Aurica Capital acts with the highest standards of integrity, incorporating sustainability across the board in the management of the management company and its investees. We support our companies in their projects of growth and international expansion, ensuring that their ESG strategy and management is consistent with our approach to ESG and aligning ourselves with the demands of our stakeholders. 

To this end, we have a Responsible Investment Policy that includes, among other, a commitment to incorporate ESG criteria throughout the investment process. ESG risk is defined as an environmental, social or governance event or condition that, if it were to occur, it could have a material adverse impact on the value of the investment. If sustainability risks occur, they could directly or indirectly influence the value of investee companies and consequently the net asset value of the funds. The sustainability risk of the funds’ investments will also depend on the type of investee company, its sector of activity or its geographical location.

The management team, the entrepreneur, and Aurica Capital establish a set of ESG objectives for the investment period. These objectives are based on (i) the ESG analysis conducted by Aurica Capital included in the Investment Memorandum, (ii) the sector and what the company does within ESG, (iii) risks and opportunities and (iv) ESG Due Diligence results. These objectives are then deployed through annual qualitative and quantitative targets. Compliance with these objectives is measured by indicators (KPIs) that are monitored monthly and annually by Aurica Capital’s team to assess the evolution of investments in ESG terms.

Aspects related to governance and compliance are normally covered in the Due Diligence carried out as part of our regular investment evaluation process. Some of the social and environmental aspects are covered in the specific labour, technical and administrative Due Diligence, however, in certain cases, Aurica Capital carries out specific ESG Due Diligence. We also carry out more in-depth environmental due diligence for the investments where the company may have a significant impact to identify any potential sustainability risks.

In addition, during the investment process, Aurica Capital assesses the material ESG aspects of the investments according to the criteria of the Value Reporting Foundation (VRF) based on their sector of activity identifying the different ESG risks to which our investees may be exposed. Finally, an analysis of exposure to climate risk is performed. Following Aurica Capital’s adherence to the UN-PRI, a commitment to the six principles has been established:

1. Incorporating ESG issues into every step of our investment process.
2. Being active investors in incorporating ESG issues into our practices and policies.
3. Seeking appropriate disclosure on ESG issues by our investees.
4. Promoting acceptance and implementation of the Principles in the global investment community.
5. Working together to improve our effectiveness in implementing these Principles.
6. Reporting on our activities and progress in implementing these Principles.

At Aurica Capital we specialise in the Spanish middle market, where we invest in leading companies that possess distinct competitive advantages in relation to their competitors. Our investment approach is grounded in a unified strategy that incorporates investment criteria and classifications, enabling us to proactively address potential adverse effects associated with sustainability and ESG (Environmental, Social, and Governance) factors.

Furthermore, we meticulously evaluate aspects pertaining to governance and compliance with prevailing regulations, which are integral components of our comprehensive Due Diligence process, conducted routinely as part of our asset assessment. In a similar vein, we incorporate social and environmental considerations into specific assessments, encompassing labour, technical, administrative, and, when applicable, environmental facets, for investments in which the company is deemed to exert a significant influence in these domains.

While Aurica Capital diligently endeavours to alleviate potential adverse impacts linked to ESG factors, the process of monitoring these impacts is currently under development.

Aurica Capital has a remuneration policy aligned with risk management, encouraging diversification in two areas:

1. Sectoral: investing in companies from different industries within the portfolio.
2. Geographic: promoting the entry of investees into new countries.

Furthermore, the compensation of its professionals is aligned with Aurica Capital‘s long-term strategic objectives, which prominently feature ESG-related criteria.

Those responsible for overseeing the implementation and monitoring of ESG factors in both our investee companies and within the management firm have 15% of their variable compensation contingent upon the accurate execution of an ESG indicator system. This compensation is further contingent on the successful attainment of ESG objectives at both the management company and portfolio levels. Additionally, Aurica Capital actively encourages its professionals to incorporate ESG criteria into their decision-making processes for investments, ongoing oversight, and divestment of investee companies, with the ultimate aim of sustaining growth that is environmentally and socially responsible.

Aligning the interests of different stakeholders through a robust remuneration policy is essential for Aurica Capital. This commitment serves to mitigate potential conflicts of interest in our decision-making processes.

Aurica Capital incorporates ESG aspects into its Responsible Investment Policy, and some of the funds under its management have commitments to make sustainable investments. These funds prioritise investments that align with the ESG characteristics that both the organisation and its investment vehicles aim to promote:

1. Environmental: the reduction of CO2 emissions (SDGs 7 and 13), the protection of biodiversity (SDG 15), energy saving and optimisation systems, water use and efficiency (SDG 6), responsible production and consumption (SDG 12), among others.
2. Social: Gender equality (SDG 5), occupational health and safety (SDGs 3 and 8), labour rights and working conditions (SDG 8), local people’s rights and cultural heritage (SDG 11), diversity and inclusion of minorities (SDG 10), human rights (SDG 16), among others.
3. Governance: Implementation of human resources and governance policies, among others.

