Sustainability policyIn accordance with the Disclosures Regulation's requirements for transparency, DEAS Asset Management complies with the following sustainability policy in all financial products and services that we, as an AIFM-approved partner, provide to our clients.
1.1. In this policy, the following terms and expressions will have the following meaning:
The Disclosures Regulation: Regulation (EU) 2088/2019 of the European Parliament and of the Council of 27 November 2019. The Danish FAIF Act: Danish Act no. 598 of 12 June 2013 on Man-agers of Alternative Investment Funds etc., as amended. The Manager: DEAS Asset Management A/S, Business reg. 3548 5775. The Investment Fund(s): The alternative investment fund(s) which the Manager may have under management at any given time. The Level II Regulation: Commission Delegated Regulation No 231/2013 of 19 December 2012. The RTS draft: The ESAs’ draft delegated regulation which will lay down the regulatory technical standards for the Disclosures Regulation (Final Report on Draft Regulatory Technical Standards) of 2 February 2021. The Taxonomy Regulation: Regulation (EU) 852/2020 of the European Parliament and of the Council of 18 June 2020.
2. Background and purpose
2.1 This sustainability policy has been prepared by the Manager’s Board of Directors in accordance with Article 3 of the Disclosures Regulation, under which financial market participants (including alternative investment fund managers) must publish a policy on the integration of sustainability risks in their investment decision-making process.
2.2 The purpose of the policy is to describe the main guidelines for (i) how the Manager will identify, measure, manage and monitor sustainability risks as part of the risk management of the investment funds and (ii) how the sustainability risks are integrated into the Manager’s investment decision-making process.
2.3 The preparation and implementation of this policy only constitute part of the measures used by the Manager in the work to comply with the regulatory standards of the Disclosures Regulation. Further measures are:
- Implementation of sustainability risks in the risk management process.
- Implementation of sustainability risks in the investment process.
- Implementation of sustainability risks in the remuneration policy.
- Published sustainability information on website.
- Compliance with disclosure obligations in the pre-contractual investor material in accordance with section 62 of the Danish FAIF Act.
2.4 Neither the Disclosures Regulation nor the Taxonomy Regulation lays down specific requirements for the contents of the sustainability policy, nor are the requirements mentioned in the RTS draft. The policy thus expresses the Board of Directors’ best understanding of the requirements for the policy in the Disclosures Regulation, laid down on the basis of discussions with the Manager’s legal advisers.
3.1 The Executive Board will ensure that the latest version of the sustainability policy is always publicly available on the Manager’s website.
4. Group of persons
4.1 The policy guidelines apply to all employees involved in the Manager’s risk management or portfolio management activities, as well as to all management team members.
4.2 The relevant employees are personally responsible for familiarising themselves with the contents of this policy.
5. Relevant terms and concepts
5.1 Article 3 of the Disclosures Regulation stipulates that the policy must account for how the Manager integrates “sustainability risks” in its “investment decision-making process”.
5.2 It is therefore essential to define those two terms by way of introduction, as this is a prerequisite for the Manager’s identification of the correct risks and integration of these risks in the correct process.
5.3 Article 2(22) of the Disclosures Regulation, “sustainability risk” is defined as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment”.
5.4 The Board of Directors finds that the relevant sustainability risks for the Investment Funds include the following events and conditions:
- a. Lack of relevant natural resources, energy and resource use, water and marine conditions, biodiversity, pollution and greenhouse gas emissions.
- b. Economic and social inequality, including conditions pertaining to integration and labour market conditions, disadvantaged local communities and social unrest in certain geographical areas.
- c. Management conditions for a third party, including ethical issues at governance level, compliance with tax legislation and HR-related matters.
5.5 In accordance with the Disclosures Regulation, there is only a sustainability risk if the event or condition in question has or may have a material adverse financial impact on the value of the investment. However, the Disclosures Regulation does not define more specifically what is meant by “material” in this context.
