EU SFDR Disclosures

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Ecofin Energy Transition UCITS Fund (the “Fund”)

EU Sustainable Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”)

 

The disclosures in this section are made pursuant to Article 8 of the SFDR.

Information on how the environmental, social and governance characteristics of the Fund are met:

Ecofin Advisors Limited, as the Sub-Investment Manager of the Fund, believes that societies need to accelerate the transformation to a greener, decarbonized and more sustainable economy. Due to this belief, the Fund is primarily focused on investing in companies that are positioned to benefit from the pursuit of addressing climate change, reducing pollution and resource scarcity, managing waste, and promoting efficiency.

The Fund will invest in the public equities of companies that have at least 25% of their revenues derived from sustainability initiatives. As of a result of the promotion of an environmental approach, the Sub-Investment Manager believes the investments generate a more sustainable future as described by the United Nations Sustainable Development Goals 7, 9, 11, 12, & 13, which, among other things, call for climate action, responsible consumption and production, sustainable communities, and affordable and clean energy for all. According to the UN, a sustainable future is defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

ESG research is thoroughly incorporated into the investment process for the Fund. Each company has an assigned analyst who is responsible for all aspects of the research process and for engaging with company management. The Sub-Investment Manager primarily utilizes company filings and engagement with management teams in its ESG assessment for qualitative analysis. The Sub-Investment Manager has access to specialist research from third-party providers which can serve to augment and support its in-house research.  

The main areas the Sub-Investment Manager assesses in undertaking its ESG analysis on portfolio investments for the Fund are as follows:

Environmental: Preservation and enrichment of the world

  • Scrutiny on carbon footprint and disclosure (and other greenhouse gas emissions)
  • Company’s time horizon for carbon neutrality
  • Water use and land use
  • Emission and waste reduction programs
  • R&D, innovation and thought leadership for sustainability
  • CAPEX, maintenance and capital integrity
  • Risks linked to stranded assets
  • Climate change-related physical risks on assets (fire, weather, droughts, etc.)
  • Adverse policy support

Social: Consideration of people, communities, and relationships

  • Impact on communities
  • Customer satisfaction
  • Commitment to safety standards
  • Diversity in board, management and employees
  • Employee engagement
  • Commitment to fair and safe employment practices

Governance: Standards for operating, managing and sustaining a company

  • Protection of minority shareholders
  • Conflict of interests
  • Insider ownership
  • Management compensation
  • Financial and strategic transparency
  • Board independence
  • Engagement and proxy voting

 

The Sub-Investment Manager believes that well-managed companies actively managing their ESG risks are more capable of generating superior long-term performance. A thorough understanding of ESG issues empowers companies to potentially mitigate risks and take advantage of the opportunities resulting from these issues. The Sub-Investment Manager’s research process integrates both traditional fundamental analysis with ESG factors. The Sub-Investment Manager believes these analyses may impact and reflect into a company’s overall shareholder returns. Each company has an assigned analyst who is responsible for all aspects of the research process and for engaging with company management, including ESG-related issues, in populating the risk-based model to seek to provide better risk-adjusted returns

The Sub-Investment Manager’s unique perspective or edge in addressing energy transition is derived from its significant expertise in dealing with and evaluating policy frameworks within some of the major greenhouse gas (GHG) emitting industries, in particular utilities and sustainable infrastructure. 

The principal area of market inefficiency the Sub-Investment Manager is looking to exploit relates to its proprietary views on how policy frameworks (and laws) around ESG matters, such as climate change and emission efficiency, together with technology innovations, can conspire to create substantial deviations in market expectations.

Sustainability Risks

The manner in which sustainability risks are integrated into investment decisions:

Sustainability risk is defined as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of the investment”.

It is concerned with the risk that the value of an investment could be materially negatively impacted as a result of environmental or social risks. It is also worth noting that such risks need only be considered where they could have a material negative effect on the value of the relevant investment.

Research on environmental, social and governance (“ESG”) matters is undertaken by the Sub-Investment Manager’s investment team. The team believes that engagement on environmental and social issues is much more powerful when it comes from the person committing the money to the investment, rather than from a separate sustainability team.

Sustainability risk analysis is also a part of stock assessment to identify negative ESG risks, or potential risks, of investments to ascertain the nature of the sustainability risk, as well as its materiality. The primary aim of this process is to assess how each ESG risk can derail or materially impact the underlying investment case of a company. The Sub-Investment Manager integrates sustainability risk into its investment decision making process both at the initial due diligence stage and as part of its ongoing due diligence.

