Sustainability Risks

The Fund Manager has integrated sustainability risks in their investment decision-making process. A sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the investment. The Fund Manager’s ESG policy describes in detail how such risks are integrated into its investment decision-making process. In summary, the Fund Manager assesses environmental, social, and governance (ESG) factors as part of its initial deal sourcing, due diligence and decision making process before investing in a new company. When assessing an investment opportunity, positive and negative impacts are considered. If any red flags or risks are discovered and the investment committee deems such unmanageable, the fund will not go forward with the investment.

No consideration of Principal Adverse Impacts (“PAI”) of Investment Decisions on Sustainability Factors

The Fund Manager has elected to refrain from considering PAI in relation to its investments. The Fund Manager takes into account that it invests in young companies, where resources are limited and data is often incomplete or unavailable. Further, the Fund Manager has chosen to focus on sustainability matters that are not necessarily measured by PAI, for example tailored KPIs relevant to the specific business of each portfolio company and each portfolio company’s attitude towards ESG matters. Currently, it is the view of the Fund Manager that its policies and processes in place are proportionate, sufficient and adapted to its operations and investment focus as well as strategy. The Fund Manager will reassess whether it shall elect to start considering PAI, when appropriate. 

Remuneration Policy

Currently, the Fund Manager does not have a remuneration policy in place.

CONCERNING: Pale blue dot I Equity AB and Pale blue dot I AB; and Pale blue dot II (D) AB and Pale blue dot II (E) AB. Jointly The “Funds”

Summary

The Funds are considered to be ’Article 8’ fund type products under the Sustainable Finance Disclosures Regulation (“SFDR”). The financial products promote environmental characteristics.

No sustainable investment objective

These financial products promote environmental characteristics, but do not have as its objective sustainable investment.

Environmental characteristics of the financial product

The environmental characteristics the Funds promote is the direct or indirect reduction, reversal, or preparation for the effects of climate change, or the enablement for others to do so. 

Investment strategy

The Funds’ strategy is to invest in companies with a positive climate impact that directly or indirectly reduces, reverses, or prepares for the effects of climate change, or enables others to do so.

Good governance of the investee companies is first assessed during the due diligence process. Thereafter, it is monitored through traditional governance structures such as board and/or shareholder meetings, informal update meetings with the portfolio companies in addition to quarterly reporting. 

Proportion of investments

The Funds will allocate its capital in companies that promote any of the environmental characteristics (reduce, reverse and/or prepare). The Funds do not commit to make any investments that qualify as environmentally sustainable (i.e. taxonomy-aligned) under Regulation (EU) 2020/852.

Monitoring of environmental characteristics

All portfolio companies are required to set up quantitative climate KPIs (one or more) that directly relate to the core problem that they are solving, and these are reported to the Funds and further to the LPs on a quarterly basis. Additionally, six months after the initial investment, and annually thereafter, ESG scorecards are completed for all companies in the portfolio, which are used to keep track of the initial understanding of the portfolio company.

Methodologies

Each potential portfolio company is assessed for its climate impact potential before receiving an investment from a Fund. This is done internally by the relevant Fund. A climate thesis is developed for each investment which is mapped to the Funds impact categories (i.e., reduce, reverse and prepare).

Data sources and processing

A main source of data is information provided by companies through pitch decks, DD questionnaires and reports. All data is processed internally by the Funds and might be reviewed by external parties, if needed. 

Limitations to methodologies and data

Limitations to methodologies and data sources are expected to mainly be due to a lack of precise data from portfolio companies/incomplete data. Incomplete data refers to missing data, which can occur due to non-response, incomplete surveys or questionnaires, or other reasons. 

Due diligence

All investment decisions are based on commercial, financial, legal, and ESG due diligence, as well as estimated return and key risk components. During the due diligence process, all potential portfolio companies are asked to complete a detailed ESG questionnaire to give insights into the materiality of ESG risks. Potential portfolio companies are also asked to complete a separate self-assessment ESG scorecard. The scorecard is used in deciding whether there is enough alignment for the company to join the portfolio. An internal assessment is also filled in by the investment lead. The investment lead will thereafter review the scorecard six months after the investment and then annually.

Engagement policies

Following an investment decision, the Funds will actively engage with portfolio companies to agree on impact KPIs (one or more) to be reported quarterly. Further, the Funds may engage with the portfolio companies through board engagement, participation in shareholder meetings and other dialogue. The Funds generally require the portfolio companies to take active ownership of their ESG.

