ESG Integration Policy
Updated on 11th June 2021
Responsible for the process: ESG Committee
Elaborated on 03/03/2021 by Control Unit
Reviewed on 05/03/2021 by the Board of Directors
Approved on 11/06/2021 by the Board of Directors
1. CONTROL OF EDITIONS
- Edition 01 (10/03/2021): Document creation
2. LEVEL OF DIFFUSION
- 10/03/2021: General
1. OBJECTIVE OF THE POLICY
This document describes the policy of integration in the application of environmental, social and corporate governance criteria, known as ESG criteria (hereinafter "ESG") of SABANG INVESTMENTS, SGEIC, S.A. (hereinafter "the Company"), defining the weight of each of these factors in the decision-making processes of investment in financial instruments that the Company must take in the development of its activities as an ECR manager.
The Sustainable Development Goals (2015-2030) achieved on September 25, 2015, also known by their acronym SDGs, are an initiative promoted by the United Nations to give continuity to the development agenda after the Millennium Development Goals (MDGs), this being a way for Society to act in the achievement of the ESG factors.
There are 17 objectives, from which our Company has selected the following, as it considers that it is within its reach to try to achieve its objectives:
- GOAL 8: Decent work and economic growth. Consists of promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
- GOAL 9: Industry, innovation and infrastructure. Consists of building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation.
- GOAL 12: Responsible production and consumption. Consists of guaranteeing sustainable consumption and production modalities.
- GOAL 13: Climate action. It consists of adopting urgent measures to combat climate change and its effects.
- GOAL 17: Partnerships to achieve the objectives. Consists of strengthening the means of implementation and revitalizing the Global Partnership for Sustainable Development, taking into account the special relevance of the Company's relationship with investors, managers, shareholders, employees and other stakeholders that may appear in the activities developed by the Company.
It also establishes the scope of the obligations of its publication, in compliance with Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosures in the financial services sector.
1.1. COMPLIANCE WITH ESG FACTORS
We define the scope of action for compliance with ESG factors, which we call "Sustainability Factors" and which is understood as all information related to environmental and social issues, as well as those related to personnel, respect for human rights and the fight against corruption and bribery.
- The environmental factor (E), to make decisions based on how companies' activities affect the environment. It focuses on environmental reporting and the environmental impact of companies, as well as on the efforts made by companies to reduce pollution levels or carbon emissions.
- The social factor (S), to take into account the impact on the community of the activities carried out by the entity, for example in terms of diversity, administration, human rights or health care, as well as the links established with the community (corporate citizenship and philanthropic initiatives).
- The governance factor (G), which studies the impact of shareholders themselves and the management of the entities, and is based on issues such as the structure of the boards of directors, executive compensation and shareholders' rights, transparency and the relationship between shareholders and the management of the entities.
1.2. MANAGEMENT OF SUSTAINABILITY RISKS
Sustainability risk is defined as any environmental, social or governance event or condition that, should it occur, could have an actual or potential material adverse effect on the value of the investment.
1.3. ISR PROCESS USING ESG CRITERIA
The Company pursues the integration of ESG criteria in its investment processes, both in the analysis of the various financial instruments that must comply with ESG criteria (Due Diligence process), in the negotiation and dialogue with the managers of the vehicles in which it invests, etc.
This is done through adherence to the Principles for Responsible Investment (PRI) and is supported by the initiatives promoted to introduce best practices in Socially Responsible Investment (SRI) in its defined procedures as indicated in point 2.1 of this Policy which determines the application of these principles in:
- The selection of the financial instruments in which they are invested.
- Decision making:
- Due diligence process
- Investment decision
- Investment Committee
- Formalization of investment commitments.
- Monitoring during the life of the investment.
2. SCOPE AND SCOPE OF APPLICATION
Its scope is the application of what is considered sustainable finance.
This concept involves the incorporation of environmental, social and governance factors (ESG criteria) into the investment decision-making process.
According to the European Community's definition, sustainable financing includes an important factor of green financing aimed at boosting economic growth by reducing pressures on the environment; combating greenhouse gases and pollution; and minimizing waste and improving efficiency in the use of natural resources.
It also encompasses awareness and greater transparency about risks that could affect the sustainability of the financial system and the need for corporate and financial actors to mitigate such risks through appropriate governance. It incorporates concepts of a social nature (diversity, inclusion, non-discrimination based on gender, ethnicity, religion, sexual orientation, etc.) and governance (diversity on boards of directors, promotion of employee health and well-being, fair working conditions, etc.).
These factors should be incorporated into the activities of securities issuers, ESIS and asset managers.
