As part of the United Nations 2030 Agenda for Sustainable Development, Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector lays down a set of rules for financial market participants in the European Union with a view to increasing transparency in relation to the integration of sustainability risks and the consideration of adverse sustainability impacts in their investment processes, and the disclosure of sustainability-related information on financial products.
I. The principle of sustainability
The ESG (“Environment, Social and Governance”) risk policy has been drawn up in accordance with Article 3 of EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (Sustainable Finance Disclosure Regulation or “SFDR”) and aims to describe how sustainability risks are integrated into CREATERRA FINANCE’s investment processes.
Sustainability risk is an environmental, social or governance event or situation that, if it occurs, could have a material adverse impact on the value of the investment.
Sustainability risk involves different types of risk:
- environmental risk includes damage caused by extreme weather conditions and climate events that may affect a company’s assets or supply chain, as well as transition risk (encompassing all long-term economic consequences associated with the introduction of new environmental regulations aimed at establishing a low-carbon economic model), long-term geographical changes, and so on;
- social risk includes damage to the health and safety of workers, immoral working conditions, forced labour, child labour, etc. These factors can have an impact on a company’s operational efficiency and resilience as well as on its public image;
- governance risk, which may be related to poor corporate governance, corruption, influence peddling, sanctions against a company, tax evasion, etc.
ESG factors have an impact on a company’s financial prospects and therefore on its value.
The SFDR gives the end investor a better understanding of how ESG factors are taken into account and integrated into their investments, and how financial market participants integrate sustainability risks into their investment decisions.
II. How ESG criteria are taken into account
- Different types of investment management
The investment policy is based on three management types offered under discretionary management mandates:
- portfolio management for dynamic profiles, primarily focused on equities: this service is reserved for clients with a high appetite for risk;
- portfolio management for defensive profiles, primarily focused on bonds and risk-minimising investments, with more moderate returns for risk-averse clients;
- portfolio management for medium profiles, which is a combination of the dynamic and defensive profiles.
These three management types are applied to portfolios managed under mandate, as well as to life insurance policies managed by the insurer through delegated management agreements.
Lastly, we have a specific management approach for the in-house funds “Createrra Progress World Equities” and “Createrra Multi Assets Index Fund”, two sub-funds of the Conventum SICAV. These funds are exclusively distributed to our clients. They funds are referred to as “Article 6” because they do not promote environmental and/or social characteristics and do not have sustainable investment objectives.
- Restrictions on certain business sectors
Createrra Finance aims for greater sustainability and social responsibility in its investments in order to contribute to positive and necessary changes.
Its exclusion policy aims to reduce the risk exposure to ESG factors related to controversial activities by excluding certain sectors or activities whose business models are not sustainable.
Createrra Finance has made commitments regarding the management of ESG criteria in its investment policy, in particular by adopting an exclusion policy for various sectors:
- non-conventional weapons (chemical and biological weapons, anti-personnel mines, depleted uranium and white phosphorus munitions, etc.);
- tobacco production;
- gambling;
- pornography;
- the energy sector linked to thermal coal and unconventional hydrocarbons;
- companies that do not uphold fundamental ethical standards, thereby violating human and individual rights (companies which use forced labour, earn their income from illicit activities such as prostitution, human trafficking, etc.);
- any investment in companies whose ESG rating is considered particularly low.
We apply our exclusion policy based on the information that is available to us. The exclusion list is prepared based on information from external data providers and is reviewed regularly. Although the data undergoes qualitative analysis, Createrra Finance shall accept no responsibility for its accuracy. The objective is to limit investments in these sectors as much as possible. However, Createrra Finance reserves the right to invest a marginal portion of its assets (maximum 10%) in companies in these sectors.
Methodology
The Bloomberg “ESG” score is used for issuers and the “SFDR” classification for investment funds.
Article 6 covers funds that do not promote any ESG characteristics and do not have a sustainable objective.
A financial product is classified under Article 8 where it promotes, inter alia, environmental or social characteristics, or a combination thereof, provided that the undertakings in which the investments are made follow good governance practices. These funds do not have sustainable investment objectives.
Article 9 covers products that target tailored sustainable investments and applies where a financial product has a sustainable investment objective.
To gather our clients’ sustainability preferences, we have implemented an ESG profile since August 2022. When a client has specific requirements, our business model enables us to provide a bespoke service. The client can express his or her preferences regarding sustainable investments aligned with the European Taxonomy, sustainable investments as defined in the SFDR, or investments that take into account the principal adverse impacts (PAI) on sustainability.
III. Statement on the principal adverse impacts on sustainability factors
Adverse sustainability impacts refer to the negative effects that investment decisions or investment advice can have on sustainability factors, namely environmental, social and workforce issues, respect for human rights, and the fight against corruption.
In accordance with Article 4 of Regulation (EU) 2019/2088, known as the SFDR, Createrra Finance declares that although it recognises the importance of environmental, social and governance (ESG) considerations in investment, it has not yet put in place a process to measure and disclose the principal adverse impacts (PAI).
This decision is motivated by:
- The nature of our activities: we wish to provide a bespoke and distinctive management service. To date, none of our clients have wished to incorporate specific sustainability preferences into their investments;
- the lack of reliable and available data;
- the size of our organisation.
In the context of the increasing implementation of EU regulatory requirements for sustainable finance as well as rapid changes in practices, new risks may emerge, public opinion may change and new market standards may be introduced. Consequently, the methodology presented in this procedure is subject to change at any time.
