Responsible investment policy

1. GENERAL PROVISIONS

1.1. Management Company general information

1.1.1. At JSC “Lords LB Asset Management” (hereinafter – the Management Company (“we,” “us,” or “our”)) we recognize our responsibility to contribute to the sustainable development of society and the environment around us thus we focus on the impact we can make, risks to mitigate and look for new opportunities which would bring benefit to all our stakeholders.
1.1.2. This Responsible Investing Policy (hereinafter – Policy) shall lay down the main sustainability objectives that the Management Company shall aim to implement to contribute to public well-being, promote sustainable governance and the achievement of long-term investment goals.
1.1.3. The Policy outlines the principles of responsible investing and sustainability risks integrations.
1.1.4. The Policy applies to all activities, managed collective investment undertakings (hereinafter – Funds), functions, and employees in the Management Company.

1.2. Regulatory factors

1.2.1. The Management Company follows regulatory requirements and standards, such as (EU) 2019/2088 of the European Parliament and Council on sustainability-related disclosures in the financial services sector (Sustainable Finance Disclosure Regulation) and Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, as well known as EU Taxonomy Regulation.
1.2.2. The Management Company has officially provided its notice on the assessment of Principle Adverse Impact (PAI), which is publicly available on its website. The Management Company provides sustainability-related information as laid down in 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.

1.3. International initiatives

1.3.1. The Management Company is committed to international initiatives and supports them. The Management Company has been committed to the United Nations Global Compact initiative since 17 April 2015 and it supports and adheres to the Ten Principles of the United Nations Global Compact in the areas of human rights, labour, environment and anti-corruption. As a supporter of the United Nations Global Compact, we aim to contribute to the achievement of Sustainable Development Goals (SDGs) and to align our daily operations and investments with mentioned objectives.
1.3.2. The Management Company is also a signatory of Principles for Responsible Investment supported by the United Nations (UN PRI). The Management Company follows the six responsible investment principles set out by the United Nations for better incorporation of ESG issues into the investment and management process. A detailed description of how these principles are incorporated is provided in section 3 of this Policy.

1.4. Governance and oversight

1.4.1. The Management Company has identified and created the sustainability and responsible investing governance structure to identify the responsibilities towards contribution to sustainability by the Management Company:
1.4.1.1. Board – a collegial management body of the Management Company adopting and confirming the Responsible Investing policy.
1.4.1.2. CEO – assuring that the sustainability-linked reports and Key Performance Indicators (KPIs) monitoring.
1.4.1.3. ESG committee – responsible to assess and confirm that the projects, which are to be financed by the Green Bonds, meet the eligibility criteria of the Green Bond Framework and are suitable for investment according to the Green Bond principles category. The ESG committee is conducting assessments and monitoring the green projects portfolio to assure, that all of them comply with the Green Bond Framework.
1.4.1.4. ESG manager – supports all operations within the Management Company from a sustainability perspective. ESG manager is responsible to develop and provide the necessary methodologies, tools and knowledge to enhance the sustainability level within the Management Company, its daily operations and investment decision-making and monitoring.
1.4.1.5. Fund managers – are responsible to implement sustainability strategy, considering, mitigating and/or avoiding risks, opportunities and ESG assessment in their investment decision-making and procedures. When needed and possible, be active owners and have a direct engagement with related parties and stakeholders regarding sustainability risks and opportunities.
1.4.1.6. Compliance officer – ensures that the Management Company follows and complies with applicable regulations.
1.4.1.7. Chief Risk Officer (CRO) – supports identification and monitoring of sustainability risks and their impact on the Management Company, stakeholders and the value of investments.
1.4.1.8. Internal Auditor – conducts a review and identify the gaps in sustainability fields where the improvements should be done. What is more, it assures that the Management Company is monitoring its sustainability and responsible investing status, complies with the regulations, follows its strategy and properly documents and discloses the information.

