Investments für Institutionelle Investoren bei der LHI Capital Management GmbH

Sustainability-related disclosure obligations for financial market participants and financial advisers

Publication in accordance with the EU Disclosure Regulation:

REGULATION (EU) 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL (EU Disclosure Regulation) requires financial market participants to disclose the strategy and arrangements for dealing with sustainability risks at company level, as well as at the level of the financial products offered. The respective addressees of the Disclosure Regulation within the LHI Group are LHI Kapitalverwaltungsgesellschaft GmbH (financial market participant, hereinafter referred to as “KVG”) and LHI Capital Management (financial adviser, hereinafter referred to as “CapMan”). They hereby comply with the requirements of the EU Disclosure Regulation.

Art. 3 EU Disclosure Regulation – Strategy for dealing with sustainability risks

Sustainability is a corporate concept for KVG and CapMan. Companies are successful in the long term when managed with a long-term view. The LHI Group considers the long-term consequences of every decision it makes. For KVG and CapMan, this also includes all investment decisions for their financial products. The two companies already deal with sustainability risks in the transaction and sales process, and have developed binding exclusion criteria to this end. Both internally within their business processes and externally in the provision of services and products, they are guided by the minimum exclusions of the Association Concept that the industry associations of fund companies (BVI), banks (DK) and certification bodies (DDV) have jointly developed and agreed with the financial supervisory authority, the Federal Financial Supervisory Authority (Bafin).
Accordingly, contracts are hereby excluded with companies that generate their turnover

through weapons or armaments (more than 10%; outlawed weapons 0%)
from tobacco production (more than 5 %)
from coal (more than 30 %).

In addition, exclusions apply to the following uses and tenants of real estate:

Gambling casinos
Betting offices
The erotic industry
Companies with revenues from fracking & oil sands
Companies with turnover from nuclear energy (incl. uranium mining).

To ensure that sustainability risks are taken into account at all stages of the investment and management process, KVG and CapMan have established an ESG organisational structure and appropriate processes that cover all levels of the company. Responsibility for the business and risk strategy – including with regard to sustainability risks – lies with the Executive Board. Each specific investment project is discussed in detail, evaluated individually and decided upon within the framework of a management meeting. Consequently, the sustainability risk profile of KVG and CapMan is significantly influenced by executive management. Management is, in turn, supported by the Risk Management Department on the topic of sustainability risks. This ensures compliance with the requirements associated with sustainability risks.

Sustainability risks are events or conditions stemming from the three areas of environment, social or governance. Their occurrence can potentially (or factually) have a significant negative impact on the reputation, net assets, financial position and results of operations of KVG and CapMan, or the financial products managed through the respective advisory or administrative services. These include physical environmental risks, such as extreme weather events caused by climate change, or transition risks associated with the shift to a low-carbon economy.

Sustainability risks are not a risk type in their own right, but can have a significant impact on existing risk types and contribute, as a factor, to the materiality of these risk types. Accordingly, asset-specific risks, market, counterparty and liquidity risks, as well as operational and other risks, are always considered in the context of the regular risk assessment of investment products, taking into account the physical and transitory risk drivers. At the corporate level of KVG, only operational and other risks come into play. The monitoring of sustainability risks is an integral part of KVG’s risk management approach. In this context, the risk analysis is reviewed, evaluated and, if necessary, adjusted at regular intervals, especially with regard to sustainability risks.

Art. 4 EU Disclosure Regulation – Transparency of adverse instances of sustainability impact at company level

The impact of one’s own actions on sustainability factors plays a central role both within start-up processes and in the inventory management of products, as well as in divestment decisions. KVG and CapMan take into account the primary adverse effects of investment decisions on sustainability factors. Sustainability factors include environmental, social and labour concerns, respect for human rights and the fight against corruption and bribery.

In order to avoid adverse effects on the sustainability factors at company level, the LHI Group of companies, to which KVG and CapMan belong, has committed itself to the following principles of sustainability in its Code of Ethics:

1 Corporate responsibility

For us, sustainability is both a matter of course and a corporate concept for the benefit of all stakeholders of LHI and future generations. We operate in accordance with material and recognised industry, national and international standards on sustainability, and comply with regulatory disclosure requirements applicable to us.

The management team and all employees are actively involved in suitable organisational structures to ensure the central, transparent and company-wide management of all implementation and control efforts regarding our activities from a sustainability perspective. Voluntary community and social engagement are adequately supported at all times.