5.6 The Board of Directors has provisionally assessed that only conditions or events that, if they occur, are found to negatively impact the estimated annual return by more than 20% should be regarded as material. The Board of Directors obviously monitors the regulatory development closely and intends to revise the policy when a practice has been established for the understanding of the materiality criterion.
5.7 The above sustainability risks must be implemented in the Manager’s “investment deci-sion-making process”. The Board of Directors understands “investment decision-making process” as the process and examinations that form the basis of the Manager’s decision to acquire an investment asset on behalf of an Investment Fund.
5.8 Decisions made by the Manager in connection with the current operation and maintenance of an investment asset are not regarded as an investment decision.
5.9 Based on a general prudence concept, the Board of Directors has assessed that there is an investment decision in the sense of the Disclosures Regulation, regardless of whether the final investment decision in the case in question must be submitted to the Investment Fund for approval before the investment can be made.
6. Identification of sustainability risks
6.1 The manager manages collective investment portfolios consisting of the management and operation of real property.
6.2 In the light thereof, the Board of Directors has identified the following environmental, social or governance events or conditions which, if they arise, could have an actual or potential material adverse impact on the value of an Investment Fund’s investment:
- Natural disasters
A single natural disaster (earthquakes, floods, hurricanes and similar natural events) may potentially damage or destroy an investment property.
- Tax or duty increases on non-climate-friendly forms of energy
Changes in the rules on taxes and duties on non-climate-friendly forms of energy may increase the costs of run-ning an investment property.
- Rising sea levels
Higher sea levels may reduce the value of investment properties in low-lying areas, including at the coasts.
- Deterioration of air quality
Air quality, especially in major cities, may have an impact on the demand for places of residence in these areas, and deteriorated air quality may result in increased regulation, which may make these areas less attractive as residential areas.
- Rising social inequality
Economic inequality may mean that fewer people can pay a given rent in certain areas. This will reduce demand for more expensive residential properties.
- Changes in tenants’ sustainability demands
The tenants’ attitude to sustainability will influence the demands that the tenants make for the energy labelling/sustainability ratio of the investment properties. This will entail a risk of a decrease in the value of non-sustainable investment properties.
- Changes in the structural labour market
The physical location of jobs, including universities and other central government workplaces, will result in reduced demand for residential properties in cities from which these jobs are moved.
- Demographic characteristics
The average age of the population and the degree of urbani-sation affect the demand for different types of properties in various geographical areas.
- Social development trends
The development in the average number of residents per property, average number of square metres per resident and the number of citizens per square kilometre in certain areas are examples of social conditions that result in increases/decreases in the need for residential properties and their size.
- Natural disasters
7. Implementation of sustainability risks in the risk management process
7.1 The Board of Directors has instructed the Executive Board to ensure that the above sustainability risks are incorporated in the Manager’s risk management processes. Sustainability risks are subsequently included on an equal footing with other financial risks.
7.2 In this connection, the Executive Board must ensure that the sustainability risks are incorporated in the operational processes for the risk management function, which can be implemented by updating the Manager’s existing procedures or through the preparation of new procedures.
7.3 The Executive Board must, in particular, integrate the identified sustainability risks in the Manager’s risk management policy and the accompanying procedures. This must enable the risk management function to assess the probability of the realisation of an identified risk, and the potential adverse financial impact of the risk must be assessed in this process. By combining probability with the potential adverse financial impact, a given risk must be assessed on a combined scale that defines how serious the risk is and how it should be handled.
7.4 Reference is made to the Manager’s risk management policy, which describes the general principles for measurement, monitoring and management of risks.
8. Implementation of sustainability risks in the investment process
8.1 The Board of Directors has also instructed the Executive Board to ensure that the sustain-ability risks are implemented in the Manager’s investment decision-making process, so that any investment decision made by the Manager on behalf of an Investment Fund takes into account an assessment of the sustainability risks connected with the investment.
