Harvestate AM's ESG policy

1. Regulatory framework reminder
2. Harvestate AM’s overall ESG approach
3. Definition of an ESG evaluation grid for due diligences
4. Approach to taking ESG criteria into account at Governance level
5. ESG Policy and Remuneration Policy (Article 5 of SFDR Regulation)
6. Professional bodies and references to international standards
7. Exclusion of Investments with long-term exposure to fossil fuels
8. Information on sustainability risk policies (Article 3 of the SFDR Regulation)
9. Adverse impact of investment decisions on sustainability factors are not systematically taken into account (Article 4 of SFDR Regulation)
10. Classification of the AIFs managed by Harvestate AM in accordance with the SFDR Regulation
11. Annual report issued in accordance with Article L. 533-22-1 of the French Monetary and Financial Code (Code monétaire et financier)

1. Regulatory framework reminder

As a regulated fund manager and financial markets participant, Harvestate AM is, amongst other regulations, subject to the disclosure requirements relating to environmental, social and governance (ESG») or sustainability criteria set out in the following regulations:

• The Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 Novembre 2019 on sustainability-related disclosures in the financial services sector (the SFDR Regulation») and its subsequent regulations including the Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing the SFDR Regulation with regard to regulatory technical standards,
• The French Order n°2021-663 of 27 May 2021, known as «Décret 29 LEC», pursuant to Article L. 533-22-1 of the French Monetary and Financial Code (code monétaire et financier) in accordance with Article 29 of the French «Energie Climat» Law (n° 2019-1147) of 8 November 2019 («LEC»), and
• 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 Taxonomy Regulation») and its subsequent Commission Delegated Regulation establishing technical screening criteria for climate change mitigation or adaptation (Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021).

2. Harvestate AM’s overall ESG approach

Harvestate AM is aware of the fundamental challenges posed by the fight against global warming and the need to act in a way that is both environmentally and socially sustainable. Harvestate AM intends to contribute to these objectives, to the best of its ability, in accordance with the principles of good governance and rigorous business ethics, through the new investments it makes as part of its regulated activity as manager of Alternative Investment Funds (“AIFs“) directly or indirectly involving property assets (hereinafter the “Investments“), within the limits of and in compliance with the investment strategies and policies defined for each of the AIFs it manages.

Generally speaking, and subject to changes in Harvestate AM’s methods of intervention, the Investments made by Harvestate AM are mainly part of a strategy of transformation/redevelopment of the property asset following its acquisition, where applicable after a period of temporary holding and/or operation, in order to obtain the administrative authorisations required to complete the project and/or the level of vacancy required to implement the said strategy.

In particular, this strategy may cover major asset restructuring or renovation (requiring significant works and/or planning permission), with or without a change of use, or even the redevelopment of new asset(s) after partial or total demolition of the asset(s) built on the site of the initial property (hereafter the generic “Conversion” strategy). Transactions carried out as part of this Conversion strategy generally correspond to value-add or opportunistic risk profiles.

In accordance with the investment strategies and policies specific to each AIF it manages, and in particular in the case of property assets acquired as part of a Conversion strategy, Harvestate AM intends to favour Investments that enable the development, as part of the planned Conversion operation, of environmentally efficient property assets (the assets that are to undergo such a Conversion are most often not very efficient in the state in which they are at the time of their acquisition).

As part of its Conversion strategies, Harvestate AM also intends to give priority to the recycling of existing urban assets, in order to combat the artificialisation of land and as part of a circular economy, seeking, as far as possible and in accordance with the general strategy of the AIF concerned and the valuation strategy specific to each asset, to minimise new demolition/reconstruction operations in order to reduce the carbon footprint of these operations.

Harvestate AM will detail the ESG investment criteria and/or the ESG commitments that it will follow in future AIFs that it intends to launch and that would fall under “Article 8” or “Article 9” of the SFDR Regulation, will then measure them regularly and will ensure clear and transparent communication to its investors.

