Euroclear announces investment in Impact Cubed

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Disclosures

Sustainability-related disclosures in accordance with EU Sustainable Finance Disclosure Regulation (“SFDR”).

1. Sustainability at Impact Cubed

Impact Cubed is a dedicated sustainability impact firm. We firmly believe that as financial market participants we have a role to play in accelerating the shift towards a more sustainable society. Our approach to integrating sustainability risks in our investment process, as well as capturing sustainability opportunities, is laid out in detail in our ESG Policy document.

2. Principal Adverse Impacts (PAIs)

Impact Cubed uses its in-house ESG data and analytics capabilities to obtain information on the complete set of PAI values for its investment universe. This includes reported as well as estimated and proxied values calculated with attention to the objectivity and transparency of the methodology used.

In the process of constructing its themed portfolio, a multi-layer approach to considering the PAIs is implemented. Violations of international norms, exposure to controversial weapons, and fossil fuels are treated as priority PAIs across all thematic baskets and result in the exclusion of the issuer from the potential investments. Other PAIs are considered according to the thematic relevance and the size of the adverse impact. For example, total emissions and energy intensity would be a highly scrutinised PAI in the manufacturing or energy sector, but less so in Software and Tech.

3. Stewardship activities

Impact Cubed undertakes collective engagement as part of its stewardship activities. Comprehensive disclosure is published in our Stewardship Code statement.

4. Reference to external standards

Impact Cubed has a strong ethos of objectivity and impartiality in the consideration of sustainability issues. In line with this, the way we process, consider, and report sustainability information is guided by recognised external standards and codes, for example the GRI for the methodologies around environmental externality metrics, or the UN SDGs and the EU Taxonomy for identifying green and brown revenues.

5. Sustainability in remuneration

Impact Cubed’s remuneration policy makes compensation dependent on the adherence to our Code of Ethics and ESG Policy, therefore being consistent with the mechanisms they mandate for integrating sustainability risks.

1. Strategic overview

At Impact Cubed, we believe understanding, measuring, and managing the impact of our investments facilitates cheaper access to capital for more sustainable companies and, with that, encourages a flourishing planet. We recognise that government policies and consumer choices influence capital movements. Still, we firmly believe that we, like all financial market participants (asset owners, asset managers, banks, and service providers), have an active role in sustainable development. All investment decisions impact society, and we strive to maximise the impact in our investment decisions to be as aggressive as possible within financial constraints and our fiduciary duties.

2. Data

To make impactful investment decisions, we need to understand both financial markets and sustainable development. We can make these decisions only by maintaining not only in-house expertise on both but in-house data too. We have spent over a decade collecting and curating corporate and country-level data power our investment frameworks. We will base our investment decisions on this in-house data work and only use externally developed ESG data to complement and supplement in-house work.

3. ESG integration

All investment decisions follow product-specific investment processes, which all have the ESG analysis as the starting point. We strive to invest in companies that have a strong link, positive or negative, to sustainable development, which means that all positions are verified to have an overall positive impact contribution on the portfolio. All investment decisions go through fundamental financial research steps to ensure all potential investments' risk and return characteristics. All of the investment-specific work is further optimised in portfolio construction and then verified in ex-post risk and impact analysis, an overview of which is made available to our clients.

4. External validation

We publish periodic impact reports of all the mandates following the standard Impact Cubed reports. Within the scope of the EU sustainable finance directive, ALL mandates in our direct control are classified as Article 9 compliant.

5. Transparency

We provide periodic reports (monthly & annual) and on-demand reports on our portfolios' financial return, risk, and sustainable development impact. Sustainable development impact reporting provides quantitative measurement of objective, observable outcomes and involves a holistic disclosure of a portfolio's positive and negative impacts. The methodology and data used in this assessment are fully transparent and available for review by clients.

6. Governance and remuneration

Impact Cubed Investments is majority employee-owned, making all employees aligned with the mission of Impact Cubed.

Impact Cubed has reviewed its remuneration policy in accordance with the requirements of Article 5 of SFDR to ensure consistency with the integration of sustainability risks. Our remuneration policy revolves around the promotion of sound and effective risk management and avoiding excessive risk-taking.