1.5. Responsibilities and review of Policy

1.5.1. The aim is to assure that Policy complies with applicable regulations and discloses the Management Company’s approach to responsible investing and management of sustainability risks which are followed by the incorporation into the investment decisions and daily procedures.
1.5.2. This Policy shall enter into effect as of the date of its approval and may be cancelled, modified and/or amended only by a decision of the Board of the Management Company. Amendments and/or supplements to the Policy shall become effective as of the day of approval of the revised Policy, unless another effective date is stated in the amendments and/or supplements.
1.5.3. The Policy will be reviewed at least annually and where are sustainability related regulatory requirements are changed or updated or the strategy or business model of the Management Company and/or investment strategies and objectives of the Funds are fundamentally changed.
1.5.4. We encourage the related parties, stakeholders and employees of the Management Company to contact us regarding any sustainability-related inquiries by the following e-mail address: sustainability@lordslb.lt.

2. TERMS

2.1. Active Ownership – the use of the rights and position of ownership to influence the activities or behaviour of investee companies.
2.2. Biodiversity sensitive areas – Natura 2000 network of protected areas, UNESCO World Heritage sites and Key Biodiversity Areas (KBA), as well as other protected areas.
2.3. Due Diligence – a procedure that is employed before the acquisition of investment assets, during which, considering the type of investment, the financial, commercial, tax, legal and technical aspects of the investment are evaluated to ensure that the planned investment is suitable and corresponds to the goals and investment strategy of the Fund.
2.4. ESG factors – the environmental, social and governance factors, which help in determining the sustainability, ethical, social and environmental impact of an investment or a company. The issues of these areas include but are not limited to such criteria as effects on the environment, climate change, employee relations, tax evasion, corruption, good governance, remuneration of management, and transparency.
2.5. European Union Taxonomy Regulation – Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, which is a classification system, establishing a list of environmentally sustainable economic activities.
2.6. Exclusions list – the list of countries, economic sectors and/or activities that cannot be financed and invested by the Management Company.
2.7. Financial Materiality – the possible impact of sustainability factor on the financial performance of the Management Company or investment.
2.8. Fund – a collective investment undertaking managed by the Management Company.
2.9. Fund Manager – an employee of the Management Company, who has been appointed as the person who makes decisions concerning the Fund and its management by the decision of the Management Company Board and operates according to the power of attorney issued by the Management Company, or the CEO of the Management Company.
2.10. Management Company – JSC “Lords LB Asset Management”.
2.11. Principles – United Nations-supported Principles for Responsible Investment (UN PRI) which offer a menu of possible actions for incorporating ESG risks and opportunities into investment practice.
2.12. Responsible investment (RI) – is the approach of incorporating relevant environmental, social and governance (ESG) factors, related risks and opportunities into the investment decision-making process.
2.13. Sustainability Risks – means an environmental, social or governance (ESG) event or condition that, if it occurs, could cause a negative material impact on the value of the investment.
2.14. Sustainable Finance Disclosure Regulation (SFDR) – European regulation was introduced to improve transparency in the market for sustainable investment and imposes mandatory ESG disclosure.
2.15. Task Force on Climate-Related Financial Disclosure (TCFD) – aims to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders.
2.16. UN Social Development Goals (SDGs) – The Sustainable Development Goals or Global Goals are a collection of 17 interlinked global goals designed to be a “blueprint to achieve a better and more sustainable future for all”. The SDGs were set up in 2015 by the United Nations General Assembly and are intended to be achieved by 2030.

3. MAIN PRINCIPLES OF THE POLICY

The Management Company aims to incorporate the following Principles into its investment and management processes as well as daily operations. As the Management Company is a signatory of the United Nations Principles of Responsible Investing, it follows and implements the further six principles in responsible investment policy:

3.1. Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

The Management Company aims to incorporate ESG factors and sustainability risks into investment analysis processes and decisions to consider and assess sustainability issues in the investment analysis and decision-making process.
In order to evaluate the potential sustainability risks, we assess each investment decision individually by reviewing the impact and probability of the ESG factors, depending on the nature of the investment.

3.2. Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

The Management Company has an Active Ownership policy according to which we seek to be active owners of sustainability topics with our contractors, investees and other stakeholders in order to help them to improve their sustainability practices and strategies and promote sustainability further in the value chain.
We believe that direct engagement with the stakeholders is the most efficient and effective way to raise sustainability issues and enhance the value of the possible outcome.
Depending on each case, we would proactively bring the most financially material sustainability risks and opportunities by directly engaging with related parties, providing possible suggestions for the mitigation of risks and possible approaches to monitoring the process. If needed, external assistance and consultations would be incorporated into the whole engagement process.