Attainment of the sustainable investment objective

No reference benchmark has been designated to attain the sustainable investment objective.

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No sustainable investment objective

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

Environmental characteristics of the financial product

The Funds promote environmental characteristics that are the direct or indirect reduction, reversal, or preparation for the effects of climate change, or enablement for others to do so. The aim is to invest in companies with a positive climate impact that is closely tied to the economic success of the company that fit into any of the aforementioned 3 categories, further described below.

1. Reduce: These companies are creating new business models that reduce emissions and technologies that do better with fewer materials, waste, animal products, or energy. For example, green transport, energy efficiency software, and transitioning the food system to a more sustainable future.

2. Reverse: These are technologies and approaches that remove greenhouse gases from the atmosphere and reverse our warming trajectory. Examples include nature-based solutions like seaweed and reforestation and novel industrial technologies that will transform CO2 into materials we already use. 

3. Prepare: Because of the damage that has already been done to our planet, the world is set to face enormous challenges. The reality is that we all need to prepare for a new future with technologies that will help us deal with mass climate migration and natural weather disasters, as well as ensure food and water security. Examples include climate risk data and forest fire prevention.

Investment strategy

The Funds’ promote the chosen environmental characteristics by having a strategy to invest in companies with a positive climate impact that directly or indirectly reduce, reverse, or prepare for the effects of climate change, or enable others to do so. The investment strategy used to attain the environmental characteristics include: 

1. The Funds exclude certain industries and business operations deemed as undesirable, such as  tobacco production, casinos and gambling.  

2. Each company is individually assessed and receives an individual score based on their perceived potential climate impact (both positive and negative). The scores are considered when making the final investment decision by the investment committee.

3. The Funds employ an extensive ESG due diligence process before a company is asked to join the portfolio. Investee companies are asked to complete self-assessment ESG scorecards which are used to assess their value alignment before joining the portfolio, in addition to an ESG due diligence questionnaire. 

4. At investment, six months after the first investment, and thereafter annually, the Funds complete internal ESG scorecards for each portfolio company. The scorecards are used to measure the attainment of the portfolio companies’ ESG objectives. 

5. During the ownership phase, each portfolio company reports individually tailored climate KPIs (one or more) relevant for the company’s business activity and standardized social KPIs. All are collected quarterly.

Good governance of the investee companies is first assessed during the due diligence process. Thereafter, it is monitored through traditional governance structures such as board and/or shareholder meetings, as well as more informal update meetings with the portfolio companies. Certain aspects of good governance practices (such as management team diversity) are reported to the Funds quarterly. Further, the Funds request additional ESG data to be reported on an annual basis (when deemed needed). 

Proportion of investments

The Funds will allocate its capital in companies that promote environmental characteristics in accordance with the binding elements of the investment strategy. The Funds do not commit to make any sustainable investments.

The Funds may use derivative instruments and other hedging techniques to protect against adverse movements in currency and/or interest rates. In that case, those derivatives will not promote environmental characteristics; however, the investments kept for liquidity arrangements and hedging techniques (e.g., cash, cash equivalents and derivatives) are not expected to cause any significant harm.

The Funds do not commit to any minimum level of alignment with the EU Taxonomy. Since the Funds will invest in start-up and pre-seed companies (including companies that are not EU Taxonomy eligible), it will not, beforehand, be possible to assess what share, if any, of the investment that will be aligned with the EU Taxonomy. The minimum extent of Taxonomy alignment is thus 0%.

The minimum share of investments in transitional and enabling activities is 0%. However, transitional and enabling technologies are within the investment scope of the Funds. The Funds may therefore make investments in such technologies.

Monitoring of environmental characteristics

All portfolio companies are required to set up at least one quantitative climate KPIs that directly relates to the core business of the company. These are reported to the Funds and to the Funds’ investors on a quarterly basis. Six months after the initial investment, and annually thereafter, ESG scorecards are completed for all companies in the portfolio. The ESG scorecards are used to keep track of the initial understanding of the portfolio’s alignment with the relevant Fund’s values and its development as the portfolio matures. The reporting of climate KPIs and the scorecards are used as control mechanisms to help identify areas where the portfolio might need help.

