Evli Impact Forest Fund I

Financial product’s sustainability information in accordance with EU Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 (sustainability‐related disclosures in the financial services sector). This is a financial product in accordance with Article 8 of the SFDR.

Publication date: September 14, 2023
Legal Entity Identifier: 3167043-7 (business identity code)

a) Summary

The Fund promotes environmental characteristics by sequestering atmospheric carbon dioxide via forest investments. Sequestered carbon is stored in growing forests and sustainable wood products to mitigate climate change.

The Fund invests in forest funds managed by Timberland Investment Management Organizations (TIMOs). The Fund will use metrics reported by investee managers to measure the attainment of its promotion of environmental characteristics. Figures will be reported to investors on a regular basis.

The Fund’s goal is to remove at least 21,000 tonnes of atmospheric carbon dioxide per one million euros invested over the 14-year fund term, a rate equivalent to 1,500 tCO₂e per annum. The Fund’s performance fee is dependent upon achieving this carbon impact goal.

The Fund requires that mangers achieve independent sustainability certification for their assets. Evli recognizes the Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) forest certification schemes. Forest certification is an independent audit carried out by accredited certification bodies that assess the environmental, social and economic sustainability of forest management against defined criteria. Achieving certification ensures that forests are managed in a way that preserves biodiversity, benefits local communities and workers, and is economically viable.

Target managers are also required to comply with the OECD Principles for Multinational Enterprises, the UN Global Compact and the UN Guiding Principles on Business and Human Rights.

The fund considers principal adverse impacts on sustainability factors.

Through its engagement with managers, Evli advocates for continuous improvement in the measurement and reporting of ESG metrics. Evli’s Responsible Investment Policy sets the framework for Evli’s engagement and conduct in the event of perceived breaches of norms.

The Fund does not commit to make Taxonomy-aligned investments. At this point, there is no sufficiently precise information about the compliance of the fund's investments with EU Taxonomy which would support the commitment to environmentally sustainable investments according to the EU taxonomy.

No benchmark index has been designated for the Fund to measure the promotion of environmental characteristics. The achievement of the promotion of environmental characteristics is measured by the sustainability indicators described above.

b) No sustainable investment objective

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

To ensure that while meeting its environmental objective of climate change mitigation it does no significant harm to the other environmental or social objectives, the Fund identifies and considers target funds’ alignment with obligatory and voluntary Principle Adverse Indicators (PAIs) as set out in Annex 1 of the SFDR Regulatory Technical Standard. Evaluation of PAIs is dependent upon the data availability from these managers.

All the mandatory PAI indicators listed in SFDR are considered, plus relevant voluntary indicators. However, because the Fund invests primarily in real assets rather than companies and given the narrow scope of the Fund’s investment activities (forestry and related activities), not all indicators are relevant.

Prior to investment, each target manager is evaluated on their ESG capabilities and ability to report on PAIs. In addition, Evli Group’s Principles for Responsible Investment exclude activities considered to be at higher risk of causing adverse impacts, such as of companies operating in the fossil fuels industry. The excluded activities are incorporated into agreements with target managers to ensure they do not make investments that violate Evli’s exclusion principles. The agreements may also include obligations that managers use their best efforts to provide Evli with sufficient information to fulfil its obligations under the SFDR, and report on the carbon impact in accordance with the sustainable investment objective.  

Forest certification is a further tool used in the “do no significant harm” assessment. The Fund will invest with managers pursuing forest certification as described earlier.

The investment targets are required to comply with the OECD Principles for Multinational Enterprises, the UN Global Compact and the UN Guiding Principles on Business and Human Rights, which address social factors.

c) Environmental or social characteristics of the financial product

The Fund promotes environmental characteristics by sequestering atmospheric carbon dioxide via forest investments, whilst generating the target financial return for investors. Sequestered carbon is stored in growing forests and sustainable wood products to mitigate climate change. The Fund’s goal is to remove at least 21,000 tonnes of atmospheric carbon dioxide per one million euros invested over the 14-year fund term, a rate equivalent to 1,500 tCO₂e per annum. The Fund’s performance fee is dependent upon achieving this carbon impact goal.

