The Sub-Fund pursues the objective of reducing carbon emission exposure in order to achieve climate change mitigation, consistently with the long-term temperature goal of the Paris Agreement. Taking into account the GHG intensity of investee companies (total scope 1+2 in tCO2eq/EURm) in the last 3-5 years as well as their forward-looking emission reduction targets, the portfolio manager will aim to maximise the net reduction of GHG intensity of the overall portfolio.
The Sub-Fund invests in securities of issuers established in Europe with a long/short equity strategy. The investable universe for the long part of the portfolio is made of all securities issued by such issuers with the exclusions described above. In addition, consistently with the sustainable investment objective of the Sub-Fund, companies with the worst 5% GHG Intensity (total scope 1+2 in tCO2eq/EURm) are excluded, as well as other companies based on the sectorial criteria described in the following sections.
The internal model adopted by the Management Company assigns an ESG score to each company in the investable universe taking into account their GHG Intensity (total scope 1+2 in tCO2eq/EURm) in absolute value and the trend of such indicator, the PAIs quoted above as well as other ESG indicators, e.g. executive compensation linked to ESG, women in workforce, employee turnover, independent board members, etc. Companies with the worst 10% ESG scores within each industry sector will not be invested in.
The investable universe for the short part of the portfolio is made of all securities issued by European issuers with a focus and medium and large cap companies. Companies with the best 10% ESG scores assigned as described above within each industry sector cannot be shorted.
The sustainable investments that the Sub-Fund intends to make are considered not to cause significant harm to any environmental or social sustainable investment objective as the Management Company takes into account all PAIs disclosed in Table 1 of Annex I of the Commission Delegated Regulation (EU) 2022/1288. The Management Company verifies the respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
Compliance with the DNSH principle is verified at the time of the investment and subsequently monitored.
In case of worsening of the indicators or the occurrence of a negative event, the Management Company may, considering the interest of the investors, engage directly or collectively the issuer and/or reduce the size of the investment.
The process of integrating ESG factors is based on data extracted from sustainability reports and from the external data provider Sustainalytics. If deemed appropriate, the SGR prepares specific engagement activities with the Issuers for the verification and integration of missing data.
No adequate EU Climate Transition Benchmark or EU Paris-aligned Benchmark as qualified in accordance with Regulation (EU) 2016/1011 is available due to the long/short strategy adopted by the Sub-Fund; therefore, the Management Company has adopted an internal model to ensure the attainment of the Sustainable Investment objective.

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The sustainable investments that the Sub-Fund intends to make are considered not to cause significant harm to any environmental or social sustainable investment objective as the Management Company takes into account all PAIs disclosed in Table 1 of Annex I of the Commission Delegated Regulation (EU) 2022/1288.

A control, which contributes to verifying that the sustainable investments do not cause significant harm to any environmental or social sustainable investment objective, is the exclusion of companies with a severe controversy level or countries with a severe risk rating.

The “controversy level” identifies companies involved in incidents that may negatively impact stakeholders, the environment or the company’s operations; such level is rated on a scale from 1 to 5 according to the Management Company’s ESG data provider, Sustainalytics SARL (part of Morningstar group). A controversy level of 5 is considered severe. The “country risk rating” combines an assessment of the government’s current stock of capital, including natural resources, production, human resources and institutional capital with an assessment of a specific country’s ability to manage it in a sustainable manner. Such rating is assessed by the Management Company’s ESG data provider on a scale from 0 to 100; a rating higher than 40 is considered severe while 30 is considered average.

Compliance with the DNSH principle is being assessed for every investment as a whole that the Sub-Fund will undertake.

The Management Company considers the indicators for adverse impacts set out in Table I of Annex I of the Commission Delegated Regulation 2022/1288.

If the PAI are related to environmental risks, compliance with DNSH under the Taxonomy Regulation is verified at the issuer level; in case social risks are involved, the issuer is required to respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

Additionally, the Management Company, may engage with the issuer to promote the adherence to such principles.

The Management Company leverages the qualitative and quantitative data and research received from Sustainalytics; such information is based on official data integrated with assessments and estimates elaborated on the basis of information gathered from other sources, i.e. documents on companies’ web pages, internal research, direct engagement.

Compliance with the DNSH principle is verified at the time of the investment and subsequently monitored. In case of worsening of the indicators or the occurrence of a negative event, again, the Management Company may, considering the interest of the investors, engage directly or collectively the issuer and/or reduce the size of the investment.

