On 10 March 2021 the European Sustainable Finance Disclosure Regulation ('SFDR') became applicable. This regulation emerged from the EU action plan for sustainable growth and is thus part of wider efforts at European level to make the financial sector more sustainable.
The regulation requires financial companies such as True Partner Capital Netherlands, B.V. ('TPC NL') to disclose information about if and how they consider Environmental, Social and Governance factors (‘ESG-factors’) in their investment decision process.
In line with the UN Principles for Responsible Investment, and in support of our objective of providing clients with superior risk-adjusted returns, as fiduciaries we believe that environmental, social, and governance issues can affect the performance of investment portfolios to varying degrees across companies, sectors, regions, asset classes and through time. However, given the fact that we primarily invest for our clients in index options it is harder to incorporate ESG consideration into the investment decision process. Where possible we seek to incorporate ESG factors into our investment analysis. This means that when we trade single stocks we apply the exclusion list prepared and published by one of the world’s largest (Dutch) pension funds which has a long-standing and thoughtful approach in this area.
As said the investment strategy itself of TPC NL does not lend very well for an explicit focus on sustainable investing and/or impact investing. TPC NL therefore does not offer portfolios that promote ecological and or social characteristics or that have sustainable investments as their objective.
TPC NL defines a sustainability risk as following: “An environmental, social or governance event or condition (also known as an ESG factor) which, if it occurs, could cause an actual or potentially material adverse effect on the value of the investment”. ESG factors can – directly or indirectly – negative influence the value of a portfolio. Since TPC NL primarily invests for its clients in index options, the sustainable risks as such are not relevant. TPC NL’s approach to investing and risk management is that risk events are incorporated in the risk framework, as any shock (whether caused by ESG or non-ESG event) is taken into account in our scenario-based stress testing.
Negative effects on sustainability
Above we explained what we mean with sustainability risks: the negative effects of sustainability factors on the value of investments. However, the opposite is also possible: investments can have a negative effect on sustainability factors. For example, investments can contribute (indirectly) to climate change, to waste generation or bad working conditions.
TPC NL does not actively consider such negative effects when making investment decisions. The reason for this is again the investment strategy of TPC NL. This strategy, in which 99% or more of the portfolio is not invested in single stocks, is not suitable for taking principle adverse impacts into account. TPC NL will reconsider this decision, if in the future it will be possible to take principle adverse impacts into account for the investment strategy of TPC NL.
TPC NL has a restraint remuneration policy. The remuneration policy ensures that the interests of our clients and our company are safeguarded in the long term. In concrete terms this means that TPC NL, among other things, prevents employees from having perverse incentives that could lead to acting negligently to clients.
The Remuneration Policy is designed to:
- be consistent with and promote sound and effective risk management, including a sound governance structure that ensures that the management of environmental, social and governmental and other risks is integrated across all levels of the business and periodically reassessed;
- encourage alignment of the risks taken by the employees or directors and not encourage risk taking which is inconsistent with the risk profile of TPC NL;
- be in line with the business strategy, objectives, values and interests of TPC and include measures to avoid conflict of interests; and
- not lead to risks that third parties are treated improperly.
We reward contributions to the long-term success of the company as a whole, rather than to an employee's individual results or accomplishments in the direct area of responsibility. Bonuses above a certain threshold will be paid out over several installments to account for any potential losses TPC NL may face. It also includes the possibility to adjust or claw back variable remuneration awarded to Employees. Additionally, we do not accept unethical or illegal behavior under any circumstances within any part of the company. With the option for TPC NL of reducing or reclaiming the variable remuneration TPC NL ensures that Employees and Directors do not take unnecessary (sustainability) risks.