3.3. Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

The Management Company shall have a Partner Code of Conduct which establishes responsibilities for all our contractors and sub-contractors to assure and provide safe working conditions for all employees, ensure that no forced labour is used, does not employ discriminatory practices, respect human rights and identify and manage possible risks throughout the value chain and regularly monitor it and disclose if possible. This process will be part of the engagement process mentioned in Principle 2.

3.4. Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

We will communicate to our stakeholders about the benefits, values and possible opportunities the integration of the Principles and sustainability could bring. To be able to do this, we will constantly enhance the knowledge, competencies, and skills of our employees in the field of sustainability and Principles of Responsible Investing to stay abreast of the latest developments.
By sharing our knowledge and experience via direct engagement or publicly (conferences, public panel discussions, etc.) where relevant, we would stress the need and benefit of incorporating the Principles and sustainability approach in the investment decision-making process and daily operations.

3.5. Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

As mentioned in the Principle 4 part, we will work towards the implementation of the Principles in the investment field, share the knowledge and encourage related parties to disclose the ESG data and incorporate the Principles and sustainability risks in the investment decision-making process when possible.
What is more, we will work to evaluate the possibilities to join further ESG and sustainability global initiatives, incorporate them into our investment strategy, when applicable, and enhance the level of contribution toward sustainable development.

3.6. Principle 6: We will report on our activities and progress towards implementing the Principles.

The Management Company will provide yearly reports to the platform of Principles of Responsible Investing, to show its progress and results of the implementation of the Principles. What is more, the monitoring process of the Management Company’s results will be provided at least annually in our sustainability report, which is going to be available on our website in the section of ‘sustainability’ and will demonstrate the Management Company’s accountability towards sustainability and implementation of measures to achieve its targets.
Reports will provide an overview of the sustainable investment portion in the portfolio followed by the qualitative data, contribution to SDGs and main goals for the upcoming year. Such reports will provide the Management Company’s accountability for its sustainability approach and progress to all stakeholders.

4. APPLICATION OF THE POLICY

The Management Company undertakes to consider the main sustainability aspects and risks while making investments, conducting investment Due Diligence as well as while monitoring and evaluating the Fund assets managed without prejudice to the Management Company’s commitment to strive for the best returns for its investors and to always act in their best interests.

4.1. Real Estate (RE)

4.1.1. Before making the investment and acquiring the real estate or when already owning and managing the real estate, we focus on the impact of the asset: its energy efficiency, GHG reduction possible programs, water reduction and monitoring followed by the engagement with tenants. Additionally, a sustainability risk assessment is conducted to evaluate the possible risks and opportunities that each RE object faces.

4.1.2. Potentially each of the mentioned aspects below, but not limited to, must be considered and monitored for each real estate investment:

4.1.2.1. Before investing in RE, during the due diligence phase the following aspects must be considered:

How sustainability and climate change risks influence the RE investment value during its lifecycle;
Is the building used or planned to be used to extract, store, transport or manufacture fossil fuels;
Is the building located in or near biodiversity-sensitive areas and could negatively affect it.

4.1.2.2. During the management phase atleast these indicators related to the RE object shall be monitored:

Renewable and non-renewable energy use (kWh);
GHG calculations;
Assigned energy efficiency class;
Net-zero strategy or GHG standards;
Water use (m3 and m3/m2);
Sustainability certificates of the building.

4.1.2.3. Before the acquisition of the asset or after investment into a greenfield RE project, a sustainability plan must be drawn up, which would specify sustainability and ESG goals, KPIs and actions planned over the next years and which would include:

The main quantitative goals to reduce the energy and water use by the asset during a specified period;
Steps to be taken to receive an appropriate suitability certificate for the buildings;
How will the tenants of the RE object be encouraged to aim toward sustainability goals and the engagement monitoring plan.

