Sustainability
Sustainability-Related Disclosures
Effectual Capital Fund SICAV – Global Sustainable Equities (the “Sub-Fund”)
Summary
No sustainable investment objective: The Sub-Fund promotes environmental or social characteristics but does not have as its objective sustainable investment.
Environmental or social characteristics of the financial product: The Sub-Fund promotes several environmental and/or social characteristics, including external effects of greenhouse gas emissions, various air pollutants, the use of water, water emissions, various categories of waste production, building of human capital, work environment and safety factors, and community impact.
Investment strategy: The Sub-Fund is a global, diversified equities fund with MSCI World Index (NDDUWI) as benchmark. The Sub-Fund pursues a sustainable investment strategy seeking superior Sustainable Return-to-risk, subject to (i) portfolio risk controls, such as diversification and (ii) investee companies satisfying minimum standards regarding environmental and social criteria as well as following good governance practises. Sustainable Return is a comprehensive measure, comprising financial return adjusted for the costs and benefits to the environment and society (‘ESG Externalities’).
Proportion of investments: The Sub-Fund will typically be nearly fully invested, and thus at least 80%, in investments meeting the environmental or social characteristics promoted by the Sub-Fund. The Sub- Fund will typically hold a minimum of 50% in sustainable investments. A sustainable investment, within the context of the Sub-Fund’s investment strategy and asset allocation, is defined as investing in an investee company that generates, in aggregate across all its economic activities, positive Sustainable Return, i.e. financial return adjusted for the costs and benefits to the environment and society (‘ESG Externalities’), subject to the investee company following good governance practices and not doing significant harm to environmental or social objectives.
Monitoring of environmental or social characteristics: The attainment of the environmental and social characteristics promoted by the Sub-Fund is monitored by measuring investee companies’ costs and benefits to the environment and society.
Methodologies: The key methodology used by the Sub-Fund is Effectual® Sustainable Return framework. It is based on the theory of externalities, a standard in public economics, environmental economics, and cost-benefit analysis. To implement the framework a variety of statistical methodologies are used.
Data sources and processing: Data sources are prospective investee companies’ reports and commercial databases, as well as published and unpublished scientific research reports, expert opinions and government agency publications relating to the estimates of costs and benefits to the environment and society.
Limitations to methodologies and data: While the externalities methodology is generally accepted standard in the economic sciences to comprehensively address issues of sustainability, there are challenges in implementation, including the identification of the relevant factors, data availability on the relevant factors, data quality, and parameter estimation.
Due diligence: Due diligence, including with respect to environmental and social aspects, on prospective and actual investee companies is an integral part of the Sub-Fund’s investment process since it is based on the physical data on the investee companies’ ESG Externalities.
Engagement policies: Engagement is not a binding element of the Sub-Fund’s environmental and social investment strategy. However, the Sub-Fund intends to implement an engagement policy, which is currently in draft status, in the future. Sustainability-related controversies are considered in the principal adverse impact analysis and when exercising voting rights.
Designated reference benchmark: An index has not been designated as a reference benchmark to meet the environmental or social characteristics promoted by the financial product.
Nachhaltigkeitsbezogene Offenlegung
Effectual Capital Fund SICAV – Global Sustainable Equities (der “Sub-Fund”)
Zusammenfassung
Kein nachhaltiges Investitionsziel: Mit diesem Finanzprodukt werden ökologische oder soziale Merkmale beworben, aber keine nachhaltigen Investitionen angestrebt.
Ökologische oder soziale Merkmale des Finanzproduktes: Der Sub-Fund bewirbt mehrere ökologische und sozialen Merkmale, und zwar die externen Effekte von klimaschädigenden Gasen, verschiedenen luftverschmutzenden Stoffen, Wasserverbrauch, Wasseremissionen, verschiedenen Kategorien von Müllproduktion, Aufbau von Humankapital, Arbeitsumfeld und -sicherheit, und Einfluß auf die Gesellschaft.
