ESG

TEIDE Debt Fund SCSp SICAV-RAIF (the “Fund”) is a financial product that promotes environmental and social characteristics in accordance with Article 8 of Regulation (EU) 2019/2088 (the “SFDR”).

The Fund is an infrastructure high-yield credit fund that invests primarily in high-quality junior loans in respect of assets, projects and companies with infrastructure characteristics. The Fund promotes, among others, environmental and social characteristics with a view to contributing to, for example, climate change mitigation and the energy transition, sustainable use of resources and environmental protection, access to essential services, and improvement in the ESG performance of its Investments over time.

As a binding element of its strategy, the Fund will allocate at least 51% of its Commitments to Investments aligned with the environmental and/or social characteristics promoted by the Fund and meeting at least one of the criteria described in the “Investment strategy” section. These criteria are assessed at the time of investment and monitored thereafter, subject to information availability. All potential Investments are subject to exclusion screening, ESG assessment and due diligence, a good governance assessment, review by an ESG Committee and post-investment monitoring, in accordance with the Fund’s ESG Policy.

The attainment of the promoted characteristics is measured using indicators selected according to the nature of each Investment and the availability of information. The Fund does not currently consider principal adverse impacts of investment decisions on sustainability factors within the meaning of Article 7 SFDR due to limitations in the availability, consistency and reliability of data across the target investment universe.

This financial product promotes environmental and social characteristics in accordance with Article 8 SFDR but does not have sustainable investment as its objective and does not commit to making a minimum proportion of sustainable investments.

The Fund promotes a combination of environmental and/or social characteristics through its investment strategy. These characteristics may include:

• Climate-related characteristics, including financing renewable energy generation, energy-efficient infrastructure, low-carbon transport and energy transition projects, with a view to contributing to climate change mitigation and reducing greenhouse gas emissions over time.
• Characteristics relating to sustainable use of resources, including support for Investments that improve resource efficiency and reduce environmental.
• Characteristics relating to social development and access to essential services, through Investments supporting, among others, healthcare infrastructure, social or affordable housing, student accommodation, education, digital connectivity or other essential infrastructure.
• Improvement in ESG performance metrics over time at the level of the underlying Investments, through sustainability-linked financing structures or contractual commitments associated with environmental or social key performance indicators.

In addition, respect for human rights is an integral part of the Portfolio Manager’s values and a minimum standard of conduct for carrying out its activities in a legitimate manner.

In this regard, the Portfolio Manager’s conduct is based, among others, on the principles arising from the OECD Guidelines for Multinational Enterprises and the ten principles of the United Nations Global Compact. This commitment is reflected both in Banco Santander Group’s corporate policies and in the Portfolio Manager’s own policies and forms part of the Portfolio Manager’s sustainability risk integration process.

The Fund will follow a high-yield infrastructure credit strategy, seeking to build a diversified portfolio of debt and debt-related Investments, primarily junior debt instruments, in respect of assets, projects and companies with infrastructure characteristics. The Fund intends to invest in sub-investment grade credit rated BB to B internally.

Investments may primarily include loans, notes and unlisted bonds in sectors such as energy and utilities, including certain conventional and renewable energy infrastructure, transportation, digital infrastructure, social infrastructure and other relevant sectors. Sustainability considerations are integrated throughout the process, including initial screening, due diligence, investment decision-making, structuring and monitoring.

Exclusion criteria
The exclusion criteria set out in the Fund’s ESG Policy and in SAI’s SRI policy, as applicable from time to time, will apply, including exclusions relating to prohibited weapons and other restricted sectors, and in accordance with the exclusion criteria contained in Banco Santander Group’s Defence Sector Policy and Environmental and Social Risk Management Policy. The Fund will not invest in activities prohibited under the applicable exclusion criteria.

Assessment criteria (binding elements)
The Fund promotes environmental and/or social (E/S) characteristics within the meaning of Article 8 SFDR. In order to attain those characteristics, the Fund commits to investing a minimum of 51% of its Commitments in Investments that promote those environmental and/or social characteristics and meet at least one of the following criteria:

• Sustainability-linked loans aligned with the Sustainability-Linked Loan Principles, where pricing or other financial characteristics are linked to the achievement of predefined E/S KPIs, such as emissions reduction, energy efficiency, diversity or health and safety performance.
• Financings whose use of proceeds is aligned with recognised market standards, including the ICMA Green Bond Principles, LMA Green Loan Principles and/or LMA Social Loan Principles.
• Investments where the borrower’s operations, assets or projects are primarily focused on activities associated with the environmental and/or social characteristics promoted by the Fund. A borrower, asset or project will be considered primarily focused on such activities where more than 50% of its revenues and/or capital expenditure are attributable to those activities at the time of investment and where, based on the Portfolio Manager’s due diligence and assessment, such activities are expected to remain the borrower’s primary focus throughout the anticipated life of the Investment.
• Investments including binding contractual commitments to improve one or more ESG indicators over a defined period, with measurable targets and appropriate contractual mechanisms where such targets are not achieved.