The Management Company verifies the respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights by verifying an indicator, provided  by Sustainalytics, that assesses the companies’ impact on stakeholders and the extent to which a company causes, contributes or is linked to violations of international norms and standards. Such indicator shows if the issuer respects such Minimum Safeguards, Additionally, the Management Company considers the PAIs “UNGC Principles/OECD Guidelines Violations” and “UNGC/OECD Guidelines Lack of Compliance Mechanism” provide additional details to the Management Company as to what extent the company implements actions to improve such procedures.

Such assessment is also summarized in a synthetic ESG risk indicator which is considered during the securities selection process, by excluding the investment whenever such score is severe (the overall score is severe if at least one of the component factors is severe). The ESG risk rating assesses the issuer’s unmanaged risk by evaluating its ESG exposure and the management of material ESG issues.

Once the investment is performed, the score is monitored to ensure appropriate actions are taken in case of bad news, including engagement of the company’s management and/or reduction of the investment.

The Sub-Fund pursues the objective of reducing carbon emission exposure in order to achieve climate change mitigation, consistently with the long term temperature goal of the Paris Agreement. Taking into account the GHG intensity of investee companies (total scope 1+2 in tCO2eq/EURm) in the last 3-5 years as well as their forward-looking emission reduction targets, the portfolio manager will aim to maximise the net reduction of GHG intensity of the overall portfolio.

The Sub-Fund invests in securities of issuers established in Europe with a long/short equity strategy.

The investable universe for the long part of the portfolio is made of all securities issued by such issuers with the exclusions described above. In addition, consistently with the sustainable investment objective of the Sub-Fund, companies with the worst 5% GHG Intensity (total scope 1+2 in tCO2eq/EURm) are excluded, as well as other companies based on the following criteria:

– Oil & Gas Production (threshold>25%): This includes the oil and gas upstream, midstream and downstream. Petrochemicals and distribution activities are not included. The Oil & Gas industry is controversial because of its high carbon intensity and the impact on climate change. Also, it is very resource intense in terms of land and water resources. Its impacts on ecosystems include spillages, waste management issues, and spontaneous flaring, which can lead to fines and are associated with reputational risks. In certain geographies oil & gas operations are associated with strained relations with local communities and with issues with governance and business practices. Health and safety issues are also important as repetitive accidents can lead to operational disruption or fatalities.

– Shale Energy Extraction (threshold>10%): This includes the extraction of shale gas and/or oil. Shale energy extraction involves environmental risks like water pollution and carbon emissions. Rock fracture, fracking, is needed to make natural gas flow through the shale, which poses environmental concerns due to its potential effects on the watershed. Shale energy is also associated with slightly higher carbon emissions than conventional resources.

– Oil Sands Extraction (threshold>10%): This includes oil sands extraction activities. Oil sands are considered controversial because they are extremely carbon intensive, and dirty – their extraction methods cause air pollution ‘in situ’, as well as water withdrawal, and contamination from mining.

– Arctic Oil & Gas Exploration (threshold>10%): This includes oil and gas exploration activities in offshore Arctic regions. Exploring for oil and natural gas in the Arctic is controversial in the context of global climate change as well as because of the increased risk of environmental disasters.

– Thermal Coal power generation (threshold >25%): On an energy  generation perspective thermal coal is easily substitutable. Thermal coal, also known as energy coal, or steam coal, is mainly used in power generation.

– Thermal Coal mining and exploration (threshold>1%):  On a lifecycle basis thermal coal is more carbon intensive than other fossil fuel sources.

– Nuclear Power Production (threshold>10%): This includes the production of energy from nuclear sources. The use of Nuclear Power has advantages in that it has low CO2 emission, is not a scarce resource, and that some isotopes can be used for medical applications. Significant downsides are the substantial environmental damage and long-term health concerns for living organisms in case of accidents, nuclear waste disposal, and potential usage of waste as input for nuclear weapons.

The internal model adopted by the Management Company assigns an ESG score to each company in the investable universe taking into account their GHG Intensity (total scope 1+2 in tCO2eq/EURm) in absolute value and the trend of such indicator, the PAIs quoted above as well as other ESG indicators, e.g. executive compensation linked to ESG, women in workforce, employee turnover, independent board members, etc.

Companies with the worst 10% ESG scores within each industry sector will not be invested in.

The investable universe for the short part of the portfolio is made of all securities issued by European issuers with a focus and medium and large cap companies.

Companies with the best 10% ESG scores assigned as described above within each industry sector cannot be shorted.