Anlagestrategie: Der Sub-Fund ist ein globaler, diversifizierter Aktienfonds mit dem MSCI World Index (NDDUWI) als Vergleichsindex. Der Sub-Fund verfolgt eine nachhaltige Anlagestrategie und zielt auf ein überlegenes Verhältnis von nachhaltiger Rendite zu Risiko ab, unter Nebenbedingungen zu (i) Risikokontrolle, wie beispielsweise Diversifikation, und (ii), dass die Unternehmen, in die investiert wird, zumindest ausreichenden Standards hinsichtlich ökologischer und sozieler Merkmale und hinsichlich der Verfahrensweisen einer guten Unternehmensführung genügen. Die nachhaltige Rendite ist ein umfassendes Maß, das die finanzielle Rendite um die Kosten und Nutzen für Umwelt und Gesellschaft korriegiert (‘ESG Externalititäten’).
Aufteilung der Investitionen: Der Sub-Fund ist unter normalen Umständen nahezu vollständig, und damit zumindest zu 80%, in Anlagen investiert, welche die vom Sub-Fund beworbenen ökologischen und sozialen Merkmale erfüllen. Der Sub-Fund hält üblicherweise mindestens 50% nachhaltiger Investitionen. Eine nachhaltige Investition, im Rahmen der Anlagestrategie des Sub-Funds und Aufteilung der Investitionen des Sub-Funds, ist definiert als Investition in ein Unternehmen, welches aggregiert über alle wirtschaftlichen Aktivitäten eine positive nachhaltige Rendite, d.h. die Finanzrendite adjustiert um die ökologischen und sozialen Kosten und Nutzen (‘ESG Externalitäten’), generiert, unter den weiteren Bedingungen, dass das Unternehmen, in das investiert wird, Verfahrensweisen einer guten Unternehmensführung anwendet und keines der Umweltziele oder sozialen Ziele erheblich beeinträchtigt.
Überwachung der ökologischen oder sozialen Merkmale: Die Erfüllung der ökologischen oder sozialen Merkmale, welche der Sub-Fund bewirbt, wird überwacht durch die Messung der ökologischen und sozialen Kosten und Nutzen der Unternehmen, in die der Sub-Fund investiert.
Methoden: Die Schlüsselmethode, die der Sub-Fund verwendet, ist Rahmenwerk des Effectual Sustainable Return bzw. nachhaltige Rendite. Diese basiert auf der Theorie der Externalitäten, ein Standardkonzept in der öffentlichen Volkswirtschaftslehre, der Umweltökonomie und Kosten-Nutzen-Analyse. Für die Umsetzung des Rahmenwerks werden verschiedene statistische Methoden verwendet.
Datenquellen und -verarbeitung: Die Datenquellen sind das Berichtswesen von Unternehmen, und kommerzielle Datenbanken, sowie veröffentlichte und unveröffentlichte wissenschaftliche Forschungsberichte, Expertengutachten und Veröffentlichungen von Behörden hinsichlich der Schätzung von ökologischen und sozialen Kosten und Nutzen.
Beschränkungen hinsichtlich der Methoden und Daten: Während die Methode der Externalitäten ein allgemein akzeptierter Standard in der Volkswirtschaftslehre zur umfassenden Berücksichtigung von Nachhaltigkeitsaspekten ist, gibt es Herausforderungen in der Umsetzung, wie z.B. die Identifizierung relevanter Faktoren, Datenverfügbarkeit zu den relevanten Faktoren, Datenqualität und Parameterschätzung.
Sorgfaltspflicht: Eine sorgfältige Prüfung, einschließlich ökologischer und sozialer Aspekte, von Unternehmen, in die entweder potenziell oder tatsächlich investiert wird, ist integraler Bestandteil des Anlageprozesses des Sub-Funds, da dieser auf den physischen Daten der Unternehmen hinsichtlich der Externalitäten beruht.