2.1. APPLICATION TO GENERATED PRODUCTS OR DECISION MAKING IN SUSTAINABLE INVESTMENTS:
Investments in the following are considered as such:
- An economic activity that contributes to an environmental objective, measured, for example, through key resource efficiency indicators relating to energy use, renewable energy, consumption of raw materials, water and land, waste production and greenhouse gas emissions, and impact on biodiversity and the circular economy or
- An economic activity that contributes to a social objective and, in particular, any investment that contributes to fighting inequality, any investment that strengthens social cohesion, social integration and labor relations, or any investment in human capital or in economically or socially disadvantaged communities; provided that the investments do not significantly harm any of these objectives and the beneficiary companies follow good governance practices, in particular as regards their management structures, employee relations and remuneration of relevant personnel being sound and complying with tax obligations.
It consists of adding to the financial analysis, an analysis of the risks and opportunities for the entity, involving environmental, social and corporate governance aspects for better decision making.
An environmental objective is defined as the following:
- a. Climate change mitigation;
- b. Adaptation to climate change;
- c. Sustainable use and protection of water and marine resources;
- d. Transition to a circular economy;
- e. Pollution prevention and control;
- f. Protection and recovery of biodiversity and ecosystems.
2.2. APPLICATION TO THE SERVICES PROVIDED TO CUSTOMERS
The following investment activities and services (included in the Company's Program of Activities) are subject to this policy:
- Management of investment portfolios and risk control and management (FCR, SCR, FCRE)
- Other activities related to the entity's assets (FCR, SCR, FCRE)
3. GENERAL PRINCIPLES OF ESG POLICY
3.1. CUSTOMER INTERESTS.
The Company gives priority to the fulfillment of clients' interests as expressed through the suitability test to be completed in the provision of portfolio management or investment advisory services and, of course, in the decision making in the management of the ECRs under management.
With this course of action, we believe that we will achieve compliance with the ESG objectives set out in this policy and, above all, gain the trust of our customers, who can rest assured that we will always take into account their preferences in sustainability matters.
3.2. POSITIONING OF OUR SOCIETY.
In addition to those indicated in the previous point, our Company is committed, through all its employees, executives, senior management and shareholders who are aligned in the achievement of ESG objectives that must coincide with the interests of our clients through the investment decisions that must be made in the development of the different activities developed:
- ECR management,
- Management of customer portfolios and
- Governance of products related to investment funds designed and distributed, including this approach to sustainable finance to entities with which a marketing agreement is reached.
3.3. SUSTAINABILITY RISK MANAGEMENT
Sustainability Risks are taken into consideration:
- In the Company's organizational requirements involving management.
- In the conflict of interest management and due diligence policies, and
- In the evaluation of investment funds under management.
3.4. RESPONSIBILITY BEFORE THE SOCIETY IN WHICH WE LIVE.
Our Company acts responsibly both at the corporate level and at the individual level on the part of the people who comprise it.
As a company we have a responsibility to contribute to the highest ethical standards and as individuals we strive to ensure that all of our people act with integrity and conscience in all aspects of their lives.
4. INTERNAL STRUCTURE APPLIED TO ESG CRITERIA
4.1. PERFORMANCE OF THE ORGANIZATIONAL UNITS
The responsibilities of the different organizational units of the Company are set out, establishing their ESG performance.
Board of Directors:
- Approval of this policy and ratification of any modifications to it.
- Preparation of this document.
- Monitor the environmental, social and corporate governance risks of the financial instruments in its own and clients' portfolios.
- Review prior to approval by the Board of Directors of this policy after it has been prepared and/or updated.
- Periodic review of internal procedures and controls.
- Formed by the Investment Committee and its functions are:
- Promote, evaluate and approve proposals for ESG objectives and their implementation in our Company.
- Approve, where appropriate, an Annual ESG Action Plan aimed at strengthening our Company's position as a responsible firm and as socially responsible investors.
- Follow the processes related to the integration of ESG in the ECR management decision-making processes.
- Analyze and decide on the expectations coming from investors through the channels to be developed to collect their ESG preferences.
- To gather and decide on the expectations of the people in our company in order to consolidate a culture in the organization aimed at the development and improvement of sustainability.
ECR Management Area
- Take into account the criteria established in this policy in the management of II, especially in the necessary analysis of the companies in which it invests.
Rest of operating areas:
- Ensure that the Company's employees involved in the provision of the investment services indicated in the previous section are aware of this policy and, if applicable, of the exclusion criteria.
4.2. TOOLS USED IN THE ESG PROCESS
Our Company will rely on external information providers for the development of ESG processes, which will allow an adequate management of sustainability factors.
