EU Sustainability Disclosure

Disclosure according to the Article 3. and 4 of EU Regulation No 2019/2088 on sustainability‐related disclosures in the financial services sector (SFDR) on policies for addressing sustainability risks and on the principal adverse impacts of investment decisions on sustainability factors

Erste Alapkezelő Zrt. (hereinafter: Company) applies the provisions of this disclosure to all collective investment portfolios and portfolios under its management.

The following describes the most substantial – material or considered by the Company or its owner the Erste Asset Management GmbH (hereinafter: EAM) to likely be material – adverse impacts of investment decision on sustainability factors.

Sustainable investment means an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance;

sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment;

sustainability factors mean environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters.

The United Nations Principles for Responsible Investment (PRI) form the basis of our sustainable investment approach of the EAM. PRI is an initiative of investors, which collaborates with the United Nations Environment Programme Finance Initiative (UNEP FI) and the United Nations Global Compact (UN Global Compact). As a signatory, EAM has undertaken to integrate the following principles in its investment policy:

  1. We will incorporate ESG issues into investment analysis and decision-making processes.
  2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
  3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  4. We will promote acceptance and implementation of the Principles within the investment industry.
  5. We will work together to enhance our effectiveness in implementing the Principles.
  6. We will each report on our activities and progress towards implementing the Principles.

The EAM and the Company’s (as the affiliate of the EAM) product strategy places a particular focus on the consideration of sustainability risks in investment decision processes. When introducing new products and improving existing products, we clearly prefer those investment strategies that conform with this strategic orientation. Products being currently offered are proactively evaluated at least once per year and enhanced where possible in terms of integrating sustainability risks in the respective investment strategy.

The EAM and the Company also pays particular attention to sustainability principles in its proprietary investments. Experts from the ESG team are involved in making investment decisions for the proprietary portfolio.

EAM has drawn up procedures for taking the principal adverse impacts into account and has developed policies for fulfilling its due diligence obligations relating to the adverse impacts of investment decisions on sustainability factors.

The due diligence procedure consists primarily of

  • the regular review of quantitative requirements and limits in risk management using
    • positive lists and/or
    • negative lists
  • additional supporting (quantitative) evaluations in risk management for verifying the plausibility of assumptions and further (relevant) information for management
  • the review of the processes and documentation as part of the regular OP risk, ICS, and compliance audits

Procedures for taking the relevant financial and sustainability risks into account have been integrated into EAM’s processes.

Information about the policies on the identification and prioritisation of principal adverse sustainability impacts and indicators

EAM makes use of an ESG toolbox to address and consider various sustainability impacts and sustainability indicators. Not all elements of the toolbox are used in all investment strategies, rather the use of the individual tools is decided independently for each investment fund and portfolio depending on the respective investment strategy and the associated expected risk potential. If units in investment funds from other management companies are purchased, funds are generally selected that offer the highest possible level of conformity between the EAM fund and target fund in terms of the most significant adverse sustainability impacts and the sustainability indicators. The number of employed tools can be increased or reduced if regular reviews or current developments warrant this. The following chart provides an overview.

In general, the Company may use ESG tools for all of its investment funds to integrate sustainability risks into the execution of its investment process. 

Minimum standards

The minimum standards for direct investments are the fundamental environmental and sustainability requirements for the Company’s portfolios. In order to comply with the minimum requirements, the Company applies a ban list to issuers in the following three categories:

Coal mining

By substantially limiting investments in coal, the Company contribute to a shift away from the greatest source of greenhouse gas emissions and to displacing this energy source from the market over the long term.

 -

Weapons manufacturer and trafficking of arms

A key consideration is the exclusion of controversial weapons (manufacture and sale), which are regulated or prohibited under international conventions because of the immense suffering they can inflict upon the civilian population

Enhanced screening

In order to comply with social and ethical principles, the Company also excludes issuers from its investment universe that may be associated with child labor, pornography, and the Company also excludes food speculation.

Engagement

Engagement means that the EAM enters into a constructive and targeted dialogue with the companies in which it invests as part of its business activities in order to urge the decision-makers in these companies to employ a sustainable business strategy approach. The Management Company acts directly as well as through investor platforms such as PRI and CRIC and takes part in joint engagement activities through a research services provider. These projects are of a longer-term nature so that they can have a lasting impact on complex sustainable change processes, for example the effective abolishment of child labour. 