As mentioned below, as at 31 December 2022, Harvestate AM did not manage any funds (i) promoting, among other characteristics, environmental or social characteristics, or a combination of these characteristics (so-called “Article 8” funds of the SFDR Regulation) or (ii) whose objective is sustainable investment (so-called “Article 9” funds of the SFDR Regulation).

3. Definition of an ESG evaluation grid for due diligences

Since 2022, Harvestate AM has defined a new ESG analysis grid (“the ESG Grid“) applied to any real estate asset whose acquisition is being considered and which may constitute an Investment.

This ESG evaluation grid is finalised at the end of the due diligence phase prior to the implementation of any new Investment by an FIA managed by Harvestate AM. It forms an integral part of the investment memorandum submitted to Harvestate AM’s Investment Committee, which decides on the actual implementation of the planned Investment.

In particular, this grid makes it possible to highlight the sustainability risks to which the proposed Investment may be exposed, in the context of the investment strategy envisaged for the property asset in question.

On an experimental basis, in order to familiarise the team with the concepts, the ESG Grid also aims at identifying the possible principal adverse impacts on sustainability factors as well as  possible principal positive impacts on sustainability factors of the proposed Investment, insofar as these can be assessed, without any thresholds for the possible invalidation of potential Investments with regard to the said impacts having been determined (see below: at this stage, Harvestate AM does not systematically take into account the negative impacts on the sustainability factors of its Investments).

This analysis is carried out on the basis of known and/or reasonably available information and data, or, failing that, estimates, both qualitative and quantitative, and on the anticipated characteristics, where known and/or determined at the date of the Investment Committee meeting, of the future target property asset(s) resulting from the planned Conversion strategy.

In the case of a generic strategy of Conversion or restructuring/renovation of the property under consideration involving the carrying out of significant works, the analysis is carried out dynamically, taking into account not only the specific characteristics of the property at the planned investment date but also the specific characteristics of the property at the end of the proposed Conversion or restructuring/renovation operation.

In the event that sustainability risks are identified (and where applicable, within the limits mentioned above, the main adverse impacts on sustainability factors) to which the Investment concerned may be exposed, the ESG Grid shall mention any adaptation and/or mitigation and/or remediation measures considered.

As far as possible, the ESG Grid specifies, where such risks (and where applicable, within the limits mentioned above, such adverse impacts) are applicable to the proposed Investment, the quantitative or qualitative estimate (nil/low/medium/high) of the magnitude of the risks and/or adverse impacts concerned, in consideration of the estimated likelihood of occurrence of the said risks and/or adverse impacts and the remedial actions planned.

4. Approach to taking ESG criteria into account at Governance level

Harvestate AM’s Investment Committee comprises the members of its Management Committee. As part of the investment procedure, all of Harvestate AM’s operational and functional directors are required, by means of the investment memorandum presented to the Investment Committee (which includes a summary of the ESG Grid), to take cognisance of, assess and give their opinion on the sustainability risks and, where applicable, on the adverse impact of investment decisions on sustainability factors.

In addition, the Chairman is directly and personally involved in driving forward, defining, implementing and monitoring the company’s ESG strategy, in his capacity as Responsible Executive, Head of Fund Management and Compliance and Internal audit officer.

5. ESG Policy and Remuneration Policy (Article 5 of SFDR Regulation)

Generally speaking, the remuneration policy for Harvestate AM’s risk-takers does not, as at the date hereof, include any direct interest in the financial performance of the funds managed by the company, so as not to encourage excessive risk-taking. For this reason, the remuneration policy is not likely to encourage, directly or indirectly, the taking of significant sustainability risks.

The remuneration of the management company’s staff does not yet include specific formalised criteria relating to the consideration of sustainability risks. Harvestate AM nevertheless plans, at the end of the training process undertaken and in the context of the launch of new funds promoting ESG criteria, to integrate such criteria into the determination of the remuneration of the relevant members of the Identified Population (as this term is defined in the Management Company’s Remuneration Policy).

