OUR APPROACH TO SUSTAINABILITY
Sustainable investments are characterised by numerous, sometimes competing approaches and definitions. While some providers just exclude certain sectors, others for expample enter into a dialogue with companies but do not follow up in any further analysis.
It is the view of Erste AM that a sustainable investment process creates the biggest value added when it combines all available tools and methods. In the Erste Asset Management Investment a team of experts focuses exclusively on the subject of sustainable investments.
Our approach has been developed over 15 years and shapes the key sustainable methods into an integrative management approach.
Integrated approach
Our investment process is a so-called "integrative" approach. We combine the most important sustainable investment styles to our unique proprietary approach, with our in-house-developed ESGenius® Score at its core.
We combine tools, such as positive and exclusion criteria, a best-in-class approach based on our proprietary scoring model ESGenius®, engagement and voting. At the heart of this process is the"ESG analysis", which refers to environmental, social and governance issues.
We design our investment decisions to achieve the desired goal and positive impact, and we measure the sustainable yield thus achieved and publish the results.
Sustainability Handbook
Sustainability is our core competence.
Our Sustainability Handbook provides information about our team, partners, policies and investment approach to sustainability.
The Principles of Responsible Investing (PRI) as laid down by the United Nations are the basis of our sustainable investment approach.
As signatory of the PRI, Erste Asset Management we are committed to the following principles in our investment policy:
- We will incorporate ESG issues into investment analysis and decision-making processes.
- We will be active owners and incorporate ESG issues into our ownership policies and practices.
- We will seek appropriate disclosure on ESG issues by the entities in which we invest.
- We will promote acceptance and implementation of the Principles within the investment industry.
- We will work together to enhance our effectiveness in implementing the Principles.
- We will each report on our activities and progress towards implementing the Principles.
We also require our external partners to have either signed the PRI or to follow them to the greatest extent possible.
Standards for all funds
All our publicly sold mutual funds fulfill these minimum standards:
Exclusion of controversial weapons policy
Since 2012 in Erste Asset Management we have committed to refraining from investments in companies that are involved in controversial weapons. Among them are:
Biological and chemical weapons
Submunition, including possible launch and ejection systems
Anti-personnel mines, mine-planting systems, and other mine systems
Nuclear weapons
Depleted uranium weapons
Policy against speculation on food and agricultural commodities
In line with the social responsibility of the entire Erste Group, in Erste Asset Management we committed in 2013 to refraining across all the investment funds and client portfolios it manages from investments that bet on an increase in food prices. In particular, for our multi-asset mandates – both umbrella funds and asset management solutions - we will not invest in third-party funds or derivatives that speculate on food prices.
No investment in coal
In 2016, Erste Asset Management was one of the first investment fund companies in Austria and Europe to commit to the exclusion of investments in companies that operate in the extraction of coal, coal-fired electricity generation or the synthesis of fuel from coal, across all mutual funds on the basis of individual securities (equities and bonds). On 1 July 2021, this policy was tightened, we excluded coal-fired power generation, reduced the revenue threshold to 5% and supplemented the exclusions with findings from the Paris Climate Agreement. Therefore, companies that have communicated and committed to exit coal are exempt from our revenue threshold.
Criteria for ESG funds
We apply additional ethical exclusion criteria in our ESG funds. In this way, we guarantee compliance with ethical principles and at the same time reduce certain social, environmental and financial risks in ESG funds.
Companies that have qualified for our investment world are selected according to a clearly structured approach. We check if they do not violate some of the defined list of criteria, which sometimes helps to avoid incalculable and long-term financial risks.
ESG data are incorporated into our proprietary model ESGenius® created specifically for this purpose.
An additional Best-in-class approach ensures that the most sustainable companies in each industry are selected.
The result of this our holistic approach is a list of both eligible and non-eligible companies for ESG fund investments.
ESGenius® score
In order to define the investment universe of ESG investments, we assign each company or country an ESGenius®score.
The ESGenius® score shows the ESG risk profile and quality of management of a company or state, and thus presents an overall picture of the performance of the analyzed issuer in ESG areas.