Where possible, the Company's employees regularly participate in events organized by issuers for institutional investors, in particular presentations, conferences, institutional meetings, and communicate with the issuer's representatives by telephone and / or e-mail.

Voting

The exercise of voting rights is an integral part of the management process. The Company exercises the voting rights conferred by the financial instruments that are held directly by its investment funds according to the sustainable Company’s Voting Policy, for which it can also commission a voting rights consultant. The objective here is to advocate for a sustainable business approach and the targeted management of individual, particularly relevant ESG risks.

If the business approach is not sufficiently sustainable, possible actions include not discharging the management board of a listed company from liability, or voting against supervisory board nominees for the listed company. Solutions for environmental and social issues are formally submitted to the management board of the listed company by voting yes on corresponding shareholder’s motions. Irrespective of ethical, moral, and sustainable interests, this is also in the financial interests of all investors. More detailed information about the voting policy can also be found on the Company’s website at https://www.erste-am.hu/hu/maganbefektetok/rolunk/szerepvallalas

In addition to the fundamental principles above, the following tools apply to investment funds that promote environmental or social characteristics or a combination of such characteristics pursuant to Art 8 of Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability‐related disclosures in the financial services sector (Disclosure Regulation): 

 

Exclusion criteria

The Management Company’s exclusion criteria set strict ethical boundaries. These exclusion criteria serve not only to meet the high ethical requirements of the investors, but to also expressly prohibit investments in socially, economically, and environmentally relevant fields such as nuclear energy, petroleum products, and the generation of electricity from coal due to the associated adverse impacts or risk profile. This makes a direct contribution to improving the social and environmental footprint.

Standard-based screening

Standard-based screening assesses investments for their conformity with certain international standards so as to manage and limit sustainability risks in the portfolio. The exclusion criteria of the Management Company’s investment funds take the relevant international standards into account, ranging from human rights and the International Labour Organization (ILO) standards to the UN Global Compact. Companies that do not adhere to these requirements are strictly excluded to avoid the Fund being complicit in the violation of these international standards. 

The following tools can also be used:

Best in class

Under a best-in-class approach, ESG criteria are applied to identify the pioneers within a specific sector. This approach allows a sector-neutral investment strategy while partially reducing sustainability risks. 

The ESG analysis using the Management Company’s ESGenius model evaluates companies based on their sustainable/ESG risk profile. Applying a best-in-class approach limits the investment universe to the best companies from an ESG perspective and ensures compliance with the highest sustainability standards. Over the medium term, this contributes to improving the sustainability management of the companies as all sustainable investors direct the capital flows. The success of this approach is demonstrated by a clear increase in the average rating, especially in the European market. 

Integration 

The integration and associated reduction of ESG risks in the security selection process improves the risk profile of the respective investment fund through the lower weighting of non-sustainable or less sustainable securities in the portfolio and also ensures that the investment fund makes an active contribution to the avoidance of social and environmental problems. One example is a typically better carbon footprint. The improved risk-adjusted return opportunities that result from integrating ESG risks into investment decisions have been confirmed by a large number of scientific studies. 

The internal ESGenius rating model provides all fund and portfolio managers with access to relevant ESG information on their portfolios and individual securities. 

The criteria taken into account in the own rating model can be found in the „Handbook for the Responsible Investing” of Erste Asset Management GmbH:

Theme funds

Theme funds make targeted investments in fields such as energy efficiency, renewable energy, sustainable mobility, the circular economy and social and development projects. The sustainability-related impact of the respective theme is reported for each of these funds.

The Austrian Ecolabel and FNG Label

Some of the Management Company’s funds have attained certification according to the current financial market sustainability standards such as the FNG Label and the Austrian Ecolabel. This independent external assessment and confirmation ensures compliance with prescribed sustainability requirements.

In addition to the fundamental principles and rules above, the following tools apply to investment funds that promote a sustainable goal pursuant to Art 9 of Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability‐related disclosures in the financial services sector (Disclosure Regulation):

Focused sustainability impact

The investment objective of the Management Company’s impact funds is to generate the expected returns while investing in concrete solutions to social and environmental challenges such as climate change. This is intended to achieve a measurable positive sustainable impact. The added environmental or social value that the Management Company’s impact funds create is calculated in detail and depicted in a transparent manner. This information is provided in addition to the company-wide reporting on carbon intensity and the calculation of the water footprint.

