Our Approach to ESG Integration
As an active asset manager with a long-term investment view, our goal is to be able to create added value for our clients by offering targeted strategies which are research-driven, measurable and offer a clear environmental and socio-economic assessment before execution.
For our funds categorised under article 8 or 9 under the European Union Sustainable Finance Disclosure Regulation, we assess our investments and portfolios on two levels. With sustainability and positive impact at the heart of our decision-making process, we will firstly analyse the environmental and social impact of an investment. The way we assess these is highlighted in this section. We aim to bring in the best-in-class assessment principles and criteria into our decision-making process by leveraging from proven existing knowledge, policies and papers from leading organizations and institutions such as the World Bank and the IFC, European Development Financial Institutions (EDFI), the United Nations and industry bodies such as the Loan Market Association. By combining the principles and guidelines of these bodies, we believe we can build a holistic picture of the impact an investment makes. Where carbon capture or greenhouse reduction is a goal of an investment, we will employ tools to measure the effect of an investment over its lifecycle, or use recognised third party providers.
Our sustainability policy incorporates industry recognized benchmarks and guidelines from leading government and developmental organisations
Once an investment is deemed suitable under our Sustainability Policy will it be put forward to assessment on its financial and competitive strengths. 3.1 Sustainable Investment Research Team. The Sustainable Investment Research Team is responsible for the analysis on a company’s product impact. They work alongside and report to the Chief Sustainability Officer. Our funds may also employ the advice of external advisors in some circumstances or work alongside developmental organisations to further assess an investment. For investments in companies of a non-public or bi-lateral nature (such as private debt) the team will conduct bespoke research by er. directly working alongside the borrower, project developer and local communities or governments. The team has access to internal dashboards to measure, assess and monitor ESG data. Data will be collected via a variety of means including direct interviews, questionnaires, company data/disclosures and established measurement tools for GHG emissions or carbon capture. Data and impact will be measured using life-cycle analysis methods whenever appropriate to fully assess the long-term outputs of a project in a holistic manner.
The Sustainable Investment Research Team will be responsible for advising when a project may become misaligned with its ESG objectives. Part of its responsibility will be to advise and work alongside project or investment managers to conciliate with its original goals whenever possible.
Research into our impact on the environment and climate change and into the effects of different technology is fluid and continues to improve and change. ARIA believes in keeping up to date with the science is essential to a well thought out sustainability policy, and the part of the Sustainable Investment Research Team’s focus will be to analyse and adopt the most up to date methodology as it becomes accepted to the international scientific community. 3.2 ARIA’s Assessment Metrics and Key Policy Constituents. We recognise that there are many opinions about how impact should be reported and measured, and that accusations of ‘greenwashing’ abound amongst selected investments claiming to have positive ESG or green credentials. We also understand that certain ESG claims and measurements are suspect to a high degree of subjectivity. ARIA believes in incorporating methodologies which integrate the best-in-class assessment, transparency and measurement criteria is key to helping investors making investments true to their ESG goals.
Measuring against social impact
Given the global focus of the fund, impact will differ by jurisdiction. The fund managers will assess each project on relevant impact factors, yet all will have a common theme.
Measuring Impact and The Theory of Change
Our Sustainability Investment Research Team use the below policies, directives, or principles to guide and direct them in assessing the suitability of an investment.
· Alignment with EU Sustainable Finance Disclosure Directive (SFDR), Article 9 compliance. The SFDR was passed in 2019 to increase transparency in sustainability related reporting and to prevent greenwashing. It comprises of 3 levels of classification for funds. Level 9 is the strictest in terms of sustainability and climate goals and relates to investments with a sustainable objective as the primary investment criteria. Eligibility criteria for investments and the portfolio are the most aligned to the Paris Agreement as well as the EU Taxonomy on sustainable investments. The concepts on ‘no significant harm’ or principle adverse impacts are also addressed.
·Adoption of Green Loan Principles for lending or debt-based investments. Where a fund invests in debt instruments such as green bonds or private debt, investments will be assessed and driven by adherence to the Green Loan Principles (GLP)as developed by the Loan Market Association, Loan Syndication and Trading Association and the Asia Pacific Loan Market Association. The aim of GLP is to create a high-level framework of consistent methodologies for use in lending transactions, assessing such components as use of proceeds, project evaluation and selection, proceeds management and transparent reporting. The principles build on the internationally recognised Green Bond Principles.
·The 17 targets set out by the United Nations Sustainable Development Goals are designed to end poverty, protect the planet, and improve the lives of everyone where the world. The rely on collective action and target measured improvements by 2030. The fund will measure the impact of its investments in relation to the specific goals set out by the UN SDGs both in terms of achievements and ensuring no adverse effects to the goals.
·The IFC Sustainability Framework. The International Finance Corporation, part of the World Bank Group set down a framework from which it analyses whether an investment meets strict sustainability and impact criteria for it to be considered as suitable for an investment by one of the world’s leading developmental financial institutions. The fund adopts these same criteria as prat of its assessment analysis, covering verticals such as sound risk management, community, indigenous peoples and cultural heritage, land relocation and labour. The policy is designed to encourage transparency and accountability and contributions to positive impacts.
·The EDFI Harmonized Exclusions List. The European Development Financial Institutions (EDFI) is made up by members from top 15 European government run developmental institutions such as KFW (Germany), FMO (Netherlands) or Norfund (Norway). As part of their initiatives to ensure responsible investing across their members, they published a list of activities which are to be excluded from any investment. ARIA funds will follow these guidelines when assessing the suitability of an investment, to ensure such harmful activities as child labour, prostitutions, weapons, or protected wildlife are excluded from our portfolios.
· Measuring impact and GHG emissions. ARIA funds realise that in order to provide transparency to our investors, along with climate action being at our core, we need to measure and report our impact on emissions reductions. Wherever possible, investments will be measured on their lifecycle impact, from farm to pump, and benchmarked against their fossil fuel equivalent, using up to date techniques incorporating the most up-to-date science. Tools such as IFC CAFI, GREET (Argonne Laboratories/US Department of Energy) or third party providers and proprietary models will be used to provide transparent reporting.