Since the establishment of the fund, investments in sectors such as real estate, finance, defence and other areas that are prohibited for investment by venture capital firms are explicitly excluded.

Additionally, Aurica Capital does not invest in companies involved in projects where any of the following circumstances are proven to exist:

1. Exploitative or harmful forms of child labour or forced labour.
2. Activity linked to pornography and/or prostitution.
3. Production or trade of any product or development of any activity considered illegal under the laws and regulations of the country where the project is located.
4. Production and trade of banned or phase-out substances such as (i) polychlorinated biphenyls (PCBs), (ii) ozone depleting substances and (iii) herbicides, pesticides, pharmaceuticals, and other chemicals.
5. Trade in wild fauna and flora regulated by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).
6. Use of drift nets longer than 2.5 km.
7. Manufacture of or trade in products containing loose asbestos fibres.
8. Transboundary trade in products or waste unless it complies with the Basel Convention and related Basel Convention standards.
9. Generation of energy using nuclear fuel and/or production, storage, treatment, and trade of radioactive products, including radioactive waste.
10. Production of or trade in arms and ammunition.
11. Destruction of areas considered of High Conservation Value.

In addition to the guidelines outlined in the Responsible Investment Policy, Aurica Capital includes ESG considerations across the entire investment life cycle, integrating these aspects into the various stages of its investment strategy:

• Origination and sourcing of investments.
• Investment analysis.
• Due Diligence Processes.
• Investment agreement.
• Investment monitoring.
• Divestments.
• Governance and decision-making process (transversal to the whole investment cycle).

Aurica Capital guarantees the incorporation of ESG considerations in its investments through its Responsible Investment Policy. Furthermore, by holding a minority but substantial stake in its portfolio companies (ranging from 20% to 49%), Aurica Capital ensures that the business growth of both the management firm and its investee companies adheres to ESG criteria.

Aurica Capital conducts an analysis of sustainability risks and oversees the attainment of environmental and social characteristics, as well as investment objectives of its Funds. This analysis is based on information published by the investee companies of the Funds it manages and utilises its proprietary evaluation methodology, which is overseen by external consultants. In particular, this process involves the monitoring of indicators and metrics designed to gauge the impact value of the economic activities of the investee companies in which it invests.

Following the investment execution phase, Aurica Capital develops an action plan for each investee company aimed at enhancing their ESG performance and implementing the necessary ESG measures identified in prior phases, including the mitigation of potential ESG risks. The primary objective is to assess the degree to which the environmental and social characteristics promoted by the financial product are achieved. To monitor progress, Key Performance Indicators (KPIs) are tracked, and regular reporting is established to provide a comprehensive and periodic overview of the outcomes.

Aurica Capital uses its propietary methodologies for the collection and processing of data to analyse and monitor the ESG characteristics relevant to both the firm and its investees. Nevertheless, there may be limitations that hinder the final result of these processes, such as changes in the methodologies used to calculate the indicators, either due to regulatory changes or improvements in the process of obtaining, processing and calculating the data in accordance with the Entity’s internal methodologies.

Since its establishment, Aurica Capital has maintained a strategy of investing in the equity of Spanish companies by acquiring minority but substantial ownership stakes, typically ranging from 20% to 49%. This approach involves active involvement in the management of its portfolio assets.

Consequently, Aurica Capital has a presence on the Board of Directors and the Management Committee of its investees. Additionally, a standardised Partner Agreement is utilised across all of Aurica Capital’s investments. This agreement, beyond encompassing mechanisms for minority protection, seeks to foster the alignment of interests in the management and growth of the companies, as well as during the divestment phase.

Aurica Capital is highly proactive in monitoring its investee companies. As part of this commitment, all portfolio companies are required to provide monthly reports comprising a comprehensive set of relevant business and financial management indicators. This practice enables us to actively participate in their day-to-day management and maintain a high level of engagement with these companies.

Aurica Capital specialises in making minority investments in leading companies within the Spanish middle market, particularly those with competitive advantages and significant growth potential. To guide our investment approach, we have established specific criteria and typology that enable us to address potential adverse impacts and incidents related to sustainability and ESG considerations.

Major Adverse Incidents (PAIs) are defined as incidents related to investment advice and decisions that have a detrimental effect on sustainability factors, encompassing environmental, social, and governance (ESG) issues.

