Sustainability risk integration in investment decisions
Disclosure of VP Fund Solutions (Luxembourg) SA and VP Fund Solutions (Liechtenstein) AG pursuant to Article 3 of Regulation (EU) 2019/2088
The following information shall provide an overview of how VP Fund Solutions defines sustainability risks and how these are integrated into its investment decision making processes. The disclosed information is anchored in VP Fund Solutions policy frameworks.
The assessment and integration of sustainability risks apply to the following:
- All investment decisions including portfolio management and fund management.
- All VP Bank funds managed by VP Fund Solutions
This does not apply to
- private label funds managed by VP Fund Solutions where the management of the portfolio has been delegated to third parties or where a third party acts as advisor
Sustainability risks consideration
A 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 an investment.
VP Fund Solutions excludes investments that pose an unacceptably high sustainability risk and investments must meet minimum criteria in the following three areas: ESG rating, business activity and business practices. Investments that do not meet our minimum criteria are excluded. The information for this assessment is provided by an external ESG data provider. Below is a summary of the requirements:
The ESG rating is composed of the most material environment (E), social (S) and governance (G) factors for each industry. Ratings range from AAA (best) to CCC (worst) relative to industry peers. We exclude the two lowest rating grades B and CCC. In the case of third-party funds and ETFs, we require a minimum level of coverage by MSCI and allow only a limited number of B and CCC rated investments. The allowable thresholds depend on the region and its structure.
Business practices refer to the behaviours of enterprises. VP Fund Solutions is guided by three internationally recognised standards: "UN Global Compact", "United Nations Guiding Principles for Business and Human Rights" and "International Labour Organization (ILO) Labour Standards". We exclude stocks and bonds of companies that breach these international standards or have a "very severe" controversy as identified by MSCI. In the case of third-party funds and ETF recommendations, there may a very low share of investments with breaches of international standards and «very severe» controversies.
Business activity refers to the products and services that a company offers. "Critical" business areas are defined as tobacco, gambling, thermal coal, nuclear and controversial weapons. We exclude companies that generate their revenue from these critical business areas above defined thresholds. Third-party funds and ETFs may contain a very small proportion of companies operating in areas considered «critical».
Sustainability risk assessment is conducted on all financial products unless they are not considered investments or financial instruments or only provide an economic exposure. Such as:
- Cash products (Money Market / Credit, Limit, Balance, money market deposit)
- Forwards, Options, Futures
How this is applied
Products that do not meet VP Fund Solutions criteria for sustainability risk are not eligible for portfolio management. These criteria are implemented into relevant investment and portfolio management systems and processes where VP Fund Solutions makes investment decisions. Investments are continuously monitored to ensure criteria are met. Ineligible financial instruments will be sold.
The integration of sustainability risks into the investment processes are governed according the relevant VP Fund Solutions policy frameworks. VP Fund Solutions takes into account sustainability risks within its risk management framework and integrates it in its overall monitoring and compliance systems and processes. The necessary adjustments in the suitability test regarding sustainability requirements will be implemented in the systems in line with the external ESG Regulation. The relevant compliance, internal audit function, management body and senior management consider aspects related to sustainability risk in their respective duties.
Principal Adverse Sustainability Impact Statement
VP Fund Solutions, consisting of the two companies VP Fund Solutions (Liechtenstein) AG and VP Fund Solutions (Luxembourg) SA, is part of the VP Bank AG group. VP Bank AG is a financial market participant which is the parent company of a large group within the meaning of Article 3(7) of Directive 2013/34/EU which meets the criterion on the group's balance sheet date and employs an average of more than 500 employees on a consolidated basis during the financial year. In accordance with Article 4(4) of 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, a statement of due diligence strategies in relation to the main adverse impacts of investment decisions on sustainability factors will be published here as of 30 June 2021.
For the disclosure under Article 5 Regulation (EU) 2019/2088 regarding the transparency of the remuneration policy in relation to the integration of sustainability risks, please refer to the remuneration policy of VP Fund Solutions