Table of content
- 1. Sustainability – General disclosures
- 2. Sustainability – Product level disclosures
1. Sustainability – General disclosures
Disclosure on the sustainability policy
Aegon Hungary Assets Management (hereinafter: Fund Manager) meets its obligation set out in Article 3, section (1) of Regulation 2019/2088 of the European Parliament and Council (EU) on sustainability-related disclosures in the financial services sector, by creating internal rules, which have been issued under the title of Responsible and Sustainable Investment Policy, hereinafter referred to as the Policy.
The Policy includes the basic principles of responsible and sustainable investment activity, applied by the Fund Manager to operate its asset management. The preamble of the Policy declares the Fund Manager’s commitment to a responsible and sustainable approach to investment.
The Fund Manager is an important investor of numerous sectors and companies therefore, it has serious responsibility as an equity investor. The Fund Manager is committed to making prudent and responsible investments for the benefit of its customers with the appropriate identification and management of risks. The VIG Group is a signatory of the UN Global Compact Principles.
The Fund Manager as a shareholder strives to make contributions to wellbeing and sustainable development – acting for the benefit of the investment funds and asset portfolios managed by it – while performing its shareholder’s duty. It believes that the integration of Environmental, Social and Governance (ESG) conditions into the decision-making process on shareholdings and investments will have a long-term positive impact on returns. It demands that all of its employees, and in particular those concerned with the investment activity shall support this approach.
The Fund Manager, in the course of its responsible investment activity, applies the following strategies with consideration to the special features of the individual portfolios:
- Exclusion criteria: The Fund Manager abstains from investing into companies with core activities regarded as adverse by international norms (e.g.: companies that fail to comply with UN Global Compact principles, are associated with controversial weapons, have thermal coal exposure or are in the tobacco business.) The specific exclusion list is based on different levels of cut-offs for exclusion criteria that may vary in rigour depending on the sustainability target of the fund.
- Integration of ESG criteria: The Fund Manager also takes Environmental, Social and Governance – ESG) factors into consideration when making investment decisions. It relies on data provided by external ESG data suppliers in the assessment of sustainability risks, which data may be internally processes or may use 3rd party analysis.
- Active ownership – commitment and voting: The Fund Manager typically maintains a dialogue with the companies in which it invests. It gathers information about the companies in which it wishes to invest in the form of conference calls or sometimes on-site visits. Furthermore, it attends annual general meetings, where it exercises its voting right in line with the instructions in its Engagement Policy. In this process, it also gathers information on the sustainability commitment of the companies concerned, and may also enforce its sustainability commitment during voting if justified by the case.
The Fund Manager operates and develops decision-making processes which also aim at the integration of sustainability risks in addition to other relevant investment risks. The exact manner of taking sustainability risks into consideration depends on the nature of the portfolio concerned. If the investment policy of the portfolio expressly includes aims to promote environmental or social characteristics or their coordination, or the investment policy aims at a sustainable investment, the Fund Manager’s asset management practice expressly favours, to varying extent, the instruments where exposure to sustainability risks is typically lower.
The Fund Manager systematically considers the principal adverse sustainability impacts of its investment decisions – as defined in Regulation 2019/2088 of the European Parliament and the Council (EU) on sustainability-related disclosures in the financial services sector. The Fund Manager assesses and measures sustainability risks through these principal adverse impacts on the issuers of investment instruments.
- Statement on principal adverse impacts of investment advice on sustainability factors: The Fund Manager discloses that it measure the impact of Principle Adverse Impacts (PAIs) on its investments with a sustainability target and publishes the results of its analysis in its annual report.
Disclosure on the due diligence policy
Aegon Hungary Assets Management (hereinafter: Fund Manager) informs its investors and customers that in its investment decisions concerning the offered financial products, it systematically considers the principal adverse impacts on sustainability factors as defined by the Disclosure Regulation 2019/2088 of the European Parliament and the Council (EU) on sustainability-related disclosures in the financial services sector.
The Fund Manager meets its obligation to develop a due diligence policy by issuing internal rules under the title of Responsible and Sustainable Investment Policy.
This Policy includes the description of the principal adverse sustainability impacts, and the Fund Manager’s practice to identify and prioritize adverse impacts and indicators. The Fund Manager creates and develops its related practice so that it can give consideration to the already available and probably expanding sustainability data. At the same time, it is the issuers’ related effective disclosure practices that will basically define the sphere of the relevant data available for the Fund Manager as asset manager. The sphere of such information will reach the depth aimed at by the regulators following the full implementation of the European Union’s sustainability legislation, and its compliance by market players.
