SFDR Sustainability-related disclosures
December 2023
Summary
This summary section has been completed in furtherance of SFDR and Article 25 of Commission Delegated Regulation (EU) 2021/1288 (SFDR Level 2) and summarizes the key information referred to in the remaining sections of these disclosures pursuant Article 10 of SFDR.
No sustainable investment objective
This financial product promotes environmental characteristics and does not have as its objective sustainable investment. A portion of the fund commits to making sustainable investments, these do no significant harm to any of the sustainable investment objectives.
Environmental or social characteristics of the financial product
The Fund promotes the following environmental characteristics:
- The development and production of carbon reduction technologies,
- The carbon emissions efficiency of existing processes and practices, and
- Support companies that produce products at a carbon emissions intensity less than the average carbon emissions intensity of peers in the MSCI ACWI Metals and Mining Index.
Investment strategy
The investment strategy of the Sub-Fund is to achieve the best return from a globally diversified portfolio of investments for a level of risk (as measured by volatility) broadly similar to the MSCI ACWI Metals and Mining Index. The Investment Manager believes that producers of future facing commodities, including those companies that align with the environmental characteristics and the sustainable investments of the Fund, will outperform bulk commodity producers over the next decade.
Notably, the Fund invests in companies that:
- Produce those commodities used in applications that facilitate global carbon emissions reduction such as rare earth elements in the permanent magnet of a wind turbine and lithium in electric vehicle batteries;
- Produce those commodities used to optimise the carbon emissions efficiency of existing processes and practices; and
- Produce their products at a carbon intensity less than the average carbon emissions intensity of their peers in the MSCI ACWI Metals and Mining Index.
Proportion of investments
A minimum of 75% in investee companies aligned with the environmental characteristics promoted by the Fund, of which, a minimum of 7% (i.e., 5% of the Net Asset Value of the Fund are classified as sustainable investments.
Monitoring of environmental or social characteristics
To measure and monitor the attainment of the environmental characteristics, the Investment Manager uses qualitative analysis paired with proprietary quantitative methodologies.
Methodologies
The Investment Manager leverages its qualitative analysis and quantitative proprietary environmental social and governance (ESG) assessment methodologies both to assess the environmental characteristics of the Fund and to characterise the sustainable investments of the Fund.
Data sources and processing
Data is obtained from a variety of sources including: i) third party data provides; ii) data published by companies that is made publicly available; and iii) data directly collected from companies. Data is collected and processed in-house and is initially populated using third-party data providers. The Investment Manager manually reviews all relevant publicly available data from companies to validate, amend and fill in data. The Investment Manager does not use any estimations.
Limitations to methodologies and data
In evaluating a company, the Investment Manager in some instances relies upon information and data that is incomplete, inaccurate, or unavailable. The limitations on the availability and accuracy of ESG data can stem from varying factors. The Investment Manager has developed its methodologies in such a way that the limitations do not affect how the environmental characteristics promoted by the Fund are met.
Due diligence
Due diligence is an integral part of the investment decision process and ongoing monitoring. Alongside the engagement procedure detailed below, the Investment Manager monitors investee company news and publicity and maintains a record of sustainability related articles and social media releases. The Investment Manager attends industry webinars and conferences for benchmarking purposes.
Engagement policies
The Investment Manager is an active manager and has an engagement procedure that outlines that they: i) 2 meets at least twice annually with the management of investee companies and more, typically on a quarterly basis; ii) attends site visits to the assets of investee companies where appropriate; iii) engages in a proxy voting service; vi) reviews all votes and recommendations; and v) may engage with company management as deemed appropriate.
Designated reference benchmark
The MSCI ACWI Metals and Mining Index is not constructed with the consideration of environmental characteristics, and no separate ESG reference benchmark has been specified by the Investment Manager. The Investment Manager calculates the avoided carbon emissions profile of its financial performance benchmark to compare it to the avoided emissions profile of the Fund. This is used to assess the promotion of one of the Fund’s environmental characteristics.
No sustainable investment objective
This financial product promotes environmental or social characteristics and does not have as its objective sustainable investment.
How do the sustainable investments that the financial product partially intends to make not cause significant harm to any sustainable investment objective?