Mitwirkungspolitik: Die Mitwirkungspolitik ist kein bindendes Element der Anlagestrategie des Sub-Funds. Dennoch beabsichtigt der Sub-Fund eine Mitwirkungspolitik, welche sich im Entwurfsstadium befindet, in Zukunft umzusetzen. Kontroversen, welche Nachhaltigkeitsaspekte betreffen, werden in der Analyse von etwaigen erheblichen Beeinträchtigungen von Umwelt- oder Sozialzielen und bei der Ausübung von Stimmrechten berücksichtigt.
Bestimmter Referenzwert: Es wurde kein Index als Referenzwert für die mit dem Sub-Fund beworbenen ökologischen oder sozialen Merkmale bestimmt.
No sustainable investment objective
The Fund promotes environmental or social characteristics but does not have as its objective sustainable investment.
Where the Sub-Funds makes sustainable investments, principal adverse impacts of investment decisions on sustainability factors will be considered, when buying securities, money market instruments and investment units ("Principal Adverse Impact" or "PAI"). When selecting securities and money market instruments of companies and when buying investment units, PAIs can be considered by 1) the definition of exclusion criteria, 2) evaluation using various sustainability indicators in the context of integration or 3) exercising voting rights. This means that PAIs can be considered through different ESG strategies.
Indicators used to identify adverse impacts on sustainability factors from investments in companies are derived from the following categories: greenhouse gas emissions, biodiversity, water, waste as well as social issues and employee concerns. The following indicators for adverse impacts on sustainability factors are reflected in the Sub-Fund’s investment strategy by entering the calculation of Sustainable Return:
1 / GHG emissions
2 / Carbon footprint
3 / GHG intensity of investee companies
5 / Share of non-renewable energy consumption and production
8 / Emissions to water
9 / Hazardous waste ratio
The following indicators for adverse impacts on sustainability factors are taken into account by way of exclusions:
4 / Exposure to companies active in the fossil fuel sector
10 / Violations of UN Global Compact principles and OECD Guidelines for Multinational Enterprises
14 / Exposure to controversial weapons
All indicators for adverse impacts on sustainability factors are taken into account for purposes of exercising voting rights and engagement.
For investments in securities and money market instruments issued by sovereigns, indicators in the categories environmental and social issues are considered by way of exclusion.
The investment strategy of the Sub-Fund systematically invests in companies, the activities of which are aligned with the OECD Guidelines along the following dimensions, but not limited to,
/ Contributing to economic, environmental and social progress with a view to achieving sustainable development (OECD Guidelines - General Policy A.1.)
/ Encouraging human capital formation (OECD Guidelines – General Policy A.4.)
/ Refraining from seeking or accepting exemptions related to environmental, health, safety, labor
or taxation, (OECD Guidelines - General Policy A.5.)
In addition, the Sub-Fund’s investment strategy, through its ESG screening and Principal Adverse Impact analysis, in particular trough excluding severe violators of the UN Global Compact principles, is ensuring, in particular, investment only in companies that
/ Respect the internationally recognized human rights (OECD Guidelines – General Policy A.2.)
/ Support and uphold good corporate governance principles (OECD Guidelines – General Policy A.6)
The Sub-Fund’s investment strategy, through its ESG screening and its Principal Advese Impact analysis, in particular trough excluding severe violators of the UN Global Compact principles, is ensuring that only investments in companies that respect human rights (UN Guiding Principles - Foundational Principle 11) will be made.
Severe controversies related to all of the 10 principles of the UN Global Compact principles are considered in the following areas:
/ Human rights
/ Labour
/ Environment and Anti-corruption
Environmental or social characteristics of the financial product
The Sub-Fund promotes several environmental and/or social characteristics, including external effects of greenhouse gas emissions, various air pollutants, the use of water, water emissions, various categories of waste production, building of human capital, work environment and safety factors, and community impact, (together, the “Characteristics”).
Investment strategy
Investment strategy used to meet the Characteristic(s)
The Sub-Fund pursues a sustainable investment strategy seeking superior Sustainable Return-to-risk (as further defined below), subject to (i) portfolio risk controls, such as diversification and (ii) investee companies satisfying minimum standards regarding environmental and social criteria as well as following good governance practices.
