REGULATION (EU) 2019/2088 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on sustainability‐related disclosures in the financial services sector

Sustainability risks represent a direct and indirect challenge for the financial sector and therefore also for KGAL Investment Management GmbH & Co KG (“KGAL”). Sustainability risks defined by the “BaFin Code of Practice on Dealing with Sustainability Risks” on 20 December 2019 (revised on 13 January 2020) are events or conditions in the environmental, social or corporate governance areas, whose occurrence could have an actual or potential negative impact on the net assets, financial position and results of operations as well as on the reputation of a supervised company. Sustainability risks in the areas of climate and environment are divided into physical risks (direct effects of climate change, e.g., through extreme weather events) and transition risks (indirect effects through social developments such as the stigmatisation of established technologies or changes in economic and political conditions). Events, developments, or behaviour attributable to social and corporate governance aspects can also have a negative impact on the net assets, financial position and results of operations of a company. It is therefore necessary to include and assess related risks as part of the risk management system.

For this reason, sustainability risks are considered as an integral part of the risk management process. Sustainability risks are identified and evaluated as factors of the known risk types such as counterparty risks, market risks or operational risks for the first time with the launch of a fund product in the course of the “new product process”. This risk profile is reviewed and updated with the investment, every three months or ad hoc in the event of unforeseen events. This is done individually for each fund and each investment. The conduction of an ESG due diligence is mandatory.

In his statement on the asset investment proposal, the risk manager shall provide an assessment of ESG risks prior to the implementation of the investment. The exclusion criteria must be complied with. Excluded are all business activities related to weapons, nuclear power, gambling, speculation on food commodities, and fossil fuels. Investments in facilities or buildings that use fossil fuels for their operation (for example, in facilities for the use of renewable energy or for the supply of electricity and heating of buildings) are possible.

This statement applies to the management of investment funds and discretionary mandates by the company.

At company level, KGAL does not consider adverse impacts of investment decisions on sustainability factors as defined by Article 4 of the SFDR.

The consideration of adverse impacts is linked to specific indicators (so-called “Principal Adverse Impact Indicators”, “PAI”), which enable a quantitative assessment. These relate in particular to environmental, social and employee concerns, respect for human rights and the fight against corruption and bribery. For KGAL’s complex investments, these indicators are currently only partially available for asset classes and properties. Acceptable coverage is therefore not given at present.

In addition, due to the very different activities of KGAL’s three asset classes Aviation, Real Estate and Sustainable Infrastructure, PAI data can only to a limited extent be compared and aggregated in a meaningful way at the company level. In addition, there are legal uncertainties regarding the specific requirements for measuring and reporting PAI indicators. For these reasons, KGAL has decided not to consider PAI indicators at the company level.

However, KGAL will review this decision regularly with regard to data availability and further regulatory developments.

For products that are aimed at sustainable investments within the meaning of the SFDR (so-called Art. 9 products) or promote environmental or social characteristics (Art. 8 products), we will collect and take into account PAI indicators at product level in line with legal requirements.

Our Art. 8 and Art. 9 products, for which KGAL bears responsibility as an AIFM as well as the corresponding declarations according to Art. 10 SFDR can be found here.

Irrespective of the consideration of PAI indicators at company level, KGAL strives to avoid and reduce negative social and ecological impacts of investment decisions in its three asset classes Aviation, Real Estate and Sustainable Infrastructure. We ensure this through our company-wide exclusion criteria and comprehensive due diligence processes as far as possible within our sphere of influence. Further details can be found in our ESG guidelines, our climate strategy, our annual sustainability report and our report in accordance with the UN PRI.

KGAL’s remuneration policy is in line with the company’s business and risk strategy. The company’s business and risk strategy (including sustainability risks) applies to all employees – including the Executive Board. The Board of Directors is responsible for reviewing the achievement of the company’s goals. If special sustainability aspects are relevant for particular areas of responsibility, they are integrated into the agreement on objectives for all employees. Specific sustainability goals are a mandatory part of our annual employee questionnaire for those working in risk management, sustainability management and for those working in the specialist areas of transaction, asset and portfolio management. The achievement of personal goals is reviewed during regular staff appraisals and confirmed by the respective manager. The achievement of individual goals has an impact on the employee’s remuneration. Compliance with the KGAL Code of Conduct is also detailed in employee appraisals. Violation of the Code of Conduct has a negative impact on the achievement of targets and therefore also on the respective individual’s remuneration. Further consequences, such as the initiation of disciplinary measures and the involvement of authorities in the event of serious violations, are regulated by the Code of Conduct. In addition to the prevention of money laundering and terrorist financing, the Code of Conduct also includes the prevention of discrimination, the promotion of equal opportunities and compliance with environmental goals. Environmental targets must be complied with in accordance with the requirements of the KGAL Group’s climate strategy.

Article 3 – Policies on the integration of sustainability risks in investment decision-making processes  

Article 4 – No consideration of adverse impacts of investment decisions on sustainability factors

Article 5 – Integration of sustainability risks in remuneration policies