Sustainability / ESG Policy

Information on how to deal with sustainability risks and how to take sustainability factors into account in asset management

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Last updated: 05.08.2024

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1. Preamble

 

The sustainability strategy of Cape May Wealth Advisors GmbH (hereinafter referred to as: Cape May or We) serves to provide the framework for dealing with the issue of sustainability in relation to ecological and social criteria as well as aspects of good corporate governance, so-called ESG factors (environmental, social, governance) in asset management and investment advice.

 

The management is responsible for determining the sustainability goals to be pursued and promotes their realization by supporting suitable measures in the company.

 

 

2. Guideline and self-image

 

Cape May defines sustainability factors as environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. Investment decisions may have adverse impacts on the environment (eg climate, water, biodiversity) and social conditions and may be detrimental to promoting a culture of good governance. Cape May has an interest in meeting its responsibilities and helping to include such negative impacts as an additional factor in its investment decisions and investment recommendations.

 

A long-term understanding of sustainability includes risks and opportunities of all kinds and also includes ecological and social aspects within the framework of portfolio management. Because the costs of deteriorating environmental conditions (e.g. climate change), social unrest (e.g. unfair working conditions) and bad corporate governance (e.g. tax and accounting fraud, avoidance of competition) are increasing and play an important role in the evaluation of companies.

 

 

3. Sustainable action in the investment process

 

3.1 Principles and Limitations

 

Our financial system is given a crucial role for sustainable development by the Paris climate protection agreement. According to the UN Agenda 2030, private capital should be redirected to more sustainable investments and thereby promote sustainable change. In this sense, the European Commission is focusing on three exposed subject areas: Environment, Social Affairs and Corporate Governance - ESG for short. As an asset manager, Innovative Investment Solutions GmbH, as Cape May's liability umbrella, is expressly required to include sustainability aspects in investment decisions and to make it transparent to you as part of the investment process how these sustainability factors can be taken into account.

 

The best way to achieve planned sustainability goals is therefore to let investment capital flow into areas that promote sustainable economic development. The current EU Disclosure Regulation (EU SFDR) must therefore be observed. In the future, the EU Taxonomy Regulation will also set specific environmental criteria related to economic activities for investments. According to the current status, however, there is often still a lack of sufficient information to assess and compare investment opportunities according to their actual impact on investment goals.

 

The EU SFDR helps differentiate and compare the sustainable investment strategies available today. In doing so, it ensures greater transparency as to the extent to which financial products have ecological and/or social characteristics, invest in sustainable investments or pursue sustainable investment goals.

 

The EU SFDR requires asset managers and investment advisors to make specific company-level disclosures on two key issues:

 

1. Sustainability risks and material adverse impacts

2. In addition, the EU SFDR aims to help investors in product selection by dividing products into further categories depending on the extent to which sustainability is taken into account. These categories correspond to Articles 6, 7, 8 and 9 within the EU SFDR and are summarized below:

 

Article 6 strategies integrate environmental, social and governance aspects into the investment decision-making process or declare that they do not consider sustainability risks to be relevant and do not meet the additional criteria set out in Article 8 or 9.

 

Article 7 strategies follow the approximate application of the PAI (internal definition).

 

Article 8 strategies promote social and/or environmental characteristics and also invest in sustainable investing, but their main objective is not sustainable investing.

 

Article 9 strategies pursue a sustainable investment objective.

 

 

3.2 Consideration of sustainability factors in the investment guidelines

 

To date, Cape May's investment strategies do not follow any dogmatic sustainability criteria. Provided that investors do not suffer any unreasonable disadvantages through the use of ETFs with an ESG or other sustainability orientation, these should be given preference over "traditional" ETFs.

 

Looking at the variety of ESG definitions, we currently believe that ETFs with a "Paris-Aligned Benchmark" (PAB) are of particular interest for this purpose, which primarily aims to reduce the portfolio's CO2 emissions profile. However, legitimate concerns often stand in the way of such ESG investments. Disadvantage is mainly due to lower expected returns after costs, loss of diversification and liquidity as well as the limited quality and validity of historical and current ESG data.

 

From our point of view, the range of high-quality, sustainable investment vehicles is still very limited and proof of an actual positive influence on corporate management has not yet been provided. In addition, the asset management industry has lost trust through "greenwashing". In order to have a concrete positive influence on individual company management, we advise investors at this point in time to consider alternative investment solutions with a focus on impact investing or shareholder activism. Cape May does not exercise shareholder rights on a fiduciary basis for customers.

 

We can individually agree with our clients the inclusion of sustainability factors in the investment guidelines in order to avoid adverse effects in the context of ESG investment decisions impede. Sustainability factors are taken into account here, for example, in accordance with an EU climate benchmark. The evaluation of the criteria relevant for the exclusion is carried out by ETF providers using data from ESG data providers.

 

 

4. Review of the sustainability strategy

 

This sustainability strategy is regularly reviewed by Cape May's management and updated as necessary. The current version is published on Cape May's website (www.capemay.de).