An Investment will not be considered aligned solely because it falls within the infrastructure sector, because the borrower has general ESG policies or because it has a low ESG risk profile. It must be capable of being linked to one or more of the promoted characteristics, meet at least one of the above criteria and have sufficient evidence and information available for monitoring purposes.

All Investments are subject to a good governance assessment covering, among other matters, sound management structures, risk management and business conduct. Material risks or deficiencies may result in the Investment being rejected or made subject to conditions precedent, contractual undertakings or action and monitoring plans.

The Fund may allocate up to 49% of its commitments in other assets that do not promote environmental and/or social characteristics, including cash, liquidity management instruments, hedging assets, etc.

In this regard, the procedures described above for the promotion of environmental and/or social characteristics do not apply to Investments in these instruments.

Nevertheless, these Investments will remain subject to the Funds’ investment policy, ESG Policy, including its ESG due diligenceprocedures and the exclusion criteria.

Sustainability indicators are used by the Fund to monitor the attainment of the environmental or social characteristics it promotes. For each Investment, the Portfolio Manager selects the most relevant indicators according to its nature, sector and the availability of information and periodically monitors their development. These may include:

• Climate-related indicators, such as greenhouse gas emissions (Scopes 1 and 2 and, where available, Scope 3), carbon footprint, carbon intensity, exposure to fossil fuel-related activities, renewable versus non-renewable energy consumption and production, and energy intensity.
• Indicators related to the sustainable use of resources and environmental protection, such as water consumption, waste management practices and exposure to activities negatively affecting biodiversity-sensitive areas.
• Indicators related to social characteristics, such as through monitoring of compliance with the United Nations Global Compact principles and the OECD Guidelines, exposure to prohibited weapons, gender diversity at board and senior management level, gender pay gap, employee health and safety, and workforce-related controversies.
• Strategy-specific indicators, including: (i) the proportion of Investments aligned with recognised environmental or social financing frameworks, including the ICMA Green Bond Principles, LMA Green Loan Principles and LMA Social Loan Principles; (ii) the percentage of Investments structured as sustainability-linked loans in accordance with the Sustainability-Linked Loan Principles; (iii) the proportion of Investments where the borrower’s operations are primarily focused on activities associated with the environmental and/or social characteristics promoted by the Fund; and (iv) Investments requiring measurable improvements over time in selected ESG KPIs at the level of the underlying Investments.

ESG monitoring is incorporated into the Fund’s periodic reporting and each Investment is subject to a review at least annually, in accordance with the Fund’s ESG Policy and subject to the availability of information.

The principal sources of information will be borrowers, issuers, sponsors, operators and other counterparties; transaction and financing documentation; technical, legal, financial and ESG due diligence; public and regulatory information; and, where appropriate, data providers, verifiers and external advisers. Specific examples of data sources may include borrower reports, certificates and external verification, sustainability and impact reports, public information, ESG questionnaires or specialist data providers.

Where data are not available due to the nature of the companies in which the Fund invests or the type of transaction, a more qualitative assessment of the relevant information may be performed.

Private investments and, in particular, debt investments may be subject to limited data availability, especially in relation to unlisted borrowers or assets in the development phase. Data may not be standardized, audited or available with the same frequency and scope for all Investments. There may also be methodological differences between sources, reporting delays, reliance on estimates or limitations affecting certain data.

These limitations may reduce the precision, granularity and comparability of the assessment. Such limitations and relevant assumptions are documented and taken into account in the investment decision and ongoing monitoring.

ESG due diligence is mandatory for all potential Investments and begins during the preliminary screening phase. Its scope is adapted to the nature of each transaction and combines verification of the exclusion criteria, sustainability risks and a general assessment of environmental, social and governance matters with a sector-specific analysis, among other aspects. This specific analysis is supported by questionnaires, internal assessment tools and external due diligence materials, when relevant.

The results are documented into the investment analysis and considered by the relevant decision-making and oversight bodies, including review by the ESG Committee and consideration by the Investment Committee. Material risk, gaps or findings must be supported by documented mitigation measures before approval or by appropriate conditions and action plans. Where relevant, the conclusions of the due diligence are reflected in the transaction structure through conditions precedent, representations, undertakings, information covenants, sustainability-linked indicators or other contractual mechanisms. Following investment, sustainability performance, compliance with contractual commitments and the development of identified risks are monitored periodically.

Given the nature of the strategy, engagement is undertaken primarily through dialogue with borrowers, sponsors, operators and other counterparties, as well as through information rights and mechanisms included in the financing documentation.

Where appropriate, the Fund may promote improvements through contractual commitments, action plans, indicators and ESG targets.

No specific reference benchmark has been designated for the purpose of determining whether the Fund is aligned with the environmental or social characteristics it promotes.