Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”) Disclosure

UK firms which opt into the SFDR as the delegated investment manager to an EU firm must ensure that they publish information on their websites about their sustainable risk policies (Art 3), consideration of principal adverse impacts on sustainability factors (Art 4) and remuneration policies (Art 5). In line with these requirements, Adelio Partners Limited (which has opted-in with respect to the Adelio UCITS Fund) has outlined its approach.

Sustainable Risk Policies

Adelio Partners Limited is required to publish information on its website about its policies on the integration of sustainability risks in its investment decision-making process. A sustainability risk is 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.

For Adelio Partners Limited, sustainability risks are risks which would cause a material negative impact on the value of the portfolios it manages. Adelio Partners Limited’s investment process aims to identify the material risks associated with each proposed investment before it is made, including the relevant sustainability risks.

Sustainability risks are primarily addressed by Adelio Partners Limited’s technology platform (“AQUA”) which collects and standardizes data from various providers, automates valuation calculations and sustainability risk analysis using market estimates along with our own inputs, and supports our analysts’ work. AQUA output is used by the investment team to screen and categorise target companies based on ESG data, including sustainability risks. Target company categorisation informs the investment decisions of the investment team at initial investment stage and on an ongoing basis.

Adelio seek to maximize exposure to Sustainable Revenues and Services across the portfolio, where sustainability is primarily assessed through eligibility to the EU Taxonomy. The fund targets a minimum exposure of 40% and aims to exceed 50% by 2026.

Indicators:

  • Share of revenues eligible to the EU Taxonomy as a % of total across our investment universe
  • Compliance to UN Global compact principle
  • Severity of risks (Sustainalytics)
  • Controversy level (Sustainalytics)
  • Ratings score for each Environmental, Governance and Social risk exposure and mitigation strategy (MSCI ESG)
  • Revenue exposure eligible to EU Taxonomy (Bloomberg ESG)
  • Do Not Significantly Harm level 1 estimated pass rate for each 6 EU taxonomy objectives (Bloomberg ESG)
  • Minimum Social Safeguards pass rates for both mandatory and optional criteria in the EU taxonomy (Bloomberg ESG)
  • Existence of Company policies (biodiversity, GHG reduction, Human Rights, Anti-Bribery, Ethics)
  • Existence of climate related target (SBTi, net zero, implied temperature rise by 2100)
  • GHG emission intensity (GHG/sales, GHG/EV)
  • Proportion of women on Board
  • Company audit process score (ISS)

Do not Significantly harm principle:

For each company in our investment universe, we measure the pass rate on each DNSH level 1 test across all six EU Taxonomy factors:

  • Climate change mitigation,
  • Climate change adaptation,
  • Sustainable use and protection of water and marine resources,
  • Transition to a circular economy, waste prevention and recycling,
  • Biodiversity.

We will either avoid companies failing those tests or engage with them to agree a roadmap for improvement.

Environmental objective

Adelio sustainable objective (exposure to Sustainable Revenues and Services) is primarily based on EU Taxonomy-eligible revenues. We aim to achieve a minimum of 40% compared to 35% for the STOXX600.

Transitional activities

Adelio view transitional activities as essential to the attainment of ESG goals and will not restrict these.

Executive compensation

Adelio are currently developing our executive compensation policy, which will feed into our voting and engagement activities. We plan to focus on the following principles:

  • Long-term retention and rewards for the best contributors, maintaining consistency with market practice. Separation of skill and luck whenever possible
  • Alignment of interest with shareholders (skin in the game, balance of downside and upside risks)
  • Transparency and simplicity
  • No compromises on integrity

Principal Adverse Impact Reporting

Adelio Partners Limited is required to disclose on its website whether or not it considers the adverse impacts of its investment decisions on sustainability factors in the selection of investments. Sustainability factors are environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. If Adelio Partners Limited considers the adverse impacts of its investment decisions on sustainability factors it is required to publish information describing its policies and procedures in this regard. If Adelio Partners Limited does not consider the adverse impacts of investment decisions on sustainability factors it must disclose this and explain why.

Adelio Partners Limited does not currently consider the principal adverse impacts of investment decisions on sustainability factors because the regulatory technical standards supplementing SFDR remain in draft form and their implementation has been delayed. Adelio Partners Limited will keep the decision not to consider the principle adverse impacts on sustainability factors under review and re-evaluate this decision on a periodic basis.

Remuneration policy

Adelio Partners Limited has a remuneration policy in place that aims to promote sound and effective risk management considering relevant risks, including sustainability risks. Adelio Partners Limited’s staff are paid a combination of fixed remuneration and variable remuneration. Any award of variable remuneration considers the individual’s adherence with internal policies and procedures, including those that relate to the consideration of sustainability risks in the investment decision making process.