This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
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.
A minimum of 70% of the Sub-Fund’s portfolio gross exposure will be aligned with the E/S characteristics promoted.
The Sub-Fund considers the sustainability indicators described in the following sections in order to measure the attainment of the environmental or social characteristics promoted, which are monitored and reported at the total portfolio level.
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 Sub-Fund considers the PAI as described in the following sections.
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 benchmark has been identified for this Sub-Fund to attain such characteristics.

Download the summary 01.01.2023

This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.

This Sub-Fund promotes environmental characteristics including air emission reduction 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),
– GHG Intensity of investee companies (total scope 1+2 in tCO2eq/EURm) and
– Carbon Footprint;
– Exposure to companies active in the fossil fuel sector.

in relation to the respect of UNGC Principles and OECD Guidelines for Multinational enterprises:

– Violations and
– Lack of Processes and Compliance Mechanisms,

which should always be zero.

The Sub-Fund will establish an asset allocation in securities of issuers established in Europe by pursuing a directional long/short equity strategy. In particular, the gross exposure to such issuers may range from a minimum of 50% and a maximum of 200% and the net exposure to the same issuers from a minimum of -30% and a maximum of +100% of the Sub-Fund’s assets. The long exposure will be achieved through direct investment in securities and via financial derivatives instruments. The short exposure shall only be achieved through the use of financial derivative instruments. The derivative instruments used shall include both listed and over-the-counter derivatives, including CFDs/Total return swap on single securities or on indices, whose expected exposure ay range from 30% to a maximum of 60% of the Sub-Fund’s net assets.

The Sub-Fund will integrate the Sustainability Factors for at least 70% of the portfolio gross exposure by applying exclusion and inclusion criteria as described above.

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 generation,
– involvement 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 country risk rating equal to 30 (taking into account the worst rating between the country of issuers’ domicile and listing) as well as a maximum average ESG risk rating of 30 for issuers of corporate bonds and equities assigned to the Sub-Fund as result of the conversion of a bond or a warrants/right assigned to bondholders.

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.

A minimum of 70% of the Sub-Fund’s portfolio gross exposure will be aligned with the E/S characteristics promoted. The remaining 30% 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.

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.

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), Carbon footprint, Exposure to companies active in the fossil fuel sector.

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.

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 benchmark has been identified for this Sub-Fund to attain such characteristics.