Sustainability
Truepenny Capital Management AB has a commitment to conduct responsible capital management towards customers, employees and society. We believe that all credible investors support the development of well-functioning, sustainable financial markets and long-term market stability.
SUSTAINABILITY IN FUND MANAGEMENT
To achieve a high risk-adjusted return in our strategies, Truepenny depends on efficient financial markets. Sustainability risks are considered as part of the broader investment process, which means that ESG-related risks that may occur in our traded instruments are assessed and valued vis-à-vis other risks and investment considerations.
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Truepenny's strategies are largely model-based and the investment management mainly systematic. The strategies' exposure to equity indices, interest rates, currencies and commodities is achieved through the global futures markets.
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The portfolios therefore do not hold direct investments in individual shares or corporate bonds. The traded instruments do not give Truepenny any right to act as an active owner and exercise influence in companies or other legal entities through, for example, the use of voting rights.
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Truepenny Capital Management follows the emergence of futures for indices with ESG factors in its regulatory framework. Whenever the liquidity of such indices is judged to be sufficient to ensure good portfolio management, i.e. where Truepenny can pursue its investment philosophy without affecting the index pricing, Truepenny will be able to more deeply integrate ESG into the portfolio management without risk to the shareholders. Truepenny is also investigating how various commodity contracts can promote both governance and a green transition, for example by trading emissions rights, ethanol and electricity futures to support derivatives exchanges' development of new products.
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When trading indices, any emissions have already been attributed to companies or end-users of commodities, and as Truepenny always rolls long and short positions before maturity, we lack knowledge of how a commodity will ultimately be used, or if emissions have already been attributed to the parties that will take against the delivery.
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Truepenny Capital Management has adopted a sustainability policy that describes how we apply sustainability principles within the company and in our investment process. The policy is established by the board and reviewed annually. Truepenny's strategies do not have sustainable investments as a primary goal but believe that a sustainable global financial system is a necessity for long-term value creation.
RISK INFORMATION
Truepenny consider four primary sustainability risks that could have a material negative impact on the value of an investment/underlying asset that a fund may have exposure to:
Physical risk: Physical risk refers to changes caused by climate change, which could include heat waves, severe floods or droughts, or longer-term changes such as changes in growing seasons or rainfall patterns. These represent direct and real risks that can affect financial markets and their derivatives, perhaps especially for agricultural commodities that are particularly exposed to weather-related risks.
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Transition risk: The global transition away from dependence on fossil fuels and similar energy sources that are produced in a non-sustainable way involves several challenges. It is difficult to redirect liquidity from a current futures contract to a more sustainable one without a liquid market first established. The market participants need time to scale down their positions and introduce new instruments into their trading and clearing systems. Transition phases that are managed inefficiently can lead to increased price volatility and affect price formation negatively for both the investor and the entire real economy.
Operational risk: Sustainability risks can lead to operational disruptions in the derivatives markets. As the Covid19 pandemic showed in 2020, disruptions can manifest themselves in unexpected ways, for example with bans on short positions in markets where such have otherwise been standard.
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Geopolitical Risk/Autocratic Regime Risk: Russia's invasion of Ukraine, US-China tension and the Israel-Palestine conflict pose political and economic risks across regions. Various regional and ideological coalitions have strengthened while others have weakened, could potentially lead to changes in the balance of trade, supply chains and capital flows which could directly affect Truepenny and its investors.
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Inadequate management of ESG risks can lead to inefficiencies, operational disruptions and reputational risk for the company, which may ultimately affect our ability to execute our investment strategies. Should an incident related to any of the sustainability risks defined above occur, it could result in a noticeable negative impact on the value of an underlying asset and thus the fund's unit value (NAV).
INFORMATION ON THE EU'S TAXONOMY FOR ENVIRONMENTALLY SUSTAINABLE ACTIVITIES
The EU taxonomy is a classification system that aims to establish common criteria for environmentally sustainable economic activities. The funds have underlying investments that do not consider the EU criteria for environmentally sustainable economic activities, as described in Regulation (EU) 2020/852, also known as the Taxonomy Regulation.
COMPENSATION POLICY AND INTEGRATION OF SUSTAINABILITY
The company's remuneration policy aims to ensure that the remuneration (fixed and variable) paid to employees promotes effective risk management without encouraging excessive risk-taking. It is important to Truepenny that employees integrate ESG thinking into applicable parts of the investment process. Employees are encouraged to seek new and better ways to improve work with sustainability risks and negative effects in the investment process. Employees are also encouraged to identify new and improved ways to create ESG-friendly products and services.
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OUR ENVIRONMENTAL POLICY
In accordance with Swedish legislation, Truepenny Capital Management has a responsibility for environmental issues linked to the company's operations. The CEO is responsible for the ongoing handling of environmental issues as well as contact and communication with the company's landlord.
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The aim of the environmental work is to increase the company's and employees' environmental awareness and to reduce the company's possible negative environmental impact. Examples of measures are source sorting, recycling, reducing the company's electricity consumption and taking environmental aspects into account when purchasing foodstuffs and office supplies.
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Statement on Non-Adherence to the Principal Adverse Impacts (PAI) Framework
As a futures-based hedge fund, we are committed to operating with integrity and transparency. We recognize the importance of Environmental, Social, and Governance (ESG) factors in investment decision-making and , we strive to align our operations with the EU's Sustainable Finance Disclosure Regulation (SFDR) and the Principal Adverse Impacts (PAI) framework to the best extent possible.
Though the direct application of the PAI framework to our specific investment strategy presents challenges, we are unwavering in our support for its overarching goals. To better align our operations with these goals, we actively engage in the following practices:
ESG Integration: We assess and integrate ESG considerations into the selection process of the futures contracts we trade. This involves prioritizing contracts that are linked to indices and commodities that demonstrate both strong liquidity and sustainability. As more liquid ESG themed futures emerge, our priorities will shift towards those.
Continuous Improvement and Engagement: We are committed to ongoing engagement with ESG developments and regulatory updates. Our team regularly reviews and refines our strategies to ensure they reflect the best practices in sustainable investing, responding proactively to new insights and stakeholder expectations.
Stakeholder Collaboration: Understanding that collaboration is key to advancing ESG goals, we work with our stakeholders to enhance our collective impact on sustainability. We believe that through shared efforts and mutual accountability, we can drive meaningful change within the industry.