The "Sustainable Return" of the Sub-Fund is the weighted sum of the investee companies’ Sustainable Returns. Sustainable Return is a concept explicitly incorporating both (i) financial measures ("Financial Returns") and (ii) the impact of investee companies on sustainability factors, i.e., environmental or social factors ("ESG Factors"), by taking into account their positive (i.e. benefits) and negative (i.e. damages) external ESG effects on society (the "ESG Externalities"). The ESG Externalities are analysed in the investee companies, to the extent practicable, and measured in economic terms as the social damages or social benefits of the external ESG effects generated by the investee companies. The analysis is however limited by the availability of data.
The analysis of the ESG Externalities captures, at least, external effects of greenhouse gas emissions, various air pollutants, the use of water, water emissions, various categories of waste production, building of human capital, work environment and safety factors, and community impact. The Effectual Sustainable Investment Concept is regularly reviewed and improved such that additional ESG Factors may be included over time. For example, the analysis of ESG Externalities includes economic measure of key resource efficiency when derived from quantities relating to resources used by the investee companies such as the use of energy, the use of water and land, the production of waste or greenhouse gas emissions. As another example, the analysis of ESG Externalities also incorporates a measure of positive external effects of the investee companies on social factors, such as the building of human capital (through, e.g., employee training), fostering labor relations (through, e.g., safe working environment), and social cohesion and supporting disadvantaged communities.
By seeking superior Sustainable Return, the Sub-Fund’s investment strategy pursues investments with an equal balance of economic objectives (i.e. the Financial Returns criteria) and environmental and social objectives (i.e. the ESG Externalities criteria). Seeking superior Sustainable Returns is commensurate with the investment principles of a sustainable economy.
The Sub-Fund’s ESG investment strategy is implemented via a two-stage investment process, with the following binding elements:
In a first step, an ESG screening is applied to exclude companies from the investment universe that do not satisfy minimum standards regarding ESG characteristics.
The basis of the ESG screening is information on companies (for example company sustainability reports), third-party data as well as different ESG principles (such as UN Global Compacts, Oslo Convention, PRI Principles). The assessment will be made on the basis of the data available and subject to the limitations due to potential lack of data.
The ESG screening seeks in essence to exclude the investee companies which are not satisfying minimum requirements with respect to environmental and social factors. Investee companies such as the following are excluded:
/ controversial weapons producers;
/ severe violations of UN Global Compact;
/ coal producers;
/ tobacco manufacturers.
In a second step relating to portfolio optimization, the Sub-Fund’s portfolio is selected, following a binding, pre-determined, and data-driven investment process, from the remaining companies in the investment universe by optimizing the Sustainable Return-to-risk of the portfolio, subject to various risk controls. The binding selection criterion of the investment process is the investee companies’ Sustainable Return.
By seeking superior Sustainable Returns, the Sub-Fund’s investment strategy pursues investments with an equal balance of economic objectives (i.e. the Financial Returns criteria) and environmental and social objectives (i.e. the ESG Externalities criteria). Seeking superior Sustainable Returns is commensurate with the investment principles of a sustainable economy.
More specifically, the approach selects or overweights, within the limits imposed by portfolio risk controls, investee companies with an optimal trade-off of expected financial performance and expected sustainable performance, i.e., a good overall performance with respect to all environmental and social objectives as measured by external effects and captured, at the time of application, by the Effectual Sustainable Investment Concept.
The resultant Sub-Fund’s portfolio is weighted towards companies exhibiting significantly better ESG Externalities (either positive or significantly less negative) than average, i.e., the resultant Sub-Fund’s portfolio is weighted towards companies that have either positive impact on sustainability factors or significantly less negative impact on sustainability factors than average.