The Fund Manager’s due diligence practice aims at creating a picture of the sustainability characteristics of the instruments in a proportionate but most efficient way possible so that the Fund Manager can inform its customers and investors on the sustainability profile of its offered financial products in line with legal provisions, and adjust the sustainability profile of the portfolios adequately if this aim has also been formulated by the investment policy.
Pursuant to the expectation expressed in Article 4, section (4) of the Disclosure Regulation, the Fund Manager informs its customers and investors that the VIG Group has submitted itself to the UN Global Compact Principles. Accordingly, as member of the group we support and agree with the 10 principles of the UN Global Compact that pertain to human rights, labour laws, protection of the environment and committing to anti-corruption including extortion and bribery.
Extract from the Fund Managers’ engagement policy
The Fund Manager, engaged as shareholder, acts to enforce the interests of its customers and/or investors when acting to the benefit of the investment funds and asset portfolios managed by it. The general aim of the Fund Manager, engaged as shareholder, is that the companies with portfolio investments shall operate in line with Fund Manager’s investment purposes. In this process, it also gathers information on the sustainability commitment of the companies concerned, and may also enforce its sustainability commitment during voting if justified by the case.
In general, the Fund Manager represents a supportive shareholder attitude vis-a-vis the management of the companies concerned with the Fund Manager’s investments. If the total voting right of the portfolios represented by the Fund Manager overruns 5%, and has an advocacy capability with regard to general meeting resolutions, it may even attack any given proposal if according to its judgement, this step is in the interest of its customers and/or investors.
The Fund Manager gives information annually on the implementation of its current Engagement Policy with the content specified in the applicable law. The Fund Manager gives written information annually to its institutional investors which it executed a portfolio management contract with about how its investment strategy and its implementation meet the requirements of the contract, and how they contribute to the medium- and long-term performance of the institutional investors’ instruments.
In line with applicable legal provisions, the Fund Manager discloses its Engagement Policy and information on its implementation on its website (www.aegonalapkezelo.hu).
Extract from the Fund Managers’ renumeration policy
At Aegon Fund Management, the work of our colleagues creates value for our clients, which is why we have developed working conditions and an incentive system that allows employees who do excellent work to be retained in the long term and attracts new talent. This requires a competitive remuneration system in addition to work-friendly conditions and ongoing training.
Our remuneration philosophy is based on monitoring the labor market and developing appropriate references. Part of our philosophy is to ensure that employees who meet expectations are adequately remunerated. To this end, in addition to a fixed income, we use variable pay in certain jobs, primarily in the area of asset management and sales.
At the same time, our remuneration policy only supports healthy risk-taking, thus preventing our colleagues from taking excessive risks that go beyond the mandate. The considered risks also include the sustainability risks, this way supporting the holding’s vision that responsible investment practice may create value on the long run. To this end, we make risk indicators part of the interest system, among others, we also use longer-term performance data in the evaluation, and in the case of colleagues with a decisive role in risk-taking (so-called identified), we pay 50% of the variable remuneration, with a three-year deferral. Who. This allows the reward to be reduced or withdrawn in the event of excessive risk-taking after the end of the assessment period. Over the three years, the accrued portion will be invested in key investment funds managed by Aegon Fund Manager, strengthening the interest in the good performance of the funds.
A designated group of employees may also receive an annual variable salary (bonus) depending on performance. Employees involved in the bonus: members of the Board of Directors, fund managers and analysts, senior colleagues in the sales area, and the head of the finance and settlement area. The Fund Manager intends to reward excellent performance for the employees involved in this area on personalized terms. Based on the classification of employees working in the above areas, the maximum bonus that can be paid can reach 100 percent of annual income in the case of excellent performance. Maximum performance is achieved when all set goals are exceeded. The setting of personalized goals is the responsibility of the line manager, while its approval is the responsibility of the Chairman and Chief Executive Officer, excluding the job descriptions of the members of the Board of Directors and the identified employees. In their case, the objectives are set under the supervision of Risk Management, while their approval is the responsibility of the Chairman of the Supervisory Board. The fulfillment of the objectives will be assessed, monitored and approved in accordance with the above.
2. Sustainability – Product-level disclosures
VIG Emerging Market ESG Equity Investment Fund
Information regarding the promotion of environmental and social characteristics
In compliance with its obligation set out in Article 10 of Regulation (EU) 2019/2088 of the European Parliament and of the Council on sustainability‐related disclosures in the financial services sector (Disclosures Regulation, SDFR Regulation), AEGON Magyarország Befektetési Alapkezelő provides the following supplementary information regarding the VIG Emerging Market ESG Equity Investment Fund (hereinafter: “Fund”).
