INFORMATION ON SUSTAINABILITY-RELATED DISCLOSURE REQUIREMENTS IN THE FINANCIAL SERVICES SECTOR ISD. DISCLOSURE REGULATION (EU) 2019/2088
INCORPORATION OF SUSTAINABILITY RISKS IN THE INVESTMENT DECISION-MAKING PROCESSES IN PORTFOLIO MANAGEMENT
FAME incorporates sustainability risks into investment decisions as part of portfolio management in accordance with the preferences expressed by the customer as follows: The identification of sustainability risks depends on the type of financial instrument to be included in the portfolio. Before mutual funds or alternative investment funds are included in the respective portfolio, information on the strategy for including sustainability risks of the product manufacturer is obtained. Regarding other financial instruments (such as equities and bonds) to be included in the respective portfolio, various sustainability data, such as the non-financial reporting of the potential companies, are consulted. Media reports are also used to assess potential reputational risks in connection with sustainability factors of the companies to be included. In addition, before financial instruments are included in a portfolio, further sustainability data, such as information from external research partners and data providers, are used to obtain assessments of the sustainability performance of the issuers and their exposure to sustainability risks.
Depending on the investment strategy selected for portfolio management, the sustainability risks may vary. This is shown separately for the respective portfolio.
Sustainably oriented portfolios that are based on mutual funds and/or ETF ́s go through the following ESG fund selection process:
ESG FUND SELECTION PROCESS
Sustainability in the selection of investment funds (active funds and ETF ́s) is realized through the end-to-end integration of ESG, short for Environment, Social, Governance. In addition to economic factors, such as traditional criteria like profitability, liquidity and security, environmental and social aspects, as well as (good) corporate governance, are thus integrated into the investment processes. Investment funds that invest predominantly in government bonds are excluded from this process due to difficulties in representation, but can still be used in the portfolios under consideration.
This investment policy incorporating ESG criteria is carried out at four different levels:
FAME's portfolios, which are subject to the ESG fund selection process, consider environmental and social characteristics as well as adverse impacts on sustainability factors as part of the investment process.
The three sustainability pillars environment ("E" for environment), society ("S" for social) and responsible corporate management ("G" for governance) form the basis for every investment decision.
At the first level of analysis, the portfolio-specific investment universe is pre-selected. From a sustainability perspective, investment funds that have not integrated sustainability criteria into their investment process are eliminated from the universe. This pre-selection is carried out by analyzing the respective sales prospectus, evaluating whether the investment fund is classified according to Article 8 or Article 9 Regulation (EU) 2019/2088. If this or a similar classification is not available or if the investment fund is only classified according to Article 6 Regulation (EU) 2019/2088, an investment for the portfolio in question will be excluded. Similarly, funds that do not take into account adverse impacts on sustainability factors (PAI indicators) will be removed from the investment universe. As such, environmental, social & employee concerns, respect for human rights as well as the fight against corruption and bribery are considered. These negative criteria are subject to ongoing monitoring and may be supplemented or adjusted based on new findings and developments.
At the second level of analysis, a detailed examination of the individual investment funds takes place. In addition to the classic, quantitative and qualitative analysis, various aspects of sustainability are taken into account.
At the third level, a broadly diversified portfolio is constructed from the remaining investment funds in accordance with the investment guidelines of the respective portfolio. This is done according to the principle of "modular portfolio construction, market understanding and cost efficiency". Within the framework of professional asset management, an optimal portfolio structure is implemented with a focus on portfolio stability. This stability is again considerably strengthened by the use of sustainable investments. Participation in the movements of the international capital markets within the respective portfolio is achieved by combining many independent investment options and modeling conceivable and quantifiable risks.
At the fourth level, the ESG factors of the investment funds and ETF ́s used are subject to regular monitoring. For example, all requirements that had to be met when initially investing in an investment fund are evaluated at least semi-annually. If one of the requirements is no longer met, the position is sold within a maximum period of 30 days from the determination of the elimination of the investment requirements in the interest of the customers investing in the respective portfolio.
EFFECT OF TAKING SUSTAINABILITY RISKS INTO ACCOUNT ON THE RETURN OF FINANCIAL INSTRUMENTS
In the medium to longer term, it can be assumed that broadly diversified, sustainable investments will generate a return comparable to that of traditional investments. However, no commitment/guarantee can be given in this respect.
INCLUSION OF SUSTAINABILITY RISKS AT FAME
FAME is also authorized to provide investment advice on financial instruments and to accept and transmit customer orders pursuant to section 3 para. 2 no. 1 and 3 WAG 2018 and is therefore also a financial advisor within the meaning of the Disclosure Regulation.
When providing advice on financial instruments, with the exception of investment funds and real estate investment funds, the most important adverse effects on sustainability factors are not included, as the data required for this is not available or is only available to a limited extent. It is therefore currently not possible for FAME to provide investment advice with individual securities in the best interest of a potentially sustainability-oriented client.
When providing investment advice on investment funds and real estate investment funds, FAME includes sustainability risks within the meaning of the Disclosure Regulation in the following manner: The identification of sustainability risks is carried out by the product manufacturer for relevant financial products. The information provided by the product manufacturer is (also) used in the investment advice. The information on sustainability risks provided by the product manufacturers is made available to the customer by FAME and explained in more detail in the course of the advisory meeting.