General guidelines relating to sustainability
In 2019, the European Union adopted the Sustainable Finance Disclosure Regulation (EU Regulation 2019/2088 "SFDR") in order to improve transparency with regard to the sustainability and associated risks of investments, as well as towards financial market participants such as AIF or UCITS fund management companies.
The risks relating to sustainability include environmental, social, and governance events or circumstances that may have a significant negative impact on the perceived value of the investment.
The two primary levels of transparency of such information are:
- At the entity level;
- At the product level, as regards the AIF or UCITS (Funds), presenting environmental or social characteristics or whose investment objectives consist in targeting sustainable investments as defined in the SFDR.
These transparency requirements therefore apply to GERIFONDS (Luxembourg) SA as well as to its representatives to whom it delegates the portfolio management function of the Funds (GLUX). They also apply to the Funds managed by GLUX.
As a financial market participant, GLUX must comply with the requirements of EU REGULATION 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 27 November 2019 (the Regulation) on the reporting of sustainability information within the financial services sector.
The Regulation introduces harmonized transparency rules for financial market participants and financial advisors. These rules address the integration of sustainability risks, the consideration of negative sustainability impacts in their processes, as well as the provision of sustainability information with respect to financial products.
The Regulation defines sustainability risk as an environmental, social, or governance event or condition that, if it were to occur, could have an actual or potential material adverse effect on the value of an investment.
The Regulation defines sustainability factors as those pertaining to environmental, social, and personnel issues, respect for human rights, and the fight against corruption and bribery.
a) Addressing sustainability risk
GLUX, in particular the Funds, is required to disclose the manner in which potential sustainability risks are factored into their investment decision-making processes.
In accordance with Article 6 of the Regulation, taking into account the diversity of investments in relation to the strategy and investment policy of the UCIs managed by GLUX (hereinafter collectively the "Funds"), sustainability risks may be taken into account among other elements of analysis when making an investment decision but are not the determining criteria defining the framework of the investments actually held in the Funds.
The majority of the Funds managed by GLUX are categorized as either Article 6, i.e. they are products that do not include sustainable objectives or characteristics in their investment process, or under Article 8, i.e. they are funds that do include certain sustainability characteristics as part of their investment approach. For the latter funds, a document outlining how these characteristics or objectives are taken into account is specifically presented on our website under the "document" section referring to each unit class. A pre-contractual document as well as a periodical report also describing certain information pertaining to these sustainability transparency requirements, can also be found in the same section.
In addition, the securities held in the portfolio are subject to regular monitoring to ensure compliance with the principles of the UN Global Compact.
b) Integrating sustainability risks into GLUX's compensation policy
Sustainability risks also form an essential component of our remuneration model.
Sustainability risks are factored into our compensation policies at various levels. They are integrated both in terms of compensation of our delegated managers, as well as at the internal GLUX level.
GLUX's remuneration policy takes into account the inclusion of sustainability risks into the investment decision processes.
Sustainability risk is addressed in particular in the context of a general good governance practice by means of performance assessments under our variable compensation plans. All employees receiving a portion of their compensation as variable pay are assessed against qualitative targets commensurate with their position and responsibilities.
Thus, employee performance is evaluated against risk and compliance outcomes, including sustainability risk. The latter require compliance with regulatory and even self-regulatory standards as part of our internal policies.
c) Failure to take into account the negative impact of investment decisions on sustainability factors
Investors are cautioned that it is rather difficult to assess with reasonable certainty the existence or likely outcome of sustainability risks on investments and/or their impact on the Funds.
Each Fund is expected to comply with its investment policies, objectives, and general investment restrictions as described in the Funds' prospectuses and management regulations. These do not incorporate sustainability considerations.
Furthermore, due to its size, its lack of complexity, and its organization, GLUX does not currently address negative sustainability impacts, nor does it plan on addressing them.
Consequently, and in connection with Article 4 and Article 7 of the Regulation, GERIFONDS (Luxembourg) SA does not take into account the negative impact of investment decisions on sustainability factors.
The Funds' investments do not reflect the European Union's criteria for environmentally sustainable economic activities as specified in EU Regulation 2020/852.