Regulation Art. 3 Abs.1 SFDR
Transparency of sustainability risks
Sustainability risks are events or conditions in the areas of the environment, social affairs or corporate management which, if they occurred, could actually or potentially have a significant negative impact on the value of the fund’s investments.
Sustainability risks form part of the catalogue of known risk types such as market risk, liquidity risk, counterparty risk and operational risk, and can affect the materiality of these risks.
I. Investment decisions
Quoniam Asset Management GmbH (Quoniam) makes investment decisions based on a structured active investment process. The principle of ESG integration is also enshrined in all investment decisions. ESG integration means the systematic inclusion of sustainability risks during the significant stages of the investment process. Sustainability risks include environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery.
The integration of sustainability risks in the active quantitative investment process is basically ensured at Quoniam by the Sustainable Investing Committee (SI Committee). It reviews, among other things, individual companies, sectors, and countries that are of particular relevance for risk, earnings and valuation considerations as a result of specific events and/or structural trends in sustainability aspects. The SI Committee issues binding investment indicators and recommendations that are relevant for all affected asset classes and all portfolio managers.
II. Inclusion of sustainability risks in investment decisions
As part of Quoniam’s investment process, fundamental information about companies and markets, including a large number of sustainability risks, is processed using quantitative methods.
Quoniam’s portfolio managers can review and measure the sustainability risks at individual equity level or across the entire portfolio at any time when compiling portfolios and make appropriate investment decisions. In this way, actively managed, risk-controlled portfolios are created in which the relevant sustainability risks are also taken into account.
In order to reduce sustainability risks, Quoniam, as an active quantitative asset manager, draws attention to sustainability issues through various initiatives with the aim of actively influencing issuers in relation to the opportunities and risks that may be associated with sustainability risks.
III. Impact on returns
Taking sustainability risks into account can have a significant long-term influence on the performance of an investment. Issuers with unsatisfactory sustainability standards may be more vulnerable to event, reputation, regulatory, litigation and technology risks. These risks in the area of sustainability can affect, among other things, their operational business, the value of their brand or the company itself, and the continued existence of the company. The occurrence of these risks can lead to a negative valuation of the investment, which in turn can have an impact on the fund’s return.
Regulation Art. 4 Abs.1 SFDR
Manage adverse sustainability impacts
Quoniam is aware of its responsibility to society, its customers and employees and is committed to sustainable investing. Sustainability is therefore an essential part of Quoniam’s self-image, which is implemented at company level as well as in the core business. To live up to this self-image, the consideration of adverse effects on sustainability factors is firmly anchored in all investment decisions.
1. KEY SUSTAINABILITY FACTORS AND ADVERSE IMPACTS
The negative effects on these sustainability factors due to investments can arise in particular through the co-financing of controversial business practices and controversial business areas. Controversial business practices include, but are not limited to, violations of ILO labour standards, including child labour and forced labour, as well as serious violations in the areas of human rights, environmental protection and corruption. Controversial business areas are, for example, the manufacture of outlawed and controversial weapons (ABC weapons, landmines, cluster bombs) and the mining and generation of electricity from coal.
The adverse effects that can arise from co-financing these practices and business areas are diverse and are therefore explained in more detail below using examples. A violation of human rights is to be assessed as having a significant detrimental effect on peaceful and dignified cooperation on earth. Exploitative working conditions are in clear contrast to equal opportunity, human dignity, and psychological and physical integrity. Violations of environmental protection can lead to the loss of biodiversity, pollution of water, soil and air or the destruction of natural resources and thus have a significant impact on the natural basis of life for nature and humans. The increased emissions of greenhouse gasses, such as from electricity generation from coal, are in clear contradiction to global climate protection efforts.
2. STRATEGIES FOR IDENTIFYING AND WEIGHTING ADVERSE SUSTAINABILITY IMPACTS
The assessment of investments in terms of their adverse impact on the above sustainability factors is based on sustainability data from external ESG data providers. Quoniam’s portfolio management follows the principle of ESG integration. This refers to the systematic consideration of sustainability factors in the investment process, such as screening, ESG integration and engagement. As part of our ESG integration, sustainability indicators are considered in portfolio construction. For example, by targeting companies with a better ESG rating or lower CO2 intensity, Quoniam reduces adverse portfolio impacts. Through the investment process, Quoniam is able to optimise these sustainability indicators and thus take all the key indicators into account simultaneously. In principle, investments within the quantitative investment process take into account various sustainability factors based on their data quality and availability. It focuses on adverse sustainability effects within the framework of proportionality.
3. MEASURES TO MANAGE ADVERSE SUSTAINABILITY IMPACTS
To reduce or avoid the serious adverse effects of investment decisions on sustainability factors, Quoniam can take three key actions.
- Screening (exclusion criteria)
Direct investment in companies involved in controversial business practices and/or active in controversial business areas is excluded. These are, for example, companies that violate the ILO labour standards, including child and forced labour, or are involved in serious violations in the areas of human rights, environmental protection and corruption. It also excludes companies that, for example, produce outlawed and controversial weapons (ABC weapons, land mines, cluster bombs) or mine and generate electricity from coal.
- ESG integration
The principle of ESG integration, which has already been explained, ensures that sustainability factors and thus also adverse sustainability effects can be taken into account in investment decisions.
Quoniam understands engagement to mean the exercise of voting rights at general meetings and the constructive dialogue between companies. The goal of engagement activities is to actively influence issuers in terms of preventing and reducing adverse impacts on sustainability factors.
4. CONSIDERATION OF INTERNATIONAL STANDARDS AND FRAMEWORKS
Quoniam is committed to prioritising the interests of investors. In addition to applying the applicable laws and regulatory requirements, Quoniam’s approach to responsible investing is guided by national and international standards that serve as a benchmark for decisions, such as the United Nations (PRI) Principles of Responsible Investing and the UN Global Compact (UNGC). The most important adverse sustainability effects are also derived from these principles. Quoniam’s values and engagement principles are based on the BVI Code of Conduct (BVI 2019).