ESG Externalities are an overall, aggregate measure of the attainment of the various Characteristics, where, for each investee company, the aggregation is across the physical quantities associated with the various Characteristics, weighted by the costs or benefits to the environment or society of a unit quantity. Thus, Sustainable Return, as a binding element of the investment strategy, applies to the aggregate attainment of the Characteristics, not to the attainment of any individual Characteristic. In other words, the investment strategy has only a binding element used to select the investments to attain the Characteristics in aggregate. The investment strategy does not have binding elements used to select the investments to attain the Characteristics individually.
Good governance
When selecting securities as part of the Sub-Fund’s sustainable investment strategy, it is required that the issuers of these securities apply good corporate governance practices. To this end, exclusion criteria are defined that are based on the ten principles of the United Nations Global Compact.
The ten principles of the Global Compact include guidelines for dealing with human rights, labor rights, corruption and environmental violations. For example, companies should respect the protection of international human rights and ensure that they are not complicit in human rights abuses. They should work for the abolition of child labor and the elimination of all forms of forced labor, as well as the elimination of discrimination in respect of employment and occupation. They shall accelerate the development and diffusion of environmentally friendly technologies, promote environmental awareness, and follow the precautionary principle in dealing with environmental problems. They shall advocate against all forms of corruption, including extortion and bribery.
When analyzing sovereigns, PAIs are taken into account by, among other things, excluding unfree states that have a low score on the index issued by the international nongovernmental organization Freedom House.
Proportion of investments
Planned asset allocation for Sub-Fund
The Sub-Fund is a global, diversified equities fund managed according to the Effectual Sustainable Investment Concept with MSCI World Index (NDDUWI)) as benchmark for asset allocation purposes. As such it will typically be nearly fully invested in a diversified portfolio of listed equities with overall risk characteristics and exposures that are similar to the benchmark.
"#1 Aligned with E/S characteristics": In the ordinary course of business, the Sub-Fund will typically be nearly fully invested, and thus at least 80%, in investments meeting the environmental or social characteristics promoted by the Sub-Fund. However, in extra-ordinary circumstances and due to liquidity management requirements, the Sub-Fund may temporarily hold up to 20% of cash and invest up to 20% in money market instruments that may not be aligned with the E/S characteristics promoted by the Sub-Fund.
"#2 Other" includes cash and cash equivalents as well as financial derivative instruments (such as futures/forward contracts) for hedging purposes and efficient portfolio management purposes. There are minimum environmental and social safeguards due to the consideration of PAI.
"#1A Sustainable": The Sub-Fund will, in the ordinary course of business and subject to temporary liquidity management requirements, hold a minimum of 50% in sustainable investments, including, but not limited to, sustainable investments with other environmental and social objectives. The Sub-Fund’s investment strategy has a comprehensive definition of sustainability that incorporates both environmental objectives ("Other environmental") and social objectives ("Social") in the same measure of sustainability.
A sustainable investment, within the context of the Sub-Fund’s investment strategy and asset allocation, is defined as investing in an investee company that generates, in aggregate across all its economic activities, positive Sustainable Return, i.e. financial return adjusted for ESG Externalities, subject to the investee company following good governance practices and not doing significant harm to environmental or social objectives by satisfying minimum standards regarding environmental and social criteria (ESG screening). In other words, only investments in investee companies with a positive Sustainable Return score are in their entirety considered as sustainable investments.
The Sustainable Return of an investee company explicitly takes into account the impact of an investee company’s entire economic activities on sustainability factors, i.e., environmental or social factors ("ESG Factors"), by taking into account their positive (i.e. benefits) and negative (i.e. damages) external ESG effects on society (the "ESG Externalities"). The ESG Externalities are analysed in the investee companies, to the extent practicable, and measured in economic terms as the social damages or social benefits of the external ESG effects generated by all the investee companies’ economic activities. The analysis is however limited by the availability of data.
ESG Externalities explicitly and directly measure the contribution of an economic activity to various environmental and social objectives.