To date, there are no EU Taxonomy guidance and technical screening criteria to assess the Do No Significant Harm (DNSH) principle for the mining industry specifically. To determine that the sustainable investments cause no significant harm to any of the sustainable investment objectives, the Investment Manager uses, as guiding principles, the principal adverse impacts (PAI) indicators set out in Annex I of the Regulatory Technical Standards.
How have the indicators for adverse impacts on sustainability factors been taken into account?
As detailed above, as part of the Investment Manager’s DNSH assessment, the Investment Manager assesses the environmentally related PAI indicators set out in Annex I of the Regulatory Technical Standards for the sustainable investment portion of the portfolio.
How are the investments aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights?
The Fund’s investment strategy and due diligence process carefully considers and incorporates the thematic areas of business responsibility reflected in the OECD Guidelines for Multinational Enterprises (OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UN Guiding Principles). This includes the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organization on Fundamental Principles and Rights at Work and the International Bill of Human Rights. During the annual ESG scoring process, data is collected on whether companies publicly commit to the OECD Guidelines and the UN Guiding Principles. A record is maintained of any identified violations. Companies are only classified as sustainable investments where, in addition to the Investment Manager’s DNSH assessment, there are no such violations identified and the Investment Manager is satisfied by the level of commitment to the OECD Guidelines and the UN Guiding Principles. The Investment Manager relies on internal ESG expertise in reviewing said commitments and performance.
Environmental or social characteristics of the financial product
The Fund promotes the environmental characteristics, as measured by the indicators and metrics detailed below:
| Environmental characteristics | Indicators | Metrics |
|---|---|---|
| Contribution to development and production of carbon reduction technologies | Avoided carbon emissions profile of the commodity produced | Tonnes of CO2 avoided per unit of commodity produced |
| Optimisation of the carbon emissions efficiency of existing processes and practices. | Avoided carbon emissions profile of the commodity produced | Tonnes of CO2 avoided per unit of commodity produced |
| Companies that produce products at a carbon emissions intensity less than the average carbon emission intensity of their peers in the Index. | GHG emissions intensity on a CO2 equivalent basis | CO2 intensity per unit sold (S1+2/revenue)(tCO2e/unit sold) |
Investment strategy
The investment objective of the Fund is to achieve the best return from a globally diversified portfolio of investments for a level of risk (as measured by volatility) broadly similar to the MSCI ACWI Metals and Mining Index. The Invesment Manager believes that producers of future facing commodities will outperform bulk commodity producers over the next decade. This includes those commodities that align with the environmental characteristics and sustainable investments of the Fund. The Fund invests its assets largely in shares of companies, whose business objective is the extraction, recycling, processing, and marketing of physical metal and mineral commodities. The Fund invests in companies that:
- Produce those commodities used in applications that facilitate global carbon emissions reduction such as rare earth elements in the permanent magnet of a wind turbine and lithium in electric vehicle batteries;
- Produce those commodities used to optimise the carbon emissions efficiency of existing processes and practices; and
- Produce their products at a carbon intensity less than the average carbon emissions intensity of their peers in the MSCI ACWI Metals and Mining Index.
All companies in the investable universe are subject to the binding initial sectors, activities and behaviours exclusion screen. Companies aligned with the environmental characteristics promoted by the Fund must pass through the fundamental ESG policy screen to: i) assess compliance with the Fund’s minimum requirements; and ii) score a minimum of 50% in the Investment Manager’s proprietary ESG performance scoring process (at least 25 environmental and social metrics are considered). The ESG performance score is used to represent the ESG performance of the company. The score is incorporated into the investment decision making process. Companies considered as part of the environmental sustainable investments are subject to Orion’s proprietary avoided carbon emissions methodology assessment. The score is not used to assess the attainment of the environmental characteristics. The Investment Manager’s methodology determines which commodities and products are classified as facilitating life-cycle carbon emissions avoidance. Only the companies in the investable universe producing those commodities and products are subject to this analysis.
The Fund seeks to consistently achieve a better avoided carbon emissions profile than the MSCI ACWI Metals and Mining Index. By maintaining a positive avoided carbon emissions profile, the Fund seeks to facilitate the production of carbon reduction technologies and contribute positively to a lower-carbon future.
The Investment Manager, as part of the Orion group applies a firm-wide Responsible Practice and Investment Policy (available at: orionrp.com/disclosures/responsible-practices-and-investment-policy) and Sub-Fund specific protocol as outlined below (Protocol). The protocol defines the process to assess the good governance practices of the investee companies, both pre-investment and post-investment through ongoing monitoring.