ESG (environmental, social, governance): as used in this document, the term ESG is understood by the Fund Manager to refer to the consideration of environmental, social and good governance matters, equivalent to the meaning of ‘sustainability factors’ under Article 2(24) of the SFDR Regulation (Regulation (EU) 2019/2088).
Sustainability risk is an environmental, social or governance-related event or circumstance the occurrence or existence of which may have an actual or potential material adverse effect on the value of the investment. Sustainability risks include climate risk, transition risk or additional costs associated with fossil fuels.
Integration of sustainability risks into investment decisions
While managing the Fund’s assets, the Fund Manager evaluates potential investment instruments on the basis of its own internal methodology, which includes an assessment of the relevant risks and their management. The Fund Manager sets out its principles for sustainable investment in its Sustainability Policy, which requires risks relevant in terms of long-term sustainable development objectives to be identified and taken into consideration in its investment decisions.
When making any asset management decision, the responsible portfolio managers review the outcomes of sustainability risk assessments available in respect of potential investment instruments. As part of the risk management process, the sustainability risks are considered together with other investment risks in relation to the level of expected returns and their sustainability.
Where exclusion principles are stipulated in the Fund Manager’s Responsible Investment and Sustainability Policy, and where, based on this, a contemplated investment instrument is not favoured, the investment shall only be made subject to the restrictions stipulated in the Policy.
Where the Fund’s investment policy has determined a sustainability risk profile that rules out the assumption of sustainability risks in excess of a certain level, or is explicitly designed to promote sustainability, the sustainability risk of a particular instrument or its contribution to the sustainability risk of the overall portfolio will be assessed in the course of any asset management decision and may limit, in whole or in part, the extent of any such investment made in such assets.
Promotion of environmental or social characteristics
In the case of the Aegon Emerging Markets ESG Equity Investment Fund, the Fund Manager informs investors that while the portfolio is offered as a product classified as a financial product that promotes environmental or social characteristics or a combination of these, as defined by the SFDR (EU 2019/2088), it is not classed as a financial product that has sustainable investment as an objective.
The Fund achieves its investment objective (i.e., achieving attractive returns from economic growth in emerging countries) essentially through individual equity investments. Investments that are in line with the Fund’s objectives are selected by the Fund Manager such that during asset selection the Fund pays particular attention to the compliance of the individual companies with what are known as ESG (environmental, social, governance) criteria, i.e., in addition to an analysis of financial factors, portfolio managers explicitly take environmental, social and governance factors into account in the investment decision process. The Fund Manager has not, for the purposes of asset selection, specified any explicit criteria for selecting an asset based exclusively on whether that asset has been classed as an ESG-promoting or a sustainable investment.
The Fund Manager seeks to achieve the Fund’s ESG objectives by building a portfolio for the Fund in which the average of the indicators of companies used for measuring ESG criteria is more favourable than the aggregated ESG index of the emerging market parent index (MSCI Emerging Net Total Return Index), i.e., they typically exercise more developed environmental, social and corporate management responsibility in the course of their operation. The Fund’s specific investment strategy, as detailed in its Investment Policy, is implemented through an analysis of the ESG characteristics of prospective direct and indirect investments, in addition to the standard fundamental and other investment selection criteria. An essential element of this process is the conscious integration of sustainability risks, which is described in detail in the next section of this document.
The Fund Manager integrates the sustainability risks it identifies into its investment decisions as follows, and manages them as follows:
- Exclusion list: when making decisions regarding the Fund, the Fund Manager applies what is known as an exclusion list, compiled and maintained in accordance with its Sustainability Policy and that represents a prohibition on the purchase of certain specified assets. The prohibitions apply to industries that are adjudged to have a harmful impact on society or the environment, such as the arms trade, or coal mining, which has a particularly damaging impact on the environment, and oil exploration companies that use fracking.
- Measurement of sustainability criteria: The Fund Manager considers various environmental, social and governance criteria in order to identify and measure sustainability risks and summarises these in a combined and comprehensive quantitative metric, known as the ESG score. The Fund Manager measures the achievement of the ESG and sustainability objectives using its own internal evaluation framework, which draws heavily on data provided by third parties, but that in certain cases also takes account of the targeted analyses of the relevant portfolio managers.