The analysis of the ESG Externalities captures, at least, external effects of greenhouse gas emissions, various air pollutants, the use of water, water emissions, various categories of waste production, building of human capital, work environment and safety factors, and community impact. The concept of Sustainable Return is regularly reviewed and improved such that additional ESG Factors may be included over time. For example, the analysis of ESG Externalities includes economic measures of key resource efficiency when derived from quantities relating to resources used by the investee companies such as the use of energy, the use of water and land, the production of waste or greenhouse gas emissions. As another example, the analysis of ESG Externalities also incorporates a measure of positive external effects of the investee companies on social factors, such as the building of human capital (through, e.g., employee training), fostering labor relations (through, e.g., safe working environment), and social cohesion and supporting disadvantaged communities.
There is no minimum extent to which the Sub-Fund’s investments (including transitional and enabling activities) with an environmental objective are aligned with the EU Taxonomy. As at the date of this Prospectus, the proportion of the Sub-Fund’s investments in taxonomy-aligned environmentally sustainable activities (including investments in enabling and transitional activities) may not amount to significantly more than 0%. As information is not yet readily available from investee companies’ public disclosures, the proportion is calculated using a combination of information on taxonomy-alignment obtained from investee companies and third-party providers. As soon as data will become more accurate and available, it is expected that the proportion of investments in enabling and transitional activities will grow.
The planned asset allocation is monitored on a continuous basis and evaluated on a yearly basis.
The Sub-Fund does not attain the promoted environmental and social characteristics by the use of derivatives.
Monitoring of environmental or social characteristics
The Sub-Fund uses "ESG Externalities" as key indicator to measure the attainment of the environmental and social characteristics it promotes.
ESG Externalities are the damages or benefits - in absolute terms, measured in currency, and scientifically determined valuations reflecting impact and importance - associated with the external effects of investee companies’ economic activities. Externalities are a generally accepted concept of economic theory and are widely applied in such fields as environmental economics, public finance, etc. Externalities are also a key concept applied by the EU Commission and member states’ environmental protection agencies to evaluate the impact of policies and projects.
Specific sustainability indicators on the environmental and social characteristics used by the Sub-Fund include:
/ Green house gas emissions
/ Various other air pollutants
/ Various waste categories
/ Water usage and water pollutants
/ Human Capital
/ Work environment and safety
/ Community improvement
Methodologies
The key methodology by the Sub-Fund is the Effectual Sustainable Return framework. Sustainable Return is defined financial return adjusted for ESG Externalities. Externalities are the damages or benefits - in absolute terms, measured in currency, and scientifically determined valuations reflecting impact and importance - associated with the external effects of investee companies’ economic activities. Externalities are a generally accepted concept of economic theory and are widely applied in such fields as environmental economics, public finance, etc. Externalities are also a key concept applied by the EU Commission and member states’ environmental protection agencies to evaluate the impact of policies and projects.
In most cases, externalities are calculated as the product of a physical quantity related to external effects, e.g. carbon emissions in tons, and the costs or benefits to the environment or society associated with a unit physical quantity. In some cases, in particular with respect to social external effects, quantities may be available directly as a monetary amount.
Quantities related to individual external effects are reported by a significant number of prospective and actual investee companies. In so far as such quantities are not reported, standard statistical methods are used to estimate such quantities.
The costs and benefits to the environment and society associated with a unit quantity are typically derived from complex scientific and economic models based on, and calibrated to, the relevant data. In many cases, there are at least several, and some times, hundreds of scientific research reports, expert opinions or government agency publications containing different estimates of such costs and benefits, reflecting, e.g., different states of scientific discoveries, different modelling techniques or assumptions, and different data used to inform or calibrate the models. In order to arrive at a single estimate of such costs and benefits, meta analyses according to accepted principles are performed. In particular, the relevant reports, opinions, and publications are identified by literature searches; the identified reports are reviewed for, i.a., their methodological approach, due care, and soundness of results and conclusions; relevant estimates are obtained and, in most cases, appropriately standardized as to make them comparable; the resulting set of estimates is analyzed for data validity; and, finally, standard statistical analyses are performed to estimate a central value as the single estimate.
