SFDR ESG Information Statement
Lodge Quai Group ("LQ")
On Website Disclosures Obligations under Articles 3, 4 and 5 of the EU Sustainability Disclosures Regulation
For the purposes of the EU Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment, prospective investors are hereby informed that the investments underlying the LQ funds do not necessarily take into account the EU criteria for environmentally sustainable economic activities.
The Sustainability Disclosures Regulation seeks to (i) establish a harmonised approach in respect of sustainability-related disclosures made by financial market participants to investors within the European Union's financial services sector and (ii) to achieve more transparency regarding how financial market participants integrate sustainability risks into their investment decisions and the consideration of adverse sustainability impacts into the investment process. Financial market participants include UCITS, AIFMs, investment firms and management companies, and self-managed alternative investment funds such as LQ funds.
Transparency of sustainability risk policies
(Article 3 of the Sustainability Disclosures Regulation)
Lodge Quai views responsible investing, or the incorporation of environmental, social, and governance (“ESG”) factors into investment and management decisions as:
an important investment goal;
an indicator of financial performance; and
a method of risk management.
We believe that ESG risks can affect the performance of investment portfolios, to varying degrees depending on the factors such as the asset-type and sector, over time. Investments which meet ESG standards are in principle less likely to be adversely affected by negative ESG events and are more likely to produce consistent and sustainable returns over time.
In addition to the role of ESG in investment performance, the Fund’s integration of ESG factors into our investment decision-making process is designed to ensure that the Fund is managed responsibly and that ESG risk is appropriately considered.
LQ Net Lease funds primarily invest in real estate assets, with the specific strategy of investing in corporate net-lease properties. Therefore, our consideration of ESG factors is predominantly focused on environmental issues regarding our investment properties, while social and governance issues are less relevant than they would be to a collective investment fund investing, for example, in stocks and shares. The real estate assets which our funds acquire are subject to local environmental regulations and as a result, we are conscious of environmental risks associated with current as well as prior use of the real estate.
Our analysis of potential environmental and sustainability risks begins before the acquisition of an asset and is evident throughout the acquisition process.
During the acquisition phase, we follow our standard underwriting due diligence procedures which include the following:
Initial Environmental Site Assessments: We engage an independent environmental advisory firm which is qualified to perform a Phase I environmental site assessment to identify any environmental conditions or contaminations affecting the property. This includes the visual inspection of the property site, assessment of general property operations, review of historical soil data to determine the existence of contaminations or releases of hazardous substances. As part of this process, regulatory records and databases will be reviewed for any indication of environmental conditions or liabilities affecting the property. Where we have identified environmental risks, we seek to address these through additional environmental testing in the form of a Phase II environmental assessment prior to making any investment.
Seller and Tenant Interviews: We conduct interviews with representatives of the seller and personnel at the site to understand the current and past usage as well as physical characteristics of the property. We further seek to understand the tenant’s own ESG policy.
Technical Site Assessments: We engage an independent advisor to conduct a technical property condition assessment that includes information regarding sustainability practices as well as compliance with local safety standards.
Indemnification Through the Tenant: In all situations, we require the tenant to indemnify us as the Landlord against any environmental liability, foreseeable and unforeseeable, directly or indirectly arising out of the use of any hazardous materials at the site or contiguous sites prior to or during the term of the lease agreement and including (but not limited to) all matters disclosed in environmental reports.
Insurance: To prepare for any unforeseen damages to the property or the tenant’s business, including climate-related natural disasters, we often require our tenants to carry a variety of insurance covers, including fire and flood as well as other extended coverage where appropriate given the relative risk of loss, geographic location, and industry best practices.
No consideration of sustainability adverse impacts
(Article 4 of the Sustainability Disclosures Regulation)
We do not currently consider the principal adverse impacts of our investment decisions on sustainability factors in the manner set out in article 4 of the Sustainability Disclosures Regulation, which relates to adverse impacts on items such as greenhouse gas emissions, biodiversity, water, waste, and social and employee matters.
While we integrate sustainability risks into our investment process, as our investments are concentrated in the real estate sector, only some of the principal adverse sustainability factors are relevant, and information on the impact of our investment decisions on these factors is generally not readily available.
LQ Net Lease funds primarily invest in net-lease properties, most of them triple net-leases (“NNN Lease”). Under a NNN Lease, the tenant is responsible for operating the business conducted in the building subject to the lease, maintaining the asset and paying property-related expenses such as property taxes and insurance. Therefore, for assets under a NNN Lease, it is the tenant, rather than the Fund, which controls energy usage and decides when and how to implement environmentally sustainable practices at a given property. Likewise, it is the tenant which decides on social and governance matters relating to its business. While we do not control the business operations for assets under a NNN Lease, we recognize that the operation of commercial real estate has a meaningful impact on the environment and as such we aim to promote awareness and engage with tenants regarding sustainability practices and solutions. Our lease agreements ensure tenants are in compliance with local regulations and hold all necessary permits to operate the assets at all times. After acquisition, tenants have an obligation to inform us of any new environmental risks.
We have limited control over, and access to ESG data from, tenants and therefore would have difficulties in sourcing and publishing the information in relation to the adverse impacts of the Fund’s investment decisions on sustainability factors in the manner envisaged by the Sustainability Disclosures Regulation.
We will keep this decision not to consider the principal adverse impacts of investment decisions on sustainability factors under review, by reference to applicable market developments and the future availability of the requisite information.
Transparency of remuneration policies in relation to the integration of sustainability risks
(Article 5 of the Sustainability Disclosures Regulation)
LQ has adopted remuneration policies consistent with its regulatory obligations, and which are designed to: (i) promote sound and effective risk management; and (ii) discourage excessive risk taking, including, without limitation, with respect to sustainability risks. A sustainability risk is an environmental, social or governance event or condition that, if it occurs, could cause an actual or potential material negative impact on the value of an investment.
We require relevant individuals to adhere to our policy and processes regarding the integration of ESG factors. LQ may set specific ESG-related metrics for relevant individuals based on the priorities and objectives for that individual. In addition, LQ considers ESG integration as relevant to investment performance over the long term and that our remuneration structure is therefore aligned with our focus on the long term performance of our funds.
This Information Statement is issued for information purposes only.
This Information Statement is not intended as investment advice and is not an offer or a recommendation about managing or investing assets and should not be used as the basis for any investment decision.
The information contained herein is current as of the date of issuance and is subject to change without notice.
We do not make any express or implied warranties or representations as to the completeness or accuracy or accept responsibility for errors.
No risk management technique can guarantee the mitigation or elimination of risk in any market environment.
Past performance is not a guarantee or a reliable indicator of future results and an investment could lose value. All investments involve risk, including the possible loss of capital.
This disclosure is accurate as of 17th January 2023