Aware that we face unresolved challenges in terms of sustainability disclosure and that the availability of ESG data is limited and incomplete, with a restricted number of companies, we also rely on the market knowledge, skills and experience of the investment team, managers and advisors to undertake a thorough internal analysis and add value to the investment process, through the committee created for this purpose, whose objectives are to establish an action plan, knowledge of regulatory changes to ensure at all times that our tools are up to date and that both sustainability risks and the application of the guidelines issued by our management body, as the highest authority involved in this task, are properly managed.
5. APPLICATION OF ESG CRITERIA IN THE ISR PROCESS
5.1. ESG INTEGRATION PROCESS
5.2. SUSTAINABILITY FACTORS ANALYZED IN DECISION MAKING.
The application of the criteria defined in this policy does not imply the modification of the processes carried out in the field of asset selection from a financial point of view, but adds to these processes the analysis of another series of factors. This implies that two types of analysis will be carried out:
Which aims at choosing assets in terms of:
- More attractive associated costs for customers (portfolio management and advisory services).
Which aims to identify and assess the practices of issuers of fixed-income and equity financial instruments grouped into the following areas:
- Preventive approach that favors the environment.
- Encouragement of initiatives that promote greater environmental responsibility.
- Support for the development and diffusion of environmentally friendly technologies.
- Climate change
- Carbon footprint
- Resource scarcity: Efficient water management, Toxic emissions, Clean energy, Pollution, Deforestation, Control of CO2 emissions, Impact on the biosphere, Renewable energy
- Respect for international labor standards.
- Promotion of equal opportunities.
- Support for policies that promote health and medical research, and education.
- Working conditions: slavery, child labor
- Impact on local communities: Health, Nutrition, Demographic risks, Security, Diversity and equality at work, Human rights, Access to finance, Access to information
- 1. Establishment of an adequate anti-corruption framework.
- 2. Fostering an internal culture of compliance by establishing an adequate internal control structure.
- Executive compensation
- Embezzlement and Corruption
- Political lobbies
- Governance structure
- Political influence
- Business ethics
- Anticompetitive behavior
- Fiscal transparency
5.2.1. SUSTAINABILITY INDEXES
To support the analysis of sustainability factors, extra-financial ratings issued by a specialized external provider (MSCI) will be used. Following this criterion, the rating will discriminate the best companies within each sector, giving greater relevance to those companies with a higher sustainable rating and lesser relevance the lower the rating.
5.2.2. SELECTION/POSITIVE BIAS
Positive biases help to select companies where, due to their business model or sustainable approach, higher growth or better long-term earnings performance can be expected.
- Best-in-class: This approach selects within each sector those companies with the best ESG ratings.
- Best-efforts: it selects those companies with the best ESG rating performance. In other words, this approach rewards companies and issuers that are making the greatest efforts to improve their sustainability, even though they may not currently have a high ESG rating.
- Best-prospects: to identify those companies with the greatest potential for improving their sustainability in the future.
- Impact investment: investment in companies and/or issuers whose mission and objectives are focused on the generation of products or services aimed at achieving a more sustainable world. The characteristics of which are:
- Intentionality: the investor's willingness to generate a positive and quantifiable social or environmental impact ex-ante to the constitution of the portfolio.
- Economic/financial return: the search for sustainable impact must be compatible with the generation of a positive financial return. It is important to differentiate this type of investment from donations or philanthropic activities, since impact investment must necessarily involve the search for a positive return.
- Causality: there must be a cause-effect relationship between the investment made and the impact generated. Sometimes the term additionality is used to express a similar idea: how much impact or added effect we achieve with our investment.
- Measurement: in order to consider an investment as an impact investment, the result of such action must be quantifiable. In this way the investor will be able to know the real effect of his investment in terms of sustainability. There are different ways of measuring this impact depending on the objectives of the investment. For example, establishing standardized metrics that determine the different levels of compliance with the defined objective.
- Validation/Reporting: another very important element is the need to report on the results obtained. In this way, the investor will be able to verify the efficiency of his investment and the social or environmental impact it entails. However, impact measurement should not be seen as something static, but as a dynamic task that encompasses impact monitoring and management over time.
Therefore, impact investment is that investment whose objective is to generate a positive and measurable social or environmental impact, and which at the same time generates an economic return.
In relation to the quantification of impacts, and probably linked to the lack of regulations requiring harmonized reporting, there is no common methodology for measuring and quantifying these effects.
The Company excludes from its decision-making processes financial instruments issued by companies that:
- Its main activity is the manufacture of armaments.
- Its main activity is the production of energy with thermal coal/petroleum derivatives/nuclear.
- Carry out their activity mainly in countries or territories that do not comply with international labor standards
- Develop their activity in countries or territories considered as tax havens or non-cooperative territories.
