The Regulation (EU) 2019/2088 on Sustainable Finance Disclosure Regulation (SFDR) lays down harmonised rules for financial market participants and financial advisers on transparency with regard to the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability‐related information with respect to financial products.
Together with EU Taxonomy, the Regulation also aims at preventing greenwashing.
CONSIDERATIONS as of March 10, 2021.
Archeide Lux S.à. r.l. (the “General Partner”) considers that economic and financial participants have a greater responsibility towards Sustainable Investments and that ESG may be considered as a durable driver of financial performance in the future.
If described in the relevant Compartment Particulars, certain Compartments may try to apply to all or part of their investment policy Sustainability Factors and/or ESG Factors. In such circumstances, such Compartments will select Eligible Assets with strong sustainable characteristics. However, for the time being, neither the Fund as a whole nor any Compartment has as its objective Sustainable Investments and/or promotes ESG Factors. The approach to ESG and Sustainable Investments of the Fund may evolve and develop over time. As the case may be, the Offering document and the all the other relevant documents will be updated accordingly.
ESG issues are non-financial performance indicators that may positively or negatively affect a company’s/issuer’s revenues, costs, cash flows, value of assets and or/liabilities:
- Environmental issues relate to the quality, durability and functioning of the natural environment and natural system such as, but not limited to, climate, carbon emissions, deforestation, environmental regulations, water stress and waste;
- Social issues relate to the rights, well-being and interests of people and communities such as labour management, employee’s relation and health and safety; and
- Governance issues relate to the management and oversight of companies and other investee entities such as board, ownership and pay.
Even though ESG is one component of investment, integrated into the General Partner’s investment decision-making, applying ESG criteria to the investment process may exclude certain assets for non-financial investment reasons and therefore some market opportunities available to the Fund or the relevant Compartment. Indeed, ESG investment strategy may result in a Compartment investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards. ESG issues will be considered in the overall investment decision but the General Partner will determine the manageability of risk according to such ESG standard.
Additionally, the selection of assets which rely on a proprietary ESG scoring process or ban lists depends partially on third party data. The lack of common or harmonized definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives and determining that these objectives have been met by the funds they manage. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may to a certain extent be subjective or based on metrics that may share the same name but have different underlying meanings. The lack of harmonised definitions may also potentially result in certain investments not benefitting from preferential tax treatments or credits because ESG criteria are assessed differently than initially thought. Investors should note that the subjective value that they may or may not assign to certain types of ESG criteria may differ substantially from the General Partner’s methodology.
Besides, several EU Member States are implementing national standards and financial product labels based on market-based classification systems, which might lead to market fragmentation and confuse investors with sustainability preferences. Furthermore, differences between national standards and labels might hinder cross-border sustainable investments. Lastly, the risk of greenwashing might challenge the confidence of investors and provide unfair competitive advantage to financial actors engaged in those practices.
However, there is increasing evidence in several countries that a climate friendly and sustainable funds’ industry can both preserve and increase asset value. Investments in ESG funds will create value through responsible investment by reducing greenhouse gas emissions, fugitive methane emissions, by setting renewable energy purchasing targets, and reducing exposure to toxic chemicals. Investments in ESG may inter alia create value through responsible investment such as, but not limited to, investments in companies working to preserve the environment (recycling, reconditioning of electronic waste, etc.), creating new technologies with an ecological purpose (innovation using green and renewable energies, reduction of greenhouse gas and fugitive methane, alternatives to nuclear power), innovating in labor protection (reduction of exposure to toxic chemicals). Failure to actively deal with these risks will not only delay global efforts to address the climate challenge, but will also damage long-term returns, weaken economic sustainability.
Moreover, even if environmental and social aspects as well as sustainable development may play an important part in the assessment of the risks related to an investment in Compartment Eligible Assets, it should be noted that the Compartment does not have as its objective Sustainable Investments nor promotes ESG Factors. However, it might invest partially in Compartment Eligible Assets that have an ESG objective or Sustainable Investment objective without being obliged to do so. In such case, by assessing ESG issues through a methodology developed in-house, the General Partner examines and evaluates the Sustainability Risks that impact investments issuers/ companies/ investments as well the opportunities linked to ESG investments and Sustainable Investments. Thanks to such a methodology, better informed investment decision from a risk-return perspective may be taken.
Finally, further to the sustainability risk assessment at the level of the Compartment, the General Partner considers Sustainability Risks relevant as a means of identifying investment opportunities in Compartment Eligible Assets, managing and monitoring investment risk, and enhancing risk-adjusted returns for the Shareholders and therefore integrate them in their investment decisions as early as in their due diligence policies in order to maximise the long-term risk-adjusted return. Indeed, Sustainability Risks are ESG Factors that pose a material risk to the value of the investment. When deciding whether ESG data are material for a particular investment, the General Partner shall evaluates the relevance of the information and the likely impact on the financial health of the investment in the context of the Compartment’s investment strategy. Indeed, the Compartment does not pursue or promote ESG objective for the moment nor has Sustainable Investments’ objectives and risks are still managed in accordance with the risks related to Compartment Eligible Assets but its investments remain exposed to Sustainability Risks. Though it might occasionally and partially invest in Compartment Eligible Assets that have an ESG objective or Sustainable Investment objective, risks shall still be managed in accordance with the risks related to the asset class, without specifically being considered as Sustainability Risks. Indeed, the General Partner further considers that as the legal and regulatory framework governing sustainable finance is still under development, Sustainability Risks may be developed over time along with the evolution of the investment objective, in light of the expected legal and regulatory framework. As the case may be, this Compartment Particular will be updated accordingly.
The General Partner will also pay particular attention to the desire of the Shareholders of the Compartment to have an ESG targets integrated in the future in the investment objectives.