When creating the ESGenius® score, we combine ESG data for companies and countries from two external data providers (MSCI and ISS ESG), as well as proprietary research, which gives us more objective results. ESG data providers usually have different approaches to measurements. While MSCI's approach is more risk-oriented, ISS ESG focuses on ethical characteristics.
Our ESGenius® score reflects these aspects equally, based on both ethical and risk ESG factors on a scale from 0 to 100.
Adittional criteria for ESG funds
Companies that we invest in have to meet a number of criteria. For example nuclear power and arms production and trade constitute the most important exclusion criteria. Companies are also immediately divested from the fund in proven cases of corruption or child labour.
In our ESG funds, we apply the following broad list of ethical criteria from all sustainability perspectives that apply to equity and bond investments.
If our ESG funds invest in other mutual funds, these must be categorized according to Article 8 or 9 of the Disclosure Regulation, or undergo an in-depth review by our sustainable investment team, details are provided in the sales prospectus of the ESG funds.
BEST-IN-CLASS approach
The ESGenius analysis®, or Best-in-Class, is at the heart of Erste Asset Management's sustainability approach. The most sustainable companies are identified within each sector. These are the companies that best manage sector- and company-specific environmental, social and governance risks as well as incorporate the highest ethical standards into their actions.
It should be noted that this sustainable orientation may exclude certain companies from the investable universe.
ESG is English abbreviation for "Environmental, Social and Governance". This evaluation method examines decisions and actions of companies according to these ESG criteria.
The Best-in-class approach selects the leading companies in the industry that demonstrates the highest ESG standards in competition.
In order to qualify as a sustainable investment, a company must meet a number of requirements. Except of clear exclusion criteria, e.g. outlawed weapons, nuclear power, arms production or trade, nor may investments be made in companies involved in child labour, violations of human and labour rights, corruption, etc.
An advisory board set up specifically for this purpose, the First Responsible Advisory Board, checks whether the investment actually meets sustainability criteria.
Criteria for ERSTE Realitná Renta
Erste Realitná Renta pursues a long-term investment strategy that focuses on environmental and social characteristics. The fund invests in both direct and indirect real estate investments. As part of the investment process, we use our own sets of tools called the ESG real estate Toolbox for direct real estate investments and the ESG Toolbox for indirect real estate investments.
The fund invests predominantly, i.e. at least 35% of its assets, in investments that we have classified as sustainable based on a pre-defined selection process.
The fund aims to make real estate energy efficient, to be an attractive landlord for tenants and to take into account the social needs of the community related to real estate. By applying our own approach to sustainability, these environmental and social characteristics are promoted:
- Supporting energy efficiency in real estate - measures to reduce energy consumption and CO2 intensity of real estate, reducing fossil fuel consumption and minimising overall emissions and contributing to more sustainable operation of real estate.
- Responsible water management - measures and strategies leading to the efficient, sustainable and responsible use of water resources and water retention in order to minimise water wastage and protect ecosystems associated with water resources.
- Responsible waste management and recycling - minimising waste, promoting efficient separation and reuse of materials to reduce negative environmental impacts.
- Selection of properties made of high quality construction materials using advanced technologies, taking into account in particular the durability of the materials used and the production of emissions.
- Taking into account the possibilities of using efficient mobility - when acquiring real estate, we take into account such locations that allow eliminating or reducing the need for individual motor transport of tenants and their visitors, barrier-free access and the existence of infrastructure for e-mobility.
- Social infrastructure - when acquiring real estate, we take into account and evaluate the availability of the so-called social infrastructure, including in particular facilities for providing of health services, education and facilities to ensure personal daily needs.
- Quality of life and social character when using the property - we take into account and evaluate the accessibility and public use possibilities of both the property and its immediate surroundings in order to increase the feeling of individual satisfaction of the tenants. We have an interest in improving the quality of life and supporting the communities in the locality. Facilities contributing to the quality of life include places of human interaction.