The Fund has a direct impact on the UN's Sustainable Development Goal 13: Climate Action. It is expected that the Fund will also support Sustainable Development Goal 15: Life on Land by protecting terrestrial ecosystems, and on Goal 12: Responsible Consumption and Production by producing sustainable timber products that can replace non-renewable materials. Other impacts support Goal 6: Clean Water and Sanitation, and Goal 8: Decent Work and Economic Growth, especially in rural areas.

d) Investment strategy

The Fund is a fund of funds investing through third-party managers (Timberland Investment Management Organizations) in unlisted commercial forestry funds, which in turn invest in, and manage sustainable forestry assets. Eligible strategies aligned with the carbon impact goal include:

• Sustainable forest management to increase production of sustainable certified timber
• Afforestation – planting bare land (often degraded pastureland) with trees to increase the area of forest cover
• Possible participation in carbon markets through the sale of registered forest carbon credits.

The Fund will use metrics reported by investee managers to measure promotion of environmental characteristics. Figures will be reported to investors on a regular basis.

Good governance of the target funds will be assessed prior to investment through discussions with the managers and their responses to an ESG due diligence questionnaire.

e) Proportions of investments

All fund investments to target funds promote environmental characteristics. Social safeguards are applied to investments. The fund may also hold cash for short term liquidity purposes and social safeguards are not applicable. The Fund does not commit to make Taxonomy-aligned investments. At this point, there is no sufficiently precise information about the compliance of the fund's investments with EU Taxonomy which would support the commitment to environmentally sustainable investments according to the EU taxonomy.

f) Monitoring of environmental or social characteristics

To track the achievement of the Fund’s promotion of environmental characteristics, investee managers will report the amount of carbon dioxide (tCO₂e) sequestered by the Fund’s investments in quarterly, annual or other ad hoc reports. The figures will be amalgamated and reported to investors.

Prior to making an investment, the Fund endeavours to ascertain that the methodology of the target funds for calculating carbon sequestration conform to good practice and accepted international standards.

Whether or not the carbon target has been met shall be determined by the Fund based on the figures reported by the target funds.

g) Methods

The environmental characteristics of the financial product are monitored and reported using the sustainability indicator mentioned above i.e. sequestered carbon measured in tCO₂e.

h) Data sources and processing

Data is collected from investee managers. Progress towards achieving promotion of environmental characteristics is monitored by measuring the amount of carbon dioxide sequestered annually (tCO2e) in the underlying assets. Models for assessing carbon stocks are maturing. Prior to investment, Evli evaluates managers’ carbon calculation methods, ensuring they comply with recognized carbon accounting standards, such as the Greenhouse Gas (GHG) protocol.

i) Limitations of methods and data

The Fund relies upon data reported by investee managers. The achievement of the Fund’s promotion of environmental characteristics is reported annually using the sustainability indicators mentioned above. The completeness of the data from the investments is also reported. All Fund investments will comply with Evli’s Principles for Responsible Investment. The completeness of the data does not affect compliance with the above principles.

j) Due diligence

Environmental, social and corporate governance issues are analyzed prior to investment and are integrated into the investment decision. Investment recommendations submitted to the Fund’s Investment Committee include an assessment of the managers’ ESG capabilities. Monitoring of ESG performance is made at regular intervals post investment.

k) Engagement policies

Through its engagement with managers, Evli advocates for continuous improvement in the measurement and reporting of ESG metrics. Evli’s Responsible Investment Policy sets the framework for Evli’s engagement and conduct in the event of perceived breaches of norms.

l) Designated reference benchmark

No benchmark index has been designated for the fund to measure the promotion of environmental characteristics. The achievement of the promotion of environmental characteristics is measured by the sustainability indicators described above.