For pre-investment activities, governance considerations are integrated across the investment decision making process. The Investment Manager seeks to invest in companies that have a majority of independent directors and an independent chair of the Board overall and of the following committees: nomination, audit, sustainability, and compensation. Furthermore, ESG performance-linked compensation is a primary indicator for the Investment Manager to understand and justify the Board's pragmatic approach and dedication to sustainability.
The Investment Manager: i) seeks to invest in companies with effective management of employee relations and report transparently on the subject; and ii) considers how companies engage with local communities understanding the differing circumstances across investee companies. During the lifecycle of the investment, the Investment Manager is an active manager and meets semi-annually and up to quarterly with the management of investee companies.
The Investment Manager monitors country tax rates where the companies operate and where there appears to be significant divergence follows up with management on the subject. If a tax compliance matter is identified, the Investment Manager conducts additional research to identify whether it is a governance concern.
Proportion of investments
Of the total portfolio, the Investment Manager seeks to invest directly (direct investment exposure):
- A minimum of 75% in investee companies aligned to the environmental characteristics promoted by the Fund:
- Of which a minimum of 7% (i.e., 5% of the Net Asset Value of the Fund) are classified as sustainable investments; and
- The maximum of the remaining 93% (i.e., 70% of the Net Asset Value of the Fund) represents investments aligned with one or more of the environmental characteristics promoted and that do not qualify as sustainable investments.
- A maximum of 25% of investments that are neither aligned with the environmental characteristics, nor are qualified as sustainable investments.
#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product.
#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments
The category #1 Aligned with E/S characteristics covers:
- The Subcategory #1A Sustainable covers sustainable investments with environmental or social objectives.
- The sub-category #1B Other E/S characteristics covers investments aligned with the environmental or social characteristics that do not qualify as sustainable investments.
Monitoring of environmental or social characteristics
The Investment Manager uses qualitative analysis paired with a proprietary quantitative methodology framework, as detailed below, to measure the attainment of the environmental characteristics. These internal controls are used to monitor the Fund’s portfolio companies and investable universe, throughout the lifecycle of the Fund. External control measures used to monitor the characteristics are being evaluated and considered for this fund.
Methodologies for environmental or social characteristics
The Investment Manager developed the following screens and methodologies to assess how the environmental characteristics of the Fund are met.
| Methodology | Details |
|---|---|
| Applicable to all the Fund’s investments | |
| Binding initial sectors, activities, and behaviours exclusion screen | The company must not have meaningful business operations involved in the following sectors and activities: controversial weapons, tobacco, coal (excess of 30% of revenue derived from coal production); and ii) adult entertainment, alcoholic beverages, and controversial behaviour that seriously violates the United Nations Global Compact and/or the OECD Guidelines for Multinational Enterprises. |
| Applicable only to investments aligned with environmental characteristics | |
| Fundamental ESG policy screen | This applies to the companies promoting the environmental characteristics and sustainable investments. The company has in place policies addressing human rights, business ethics, anti-bribery and corruption, and a policy against any form of trafficked, forced, or child labour, including modern slavery. |
| Proprietary ESG performance scoring process | As part of the annual proprietary ESG scoring conducted by the Investment Manager, a company must have a minimum overall ESG score of 50% for inclusion and to maintain its position in the portfolio. This ESG performance score is not limited to the metrics assessing the attainment of the environmental characteristics. Instead, it is viewed as an encompassing score that represents the ESG performance of the company as whole. An estimated 70 environmental and social metrics are collected by the Investment Manager and 25 are shortlisted for inclusion in the scoring methodology. |
| Applicable only to sustainable investments | |
| Proprietary avoided carbon emissions methodology assessment | Companies considered as part of the environmentally sustainable investments are subject to Orion’s proprietary avoided carbon emissions methodology assessment. The Investment Manager’s methodology determines which commodities and products are classified as facilitating carbon emissions avoidance over their useful life. Only the companies in the investable universe producing those commodities and products are subject to this analysis. |
A divestment assessment is promptly conducted if the Investment Manager at any time becomes aware of:
- a violation of minimum binding criteria; or
- that the outputs of the methodologies do not accurately reflect the classification of the investment as promoting the environmental characteristics or as a sustainable investment.