Prior to the purchase of buildings, we perform an ESG assessment of the property by completing the so-called Preliminary Assessment Questionnaire, which contains a set of ESG criteria (ESG Real Estate Toolbox). These criteria only apply to real estate, they do not apply to land purchases.
ESG Real Estate Toolbox
Esg Real Estate Toolbox contains the following criteria:
Minimum criteria for the acquisition of office sector property in the fund:
We have defined exclusion criteria for real estate investments by property type and nature of business activity. The fund does not invest in industrial plants or warehouses, or properties related to the extraction, storage, transportation or production of fossil fuels. The fund excludes tenants that operate in unsustainable or unethical business areas.
We acquire properties into the fund that have been, or are projected to be, certified to BREEAM and/or LEED standards at the time of the investment decision.
BREEAM (Building Research Establishment Environmental Assessment Method) is a standard of practice in property design with an emphasis on sustainability that has become a practical measure for describing a property's environmental performance. The BREEAM assessment uses performance benchmarks that are set according to established criteria. The assessment covers the property specification, its design, construction and use. The measures used represent a wide range of criteria and categories from energy to ecology. They include aspects related to energy and water use, indoor environment (health and quality of life), pollution, transport, materials, waste, ecology and management processes. Properties with a certificate level of at least 'Very Good' may be acquired for the fund.
LEED (Leadership in Energy and Environmental Design) is a global certification for sustainable real estate. It includes systems that evaluate the design, construction and maintenance of sustainable properties and neighbourhoods. Properties with a certification level of at least "Silver" can be acquired into the fund.
Every property owned in the fund within the office sector must have an Energy performance certificate (EPC) at or above level B. For properties built after 31 December 2020, no restrictions apply in accordance with Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010 on the energy performance of buildings.
The need for energy certification is not required in the case of acquisition of real estate for the purpose of planned renovation. In this case, the property will obtain the required energy certification within a timeframe of up to 24 months after acquisition.
Additional criteria for office sector properties categorised as sustainable:
The long-term life and use of the property is a condition of acquisition in terms of sustainable value preservation and the generation of sustainable returns. Long-term durability means that the management company intends to hold the property in the fund for a longer period of time (5 to 10 years) so that the costs of acquisition and, where appropriate, renovation are spread over a longer period of time, and so that the fund benefits from the cash flows generated by the property. This does not limit the possibility to sell the property in the shorter term, e.g. in case of an attractive yield or in order to eliminate the risk of the need for significant investment.
Each property in the process of being acquired into a property in the fund is subject to a sustainability assessment based on an internal sustainability scoring. The internal sustainability scoring is a process of evaluating real estate projects and properties according to predetermined environmental, social and economic sustainability criteria.
The following environmental, social and economic criteria are assessed, with each criterion being assigned a score within a range of 1 (very good) to 6 (very poor) in accordance with an internal methodology. Only those properties that have achieved an internal sustainability scoring of at least 3.5 can be categorised as sustainable.
Environmental criteria:
- construction materials,
- use of natural resources and waste management in the operation of the property,
- energy efficiency.
Social criteria:
- mobility,
- social infrastructure,
- quality of life in and around the property.
Economic criteria:
- quality and flexibility of the space plan.
Active ownership
By active ownership we mean our responsibility to not only take into account sustainability issues when selecting the securities for our portfolios as investors, but also to actively push for measures towards social responsibility, environmental protection, or stronger transparency from companies that we invest in.
In doing so, we perform the following activities:
- Engagement - formal or informal dialogue with the company
- Voting - exercise of voting rights at annual general meetings
Both activities aim to strengthen the voice that our clients have given us by investing in our sustainable funds and pass it on to companies.
Voting
Voting is the second central pillar of our active ownership approach in Erste Asset Management. We have exercised the voting rights associated with the shares in our RESPONSIBLE funds at Annual General Meetings since 2012. Since 2016, we have also extended the exercise the voting rights to our traditionally managed equity funds. This way, we actively project the voice of our clients as indirect owners of the invested companies.
