KIS ACTIVE BOND ESG

KIS ACTIVE BOND ESG

KIS Active Bond ESG is a flexible bond fund which invests mainly in the European market and in particular in corporate and financial bonds which comply with ESG logic. The core part of the portfolio consists of Green, Social and Sustainability Bonds. The focus is accentuated on credit.

The management style is active, with a top-down approach linked to the choice of sectors, duration and strategic positioning which, combined with a careful bottom-up analysis with attention to the individual issuer, are the filter for defining the investment universe. The strategy is totally flexible, with a focus on the European corporate market, with the possibility of investing internationally on an opportunistic basis.

The construction of the asset allocation is guided by broad diversification and minimization of the correlation between existing positions, calibrating the risk/return ratio. The individual strategies are implemented with a view to optimizing returns, following a rigorous risk budgeting approach.

The idea of ​​the team is to look for investment opportunities through:

– credit strategies;
– interest rate strategies.

The main objective of management is capital appreciation in the medium term.

Identity card

  • Category

    Flexible fixed-income fund

  • Management style

    Top-down approach integrated by a rigorous bottom-up fundamental analysis

  • Investment universe

    Focused on the European fixed income market that respects ESG criteria

  • Objective

    To achieve capital appreciation over the medium-long term

  • ESG Approach
    The Sub-Fund promotes environmental and social characteristics and partially invest in sustainable investments and, therefore, is subject to the disclosure obligation pursuant to art. 8 of Regulation (EU) 2019/2088. Further information is available in the Sustainability Disclosure section below and in the prospectus.
  • Level of risk
    • 1
    • 2
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    • 4
    • 5
    • 6
    • 7

  • Factsheet

SUSTAINABILITY DISCLOSURE

Sustainability-related disclosures

SUSTAINABILITY DISCLOSURE

Sustainability-related disclosures

  1. Summary

    This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment. The Sub-Fund partially intends to make sustainable investments aiming at financing or re-financing green and/or social projects.
    90% of the Sub-Fund’s net assets will be aligned with the environmental and social characteristics promoted, and 70% of the Sub-Fund’s net assets will be invested in green, social and sustainability bonds, i.e. sustainable investments.
    The Sub-Fund promotes environmental characteristics including air emission programs and it also considers the respect of the UNGC Principles and of the OECD Guidelines for Multinational Enterprises; the strategy is implemented by applying the inclusion and exclusion criteria described in the following sections.
    The Management Company considers the indicators for adverse impacts set out in Table I of Annex I of the Commission Delegated Regulation 2022/1288 relevant to the project or type of project funded by the instrument, ie. disclosed in the project prospectus.
    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.
    In relation to the sustainability indicators, 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 process of integrating ESG factors focuses on the evaluation of the prospectuses of the individual bond issues and on the analysis of the framework on these issues carried out by external providers.
    No benchmark has been identified for this Sub-Fund to attain such characteristics.

    Download the summary 01.01.2023

  2. No sustainable investment objective

    This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment. The Sub-Fund partially intends to make sustainable investments aiming at financing or re-financing green and/or social projects.

    The bonds that this Sub-Fund invests in are issued with the specific objective of financing initiatives of this kind and are set to follow the Green and/or Social Bond Principles adopted by the International Capital Market Association (“ICMA Principles”) aiming to guarantee transparency.

    Green Bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects, i.e. renewable energy, energy efficiency, environmentally sustainable management of living natural resources and land use, green buildings, climate change adaptation, clear transportation, sustainable water and wastewater management, circular economy adapted products, production technologies and processes and/or certified eco-efficient products, green buildings.

    Social Bonds coherently finance or re-finance social projects, i.e. affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy), access to essential services (e.g. health, education and vocational training, healthcare, financing and financial services), affordable housing, employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises, including through the potential effect of SME financing and microfinance; food security and sustainable food systems (e.g. physical, social, and economic access to safe, nutritious, and sufficient food that meets dietary needs and requirements; resilient agricultural practices; reduction of food loss and waste; and improved productivity of small-scale producers); socioeconomic advancement and empowerment (e.g. equitable access to and control over assets, services, resources, and opportunities; equitable participation and integration into the market and society, including reduction of income inequality).

    Sustainability Bonds finance or re-finance a combination of Green and Social projects.

    The contribution of such bonds to the sustainable investment objectives is therefore guaranteed by the nature of the projects they finance.

    The green, social and sustainability bonds the Sub-Funds invests in follow the ICMA principles ie: 1) the use of proceeds for an eligible project, i.e. a project respecting the ICMA Principles, 2) a documented process for project evaluation and selection, including disclosure of the objective and of potential social and/or environmental risks; 3) a clearly tracked management of proceeds; 4) an annual reporting regarding the allocation of proceeds and the expected environmental impacts.

    The Management Company verifies if the issue respects such Principles and 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 relevant to the project or type of project funded by the instrument, as disclosed according to the second principle.  Where such principle is not respected, the Management Company takes into account the PAI specific to the sector of activity of the issuer.

    An additional 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. 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.

