Sustainability-related disclosures

1. Executive summary

Vinga Corporate Bond promotes environmental and social characteristics in investment decisions and is regulated by SFDR Article 8.

2. No sustainable investment objective

The fund promotes environmental and social characteristics but does not have sustainable investment as its objective.

3. Environmental and/or social characteristics of the financial product

The fund promotes environmental and social characteristics in investment decisions by (1) excluding certain activities for risk- or ethical reasons. Ethical reasons can come from activities, products and/or practices, as well as violations of international norms, (2) companies with weak sustainability performance that could mean negative consequences for sustainability factors are actively influenced by us to improve with a focus on ESG risk mitigation. See details in the following section.

4. Investment strategy

ESG risk analysis
An ESG risk rating is produced for all holdings. The rating can be between 0 – 100 where 100 corresponds to the highest sustainability rating, which corresponds to the lowest ESG risk. Vinga Corporate Bond collaborates with SustainAX for ESG analysis of small and medium-sized Nordic companies and uses data from Datia and Bloomberg for analysis of larger companies.

Engagement process
An ESG risk rating below 30 corresponds to a weak sustainability performance where ESG risks are elevated. At those levels, an engagement process is started by us. An engagement process means that we contact the company and point out the shortcomings we see in the company’s sustainability work. We are co-operative and give the company a chance to respond and improve. If no progress has been made within 6 months, the holding is divested. Success means that the company responds with better reporting and policies in the areas where we see shortcomings. If it is futile to initiate an engagement process, or the company does not respond within a reasonable time and thereby demonstrating that they are not interested in cooperating or improving their sustainability work, the holding is divested.

Exclusions
We exclude certain businesses for risk and ethical reasons. None of the holdings in Vinga Corporate Bond may have more than 5% of their revenue in the activities excluded for risk and ethical reasons.

• Exclusions for risk reasons: Fossil fuels, operations in sanctioned countries. Russia is an example where companies have made large write-downs of assets and future cash flows. In the case of fossil fuels, there is a risk that the bond cannot be refinanced as the economy moves towards renewable energy sources.
• Exclusions for ethical reasons: Controversial weapons, payday loans, gambling, alcohol, tobacco, pornography. These exclusions span a wide range but can affect both the user and the victim in different ways. Controversial weapons are excluded because their use typically results in great human suffering in war. Payday loans and gambling are excluded because these services can trap individuals in debt, which in turn can lead to even more serious consequences such as depression and suicide. Tobacco causes significant health damage to the user and others and can place a long-term burden on the health sector. Alcohol is excluded because its abuse can lead to health problems and children suffering or being abused in their homes. Pornography is excluded because there is a high risk of vulnerable young people or vulnerable adults being exploited in pornography.
• We also exclude companies that commit violations of international standards such as child labour and human rights. A confirmed violation of international standards means that there is a judgement from the ICC or that one of the UN bodies in an official report has identified and established that human rights violations are taking place. In the event of a confirmed violation, we have 30 days to divest the holding. However, dialogue can be initiated with the offending company. If they have a credible plan to address the issue within a reasonable timeframe, the company may be given the chance to rectify it. If the response is good enough, we may refrain from divestment.

5. Proportion of investments

At least 80% of the fund’s holdings should promote environmental and social characteristics. The remaining share of maximum 20% consists of holdings that help to ensure good sector and issuer diversification. This group also includes holdings that have not yet received an ESG risk rating.

6. Monitoring of environmental or social characteristics

Monitoring and analysis are carried out on an ongoing basis by the fund manager to detect any breach of the 5% level for excluded activities. Annual reports, quarterly reports and press releases are screened, and the manager participates in investor meetings in connection with quarterly reports and new issues where questions can be asked if there are any ambiguities. A new ESG risk analysis and rating is carried out within one month when a new company that has not been analyzed previously enters the fund. The analyses are then updated annually or in the event of specific events such as acquisitions and mergers. Vinga Corporate Bond’s compliance and risk function performs checks on the applicable sustainability policy.

7. Methodologies for environmental or social characteristics

The analyses for the small and medium-sized companies are based on the SustainAX methodology for ESG risk analysis. See link for SustainAX’s method: https://www.sustainax.com/index.php/our-esg-rating-methodology-processes/. For the larger companies, we make our own ESG risk rating based on ESG data from Datias and Bloomberg. To ensure that no holding has too much activity to be excluded, an analysis of holdings is carried out, and for further assurance, an ESG report is ordered from Datia on all holdings once a quarter. The Datia report specifically states whether companies are involved in controversial activities and/or with sanctioned countries.

8. Data sources and data processing

Our sources are SustainAX, Datia, Bloomberg and information from the companies. Our data sources are based on public information gathered from websites, annual reports, investment memoranda and investor meetings.

9. Limitations of methods and data

The limitations are that we have to rely largely on the information published by the companies themselves. However, the advantage of using only public information is that companies take a major media and regulatory risk by not being truthful, which we believe few companies want to do. Our partners’ analytical methodologies have been developed and refined over several years. We consider the risk of major measurement errors and other sources of error occurring in the analysis to be small.

10. Due diligence

SIP Nordic Fondkommission and AIFM Group carry out regular checks of the fund’s risk profile and policy compliance.

11. Engagement strategies

When a holding receives an ESG risk rating of less than 30, an engagement process is initiated unless we choose to divest the holding. We contact the company and point out the shortcomings we see in the company’s sustainability work. We are co-operative and give the company a chance to respond and improve. If there has been no success within six months of the engagement process being initiated, the holding is divested. Success means that the company responds with better reporting and policies in the areas where we see shortcomings. If it is hopeless to start an engagement process, or the company does not respond within a reasonable time and thus shows that they are not interested in cooperating or improving their sustainability work, the holding is divested.

12. Benchmark index

Vinga Corporate Bond does not use a benchmark index with a sustainability focus.

²Environmental, social and governance (ESG) refers to a set of criteria for evaluating corporate performance that assesses the robustness of a company’s governance mechanisms and its ability to effectively manage its environmental and social impacts.

13. Changes