While Aurica Capital makes reasonable efforts to mitigate potential adverse impacts related to ESG factors, it’s important to note that, given the manager’s size, nature, scale of activities, and the types of financial products offered, we do not currently assess adverse impacts on sustainability factors at the entity level.

In accordance with Article 4.1.b) and 4.5.b) of Regulation (EU) 2019/2088, in our capacity as a financial market participant, Aurica Capital declares that we do not conduct an analysis of the adverse impact of investment decisions and advice on sustainability factors. This decision is based on the following considerations:

Considering our entity’s size, scale of activities, and characteristics, and in compliance with applicable regulations and exceptions outlined in Article 4 of Regulation (EU) 2019/2088, we are not required to assess PAIs at an aggregated level.

Although we do not evaluate major adverse incidents (MAIs) on an aggregate basis for all our products at the Management Company level, we are actively working to reduce negative impacts on sustainability factors within our fund management by calculating and managing MAIs. We are committed to increasing the proportion of MAIs within our portfolios.

Aurica Capital’s decision not to assess Environmental and Social Impact Assessments (ESIAs) does not preclude the monitoring of ESIAs in the management of specific financial products. This monitoring is part of our commitment to integrating ESG considerations into our investment and advisory decision-making processes.

(a) Summary

This fund promotes environmental or social features under Article 8 of Regulation (EU) 2019/2088 (SFDR Regulation). Despite not having a sustainable investment objective, it does allocate a proportion of its investments to sustainable options, which accounts for 40% of the total investments over the life of the fund.

The Fund will actively promote environmental, social and corporate governance features through the implementation of the responsible investment policy published on the website of the Management Company (“Responsible Investment Policy”). The main objective of this product is to advocate for ESG features that align with environmental and social objectives identified within the international framework of the UN Sustainable Development Goals (SDGs).

The Fund’s strategy is to seek investments in small and medium-sized companies, as well as in companies with midcap status, that are focused on international expansion as a key growth factor. The pursuit of internationalisation is central to its value-generation strategy. The main adverse impacts (PAIs) are considered in sustainable investment objectives. These play a crucial role in meeting the environmental and social characteristics promoted by the product, and they serve as a tool to evaluate the governance practices of the invested companies.

As part of the Due Diligence process conducted prior to the selection of assets for the Fund’s investment decisions, the Management Company will: (a) take into account Principal Adverse Incidents (PAIs) concerning ESG Criteria, (b) identify these PAIs by establishing disclosure obligations; and, (c) monitor ESG indicators that encompass PAIs, ensuring that the Fund’s sustainable investments do not result in significant harm to sustainability and adhere to minimum social and environmental safeguards.

Throughout the management of the Fund’s investment portfolio, ESG indicators, which encompass the Principal Adverse Impacts (PAIs) of the Fund’s operations, will be closely monitored. This diligent monitoring is essential to ensure that the Fund’s sustainable investments do not result in significant harm to sustainability objectives and that they adhere to minimum sustainability safeguards.

After the investment execution phase, Aurica Capital develops the “100 Days Plan” for each investee, with the objective of measuring how the environmental or social characteristics promoted by the financial product are met. The risks identified are monitored and evaluated using a specific KPI monitoring tool which, through reports, aims to facilitate a holistic and periodic understanding of the results. Furthermore, the monitoring and review of identified ESG risks is not limited to this plan, but is carried out systematically throughout the investment.

 The Management Company relies on information published by the Investee Companies and employs a proprietary valuation methodology that is overseen by external consultants. This methodology is particularly focused on measuring the impact of the economic activities of the investee companies.

The Fund is actively managed, and no specific index has been designated as a benchmark for achieving the environmental and social characteristics promoted by the Fund, nor for the sustainable investments made by the Fund. 

(b) No sustainable investment objective

This financial product emphasises environmental or social features but does not have the primary objective of sustainable investment. Nevertheless, it allocates a portion of its total investments to sustainable options.

The Management Company will consider the Principal Adverse Impacts (PAIs) as an additional means to assess the adverse impact that the Fund’s investments could have on sustainability factors. By monitoring these indicators, including the establishment of reduction targets for PAIs, the aim is to diminish the adverse effects they may generate and mitigate their significance. This proactive approach is designed to prevent any significant harm to the Fund’s sustainable investment objectives.

Sustainable investment is in line with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, which encompass the principles and rights articulated in the eight core conventions outlined in the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

(c) Environmental or social characteristics of the financial product

The Fund will actively promote environmental, social, and corporate governance features through the implementation of the responsible investment policy published on the website of the Management Company (“Responsible Investment Policy”). The product aims to promote ESG features consisting of the following aspects, each of which is associated with environmental and social objectives identified in the international framework of the UN Sustainable Development Goals (SDGs): 

• Environmental: the reduction of CO2 emissions (SDGs 7 and 13), the protection of biodiversity (SDG 15), energy saving and optimisation systems, water use and efficiency (SDG 6) and responsible production and consumption (SDG 12). 