The investment process comprises an assessment of macroeconomic and regulatory factors relevant to the sectors but it concentrates first and foremost on grass-roots fundamental analysis of companies. The Sub-Investment Manager utilizes a three-pronged approach to research which includes qualitative, quantitative, and relative value analyses.  The ESG screen is an important metric in the risk qualitative analysis.  For each company the Sub-Investment Manager considers a host of non-financial data points and risk attributes and examines supplementary disclosures and materials around sustainability or ESG issues issued by the company or by a review agency. This ESG analysis is then considered along with other quantitative and qualitative evaluations of management quality, asset quality, and cash flow stability to create a composite qualitative picture of a company.

This qualitative analysis is then merged with three other first-hand information sources, quantitative analysis, relative value analysis, and carbon analysis to arrive at final investment decisions as below:

  • Qualitative analysis: The team uses proprietary risk models to assess a company’s asset quality, management, stability of cash flows and ESG factors.
  • Quantitative analysis: The team employs proprietary financial models to understand growth prospects, liquidity position and sensitivities to key drivers.
  • Relative value analysis: Valuation models and equity markets indicators guide portfolio weightings; screening tables allow the investment team to compare companies and stocks according to different criteria (for example, regulatory risk profile, valuation metrics, ESG scores, historical valuation ranges).
  • Carbon analysis: in partnership with a third-party provider, the Sub-Investment Manager updates annually a global proprietary database of power generation companies with detailed CO2 emissions by source of power and by company.

In considering the sustainability requirements of the Fund, it will invest in the public equities of companies that have at least 25% of their revenues derived from at least one of the four master sustainability initiatives the Sub-Investment Manager has identified: Electrification, Clean Transportation, Industrial & Building Efficiency, and Environment. 

The consistent approach to research laid out above and the well-defined investment universe generally allows the Sub-Investment Manager to plan and drive research, rather than react to ESG events.

The results of its assessment of the likely impact of such integration of sustainability risks on the returns of  the Fund:

At the core of the Sub-Investment Manager’s stock selection process is the understanding and mitigation of ESG risks in an effort to provide better risk-adjusted returns to investors. It is also becoming more evident through formal academic studies that better ESG profiles often deliver better absolute performance, thus underscoring the importance of ESG from both a risk management and value creation perspective.

The Sub-Investment Manager has determined that the sustainability risk (being the risk that the value of the Fund could be materially negatively impacted by an ESG Event) faced by the Fund is low.

Tortoise Sustainable Listed Infrastructure Fund (the “Sub-Fund”)

EU Sustainable Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”)

 

Ecofin Advisors Limited, as the Sub-Investment Manager of the Tortoise Sustainable Listed Infrastructure Sub-Fund, promotes environmental and social characteristics pursuant to article 8 SFDR.

As already provided in the Prospectus of the Sub-Fund, ESG research is thoroughly incorporated into the investment process for the Sub-Fund. Each company that the Sub-Investment Manager follows in the Sub-Fund’s investment universe has an assigned analyst who is responsible for all aspects of the research process and for engaging with company management. Portfolio Managers and Analysts primarily utilize company filings and engagement with management teams in their ESG assessment for qualitative analysis. We do have access to third-party specific ESG research which can serve to augment and check our in-house research.  

The main factors the Sub-Investment Manager assesses in undertaking its ESG analysis on portfolio investments for the Sub-Fund are as follows:

Environmental: Preservation and enrichment of the world

  • Scrutiny on carbon footprint and disclosure (and other greenhouse gas emissions)
  • Company’s time horizon for carbon neutrality
  • Water use and land use
  • Emission and waste reduction programs
  • R&D, innovation and thought leadership for sustainability
  • CAPEX, maintenance and capital integrity
  • Risks linked to stranded assets
  • Climate change-related physical risks on assets (fire, weather, droughts, etc.)
  • Adverse policy support

Social: Consideration of people, communities, and relationships

  • Impact on communities
  • Customer satisfaction
  • Commitment to safety standards
  • Diversity in board, management and employees
  • Employee engagement
  • Commitment to fair and safe employment practices

Governance: Standards for operating, managing and sustaining a company

  • Protection of minority shareholders
  • Conflict of interests
  • Insider ownership
  • Management compensation
  • Financial and strategic transparency
  • Board independence
  • Engagement and proxy voting

The Sub-Investment Manager’s perspective or edge relates to its significant expertise in dealing with and evaluating policy frameworks within some of the major GHG emitting industries, in particular utilities and sustainable infrastructure, for this Sub-Fund’s investment universe.  The principal area of market inefficiency the team is looking to exploit relates to its views on how policy frameworks (and laws) around climate change and emission efficiency, together with technology innovations, can conspire to create substantial deviations in market expectations.