8.2 In this connection, the Executive Board must ensure that the sustainability risks are incorporated in the operational processes for the asset management function, regardless of whether this is done by updating the Manager’s existing procedures or through the preparation of new procedures.
8.3 The Executive Board must, in particular, integrate the identified sustainability risks in the Manager’s investment and portfolio management policy and the accompanying procedures. This must ensure that the asset management function continuously takes sustainability risks into account in the investment decision-making process, so that no invest-ment decisions are made without relevant sustainability risks having been considered.
8.4 Reference is made to the Manager’s investment and portfolio management policy, which describes the general principles of the Manager’s investment management activities.
9. Implementation of sustainability risks in pay policy
9.1 In accordance with section 20 of the Danish FAIF Act, the Board of Directors has developed a written pay policy which is in accordance with and promotes sound and effective risk management in the Manager.
9.2 Based on the requirements in the Disclosures Regulation for incorporation of sustainability risks in the Manager’s risk management processes, the Board of Directors has reviewed the Manager’s existing pay policy. The Board of Directors finds that the pay policy does not provide any incentives for excessive risk-taking in terms of sustainability risks.
9.3 The following paragraphs on integration of pay policy sustainability risks are incorporated in the Manager’s pay policy:
- “Implementation of sustainability risks
In accordance with the requirements of Regulation (EU) 2088/2019, the Manager has developed a sustainability policy under which the Manager has identified and assessed the financial sustainability risks connected with the Manager’s activities.
These sustainability risks are included in the Manager’s risk management activities on an equal footing with the other identified financial risks.
As described in this policy, there must be no disproportion between the allocation of variable pay element to employees in risk management or investment decision-making positions and the identified financial risks to investors. This also includes sustainability risks as identified in the sustainability policy. Sustainability risks are thus included on a equal footing with other identified risks in this policy.”
- “Implementation of sustainability risks
10. Checks and balances
10.1 The Executive Board must ensure that sufficient independent internal checks and balances are introduced for the relevant business areas in which the sustainability risks are incorporated to ensure compliance with the principles of the policy in the day-to-day work.
10.2 The Board of Directors continuously monitors the Executive Board’s implementation of the policy in the organisation. Such monitoring is done via the continuous reporting, see section 11.
11. Reporting to the Board of Directors
11.1 The Manager’s Executive Board reports to the Board of Directors once a year on matters covered by this policy in accordance with the Board of Directors’ annual cycle.
11.2 The Board of Directors must be informed as soon as possible about any significant breach of the policy or any underlying procedures.
12.1 The policy must be reviewed and, if necessary, revised by the Manager’s Board of Directors at least once a year to ensure that it continuously takes into account all relevant sustainability risks connected with the Manager’s business model.
12.2 In connection with any change to the policy, the policy must be updated on the Manager’s website and the reasons for the change will be given.
No considerations for adverse impacts on sustainability factors
It follows from Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (the Disclosures Regulation) that financial market participants must disclose whether considerations of adverse impacts on sustainability factors are included in their investment decisions.
Pursuant to Article 4(1)(b), financial market participants, including managers of alternative investment funds, which do not consider adverse impacts of their investment decisions on sustainability factors, must publish clear reasons for why they do not do so on their websites.
DEAS Asset Management has assessed that the preparation of the comprehensive document requirements for compliance with the EU requirements will not in itself have a beneficial sustainability-related effect relative to our current performance. We find that seeing that the preparation of the documents will not in itself contribute to more sustainable investments, our investment products should not be made more expensive through increased costs for compliance with detailed regulatory document requirements.
We must therefore disclose that, in accordance with the definition in Article 4(1)(b) of EU Regulation 2019/2088, we do not take into consideration adverse impacts of our investments decisions on sustainability factors.
If the Danish Financial Supervisory Authority issues any guidelines for the extensive document requirements, we will assess whether the costs of compliance with these requirements are commensurate with our investors’ wishes for document requirements.