ÖKOWORLD ÖKOVISION CLASSIC THE TRADITIONAL SUSTAINABILITY FUND

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1 ÖKOWORLD ÖKOVISION CLASSIC THE TRADITIONAL SUSTAINABILITY FUND S P R I N G THE SIGNIFICANCE OF CLIMATE PROTECTION FOR THE ÖKOWORLD OR ÖKOWORLD S POSITION ON CLIMATE PROTECTION INVESTMENT STRATEGIES The ÖKOWORLD ÖKOVISION CLASSIC investment fund is one of the oldest Sustainability Funds in the Germanspeaking region. From its beginnings in 1996, ÖKOVISION has transposed its vision of a sustainable and equitable economy and society into a successful investment strategy and is to this day the sustainable fund with the most stringent investment criteria. The creation of sustainability funds by traditional banks and investment companies has been a relatively slow and late reaction to the increased significance of sustainability in politics, economy and society. When ÖKOVISION was established more than 20 years ago, its objective was to take sustainable development forward through investment in sustainable companies. Therefore, dealing with topics such as climate change is not new ground for ÖKOVISION, but is something the fund has been practicing since its inception. When it comes to the evaluation of companies suitability for investment, climate effects have always been at the core and will continue to play a crucial role. An independent investment committee evaluates and selects the companies for the investment universe of ÖKOVISION. The committee examines each company using a set of pre-determined criteria, which are also publicly available. Experts with backgrounds in environmental, human rights and consumer protection organisations as well as experts in environmental and socially responsible economics form the committee. The portfolio managers for ÖKOVISION are only allowed to invest in companies after a positive assessment by the committee. Aside from the ÖKOVISION fund, the fund management company ÖKOWORLD manages further funds, all of them sustainable investment funds. THE OBJECTIVE Page 1 of 5 At the climate change conference in Paris 2015, governments committed to keeping the increase in global temperature at 2 degrees or below. This can only be achieved through a decarbonisation of the global economy, aimed at drastically reducing the emission of climate damaging greenhouse gases, in particular CO2. This in turn requires companies to implement a decarbonisation strategy and investors to redirect capital flows towards more sustaina-

2 ble investments. Already ahead of the Paris conference, some investors were divesting in response to civil-society movements, now, financial markets will start to play a larger role. Climate change is turning into a new risk class and investors will be more accountable for their investment decisions. After all, it is the investor s choice whether to invest in companies which contribute to the protection of the climate or to place their money in those companies that cause climate change or might even benefit from it. POTENTIAL INVESTOR STRATEGIES REGARDING CLIMATE PROTECTION AND THE POSITION OF ÖKOWORLD ÖKOVISION CLASSIC What do the commitments made in Paris and the new for now mainly theoretical considerations and consequences for the financial markets mean for funds like ÖKOVISION? There are currently several strategies being discussed amongst investors that could be considered as future requirements by regulatory authorities. 1. AVOID DIVESTMENT FROM FOSSILE ENERGY OR BETTER NO INVESTMENT AT ALL This strategy is an appeal to those investors that currently hold assets in fossil energy companies, to reduce and sell their holdings, e.g. in the energy sector. In Germany and other European countries, several major investors have already announced that they will no longer undertake new investments in the coal industry. A first step on a long journey towards complete denial of capital for such companies. ÖKOVISION is years ahead of not just those investors. Since the inception of the fund in 1996, fossil energy has been one of the exclusion criteria, meaning that the fund at no time undertook any investment in the coal or oil sector. The fund took the strategy beyond divestment by never investing in the first place. Therefore, ÖKOVISION has been a pioneer of this divestment strategy and is not taking action belatedly as a result of the discussions surrounding climate policies in Paris. The strategy of ÖKOVISION can be best described as taking an avoid approach, which permanently excludes investments in fossil energy. Companies that are actively pursuing strategic change in their business activities by withdrawing from fossil energy, can, after thorough analysis and with constant monitoring of progress, be considered for possible investment by ÖKOVISION. 2. HEDGE INVESTMENTS IN FUTURE WINNERS AND GREEN INVESTMENTS Page 2 of 5 As and when the climate policy commitments become law, investors face the consequences and may be held accountable for their investments in companies with a CO2-intensive business model. At that time, alternative investment options will be required.