• Social: Gender equality (SDG 5), occupational health and safety (SDGs 3 and 8), labour rights and working conditions (SDG 8), local people’s rights and cultural heritage (SDG 11), diversity and inclusion of minorities (SDG 10) and human rights (SDG 16).

• Governance: Implementation of human resources and human rights policies.

 (d) Investment strategy

The investment strategy of the Fund centres around investing in small and medium-sized companies, as well as those categorised as midcap, with a primary focus on international expansion as a key growth driver. Internationalisation is established as a strategy for value generation. The main adverse impacts (PAIs) are considered in sustainable investment objectives to comply with the environmental and social characteristics promoted by the product. Additionally, they serve as a valuable tool for evaluating the governance practices of the companies in which investments are made.

Governance and decision-making aspects are seamlessly integrated into various phases of the Responsible Investment Procedure. This integration includes the formulation of specific governance management Key Performance Indicators (KPIs). It aligns with the Management Company’s strategy of investing in the equity of companies through minority but substantial ownership stakes and focuses on the effective management of the Fund’s portfolio assets, thus ensuring the implementation of strong governance practices.

In addition to the guidelines of the Responsible Investment Policy, Aurica Capital currently considers ESG aspects throughout the investment life cycle of this product, integrating these aspects into the various stages of its investment strategy: 

1. Investment origination and sourcing 
2. Investment analysis
3. Due Diligence Processes
4. Investment agreement
5. Investment monitoring
6. Divestments
7. Governance and decision-making process (cross-cutting throughout the investment cycle)

Various aspects of governance and the decision-making process are seamlessly integrated into different phases of the Responsible Investment Procedure. This integration includes the establishment of specific Key Performance Indicators (KPIs) related to governance management. These KPIs cover a range of areas, including whether the CEO is a woman, training hours, sanctions, cases of human rights discrimination, and an analysis of whether the investee company requires strengthening in specific management areas, among other actions. This approach aligns with the Management Company’s strategy of investing in the equity of companies through minority but significant ownership stakes, adopting a hands-on approach to the management of the Fund’s portfolio assets, and ensuring the implementation of strong governance practices. 

The consideration of ESG criteria will complement other aspects, of a purely economic nature or quantitative analysis of potential investments, to be considered when making investment decisions. To ensure compliance with such criteria throughout the life of each investment, the Management Company shall make use of its presence on the boards of directors and management committees of the investee companies to assist in the implementation of the ESG aspects applicable in each case. The achievement of these objectives may also be assessed by monitoring the Investees in terms of ESG factors as described above.

As part of the due diligence process, governance risks and good governance practices will be considered for each new investment opportunity of the Fund, using specialised external resources where necessary.

 Once the decision to invest in an Investee is made, and the Investee becomes a part of the Fund’s portfolio, the Management Company is committed to ensuring the maintenance of good governance practices and the implementation of the ESG Criteria outlined in this Annex. To this end, the Management Company will actively encourage the appointment of an ESG Officer for each Investee and will define specific roles and responsibilities for this individual. Furthermore, the Management Company will promote the integrated management of the ESG Criteria throughout the value chain of the Investee Companies. This integration will encompass the development of policies related to environmental concerns, human resources, supply chain practices, ESG governance, and other relevant areas.

 

(e) Proportion of investments

The Fund is dedicated to investing 100% of its assets in investments characterised by environmental or social features. These investments are instrumental in realising the environmental or social characteristics advocated by the Fund. The attainment of these environmental or social characteristics will be evaluated through various ESG indicators, as explained in previous sections.

While the primary goal of the Fund is not exclusively centered on sustainable investments, it will indeed engage in sustainable investments that contribute to environmental objectives within economic activities not aligned with the taxonomy. Additionally, it will contribute to social objectives in a minimum proportion of 40% over the lifespan of the Fund, calculated based on the turnover of the investee companies. 

(f) Monitoring of environmental or social characteristics

In the process of managing the Fund’s investment portfolio, ESG indicators, including the PAIs of the Fund’s operations, will be monitored to ensure that its sustainable investments do not cause significant harm to sustainability objectives and that they comply with minimum sustainability safeguards.

