1. General information on the strategies for dealing with sustainability risks

By ratifying the Paris Agreement [1], the participating states committed themselves to limiting global temperature increases to well below 2 ° C or, if possible, to 1.5 ° C compared to pre-industrial levels. To achieve these goals and to reduce the effects of climate change, the European Commission has published a comprehensive action plan to finance sustainable growth [2] and the European Green Deal [3]. Part of this action plan provides for the reduction of information asymmetries in the relationships between customers and financial market participants or financial advisors with regard to the inclusion of sustainability risks, the consideration of negative sustainability effects, the promotion of ecological or social characteristics and with regard to sustainable investments. These information asymmetries are to be eliminated through mandatory pre-contractual information and ongoing disclosures by financial market participants and financial advisors to end investors. Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (in short: Disclosure Regulation) also obliges financial market participants and financial advisors to publish written strategies for the inclusion of sustainability risks.

According to the Disclosure Regulation, sustainability risk is understood to be an event or condition in the environmental, social or corporate governance fields, the occurrence of which could actually or potentially have significant negative effects on the value of the investment. [4]

Due to the ongoing change in the climate, in addition to the other sustainability risks, the focus is increasingly on climate risks. Climate risks include all those risks that arise as a result of climate change or that are exacerbated as a result of climate change [5]. When it comes to climate risks, a distinction is made between physical risks, which result directly from the consequences of climate change, and transition risks, which arise from the transition to a climate-neutral and resilient economy and society and can thus lead to a devaluation of assets. Examples of sustainability risks are: increased occurrence of natural disasters, loss of biodiversity, decline in snow cover, extreme drought, …. Sustainability risks can manifest themselves in an investment in the known risk categories such as credit risk, total loss risk and price risk.

In addition to sustainability risks, sustainability factors can also play a role in an assessment or investment decision. In the Disclosure Regulation, sustainability factors are defined as environmental, social and employee issues, respect for human rights and the fight against corruption and bribery. This includes, for example, climate protection, the protection of biodiversity, compliance with recognized labor law standards, appropriate remuneration, measures to prevent corruption, etc.

2. Declaration on the negative impact on sustainability

We include sustainability risks in investment advice on financial products as defined by the Disclosure Regulation in the following manner:
The identification of sustainability risks in the case of financial products within the meaning of the Disclosure Regulation is carried out by the product manufacturer (financial market participant). The MFC Mikulik Finance Consulting GmbH takes over the identification of sustainability risks by the
fund companies within the framework of the European ESG Template. In the course of investment consulting, the client’s preferences are ascertained and, if necessary, the financial instruments suitable for the client are selected. We distinguish between three categories of investments according to ESG criteria:

Category A: investing in environmentally sustainable financial instruments (according to the Taxonomy Regulation).
This means that the economic activity of such a financial instrument serves at least one environmental objective and makes a significant contribution to achieving this objective, the economic activity does not at the same time lead to a significant impairment of one or more environmental objectives, the economic activity is carried out in compliance with the defined minimum level of protection (concerns human and employee rights, guiding principles in corporate governance, etc.), and the corresponding technical requirements measured by key figures are met (e.g. threshold values for emissions or CO2 footprint).

Category B: investing in environmentally sustainable financial instruments (according to the Disclosure Regulation).
Within category B, i.e. financial instruments according to the Disclosure Regulation, a distinction must be made between products according to
– Art 8 (also called “light green”) and
– Art 9 (also called “dark green”).
For products according to Art 8, these environmental and social criteria are taken into account, and for Art 9, investments are made in companies that explicitly pursue these sustainability goals.
These sustainability aspects can be taken into account for an individual financial instrument, but also in relation to the entire portfolio.
However, it must be remembered that no financial instrument complies 100% with the requirements of Art 8 or Art 9, but only to a certain minimum percentage.

Category C: investing in environmentally sustainable financial instruments that do not comply with categories A and B, but which take into account various adverse effects on sustainability factors.

It is possible in the case of a single financial instrument in cat. A and B, for example, to want a minimum percentage weighting in each case, but when considering the overall portfolio, only a lower percentage weighting will be possible. For the financial instruments according to cat. C, consideration is not given in percentage minimum values, but only whether a financial instrument takes these objectives into account or not. The explicit consideration of ESG criteria only takes place at the request of the investor. MFC Mikulik Finance Consulting GmbH asks for the relevant investment objectives in the consultation.
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Since we rely exclusively on the information provided by the product manufacturers and external software suppliers, it is not possible for us to verify this information based on our own research.

3. Consideration of sustainability risks in the remuneration policy

MFC Mikulik Finance Consulting GmbH has currently not explicitly stipulated the effects of sustainability risks as part of its remuneration policy. The remuneration of the employees is basically variable only to a small extent – also taking qualitative characteristics into account – which also includes acting in accordance with the applicable statutory provisions. Insofar as compliance with sustainability risks is provided for by law, they are therefore taken into account when measuring the variable part of the remuneration.

[1] https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement

[2] https://ec.europa.eu/info/publications/sustainable-finance-renewed-strategy_en#action-plan

[3] https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

[4] See Art 2 no 22 sustainability-related disclosure regulation

[5] See FMA guidelines for dealing with sustainability risks (01/2020)