SOUTHCAP – SGOIC, S.A. (“SOUTHCAP”) recognizes that the management of real estate investment entities entails sustainability risks.
Under Regulation (EU) 2019/2088 of the European Parliament and of the Council of November 27, 2019 (SFDR), sustainability risk is an environmental, social, or governance (ESG) event or condition that could cause a company to lose money or value.ESG) that is likely to cause an actual or potential material negative impact on the value of the investment.
SOUTHCAP, as a diligent and judicious manager, in compliance with the mandates assigned to it under the management regulations, must consider the various risks that may be relevant to the investments of real estate investment entities, including any sustainability risks that may exist.
Our investment decision-making process is guided by the following general principles:
- Proportionality: in carrying out its activities, SOUTHCAP considers and weighs sustainability risks, taking into account the nature, scale, and complexity of its activities, including the activities of the UCITS under its management. It should be noted that, for the purposes of Article 4(3) and (4) of the SFDR, SOUTHCAP does not meet the requirements for larger institutions, in particular because it does not exceed the criterion of an average number of 500 employees during the financial year.
- Transparency: SOUTHCAP’s Sustainability Policy (“Sustainability Policy”) respects the principle of transparency and, to this end, publishes information on its website regarding its policy on the integration of sustainability risks.
- Adaptability: SOUTHCAP pays close attention to ESG issues in terms adapted to the collective investment undertakings under its management, recognizing, however, that the regulatory framework for ESG matters is not yet fully stabilized, which leads to some fragmentation and asymmetry in the information available from issuing companies.
- Information integrity: SOUTHCAP recognizes that information disclosed in terms of ESG must be truthful, clear, objective, and realistic.
- Current status: The Policy shall be kept up to date and amended whenever the information contained therein undergoes any change, due to legal modifications or changes in SOUTHCAP’s operating assumptions.
- Consistency: SOUTHCAP’s commercial and advertising communications may not contradict the information disclosed under this Policy.
SOUTHCAP ensures that the investment policies of the UCIs under its management do not conflict with its Sustainability Policy, and that the corporate purpose and/or investment policy and objectives and activities of the entities in which SOUTHCAP invests on behalf of the UCIs it manages do not contradict the Sustainability Policy. These principles are applied throughout the various stages of the decision-making process:
- Screening (detection): In the process of detecting potential investment opportunities, based on publicly available information and/or information from third parties, including specialized service providers, exposure to sustainability risks will also be considered. As an auxiliary element, lists of sectors of activity that are more or less exposed to this type of risk may be drawn up and updated from time to time.
- Investment analysis: The information gathered in the previous phase will be supplemented, where appropriate, with additional information, particularly from the target company itself, to enable a more detailed assessment of the existence of such risks.
- Due Diligence: Where appropriate, due diligence processes, when conducted in collaboration with external consultants, should take such risks into account in their analyses and suggest mitigation measures.
- Investment decision: The information gathered and analyzed in the previous stages regarding sustainability risks should be taken into account in the decisions to be made, including the implementation of appropriate mitigation measures if such risks are detected, such as through shareholder engagement with the target company.
- Portfolio monitoring: Among the matters subject to regular monitoring throughout the duration of the investments, sustainability risks will be weighed whenever relevant, and the respective mitigation measures will also be reviewed when appropriate.
Accordingly, the impact of this type of risk on the value and return of investments should be assessed on a case-by-case basis and, to that extent, integrated into SOUTHCAP’s investment decision-making process as a management entity.
SOUTHCAP recognizes that remuneration policy plays a central and important role in aligning the relevant interests, namely those of investors and other stakeholders, and should also be capable of ensuring adequate conditions for the implementation of fair remuneration that is capable of attracting, retaining, and motivating our managers and employees.
With a view to integrating sustainability risks into remuneration, SOUTHCAP adopts remuneration practices consistent with prudent, sound, and effective risk management, which do not constitute an incentive to take excessive risks in its activity, nor to assume risks inconsistent with the risk profile of the UCIs under its management, which could give rise to conflicts of interest with clients or disregard the importance of sustainable behavior in terms of investment and management.
Compliance with the Sustainability Policy is a key criterion for evaluating the performance of top employees for the purposes of awarding the variable component of their annual remuneration.
In this way, SOUTHCAP ensures that, in the context of management and investment decision-making, its senior staff take into account ESG sustainability factors enshrined in the Sustainability Policy.
We will discuss this in more detail later, but I would like to leave a final note that these changes must be completed before the 24th in order to respond to the supervisor.