Furthermore, in the contracts that the Management Company enters into on behalf of the Fund with regard to the Fund’s investments in Target Companies, the Management Company will incorporate clauses requiring the Target Companies to provide financial and non-financial indicators. These indicators will serve as the basis for calculating the metrics related to the promotion of environmental, social, and governance criteria (ESG Criteria) in the Fund’s investments. Examples of the indicators monitored for the promotion of ESG Criteria include, but are not limited to, the following:

1. Designation of an environmental officer
2. Existence of an environmental policy
3. Number of significant environmental impacts
4. Share of energy consumption from renewable energy sources
5. Greenhouse Gas Emissions (GHG)
6. Number of direct jobs generated
7. Implementing a health and safety policy
8. Implementation of equality plans
9. Gender diversity in staffing levels
10. Number and types of social contribution initiatives
11. Number of sanctions and cases of discrimination or violation of human rights
12. Existence of a code of ethics or conduct
13. Number of women in governing bodies

 

(g) Methods

Following the investment execution phase, Aurica Capital formulates an action plan for each investee with the aim of enhancing their ESG (Environmental, Social, and Governance) performance. This plan addresses the identified ESG measures, including potential risks, to ensure the realisation of the environmental or social characteristics promoted by the financial product. To assess progress, Key Performance Indicator (KPI) tracking indicators are employed, and regular reporting is utilised to provide a comprehensive and periodic view of the results. Additionally, the ESG risks identified are consistently monitored and reviewed throughout the investment period.

(h) Sources and processing of data

The Management Company, relying on information published by the Investee Companies and its proprietary evaluation methodology, which is overseen by external consultants, will conduct: (a) an analysis of the Sustainability Risks associated with the Fund’s investments; and, (b) The monitoring of the attainment of the environmental or social characteristics promoted by the Fund. These analyses are facilitated through the monitoring of indicators and metrics aimed at measuring the impact of the economic activities of the Investee Companies in which the Fund has invested. 

(i) Limitations of methods and data

Aurica Capital uses its proprietary methodologies for the collection and processing of data to analyse and monitor the environmental, social and governance characteristics relevant to both the firm and its investees. However, there may be limitations that could affect the ultimate outcome of these processes. Such limitations might arise from alterations in the methodologies employed to compute the indicators, whether due to regulatory changes or enhancements in the data collection, processing, and calculation processes carried out in accordance with the Entity’s internal methodologies. 

(j) Due diligence 

In the Due Diligence process prior to the selection of assets on which the investment decisions of the Fund are to be made, the Management Company shall: (a) take into consideration Material Adverse Incidents (MAIs) on ESG Criteria; (b) identify MAIs by establishing disclosure obligations; and (c) monitor ESG indicators that include MAIs, in to ensure that the Fund’s sustainable investments do not result in significant harm to sustainability and comply with minimum social and environmental safeguards.

The Due Diligence process is developed according to the material factors to be analysed identified in the previous phase. Specific Due Diligence procedures are employed when evaluating environmental considerations. The findings and risks unearthed during this process are fully integrated into the investment decision., with specific Due Diligence applied in case of environmental considerations, and the findings and risks detected are integrated into the investment decision.

In addition, environmental aspects are included in a specific Due Diligence for those investments where the company is considered to have a significant impact in this area. Additional findings and risks identified in this specialised due diligence are part of the investment decision. The assessment of ESG performance in the due diligence phase establishes a basis for the action plan in the ownership phase.

1. k) Engagement policies

Since its incorporation, Aurica Capital has maintained a strategy of investing in the capital of Spanish companies through minority but significant stakes (between 20% and 49%), with a hands-on approach to the management of its portfolio assets.

 For this reason, Aurica Capital has a presence on the Board of Directors and on the Management Committee of its investees. Likewise, there is a common model of Partner Agreement in all of Aurica Capital’s investments where, apart from minority protection systems, the alignment of interests in the management and development of the companies is pursued, as well as at the time of divestment.

 Aurica Capital is highly proactive in monitoring its investees. To facilitate this, all portfolio companies are required to report a set of relevant business and financial indicators on a monthly basis. This allows us to be involved in the day-to-day management of these companies and maintain a high level of engagement with them.

 (l) Designated benchmark index

The Fund has not specified any particular index as a benchmark for achieving the environmental and social characteristics promoted by the Fund, nor for the sustainable investments it may undertake. The Management Company, on the other hand, will monitor the attainment of both the environmental and social characteristics of the Fund, as well as any sustainable investments it may have made. This monitoring is based on information published by the Target Companies and employs a proprietary assessment methodology, which is overseen by external consultants. The assessment involves the tracking of indicators and metrics designed to measure the ESG (Environmental, Social, and Governance) impact of the economic activities of the Target Companies in which the Fund has invested.

