I.     Summary

a) English version of the summary

The Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (“”) aims at providing more transparency to investors on sustainability risk integration, on the consideration of adverse sustainability impacts in the investment processes and on the promotion of environmental, social and/or governance (“”) factors. In particular, it requires fund managers and advisers to disclose specific ESG-related information to investors on their websites. The Regulation (EU) 2020/852 of the European Parlianment and of the Council of 18 June 2020 (the “”) aims at establishing a framework to facilitate sustainable investment and amends SFDR.

 

SFDR and the Taxonomy Regulation are complemented by the EU implementing measures (so-called regulatory and technical standards or “”) of 6 april 2022, as applicable from time to time.

 

The Sub-Fund is being formed to achieve income and capital appreciation by investing in fixed income and fixed income related securities (“”) issued by corporations, financial institutions, agencies, governments and any regional or global supranational institutions and bodies.

 

The Sub-Fund’s portfolio manager, LDS Investments LP, a Delaware limited partnership (the “”) will take investment decisions on behalf of the Sub-Fund. The Portfolio Manager is committed to investing in a responsible way by actively integrating ESG considerations in its investment selection and ongoing monitoring process with the intent to contribute to measurable positive social or environmental impact, alongside financial returns.

 

The Sub-Fund promotes environmental and social characteristics and the minimum proportion of the investments to which the Sub-Fund commits to attain the ESG characteristics promoted is 60%.  The Sub-Fund does not intend to make sustainable investments. The investments underlying the Sub-Fund do not take into account the EU criteria for environmentally sustainable economic activities.

 

The Portfolio Manager will also assess sustainability risks as part of its investment making decision process. Sustainability risks (“”) are environmental, social or governance events or conditions that, if they occur, could cause an actual or a potential material negative impact on the value of the Sub-Fund’s portfolio and the returns of the Sub-Fund.

 

The Portfolio Manager follows dedicated processes in deciding from a responsible investment perspective whether it is appropriate to make an investment. The Portfolio Manager applies specific tools and processes to ensure a thorough integration of ESG factors into its analysis.

 

The Sub-Fund pursues an active investment management strategy and does not invest by reference to any index and does not intend to do so.

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b) French version of the summary

Le règlement (UE) 2019/2088 du Parlement européen et du Conseil du 27 novembre 2019 sur la publication d’informations en matière de durabilité dans le secteur des services financiers (le « Règlement SFDR ») vise à offrir plus de transparence aux investisseurs sur l'intégration du risque en matière de durabilité, sur la prise en compte des incidences négatives en matière de durabilité dans les processus d'investissement et sur la promotion des facteurs environnementaux, sociaux et/ou de gouvernance (« ESG »). Il exige notamment que les gestionnaires de fonds et les conseillers en investissement divulguent aux investisseurs des informations spécifiques liées aux facteurs ESG sur leurs sites internet. Le règlement (UE) 2020/852 du Parlement européen et du Conseil du 18 juin 2020 (le « Règlement Taxonomie ») vise à établir un cadre pour faciliter l'investissement durable et modifie le Règlement SFDR.

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Le Règlement SFDR et le Règlement Taxonomie sont complétés par des mesures d’application (appelées normes techniques de réglementation ou « RTS ») du 6 avril 2022, qui s’appliquent en complément le cas échéant.

Le Compartiment est créé dans le but d'obtenir un revenu et une augmentation de la valeur du capital en investissant dans des titres générant un revenu fixe et des titres apparentés (« Titres de Créance ») émis par des sociétés, des institutions financières, des agences, des gouvernements et toute institution ou organisme supranational régional ou mondial.

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Le gestionnaire du Compartiment, LDS Investments LP, une société en commandite ayant son siège social dans l’Etat américain du Delaware (le « Gestionnaire »), prendra les décisions d'investissement pour le compte du Compartiment. Le Gestionnaire s'engage à investir de manière responsable en intégrant activement les facteurs ESG dans le processus de sélection et de suivi continu des investissements, dans le but de contribuer à un impact social ou environnemental positif mesurable, parallèlement aux rendements financiers générés.