7. Support for initiatives

We support initiatives that align with our mission of capital allocation including, but not limited to

  • Principles of Responsible Investment
  • Global Reporting Initiative
  • CDP (formerly known as Carbon Disclosure Project)
  • FAIRR
  • SASB
  • TCFD

8. Latest developments

In 2020, Impact Cubed devoted significant resources to enhance the application of ESG and impact factors in several areas. We began research to develop a quantitative model to assess the ESG performance and impact of sovereign debt, allowing us to measure and report on the impact of multi-asset portfolios. Another area of research in 2020 was developing thematic investment strategies for biodiversity, which can be applied as overlays to conventional funds to provide for either a stand-alone theme or enhanced climate reporting. The third area of focus for Impact Cubed was the proposed EU sustainable finance reporting regulations. This work developed a portfolio screening tool to assess potential gaps in securities or portfolios and their alignment to requirements. We have evaluated various options related to our stewardship activities and participated in the CDP engagement platform for listed equity issuers about climate and water scarcity. In 2020, the Analytics arm of Impact Cubed was awarded the Best Independent House for ESG Research and Best Specialist ESG Data Provider.

Sustainability-related disclosures in accordance with EU Sustainable Finance Disclosure Regulation (“SFDR”).

Product Name: Impact Alpha

1. Summary

The Impact Alpha Strategy is an equity market neutral long-short strategy dedicated to environmental and social investment objectives.

2. No significant harm to the sustainable investment objective

The portfolio monitors, quantifies, and considers the Principle Adverse Impacts (“PAI”) of its potential and current investments, excluding issuers with high PAI values from its long book. UNGC and OECD business norm violators are excluded.

3. Sustainable investment objective of the financial product

The portfolio invests 100% of assets in line with its sustainable investment objectives, including climate change mitigation and adaptation.

4. Investment strategy

The product is an actively managed equity market neutral strategy. The investment and research teams identify sustainable development themes through qualitative research, then leverage Impact Cubed in-house quantitative sustainability data to develop baskets based on regional and sectoral exposures to different megatrends with a 1-3 year time horizon.

Each basket has roughly 30-50 individual securities equally divided between long and short books. The Impact-Cubed sustainability data is used to select between 30 and 50 individual stocks, equally divided between those which positively exemplify the theme according to quantitative, outcome-based metrics, and those which are objective detractors. The positive examples are long positions in the strategy, while the detractors form the short-selling part of the basket.

Finally, each security in every basket is scrutinised against fundamental and technical criteria. We check that each investment is of good financial health and does not have specific reasons to trade against the identified trend.

The Impact Alpha Strategy does not hold long positions in companies involved in weapons, gambling, adult entertainment, tobacco, alcohol, fossil fuels or animal farming. The strategy considers governance practices as measured with a set of quantitative governance outcome metrics produced in-house, including board diversity, board independence, and executive pay, and assessed through a systematic methodology of peer group comparison.

The Impact Alpha Strategy holds externality-efficient companies that are part of the solution to climate change in its long book, and it short-sells externality-intensive companies. This results in the portfolio having net negative factor exposures to carbon, as well as waste and water.

5. Proportion of investments

All asset allocation decisions in the portfolio are compliant with its sustainability objectives, resulting in 100% of investments being driven by environmental or social objectives.

The strategy does not take direct positions in the underlying equities but rather synthetic exposures only. The synthetic exposures are subject to the full extent of the strategy’s environmental and social criteria and objectives, and they allow the strategy to take on additional leverage, which amplifies its contribution to sustainability objectives through its investment activity.

6. Monitoring of sustainable investment objective

The investment and research teams continuously monitor the portfolio companies to ensure they continue to fulfil the strategy's financial and sustainability investment criteria and that the overall strategy adheres to ex-ante and ex-post risk controls.

The overall sustainability profile of the portfolio is also measured using the award-winning Impact Cubed Portfolio Report methodology, which ensures objective and quantitative verification of social and environmental outcomes of investment portfolios, including indicators such as carbon scope 1,2 and 3 emissions, water and waste efficiency, or the proportion of revenues derived from environmentally positive or destructive products and services.

7. Methodologies

The Impact Alpha Strategy promotes multiple social and environmental characteristics through a sustainable development theme approach. Themes such as energy transition or access to basic services are promoted through the investment strategy by investing in companies that make a positive contribution to the theme, and short selling those companies which are harming the same objective.

Examples of themed baskets that make up the Impact Alpha portfolio and their sustainability contributions are:

Energy transition

Carbon free energy sources to align with the environmental objective of decarbonizing the economy (renewable energy technology and renewable based utilities)

Energy efficiency

This theme targets investing in companies aligned with the environmental objective of decoupling increases in productivity from increases in energy use, especially in sectors such as transit, electronics, and manufacturing.

