Update 8.3.2021

The SUNARES Fund’s advisory teams utilize various data provider sources to evaluate the ratings of potential new investments and existing investments within the fund. From the vast wealth of data from these various data providers, the most important criteria for the fund advisors are summarized, evaluated, and compared with existing investments or potential new investments. It’s important for investors to understand that we use both our own analyses and those of external data providers.

One of these data providers used by the fund’s advisors is SUSTAINALYTICS (www.sustainalytics.com), which uses a rules-based methodology to calculate an overall ESG risk rating for each company. ESG refers to the consideration of environmental, social, and governance criteria. To help investors interpret a company’s rating, five risk categories have been created that indicate the degree of ESG risk to a company’s value:

(1) Unwesentlich (Negligible)
(2) Niedrig (Low)
(3) Durchschnitt (Medium)
(4) Hoch (High)
(5) Schwerwiegend (Severe)

The fund advisors also consider the company’s ESG risk across its entire business model. This business model ESG assessment includes three categories:

(1) Niedrig (Low)
(2) Durchschnitt (Medium)
(3) Hoch (High)

Following this ESG risk assessment of the company’s business model, the company’s management is assessed on how well it manages the company’s relevant ESG issues. The management score evaluates the robustness of a company’s ESG programs, practices, and policies using three assessment categories:

(1) Überzeugend (Strong)
(2) Durchschnitt (Medium)
(3) Schwach (Weak)

Finally, the various ESG topics for each company are analyzed and assessed, highlighting the specific challenges the company faces. Some examples include:

1. Corporate Governance (Business Ethics Incidents)
2. Resource Use
3. Community Relations (Society & Community Incidents)
4. Carbon – Own Operations
5. Water Use (Operation Incidents)
6. Land Use and Biodiversity – Supply Chain (Environmental Incidents)
7. Emissions, Effluents and Waste
8. Occupational Health and Safety
9. Labor Relations (Employee Incidents)
10. Customer Incidents (Anti-competitive practices)
11. Human Rights – Supply Chain

Sustainalytics’ overall ratings are collected, evaluated, and summarized in an overall score for each company. A best-in-class ranking is then used to determine which companies represent the top leaders in ESG. Furthermore, companies with insufficient or severe ESG risk and management that responds to them with weak programs, policies, and practices are eliminated. We also value transparency and clear, accountable governance structures. We pay particular attention to the extent to which a company demonstrates alignment with the interests of long-term investors.

In addition to Sustainalytics, the MSCI ESG Rating is also used and consulted to provide additional independent information and data on ESG and sustainability topics. MSCI plays a leading role in promoting ESG transparency to raise awareness of the value of ESG data and ratings and improve disclosure standards. The public ESG Rating Company Search tool allows you to search for over 2,800 companies that are constituents of the MSCI ACWI Index.

MSCI awards an ESG rating in seven different categories, which range from:

• AAA LEADER
• AA LEADER
• A AVERAGE
• BBB AVERAGE
• BB AVERAGE
• B LAGGARD
• CCC LAGGARD

In addition, MSCI also shows the distribution of specific companies in their industry/sector in the different 7 MSCI ESG categories in order to get an overall overview of the percentage distribution of a particular industry in the ESG area.

In addition to this industry breakdown, there is also a historical graph showing the company’s ESG rating performance over the past five years. Preference is given to companies that have demonstrated a clear and significant trend toward improving their ESG rating over the past few years.
MSCI ESG Rating Example: Rio Tinto plc. as of March 4, 2021

In addition, the most important ESG issues relevant to the specific industry are also assessed and analyzed. For example, for Rio Tinto, this would be the Metals and Mining – Non-Precious Metals industry.
This compares how the company performs compared to its industry peers. An overview page of the company’s ESG rating shows which ESG issues the company is leading (LEADER), average (Average), or lags (LAGGARD) in compared to its industry:

Source: https://www.msci.com

In addition to these two ESG rating companies, Sustainalytics and MSCI, Bloomberg is also used as a third information and data provider for the overall analysis and evaluation of ESG risks and ratings. All three data providers calculate and determine the ‘best’ and ‘worst’ in class for each sector using an overall score.

The Best in Class companies are then released for investment as ESG Leaders or ESG Average companies, or not if the company is among the Worst in Class. In addition, the companies and their management teams in which the fund is invested are continuously reviewed for their ESG rating developments and monitored to determine whether they still meet the requirements of the SUNARES fund.

We want to invest in companies that have a good management team and incorporate ESG and sustainability into their corporate philosophy, and actually implement and ‘live’ them. It is well known that good management and sound and sustainable corporate governance influence long-term performance and that past success can often be repeated by capable management. On the other hand, poor governance often leads to a lack of focus on ESG factors, which in turn will lead to poor corporate performance.

It is proven that ESG factors influence returns in the long term. Furthermore, it is central to our philosophy to include climate change goals, as our home Earth will not be viable in the long term if we do not reduce carbon emissions sustainably and permanently.

• Conventional vehicle manufacturers
• Financial industry (banks, insurance companies, brokers, general finance companies) including the use of derivative financial instruments
• Telecommunications companies
• Entire arms and defense industry
• Adult entertainment & pornography
• Tobacco & addictive substances (& unhealthy foods) if the share exceeds 15% of total sales
• Conventional energy and electricity producers if the share exceeds:

o 25% of total sales for coal
o 30% of total sales for natural gas
o 30% of total sales for uranium/nuclear power