The sub-fund promotes environmental and social characteristics and qualifies as an investment product in accordance with article 8(1) of Regulation (EU) 2019/2088 on sustainability related disclosures in the financial services sector.
The sub-fund is managed through a fundamental bottom-up/stock-picking approach. It is a growth and earnings momentum-oriented strategy. The outcome portfolio of high quality names comprises around 40 names, however this could vary depending on market conditions. The philosophy relies on identifying inflexion points in company and industry fundamentals as a signal of a change or acceleration in growth. The sub-fund sustainability approach relies on the inclusion of ESG criteria in the financial analysis and is complemented by an engagement approach.
The sub-fund invests predominantly in transferable equity securities such as equities, other equity shares such as cooperative shares and participation certificates issued by, or warrants on transferable equity securities of, companies which are domiciled in or exercise the predominant part of their economic activity in Europe.
In assessing the sustainability of earnings growth, the sub-fund integrates the analysis of potentially material risks and opportunities arising from ESG issues within the fundamental research process. When a new idea is generated, and the initial research begins, investment analysts notify the ESG team to generate an “ESG Risk View” for assessing whether ESG issues could potentially affect the security’s underlying fundamental profile.
Depending on the sector, environmental and social factors include, but are not limited to, 1) climate change, 2) water stress, 3) product safety and quality, 4) cybersecurity and data privacy, and 5) human capital management. Regardless of the sector, governance factors include: 1) business (mis)conduct, 2) board composition, independence, and entrenchment, 3) accounting practices, 4) ownership structure, and 5) executive pay-for-sustainability performance alignment. This list is not exhaustive.
ESG key (material) issue mapping is guided by the wide ESG integration framework which is aligned with the fundamental analysis process and fiduciary duty.
The framework seeks to:
1) identify macro-level ESG issues impacting market dynamics,
2) determine which of these issues are relevant at the sector level, and
3) evaluate ESG materiality at the issuer level. The evaluation of macro and sector-specific key ESG issues draw upon internal inputs (collaboration with sector leads) and external inputs including those from government, NGOs, and third-party ESG data providers. To assess whether sector ESG issues could result in material risks to a security's valuation or cause a downgrade of its fundamental profile, we utilize a proprietary scoring system.
The ESG analysis (ESG integrated analysis) is incorporated by using the External Investment Manager’s proprietary ESG scorecard application in making their assessment and third party data. The proprietary ESG model is feeding with 13 indicators such as Independent Board majority, Majority Voting etc.
This proprietary ESG scorecard application generates scores based on quantitative and qualitative environmental and social indicators that are sector-specific and derived from reported data. Governance risk analysis is central to the fundamental research process, and this scoring system complements this analysis by benchmarking companies against quantitative governance indicators based on company-reported and third-party data, regardless of sector. The scores are dynamic, capturing whether a company’s ESG management practices are improving or worsening over time. The ESG team assigns a final ESG score composed of a quality rating and trend signal which are considered in the context of investment analysts’ fundamental research. The overall ESG Risk View are submitted to the investment analyst which review the ESG assessment to determine the financial materiality impact to the investment thesis. The portfolio managers incorporate the ESG assessments when evaluating investment decisions.
All proprietary ESG research is stored in a centralized research platform available to all investment teams, facilitating crossdepartment ESG knowledge transfer and collaboration. The proprietary ESG scoring system is based on various quantitative and qualitative ESG indicators as (the list is not exhaustive); investment costs toward cybersecurity controls, products regulatory compliance, employee fatality rates, human rights supply chain management controls, talent development programs, environemental efficiency ratios, policies to maangnage environmental footprint, GHG emissions, board composition; independence of the board, executive say-on-pay etc.
The ESG coverage depends of reported informations from companies and are constrained by companies disclosures. An unavailable informations would impact the abilitiy to do proper ESG research.
The ESG analysis and the fundamental research cover 100% of the portfolio (cash is not covered by the ESG analysis).
The investment universe is reduced due to the implementation of the Management Company -specific sustainability restrictions applying to sub-fund article 8, to sustainability characteristics as measured by a combination of MSCI ESG ratings and Sustainalytics scores and to the implementation of the SVVK and Norges Bank exclusion lists. This screening process removes at least, the bottom 20% companies from the investable universe. Thus, the ESG score of the portfolio should be at all time greater than the ESG score of the index.
As part of the Management Company’s Sustainable Investment Policy, the sub-fund complies with the sets of exclusions applying to article 8 investment product; Next to the Management company exclusion lists, the sub-fund will not invest in companies that have a strategic involvement in alcohol production. The minimum equity asset allocation on a consolidated basis (direct and indirect investments) will be of 60% of the subfund's net assets. Moreover, the minimum sub-fund’s investment in equity securities will be of 75% of the sub-fund's net assets.
The instruments described below are not covered by the ESG analysis.
The sub-fund may also hold on an ancillary basis cash and cash equivalents including certificates of deposit and shortterm deposits.
The sub-fund may invest for maximum 10% of its net assets in funds that have been selected in accordance with a number of qualitative and quantitative criteria. The qualitative analysis assesses the stability and strength of the investment manager, as well as its investment process and philosophy. The quantitative selection process aims to select only funds with proven risk-adjusted performance.
The sub-fund may also invest in debt securities (such as fixed and floating rate bonds, Money Market Instruments, including High Yield bonds) up to 10% of its net assets, in particular for cash management purposes.
The use of financial derivative instruments is restricted to:
-listed instruments in accordance with the investment policy (including but not limited to equity index futures, currency
futures);
-OTC instruments for currency hedging purposes (including, but not limited to forward and foreign currency exchange
contracts).
The use of OTC instruments for purpose other than currency hedging is prohibited (including, but not limited to OTC derivatives, CDS & CDO contracts).
This sub-fund is actively managed and is compared to the risk benchmark as described in Appendix 2 for performance and risk level indicator purposes. However, the reference to this index does not constitute any objective or limitation in the management and composition of the portfolio and the sub-fund does not restrain its universe to the index components.
The index does not evaluate or include its constituents on the basis of environmental and/or social characteristics and is therefore not aligned with the ESG characteristics promoted by the sub-fund.
Therefore, returns may deviate materially from the performance of the reference index.