Description of the principal adverse sustainability impacts and of any actions in relation thereto taken or, where relevant, planned.

The EAM's ESGenius platform provides all fund and portfolio managers with access to relevant ESG information, which can then be taken into account in the investment decision.

The active implementation of minimum criteria, exclusion criteria, standard-based screening, and a best-in-class approach will make it possible to maintain a low level of investments with foreseeable adverse sustainability impacts.

Voting and engagement also facilitate the direct exercise of influence on target companies to advocate for and achieve the better management of sustainable factors.

Brief summary of our engagement policy, how we fulfil our responsibility for sustainability-related asset management or other obligations towards the shareholders

Active ownership

The active ownership means that the Company responsibility to not only take sustainability criteria into account when selecting securities, but to also be an active investor that engages with the companies to promote measures that serve social responsibility, environmental protection, and enhanced transparency.

We differentiate here between engagement, in other words formal and informal dialogue with companies, and the exercise of voting rights at annual general meetings.

Engagement

As a committed investor, EAM seeks active dialogue with the management of relevant companies as part of its sustainability process. This puts the spotlight on weaknesses in the management of environment, social, and governance aspects and is intended to serve as a way to find a joint solution for improvement. Engagement is not only a question of responsibility, but also contributes to minimising risks and can thus improve the long-term success of the investment.  EAM can exclude companies that consistently refuse to enter into dialogue from the investment universe.

The Company’s owner, the EAM employs four engagement strategies:

Austrian engagement

Promoting the integration of ESG criteria in management decisions of Austrian companies through investor meetings/personal discussions.

Collaborative engagement

Combination of ESG interests with other investors to have a more powerful voice, especially with international corporate groups. International sustainability networks such as PRI and CRIC and the engagement service of Sustainalytics are used for this.

Theme-specific engagement

ESG research on topics of particular social relevance. The results are made available to the fund management and may result in divestment. Investor pressure can also be increased by addressing the issue in the ESG letter and/or in a press release.

ESG dialogues

Promotion of the integration of ESG risks in management decisions of international companies via dialogues at the executive management level.

Voting

Voting is a central pillar of the active ownership approach. The Company exercises the voting rights related to the financial assets of the listed companies directly owned by the managed investment funds and portfolios in accordance with the Voting Policy in force at any time. The aim in this case is to promote the integration of sustainability into the corporate approach and the targeted management of certain particularly relevant ESG risks.

More detailed information about the Voting policy can also be found on EAM’s website at https://www.erste-am.hu/hu/maganbefektetok/rolunk/szerepvallalas

The Company discloses annually the information on the implementation of its participation and voting policy, including a general description of voting behavior, an explanation of key votes and, if any, the use of shareholder representation advisers.

It shall provide information on how votes were taken at the general meetings of the companies in which it holds shares, except in cases where they are not relevant due to the subject matter of the vote or the proportion of shareholding in the company.

The Company publishes the voting policy, as well as information on its implementation, on its website and makes it available free of charge there.

If the Company provides a portfolio management service to a client who qualifies as an institutional investor under the Participation and Voting Act, the rules of information, data provision and reporting on the implementation of the Inclusion Policy shall be regulated in the contract between the parties.

Reference to adherence to responsible business conduct codes and internationally recognised standards for due diligence and reporting

Code of Conduct

EAM subscribes to the fundamental values of a law-abiding, ethical and sustainability-oriented corporate culture, and lays the foundation for this culture in the EAM Code of Conduct, which contains binding rules for all day-to-day activities. 

Carbon footprint

EAM is actively striving to reduce its carbon footprint in all areas. To this end, the Scope 1, Scope 2, and Scope 3 emissions are measured in accordance with the Greenhouse Gas Protocol. The determined carbon emissions are then not only offset according to the pertinent international standards, but emission reduction goals are also defined and pursued (replacing business trips with video conferences, switch to commuting by public transport, reduced paper use, etc.).

EAM’s alignment with the Paris climate goals

The owner of the Company, the EAM is a member of Climate Action 100+. Climate Action 100+ is an investor coalition that was launched in 2017 and that is to run for a period of five years.