The Management Company will actively monitor ESG (Environmental, Social, and Governance) indicators, which include the Principal Adverse Impacts (PAIs) of the Fund’s operations. This monitoring is undertaken to ensure that the Fund’s sustainable investments do not result in significant harm to sustainability objectives and that they adhere to the established minimum sustainability safeguards for the Fund.

 (a) Summary

The Fund shall promote environmental or social characteristics, according to article 8 of the EU Regulation 2019/2088 (SFDR), and shall not make sustainable investments, in accordance with the definition of “sustainable investment” as stated in the article 2.17 of the SFDR. The Fund commits to investing 100% of its assets in investments that align with environmental or social characteristics. These investments are instrumental in realising the environmental or social characteristics promoted by the Fund.

The Fund will actively promote environmental, social, and corporate governance features by adhering to the Responsible Investment Policy, which is publicly accessible on the Management Company’s website. Although the Responsible Investment Policy is not limited to any specific economic sector, the Fund aims to promote ESG features encompassing the following aspects: 

1. Promoting good governance practices through the establishment of governance structures, diversity and gender equality in governing bodies, risk management, codes of ethics or conduct, and employee awareness-raising on competition, anti-corruption, fraud and anti-money laundering.
2. Compliance with labour regulations (including health and safety, labour rights, and working conditions) and implementation of labour resourcing policies.
3. Employment generation, with a special focus on promoting local employment and attracting talent from local communities, diversity and gender equality in employment and remuneration.
4. Compliance with environmental regulations and best practices, energy saving, energy optimisation and waste reduction systems.

 

The objective of the Fund is to build strong businesses and deliver long-term returns to its investors. This is achieved through investments in projects, assets, and companies in which the Management Company has extensive experience; inter alia, the services, technology, software, or education sectors.

In the Due Diligence process prior to the selection of assets on which the Fund’s investment decisions are to be made, the Management Company will: (a) consider some of the Principal Adverse Incidents (PAIs) on the ESG Criteria; (b) identify the PAIs by establishing disclosure obligations thereof; and (c) monitor ESG indicators, which include the PAIs, in order to ensure that the Fund’s sustainable investments do not generate significant harm to sustainability and comply with minimum social and environmental safeguards.

Following the implementation of the investment, the Management Company will promote the development of a 100-days-plan for each Investee Company of the Fund. Following the implementation of the investment, the Management Company will promote the development of a 100-days-plan for each Investee Company of the Fund to address the critical issues identified in the previous phases of the investment process. The Management Company will receive quarterly reports from the Investee Companies, including financial and non-financial information. Furthermore, the monitoring and review of identified ESG risks is not limited to this plan but is carried out systematically throughout the investment.

The Management Company, based on information published by the Target Companies and on its own evaluation methodology supervised by external consultants and in particular, will carry out the monitoring and tracking of indicators and metrics that aim to measure the value of the impact of the economic activities.

 Aurica Capital is very proactive in monitoring its investees. In this regard, all portfolio companies must report at least quarterly a set of relevant business and financial management indicators, which allows us to be involved in the day-to-day management and maintain a high level of engagement with them.

 No index has been designated as a benchmark for achieving the environmental and social characteristics promoted by the Fund.

 (b) No sustainable investment objective

This financial product promotes environmental or social features within the meaning of Article 8 of the SFDR Regulation, and does not aim to make sustainable investments.

 (c) Environmental or social characteristics of the financial product

The Fund will promote environmental, social and corporate governance features through the implementation of the Responsible Investment Policy published on the website of the Management Company.

While the Responsible Investment Policy is not confined to any particular economic sector, the Fund seeks to promote ESG characteristics consisting of the following aspects:

1. Promoting good governance practices, through the establishment of governance structures, diversity and gender equality in governing bodies, risk management, codes of ethics or conduct, and employee awareness-raising on competition, anti-corruption, fraud and anti-money laundering.
2. Compliance with labour regulations (including health and safety, labour rights, and working conditions) and implementation of labour resourcing policies.

1. Employment generation, with a special focus on promoting local employment and attracting talent from local communities, diversity and gender equality in employment and remuneration.

1. Compliance with environmental regulations and best practices, energy saving, energy optimisation and waste reduction systems.

(d) Investment strategy

The Fund will make its Investments, directly or indirectly, by relying on one or more Searchers (through Target Companies) who will search for companies in which to invest, i.e. its target companies, under different scenarios. The Searchers, as described in the Regulations, will be professionals with (i) an undergraduate and/or postgraduate degree from an internationally recognised business school and (ii) experience in investment banking, strategic consulting and/or multinationals.

 The Fund’s investments will be multi-sectoral, respecting the investment ratios, diversification requirements and other investment requirements applicable to the Fund from time to time.