    The Management Company considers the indicators for adverse impacts set out in Table I of Annex I of the Commission Delegated Regulation 2022/1288 relevant to the project or type of project funded by the instrument, ie. disclosed in the project prospectus.

    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 the ESG data provider; 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.

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

    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.

  3. Environmental or social features of the financial product

    The Sub-Fund promotes environmental characteristics including air emission programs and it also considers the respect of the UNGC Principles and of the OECD Guidelines for Multinational Enterprises.

    The Company has identified criteria and methodologies for selecting the investable universe that take into consideration ESG factors. The aforementioned criteria are divided into exclusion and inclusion criteria.

    Investment in certain companies is excluded based on the following criteria:

    – Norm-based screening;
    – Controversy levels;
    – Risk rating;
    – Ethical exclusions.

    The controversy level identifies companies involved in incidents that may negatively impact stakeholders, the environment or the company’s operations.

    The inclusion criteria determine the list of companies for investment purposes that have best integrated ESG factors, presenting lower risks with respect to these factors. Therefore, environmental, social and governance parameters are taken into account, as better described in the section Methodologies relating to environmental or social characteristics.

    The Sub-Fund considers the sustainability indicators listed below in order to measure the attainment of the environmental or social characteristics promoted by the Sub-Fund, which are monitored and reported at the total portfolio level.

    – with regard to air emission programs, GHG Emissions (total scope 1+2 in tCO2eq) and GHG Intensity of investee companies (total scope 1+2 in tCO2eq/EURm);
    – referring to water and waste management, the Emissions to Water and Hazardous Waste and Radioactive Waste Ratio respectively;
    – in relation to the respect of UNGC Principles and OECD Guidelines, the Violations and Lack of Processes and Compliance Mechanisms, which should always be zero;
    – concerning social and employee matters, the Unadjusted Gender Pay Gap and the Board Gender Diversity.

  4. Investment strategy

    The Sub-Fund will gain exposure to a range of credit related instruments. In this perspective up to 100% of the Sub-Fund’s assets may be invested in debt securities of any financial duration issued either by governments or by non-government entities.

    Among those, 90% of the Sub-Fund’s net assets will be aligned with the environmental and social characteristics promoted as described above, and 70% of the Sub-Fund’s net assets will be invested in green, social and sustainability bonds, i.e. sustainable investments.

    The environmental characteristics are firstly promoted by excluding from the investment universe certain industries or sectors, which may negatively affect the characteristics that the Sub-Fund promotes as well as norm-based screening, as per Kairos Responsible Investment Policy.

    Such exclusions include but may not be limited to:

    – tobacco producers,
    – thermal coal, with 25% revenue threshold from thermal coal mining and exploration and electricity – in controversial weapons and prohibited war material according to Italian national law n.220, 2021 and the Law Decree n.73, 2022,
    – issuers domiciled in countries that do not comply with the Oslo Convention on Cluster Munitions (2008) and with the Ottawa Treaty on Anti-Personnel Mines (1999),
    – predatory lending,
    – small arms with a 10% revenue threshold,
    – companies not respecting the UN Global Compact Principles or Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational enterprises.

    Likewise, 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.

    This Sub-Fund will maintain a portfolio maximum average ESG risk rating of 30 for issuers of equity and corporate bonds and a maximum average country risk rating equal to 30 (taking into account the worst rating between the country of issuers’ domicile and listing).

    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. The ESG risk rating instead, assesses the issuer’s unmanaged risk by evaluating its ESG exposure and the management of material ESG issues. Both ratings are assessed by the Management Company’s ESG data provider on a scale from 0 to 100.

    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.

    Good governance practices are assessed based on a number of indicators, and mainly: 1) by taking into account the investees level of controversies (incidents that may negatively impact stakeholders, the environment or the company’s operations), and excluding from the investable universe those companies having a severe controversy level and those domiciled or listed in countries with severe risk rating; 2) by selecting issuers that follow good governance practices, i.e. sound management structures, employee relations, remuneration of staff and tax compliance, 3) by carrying out norm-based screening on the respect of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, meaning that If an investee company has a confirmed violation of one or more of the norms, the Investment Manager will use engagement and active ownership, to influence the investee company to take responsibility and change its behavior and 4) by continuously monitoring the above indicators.

  5. Proportion of investments

    A minimum of 90% of the Sub-Fund’s net assets will be aligned with the E/S characteristics promoted; at least 70% of the Sub-Fund’s net assets will be invested in green, social or sustainable bonds, and will therefore be considered as sustainable investments. The remaining 10% will not incorporate E/S characteristics and consists of instruments not covered by the ESG rating provider and/or for which no public reliable information is available. This includes 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.

  6. Monitoring of environmental or social characteristics

    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 characteristics promoted by 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.

  7. Methodologies for environmental or social characteristics

    The Sub-Fund will pursue environmental and social characteristics with 90% of its assets and invests 70% of the bond portfolio in green, social, sustainability bonds, considered as sustainable investments. Regarding the former percentage the attainment is guaranteed by analyzing and selecting the assets according to the exclusion criteria, risk rating criteria, controversy level as well as the performance of KPI of the characteristics promoted.

    The sustainable investments guarantee the attainment of such characteristics by selecting the projects to be financed and respect of Minimum Safeguards as defined in Regulation (EU) 852/2020.