The goal is to motivate the 100 largest global greenhouse gas emitters to reduce their emissions, to financially measure climate risks in their balance sheets, and to bring their business strategies in line with the goals of the Paris Agreement.

 The 100 addressed companies together are responsible for around two thirds of worldwide greenhouse gas emissions. Under Climate Action 100+, Erste Asset Management has assumed primary responsibility for the joint engagement with OMV AG.

EAM decided to participate in PACTA 2020 in May of 2020. PACTA stands for Paris Agreement Capital Transition Assessment and is a model that was developed by the independent non-profit think tank 2° Investing Initiative to evaluate the climate-friendliness of financial portfolios. The objective is to measure how portfolios align with the Paris climate goals.In 2016, EAM became the first Austrian asset manager to sign the PRI Montreal Pledge. This obligates EAM to measure and publish the carbon footprint of all of its equity and bond funds

Disclosure according to the Article 5 of EU Regulation No 2019/2088 on sustainability‐related disclosures in the financial services sector (SFDR)

Transparency of remuneration policies in relation to the integration of sustainability risks

The remuneration system described in this remuneration policy is conducive to an appropriate management of sustainability risks as defined by SFDR and is in line with the sustainability strategies of EAM.

In connection with the consideration of sustainability risks in the remuneration policy of the Company, particular care is taken to ensure that no excessive risk taking with regard to sustainability risks is encouraged and that the remuneration structure is linked to a risk-weighted performance

Accordingly, the consideration of sustainability risks in the investment process is incorporated into the performance assessment of the fund and portfolio management. The Company aims to measure the fulfilment of the above-mentioned principles by the Employees individually described KPI performances.

Disclosure in accordance with Article 6 of the SFDR - on the integration of sustainability risks

Sustainability risk means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment;

The sustainability risks are not depicted as a discrete type of risk but are included in the existing risk categories because they impact existing risk types to which the investment fund is potentially exposed.

The Erste Asset Management Limited (hereinafter: Company) has identified the following relevant sustainability risks: 

  • Environmental risks relating to mitigating the effects of climate change, adaptation to climate change and the transition to a lower-CO2 economy, protecting biodiversity, resource management, waste, and other harmful emissions. 
  • Social risks relating to working and safety conditions and compliance with recognised labour standards, respecting human rights, and production safety.
  • Governance risks relating to the due diligence obligations of corporate managers, measures for fighting bribery and corruption, and compliance with the pertinent laws and regulations.   

The minimum standards for direct investments are the fundamental environmental and sustainability requirements for the Company’s portfolios. In order to comply with the minimum requirements, the Company applies a ban list to issuers in the following three categories:

Coal mining

By substantially limiting investments in coal, the Company contribute to a shift away from the greatest source of greenhouse gas emissions and to displacing this energy source from the market over the long term..

 -

Weapons manufacturer and trafficking of arms

A key consideration is the exclusion of controversial weapons (manufacture and sale), which are regulated or prohibited under international conventions because of the immense suffering they can inflict upon the civilian population

Enhanced screening

In order to comply with social and ethical principles, the Company also excludes issuers from its investment universe that may be associated with child labor, pornography, and the Company also excludes food speculation.

The requirements described above also apply when the Company purchases investment funds managed by the Erste Group. In cases where the Company does not intend to purchase investment funds managed by the Erste Group in the managed portfolios, it seeks to comply with the requirements described above when selecting the funds to be acquired.

Compliance with these minimum requirements is implemented through the Company's Securities Approval Process.

The Company’s owner (Erste Asset Management GmbH) also makes use of data from external providers to collect raw sustainability-related inputs for its own analyses.

Given that the data used may be incomplete, inaccurate and temporarily unavailable, there is a risk that a security or a result may not be applicable.

When integrating the investment decisions of sustainability risks, the Company uses the group's advanced, own rating model, the so-called ESGenius. The aim of this rating model is to combine the prevailing sustainability trends in the market (ethics-oriented approach and risk view) and to produce a complex statistical measure for issuers. By combining data from different providers, the risk of data gaps can be reduced and the authenticity of a different viewer can be verified.