In order to ensure the transparency and consistency of our voting, we have compiled a detailed guideline and regularly and publicly report on our voting behaviour on our voting portal. This guideline does not only apply to our ESG equity funds, but also to our traditionally managed equity funds.
Engagement
As engaged investor, we want to achieve an active dialogue with the invested companies within the framework of our sustainability process. This way, we can point out weaknesses in environmental, social, or governance areas and subsequently try to jointly find a solution for improvement.
Our engagement is not only a question of responsibility but also contributes to the minimization of risk to enhance the long-term investment success of our clients.
As we want to drive change in as many companies as possible, we also engage with those in which we are not invested. We carry out engagement through 3 channels
Biodiversity policy
The global crisis biodiversity is facing, is a threat to our planet. Our financial and economic systems are not exempt from this. However, investments in nature also offer opportunities. Our Erste Asset Management's Biodiversity Policy defines concrete measures and goals that are integrated through our engagements and votes, as an active investor.
On the basis of our Biodiversity Policy, we also ensure that relevant agendas are formally integrated into our processes. The targets defined in the policy are to be achieved by 2030 and include the implementation of specific, more accurate data to identify companies that pose biodiversity risks, as well as engagement and voting to support the according improvements. Companies associated with global deforestation issues could be part of the focus list, as could be those with high biodiversity or water risks.
Stewardship policy
We are committed to act as responsible stewards of the assets we manage and take accountability for our actions. By integrating sustainability into our investment strategies, we want to promote corporate responsible behavior to contribute to a positive social and environmental impact. Our stewardship policy describes the scope of our responsible investment practices and the processes in place to foster sustainable performance, with active ownership at the heart of our strategy.
Impact measurement of ESG funds
Part of our integrated investment approach is also the intention to create, in addition to financial returns, a measurable positive impact on the environment or society.
For our ESG funds, we present the degree of impact by measuring several parameters:
- Carbon footprint
- Water footprint
- Contributing to the Sustainable Development Goals (SDGs)
These data are provided in the appendix of each ESG fund's annual report.
We prepare individual IMPACT reports for funds categorized according to Article 9 of the Disclosure Regulation.
CO2 risks in the mutual funds of Erste AM
Erste Asset Management was the first investment company in Austria to sign the Montréal Carbon Pledge in 2015. This international investor initiative was created at the end of 2014 with the goal of contributing to a long-term reduction in greenhouse emissions by
measuring and reporting the CO2 emissions of the companies held in equity funds. In the meantime, this initiative has grown to more than 120 investors managing more than USD 10,000bn worth of assets.
Since the first publication of the CO2 emissions associated with the mutual equity funds of Erste Asset Management in 2017, the CO2 risks have been cut continuously. This is on the one hand due company-wide integration of ESG information across the entire fund range. On the other hand, Erste Asset Management decided as early as 2016 not to invest in coal anymore as part of its coal policy.
Calculation of the CO2 risks in the mutual fixed income funds
For its holdings of end-of-2018, Erste Asset Management expanded the calculation of the CO2 risks across the entire range of mutual funds for the first time. This means that since then and beyond the specification of the Montréal Pledge, bond funds have been taken into account in the model.
The result of CO2 emissions of all bond mutual funds of Erste Asset Management was 63.6%. Considering only ESG bond funds, the CO2 emissions amounted to 59.7%.
At the individual fund level, ERSTE ETHIK ANLEIHEN (16.1%), ERSTE RESPONSIBLE RESERVE (31.0%) and ERSTE RESPONSIBLE BOND (31.7%) performed particularly well.
As part of the Montréal Carbon Pledge, Erste Asset Management has reported the cumulative CO2 footprint of its mutual equity funds for six consecutive years. The result, which takes into account both ESG funds and traditional funds, was yet again a convincing one in comparison with the global equity market: the CO2 intensity of the EAM equity funds in the sample was more than 44% below that of the global equity market.
Mutual equity funds, better than the global equity market
The results for equity funds of Erste Asset Management, which have been published for six years and running, were again convincing. The CO2 intensity of the EAM equity funds is below that of the global equity market, and when taking into account only ESG equity funds, 55% of emissions of global market.
