy, as well as on ESG and impact aspects.

An ESG-related risk assessment and impact analysis is thus an integral part of the due diligence performed by the Fund.

Please refer to the Sections “Investment Strategy” and “Data Sources and processing” above for a further description of the Fund’s due diligence.

Engagement policies

Following an investment and during the holding period, the Portfolio Managers monitor the portfolio companies’ ESG compliance, as well as their financial and non-financial performance, taking into account the stage of maturity of the portfolio company.

The executive task of monitoring the ESG commitments is assigned to the Portfolio Manager of the Fund dedicated to the specific portfolio company.

The Fund also intends to conduct training sessions for portfolio companies on how to handle ESG related issues.

Index as reference

Not applicable since there is no reference benchmark designated for the purpose of attaining the environmental and/or social characteristics promoted by the fund.