6. Professional bodies and references to international standards

Harvestate AM is a member of the OID (Oeuvrer pour l’Immobilier Durable – Encourage Sustainable Property), an independent association made up of private and public commercial real estate professionals, whose aim is to promote sustainable development in the property sector. As a member, the company takes part in various meetings organised by the OID on ESG issues.

Harvestate AM also follows the work of the SRI Commission of ASPIM (Association Française des Sociétés de Placement Immobilier), the trade association for managers of unlisted property funds, and participates in various working groups organised within this framework.

Harvestate AM shares the United Nations’ 17 Sustainable Development Goals (SDGs) for 2030 and plans to become a signatory of the United Nations Principles for Responsible Investment (UN PRI) in the near future.

7. Exclusion of Investments with long-term exposure to fossil fuels

Harvestate AM undertakes not to make Investments corresponding to property assets exposed to fossil fuels (i.e. linked to the extraction, storage, transport or manufacture of fossil fuels), unless the strategy for increasing the value of the Investment concerned, as part of a generic Conversion strategy, involves the permanent cessation of the activity, the decontamination of the site and the asset and the development of another use (e.g. recycling a gas station whose operation has been discontinued in order to develop a new housing development)

8. Information on sustainability risk policies (Article 3 of the SFDR Regulation)

In accordance with the provisions of Article 3 of the SFDR Regulation, financial market participants must provide information on their policies for integrating sustainability risks into their investment decision-making process.

“Sustainability risk” means as an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.

On the basis of its past experience, sector and regulatory monitoring, and in consideration of the nature of the investment strategies it is implementing or plans to implement in the short term, Harvestate AM has defined and prioritised the main sustainability risks according to (i) their probability of occurrence, (ii) the potential magnitude of their impact in terms of the value of the Investment, occupant satisfaction and reputation, and (iii) the capacity, in a generic manner, to be able to remedy them effectively.

However, for Harvestate AM, this risk ranking is only a general guide. In practice, this hierarchy must be constantly compared to the specific characteristics of each Investment, which may lead to a different hierarchy depending on the nature of the specific risks to which the asset is exposed and the relevance of the risk and/or the effective capacity to implement corrective or mitigating measures in consideration of the investment strategy of the AIF on whose behalf the Investment is being considered..

The table below shows the hierarchy of the main sustainability risks to which the Management Company’s Investments are exposed and their category according to the Task force on Climate-related Financial Disclosures (TCFD).

By way of illustration of the resources deployed to measure these main risks, we can cite the following in particular:

• To analyse exposure to the risks associated with climate change: use of specialised tools such as OID’s Bat-ADAPT tool, analysis of the Risk and Pollution Statement drawn up for the site where the asset concerned is located (and in particular the existence of natural risk or flood prevention plans), geotechnical studies to assess the risk of clay shrinkage and swelling,
• To analyse exposure to other physical and geotechnical risks: carrying out specific geotechnical studies, analysis of the Risk and Pollution Statement drawn up for the site where the asset concerned is located (and in particular the existence of mine risk prevention plans or the existence of a seismic or radon zone), analysing the history of the asset and in particular any problems that may have arisen during its past operation, analysing the history of claims under ten-year insurance policies or claims for “natural disasters” or “technological disasters”,
• For analysis of exposure to pollution (soil and construction): analysis of the history of the site and the BASOL-BASIAS databases, analysis of the Risk and Pollution Statement drawn up for the site where the asset concerned is located, the presence of the asset in a Soil Information Sector (SIS), specific soil pollution studies carried out by specialist companies, analysis of the various technical diagnostics and in particular asbestos and lead detection reports, asbestos diagnostics prior to destruction, analysis of declarations from Classified Facilities for the Environment (Installations Classées Pour l’Environnement) etc.

