EU SFDR

What is the EU SFDR and Taxonomy?

Taxonomy is coming from the biology study. Taxonomy is the science of naming, describing and classifying organisms of the world.

The European Commission used this science as the first milestone to its EU Sustainable Finance Disclose Regulation (SFDR).

SFDR is a new EU regulation implemented to ensure greater transparency on sustainable investment strategies for investors. The regulation is part of the EU Commission's Action Plan on financing sustainable growth initiated in March 2018.

How did it work and what are the benefits?

The taxonomy required by the European Commission is a classification system of sustainable economic activities. In other words, it's a dictionary-style tool detailing specific business activities that are considered sustainable by the EU.

It fills two important needs: it provides us with a common language for talking about sustainability and uses objective, quantifiable criteria for assessing funds.

The Taxonomy is designed primarily to be used as a tool for sustainable investment by helping investors understand more clearly where funds stand in relation to one another.

The EU SFDR requires asset managers to provide specific firm-level disclosures regarding how they address sustainability risks and principal adverse impacts (please refer to the section on PAIs).

It also requires additional levels of disclosure, depending on the extent to which sustainability is a factor.

In line with this commitment to transparency and clear objectives, all funds are now classified into three categories based on their approach to sustainability:

• "Article 6"

Products where sustainability risks can be integrated into investment decisions, without promoting environmental or social characteristics or targeting sustainable investments.

• "Article 8"

Products promoting environmental or social characteristics. Products where sustainability remains an important and binding aspect of the investment process, but sustainable investment is not the final objective.

• "Article 9

Products where the objective is the sustainable investment.

SFDR Classification of our Strategies

Based on LIOR Global Partners' interpretation of the regulation, we have classified our strategies as follows:

Responsible Investment Policy

At LIOR GLOBAL PARTNERS (“LIOR”), we incorporate sustainability risk into our investment analysis and decision-making processes because we believe that risks related to environmental, social, and governance factors can have a material impact on investment returns. We further believe that incorporating ESG criteria is intended to add value for our clients by delivering performance in a more sustainable manner.

LIOR’s ESG policy was developed by our investment and management team and is implemented, monitored, and reviewed by our portfolio managers as described below.

How do we integrate sustainability risks into our investment activities?

A sustainability risk is an environmental, social, or governance event or condition that, if it occurs, would have a material negative impact on the value of an investment.

LIOR will rely on a well-known third-party data provider, Sustainalytics, to manage this sustainability risk. This approach is implemented during the investment process through the following steps:

• The integration of normative and sectoral exclusion.
• The application of ESG Scoring methodologies.

In particular, LIOR mitigates serious risks primarily through the regulatory and sectoral stages.
Please refer to Screening & Negative Screening section.

How do we apply screening and negative screening?

As mentioned previously, LIOR applies normative and sectorial exclusion filter. LIOR excludes companies that do not comply with its ESG policy.

• LIOR Global Partners' Exclusion Policy

How do we apply the ESG scoring methodology? 

For the scoring methodology, LIOR relies on Sustainalytics Scoring methodology. The latter consists in considering different methodologies between corporate and sovereign issuers.

ESG Risk Rating 

As part of our portfolio management process, LIOR has adopted a risk-based approach, particularly with regard to ESG, by using the Sustainalytics ESG Risk Score, which incorporates the financial materiality framework.

LIOR believes that a company’s economic value is at risk due to its ESG factors. The overall ESG risk score provided by Sustainalytics measures that risk on a scale from 0 to 100 and is grouped into five risk categories: the lower the score, the lower the risk.

These risk categories are absolute, allowing for a direct comparison between two companies in different sectors.

The ESG risk score consists of three components that contribute to a company’s overall rating:

• Idiosyncratic ESG issues: We consider that dynamic by taking into account unpredictable and unexpected events.
• Material ESG Issues: We focused on different sub factors related to given sector. It is the core and center step of Sustainalytics Methodology.
• Corporate Governance: We consider that poor Corporate Governance can lead to ESG issues.