The strategy is implemented by verifying these eligibility criteria at the time of the investment and subsequently monitoring the respect of such criteria. The Investment Manager verifies the asset eligibility criteria and the Management Company daily monitors the Sub-Fund’s exclusions as well as controversies and risk rating criteria. In case, after the investment, the Management Company verifies a worsening of the indicators or the occurrence of a negative event, it may, in the interest of investors, engage the issuer and/or reduce the investment.

Taking into account the GHG intensity of investee companies (total scope 1+2 in tCO2eq/EURm) in the last 3-5 years as well as their forward-looking emission reduction targets, the portfolio manager will aim to maximise the net reduction of GHG intensity of the overall portfolio.

A minimum of 80% of the Sub-Fund’s gross exposure will be invested in Sustainable Investments with an environmental objective, ie. the reduction of GHG intensity of investees companies. To assess the portion of Sustainable Investments a pass/fail approach is being applied. In other words, any investment in a company made by the Sub-Fund that meets all of the binding elements of the investment strategy will be considered as a Sustainable Investment as a whole.

The remaining part of the portfolio will not invest in Sustainable Investments (#2) and mainly consists of futures and options on indices, dealt for hedging purposes, and cash for collateral or liquidity management purposes. In such cases the minimum safeguards on such investments cannot be guaranteed.

The attainment of the Sub-Fund’s E/S characteristics is also pursued by investing in derivatives on single stocks; in such case, their contribution to the objective is measured as if the underlying security was directly held in the portfolio.

Verification of the respect of conditions to include securities in the portfolio is ensured by the internal due diligence process operated ex-ante by the manager, which verifies whether the security/issuer is compliant with Kairos Responsible Investment policy and with the sustainable investment objective of the Sub-Fund.

Furthermore, the Risk Management function carries out ex-post controls and reports any exceptions with respect to the compliance or non-compliance of the positions in the portfolio with the Responsible Investment policy by sending control emails addressed to the manager and to the units involved in the process.

In relation to the sustainability indicators identified by the Management Company, in case of worsening or the occurrence of a negative event, the Management Company may engage directly or collectively the issuer.

Where the situation does not improve and/or the issuer does not formally commit to improve it over a one-year period, the Management Company, taking into account the best interest of investors, may sell the financial instruments.

The Sub-Fund commits to invest in Sustainable Investments for at least 80% of its assets (gross exposure), for which the respect of DNSH as well as Minimum Safeguards according to the Taxonomy Regulation apply.

Additional binding elements, as detailed above, include:

– the exclusion criteria:
– Worst 5% GHG Intensity (total scope 1+2 in tCO2eq/EURm
– Oil & Gas Production (threshold>25%)
– Shale Energy Extraction (threshold>10%)
– Oil Sands Extraction (threshold>10%)
– Arctic Oil & Gas Exploration (threshold>10%)
– Thermal Coal power generation (threshold>25%)
– Thermal Coal mining and exploration (threshold>1%)
– Nuclear Power Production (threshold>10%)
– the risk rating criteria
– the controversy level.

In addition, according to the Management Company’s internal model:

– companies with the worst 10% ESG scores within each industry sector will not be invested in for the long portfolio;
– companies with the best 10% ESG scores assigned as described above within each industry sector cannot be shorted.

Compliance with the DNSH principle is being assessed for every investment as a whole that the Sub-Fund will undertake.

If the PAI are related to environmental risks, compliance with DNSH under the Taxonomy Regulation is verified at the issuer level; in case social risks are involved, the issuer is required to respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

The Management Company leverages the qualitative and quantitative data and research received from Sustainalytics; such information is based on official data integrated with assessments and estimates elaborated on the basis of information gathered from other sources, i.e. documents on companies’ web pages, internal research, direct engagement.

The Management Company verifies the respect of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights by verifying an indicator, provided  by Sustainalytics, that assesses the companies’ impact on stakeholders and the extent to which a company causes, contributes or is linked to violations of international norms and standards. Such indicator shows if the issuer respects such Minimum Safeguards, Additionally, the Management Company considers the PAIs “UNGC Principles/OECD Guidelines Violations” and “UNGC/OECD Guidelines Lack of Compliance Mechanism” provide additional details to the Management Company as to what extent the company implements actions to improve such procedures.

Such assessment is also summarized in a synthetic ESG risk indicator which is considered during the securities selection process, by excluding the investment whenever such score is severe (the overall score is severe if at least one of the component factors is severe). The ESG risk rating assesses the issuer’s unmanaged risk by evaluating its ESG exposure and the management of material ESG issues.

