Sustainability Risk Integration Policy
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Sustainability Risk Integration Policy

Effective Date: 1st October 2022  

 

1. INTRODUCTION

 

Laurion Group works to optimize the relationship between profitability and risk, and to avoid, minimize, mitigate and remedy as far as possible those factors that may pose a significant risk to the environment or the community, in accordance with the highest responsible standards. In this way, it integrates environmental, social and governance (hereinafter «ESG«) criteria into its business decisions in order to mitigate risks.

 

It is considered that financial institutions can have a significant impact in contributing to the achievement of the Sustainable Development Goals («SDGs«), insofar as some of the sectors they finance, invest in or serve are subject to controversy and must and will face multiple restrictions, challenges and transformations of their business models and technologies in the coming years, either by adjusting to the preferences of their consumers or due to regulatory pressure.

 

Along these lines, Laurion Group is developing a Sustainability Risk integration model based on the incorporation of environmental, social and corporate governance aspects into the investment analysis and decision-making process, in addition to traditional financial criteria.

 

In this regard, this Policy responds to the European Commission’s Sustainable Finance Plan and, in particular, to Regulation (EU) 2019/2008 on the disclosure of information relating to sustainability in the financial services sector (hereinafter «SFDR Regulation«), which establishes the obligation to specify in its policies how it integrates into its investment management processes, as well as to assess on an ongoing basis, all relevant sustainability risks that could have a material negative effect on the financial performance of the investment; and to report on this process.

 

 

2. SCOPE

 

This Integration Policy applies to the management of all of the Manager’s investment funds, without prejudice to the specific adaptations and requirements to be considered for specific products.

 

This Policy will be implemented as sustainability practices progress, will be updated to ensure compliance with the regulations at all times and will be applicable to those investments made after its approval and entry into force.

 

The risks subject to governance, management and control by this Policy are the following so-called «ESG» or «sustainability» risks:

  • Environmental risks: on the one hand, physical risks are identified as arising from one-off events or chronic deterioration, such as climate change, insufficient drinking water, deterioration of biodiversity, deforestation or other forms of environmental degradation. Geological risks, such as earthquakes or ecosystem degradation. And, on the other hand, transition risks are identified, derived from the need to move towards more sustainable economies with low emissions. Additionally, it includes corrective actions aimed at avoiding or mitigating their materialization.
  • Social risks: these relate to rights, personal well-being and communities, equality, health, labour relations, occupational health and human capital. These risks measure potential indirect adverse impacts on society.
  • Governance risks: inadequate management of ESG risks, or of companies’ internal policies, can lead to new risks, e.g., legal and/or criminal risks arising from internal breaches.

 

Thus, if the risks described above were to materialise, this would entail a reduction in the companies’ profits, in the valuation of their assets, an increase in legal costs and, above all, a reduction in available resources.

 

Therefore, this Policy determines a framework of global principles on which all actions related to the identified sensitive impact on these risks must be based, as well as the basic governance framework for the authorization, management, communication and disclosure of the actions. The management of ESG risks is one of the main lines of action of the sustainability strategy defined in Laurion Group.

 

 

3. REGULATORY FRAMEWORK

 

This Policy shall be governed by the provisions of the applicable regulations in force, as well as by any regulations that may modify or replace them in the future:

  • Regulation (EU) 2019/2088 on sustainability disclosures in the financial services sector (SFDR).
  • Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010.
  • The United Nations International Bill of Human Rights.
  • The United Nations Global Compact.
  • The UN Guiding Principles on Business and Human Rights.
  • The Principles for Responsible Investment (PRI).
  • The United Nations Sustainable Development Goals (SDGs

 

 

4. CORPORATE STRATEGY ON ASG RISKS

 

Laurion Group’s strategy for monitoring and managing ESG risks in relation to its investments on behalf of third parties includes the following main lines of action:

  • Drive sustainable business, developing products and services with a positive environmental and climate impact, and supporting the transition to more sustainable business models.
  • Integrate social risks into decision making and avoid investing in companies or projects related to serious human rights or labour rights violations.
  • Work to understand the human rights impacts of their activities in order to prevent and avoid contributing to potential adverse negative impacts and, where applicable, mitigate them where possible.
  • Manage social, environmental and governance risks, and integrate their analysis into the investment processes of its investment products and services on behalf of others.
  • Act in accordance with adopted public commitments, such as the «Declaration on Climate Change» and the «Principles on Human Rights» as well as any other ESG initiatives and commitments considered, always under the responsibility to comply with their requirements appropriately.
  • Promote transparency, reporting adequately to the markets on the management and control of ESG risks, in compliance with current regulations and best practices.

 

 

5. GOVERNANCE

 

Laurion Group has created a governance structure for sustainability management and adaptation to the regulatory environment. Thus, both for setting the sustainability strategy and for its implementation and monitoring, the Management and Sustainability Committee has been set up to adapt Laurion Group to the regulatory environment.

 

The Management and Sustainability Committee will be responsible for:

  • Development of ESG risk management and control policies and frameworks.
  • Coordination, control and execution of the processes of identification, measurement, monitoring, control and reporting of ESG risks within the framework of the strategic risk processes (Risk Assessment).
  • Definition and establishment of criteria in relation to ESG risk appetite, strategy and policies.
  • Implementation of processes relating to ESG risk appetite, strategy and policies in the company’s systems.
  • Validation of compliance with rules and procedures and their alignment with ESG risk policies, continuously monitoring the applicable regulations in this area.

 

 

6. ACTION

 

This Policy determines two criteria in order to maintain appropriate risk levels:

  • General criteria for excluding or limiting exposure to ESG risks. These are cross-cutting criteria that apply to all sectors to which Laurion Group may provide services or in which it may invest directly.
  • Particular criteria for action to exclude or limit exposure to certain sectors and activities with a particular impact on the environment or society, sometimes with special sensitivity for certain ecosystems, heritage or protected populations.

 

The Sustainability Risk Integration model at Laurion Group is mainly based on the integration of ESG aspects into investment processes. Furthermore, depending on the ESG impact, this Policy establishes the exclusion of certain investments.

 

Thus, the establishment of the above two criteria, together with an appropriate reporting framework, is fundamental to the management of ESG risks. In this regard, Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability disclosures in the financial services sector and Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on establishing a framework to facilitate sustainable investments are therefore key for Laurion Group.

 

 

7. REVIEW AND UPDATING OF THE POLICY

 

The Compliance Department will be in charge of carrying out periodic reviews of the content of this Policy and will incorporate the necessary changes as a preventive measure for possible changes in the applicable regulations and in the event of possible anomalous and harmful situations arising for Laurion Group and its members.