The criteria taken into account in the own rating model can be found in the „Handbook for the Responsible Investing” of Erste Asset Management GmbH:

https://www.erste-am.hu/en/private-investors/sustainability

When selecting the securities to be used in portfolio management, the Company pays special attention to sustainability risks.

A forward-looking assessment of the expected impact of sustainability risks on the portfolio’s yield results that the performance of a given portfolio achieves lower overall performance or a lower yield in certain market phases compared with other portfolios of similar composition and from portfolios implementing a similar investment strategy may achieve lower returns in certain market phases.

In the Company's view, taking sustainability risks into account can have a positive effect on returns, as securities of issuers with higher sustainability risks are given less weight in the investment portfolio, thus mitigating or avoiding disproportionately weak results due to a potential sustainability risk event.

The forward-looking assessment of the likely impacts of sustainability risks on the Fund’s yield is based on the fact that an investment fund may achieve lower overall performance or a lower yield in certain market phases compared with other financial products whose underlying assets are not selected on the basis of sustainability criteria and that have no sustainability risks.

However, the Company believes that taking sustainability risks into account can have a positive impact on yield because the resulting lower inclusion or complete exclusion of securities from certain issuers in the portfolio can also mitigate or preclude disproportionately negative returns stemming from the occurrence of a specific sustainability risk.

Disclaimer

This document is an advertisement. All data is sourced from Erste Asset Management GmbH, unless indicated otherwise. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in Amtsblatt zur Wiener Zeitung in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH, pursuant to the provisions of the AIFMG in connection with the InvFG 2011.

The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the key investor document/KID can be viewed in their latest versions at the  web site www.erste-am.com or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the key investor document is available, and any additional locations where the documents can be obtained can be viewed on the web site www.erste-am.com.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund. Please note that investments in securities entail risks in addition to the opportunities presented here. The value of shares and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your shares. Persons who are interested in purchasing shares in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision.

Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of fund shares to American citizens. Misprints and errors excepted.

 

DISCLAIMER FOR THE SALE of non-US funds to US investors

Limitations on Sale

The shares issued for this Investment Fund may only be publicly offered or sold in countries in which such a public offer or sale is permitted. Therefore, unless the Management Company or representatives of the Management Company have filed an application with the local supervisory authorities and permission has been granted by the local supervisory authorities, and as long as no such application has been filed or no such permission granted by the supervisory authorities, this prospectus does not represent an offer to buy investment shares.

The shares have not been and will not be registered pursuant to the 1933 United States Securities Act as amended (hereinafter the "Securities Act of 1933") or pursuant to the securities regulations of a state or other public entity of the United States of America or its territories, possessions or other areas subject to its sovereignty, including the Commonwealth of Puerto Rico (hereinafter collectively designated as the "United States").

The shares may not be publicly offered, sold, or otherwise transferred in the United States. The shares are being offered and sold on the basis of an exemption from registration pursuant to Regulation S of the Securities Act of 1933. The Management Company and the Investment Fund have not been and will not be registered pursuant to the 1940 United States Investment Company Act as amended, or pursuant to any other US federal laws. Therefore, the shares will not be publicly offered or sold in the United States or to or for the account of US citizens (in the sense of the definition for the purposes of US federal laws governing securities, goods, and taxes, including Regulation S of the United States Securities Act of 1933 – hereinafter collectively referred to as "US citizens"). Subsequent transfers of shares to the United States or to US citizens are prohibited.

The shares have not been admitted for sale or public offering by the US Securities and Exchange Commission (hereinafter designated as the "SEC") or any other supervisory authority in the United States, and no application for admittance for sale or public offering has been rejected by the SEC or any other supervisory authority in the United States; furthermore, neither the SEC nor any other supervisory authority in the United States has released an opinion on the correctness and appropriateness of this prospectus or the advantages of the fund shares. The United States Commodity Futures Trading Commission has neither examined nor approved this document or any other sales documents for the Management Company or the Investment Fund.

No party is authorised to provide information or make assurances that are not contained in the prospectus or in the documents referred to in the prospectus. These documents are available to the public at the domicile of the Management Company.

This prospectus may not be circulated in the United States.

Investors who are Restricted Persons pursuant to US Regulation No. 2790 of the National Association of Securities Dealers (NASD 2790) must immediately report any investments in funds from the Management Company.