SG Capital Partners Sustainable Forest and Land Fund I, KS

The Fund has a sustainable investment or environmental objective – climate change mitigation. The Fund does this by acquiring uncertified forest land and managing it sustainably according to the Forest Stewardship Council® (FSC) principles.

Each year, the Fund certifies the forest areas purchased. The FSC certificate confirms that the forest is managed to conserve biodiversity and benefit local people and forest workers while ensuring that the forest remains economically viable.

The Fund’s investment strategy is to acquire mainly forest land in Latvia, with a small part of the portfolio also allocated to agricultural land. The Fund focuses on building a diversified investment portfolio, diversified by tree species, age structures and regions, focusing on maximising the value of the portfolio’s investments over the Fund’s life cycle.

The impact and risks of sustainability or ESG factors are assessed before purchasing a property. SG Capital and the Fund considers the principal adverse impacts of their investment decisions on sustainability factors and publish a statement to this effect.

The Fund assesses the performance of the Sustainable Investment Objective by evaluating the achievement of the indicators set out in the Fund’s Sustainability Strategy, as well as indicators of the principal adverse impacts of investment decisions.

The Fund Manager has implemented good governance and negative impact management practices not only in the Fund and its subsidiary but also by requiring its business partners to ensure these.

The following sections provide key information on the Fund’s sustainable investment objective and monitoring, but you can find a more detailed outline of all the following aspects here.

By investing in sustainable forest management, we are preserving natural habitats, increasing carbon capture, and contributing to the environmental health of the region. This fund aligns with our commitment to impactful and responsible stewardship, helping to secure a greener future for generations to come.To ensure that the Fund’s sustainable investments do not cause significant harm to any other environmental objective, the Fund considers the principal adverse impacts on sustainability factors when making investments.

In assessing the materiality of the impact of the Fund’s activities, the Fund Manager reports annually on the following main adverse impacts:

• Greenhouse gas (GHG) emissions;
• Exposure to natural hazards;
• Exposure to climate risks;
• Sustainable forest management practices;
• Health and safety;
• Human rights, labour rights violations in the supply chain;
• Forest cover in protected areas.

The Fund Manager monitors the impact of the Fund’s investment activities on the environment, its resilience to climate risks, biodiversity, human rights, labour rights, and occupational safety by assessing the extent of adverse impacts annually.

The Fund Manager has also developed and implemented a series of internal regulatory documents governing the management of principal adverse impacts.

The Fund’s Sustainable investment or environmental objective is to mitigate climate change. This objective is achieved by ensuring that the forest land acquired by the Fund is sustainably managed by the FSC Principles and the Fund’s Sustainability Strategy. This way, forest carbon sequestration is promoted while supporting biodiversity conservation and rural development.

During 2024, the Fund plans to ensure that forest management activities comply with the EU taxonomy, thus demonstrating that the forest management implemented contributes to climate change mitigation.

The Fund acquires uncertified forest land, mainly in Latvia, but is considering expanding into Estonia and Lithuania, depending on investment opportunities, expected returns and risks. A part of the portfolio, up to 30% of the total portfolio investment, will also be invested in agricultural land.

The Fund focuses on building an investment portfolio diversified by tree species, age structure and region, focusing on maximising the value of the portfolio’s investments over the Fund’s life cycle.

By acquiring the forests, they will be managed following the requirements of the legislation of the Republic of Latvia and the FSC certification requirements to implement sustainable forest management and maximise the forest value.

In addition, the Fund implements good governance practices about managing and controlling the subsidiaries owned by the Funds. This shall be implemented following the Engagement Policy established by the Manager.

The Fund has not set a specific target but expects at least 90% of its investments to be sustainable.

The Sustainable investment objective is monitored using the targets set out in the Fund’s Sustainability Strategy, such as carbon sequestered, GHG emissions, afforested areas and areas dedicated to nature conservation, each of which individually measures the extent to which the Fund’s sustainability objectives have been met. Progress against these indicators is regularly monitored by the Fund Manager and the Fund’s Sustainability Committee.

The Fund also considers the principal adverse impacts on sustainability factors, compiles data on several climate and environment-related indicators and reports on them annually.

In addition, the Foundation is independently audited annually to check that forest management practices and other requirements meet the FSC certification requirements.

The Fund assesses annually the degree of achievement of the sustainable investment objective by evaluating the performance of the performance indicators defined in the Fund’s Sustainability Strategy against the targets defined in the Strategy.

For the Fund to calculate/report the performance indicators for the sustainable investment objective, data is collected and compiled from the accounting system of the Fund and its owned subsidiary, contract and document registers, and the Fund’s consolidated annual report. Specific data on forest assets are obtained from public databases, such as the State Forest Service and the LVM Geo system developed, maintained and developed by JSC “Latvijas valsts meži” and used for forest management and forest asset research.

A third-party expert with the appropriate qualifications and expertise calculates GHG emissions and carbon sequestration data.

Monitoring the network of the Fund’s protected areas and, if necessary, updating data shall be carried out by a third-party service provider. Any changes to the data relating to the properties in the Fund’s portfolio shall be made only with the consent of the Fund.

For those data that come from databases and systems managed by a subsidiary owned by the Fund, and as the Fund Manager is directly involved in the management of that subsidiary, there are no restrictions on the extraction of that data.

Third-party service providers perform specific calculations using data from the Fund or its subsidiary. Third parties also provide access to the calculation models for calculating GHG emissions and carbon sequestered so that the Fund can verify and control the calculations, assumptions, methodology, etc.

There are some limitations on data availability for GHG emissions calculations, but this is being addressed where possible.

The Fund should conduct a climate risk assessment of the forest portfolio to better understand the extent to which it may be exposed to significant climate risks. The climate risk assessment is planned to be carried out by the end of 2024.

Due diligence of the potential investment property (i.e. forest and/or other land) is carried out before the acquisition of the property. The due diligence assesses the property’s fit with the Fund’s Investment and Sustainability Strategy and the actual or potential impact on sustainability.

If the assessment shows significant negative potential or actual impacts on sustainability, alternative investments are considered, or an avoidance and mitigation plan is developed.

The Investment Committee of the Fund shall decide to initiate such a study. On receipt of the results of the study, the Investment Committee shall decide on the investments to be made.

There are no external controls.

The Fund Manager, through its ownership of the Fund in its subsidiary and its representation on the Board of the subsidiary, participates in the investment decision-making, mitigation, management and control of the principal adverse impacts of investment decisions to maximise the investment value of the Fund’s assets and achieve the objectives set out in the Fund’s Investment and Sustainability Strategies.

The Fund Manager shall exercise its control following the principles set out in the Engagement Policy.

There is no reference benchmark for the Fund’s sustainable investment objective.

The Fund does not aim to reduce carbon dioxide emissions. The Fund contributes to carbon sequestration through sustainable forest management following FSC requirements. However, forest management activities also generate GHG emissions, which the Fund cannot altogether avoid, but the carbon sequestered by the forest portfolio fully compensates for this.