Sustainable food

This theme is built to promote the transition away from animal-based foods (companies involved in animal-based product form the short basket) and towards plant-based foods (producers of plant based foods form the long basket).

Digitalisation

In line with the environmental objective of reducing the material footprint of our economy, this theme promotes solutions in digital infrastructure, cloud computing, and data storage.

Consumer health

Short selling of companies producing consumer goods with negative health consequences, to exert negative economic pressure on companies whose activities are misaligned with the Good Health and Well-being SDG3.

Healthcare

Long basket of healthcare providers and medical device manufacturers, promoting the objectives of UN SDG3 Good Health and Well-being.

Access to basic services

Promotes increased access to basic services such as health, telecom, and banking, by investing in providers of these services in the most under-served geographies globally.

More information on the methods behind this strategy can be found in the Impact Cubed ESG Policy document.

8. Data sourcing and processing

Impact-Cubed utilises its in-house sustainability data and analytics capabilities, developed over more than a decade of sustainable investment practice. The in-house data and analytis have a strong focus on objectivity and transparency of method - additional information on the methodology behind Impact Cubed’s in-house ESG datasets can be found on the Impact Cubed website www.impact-cubed.com

As part of the in-house capability, the Impact Alpha Strategy benefits from the Principal Adverse Impact (“PAI”) dataset produced in-house by Impact Cubed for the full investment universe of the product.

9. Limitations to the methodologies and data

Several PAIs as defined in the SFDR, and the metrics in the EU Taxonomy technical screening criteria call for company-disclosed information where companies have very weak disclosures (for example carbon Scope 3) or none at all (biodiversity). In adhering to the parts of the regulation and of our efforts to meet sustainability objectives which involve these metrics, we rely on estimation methods developed in-house.

10. Due diligence

100% of the strategy’s assets are assessed using the Impact Cubed issuer-level data across a holistic set of ESG metrics that correspond to the strategy’s themes, as well as EU regulatory criteria. The Impact Cubed issuer-level information is designed to be free of bias and to attain stringent robustness standards, ensuring the due diligence process concerning PAIs and sustainability objectives is also robust.

11. Engagement policies

Impact Cubed undertakes collective engagement activity on themes relevant to the Impact Alpha portfolio, for example animal agriculture and carbon emissions. More information can be obtained from our Stewardship Policy.

12. Attainment of the sustainable investment objective

The Impact Alpha Strategy is designed to attain net negative factor exposure to environmental externalities across carbon, waste, and water. In addition to this, we also quantify the strategy’s exposure to revenues that support the energy transition, energy efficiency, digitalisation, and more environmental and social themes, which help accelerate future reductions in environmental externality intensity of the economy at large.

The same pertains to the strategy’s social objectives. We quantify how much revenues from what services are generated where exactly – to help ensure that we attain our objectives around consumer health, access to basic service, healthcare, and more.

1. Investment strategy

First launched in June 2007 as the Auriel Absolute Return strategy has evolved from a strategy that integrated ESG to an impact strategy. We focus our research on finding over-valued stocks that are misaligned with global sustainable development for our short-term book and undervalued solution providers for our long book. In 2009 we began developing long-term sustainability models to drive our long-term positions and improve expected risk-adjusted returns by providing an uncorrelated long-term source of alpha. We now utilise a hybrid quant approach where fundamentally derived insights combine in a quantitative risk budgeting approach. The objective is to generate absolute returns by managing a diversified, risk-controlled portfolio with a low correlation to traditional asset classes and the existing hedge fund universe. The systematic portfolio construction process minimises exposure to multiple risk factors to ensure accurate market neutrality. The research effort continuously searches for new insights into how markets will respond to our global development challenges.

2. Investment process

The investment process starts with broad qualitative research into sustainable development. This research effort is guided by, but not limited to, UN Sustainable Development goals, which in our view is the most articulate and best accepted global consensus to sustainable development. We cover various themes, including climate, energy transition and depletion of natural resources, social trends like changes in demographics and the impact of inequality. This research covers the largest +15k companies globally, and the research timeframe spans between 3-10 years.

After establishing the megatrends globally over more extended periods, we leverage Impact Cubed quantitative data sets to develop baskets based on regional and sectoral exposure to different megatrends over 1-3 years. Each basket has roughly 30-50 individual securities equally divided between long and short books.

Finally, each security in every basket is scrutinised against fundamental and technical criteria. We check that each investment is of good financial health and does not have specific reasons to trade against the identified trend.

