Purpose

EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector, known as the Sustainable Finance Disclosure Regulation (the “SFDR”), requires that financial services operators, including alternative investment fund managers like Frere Hall Capital Management (Malta) Ltd (the "Company"), make available:

• (i) information about their policies on the integration of sustainability risks in their investment decision-making process; and
  
  
• (ii) information concerning the applicability and nature of any assessments carried out with regards to the adverse impacts of investment decisions on sustainability factors.

The SFDR defines:

sustainability risk as an environmental, social or governance (“ESG”) event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.

sustainability factors as environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.

The Company recognises the increasing importance of environmental, social, and corporate governance (“ESG”) matters and their potential value creation within a business decision context. The opportunities, however, to extend the application of ESG considerations to portfolio investment decisions are, at best, limited.

The primary reason for this is because the investment products being traded are not investments in companies (equity or borrowing/lending). Thus, the investment strategy presents no opportunity to engage, or disengage, with other firms via the investment program for the purpose of promoting ESG considerations.

The relevance of ESG criteria, and sustainability risks in particular, to the investment strategy applied by the Company are set out below.

Investment Strategy

The Company implements a discretionary fundamentally-driven global commodities strategy across all of its portfolio management mandates. The investment program is:

• (i) focused on energy markets with the largest exposures being to oil (crude and product) markets;
  
  
• (ii) executed via exposures to exchange traded derivatives with most of the risk typically held in tenors of less than 12 months and rarely exceeding 24 months; and
  
  
• (iii) composed mostly of relative value positions (calendar spreads, product spreads) wherein potential investment returns are generated from relative mis-pricings rather than the direction of outright prices.

The Company does not promote its investment strategy as having any environmental or social characteristics.

Sustainability risks

The energy focused investment strategy of the Company can, from an ESG perspective, be linked mostly with matters related to the environment. In this regard, the climate change phenomena that have become more visible in recent history have resulted in greater social and governmental awareness that measures have to be taken in order to try to limit the impact of climate change. This has resulted in various initiatives designed to limit, in particular, the amount of carbon dioxide emissions through a combination of improved energy efficiency and the use of alternative forms of energy sources which have a lower or no carbon footprint. The latter measures, which can be grouped under the ‘energy transition’ heading, are designed to result in lower consumption of traditional fuel sources. In addition, the activities of corporates are increasingly reviewed and assessed against ESG criteria.

Whilst the increased ESG awareness can and will over time lead to changes in energy market structures, the Manager does not anticipate that such changes will have any significant impact on the value of investments within the time horizon of the investment program. In arriving at this determination the Manager has considered the following factors:

• (i) The investment program is implemented via ‘generic’ exposures that do not have any links with:
  
  - specific companies
  - specific countries (so, for example, there are no potential claims of abuse of the exploration rights);


• (ii) The typical time horizon of an investment theme is 3 to 6 months whilst the energy transition is a multi-year process with changes in the sourcing of energy expected to take place in incremental steps;


• (iii) The investment strategy, with its focus on pricing relationships across time and products, has no pre-established policy preference with regards to the energy complex. The investment strategy includes both long and short positions, which at times will overlap with what otherwise may be considered positive sustainability criteria, whereas at other times, there may be periods where the alignment is in the opposite manner. Any assessment that sustainability criteria are being actively referenced within the investment strategy is not warranted nor is it intended.

Conclusion: For the reasons set out above, the Company assesses that it does not integrate sustainability risks into the investment decision-making process. Accordingly, the Company:

• (i) shall make website disclosures as per the provision set out in Article 4(b) of the SFDR (i.e. the ‘explain’ basis);


• (ii) shall, as required by Article 6(1) of the SFDR, disclose the outcome of this assessment in pre-contractual documentation (in the Fund Private Placement Memorandum or an addendum thereto); and


• (iii) shall not, given the absence of any sustainability risk considerations, include any provisions related to sustainability risk within
  
  - the Remuneration Policy; and
  - the Risk Management Policy.