    Taking into consideration ESG factors, in order to pursue the environmental or social characteristics promoted by the Sub-fund, the company selects the investable universe through an approach based on exclusion and inclusion criteria. Specifically, investment in certain companies is excluded based on the following criteria:

    – Norm-based screening;
    – Controversy levels;
    – Risk rating;
    – Ethical exclusions.

    Norm-based screening takes into account rules that refer to prohibited war material, exclusion lists are based on:

    – the Italian Law n.220, 2021 and the Law Decree n.73, 2022;
    – issuers domiciled in countries that do not comply with the Oslo Convention on Cluster Munitions (2008) and with the Ottawa Treaty on Anti-Personnel Mines (1999),
    – Julius Baer group policies.

    Such prohibition is also extended to any type of financial instrument issued by the issuers identified based on the above.

    – predatory lending;
    – the respect the principles of the United Nations Global Compact (UNGC);
    – companies domiciled or listed in countries comprised in the following lists as well as securities issued by governments or governmental agencies in those countries:

    — FATF black list available at https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/call-for-action-february-2020.html;
    — FATF grey list available at https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-february-2020.html;
    — EU High risk third countries available at https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-supervision-and-risk-management/anti-money-laundering-and-counter-terrorist-financing/eu-policy-high-risk-third-countries_en are also excluded;
    — Countries under financial embargo available at http://www.dt.mef.gov.it/it/attivita_istituzionali/prevenzione_reati_finanziari/embarghi_finanziari/.

    In addition to the above, the following criteria contribute to assess the sustainability risk based on the data available through the data provider adopted by Kairos from time to time:

    – exclusion of companies having a severe controversy level;
    – a maximum average ESG risk rating of the portfolio of 30 for issuers of equity and corporate bonds;
    – exclusion of issuers domiciled or listed in countries with a severe risk rating, as well as securities issued by governments or governmental agencies in those countries.

    In addition to the above criteria, companies directly engaged in and/or generating significant revenues from certain industry sectors are excluded from the investment universe.

    In particular, issuers involved with Controversial Weapons, including nuclear weapons where they are domiciled in countries not adhering to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT), are excluded.

    In addition, the following sectors are excluded from the investment universe of the Sub-Fund:

    – Tobacco producers;
    – Thermal Coal, with 25% revenue threshold from thermal coal mining and exploration and electricity generation;
    – Small arms, with a 10% revenue threshold.

    In relation to inclusion criteria, companies taken into consideration will be those that better integrate ESG factors, consequently presenting lower risks with respect to these factors.

    The inclusion of the environmental and/or social characteristics is performed by means of an internal model based on the sectorial materiality matrix in order to complement, where this is deemed appropriate, the analysis of the data provider. By way of example, the following parameters are considered:

    Environmental section:

    – emission reduction target trajectory;
    – biodiversity policy;
    – water intensity;
    – identification of products, activities and services that have significant impacts on the environment;
    – compliance with environmental regulation.

    Social factors:
    – diversity programmes;
    – human capital development;
    – employee turnover rate;
    – bribery and corruption policy.

    Governance section:
    – the quality and integrity of directors and managers;
    – the structure of the board of directors;
    – shareholders’ rights;
    – employee relations;
    – directors and managers’ remuneration;
    – financial statements, the administrative control and tax compliance.

    Good governance practices are the basis for E/S integration.

    The Sub-Fund considers the PAI by applying the strategies specified below:

    – The following PAIs are integrated in the investment decision process: GHG Emissions (Total Scope 1 + 2 (tCO2eq), GHG Intensity of Investee Companies (Total Scope 1 + 2 (tCO2eq/EURm), Emission to water, Hazardous waste and radioactive waste ratio, Unadjusted Gender Pay Gap, Board Gender Diversity, GHG Intensity and Investee countries subject to social violations as specific indicators for securities issued by sovereigns and supranationals as well as the Violations of UN Global Compact Principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational enterprises and the Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises.

    Concerning those indicators, 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 position.

    Exclusion criteria:

    – Violations of UN Global Compact Principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational enterprises, Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and OECD Guidelines for Multinational Enterprises;

    The investment is considered eligible if the value of the indicators above is zero.

    – Controversial Weapons.

    No investment is performed if the company directly engages in and/or generates significant revenues from sectors in the above exclusion list.

  8. Data sources and processing

    The process of integrating ESG factors focuses on the evaluation of the prospectuses of the individual bond issues and on the analysis of the framework on these issues carried out by external providers. These provide detailed information on ESG aspects, including social, environmental and governance impacts according to the principles of the International Capital Market Association (ICMA). The assessment is then completed using data from sustainability reports and the data provider Sustainalytics, which provides in-depth research, assessments and analyzes on the approach of companies globally in relation to ESG issues. If necessary, the SGR can also initiate engagement activities with issuers to integrate any 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.

  9. Limitations of methodologies and data

    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.

  10. Due diligence

    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.

  11. Engagement policies

    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.

  12. Designated reference benchmark

    No benchmark has been identified for this Sub-Fund to attain such characteristics.

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