4.2. Renewable energy infrastructure assets

4.2.1. Before making an Investment in renewable energy, the main ESG risks must be assessed and if renewable energy infrastructure is to be financed by the green bonds procedures, the investment must be confirmed by the ESG committee.

The ESG committee aims to confirm that the project complies with the Green Bond Framework, which is available on the Fund webpage and is eligible for investment according to the Green Bond principles category.

4.2.2. Each of the mentioned aspects below, but not limited to, must be considered and monitored for every renewable infrastructure asset:

4.2.2.1. Before investing, during the due diligence phase the following aspects must be considered:

How can ESG and climate change risks influence the investment value during its lifecycle;
Is the infrastructure asset located in or near biodiversity-sensitive areas and could negatively affect it.

4.2.2.2. When managing the infrastructure asset at least these indicators should be monitored and collected:

Installed capacity of the asset (MW);
Renewable energy generation (GWh/ year);
GHG emissions reduction (tCO2e/ year).

4.3. Private equity

4.3.1. The Management Company will aim to incorporate an assessment of opportunities and risks and the effect that they might have on the investment within the Due Diligence assessment done before private equity investment as long as it does not prejudice the Management Company’s commitment to always act in the best interest of its investors.

4.3.2. Prior to the investment at least these aspects are assessed:

Is the entity into which investment is planned related to the sectors specified in the exclusion list;
Have sanctions or disciplinary measures been applied to the entity into which investment is planned during the last 5 years due to human rights violations, serious environmental damage or non-compliance with anti-money laundering and terrorist financing measures;
How the investment can contribute to promoting the sustainability goals of the Management Company.

4.4. Sustainability risks integration

4.4.1. At the Management Company we assess possible sustainability risks in investment decisions individually depending on the nature of the investment.

During the investment decision-making process it is aimed to identify and assess possible financially material sustainability risks which apply to the strategy of the fund and the asset to be invested in.

4.4.2. Sustainability risks are part of the overall identified risks in the investment process and are treated equally according to the Risk Management Procedure of the Management Company.

4.4.3. The Management Company has identified the list of possible risks which might impact the value of the investment, hence sustainability risks are part of this list and are assessed and evaluated altogether.

4.4.4. When identifying and evaluating the climate-related risks and opportunities, where applicable, the TCFD framework is followed and applied.

5. EXCLUSIONS

5.1. The Management Company and Funds that it manages aim toward environmental protection and social well-being by not investing in certain countries, industry sectors, companies or products. In this case, the Management Company does not want to make any investments which would not be compatible with the investment strategies and values of the company, investors and other stakeholders, making sure to serve the interest to the best.

For the mentioned purpose, the Management Company created and confirmed an exclusions list which defines controversial investments in which the Management Company does not invest any assets of its managed Funds.

5.2. The Management Company and Funds that it manages shall abstain from new investments into the following:

5.2.1. Companies that in the last 5 years violated international human rights; are known for not providing decent working conditions; making harm to the environment or are part of corruption events, all these criteria follow the Management Company’s contribution support to the UN Global Compact and its principles. As well as companies that violated Organisation for Economic and Cooperation and Development (OECD) Guidelines for Multinational Enterprises or that are subject to sanctions either by the European Union, the United Nations and the Office of Foreign Assets Control of the US Department of the Treasury.
5.2.2. Country-based exclusion – will not make investments in countries without transparent markets and which are subject to sanctions either by the United Nations, European Union, or the Office of Foreign Assets Control of the United States.
5.2.3. Weapons – the sector undertaking in production, sales or distribution of weapons, ammunition, combat vehicles, explosive devices or their parts.
5.2.4. Tobacco – the sector undertaking in production, sales or distribution of tobacco and related products.
5.2.5. Alcohol – the sector undertaking in production, sales or distribution of fermented or distilled alcoholic products.
5.2.6. Commercial gambling – the sector undertaking gambling products or services, including related equipment, software or maintenance.
5.2.7. Coal and oil sands – the sector undertaking in extraction or sale of coal or the coal energy sector followed.
5.2.8. Nuclear energy – the sector undertaking in products or services of the nuclear industry, the generation or sale of nuclear energy.