Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector
Under 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 (“SFDR”), H.M. Pelagic Partners Ltd (“Pelagic Partners”, “the Company”, or “we”) is required to comply with certain sustainability disclosure requirements.
Under the Alternative Investment Fund Managers Law L.56(I)/2013 (as amended) we are authorized by the Cyprus Securities and Exchange Commission (“CySEC”) to operate as an alternative investment fund manager (“AIFM”) of alternative investment funds (“Funds under management”) that invest in vessels (directly or indirectly) which constitute financial products under SFDR, and we therefore qualify as a financial market participant for the purposes of SFDR.
Transparency of sustainability risk policies:
This section serves to fulfill the requirements under Article 3(1) of the SFDR, according to which we shall publish information on our website about our policies on the integration of sustainability risks in our investment decision-making process.
Under Article 2(22) of SFDR, ‘sustainability risk’ is defined as an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.
Indicative examples of sustainability risks considered by the Company which are potentially likely to cause a material negative impact on the value of an investment, should those risks occur, include:
Risks relating to environmental issues:
- Physical risks, for example, water contamination from accidental spillage of transported goods (particularly in the case of oil tankers) due to the condition of the asset or non-compliance with regulations relating to the greenhouse gas emissions of the asset
- Transition risks, for example, the transition to a lower carbon economy which could give rise to stricter regulations relating to climate change mitigation or technological advancements which could affect the value of the assets
- Susceptibility to market conditions, for example, through unprecedented changes in the macroeconomic environment impacting raw materials and energy prices for the underlying vessels
Risks relating to social issues:
- Risks associated with crew working conditions, especially incidents affecting the health and safety of the crew or non-compliance with any anti-slavery, child labour and workplace equality regulatory requirements
- Risks relating to governance issues:
- Governance-related risks stemming, for example, from the lack of maintaining appropriate policies, controls and oversight for, amongst others, the diversity and inclusion of the workforce both onshore and offshore. Other significant factors which could give rise to governance-related risks include non-compliance with anti-corruption provisions within the maritime industry (i.e., chartering / pooling system)
In addition, SFDR categorises financial products as follows:
- Article 8 – a financial product (i.e. an AIF/Compartment) that promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics provided that the companies in which the investments are made follow good governance practices.
- Article 9 – financial products that have sustainable investment as its objective.
- Article 6 – a financial product (i.e. an AIF/Compartment) that does not fall under the classification of an Article 8 or under Article 9 product as per above.
Integration of sustainability risks in the investment decision‐making process
As part of our sustainability-related disclosure requirements under SFDR, we have policies in place to integrate the aforementioned sustainability risks in our investment decision-making process.
It is noted that all the products we offer are categorised as “Article 6” products. At Pelagic Partners, we understand that sustainability risks can potentially have a material impact on long-term financial performance of the funds/compartments under management, as such risks can rarely be separated from financial and commercial/business risks.
In this context, we aim to integrate sustainability risks at various steps of the investment decision-making and overall risk management processes, from the selection of the underlying investments, to their ongoing monitoring and subsequent disposal. Identification and assessment of sustainability risks of the underlying investment opportunities is performed as part of the Company’s investment screening, through making use of relevant market insights, news and other information, in order to enable the Company to meet the investors’ long-term investment objectives. The overall assessment of these risks is performed in tandem with other risk considerations, such as liquidity, operational and market risks.
Sustainability risks are additionally assessed and managed as part of the Company’s ongoing monitoring of the performance and overall risk exposure of the underlying investments. Where significant market developments are identified which could substantially impact the Company’s exposure to sustainability risks, these are raised with the Company’s Management and potential risk mitigation strategies are explored, taking into account risk materiality, risk limits and degree of diversification. In the absence of appropriate mitigants, the Company considers alternative options including, for example, the disposal of the underlying shipping investments.
Our commitment to sustainability is further showcased through our continuous investment in our workforce, which ensures that the employees involved in the provision of relevant services (i.e. portfolio management, risk management and regulatory compliance) are being trained with regards to sustainability risks and sustainability matters and are able to understand the Company’s processes, sustainability policies and philosophy.
Further information can be found in our Sustainability Risk policy contained within Annex I of the Portfolio Management Policy and Marketing Strategy Manual, which is available upon request.
No consideration of adverse impacts of investment decisions on sustainability factors
This section serves to fulfill the requirements under Article 4 of the SFDR, under which we shall publish and maintain on the Company’s website information on whether or not principal adverse impacts of investment decisions on sustainability factors are being considered as part of the Company’s investment decision-making, in its capacity as a financial market participant.
At Pelagic Partners, we aim to integrate sustainability risks at various steps of the investment decision-making process; however, for the time being, except as may be otherwise disclosed at a later stage on our website, we do not consider any adverse impacts of our investment decisions on sustainability factors in the manner prescribed in Article 4 of the SFDR, since it is not currently feasible for the Company to undertake a systematic and/or comprehensive consideration of such adverse impacts on sustainability factors as part of its investment decision-making, taking into account the size and scale of the Company’s business activities.
The Company may re-evaluate its position at a later stage with regards to such adverse impacts, and may revisit the above considerations, should circumstances change, in order to reflect the way these principal adverse impacts on sustainability factors will be taken into account. Such adverse impacts will be assessed by reference to the indicators listed in Table 1 of Annex I of the Commission Delegated Regulation (EU) 2022/1288 (“SFDR RTS”) and may include, among others, greenhouse gas emissions, biodiversity, water waste, and social and employee matters.
Transparency of remuneration policies in relation to the integration of sustainability risks
This section serves to fulfill the requirements under Article 5(1) of the SFDR, under which we shall include in our remuneration policies information on how those policies are consistent with the integration of sustainability risks and shall publish that information on the Company’s website.
In accordance with the disclosure statement under Article 3(1) of the SFDR (“Transparency of sustainability risk policies” section), sustainability risks are integrated in the Company’s investment decision-making as such risks can potentially have a material impact on long-term financial performance and can rarely be separated from financial and commercial/business risks.
Additionally, in accordance with the legal and regulatory requirements applicable to us under the Cyprus national law and the EU law, we have in place a remuneration policy (the “Recruitment, Remuneration and Personnel Evaluation Policies Manual”) which sets out, amongst others, the remuneration practices of the Company and is applicable both to our staff and the Company. At Pelagic Partners, as part of our sustainability-related disclosure requirements under the SFDR, we declare that our remuneration practices are consistent with our sustainability risk policies and we incorporate sustainability risks by setting measures to ensure that the structure of the remuneration policy does not encourage excessive risk‐taking with respect to sustainability risks.
Our Recruitment, Remuneration and Personnel Evaluation Policies Manual promotes, amongst others, the following practices which are consistent with our sustainability risk policies:
- treating personnel and job applicants solely on the basis of their merits and qualifications (irrespective of any irrelevant distinction such as their ethnicity, religion, and disability);
- promoting sound and effective risk management and a fee structure which does not encourage risk-taking which is inconsistent with the risk profiles and objectives of the underlying funds/ fund compartments under management;
- offering total remuneration which comprises balanced fixed and variable performance components;
- ensuring that the assessment of performance includes a comprehensive adjustment mechanism to integrate all relevant types of current and future risks (including sustainability risks);
- limiting excessive risk taking and ensuring that our variable remuneration is performance-based and risk adjusted; and
- taking into consideration both financial as well as non-financial criteria when assessing individual performance.
We closely monitor the market and regulatory developments and will consider the regulatory guidance and industry consensus on measures that will need to be taken in the near future, so as to enhance our remuneration policies over the time, where necessary.