Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation

Each Fund seeks to promote social and environmental characteristics within the meaning of Article 8 of SFDR.

The Investment Manager seeks to promote various ESG factors (hereinafter “ESG Factors”) by incorporating them into the overall investment management process, as detailed in its ESG policy (the “ESG Policy”). The overall investment management process consists of three different stages:

  1. The bottom-up research and investment selection process

The Investment Manager will look to a variety of ESG Factors when assessing suitability of an investee company and will determine whether the company is suitable for investment:

  • Environmental characteristics – the Investment Manager will consider the manner in which the investee company manages its environmental resources, including energy, water, waste and hazardous material when assessing the overall environmental impact of a potential investee company. Companies pursuing strategies to decrease resource consumption such as water, energy or other natural resources, or reduce/ mitigate environmentally harmful by-products or waste streams such as carbon or hazardous waste will enhance the possibility for inclusion of such a company within a Fund’s portfolio;
  • Social characteristics – the Investment Manager will consider the manner in which the investee company manages its data security and customer privacy, compensation and benefits scheme, labor relations and product quality and safety when assessing the societal impact of a company;
  • Governance – the Investment Manager will ensure that the investee company follows good governance practices and as part of its assessment it will consider the board composition, diversity, business ethics and corporate behaviour, compensation arrangements and alignment of same with good governance practices and overall supply chain management.

The Investment Manager believes that each of the above ESG Factors can materially impact on a company’s valuation, financial performance, and related risk/return and as such it will consider these ESG Factors when determining whether the potential investment is aligned with the overall objective of a Fund.

The ESG Factors are tracked and considered by all analysts and portfolio managers as part of the bottom-up research and investment selection process, with regular research and data management conducted by the Investment Manager’s economists. The Investment Manager’s investment analysts evaluate, document, and integrate the relevant ESG Factors into their due diligence and investment theses of each potential investment. As part of this process, analysts and portfolio managers review publicly available company and industry specific ESG information, including statistics regarding how one company compares to another in its industry and across other industries, as well as third party data which may be related to potential investee companies  and assess potential risks or opportunities.

  1. The ongoing engagement process

As part of the investment management process, investment analysts monitor the ESG Factors and track significant third party ESG rating changes of the portfolio holdings to further evaluate a Fund’s investment. Core to the Investment Manager’s active investment style, it engages in ongoing dialog with the companies in which it invests, often addressing material ESG Factors such as the ones described above. Where investment analysts identify certain ESG Factors that investee companies could improve on, the Investment Manager will engage with those companies on an ongoing basis to promote ESG Factors.

  1. The negative screening process and MSCI ESG rating system

Each Fund seeks to promote ESG Factors by implementing specific negative screening of companies linked to certain industries or controversial conduct. Each Fund seeks to avoid investment in companies that have been identified by the Investment Manager as sufficiently involved in the operation of private prisons or the production of (i) firearms; (ii) cluster munitions; (iii) landmines; (iv) pornography; or (v) tobacco products.

In addition to integrating the aforementioned screening and exclusion policies into the portfolio construction process, the Investment Manager promotes ESG Factors by utilising the MSCI ESG Ratings system to identify qualitative risks and opportunities of investee companies in its overall assessment. An MSCI ESG Rating (“Rating”) is designed to measure a company’s resilience to long-term, material environmental, social and governance (ESG) risks.

Companies that have a low Rating are excluded from consideration for a Fund’s portfolio, unless the Investment Manager’s engagement efforts with the investee company are anticipated to result in a more positive outlook regarding the Rating, or the Investment Manager believes the Rating is incorrect. Where the Investment Manager believes a Rating is incorrect based on the research findings of its analysts, the Investment Manager will engage with the investee company to encourage it to provide better disclosure or information designed to correct the ESG Factors leading to the incorrect score.

A summary of the ESG Policy is available on the Investment Manager’s website, http://www.crmllc.com/our-firm/esg/.

The “do no significant harm” principle applies only to those investments underlying each Fund that take into account the EU criteria for environmentally sustainable economic activities. The investments underlying the remaining portion of each Fund do not take into account the EU criteria for environmentally sustainable economic activities.

Each Fund does not presently set a minimum proportion of its assets that must be invested in investments that contribute to environmentally sustainable economic activities in accordance with the Taxonomy Regulation, primarily due to the lack of available data and the delay to the publication of the regulatory technical standards supplementing the Taxonomy Regulation. Therefore, for the purpose of the Taxonomy Regulation, it should be noted that at any given time, each Fund may not be invested in investments that take into account the EU criteria for environmentally sustainable economic activities.