 The Investments will be made in Target Companies, co-financed by different investors (including the Fund and the Parallel Vehicle(s)), usually with experience in this niche market and which will hold different stakes in such Target Company, and may also hold a position in its management body, depending on the value that the investor can bring to the project.

 The Management Company will maintain a close relationship with the Target Company, assessing the various opportunities presented by the Searcher and supporting it in any way the Searcher deems necessary.

Both the Fund’s Investments in the Target Companies and subsequent investments made by the these companies will not be restricted to any particular economic sector. However, they will be focused on SMEs 8Small and Medium- sized enterprises) which, at the time of the Fund’s first investment, are predominantly operating and have their effective management and administrative headquarters, registered office, principal place of business, or centre of operations in Southern Europe. This region includes Spain, France, Italy, and Portugal.

In addition, the Fund may allocate up to 10% of the Total Committed Assets for investments in DACH territories (i.e. Germany, Austria and Switzerland). It can further allocate up to an additional 10% of the Total Committed Assets in the rest of Europe. Moreover, up to an additional 20% of the Total Committed Assets may be invested in territories outside Europe, provided that there are no constraints or limitations in the Fund’s documentation that would prevent investments in such territories.

Accordingly, investments in Southern Europe are estimated to account for approximately 60% of the Total Committed Assets. In the event of investment in a third country, that country may not be on the FATF (Financial Action Task Force) list of non-cooperative countries and territories on money laundering and terrorist financing. This third country must have signed an agreement with Spain and with each Member State in which the units or shares of the Fund are intended to be marketed.

In addition to the provisions of the Responsible Investment Policy, Aurica Capital considers ESG aspects throughout the investment life cycle of this product, integrating these aspects into the various stages of its investment strategy:

1. Origination and search for
2. Analysis of the
3. Diligence Processes
4. Implementation of the investment
5. Monitoring of

 Aspects of the governance and decision-making process are integrated into the different phases of the Responsible Investment Procedure (such as the definition of specific KPIs in the area of governance management, for example, the presence of women on governing bodies, training on compliance, sanctions and cases of human rights discrimination, and the analysis of whether the investee company needs reinforcement in certain management areas, among other actions), and the analysis of whether the investee needs reinforcement in certain management areas, among other actions), given the Management Company’s strategy of investing in the capital of companies through minority but significant shareholdings, with a practical focus on the management of the assets of the Fund’s portfolio, thus ensuring good governance practices.

 The consideration of ESG criteria will complement other aspects, of a purely economic nature or quantitative analysis of potential investments, to be taken into account when making investment decisions. In order to ensure compliance with such criteria throughout the life of each investment, the Management Company shall make use of its presence, where appropriate, on the boards of directors and management committees of the Investee Companies to assist in the implementation of the ESG aspects applicable in each case. The achievement of such objectives may also be assessed by monitoring the Investee Companies in terms of ESG factors as described above.

 As part of the due diligence process described earlier in this Annex, governance risks and good governance practices will be considered for each new investment opportunity of the Fund, using specialised external resources where necessary.

Once the decision to invest in the Investee is taken and the Investee forms part of the Fund’s portfolio, the Management Company shall ensure that good governance practices are maintained and that the ESG Criteria mentioned above in this Annex are implemented. Thus, for each Investee, the appointment of an ESG Officer will be encouraged and specific roles and responsibilities will be assigned to him/her in this regard. The Management Company shall also promote the management of the aforementioned ESG Criteria in an integrated manner throughout the value chain of the Investee Companies through the development of environmental, human resources, supply chain, ESG governance or other policies.

(e) Proportion of investments

The Fund shall promote environmental or social features, within the meaning of Article 8 of SFDR, and shall not make sustainable investments, in accordance with the definition of “sustainable investment” provided by Article 2.17 of SFDR.

 At all times, the entire (100%) of the assets of the Fund shall be invested in investments with environmental or social characteristics, i.e. investments used to achieve the environmental or social characteristics promoted by the Fund.

(f) Monitoring of environmental or social characteristics

The Management Company, based on the prior analysis of the Investee Companies, shall identify the relevant ESG factors for each company, in relation to which it shall monitor its ESG performance through a set of ESG indicators. Investee companies shall be required to report, at least quarterly, a set of financial and non-financial indicators that allow for a quantitative or qualitative assessment of the ESG criteria of the Investee companies. The Management Company shall be responsible for consolidating these indicators on the basis of the indicators and data provided by the Investee Companies.

