ESG, standing for Environmental, Social, and Governance, represents three crucial factors evaluated when determining the sustainable and responsible conduct of companies and investments. It embodies an investment strategy that, besides financial metrics, also takes into account these non-financial criteria when deciding on investments.
The ESG consists of three pillars:
Environmental
This aspect examines the environmental repercussions of a company’s operations, encompassing greenhouse gas emissions, energy usage and efficiency, waste management, and conservation of natural resources. It also covers broader environmental concerns like: Climate change, Air and water pollution and biodiversity preservation
Social
This dimension explores the impact of a company’s activities on society, encompassing interactions with employees, customers, suppliers, and local communities. Key social considerations include human rights, working and pay conditions, diversity and equality policies, employee health and safety, shareholder relations and corporate social responsibility.
Governance
This dimension focuses on a company’s governance and control procedures, including transparency, business ethics, corporate responsibility, independence of supervisory entities, composition and remuneration of management bodies and risk management approaches.
Implementing an ESG approach entails incorporating these three elements into an organization’s strategies and practices, followed by monitoring and assessing the company’s activities using suitable indicators.
European authorities emphasize sustainability issues, and have thus established a regulatory framework for addressing ESG factors within the financial sector. This framework mandates financial market participants to provide detailed disclosures regarding sustainability risks.
The key ESG legislation that has been adopted by the EU legislator for the financial sector consists of the following:
The SFDR Regulation (Regulation (EU) 2019/2088, dated 27 November 2019) pertains to disclosing sustainability-related information in the financial services sector. It mandates financial market participants and advisers to share information regarding their sustainability goals, and differentiates between financial products that are sustainability-related and those that are not.
The RTS Regulation (Commission Delegated Regulation (EU) 2022/1288, dated 6 April 2022) supplements the SFDR Regulation, focusing on regulatory technical standards. It outlines the specifics on the content and presentation of information concerning the “do no significant harm” principle, sustainability indicators, adverse sustainability impacts, and the promotion of environmental or social aspects and targets for sustainable investments, to be included in pre-contractual documents, websites, and periodic reports.
The Taxonomy Regulation (Regulation (EU) 2020/852, dated 18 June 2020) establishes a framework to encourage sustainable investments, while amending the SFDR Regulation. This regulation sets up a structure to facilitate investments aimed at sustainability.
In adherence to the mandates delineated in the legal statutes referred to, Xplorer Fund S.A. ASI., registered in Olsztyn, hereby articulates the following:
I. The company does not take into account sustainability factors in the management process of the ASI and the investments in its alternative investment company activities also do not take into account the EU criteria for environmentally sustainable business activities.
II. Strategy for incorporating sustainability development risks into the business
In fulfilment of the obligation referred to in Article 3(1) of the SFDR Regulation, the Company declares that, at this stage, it does not have a strategy regarding the incorporation of risks for sustainable development into its business when making investment decisions.
According to Article 2(22) of the SFDR Regulation, sustainability risks means environmental, social or governance situations or conditions that, if they occur, could have, actual or potential, a material adverse effect on the value of an investment.
The Company considers that, at present, sustainability risks do not materially affect the return on the financial products it offers (alternative investment company). This assessment has been made after taking into account factors such as the type of financial product offered by the Company, the planned size of the Company’s operations in the near term, the acceptable types of investments adopted in ASI’s investment policy and strategy, the criteria for the selection of investments, the principles of diversification of investments and the diversified catalogue of sectors in which ASI will seek potential investments.
The Company has not yet adopted a strategy regarding the introduction of sustainability risks in the investment decision-making process, as it does not anticipate the occurrence of such sustainability risks in the investment process – given the nature and business profile of the entities that are the subject of the investments undertaken.
The Company will monitor sustainability risks on an ongoing basis and, in the event that an increase in their impact on the return on participation in ASI is identified, the Company will take appropriate action to communicate the relevant information to ASI investors.
III. Investment decisions shall not take into account their adverse effects on sustainability factors
In fulfilment of the obligation referred to in Article 4(1)(b) of the SFDR Regulation and Article 12 of the RTS Regulation, the Company announces that it does not take into account the main adverse effects of investment decisions on sustainability factors.
The Company justifies its decision by the early stage of ASI’s activities, the scale of these activities and assumptions about the course of the investment process, as well as the type of financial products made available and the limited availability and quality of data necessary to conduct the analysis on ESG factors.
The Company will consider taking into account the adverse effects of investment decisions on sustainability factors in the event of an expansion in the scale of the business and the increased availability of sustainability reporting data in the future.
IV. Transparency of remuneration policy in relation to the introduction of sustainability risks into the business – Article 5 of the SFDR
As a Company referred to in Article 3(2) of 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 Company is exempted from the need to adopt a remuneration policy as referred to in Article 13(1) of that Directive.
Similarly, in the light of the regulations of Polish law, the Company, pursuant to Article 70zb(4) of the Act on Investment Funds and Alternative Investment Fund Management (hereinafter also referred to as the “UFI”), as entities which carry out activities consisting in managing an alternative investment company without the authorisation of the Polish Financial Supervision Authority, are not obliged to have a remuneration policy within the meaning of Article 70j of the UFI. However, taking into account the quoted position of the EC and the explanation of the FSC, notwithstanding the above, the Company will monitor sustainability risks on an ongoing basis and, in the event that they are identified as having a material impact on the return on participation in the ASI, will take appropriate action to communicate the relevant information to ASI investors.