The result of the divestment assessment may result in the downgrading of a company from its existing classification. This includes moving an investment from:
- A sustainable investment to promoting environmental characteristics; or
- “Promoting” to “not promoting” environmental characteristics.
The Investment Manager works to create a sufficient buffer in the proportion of investments under each classification to remain in compliance under these circumstances.
Data sources and processing
ESG data is collected from a variety of sources, including:
- Publicly available data from company sustainability reports, annual reports, news articles, policies, and websites;
- Third party data providers; and
- Directly from investee companies, during engagements with companies, including meetings, and site visits.
Data is collected and processed in-house. The data fields are initially populated using third party data providers, where available. The Investment Manager then reviews publicly available ESG data available from each company and works to verify the existing data entries and assess data quality. This is done while paying close attention to the units of quantitative data and representative time-period. Any inconsistencies are recorded and investigated as appropriate. Investee company data is reviewed in the context of its commodity peer group which helps identify any outliers for further investigation. The Investment Manager does not estimate company data or use estimations from third party data providers.
Limitations to methodologies and data
In evaluating an investment, the Investment Team is in some instances reliant upon information and data that is incomplete, inaccurate, or unavailable. The limitations on the availability and accuracy of ESG data can stem from varying factors. This includes lack of public disclosure (e.g., specific unrequired regulatory filings or reports) by a company and differences in regulatory requirements across jurisdictions that limit the consistency and comparability of ESG data. The Fund expects evolving regulations to further support the quality and availability of ESG data and disclosures over time.
Within the annual ESG scoring methodology, there are a number of metrics that the Investment Manager excludes from the score calculation due to a lack of data availability. To enhance the data coverage, a percentage coverage statistic is generated for each metric and only metrics with a minimum of 50% data coverage are included in the score calculation.
The identified limitations do not affect how the environmental characteristics promoted by the Fund are met. Only companies with the data required to assess the promotion of the Fund’s environmental characteristics are considered within the portion of investments that promote the environmental characteristics of the Fund. The Investment Manager does not estimate company data or use estimations from third party data providers.
Due diligence
Due diligence is conducted across the lifecycle of the investments. The engagement activities are detailed in the section below, and includes meeting with company management, attending site visits, and conducting additional due diligence. The Investment Manager monitors investee company news and publicity and maintains a record of sustainability related articles and social media releases. The Investment Manager attends industry webinars and conferences which offer benchmarking capabilities for investee company performance across the environmental characteristics promoted by the Fund.
The proprietary methodologies conducted by the Investment Manager are internally audited annually to assess the reproducibility of the outputs. This includes reviewing the annual ESG scoring process and avoided carbon emissions assessment. The Investment Manager may revisit and reconduct the assessments more frequently if new information becomes available whereby the existing outputs no longer appropriately represent the performance of the investee company. Amendments are internally audited and records are maintained.
Engagement policies
The Investment Manager is an active manager and meets at least twice annually with the management of investee companies, and more typically, on a quarterly basis. The Investment Manager attends site visits to the assets of investee companies where appropriate. The Investment Manager: i) engages in a proxy voting service; ii) reviews all votes and recommendations; and iii) may engage with company management as deemed appropriate.
Proxy voting is an important component of ongoing monitoring and engagement across the lifecycle of investments. The Investment Manager: i) reviews each proxy voting recommendation; and ii) may vote against management or proxy voting provider recommendations where the Investment Manager does not believe its environmental, social or governance practice expectations are appropriately represented.
The Investment Manager has a divestment procedure in place. If an investment subject to the binding criteria violates the binding criteria as explained in the methodology section above, the Investment Manager conducts a divestment assessment. The assessment considers any information published by the company or media concerning the violation. Where appropriate, the assessment involves direct communication with the company. The timeframe for divestment is determined on a case-by-case basis if divestment is the outcome of the divestment assessment. Active management divestment can be considered an action of last resort depending on the circumstances and after a thorough evaluation.
Designated reference benchmark
The MSCI ACWI Metals and Mining Index is not constructed with the consideration of the attainment of the environmental characteristics, and no separate ESG reference benchmark has been specified by the Investment Manager. The Investment Manager calculates the avoided carbon emissions profile of its financial performance benchmark (as per above) to compare to the avoided emissions profile of the Fund. This is used to assess the attainment of one of the Fund’s environmental characteristics.