- Have received sanctions for being involved in fraudulent activities.
5.3. EXERCISE OF VOTING RIGHTS
The Company will exercise voting rights in the investees:
- Seeking the greatest benefit for the managed vehicles in terms of profitability, applying ESG criteria in decision-making.
- Supporting measures that favor the establishment of the extra-financial factors analyzed.
We consider engagement with the companies in which the Company invests to be an important element of our activity. As active investors, we maintain contact with the companies in which, in addition to dealing with issues related to the company's activity, such as business strategy, governance issues, changes in the capital structure, etc., we also deal with ESG issues related to their activity.
When meetings are not satisfactory, the management team may consider making some type of decision, which could include:
- Voting against resolutions at shareholders' meetings
- Collaborate with other institutional investors
- Sale of all or part of the position
Voting rights are one of the most important points in the engagement process, particularly if the position in the company is relevant. The details and how to proceed are set out in the 'Policy on the exercise of voting rights'.
5.4. ADVERSE EVENTS
Given the size, nature and scale of the Company's activities, as well as the robustness of the procedures for integrating sustainability risks into investment decisions, the Company declares that it does not take into account the adverse impact of investment decisions on sustainability factors.
However, the consideration of the adverse impact of investment decisions on sustainability factors may be developed as the level of maturity of ESG risk management allows the establishment of sound methodologies for this purpose.
6. REMUNERATION POLICY AND SUSTAINABILITY RISK INTEGRATION POLICIES
It consists of reporting on the consistency of the Company's existing remuneration policies with the policies for integrating sustainability risks.
The Company's Remuneration Policy promotes the inclusion of environmental, social and governance (ESG) factors within executive management to generate sustained value creation and promote sustainable corporate performance, materializing in specific performance objectives in these matters and in the relevant areas of the Organization.
To this end, in compliance with Art. 5.1 of Regulation (EU) 2019/2088, the consistency of the remuneration policy in the achievement of ESG criteria in relation to the sustainability risks detected and duly managed will be incorporated on the Company's WEB page.
7. PUBLICATION OF ESG POLICY AND DOCUMENTATION
In compliance with Art. 3 of Regulation (EU) 2019/2088, the Company publishes this policy on its website, placing special emphasis on the management of sustainability risks and the need to incorporate the advances that the Company implements as a result of regulatory changes that will undoubtedly entail adaptations to this policy.
Our Company as a participant in the financial markets (PMF).
In compliance with Art.4 of Regulation (EU) 2019/2088 publishes and maintains on its WEB:
- The major adverse impacts of investment decisions on sustainability factors, a statement about due diligence policies in relation to such adverse impacts, taking into account their size, nature and the scale of their activities, as well as the types of financial products they offer; or
- If they do not take into account adverse impacts of investment decisions on sustainability factors, a clear justification as to why they do not take this into account, including, if applicable, information on whether and when they plan to take into account such adverse impacts.
In the event that the Company chooses the first option, the published information must contain at least:
- a. Information on its policies for identifying and prioritizing key adverse sustainability impacts and key sustainability indicators;
- b. A description of the main adverse sustainability impacts and any actions taken in relation to this, where relevant, programmed;
- c. Brief summaries of the policies of involvement in accordance with Article 3(g) of Directive 2007/36/EC, if applicable;
- d. Reference to their adherence to responsible business codes of conduct and internationally recognized standards of due diligence and reporting and, where applicable, their level of alignment with the long-term objectives of the Paris Agreement.
In addition, it is published:
- Information regarding the remuneration policy, as mentioned in the preceding paragraph.
- Pre-contractual information (art 9)
- Web site promotion and advertising communications (art 10 and 13)
- Periodic reports (art 11)
8. INTERNAL AWARENESS OF ESG
8.1. EMPLOYEE TRAINING
The Company's strategy of providing a wide range of alternatives and approaches to different degrees of ESG integration begins with the appropriate qualification of managers, investment teams and advisors.
In this regard, courses or seminars deemed necessary by the ESG Committee will be held as and when proposed to the Board of Directors.
8.2. INTERNAL COMMUNICATION
The ESG Committee and, where appropriate, the Control Unit are responsible for the preparation of all documents and circulars that need to be prepared and made known to all persons in the Company.
9. APPLIED REGULATIONS
- Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosures in the financial services sector.
- Law 11/2018, of December 28, amending the C.C., the revised text of the LSC approved by RDL 1/2010, of July 2, and Law 22/2015, of July 20, on Account Auditing, in matters of non-financial information and diversity.
- Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders of listed companies.
- Sustainable Development Goals (SDGs).