In the power sector, which is a majority exposure in this Sub-Fund, its investment strategy is to invest predominantly in companies investing to achieve their own or government targets for emissions reductions and greener grids and eventually decarbonisation. The Sub-Fund’s portfolio is oriented, therefore, toward clean generators and suppliers of electricity.

As attention on the impacts of climate change on our planet intensifies, corporate strategies are changing quickly to meet the demands for more and cleaner electricity and to prioritise the mitigation of environmental risks. Population and GDP growth and the electrification of transportation, industry and buildings are driving increasing demand for electricity and, at the same time, there is a race globally for lower carbon footprints.  The Sub-Investment Manager’s strategy is to focus on those companies which are strategically focused on renewable energies and network infrastructure build-outs.

The investment needs for power are matched when we look more broadly at the network infrastructure – water, roads, airports, railways – required to support economic growth and to meet the UN’s Sustainable Development Goals. The gap between investment requirements and current spending commitments will have to be addressed by governments and private sources and the latter will need to be adequately incentivised by regulators. The adoption of climate change targets such as ‘carbon neutrality’ and ‘zero emission’ by an increasing number of countries and companies bodes well for an acceleration in the development in clean energy, and this transformation represents a powerful growth driver for our investment universe. 

Sustainability focus integrated in decision-making

Sustainability risk analysis is integral to every part of our investment approach and ESG factor analysis is an ongoing and fundamental part of the investment team’s research process. A consistent risk identification framework is used to help assess the potential principal adverse impacts of investment decisions on sustainability factors and to help ensure that Ecofin’s positive sustainability focus is represented in investment decisions.

In order to mitigate the risks and potential principal adverse impacts of investment decisions on sustainability factors in this Sub-Fund’s investment universe, The Sub-Investment Manager may exclude (a) companies which are increasing activities which are detrimental to sustainability (such as increasing coal power generation, for example) or (b) companies which do not play a role in the development of a sustainable economy.

Sustainability risk analysis is also a part of the Sub-Investment Manager’s stock assessment process.  We seek to identify actual or potential ESG risks to a company or its business model and to ascertain the materiality of such sustainability risks. The primary goal is to understand the nature of potential risks and whether they could derail or materially impact the underlying investment case for a company’s shares.

Investment decision-making components and process

The investment process comprises analysis of macroeconomic and regulatory factors relevant to the Sub-Fund’s sectors, but it concentrates first and foremost on grass-roots fundamental analysis of companies. The investment team utilizes a multi-pronged approach to regional sector and company research which includes qualitative, quantitative, and relative value analyses, and the study of ESG factors is an important component of our qualitative analysis.  For each company we consider a host of non-financial data points and risk attributes and examine supplementary disclosures and materials around sustainability or ESG factors provided by the company or by a review agency. This ESG analysis is then considered along with other quantitative and qualitative evaluations of management quality, asset quality, and cash flow stability to create a composite qualitative picture of a company.

This qualitative analysis is amalgamated with three other first-hand information sources as follows, being quantitative analysis, relative value analysis, and carbon analysis to arrive at investment decisions: 

  • Qualitative analysis: The team uses proprietary risk models to assess a company’s asset quality, management, stability of cash flows and ESG factors.
  • Quantitative analysis: The team employs proprietary financial models to understand a company’s growth prospects, liquidity position and sensitivities to key drivers.
  • Relative value analysis: Valuation models and equity markets indicators guide portfolio weightings; screening tables allow the investment team to compare companies and stocks according to different criteria (for example, regulatory risk profile, valuation metrics, ESG scores, historical valuation ranges).
  • Carbon analysis: In partnership with a specialist third-party ESG data provider, the team updates annually a global proprietary database of power generation companies with detailed CO2 emissions by source of power and by company.

The consistent approach to research laid out above and the well-defined investment universe generally allow the team to plan research and drive research rather than react to events.

The Sub-Investment Manager is transparent with management teams regarding our assessment of their ESG profiles and engage with companies to help them improve their metrics with respect to our key ESG concerns.  It also votes proxy statements in alignment with this engagement for improving ESG metrics.  

The Sub-Investment Manager believes that analysis of sustainability risks is an essential element of the investment management process and that companies exhibiting good ESG credentials in this Sub-Fund’s sectors are more likely to perform well over the longer term. Engagement and proxy voting are integral parts of active management and a case-by-case assessment is made for decisions relating to all proxies, corporate actions and events relating to portfolio holdings. The integration of sustainability risk analysis has a positive impact on research quality and portfolio returns for this Sub-Fund.