3 This alternative comprises companies that facilitate a low carbon economy through their products and services and are therefore considered as potential economic winners. Investments in renewable energy or environmental projects, which are often referred to as green investments also fall under this category. The approach of this strategy is that such investments serve as a hedge by complementing the traditional business and to mitigate overall investment risk. ÖKOVISION is again ahead of other investors and regulators because it has since the inception of the fund already incorporated this strategy through the establishment of so-called positive criteria. These criteria assess whether a company s products, processes or services are environmentally and socially friendly and whether companies can be considered as pioneers in their field. Aside from companies in the renewable energy sector, a variety of companies with products and services that focus on energy efficiency and therefore contribute to the reduction of the CO2 footprint of economy and society are suitable for ÖKOVISION. Often, these companies are not very well-known, yet their products and services offer a multitude of CO2-reduction possibilities and therefore represent opportunities rather than risks. Aside from manufacturers of technical components, companies in the public transport, information and communication sectors or sustainable building also fall under this scope. In total, after applying all criteria, only around 300 companies currently qualify for investment by ÖKOVISION. By considering the potential of a company s products and services to reduce emissions, ÖKOVISION is going above and beyond the conventional approaches to assess companies. Many investors today exclusively look at the so-called Scope 1 and Scope 2 emissions of a company, which are analysed by the company itself as part of its data collection processes. Scope 1 comprises all direct greenhouse gas emissions from energy sources that the company is using itself or are owned by the company, whilst Scope 2 emissions are classified as indirect emissions resulting from the consumption of purchased energy. Merely looking at Scope 1 and 2 can lead to a skewed assessment of a company s CO2 intensity. This is for example the case with companies that have outsourced a large part of the production process including the resource and energy consumption into their supply chain. As such, there is no accountability for those emissions by the reporting company, even though it is directly responsible for them. Banks present a similar picture: through investment and credit, banks assist companies in generating emissions. Also in this case, there is no accountability for those emissions by the banks, therefore banks are presented as a very low little CO2 intensity. Page 3 of 5 On the other hand, the potential to reduce emissions through the use of certain products sold to customers is also not being included in the calculations of Scope 1 and 2. When electricity is purchased from renewable energy sources, the CO2 emissions usually resulting from the production of electricity from fossil energy do not arise. A solar manufacturer or wind power plants therefore at the same time contribute to savings in emissions whilst its products are being used. On the contrary, vehicles with combustion engines will always produce emissions during their life cycle, which is why a car manufacturer should at least cover those emissions in its reporting, even if it is an estimate.

4 In order to assess such effects such properly, the concept of so-called Scope 3 emissions was introduced, which includes a broader range of indirect emissions. However, up until today, only few companies report on those Scope 3 emissions. Therefore, it is difficult for ÖKOVISION to consider such emissions as part of its decisions. Qualitative considerations surrounding those emissions, however, are part of the decision process. ÖKOVISION is also a pioneer in this area. ÖKOWORLD is an investor signatory to CDP (formerly Carbon Disclosure Project), which requires companies to have a system for assessing and to report on their greenhouse gas emissions. Without CDP, the number of companies reporting on this topic would be much lower. Reporting to CDP is a criterion for the selection of companies. 3. ENGAGE DIALOGUE AND INFLUENCE The engagement strategy expects investors as co-owners of a company to exert positive influence on companies with regards to climate change. Such action presumes that investors continue to hold shares in companies with high CO2 intensity. Even then, only gradual improvements can be expected, since a serious engagement with the background of decarbonisation would require these companies to fully withdraw from their CO2-intensive business models, e.g. an oil company to fully withdraw from the oil business. The companies that ÖKOVISION invests in are pioneers in their field that have not only today but in many cases for several years implemented successful measures to increase energy efficiency. Products and services of these companies are part of the solution. Nonetheless, ÖKOVISION at times also engages with the companies it invests in, in order to draw their attention to negative developments or to reinforce positive trends. As investor signatory, ÖKOWORLD supports CDP s demands requesting companies to systematically disclose all their greenhouse gas emissions. ÖKOWORLD also calls on companies to perform an analysis and critical assessment of all their emissions including Scope MEASURE Investors should in future also measure and publish the footprint of their portfolios. In practice, this means that an investor holding 1% of shares in a company is also accountable for 1% of the greenhouse gas emissions produced by that company. After all, the investor receives part of the company s profits. Page 4 of 5 Such measurement is important because it is the only possibility to show which greenhouse gas emissions are actually behind each portfolio. However, the possibility for a realistic assessment of all emissions in a portfolio is not yet given, as long as companies do not report on their Scope 3 emissions.

5 Despite these difficulties, ÖKOVISION is committed to measuring and publishing the CO2 footprint of its portfolio. Nonetheless, specific objectives to reduce the footprint are not currently sensible due to the lack of data mentioned above. In 2015, the consumer organisation in Bremen, Germany, with support of South Pole Group conducted a study on the CO2 footprints of investment funds using the companies in the MSCI Index as a comparison tool. The result of their analysis showed that the portfolio of ÖKOVISION has a significantly lower footprint than the index: per 100 Euros invested, CO2 emissions amount to only 24% of those of the index. This showed that ÖKOVISION s approach avoiding companies in the fossil energy sector and to instead focus on companies, that are part of the solution, is an effective strategy for reducing the CO2 footprint significantly. When reporting on Scope 3 emissions by companies has increased, it is expected that the positive effects will be even more prominent in ÖKOVISION s footprint. For some investors, the inclusion of external costs and the compensation of CO2 emissions will be part of their future strategy. A methodology for the monetarisation of emissions is therefore urgently required. Since ÖKOVISION does not invest in companies with high CO2 intensity, this approach is not being pursued further. 5. COMMUNICATE TALK ABOUT IT! Investors should in future report about their objectives and efforts. ÖKOVISION makes its position about specific challenges as part of the social and ecological evaluation of companies available to interested parties not only starting this year, but already since the fund s inception. Furthermore, ÖKOVISION takes comments from investors and the public seriously and gives an insight into its processes and methodologies by publishing a commentary about difficult or interesting decisions in its annual report. ÖKOVISION remains committed to the publication of the CO2 footprint of its portfolio as part of its annual report. This allows investors to make a direct comparison with other investment products, even though the exact method is not yet fully complete and investors are recommended to consider this carefully when conducting a comparison. Page 5 of 5 ÖKOWORLD LUX S.A. - Repräsentanz GmbH Itterpark Hilden Düsseldorf T F info@oekoworld.com