The score is also calculated using a two-dimensional approach: the company’s exposure and management. The company exposure score informs investors about the material ESG risks the company faces, while the company management score assesses how well the company is managing those risks.
The E, S, and G pillars are derived through a linear combination of the sub-factors from the three building blocks, and the weight matrix used varies by sub-industry.
Sustainalytics covers more than 20,000 companies globally, and this number is continually growing.

Country Risk Rating

The country risk rating provided by Sustainalytics is also a score ranging from 0 to 100, where 0 indicates negligible risk and 100 indicates severe risk. The rating combines the country wealth score and the ESG factor scores to provide a more holistic view of sovereign risk.

The overall score measures a country’s national wealth—comprising natural and produced capital (NCPC), human capital (HC), and institutional capital (IC)—and its ability to utilize and manage that wealth. The aggregate score combines a wealth score with the ESG risk factors score and is defined as a weighted sum of the risk scores for the three dimensions (NCPC, HC, and IC).

We benefit from Sustainalytics’ research, which covers 170 countries.

Portfolio Scoring

As mentioned above, LIOR's portfolio scoring methodology is based on the use of overall ESG scores from Sustainalytics' research. The scoring methodology applies to cash assets (cash equity and cash bonds (sovereign and credit)). The overall portfolio score is a weighted sum of the ESG scores of the portfolio's cash assets.

How do we ensure that our remuneration policies are consistent with the integration of sustainability risks?

At LIOR, the integration of the sustainability risk throughout the management process is carried out both at the entity and at individual level:

• LIOR undertakes to donate 10% of its profit to charitable organizations
• The remuneration will be linked with the degree of consideration of sustainability risks by each PM during their investment process.

Principal Adverse Impacts

Introduction and objectives

Under Article 4 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of November 27, 2019, on sustainability-related disclosures in the financial services sector (SFDR), financial market participants shall publish on their website information on whether or not they consider Principal Adverse Impacts (“PAI”) on sustainability issues arising from their investment decisions.

Nearly all types of economic activity have the potential to affect various sustainability indicators, both positively and negatively. PAI indicators are a way to measure how issuers negatively impact sustainability factors.

The EU SFDR defines sustainability factors as environmental, social, and employee issues, respect for human rights, and anti-corruption and anti-bribery issues. PAI is generally understood to mean a negative impact—caused by an investment decision or investment advice—on these factors.

PAI consideration

LIOR Global Partners (“LIOR”) takes the PAI of investment decisions into account in a variety of ways throughout its investment processes.

Where applicable, LIOR already applies standard exclusions to industries and companies with unacceptable adverse impacts (please refer to the Exclusion Policy).

In the event that any of the securities in the portfolio are “excluded” under the LIOR’s updated Exclusion Policy after the investment in that specific security, the divestment process will apply: The targeted security will be sold within a maximum of 3 months following the discovery of the exclusion. However, this sales period may be extended in the following exceptional cases:

• If the accelerated sale could be detrimental to the interests of the investor (in the event of liquidity issues, for example).
• If the issuer of the targeted security is subject to certain sanctions that do not allow the sale of the security on the markets traditionally used and authorized by LIOR.

LIOR will gradually incorporate the assessment of adverse impacts into its due diligence processes, along with the relevant financial risks, the relevant sustainability risk indicators, and the interests of its clients.

LIOR adheres to the objectives set forth by the SFDR with regard to PAI. LIOR has chosen to defer a full assessment for the time being due to a lack of sufficient data and/or data of sufficient quality.

LIOR has decided to avoid, as much as possible, any approximations, forecasts, or proxies to compensate for the lack of sufficient data regarding adverse impacts. LIOR intends to closely monitor the industry’s position and to update its approach in due course as the situation evolves and further regulatory guidance becomes available.

At the same time, LIOR continues to regularly review the data available from our third-party data providers and the rest of the industry.

The PAI indicators

LIOR Global Partners’ PAI Statement – English Version – June 2026

LIOR Global Partners’ PAI Statement – French Version – June 2026