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Article 6(a) Sustainability risk
Sustainability risk refers to “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”, in accordance with article 2 (22) of the SFDR.
Unmanaged or unmitigated sustainability risks can impact the returns of financial products. For instance, should an environmental, social or governance event or condition occur, it could cause an actual or a potential material negative impact on the value of an investment.
The Fund Manager considers sustainability risk as risks that are likely to materially negatively impact the financial condition or performance of a company or an issuer, and therefore the value of that investment. The scope of the analyzed sustainability risks is environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.
The Fund Manager integrates the sustainability risks in the Sub-Funds’ investment process: (i) in the due diligence when making an investment decision and (ii) assessing the sustainability risks on a continuous basis through the relevant Sub-Fund’s risk monitoring process, in conjunction with all investments, by identifying what sustainability risks are relevant for each investment and how they might have a negative impact on the financial return of such investments. Sustainability risks are integrated into the decision making and risk monitoring processes to the extent that they represent a potential or actual material risk and/or opportunities to maximize the long term returns.
The result of the Fund Manager’s assessment of the likely impacts of sustainability risks on the returns of a particular Sub-Fund is described in the chart below:
Sub-Fund’s classification in compliance with SFDR
Impacts of sustainability risks on the Sub- Fund’s returns
Sustainable Objective approach sub-funds &
ESG Promotion Strategy sub-funds
Sustainability risk is considered to have a lower likely impact on the relevant Sub- Fund’s returns, due to the sustainability risk mitigating nature of the Sub-Fund’s investment strategy which implement exclusions, forward looking investment policies seeking sustainable financial return.
Sustainability risk is considered to have a moderate / higher likely impact on the relevant Sub-Fund’s returns compared to Sustainable Objective approach or ESG Promotion Strategy sub-funds
ESG investments risk
ESG Promotion Strategy or Sustainable Objective sub-funds use environmental, social and governance (“ESG”) criteria and Sustainability Factors as binding component of their investment strategy, as set out in their respective investment policies.
By way of integration within the investment process, ESG and Sustainability Factors are assessed for each issuer of the target investment. Such assessment is performed on an ongoing basis in order to ensure the Sub-Funds’ continuous compliance with the Sub-Funds’ binding specific strategy.
The security selection can involve a significant element of subjectivity when applying ESG filters. Indeed, the way in which different ESG sub-funds incorporate ESG factors in their investment processes may vary depending on the investment themes, asset classes, investment philosophy and subjective use of different ESG indicators governing the portfolio construction.
The integration of ESG criteria within the investment process may affect the Sub-Funds’ performance and thus ESG Promotion Strategy or Sustainable Objective sub-funds may perform differently compared to similar sub-funds without such focus or having a Neutral Strategy approach.
In evaluating an issuer of a security based on the ESG and Sustainability Factors, the Fund Manager may perform an ESG assessment based on data sources provided by external ESG research providers. Given the evolving nature of ESG criteria, neither the Fund nor the Fund Manager make any representation or warranty, express or implied, with respect to the accuracy or completeness of such ESG assessment.
Article 6(b) Sustainability risk performance
The Sub-Fund used alignment of its investments to the UN's Sustainable Development Goals ("SDGs") 7, “Support innovation for clean and affordable energy”, and 13, “Climate Action” as sustainability indicators.
Specifically, the Investment Manager performed an assessment of the investee companies’ revenues from activities and/or operations, to determine whether they were beneficial or detrimental to each SDG. This assessment determined the extent to which a company was aligned, misaligned or neutral to the chosen SDGs. An aggregation of the scores across the investments was then taken to determine the proportion of Sub-Fund that was aligned to each of the SDGs.
The Sub-Fund also used the exposure to issuers on its Exclusion List as a sustainability indicator (which should be always 0%).
These indicators performed as expected, as outlined in the tables below:
7: Support innovation for clean and affordable energy
Exposure in companies aligned to
SDG 7 which should remain ≥ 35%
13: Climate Action
Exposure in companies aligned to
SDG 13 which should remain ≥
Exposure in companies falling within Exclusion Criteria (below)
which should remain 0%
Limit on Exposure
1. Companies with revenues derived from activity
0% of revenue
>10% of revenue
>5% of revenue
>5% of revenue
2. Global Norms
Serious violations (Non-Compliant*)
*Companies failing to comply with various ‘norms‘ criteria set out by the United Nations Global Compact Principles (UNGC) will be considered to be “Non-Compliant”.
**Sovereign issuers are scored against various criteria which measure access to political rights and civil liberties. Further details are found on Freedom House (https://freedomhouse.org/).
This data was produced as a snapshot as of 30th December 2022 using portfolio gross exposures.
COMPATIBILITY OF THE REMUNERATION POLICY WITH THE SUSTAINABILITY RISK INTEGRATION POLICY
Proxy’s remuneration policy shall be consistent with the sustainability risk integration policies at any given time.
The purpose of Proxy’s remuneration policy is to counteract a risk-taking that is not compatible with the Fund’s (and its sub-funds) risk profile, fund regulations and the common interest of unitholders. The company’s remuneration structure does not encourage excessive risk-taking, nor in terms of sustainability risks. Employees should not be able to take excessive risk or disregard identified sustainability risks in the performance of their duties.
For further information see our remuneration policy which can be received by request.
Proxy P Management policy on long-term shareholder engagement
Proxy P strives to be a driving force in sustainability, and believes that shareholder engagement is a lever to achieving this aim. The UN PRI defines stewardship as ‘the use of influence by institutional investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients' and beneficiaries' interests depend’. In keeping with this definition, the Firm enacts its stewardship by engaging with broader stakeholders as part of the investment process in order to discuss certain factors and their potential significance. These stakeholders include:
▪ Current or potential investees/issuers
▪ Policy makers and standard setters
The identification of such factors enables the Firm to evaluate the impact to the financial condition or operating performance of an investment, as well as to potentially influence corporate practice. In assessing the sustainability risk associated with underlying investments, Proxy P is assessing the risk that the value of such underlying investments could be materially negatively impacted by an ESG event or condition. The assessment may result in adjustments to financial forecasting and modelling.
As the Firm is not an activist fund, it does not engage in other elements of stewardship such as filing shareholder resolutions and proposals, or fulfilling direct roles on investee boards and board committees. We engage in voting selectively rather than systematically and consistently discuss ways of improving our voting process.