By way of example, indicators monitored on the promotion of ESG criteria include, among others, the following:

1. Designation of ESG officer
2. Number of sanctions and cases of violation of human rights or discrimination
3. Number of cases of corruption, money laundering, fraud and competition law violations
4. Diversity in governing bodies
5. Existence of a code of ethics or conduct
6. Existence of manual or policy on anti-corruption, competition and prevention of fraud and money laundering
7. Number of direct jobs generated
8. Implementing a health and safety policy
9. Implementation of equality plans
10. Unadjusted gender wage gap
11. Diversity in the workforce
12. Existence of an environmental policy
13. Number of significant environmental impacts

1. Share of energy consumption from renewable energy sources
2. Greenhouse Gas Emissions (GHG)

 The Management Company will consider certain indicators of material adverse events (PAIs) as a further method of measuring the adverse impact that the Fund’s investments may have on sustainability factors, and through the monitoring of such indicators will track the achievement of the Fund’s objective of promoting environmental or social features.

 (g) Methods 

Following the investment execution phase, Aurica Capital formulates an action plan for each investee with the aim of enhancing their ESG (Environmental, Social, and Governance) performance. This plan addresses the identified ESG measures, including potential risks, to ensure the realisation of the environmental or social characteristics promoted by the financial product. To assess progress, Key Performance Indicator (KPI) tracking indicators are employed, and regular reporting is utilised to provide a comprehensive and periodic view of the results. Additionally, the ESG risks identified are consistently monitored and reviewed throughout the investment period.

 (h) Sources and processing of data

The Management Company, relying on information published by the Investee Companies and its proprietary evaluation methodology, which is overseen by external consultants, will conduct: (a) an analysis of the Sustainability Risks associated with the Fund’s investments; and, (b) The monitoring of the attainment of the environmental or social characteristics promoted by the Fund. These analyses are facilitated through the monitoring of indicators and metrics aimed at measuring the impact of the economic activities of the Investee Companies in which the Fund has invested. 

 (i) Limitations of methods and data

Aurica Capital uses its proprietary methodologies for the collection and processing of data to analyse and monitor the environmental, social and governance characteristics relevant to both the firm and its investees. However, there may be limitations that could affect the ultimate outcome of these processes. Such limitations might arise from alterations in the methodologies employed to compute the indicators, whether due to regulatory changes or enhancements in the data collection, processing, and calculation processes carried out in accordance with the Entity’s internal methodologies. 

(j) Due diligence

In the Due Diligence process prior to the selection of assets on which the Fund’s investment decisions are to be made, the Management Company will: (a) take into consideration some of the Principal Adverse Incidents (PAIs) on the ESG Criteria; (b) identify the PAIs by establishing disclosure obligations for them; and (c) monitor ESG indicators, which include the PAIs, in order to ensure that the Fund’s sustainable investments do not generate significant harm to sustainability and comply with minimum social and environmental safeguards.

 During the Due Diligence process, the financial, legal, tax and labour status of the companies will be analysed. In addition, the company’s material information on ESG factors will be analysed, which in practical terms means that potential factors associated with sustainability risks will be identified. In this regard, an ESG checklist will be completed (by the investee or the management company) to identify possible factors associated with sustainability risks.

The Due Diligence process is conducted in accordance with the material factors to be analysed identified in the previous phase of the investment process. When evaluating our investments, aspects related to governance, social, technical and legal compliance, among others, are included in the Due Diligence carried out in our regular asset evaluation process. Thus, environmental and, in particular, climate-related aspects are also included in the Due Diligence in order to encompass those investments where this matter may be applicable and/or have a significant impact.

1. k) Engagement policies

Since its incorporation, Aurica Capital has maintained a strategy of investing in the capital of Spanish companies through minority but significant stakes (between 20% and 49%), with a hands-on approach to the management of its portfolio assets.

 For this reason, Aurica Capital has a presence on the Board of Directors and on the Management Committee of its investees. Likewise, there is a common model of Partner Agreement in all of Aurica Capital’s investments where, apart from minority protection systems, the alignment of interests in the management and development of the companies is pursued, as well as at the time of divestment.

 Aurica Capital is highly proactive in monitoring its investees. To facilitate this, all portfolio companies are required to report a set of relevant business and financial indicators on a monthly basis. This allows us to be involved in the day-to-day management of these companies and maintain a high level of engagement with them.

 (l) Designated benchmark index

The Fund has not specified any particular index as a benchmark for achieving the environmental and social characteristics promoted by the Fund. The Management Company will monitor the attainment of the environmental and social characteristics of the Fund by relying on information published by the Investee Companies. This monitoring will be facilitated through the use of the Management Company’s proprietary evaluation methodology, which is supervised by external consultants. It will also involve tracking indicators and metrics aimed at measuring the ESG (Environmental, Social, and Governance) performance of the economic activities of the Investee Companies in which the Fund has made investments.