Gavekal China Fixed Income Fund
Summary
This disclosure is made by GaveKal Capital Limited (“Investment Adviser”) on behalf of the Gavekal China Fixed Income Fund (the “Fund”) – a sub-fund of GaveKal UCITS Fund - pursuant to Article 10 of the Sustainable Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”).
The Fund promotes the following environmental and social characteristic through the application of its investment strategy:
- good governance in corporate issuers
- climate change mitigation.
The sustainability indicators used to measure the good governance and climate change mitigation characteristics are as follows
- Good Governance;
- Implementation of Exclusion Policy;
- Minimum Investment In Green and Social Bonds
Information and data come from a variety of sources including, but not be limited to Sustainalytics, Third Party data providers and the Investment Advisor’s internal research.
The Fund does not have a reference benchmark to measure the performance of its characteristics.
Does this Fund have a sustainable investment objective?
This financial product commits to investing a minimum of 10% in green, social and sustainable bonds that are classified as sustainable investments with an environmental objective in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy.
What environmental or social characteristic does the Fund promote?
The Fund promotes good governance in corporate issuers and climate change mitigation. The Investment Advisor defines good governance as companies that are in compliance with UNGC or OECD Guidelines for Multinational Enterprises. This includes factors like fair shareholder rights, good audit and tax reporting and compliance, board oversight, fair and transparent compensation etc.
Regarding climate change mitigation, the Fund aims to promote activities including but not limited to, the reduction of GHG emissions, energy efficiency, renewable energy generation, and low carbon transport etc.
Description of the investment strategy of the Fund
In carrying out its investment strategy the Fund promotes certain environmental and social characteristics through environmental and social alignment. In managing the portfolio of the Fund, the Investment Advisor applies each of the processes described above, namely:
- Good Governance; The Fund screens and rejects investments in companies that are in breach of UNGC or OECD Guidelines for Multinational Enterprises.
- Implementation of Exclusion Policy; The Fund's portfolio complies with Gavekal’s Exclusion Policy that is based on exclusion criteria that the Investment Advisor believes are detrimental to society and incompatible with sustainable investment strategies. This means that the Fund has 0% exposure to excluded securities, taking into account a grace period.
- Minimum Investment in Green and Social Bonds; The Fund allocates a minimum of 10% of NAV to be invested to green, social and sustainable bonds that are classified as sustainable investments with an environmental objective in economic activities that do not qualify as environmentally sustainable under the EU Taxonomy.
The environmental and social characteristics of the Fund’s holdings are evaluated by the Investment Advisor on a continuous basis to ensure compliance with the processes set out in (a) to (c) above.
The Investment Advisor applies its Good Governance policy in selecting the portfolio of the Fund.
Gavekal has a good Governance policy to assess governance practices of investment companies. This assessment is carried out before acquiring an asset and also on a periodic basis during the holding of that asset. For investee companies, this policy incorporates requirements amongst others regarding sound management structures, employee relations, remuneration of staff and tax compliance. More details can be obtained from the Investment Advisor’s Good Governance policy (the “Good Governance Policy”).
Proportion of investments
Monitoring of environmental or social characteristics
The Investment Advisor screens and monitors the Fund’s investments based on principal adverse impacts (PAI) using the indicators described above with a combination of data from Sustainalytics and the Investment Advisor’s internal research.
Methodologies
Gavekal Capital Limited evaluates ESG-related issues as part of the Fund’s investment decision and capital allocation process. As part of the Investment Advisor’s extensive research practices, Gavekal Capital Limited investment professionals carry out rigorous due diligence on major business drivers, including macroeconomic outlook, demographic shift, customer preferences, environmental and/or social impacts, etc.
Gavekal Capital Limited investment professionals consider how these factors provide opportunities and pose risks to the Fund’s investment strategy and ESG initiatives over the long run.
As part of any initial deal identification, Gavekal Capital Limited will perform an early review (“ER”) that will anticipate the social and environmental impacts of a given investment and will consider operational change and impact mitigation as part of the investment decision. The ER will assess conformance with the policies for Combating the Financing of Terrorism, Anti-Money Laundering, Anti-Bribery policies and as appropriate will determine internal and external ESG due diligence needs.
At certain times we may engage third party consultants to provide independent technical advice. Targeted portfolio companies are expected to comply with applicable national/local environmental, health and safety, labour, trade, public disclosure, and consultation regulations. When material ESG issues are identified, they will be carefully addressed and discussed with the Investment Committee as part of the evaluation.
As part of the ER, Gavekal Capital Limited assesses the governance structure of the Portfolio Investment and identifies areas for improvement to address corporate governance and/or conflict of interest issues. Any identified issues will be further reviewed and addressed at a later due diligence stage.
The due diligence, ESG impact assessment, decision making process and monitoring results will be documented and retained.
Data sources and processing
Gavekal places reliance on a combination of third-party data and internal analysis in the implementation of its ESG investment strategies. Where Gavekal relies on third party data for this analysis it periodically evaluates the data and service providers. Gavekal’s use of external data providers may vary from time to time, including selection and deselection of relevant data providers. Examples of major service providers we use for data and analytics include Sustainalytics, MSCI, Moody’s, S&P and Bloomberg.
Limitations to methodologies and data
There can be no assurance that data-based ESG investment methodologies will be successful at capturing all ESG factors. Gavekal evaluates its use of data and data service providers as a matter of course through due diligence and may adjust data providers, sources or methods as the availability and quality of data evolves. Where Gavekal is reliant on third party information, data providers may not capture the full extent of an issuer's activities, the full scope of the investment universe or may experience delays in a changing business environment or institutional conduct. In such cases, activities that we are looking to exclude may not be fully captured, resulting in inaccurate information and therefore investments in issuers engaged in activities which the portfolio wishes to exclude may be included and vice versa.
One of the challenges faced by the investment management industry when integrating sustainability risks, Principal Adverse Impacts, or ESG considerations in the investment process is the limited availability of relevant data for that purpose.
Due diligence
The Investment Advisor will use third-party ESG controversy and global norms data and research as a starting point for assessing alignment of portfolio companies with these global norms, and where necessary, conduct further due diligence to determine compliance with these norms.
Governance and business integrity is an important component of the due diligence process of Gavekal Capital Limited’s fund and client investments as well as direct co-investments.
The team first assesses an investment’s links to any evidence of major and material controversies.
The Fund then carries out due diligence on major business drivers, including macroeconomic outlook, demographic shift, customer preferences, environmental and/or social impacts, etc.
The due diligence, ESG impact assessment, decision making process and monitoring results will be documented and retained.
How does the Fund engage with investee companies?
The fund engages with investee companies by working with sell-side counterparties to promote the issuance of green or ESG-eligible bonds. As one of the largest funds in the offshore renminbi space, we strive to incorporate ESG via active ownership. We provide anchor bond investment orders to encourage green bond issuance in the offshore renminbi space.
Does the Fund use an external benchmark to measure the achievement of its sustainability characteristics?
No, the Fund does not use a reference benchmark for the purpose of measuring the achievement of its characteristics.