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Le Compartiment promeut des caractéristiques environnementales et sociales et la proportion minimale des investissements pour lesquels le Compartiment s'engage à atteindre les caractéristiques ESG promues est de 60%. Le Compartiment n'a pas l'intention de réaliser des investissements durables. Les investissements sous-jacents au Compartiment ne prennent pas en compte les critères de l'UE relatifs aux activités économiques durables sur le plan environnemental.

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Le Gestionnaire évaluera également les risques en matière de durabilité dans le cadre de son processus de prise de décisions d'investissement. Les risques en matière de durabilité (« Risques en matière de Durabilité ») sont des conditions ou événements environnementaux, sociaux ou de gouvernance qui, s'ils se produisent, pourraient avoir une incidence négative importante, réelle ou potentielle, sur la valeur du portefeuille du Compartiment et sur les rendements financiers générés par le Compartiment.

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Le Gestionnaire suit des processus spécifiques pour décider, dans une perspective d'investissement responsable, s'il est approprié d'effectuer un Investissement. Le Gestionnaire applique des outils et des processus spécifiques pour garantir une intégration approfondie des facteurs ESG à son analyse.

Le Compartiment poursuit une stratégie de gestion active des investissements et ne réalise pas ses investissements en référence à un indice et n'a pas l'intention de le faire.

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II.    No sustainable investment objective

This financial product promotes environmental or social characteristics, but does not have sustainable investment as its objective. The Portfolio Manager does not screen the investments of the Sub-Fund against the “do not significantly harm” test (the “DNSH test”), in the meaning of article 2(17) of SFDR, to determine whether they harm any of the environmental or social sustainable objectives.

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A sustainable investment (“”) means, in accordance with article 2 (17) of the Disclosure Regulation, an investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.

 

If and to the extent the Sub-Fund nonetheless holds assets that can qualify as Sustainable Investments, the Portfolio Manager may choose to apply screening procedures which shall enable it to assess whether the assets meet the criteria to qualify as Sustainable Investments, including positively contributing to a sustainable investment objective and meeting the DNSH test.

 

The investments underlying the Sub-Fund do not take into account the EU criteria for environmentally sustainable economic activities.  The Sub-Fund’s portfolio will be 0% aligned with the EU Taxonomy as laid down in the Taxonomy Regulation. In particular, the Sub-Fund does not invest in fossil gas and/or nuclear energy related activities that comply with the Taxonomy Regulation. Hence, the proportion of such investments under the Taxonomy Regulation is 0%. The DNSH principle, within the meaning of the Taxonomy Regulation, applies only to those investments underlying the Sub-Fund that take into account the EU criteria for environmentally sustainable economic activities.

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III.   Environmental or social characteristics of the financial product

The Portfolio Manager promotes, in respect of the Sub-Fund, the following ESG characteristics: climate change mitigation and adaptation and the measurement of social value, including social conditions. The Sub-Fund will also favour investments that contribute to a viable transition towards reduced carbon emissions and seek to invest in companies that have good quality of operations and management. The investee companies should have a clear focus on ethical issues in their attitudes and actions and have a direction towards lesser negative environmental impact.

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The Portfolio Manager is committed to investing in a responsible way by actively integrating ESG considerations in its investment selection and ongoing monitoring process with the intent to contribute to measurable positive social or environmental impact, alongside financial returns. By integrating ESG factors into the investment process, the Portfolio Manager aims at:

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• ensuring that the assets in which the Sub-Fund invests respect, and ideally benefit, investors, society and the environment; and

• enhancing investment returns and protecting value for the Sub-Fund.

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The Portfolio Manager considers the ESG factors at various levels of the investment process to be of high importance in order to identify those investments that have the potential to deliver sustainable returns. The quantitative and qualitative ESG screening procedure helps the Portfolio Manager to mitigate risks related to environmental, social and governances, which may impact the environment and the Sub-Fund’s performance. 

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During the investment making process, the Portfolio Manager collects information on each potential investee companies through an ESG screening questionnaire assessing:

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• the environmental and social characteristics promoted and pursued by the Sub-Fund and complied with at the level of the target company;

• the key performance indicators (the “KPIs”) used to measure the achievement of the environmental and social promotion at the level of the target company, such as:

  • the metric use of: green data, renewable energy technologies, office energy consumption, equal hiring opportunities; and

  • diversity and inclusion, gender diversity, employee training and certification program.

