BKN Capital as AIFM is regulated by the Luxembourg financial supervisory authority Commission de Surveillance du Secteur Financier (CSSF). As a member of the Association of the Luxembourg Fund Industry (ALFI) we also subscribe to the ALFI Guidelines and Recommendations such as the Code of Conduct for Luxembourg Investment Funds. Our governance rules cover the following areas:
The following information aims at giving further guidance on how BKN Capital handles the implementation of the requirements set by the Regulation (EU) N°2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial sector (“SFDR”), which becomes applicable since as an AIFM, BKN Capital is considered as a financial market participant within the meaning of the SFDR (“FMP”).
The following information is based on the current understanding of the regulatory framework in place and may therefore vary based on additional texts published by the regulators.
SFDR Art. 3 requires from an FMP to publish information about policies established on the integration of sustainability risks in their investment decision-making process and potential adverse sustainability impacts on an entity level.
Sustainability risk means an environmental, social or governance event or condition (“ESG”) that, if it occurs, could cause an actual or a potential material negative impact on the value of an investment. This statement has been developed taking into consideration SFDR Art. 10 on the transparency of ESG-risks at product level.
Where FMPs consider principal adverse impacts (“PAI”) of investment decisions on sustainability factors, SFDR Art. 4 requires to publish a statement on due diligence policies with respect to those impacts, taking due account of their size, the nature and scale of their activities and the types of financial products they make available. This statement has been developed taking into consideration SFDR Art. 7 on the transparency of PAI at product level.
The product specific disclosure pursuant to SFDR Art. 10 can be found here.
Integration of ESG-Risks in the Investment Decision Making Process
BKN Capital takes potential ESG-risks into consideration in its analysis of potential investments as part of its investment decision-making process in accordance with the provisions of SFDR.
Portfolios are managed by integrating ESG-risks and -factors on a case-by-case basis and depending on the characteristics of each proposed individual investment, including for products which do not promote ESG characteristics or have specific sustainable investment objectives. This means that whilst ESG factors are considered, they may or may not impact portfolio building. The impact of applicable ESG criteria on investment performance may change over time.
The individual risk factors considered in BKN Capital’s investment decision process depend on each of the managed funds’ (“Funds”) investment strategy as well the economic sector and geographical exposure of the targeted investment, and may notably include:
Environmental: Material negative impacts from investment decisions relating to the quality and functioning of the natural environment and natural systems, including greenhouse gas emissions, use of non-renewable energy, biodiversity, water and waste;
Social: Material negative adverse impacts from investment decisions relating to the rights, well-being and interests of people and communities; and
Governance: Material negative adverse impacts from issues relating to the governance of companies, including inappropriate management of conflicts of interest, violation of anti-money laundering rules, etc.
In case BKN Capital delegates the portfolio management function to an external portfolio manager (“PM”), and, together with the initiator and the AIFM, it is decided to integrate ESG-risks in his investment decision process, additional information on the integration of ESG-risks into the decision making (pre-trade assessment) can be found on the website of the specific external PM. Meanwhile, as part of its due diligence process and ongoing oversight BKN Capital ensures that:
The PM has adequate knowledge and understanding on ESG-risks;
ESG-risks are an integral part of the Fund’s written investment process;
ESG-risks are considered as part of a broader analysis of individual investments by the PM;
In assessing the ESG-risks prior to the execution of the investment, the PM draws upon a wide variety of internal and external research to assess qualitative, quantitative, reliable and up-to-date ESG related data over the time horizon of the Fund; and
The PM adequately records the ESG-risks and provides or published appropriate disclosures.
In instances where BKN Capital retains portfolio management and where an investment advisor is appointed, BKN Capital may consider ESG-risks within their investment decision in respect of those Funds, provided that the steps described in 1 to 5 are fulfilled. In such instance the investment committee considers and reviews each investment or divestment proposal received from the investment advisors and takes decisions on behalf of BKN Capital for the respective Fund. Please note that in certain instances, BKN Capital’s investment advisors may publish information on their own website in respect of ESG-risks integration.
BKN Capital has enhanced its existing risk management framework to ensure the integration of ESG-risks and will oversee the integration of ESG-risks by PMs on an ex-post basis.
PAI-Due Diligence Policies
Where BKN Capital acts itself as PM, for the time being, BKN Capital does not consider adverse impacts of investment decisions on sustainability factors in line with SFDR Art. 4(1)(point b). The main reason for not considering adverse impacts of investment decisions on sustainability factors at the company level is the lack of further information and relevant data of the required quality to identify, adequately assess and weight sustainability-related PAI.
BKN Capital will continue reviewing the situation on a regular basis and may decide on this basis on the possibility of taking into account PAI of investment decisions on sustainability factors in the future.
Where BKN Capital delegates portfolio management, the PM may already consider PAI on its investment decision for the Funds they manage. Should such PM wish to consider PAI in line with SFDR Art. 7 in respect of the Fund it manages, BKN Capital ensures that:
The PM has the appropriate infrastructure in place to report on PAI on an ongoing basis;
The appropriate disclosures are made in the pre-contractual documents;
A report on the PAI considered is available on request and will contain sufficient and appropriate information as to the assessment of PAI; and
The PM also provides or publishes appropriate disclosures.
The processes, systems and procedures in place to consider and report on PAI in respect of each Fund remain subject to BKN Capital’s periodic due diligence.
Please note that in the case where BKN Capital cooperates with PMs not located in one of the Member States of the EU, further information with respect to the PAI of their investment decisions on ESG factors might not be available.
Pursuant to SFDR Art. 5 FMPs are required to include in their remuneration policies information on how those policies are consistent with the integration of ESG-risks. BKN Capital has amended its remuneration policy accordingly.
In line with SFDR Art. 9, the information required at the level of the individual Funds, including sub-fund or compartments, may be further detailed in the specific pre-contractual information, such as sales prospectus or private placement memorandum. These statements are subject at least to an annual review.
For recent developments or any further queries relating to BKN Capital’s SFDR related disclosures, please contact: Compliance@bkncapital.lu.