- Sustainability and ESG data reporting: The Fund Manager may obtain the information required for the internal evaluation from external data service providers that analyse ESG criteria, using other internationally recognised data service providers in addition to Sustainalytics, MSCI and Bloomberg.
- Promotion of sustainable development: Based on the sustainability risks defined in its Sustainability Policy and presented in the Fund’s Management Regulations as well, the Fund Manager identifies companies as potential investments that expressly promote environmental and social characteristics while at the same time pursuing good corporate governance practices. For this Fund – and this applies to all its investments, regardless of industry or country – the Fund Manager prefers, and overweights, companies that are more advanced and committed in respect of these criteria.
With regard to direct investments, the good governance practices of the companies chosen for investment purposes are taken into account by the Fund Manager by expressly integrating this factor into the ESG score, i.e., it may be the basis for assigning it a “severe” risk rating, meaning it should be avoided. The ESG score takes governance practices into account through factors such as the quality and integrity of the board of directors or management, the composition of the board of directors, owner and shareholder rights, remuneration policy, the auditor’s and financial reports, management of stakeholder relations, and so on.
On the basis of the sustainability risk metric applied by the Fund Manager, the Fund will not make any direct investment in assets classified as of “severe” risk. The relevant risk assessment is reviewed on a regular basis, but at least once a year.
The Fund’s main strategy is to provide broad emerging equity market exposure and to achieve performance above the emerging market index through active equity market allocation. An active strategy enables the Fund to achieve a return in excess of the benchmark. The Fund’s risk exposure due to its geographical distribution is close to the benchmark. The Fund relies on fundamental analyses in the selection of various assets and equities and applies them as an integral part of its active investment strategy. An important consideration in asset allocation is the impact of the investments on the ESG profile for the portfolio as a whole. The primary purpose of taking the latter considerations into account is to promote environmental and social sustainability goals, not to generate returns in excess of the benchmark.
The ESG-promoting investments that serve the specific objectives of the Fund are made primarily through direct investments. The Fund Manager invests the remaining portion of the portfolio into indirect assets. The purpose of these other, indirect, investments is to support the Fund’s performance targets without jeopardising the ESG-promoting nature of the entire portfolio, i.e., achieving an ESG rating that exceeds the average ESG rating of the parent index.
With regard to the realisation of ESG objectives, the Fund Manager hereby provides the following additional information in respect of the Fund:
- In respect of all its investments, the Fund considers whether the investments promote the desired environmental and social characteristics of the portfolio. In respect of direct equity investments, it manages and identifies sustainability risks in the manner described in detail in the foregoing. The most important elements of this are observance of the exclusion list, overweighting investments that promote environmental and social objectives, and avoiding investments of “category A” (high) risk according to their own ESG score.
- The Fund Manager may, however, also make indirect investments if market access to the targeted direct investments is limited for whatever reason, or if cost considerations warrant it. When selecting indirect investments, the Fund Manager seeks to obtain information on the sustainability profile of the investment mainly by assessing the assets underlying the financial product and matches this to the ESG-promoting goals of the Fund. At the same time, the Fund Manager makes all reasonable efforts to obtain the fullest picture possible of the sustainability factors of its indirect investments and seeks to ensure that indirect investments generally meet the sustainability criteria the Fund applies to its direct investments. It may be the case that indirect investments include issuers that do not meet the ESG requirements determined for direct investments, although the Fund seeks to keep these exposures to a minimum.
- The Fund aims to participate, directly or indirectly, in the GDP growth of emerging market economies through the stock-price increases or dividend payments of listed companies, while taking into account ESG criteria. In line with its investment strategy, the Fund has chosen the MSCI Emerging Markets ESG Focus Net Total Return Index (USD) – which represents the emerging markets and promotes ESG characteristics – as its benchmark, with the aim being to outperform that benchmark. Furthermore, the application of the indicated ESG FOCUS-type benchmark supports achievement of the ESG goals specified in the investment policy, by providing a portfolio that has an ESG rating exceeding the aggregated ESG rating of the assets comprising the parent index representing the emerging market. In order to monitor this goal, the Fund Manager regularly compares the ESG rating of the parent index and of the Fund’s portfolio.
- When selecting the investments to be included in this financial product, the Fund Manager does not take into account the special EU criteria set out in the Taxonomy Regulation concerning environmentally “sustainable” economic activities (EU 2020/852), as this product is not intended to meet the advanced level sustainability criteria.
- Further information on sustainability and other disclosures and policies relating to this Fund are available on the Fund Manager’s website aegonalapkezelo.hu.