9. Adverse impact of investment decisions on sustainability factors are not systematically taken into account (Article 4 of SFDR Regulation)

Financial market participants shall publish and maintain on their websites (i) where they consider principal adverse impacts of investment decisions on sustainability factors, a statement on due diligence policies with respect to those impacts, taking due account of their size, the nature and scale of their activities and the types of financial products they make available; or (ii) where they do not consider adverse impacts of investment decisions on sustainability factors, clear reasons for why they do not do so, including, where relevant, information as to whether and when they intend to consider such adverse impacts.

“Sustainability factors” mean environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

At this stage in the development of its ESG policy, the Management Company endeavours to identify the principal adverse impacts on sustainability factors of the new investments it makes, according to several themes, as well as, in the context of an investment strategy falling within a generic Conversion strategy, the possible positive impacts of said investments on sustainability factors induced by the completion of the Conversion operation.

However, Harvestate AM which to date only manages AIFs covered by Article 6 of the SFDR Regulation (please see Section 10 below), does not yet systematically carry out this analysis and has not yet defined thresholds for the possible invalidation of potential Investments with regard to the adverse impacts that would apply to all its Investments, regardless of the strategy pursued by the FIAs it manages.

In this respect, and given the current state of deployment of its ESG strategy, Harvestate AM does not systematically take into consideration the adverse impacts of its investment decisions in terms of sustainability.

Moreover, the investment strategies deployed by Harvestate AM, and in particular the generic Conversion strategy, concern assets for which the collection of operating information or information relating to certain characteristics may, before the start of the asset conversion phase be tricky or misleading (for example, the fact that an asset is not being used may be reflected in low energy consumption, which could be misinterpreted as a sign of good energy efficiency even though the asset is not energy efficient) and therefore requires consideration to be given to the right communication of the data collected (where this can be done).

Nevertheless, Harvestate AM is pursuing the objective, in connection with the forthcoming launch of Article 8 AIFs of taking into account the adverse (and, where appropriate, positive) impacts of the Investments to be made for the said funds.

10. Classification of the AIFs managed by Harvestate AM in accordance with the SFDR Regulation

Harvestate AM manages two FIAs:

(i) “Harvestate Office Conversion Fund I”, a fund dedicated to the conversion of commercial assets into residential units, and

(ii) “Terrae Optimae 1”, a fund dedicated to the acquisition and development of land with rapid growth potential, with the aim of developing new, predominantly residential development projects.

Subscriptions to these two closed funds were definitively closed before the publication of the SFDR Regulation. Neither of these funds (i) promotes, among other characteristics, environmental or social characteristics, or a combination of these characteristics (funds referred to as “Article 8” of the SFDR Regulation) or (ii) has sustainable investment as its objective (funds referred to as “Article 9” of the SFDR Regulation).

These funds are therefore subject to the regulations set out in Article 6 of the SFDR Regulation. These funds are closed-ended funds (with no exits or new subscriptions prior to liquidation) whose subscriptions were definitively closed before 10 March 2021.

List of financial products managed by Harvestate AM at 31 December 2023

Percentage of total assets under management that take into account environmental, social and governance criteria.

11. Annual report issued in accordance with Article L. 533-22-1 of the French Monetary and Financial Code (Code monétaire et financier)

The annual report drawn up for the 2023 financial year in accordance with the provisions of:

• The French Order n°2021-663 of 27 May 2021, known as « Décret 29 LEC», pursuant to Article L. 533-22-1 of the French Monetary and Financial Code (code monétaire et financier) in accordance with Article 29 of the French « Energie Climat» Law (n° 2019-1147) of 8 November 2019 (« LEC »), and
• Article D. 533-16-1 of the French Monetary and Financial Code (Code monétaire et financier),
• The AMF (Autorité des Marchés Financiers) Directive DOC-2008-03 updated in May 2023,
• Article L. 533-22-4 of the French Monetary and Financial Code (Code monétaire et financier), pursuant to Article 17 of the French Law n° 2021-1774 of 24 December 2021 aimed at accelerating economic and professional equality (known as the “Rixain” law).

is available via the following download link (in French): Harvestate AM_rapport article L 533-22-1 CMF_Exercice 2023