Octogone Europe is the Investment manager of Flab Funds – Flab Core. The Fund is an open-ended collective investment company (“société d’investissement à capital variable”) established under the laws of the Grand-Duchy of Luxembourg, with an “umbrella” structure comprising different Sub-Funds. The Fund is now established as a UCITS in accordance with the provisions of part I of the 2010 Law.
The fund complies with Article 8 of SFDR
This compartment ….
Has a sustainable Investment Objective
Complies with Article 8 of SFDR (1)
Promotes environmental or social characteristics …
… with an environmental objective in economic activities that qualify as environmentally sustainable under the EU Taxonomy
… with an environmental objective in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy
… With a Social objective
Integrates ESG Factors and Sustainability Risks based on proprietary and third-party research to evaluate investment risks and opportunities
Follows a reference benchmark to attain the environmental and social characteristics
Excludes companies that are involved in breaches of international law and norms on environmental protection, Human Rights, Labour Standards and Anti-corruption
Investors willing to invest in this strategy should take into account all the characteristics and objectives stated in the fund’s prospectus
- 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 (SFDR)
Description of Environmental or Social Characteristics
Flab Core promotes environmental and social characteristics by applying an ESG scrutiny to part of its portfolio, composed of three classes of assets: equity, bonds and cash.
The environmental and social characteristics promoted by Flab Core relies on a selective approach regarding the investee companies, issuing equity or bonds.
Exclusion filters are applied to the portfolio construction process to restrict investments in companies and issuers with significant exposure to certain activities deemed to be detrimental to the environment or the society at large.
Such approach notably exclude all companies that are allegedly involved in breaches of international law and norms on environmental protection, human rights, labour standards and anti-corruption.
In addition, Octogone Europe SA further uses the ESG scoring generated from the S&P Corporate Sustainability Assessment (“S&P CSA”) to select the companies in which Flab Core invests, which will be monitored throughout the life of the investment. The Investment Manager thus ensures that only securities issued by entities that meet the minimum required ESG score for the Flab Core are eligible for inclusion. Regarding the bonds investment, MSCI ESG Government Ratings are used to ensure the promotion of environmental and social characteristics by the underlying investments.
Methodologies, Data Sources and Processing, Monitoring and Proportion of Investments
Flab Core stricly refers to the S&P CSA and MSCI ESG Government Ratings.
The S&P Global ESG Research includes 5,000 of the world’s larget publicly traded companies to participate in the CSA and uses industry specific questionnaires. Companies are evaluated based on a range of financially relevant sustainability critiera, including:
- Governance criteria: corporate governance, materiality, risk and crisis management, business ethics, policy influence, supply chain management, information security, availability.
- Environmental criteria: environmental reporting, policy and management systems, operational eco-efficiency, biodiversity, climate strategy.
- Social criteria: social reporting, labor practice inficators, human rights, living wage, human capital developmet, talent attracation and retention, corporate citizenship and philanthropy, occupational health and safety, customer relationship management.
MSCI ESG Government Ratings identify a country’s exposure to and management of environmental, social and governance (ESG) risk factors and explain how these factors might impact the long-term sustainability of its economy. The rating is based on a serie of risk factors and sub-factors, including:
- Environmental risks: natural resource (energy security, water resources, productive land and mineral resources-, environmental externalities and vulnerability (vulnerability to environmental events, environmental performance).
- Social risks: human capital (higher education and technology readiness, knowledge capital, basic needs, human capital performance), economic environment.
- Governance risk: fnancial governance (financial capital, financial management), political governance (institutions, judicial and penal system, governance effectiveness).
To promote environmental and social characteristics, Flab Core uses a selective approach regarding its portfolio.
The portfolio of Flab Core is composed of a mix of equity and debt assets, part of which are subject to the ESG screening process, described below.
1- Exclusion list
First, the Investment Manager applies a strict exclusion list, indentifying companies that are allegedly involved in beaches of international law and norms on environmental protection, human rights, labour standards and anti-corruption (the “Exclusion List Criteria”).
For instance, companies which are publcly reported as being invovled in nuclear weapons or coal mining are excluded from the investment universe of Flab Core. Companies exposed to alleged violation of norms related to peoples rights are also excluded from the list of poential investments by Flab Core.
In that respect, the Investment Managers refers to publicly available lists of companies which are allegedly exposed to activities detrimental for the environmental and human rights.
2- Use of S&P and MSCI ESG Ratings
The S&P Global CSA, provided by Bloomberg, will serve as a sustainability roadmap helping participating companies to prioritize corporate sustainability initiatives that are most likely to enhance the company’s competitiveness.
35% of the portfolio of Flab Core is composed of direct equity holdings, which are subject to the ESG screening process.
For each equity sector where Flab Core will invest in the United States and in the Euro Zone, the Investment Manager uses the S&P CSA ranking as another factor for stock selection. The Investment Manager will overweight the companies with the best ranks and underweight the companies with the lowest.
Flab Core will not be invested in any company under the 33% rank.
For investments in bonds, 25% of the portfolio of Flab Core is composed of Government bonds, subject to the ESG screening process. In that respect, MSCI ESG Government Rating is used in order to exclude any investments in Government Bonds with a rating of BB or less from the investment universe.
MSCI ESG Government Ratings identify a country’s exposure to and management of environmental, social, and governance (ESG) risk factors and explain how these factors might impact the long-term sustainability of its economy. By providing a long-term view on sustainability the ratings aim to complement traditional government debt analysis for analyzing a country’s credit worthiness.
Flab Core invests in three asset classes i.e: equity, bonds and cash. The part of the portfolio subject to the ESG scrutiny and promoting environmental and social characteristics represents a minimum of 60% of the assets of the Sub-Fund.
Limitations to Methodologies and Data
The main limitation to our methodology include lack of data or quality.
In order to reduce these risks, Octogone Europe SA uses reliable and reputable sources. In addition, we keep the right to deviate from the data collected from third-party on a case-by-case basis if we consider that the information is incomplete, incorrect or outdated.
The due diligence process of Flab Core covers the following points:
- Liquidity of the issuer
- Exclusion filters based on breaches of international laws and norms regarding Environmental protection, Human Rights, Labor Standards and Corruption.
- Ranking according to S&P CSA or MSCI ESG Government Ratings
Flab Core does not use engagement as a mean in order to achieve its environmental or social characteristics