Data sources and processing
Data sources used to attain the Characteristics Data are prospective investee companies’ reports, both directly obtained and via commercial databases, to measure the physical quantities associated with the Characteristics and scientific research, both published and unpublished, and government agency publications on estimating the value, in monetary currency, to the environment and society associated with the physical quantities.
Measures taken to ensure data quality
With respect to the physical quantities, several measures are taken to ensure data quality, including, but not limited to, the use commercial data bases that are subject to quality control measures, the use of several data bases for cross-validation when efficient, and the application of suitable statistical methods for error detection and correction.
With respect to the quality of the data relating to the estimation of cost and benefits to the environment and society, several measures are taken to ensure data quality, including, but limited to, a critical assessment of the scientific research used with respect to the soundness of methods and results, the use of all available research to the extent identifiable, the use of accepted and standard methods of meta analysis to combine the results.
How data is processed
The data relating to the physical quantities are processed in an automated process.
The data relating to the estimation of costs and benefits to the environment and society are processed by identifying research pieces as relevant data sources, culling the relevant data from these, entering the data in a data base, applying statistical error detection and correcting methods, and analyzing the data by accepted and standard methods of meta analysis.
The proportion of data that is estimated
Typically, a significant fraction of the data is estimated, depending on the specific data field, the prospective or actual investee company, and the industry or sector.
Limitations to methodologies and data
While the theory of externalities is widely accepted standard in economics, any specific application is subject to challenges with respect to methodologies and data.
While the theory of externalities is, in principle, all-encompassing, not all relevant and material external effects may, so far, have been identified, or no data may be available for identified relevant and material external effects.
Furthermore, the relevant data on all or some external effects may not be available for all prospective and actual investee companies. While, in this case, widely accepted statistical methods for data augmentation are used, the resulting figures are only estimates and may deviate from actual non- disclosed or non-measured figures.
Furthermore, reported data on the physical quantities by prospective and actual investee companies are potentially subject to mis-reporting due to, including but not limited to, errors of measurement, errors of interpretation, and errors of representation.
Applying the theory of externalities requires estimating the costs and benefits to the environment and society associated with the physical quantities because they are not, unlike prices for goods sold or purchased, observable market prices. Those estimates are typically derived from complex scientific and economic models based on, and calibrated to, the relevant data. While the models usually represent the current state of the science involved, they are models of reality and, as such, are subject to revision as and when theory evolves and new evidence emerges. Similarly, the data used to estimate and calibrate the models may change over time and lead to changes in the estimates.
The limitations to methodologies and data are not expected, subject to the current state of scientific discovery and knowledge, to identify and measure the relevant aspects, to materially affect the characteristics promoted.
Due diligence
Due diligence on prospective and actual investee companies is an integral part of the Sub-Fund’s investment process. The investment process uses sustainable return as a key metric, which comprises incorporates investee companies’ costs and benefits to the environment and society. The key data at prospective and actual investee companies’ level are the physical quantities relating to the costs and benefits to the environment and society. Thus, these key due diligence data enter directly in the investment process. In addition, as an integral part of the investment process due diligence is performed on principal adverse impacts of investment decisions on sustainability factors.
Engagement policies
Engagement is not a binding element of the Sub-Fund’s environmental and social investment strategy. However, the Sub-Fund intends to implement an engagement policy, which is currently in draft status, in the future. Sustainability-related controversies are considered in the principal adverse impact analysis and when exercising voting rights.
Designated reference benchmark
The Sub-Fund does not use a reference benchmark to determine whether this financial product is aligned with the environmental and/or social characteristics that it promotes.
The information referred to in Article 8 SFDR
The information referred to in Article 8 SFDR is available in Annex 1 of the Sub-Fund’s prospectus.
The information referred to in Article 11 SFDR
The information referred to in Article 11 SFDR will be available in the Sub-Fund’s annual report.