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• the good governance policy followed by the target company such as a robust reporting system to track, monitor and report the status and progress of sustainability metrics, as further detailed in the “Investment Strategy” section.

 

After assessing the above points for each contemplated investment, the Portfolio Manager establishes an ESG scorecard grading several categories, including but not limited to environmental, social and governance considerations, from positive (+1), negative (-1), or neutral/not applicable (0).

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The scores obtained in relation to the selected sustainability indicators guide the Portfolio Manager in the investment selection process so as to ensure that the ESG aspects promoted by the Sub-Fund are met.

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The Portfolio Manager will do a qualitative assessment of sustainability indicators on a regular basis. For the time being, except as may be otherwise disclosed at a later stage in the periodic reports or on its website, the Portfolio Manager and the AIFM do not consider adverse impacts of investment decisions on sustainability factors.

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IV.   Investment strategy

ESG considerations are fully integrated into credit analysis and investment decisions. They play an important role in determining the investment universe and portfolio construction of the Sub-Fund, as described below. The investment strategy is a bottom-up strategy where ESG considerations are combined with the financial and non-financial analyses for each company in the portfolio.

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The investee companies must exert good corporate governance, comply with national legislation as well as international conventions, and show an open and complimentary information policy. This means that the Portfolio Manager emphasizes social conditions, reduction of the environmental impact of the company, sustainability, and good corporate governance when considering an investment.

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In order to match the Sub-Fund’s investment strategy and ESG guidelines, the Portfolio Manager sets up a strict analysis process with a thorough screening, including quantitative screening, fundamental assessment, qualitative analysis, bond characteristics and portfolio impact, thus creating different levels of analyses that will be conducted for each potential investment. The procedure shall ensure that any investment or divestment is consistent with the promotion of environmental/social characteristics of the Sub-Fund.

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The Portfolio Manager follows dedicated processes in deciding from a responsible investment perspective whether it is appropriate to make an investment, ensures a thorough integration of ESG factors and monitors the investments on an ongoing basis to ensure that any potential ESG issues are identified within a reasonable time. More specifically, as disclosed above, the Portfolio Manager will rate potential investee companies from an ESG perspective and will invest solely in those companies (i) that meet certain ESG thresholds and thus reach a specific rate, or (ii) in relation to which the Portfolio Manager believes that the rating of the company will be improved within a reasonable time through the implementation of ESG initiatives.

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The qualitative assessment is meant to create a general overview of the specific challenges and strengths of each potential investee company with regard to their exposure and approach to each unique sustainability-related challenge. This overview will help the Portfolio Manager evaluate each investment opportunity on a case-by-case basis.

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To lead the quantitative assessment and as mentioned above, the Portfolio Manager has identified several key performance indicators. The Portfolio Manager approaches and evaluates each investee companies’ answer as positive (+1), negative (-1), or neutral/not applicable (0), the aggregate of which will be averaged into a final quantitative score. The overall quantitative scorecard will supplement the Portfolio Manager’s broader analysis with clear metrics and datapoints to regularly monitor and evaluate the progress of post-trade, if need be.

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Once the Sub-Fund has exposure to an investee company, the Portfolio Manager will evaluate the ESG performance of such company on a quarterly basis (unless a specific credit event occurs, or information is provided). Each valuation report will further be periodically (currently, on an annual basis) presented to the Sub-Fund and investors.

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In addition, the Portfolio Manager will conduct a negative screening process in which it will exclude investments in companies active in sectors that have been assessed to have negative impacts on society or the environment.

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The Portfolio Manager aims not to invest in securities issued by companies that are, to the best of the Portfolio Manager’s knowledge, engaged in the production, processing, storage or sale of any such products as may be in breach of laws or international protocols and, in its view, potentially damaging to society or the environment.

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The following types of exclusions apply to the Sub-Fund’s investments:

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1. norms-based exclusions: investments that are assessed to be in breach of commonly accepted standards of behavior related to human rights, labor rights, the environment and anti-corruption;

2. sector-based and/or values-based exclusions: investments and/or sectors exposed to business activities that are assessed to be damaging to human health, societal wellbeing, the environment, or otherwise assessed to be misaligned with the Portfolio Manager’s sector-based and/or values-based criteria; and

3. other exclusions: investments assessed to be otherwise in conflict with ESG criteria.

 

The Portfolio Manager excludes certain sectors altogether, the definition of which can be found below.