2 Ecological responsibility

We are committed to ensuring that the CO2 emissions generated by our business operations are in line with the EU’s holistic approach to de-carbonisation, and can, therefore, be considered “Paris Aligned”. Unavoidable CO2 emissions are more than just offset by the purchase of climate protection certificates.

To reduce our energy consumption and our carbon footprint, we are constantly improving the energy standard of our company’s premises; we use green electricity or generate it ourselves using photovoltaic systems, we promote electromobility with the installation of e-charging stations and with electrically powered company cars, as well as the use of environmentally friendly means of transport and mobile working solutions. Our outdoor facilities are maintained according to ecological standards and are home to several bee colonies.

Ecological standards also apply to the selection of contractors and business partners, as well as to the purchase of labour and food.

3 Social and societal responsibility

We observe the prohibition of discrimination and the observance of human rights. As an employer, we promote diversity and equal opportunities, provide performance-based remuneration, and ensure occupational health and safety at all times.

We are aware of our social responsibility. We behave in a manner that reflects the responsibilities of our company within society. We are socially committed, e.g. by means of donations, to charitable or social institutions or memberships that represent a form of sponsorship by nature.

KVG and CapMan do not make any proprietary investments. Their investment offers to third parties are guided by the Principles for Responsible Investment (PRI) as set out by the United Nations (UN). KVG will join the UN Finance Initiative by signature as of 2023, thereby committing itself to taking the PRI into account in its investment policy. In addition, formulated individual criteria are agreed upon at the individual investment level, if required.

In order to safeguard their sustainability standards and to maintain due diligence at all stages of the investment and management process, KVG and CapMan have established an ESG organisational structure and appropriate processes covering all levels of the company. Responsibility lies with the Executive Board, and has been anchored in the position of Chief Sustainability Officer (CSO). From KVG and CapMan, an officer with overarching responsibility for ESG has been appointed. The ESG Officer participates in all committees related to the issue of sustainability and bears a coordinating and multiplier function, especially with the operational units affected by ESG issues, in which a responsible member of staff participates in the ESG committees affecting the department, and is then responsible for the transfer of knowledge within the department.

A concrete investment project, which is to be discussed in detail, individually assessed and decided upon in a management meeting, is subject to a conformity comparison with the general catalogue of exclusion criteria and, if necessary, further (individually agreed) exclusions at the respective individual investment level in the first review step. In the further review phase, and depending on the asset class, the respective ESG checklist – and subsequently a scoring system – are used to review and assess sustainability and adverse instances of sustainability impact in terms of the Disclosure Regulation and taxonomy compliance.

For real estate, the LHI ESG scoring system was developed for this purpose, which will be replaced by the scoring model of the “ESG Circle of Real Estate” (ECORE) in the future (higher standards for individual products are also possible). As part of the annual budget planning process, the LHI ESG score is validated and reviewed for potential measures that could increase the LHI ESG score. These measures are taken into account and implemented during ongoing operations. This ensures the continuous and structured improvement of the LHI-ESG score per property.

For funds that are subject to the provisions of Article 8 or 9 of the Disclosure Regulation, the required data collection for disclosure is carried out within the framework of the aforementioned scoring systems. The Regulatory Technical Standards (“RTS”) pertaining to the Disclosure Regulation applicable from 01.01.2023 will be taken into account on a mandatory basis for the first time for the 2022 reporting period. The following mandatory and optional indicators for determining and weighting the most important adverse sustainability impacts (“PAI” = Principle Adverse Impact criteria) are relevant for KVG and CapMan:

Article 5 – Transparency of the remuneration policy in relation to the consideration of sustainability risks

The variable remuneration for the Executive Management body of the LHI Group depends, in part, on long-term success. KVG and CapMan play an essential role in this. Entering into (or avoiding) sustainability risks regularly has an impact on the results of the company concerned. The remuneration policy of the LHI Group implicitly takes sustainability risks into account by linking Executive Management remuneration to the company’s result under commercial law over a period of several years.

Beyond the level of Executive Management, sustainability risks are not explicitly considered in the remuneration policy. A company-wide regulation in which sustainability risks are taken into account in the remuneration policy requires the adaptation of the employment contracts. However, insofar as the LHI Group’s result has an impact on variable remuneration, these aspects are indirectly included in the variable remuneration of all employees due to the LHI Group’s robust focus on sustainability criteria.