The detailed analysis at individual fund level shows very good results for ERSTE RESPONSIBLE STOCK EUROPE (27.2%), ERSTE RESPONSIBLE STOCK GLOBAL (37.9%) and ERSTE RESPONSIBLE STOCK AMERICA (39.6%).
What does CO2 intensity mean?
There are many different ways of calculating the CO2 footprint. EAM calculates the footprint of its funds on the basis of the weighted CO2 intensity of the companies held in the fund. To this end, at first our research partners establish the greenhouse emissions of the companies held by our funds. They may have been caused directly by the companies (scope 1 emissions) or indirectly by the way energy, heat or similar are used (scope 2 emissions). In order to facilitate comparison across companies of different sizes, the emission values are standardised on the basis of the respective company sales. On the level of individual companies, the CO2 intensity therefore indicates how many tonnes of CO2 were emitted per million currency units of sales. In a second step, the CO2 intensities of the individual companies are aggregated to a weighted average. On the level of funds, the weighted CO2 intensity shows how high the exposure to CO2-intensive companies is by comparison to other funds.
In establishing the footprint of EAM, we then calculated a weighted average across those mutual equity funds whose individual shares had sufficient CO2 data available.
What relevance do CO2 risks have for investors?
We have seen that the accelerating progress of climate warming entails more restrictive measures and regulatory frameworks in connection with greenhouse emissions. The taxation of such emissions will affect those companies in particular that have not sufficiently redesigned their production processes within their sector. Therefore, it would appear important to monitor their CO2 intensity also from an economic point of view.
On the occasion of World Water Day on March 22, 2017, Erste Asset Management published the water footprint for its sustainable equity funds for the first time. This year, the water footprint of the sustainable bond funds will also be published for the first time. This is another important step in encouraging companies to publish water data. This year's publication revealed data coverage of around 74% of the companies in the equity funds. In 2017, by comparison, not even half of all companies published their water data. In the case of bond funds, on the other hand, data coverage in 2024 is just under 38%.*
*Sources: Bloomberg, MSCI-ESG, calculations by Erste Asset Management; water and sales data for FYs 2015-2023.
Taking into account water risks in the investment decision
The selection of companies in the sustainable funds of Erste Asset Management that is geared towards the more responsible use of water is bearing results: ESG funds managed by Erste Asset Management paint a more favourable picture than the global equity and bond market both from a holistic perspective and when focusing on the risk regions.
ANALYSIS WATER FOOTPRINT
global equity market vs. ESG equity funds
ANALYSIS WATER FOOTPRINT
global bond market vs. sustainable bond funds
This is due to a comprehensive ESG analysis. In order to reduce water risks, the sustainability analysts of Erste Asset Management take into account the management and regional distribution of water withdrawal in the valuation of the company. For the ESG rating, data on the degree to which a company is active in arid risk areas and depends on large volumes of water withdrawal there also enters the model, as does the question of what measures have been taken to improve the use of water towards a more sustainable process.
In establishing the average water intensity of the companies held by the funds, we use the water withdrawal as published by the respective companies as key ratio. Water intensity measures water consumption in cubic meters per thousand U.S. dollars of sales revenue.
IMPACT reports
IMPACT investing must also bring a measurable positive impact on the environment or society. In the IMPACT reports, you can find a calculation of how a specific fund contributes to the improvement of individual parameters in the areas of sustainability, as well as to the UN's sustainable development goals.
Sustainable Development Goals (SDGs) reports
The ‘Sustainable Development Goals’ are a global call to fight poverty, protect the planet and improve living conditions and prospects for all people. The 17 goals were adopted by all UN member states in 2015 as part of the Agenda 2023 for Sustainable Development’, which sets out a 15-year plan to achieve the goals.
The 17 SDGs are interlinked - meaning this reflects the fact that actions in one area have an impact on outcomes in other areas and that development must achieve a balance between social, economic and environmental sustainability.
