Transparency on Integration of Sustainability Risks (Article 3 of SFDR)

Investment Manager has decided to actively monitor sustainability factors even though sustainable investment is not a primary objective for the Investment Manager. The Investment Manager has in-house full-time Risk Management Function (“RMF”) and Portfolio Management Function (“PMF”), as such the investment decision is made internally and in sole discretion, as well as the analysis of the sustainability risks associated with them.

The environmental, social and governance (“ESG”) factors that may be incorporated into the Investor Manager’s investment and monitoring process include environmental, social and governance considerations. ESG factors means factors that could have a material impact on an investment’s ability to create, preserve or erode economic value, including, where relevant, environmental, and social value, for that organization and its stakeholders.

The sustainability risks, borne by the ESG factors are identified by the PMF at various steps of the investment process, where relevant, from research, allocation, selection, portfolio construction decisions, or management engagement, and are considered relative to the specific AIF’s risk and return objectives. The PMF takes into account the ESG factors, as a sub-set of risks that could generally cause an actual or potential material negative impact on the value of the AIF’s investment as part of its investment process.

Assessment of these risks is done relative to their materiality (i.e., likeliness of impacting returns of investment) and in tandem with other risks assessments (e.g., liquidity, valuation, etc.). How sustainability considerations are sourced, assessed, and incorporated will vary with portfolio objective, investment style and asset class, relevant to a particular AIF under the Investor Manager’s management.

This allows the Investor Manager to evaluate long-term viability and resilience of potential investments and therefore, identify investment opportunities that prioritize sustainability, ethical practices, and strong corporate governance.

The PMF considers the ESG considerations in combination with other information in the research phase of the investment process. This may include third-party insights, as well as internal engagement commentary and input from the Chief Investment Officer or the Head of RMF of the Investment Manager. Such reviews may include discussions, where appropriate, of the AIF’s portfolio exposure to material ESG risks, as well as exposure to sustainability-related business involvements, climate-related metrics, and other factors.

For the avoidance of doubt, the integration of ESG factors into the evaluation process does not mean that ESG information is the sole consideration for an investment decision. Instead, the PMF evaluates a variety of factors, which can include ESG considerations, to make investment decisions.

ESG due diligence may vary based on:

• the nature of the investment;
• the investment strategy, specific asset class considerations and risk-reward profile of the particular AIF under management;
• the transaction process and timeline;
• the level of access to information on ESG factors;
• the target investment’s sector or business model.

The Investor Manager applies a targeted exclusion policy across its portfolios. Issuers exposed to the exclusionary rules and thresholds set out in Offering Documentation of the particular AIF or do not comply with internationally recognized conventions and / or frameworks, and national regulations are excluded. Whilst this analysis can be subjective, the PMF will reasonably assess certain businesses where the social cost of the business creates negative externalities for society that are not fully captured by regulation, taxation, or shareholder value. These risks typically manifest as low probability, but high cost, regulatory and legal exposures. In this regard, the PMF shall exclude such businesses from the investment universe and portfolios of the AIFs under management.

The Investor Manager excludes the following issuers:

• entities whose principal business in the manufacturing, distribution, or sale of pornography;
• entities whose principal business is the manufacturing, distribution or sale of tobacco or tobacco products (threshold for application: equal or above 30% of revenues from such products);
• entities involved in production, sale, storage of nuclear weapons that are non-parties to the Treaty on Non-Proliferation of nuclear weapons;
• entities involved in the production, sale or storage of chemical, biological and depleted uranium weapons;
• entities involved in the manufacture of land mines or cluster munitions (including cluster bombs, incendiaries, mine dispersers and anti-personnel devices) in line with the Convention on Cluster Munitions;
• entities who pose social risks through the violation of labour and human rights breaches UNGC Principles 1-6;
• entities with poor corporate governance principles and corruption risk (breaches UNGC Principle 10); and
• sovereign issuers, which are included in the European Union (EU) sanction list with sanctions consisting of asset freezing and a sanction index at the highest level (considering both United States and EU sanctions) unless excluded at the discretion of the Investment Manager.

The entities and / or issuers above are excluded, after a formal review and validation from the heads of the PMF, the RMF and the Compliance functions.

RMF evaluates risks arising from investments, including financially material ESG risks, during regular reviews with the PMF. This allows all parties involved in the investment to have a uniform understanding of the levels of ESG risks involved and that these are deliberate and consistent with each AIF investment objective.

The analysis of ESG factors such as environmental impact and social responsibility, the Investor Manager can identify potential risks related to regulatory compliance, reputational damage, or supply chain disruptions. Therefore, the RMF will be able to analyse, suggest and discuss appropriate mitigation for potential financial and operational risks.

The integration of ESG factors into the risk management process can provide useful insights on obscure risks that may impact the value of assets. By creating a robust understanding of these risks, the Investor Manager will be able to adjust its investment strategy and allocate capital to issuers that are better positioned to succeed in a changing regulatory and business landscape.

The consideration of ESG Risks and any impact on the value of the funds is part of the ongoing assessment and management of assets of the funds carried out by the Investment Manager for the full life cycle of the funds.