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Alcohol

The Portfolio Manager excludes production and distribution of alcohol. Alcoholic beverages are defined as beverages containing more than a specific percentage of alcohol (2.25%).

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Cannabis

The Portfolio Manager excludes companies that produce or distribute cannabis for recreational use and has a restrictive stance against companies involved in medical cannabis.

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Weapons

The Portfolio Manager excludes companies that develop, produce or distribute controversial weapons. Cluster munitions, anti-personnel mines, biological weapons, chemical weapons, non-detectable fragments, incendiary and blinding weapons, and depleted uranium munitions are considered as controversial weapons.

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The Portfolio Manager further excludes companies that manufacture, develop or sell weapons in breach of international conventions.

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Fossil fuels

The Portfolio Manager excludes companies that produce or distribute fossil fuels. Fossil fuels are defined as oil, coal and natural gas.

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Gambling

The Portfolio Manager excludes companies that produce or distribute commercial games in the form of casino or casino-like activities or other games for money. The Portfolio Manager differentiates between gaming and gambling.

 

Pornography

The Portfolio Manager excludes companies that produce or distribute pornography, which is defined as material that imitates sexual situations or events in a challenging way.

 

Tobacco

The Portfolio Manager excludes companies that produce or distribute tobacco, which refers to cigarettes (including e-cigarettes), cigars and smokeless tobacco.

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As stated above, the Portfolio Manager excludes certain sectors altogether. However, as set out in the table below, the Sub-Fund may invest in companies having an exposure, in terms of overall revenue, to certain excluded sectors, provided that it falls below certain limits. The Portfolio Manager further excludes companies with a substantial exposure to excluded sectors, e.g., investment companies the main assets of which are businesses active in such sectors.

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Geographically, the Sub-Fund solely invests in companies based in the Nordic region or companies that have a strong connection to the Nordic region, e.g., companies listed in the Nordics but having headquarters elsewhere, or companies with Nordic documentation in place for the bonds issued.

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The Portfolio Manager will measure and report on an annual basis the extent to which environmental or social characteristics are met and the progress made in further developing its approach to ESG integration and engagement.

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As referred to above, the Portfolio Manager emphasizes social conditions and good corporate governance when considering a company. The investee companies must take into consideration matters such as respect for human rights, anti-corruption, and anti-bribery matters, and should have a clear focus on ethical issues in their attitude and actions. Furthermore, they must exert good corporate governance, comply with national legislation as well as international conventions, and show an open and complimentary information policy. The ESG screening process includes elements related to good governance practices: (i) the ESG screening questionnaire includes questions related to the good governance policy of investee companies, (ii) governance consideration is one of the key performance indicators used for the quantitative assessment of investee companies, and (iii) the Portfolio Manager will apply an exclusion policy, as described above, when considering the financial product’s investments, including certain governance factors such as anti-corruption.

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V.    Proportion of investments

In accordance with the binding elements of the investment strategy, the minimum proportion of the investments to which the Sub-Fund commits to attain the ESG characteristics promoted is 60%. The Sub-Fund will be predominantly investing in Debt Securities, thus making direct investments in investee companies.

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For the avoidance of doubt, the above percentage refers to the Investments made by the Sub-Fund, however not including cash which is used for efficient liquidity and efficient portfolio management or cost management purposes which are not actually part of the investment portfolio. These cash and/or liquid assets will constantly fluctuate and will not affect the ESG profile of the Sub-Fund.

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VI.   Monitoring of environmental or social characteristics

The Portfolio Manager follows dedicated processes in deciding from a responsible investment perspective whether it is appropriate to make an investment. The Portfolio Manager applies specific tools and processes to ensure a thorough integration of ESG factors into its analysis. Furthermore, the Portfolio Manager shall monitor the investments on an ongoing basis to ensure any potential ESG issues are identified within reasonable time. The Portfolio Manager will actively monitor sustainability indicators and ESG incidents, where possible and depending on the asset class, and will review ESG progress on a regular basis.

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VII.  Methodologies

Once the Sub-Fund has exposure to an investee company, the Portfolio Manager will evaluate the ESG performance of such company on a quarterly basis (unless a specific credit event occurs, or information is provided). Each valuation report will further be periodically (currently, on an annual basis) presented to the Sub-Fund and investors.