Erste Asset Management GmbH (EAM) supports the Sustainable Development Goals of the United Nations. Consequently, EAM analyses and illustrates the contribution of the companies included in the funds managed by EAM to these goals. Thus, we are accountable and intend to encourage companies to behave in a more sustainable way and contribute to these goals. This is in line with Erste Group Bank AG's commitment under the Green Consumption Pledge, an initiative of the European Commission's Consumer Agenda to promote climate action and build a greener Europe. Currently, the investment strategies of the investment funds managed by EAM are not explicitly aligned with one or more SDGs. The regular SDG reporting therefore does not address individual investment strategies, but currently only contains standardised statements.
Sustainable investments are intended to make a positive contribution to the SDGs. By taking sustainability criteria into account, companies whose economic activities positively affect the achievement of the SDGs are given preference, while negative sustainability impacts are minimized. However, certain economic activities and sectors show an overall negative contribution to the SDGs. This is also evident for investment funds that invest specifically in such sectors due to their underlying investment strategy.
How are SDG contributions calculated?
EAM calculates the SDG contributions of each company invested in the respective investment fund. The calculations are based on the revenue shares of all activities of the companies included in the investment fund that make a positive and/or negative contribution to the 17 SDGs. Since certain activities can contribute to more than one SDG, overlaps and double counting are possible. The focus on companies means that little to no information is available for bond funds that invest predominantly in government bonds. Investments in government bonds are therefore currently not considered in the calculation of SDG contributions.
Based on the calculated SDG contribution of each issuer and its relative portfolio weight, the overall SDG contribution is calculated. The largest contributors to the Sustainable Development Goals are identified.
The data used to calculate the SDG contributions is collected and regularly updated by the external data provider ISS ESG.
Standardised reporting on the SDGs is conducted on a regular basis for the following funds:
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IMPACT investing must also bring a measurable positive impact on the environment or society. In the IMPACT reports, you can find a calculation of how a specific fund contributes to the improvement of individual parameters in the areas of sustainability, as well as to the UN's sustainable development goals.
Cooperation and certifications of funds
In order to guarantee the high quality of our sustainable investment process and expand our market leadership, we cooperate closely with a number of partners that specialise in sustainability.
We complement our in-house research with an external perspective, and thus achieve a higher degree of objectivity and increase the effectiveness of our engagement.
To us, sustainability is a process that has to be continuously developed. We are therefore also members in a number of forums and associations that promote and research sustainability.
Certifications of ESG funds / Cooperation
Ecolabel
The Austrian Ecolabel verifies sustainable financial products regarding environmental and ethical/social aspects. Selection criteria are well defined and verified by external auditors. Funds awarded with the Austrian Ecolabel provide the required information according to the transparency guidelines of the European Sustainable and Responsible Investment Forum.
FNG Label
The FNG Label is the quality standard for sustainable investments in German-speaking countries.
Information about ESG funds
Cooperation
ESG Plus evaluates the sustainability of companies and states according to criteria of well-known organizations such as the WWF and the Federal Environment Agency. In addition, the impacts of theme funds are calculated.
On behalf of Erste Asset Management and other investors, Sustainalytics communicates with companies in order to highlight sustainability issues and to promote sustainability in these companies.
ISS (Institutional Shareholder Services) bundles all documents of Annual General Meetings and extraordinary shareholder meetings for Erste Asset Management. In this area the company is market leader.
ISS ESG, the Responsible Investment division of Institutional Shareholder Services Inc., is one the world’s leading providers of environmental, social, and governance solutions for asset owners, asset managers, hedge funds, and asset servicing providers. Amongst other responsible investment solutions, ISS ESG also provides corporate and country ESG research and ratings and supports its clients to identify material social and environmental risks and opportunities including through advisory services. For more information, visit:
MSCI ESG provides insights into ESG risks and opportunities of companies and countries.
The Principles for Responsible Investment (PRI) of the United Nations form the basis of our sustainable investment at Erste Asset Management.
As signatory of said PRI, we adhere to the following six principles in our investment policy in Erste Asset Management:
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.