Methodologies

Each potential portfolio company is assessed for its climate impact potential before receiving an investment from any of the Funds. This assessment is completed internally by the relevant Fund. A climate thesis is developed for each initial investment in a company which is mapped to the Funds’ impact categories as defined below. The Funds assess which category/ies the investee company fits into before making an investment:

1. Reduce: These companies are creating new business models that reduce emissions and technologies that do better with fewer materials, waste, animal products, or energy. For example, green transport, energy efficiency software, and transitioning the food system to a more sustainable future.

2. Reverse: These are technologies and approaches that remove greenhouse gases from the atmosphere and reverse our warming trajectory. Examples include nature-based solutions like seaweed and reforestation and novel industrial technologies that will transform CO2 into materials we already use. 

3. Prepare: Because of the damage that has already been done to our planet, the world is set to face enormous challenges. The reality is that we all need to prepare for a new future with technologies that will help us deal with mass climate migration and natural weather disasters, as well as ensure food and water security. Examples include climate risk data and forest fire prevention.

Data sources and processing

The data sources used to promote the environmental characteristics of this product are:

1. Pitch decks and interviews with portfolio companies, 

2. Databases and articles used during the Funds’ research phase into the potential climate impact of each investment,

3. Due diligence questionnaires including: ESG assessment scorecards, legal and ESG questionnaires, 

4. Financial and impact KPIs reported by portfolio each quarter. 

The main source of data is information provided by the companies assessed for investment. During the due diligence phase, the Funds access to the data is limited to what the portfolio company reports. Certain measures are taken to ensure data quality including (but not limited to):

• ensuring validity by the use of well-designed data collection surveys that are tested and validated,

• ensuring reliability by using standardized data collection instruments and by following data collection procedures consistently,

• enhancing the readability of questionnaires including the definition of technical terms,

• ensuring that questionnaires are completed, or the interviews are given by qualified respondents of the investee company; and including the option to provide documentary evidence to support responses where appropriate,

• ensuring that data security measures are in place to protect against unauthorized access, tampering, or loss of data. This can include using secure data storage and backup systems, and restricting access to sensitive data.

The data is processed by the Funds investment team and other members of the team supporting the investment decision and portfolio management. In certain cases, the Funds may ask external parties/consultants for additional review of the data. 

If needed, the data may be supplemented by estimates based on plausible fact-based assumptions. The need for estimates highly depends on the quality and availability of data provided by the individual portfolio company. Therefore, the proportion of estimated data cannot be provided in advance. Nonetheless, the aim is to reduce the use of estimates to a minimum. 

Limitations to methodologies and data

Limitations to methodologies and data sources are expected to mainly be due to a lack of precise data from companies/incomplete data. Incomplete data refers to missing data, which can occur due to non-response, incomplete surveys or questionnaires, unavailability of data, or other reasons. This can limit the validity of the data. The Funds do not expect such limitations to greatly impact the promotion of environmental characteristics as the investment strategy is largely based on the intended business model of the company rather than the availability of data sources. Further, the Funds will actively work with an investee company before any investment to gather sufficient responses and data, as well as enhance data quality if deemed lacking.  Post-investment, the Funds will continuously work with investee companies to enhance and improve data sources when deemed necessary and will seek to implement appropriate monitoring systems.

Due diligence

All investment decisions are based on commercial, financial, legal, and ESG due diligence, as well as estimated return and key risk components. During the due diligence process, all potential portfolio companies are asked to complete an ESG questionnaire to give insights into the materiality of ESG risks. Potential portfolio companies are also asked to complete a separate ESG scorecard. The scorecard is used in deciding whether there is enough alignment for the company to join the portfolio. The scorecard includes a self-assessment part that is sent to the company as part of the due diligence pack as well as an internal assessment that is filled in by the investment lead prior to the investment committee’s decision. The investment lead will review the scorecard six months after the investment and then annually.

Engagement policies

Following an investment decision, the Funds will actively engage with portfolio companies to agree on impact KPIs to be reported quarterly. Further, the Funds may engage with the portfolio companies through board engagement, other dialogue and participation in shareholder meetings. The Funds may occasionally engage in the processes and policy creations, but it is generally required of the portfolio companies to take active ownership of their ESG and corporate responsibility matters and to implement them in a way that best serves the value-creation of the company. 

Attainment of the sustainable investment objective

No reference benchmark has been designated to promote the environmental characteristics.

Updated: Q4 2025, following the Funds’ reclassification from article 9 to article 8 financial products.