Tortoise Sustainable Global Water Fund (“The Sub-Fund”)

EU Sustainable Finance Disclosure Regulation (EU) 2019/2088 (“SFDR”)

 

Tortoise Capital Advisors, LLC, as the Investment Manager of the Tortoise Sustainable Listed Infrastructure Sub-Fund, promotes environmental and social characteristics pursuant to article 8 SFDR.

As already provided in the Prospectus, ESG research is thoroughly incorporated into the investment process for the Sub-Fund. Research on ESG matters is undertaken by the Investment Manager’s investment team; it believes that engagement on environmental and social issues is much more powerful when it comes from the person committing the money to the investment, rather than from a separate sustainability team.

Portfolio managers and analysts primarily utilise company filings and engagement with management teams in their ESG analysis for risk tier ratings, and we also access to third-party ESG research which can serve to augment our in-house research.  

The main factors the Investment Manager assesses in undertaking its ESG analysis on portfolio investments for the Sub-Fund are as follows:

Environmental: Preservation and enrichment of the world

  • Scrutiny on carbon footprint and disclosure (and other greenhouse gas emissions)
  • Company’s time horizon for carbon neutrality
  • Water use and land use
  • Emission and waste reduction programs
  • R&D, innovation and thought leadership for sustainability
  • CAPEX, maintenance and capital integrity
  • Risks linked to stranded assets
  • Climate change-related physical risks on assets (fire, weather, droughts, etc.)
  • Adverse policy support

Social: Consideration of people, communities, and relationships

  • Impact on communities
  • Customer satisfaction
  • Commitment to safety standards
  • Diversity in board, management and employees
  • Employee engagement
  • Commitment to fair and safe employment practices

Governance: Standards for operating, managing and sustaining a company

  • Protection of minority shareholders
  • Conflict of interests
  • Insider ownership
  • Management compensation
  • Financial and strategic transparency
  • Board independence
  • Engagement and proxy voting

The Investment Manager believes that a thorough understanding of ESG factors empowers companies to potentially mitigate risks and take advantage of the opportunities resulting from these issues. The research process integrates both traditional fundamental analysis with ESG factors, which may impact and reflect into the company’s overall shareholder returns. Each company has an assigned analyst who is responsible for all aspects of the research process and for engaging with company management, including ESG-related factors, in populating the risk-based model to seek to provide better risk-adjusted returns.

Sustainability risk analysis is also a part of stock assessment; the primary aim of this process is to assess how any ESG risks can derail or materially impact the underlying investment case of a company. At the core of the Investment Manager’s stock selection process is the understanding and mitigation of ESG risks in an effort to provide better risk-adjusted returns to investors. It is also becoming more evident through formal academic studies that better ESG profiles often deliver better absolute performance, thus underscoring the importance of ESG from both a risk management and value creation perspective.

Within the investment process, the ESG screen is an important metric in the risk identification and modeling process.  In the risk tiering process, each of the three ESG components are evaluated individually and become the basis for our ESG scoring.  This ESG score is then considered along other quantitative and qualitative evaluations of Management Quality, Asset Quality, and Cash Flow Stability to create a composite risk score. A company scoring low in the ESG assessment usually scores poorly on the Management Quality metric, so there tends to be additional compounding of the ESG assessment.  A poor ESG assessment can preclude our investment in a security or reduce the amount of a name held in the portfolio.  Risk tier ratings, including the ESG components, are reviewed at least on a quarterly basis or if there is a material change to a company. With our tiering process in our risk model, the Sub-Fund’s portfolio will own higher weights in companies what score well on our ESG ratings process, therefore maximizing the ESG characteristics of the Sub-Fund.

The Investment Manager is transparent with management teams regarding our assessment of their ESG scores and engage with companies to improve their metrics.  We also vote proxy statements in alignment with this engagement for improving ESG metrics.  

Examples of the sustainability risks which the investment team can look to evaluate in the risk-based model are:

  • exposure to fossil fuel production and consumption, emission intensity and the corollary risks of economically impacted assets, facing adverse regulatory/legal decisions, incurring rising operating costs and pollution remediation costs;
  • pollution, land/water use and business practice impact on local population health and wellbeing;
  • treatment of minority shareholders on issues where important ESG considerations may be present;
  • impacts on how technology innovations are adapting to meeting ESG policy goals on climate change, and how those innovations may reflect to shifting relative competitive positioning for a company’s existing assets or operations; and
  • management behaviour and track record dealing with important or relevant ESG criteria. This may include transparency and disclosure initiatives but also reflect on specific issues, for example in successful completion of environmental impact studies.