The process of integrating ESG factors is based on data extracted from sustainability reports and from the external data provider Sustainalytics, which provides in-depth research, evaluation and analysis on the approach and practices of thousands of companies worldwide in relation to the issues environmental, social and governance. If deemed appropriate, the SGR prepares specific engagement activities with the Issuers for the verification and integration of missing data.

The data-provider boasts a team of more than 800 expert analysts, with 30 years of experience in the field of data collection and analysis. Using cutting-edge technologies, the provider aims to increase the timeliness and accuracy of its services, as well as to constantly review and validate the quality of the data and sources used. The analyzes are regularly updated to incorporate the new and emerging risks most relevant to the core business model of the company being valued.

Data is received through an IT flow established with the provider by the risk management unit. The data is stored within the database and on the basis of this data and any additions deriving from the engagement activity, it is used for control purposes, processing internal selection and reporting models.

In the event that the data is not provided by the provider because it is not made available by the issuer, the value is prudently set to 0, and therefore the reference issuer will not be considered as an investment that promotes environmental and/or social characteristics. In the event of failure to cover the Issuer by the provider, even in the presence of disclosure by the issuer, the SGR will evaluate the integration of the database with the data produced by the sustainability reports on a case-by-case basis.

The lack of information provided by the companies in which you invest and the timing of data updates by the provider can make it difficult to evaluate the promotion of environmental or social characteristics. If necessary, the SGR carries out an activity of verifying the availability and updating of the data directly with the Issuers. In some cases estimates or industry proxies may be used.

The SGR carries out due diligence activities on the securities underlying the Sub-Fund’s portfolio, both through ex ante controls performed directly by the manager, and through positive and negative screening criteria for the selection of the investable universe and on the assessment of ESG risk in order to select the securities that make up the portfolio in line with the company’s Responsible Investment policy and with the investment objectives of the Sub-Fund. Furthermore, Kairos intends to encourage the companies it invests in to engage in more sustainable business practices. Therefore, in addition to taking into consideration their assessment of sustainability risk, the company undertakes to discuss with the companies in which it intends to invest, how they intend to manage their ESG risk factors and develop their businesses in this regard.

With the aim of preventing, limiting and managing the negative impacts of investment decisions on sustainability, Kairos Partners conducts engagement actions, both individually and in collaboration with other investors and exercises its voting rights on the issuers present in its portfolio, with the objective of creating awareness and influencing the choices of issuers in relation to specific sustainability issues, according to the times and methods established in its Engagement Policy and in the Strategy for the exercise of voting rights held in managed funds. The engagement policy is available on the SGR website.

No adequate EU Climate Transition Benchmark or EU Paris-aligned Benchmark as qualified in accordance with Regulation (EU) 2016/1011 is available due to the long/short strategy adopted by the Sub-Fund; therefore, the Management Company has adopted an internal model to ensure the attainment of the Sustainable Investment objective.

Such internal model complies with art. 12 of Regulation (EU) 2020/1818 because it excludes companies involved in any activities related to controversial weapons, in the cultivation and production of tobacco, companies that, according to Sustainalytics, do not respect the United Nations Global Compact (UNGC) Principles or the Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, companies that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite, companies that derive 10% or more of their revenues from the exploration, extraction, distribution or refining of oil fuels, companies that derive 50% or more of their revenues from the exploration, extraction, manufacturing or distribution of gaseous fuels.

Companies that derive 50% or more of their revenues from electricity generation with a GHG intensity of more than 100g CO2 e/kWh can be invested in if they have a plan to reduce emissions below such level with a timeframe consistent with the objectives of the Paris Agreement. The Management Company monitors the improvement with a view to engage the issuer in case of deviation from the objective.

In addition, the model ensures that investee companies comply with DNSH under the Taxonomy Regulation.

Finally, the following additional exclusion criteria are applied in the selection of the investment universe for the long portfolio:

– thermal coal, with a 25% revenue threshold from power generation;
– Shale Energy Extraction (threshold>10%)
– Oil Sands Extraction (threshold>10%)
– Arctic Oil & Gas Exploration (threshold>10%)
– Nuclear Power Production (threshold>10%)
– Predatory lending
– Small arms, with a 10% revenue threshold.

Companies domiciled or listed in the following countries, as well as securities issued by governments or governmental agencies in the same countries are excluded:

– EU High Risk Third Countries;
– FATF high-risk jurisdictions;
– countries under financial embargo;
– countries with a severe risk rating.

Furthermore, companies having a high controversy level are also excluded.