Please refer to section IV “Investment Strategy” above for further details.

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VIII. Data sources and processing

a) Data sources used to attain each of the environmental or social characteristics promoted by the Sub-Fund. 

The Portfolio Manager will use any of the following sources to obtain data to attain the environmental and      social characteristics promoted by the Sub-Fund, as relevant and applicable:

• Quantitative and qualitative data reported by the (potential) investee companies through filling in an ESG screening questionnaire and/or collected on the basis of publicly available information (as detailed below); and

• Publicly available information on the (potential) investee companies, which are typically listed companies, including company reports and corporate disclosures, as follows:

1. Annual reports, that shall comprise, inter alia, audited financial statements, a management report and a non-financial statement;

2. Annual sustainability reports;

3. Quarterly financial reports, when they include updates on relevant information in relation to the environmental and social characteristics promoted;

4. Potential investees’ websites;

5. Materials provided to investors in the context of bond issuances e.g. investor presentation, due diligence questionnaire, credit research from bookrunning banks, and if green/social or sustainability-linked bonds are issued by the company, the Green Bond Framework prepared by the company as well as a Second Party Opinion;

6. Publicly available ESG ratings;

7. UN Global compact, should the potential investee be a signatory; and

8. Carbon Disclosure Project’s disclosures, should the (potential) investee company report to it, and other similar disclosures if the (potential) investee company prepares other reports.

 

• Additional information communicated by the (potential) investee companies to the Portfolio Manager in the course of calls and meetings prior to the investment decision being taken and thereafter where relevant.

 

The information gathered from the sources outlined above is incorporated into investment decision-making through the Portfolio Managers’ proprietary ESG scorecard as set out above. It is also used thereafter for the purposes of periodic reporting on the attainment of the environmental and social characteristics promoted by the Sub-Fund.

 

b) Measures taken to ensure data quality

The Portfolio Manager’s research team uses a comprehensive range of information sources for the purpose of data gathering and analysis. This diversification of the data pool thereby reduces the risk of error that might arise when relying solely on a single data source.

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The Portfolio Manager implements different measures depending on whether the source of data may be considered reliable:

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• If the information has been audited or if it comes from a regulated financial institution, the Portfolio Manager considers the data source to be reliable;

• If however the information is unaudited, the Portfolio Manager will check the data for any inconsistency, anomaly or potential sources of concern and will reach out to the (potential) investee company to inquire about said inconsistency, anomaly or concern and will carry out a further review where relevant.

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c) How data are processed

The Portfolio Manager’s research team collects the data gathered on the basis of public sources and of the ESG questionnaire filled in by the (potential) investee companies where relevant. It stores information on certain data points inhouse. Such data is then used by the Portfolio Manager in its investment decision process and for purposes of the Sub-Fund’s disclosures and reporting.

 

d) The proportion of data that are estimated

The data provided by the (potential) investees is mostly reported data. If any estimates are used, they correspond to the companies’ own estimates. In practice, this is seldom the case.

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IX.   Limitations to methodologies and data

​a) Any limitations to the methodologies and the data sources

Limitations to the methodologies and data referred to in the sections “Methodologies” and “Data sources and processing” above include but are not limited to: limited capacity to measure or report from the portfolio companies, human error in the provision of data, limited coverage and different reporting periods across the portfolio companies.

 

b) How such limitations do not affect how the environmental/social characteristics promoted by the financial product are met

Such limitations are mitigated by the Portfolio Manager’s processes, which include (i) reviewing a comprehensive range of data sources thus limiting the impact of human error, (ii) reaching out to portfolio companies and inquiring about inconsistencies or anomalies detected in the data reported, (iii) ongoing monitoring of updated information and (iv) evolving regulatory requirements and industry standards in terms of reporting which prompt portfolio companies to report more ESG metrics and data.

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X.    Due diligence

In the course of the due diligence, the teams assess opportunities and related ESG considerations individually by leveraging the broad and in-depth expertise available in-house.

 

During the due diligence process, a specific ESG analysis and assessment, via an ESG screening questionnaire, will be completed and presented to the investment committee to identify and mitigate material Sustainability Risks.

 

Please refer to section IV “Investment Strategy” above for further details.

 

XI.   Engagement policies

Not applicable.