Castik Capital Overcomes SFDR Complexity 

Castik Capital, a European private equity firm headquartered in Luxembourg, is proud of its strong environmental, social and governance (ESG) roots. The firm signed the United Nations Principles for Responsible Investment (PRI) pledge mere months after its founding in 2014.

Shortly after, Castik Capital launched its data collection and reporting program when it relied on UL 360 Sustainability software to onboard its first portfolio asset, Waterlogic. Within a few years, Castik Capital was collecting quarterly data from its entire portfolio of assets, sharing this information with fund investors and using it to meet annual PRI reporting obligations.

SFDR introduced in the European Union

When the European Union announced the SFDR in 2019, Castik Capital was confident in the strength of its data collection and reporting process. The firm had already established a repeatable collection process and a baseline for comparing year-over-year performance. However, the SFDR is prescriptive, and Castik Capital wanted to ensure its current processes would fully address SFDR requirements.

The challenge would be applying the firm’s KPIs to the Principal Adverse Impact (PAI) indicators contained in the SFDR.

“We had already established a solid base and developed excellent internal processes, so the only thing that we had to do to be compliant with SFDR was to complete a gap analysis and introduce the KPIs which we didn't have before,” said Csilla Csipkes, ESG manager, Castik Capital.

Castik Capital would have to review each existing KPI against the detailed SFDR requirements in preparation for the 2023 reporting deadline, and the firm was eager to begin the process.

Establishing a uniform set of metrics

As the firm’s portfolio included companies from a wide range of industrial specialties along with varying levels of ESG maturity, Castik Capital had to overcome two compliance hurdles.

First, the firm needed to design its PAI reporting methodology with the right balance between harmonization and flexibility. To be successful, Castik Capital would need to integrate each company’s specific ways of working into its entity-level reporting. Not doing so could be detrimental to the completeness of data and KPI relevance.

For example, capturing energy use in a third-party managed data center is a unique process applicable only to IT companies. Reporting on an IT company’s value chain emissions carries an additional set of energy KPIs.

The second hurdle involved the aggregation of Castik Capital’s investee data. SFDR carbon footprint calculations, or greenhouse gas (GHG) intensity, call for combining traditional sustainability data with financial enterprise value metrics. To prepare for any future SFDR Level 2 adjustments, Castik Capital wanted to create a centralized data collection, storage and reporting process that controlled user-access permissions and distributed responsibilities for data submission and review.

To overcome these challenges, Castik Capital turned to the UL Solutions advisory team in 2021.

A robust, repeatable process developed

As part of the discovery phase, the team conducted a comprehensive gap analysis of the firm’s current KPIs. While Castik Capital’s ESG efforts were already advanced, the UL Solutions gap analysis led to additional data collection and reporting by aligning each investee company’s KPIs with high-quality standards such as GRI and GHG Protocol.

Additionally, the UL Solutions team hosted interactive workshops to discuss the new SFDR reporting requirements with Castik Capital and its portfolio companies. Active participation by the investee companies allowed Castik Capital to gather feedback and gain information about the unique environmental data management processes faced by each company, the challenges they expected from the PAI indicators and how the indicators applied to each company’s overall operations.

Finally, the collaborative nature of the workshops helped Castik Capital identify what support measures each company needed to ease the data collection and management process.

It was through these conversations that UL Solutions and Castik Capital prepared a final set of aligned KPIs and SFDR PAIs. By working across their entire portfolio of companies, Castik Capital created a robust and repeatable process for complying with the SFDR. Today, the firm’s PAI indicators are aligned with ESG-reporting best practices, and data collection and reporting are harmonized for optimized quality, relevance and consistency.

"We rely a lot on our reporting — all analysis and future target setting will be based on the data-collection program that was set up," Csipkes said. "UL Solutions' 360 advisory team really helped us establish solid reporting procedures."

UL 360 Sustainability software, which helped systemize SFDR data collection, analysis and reporting, and enhanced the firm’s existing reporting efforts, was foundational to Castik Capital’s data management procedures. Whether the data is aggregated to the company, investment fund or entity level, Castik Capital can now report on numerous environmental and social metrics.  

“It's going to be a very multilevel, very fine-tuned report,” said Anastasia Didion, investor relations manager, Castik Capital. “That's the beauty of what we built together; we literally can have a report at whatever level we wish.”

Most important, UL 360 Sustainability reporting software is flexible enough to accommodate future reporting needs and portfolio growth, giving Castik Capital the freedom to grow and evolve without worrying about compliance.

About Castik Capital

Founded in 2014, Castik Capital focuses on identifying and developing investment opportunities across Europe. The firm has three funds — Epic I, Epic IB and Epic II — with a total volume of more than €2 billion. Assets include a mix of manufacturing, healthcare and software companies.

Castik Capital practices active stewardship, with ESG roundtables meeting regularly to collaborate on and optimize their sustainability efforts through industry benchmarks. Castik Capital is a signatory of the United Nations Principles for Responsible Investment and reports annually on its responsible investment activities.