Sustainability-related Disclosures for Art-Invest Real Estate Funds GmbH

Sustainability-related Disclosure Obligations in accordance with the Disclosure Regulation

Art-Invest Real Estate Funds GmbH (“Art-Invest”), acting in its capacity as the Capital Management Company (KVG) for Art-Invest Real Estate, launches open and closed-ended real estate investment vehicles for its investors and is therefore within the scope of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector („Offenlegungsverordnung”/”OffenlegungsVO“/”Disclosure Regulation”).

Strategies for incorporating sustainability risks into the investment decision-making process

Sustainability risks within the meaning of the Disclosure Regulation are environmental, social or governance events or conditions whose occurrence could have an actual or potential material adverse effect on the value of the investments.

Art-Invest considers the following material sustainability risks as part of its investment selection processes:

• Physical environmental risks: Property risks arising from environmental, natural and climatic influences, e.g. damage, destruction or restriction of use of assets as a result of severe weather (e.g. heavy rain, storms, hail) or natural disasters (e.g. heat, fires, drought).
• Environmental transition risks: Risks that may arise in the context of political and legal adjustments and changes to avoid adverse effects on the environment, e.g. difficulties in letting or resale of properties that no longer fulfil current energy efficiency requirements.
• Social risks: Risks associated with socially unacceptable or critical business activities of business partners and tenants, e.g. inadequate employee health protection, violations of human and labour rights or involvement in the sale and manufacture of prohibited weapons.
• Corporate governance risks: Risks associated with collaboration with business partners and tenants who do not have established corporate governance standards, e.g. lack of codes of conduct, action to fight corruption and illegal employment or non-compliance with tax regulations.

These sustainability risks potentially have an impact on the net asset value or financial performance of the property investment vehicles. Physical environmental risks can lead to a loss in property value. Transition risks can lead to significant costs for the investment vehicles (e.g. for structural modifications for improving energy efficiency or increasing energy costs), to losses in value (e.g. due to limited usability or lower tenant demand) and, to illiquidity due to limited or no demand at the time of the intended sale. Social and corporate governance risks can, for example, lead to claims for damages, the loss of permissions, fines and reputational damage in the market for property investment vehicles. Sustainability risks can therefore have a significant impact on all known risk types and contribute as a factor to the materiality of these risk types. Examples of risk types include market risk, liquidity risk, counterparty risk and operational risk.

Sustainability risks are reviewed and evaluated by Art-Invest as part of the investment decision-making process and taken into consideration in the investment decision. Furthermore, sustainability risks are considered on an ongoing basis as part of the risk management process.

Art-Invest applies the following procedures for the management of property investment vehicles:

• Art-Invest analyses the extent a property has been affected by natural hazards (such as flooding, storms, hail or heat) in the past or is affected currently. In addition, forecasts are used to derive the potential risk in the future. Each property of the property investment vehicles and the property portfolio of the property investment vehicles is assigned a key figure for natural hazards for the present and the future. In new construction, by creating resilient buildings, Art-Invest considers the site-related physical risks and takes out insurance policies to cover damage to existing properties.
• Art-Invest uses various methods and tools to determine the decarbonisation level of the real estate investment vehicles’ properties and the associated risk of stranded assets. This involves using the CRREM (Carbon Risk Real Estate Monitor) tool, for example, which indicates the point at which properties in the property investment vehicles can expect market discounts as they no longer meet market requirements in terms of sustainability. Additionally, Art-Invest strives to provide sustainability-related data from its real estate investment portfolio to GRESB (Global Real Estate Sustainability Benchmark) or a comparable entity. In return, Art-Invest receives a rating from GRESB or the alternative provider that assesses the sustainability of Art-Invest’s property portfolio in comparison to the portfolios of other participants. This process aids in benchmarking and improving the sustainability performance of their investments.
• Art-Invest has established a green lease standard, which is implemented to the greatest extent possible into the negotiation process for new leases and amendments to existing leases pertaining to the properties within the real estate investment portfolio. In the residential property sector, various tenant protection regulations (incl. data privacy) must be respected in this context, making lettings possible without the green lease standard. Among other elements, an integral component of the Green Lease Standard includes the supply of tenants’ energy consumption data. They serve as a basis and for the classification and comparability of the properties of the real estate investment vehicles regarding energy efficiency and decarbonisation. If current consumption data is not available, it is estimated by reference to the energy consumption certificate.
• By considering the primary adverse effects on sustainability factors (see below), environmental transition risks associated with the properties within the real estate investment portfolio are effectively identified, quantified, and managed. Art-Invest verifies properties of real estate investment vehicles for the primary purpose of extracting, storing, transporting or producing fossil fuels and excludes such investments in advance. Individual cases of investments in real estate that have a different main purpose and that also serve the extraction, storage, transport or production of fossil fuels to a lesser extent are permitted. Art-Invest monitors energy efficiency and energy consumption as key indicators for evaluating transition related risks. Contributing to this are the agreement of the green lease standard and the use of smart building technologies and cloud-based building automation in suitable properties.
• During the acquisition process for new properties for the property investment vehicles, Art-Invest analyses sustainability risks from a technical, legal and ESG perspective as part of the due diligence process, incorporating these factors into the corresponding purchase proposal and including them in the investment decision.
• As required, Art-Invest verifies the properties of the property investment vehicles to determine whether green building certification exists or can be achieved. In this sustainability risks and other sustainability aspects are included in this review.
• Art-Invest obliges its business partners to comply with applicable law as part of its Code of Conduct, combating corruption and bribery, refraining from committing offences that damage assets at the expense of public authorities (e.g. illegal employment, money laundering or tax evasion), protection of human and labour rights, combating discrimination, ensuring healthy and hazard-free working conditions and environmental protection. In accordance with the Code of Conduct, Art-Invest’s business partners ensure the implementation of the principles by their employees, strive for compliance with the principles by their own business partners and support the company in clarifying the facts in an event of suspected violations.
• Art-Invest complies with the rules of conduct of the BVI (“Bundesverband Investment und Asset Management e.V.” ) in it’s version of 1 July 2019, assumes responsibility in ecological and social issues and strives for good corporate governance.
• In November 2020, Art-Invest signed the Principles for Responsible Investment (PRI), recognized standards for sustainability. Within this framework, they incorporate ESG aspects into investment analysis and decision-making processes.

Sustainability risks can be evaluated both qualitatively and quantitatively. The quantitative assessment of these risks is largely dependent on the availability of relevant information and data. As part of its regulatory obligations, Art-Invest takes reasonable efforts to ensure the quality and completeness of information and data on sustainability risks.

Declaration on the Principal Adverse Impacts of Investment Decisions on Sustainability Factors

In its investment decisions, Art-Invest Real Estate Funds GmbH considers material negative impacts on sustainability factors and takes into account environmental, social and employee concerns, respect for human rights and combating corruption and bribery and has established internal strategies to this end.

The most important adverse effects on sustainability factors are presented in the document available for download:

Art-Invest-PAI-Erklaerung-2023-30-06-24.pdf

Guidelines on exercising voting rights

The obligation to present the shareholding policy in accordance with Article 3g of Directive 2007/36/EC (also known as the ‘Shareholders’ Rights Directive’) is not applicable to the Art-Invest Real. Art-Invest does not invest in publicly listed companies as part of their business model whose shares are admitted for trading on a regulated market in the European Union.

Incorporation of Sustainability Risks into Remuneration Policy

Art-Invest’s remuneration policy incorporates sustainability risks. It does not include any incentives to take sustainability risks for Art-Invest or its managed property investment vehicles. Meeting or exceeding personal or company targets, including any sustainability targets, may result in an increase in bonus payments. Vice versa, failure to achieve personal goals can have both financial and non-financial consequences on the employee.

Modification history