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:
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
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:
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.