3. Risk management

Our risk management approach divides into

  • Ex-ante. Which is all about position sizing, portfolio construction, understanding correlations and volatility and scenario analysis
  • Ex-post. Which is about how does one react to losses? Also known as draw-down management or portfolio insurance programs

For Impact Cubed, Ex-ante risk controls are a critical part of risk management. It means controlling and neutralising every portfolio bias except some sector risk and the impact qualities, where we have an aggressive net short on externalities. See details on the table below

For Impact Cubed, Ex-post risk controls remain a vital part of risk management as significant sudden losses can only be managed with good ex-ante risk controls. The key to managing a draw-down is understanding where the losses are coming from and driving them. This understanding requires excellent attribution systems that can look at the portfolio from many viewpoints. In other words, are the losses coming from country risk, sector risk, a specific stock? We manage small daily cumulative losses by setting a draw-down limit and using portfolio insurance techniques. We use a three-step risk reduction technique on trailing one and three-month returns.

Impact Cubed Limited ("Impact Cubed") is authorised and regulated in the UK by the Financial Conduct Authority ("FCA"). Pursuant to the rules of the FCA ‘s Conduct of Business Sourcebook, Impact Cubed is required to disclose its commitment to the Code and to set out how Impact Cubed complies with the twelve principles set out therein. The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may exercise judgement and proportionality to the rules.

Impact Cubed’s approach and the UK stewardship code principles

As an institutional investor, Impact Cubed recognizes the importance of the principles laid out by the Code. We aspire to reflect the principles in our own stewardship activities, as addressed individually for each principle below.

The twelve principles of the code

The purpose of this statement on "Stewardship and Responsible Investment" is to describe how Impact Cubed applies each of the seven principles of the Code and to supplement this information with further details on stewardship, governance and responsible investing.

1. Principle 1

Signatories’ purpose, investment beliefs, strategy and culture enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.

Impact Cubed was established with the purpose of enabling smart allocation of capital for a flourishing planet. This purpose remains the sole focus of our work, as we provide sustainability oriented investment solutions in listed equities. We recognise that government policies and consumer choices influence capital movements. But in addition to this, we firmly believe that we, like all financial market participants (asset owners, asset managers, banks, and service providers), have an active role in sustainable development. All investment decisions impact the environment and society, and we strive to maximise the impact in our investment decisions to be as aggressive as possible within financial constraints and our fiduciary duty.

In doing this, the culture at Impact Cubed follows a set of principles we all commit to:

We pride ourselves in being experts in sustainable investing. We focus on our clients’ needs and work in full transparency to solve their problems and to deliver high quality outcomes. We take ownership of our work and co-operate internally with open communication that is built on respect and trust. We have developed these principles to align with and support the values we work for through our investment activity.

2. Principle 2

Signatories’ governance, resources and incentives support stewardship.

Impact Cubed is owned by its leadership team, who share a personal and professional commitment to its mission. Impact Cubed has reviewed its remuneration policy in accordance with the requirements of Article 5 of SFDR to ensure consistency with the integration of sustainability risks. Our remuneration policy revolves around the promotion of sound and effective risk management and avoiding excessive risk-taking, with the view to creating long-term value for our clients, the environment, and society.

Impact Cubed maintains a programme of internal training throughout the year that covers a wide set of sustainability and responsible investing topics and best practice, to ensure that the broader team remains well informed and engaged in the issues and objectives we promote through our investment activity.

3. Principle 3

Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first.

Impact Cubed maintains a dedicated framework for monitoring and managing potential conflicts of interest, with some of its main mechanisms outlined below:

  1. Monitor and pro-actively manage the potential for conflicts of interest to arise. This is achieved for example by implementing Chinese Wall and need-to-know-basis access to information across the staff to pre-empt the potential for conflict of interest to arise.
  2. No dealing by Impact Cubed on its own account.
  3. To pro-actively promote better alignment of interests between all employees of Impact Cubed and its clients, Impact Cubed makes investment into its strategies available to employees on a pari passu basis with investor clients.
  4. Maintain personal account dealing disclosure and monitoring.
  5. Impact-Cubed assesses all services that it receives from brokers against the MiFID II inducement rules. Impact-Cubed operates a research payment account ("RPA") that is fully disclosed in its offering memorandum.
  6. Counteracting any potential for short-term pursuit of performance fees by binding Impact Cubed investment activity with a strict risk management policy designed to align the firm’s interests with the investor’s through long term value creation.
  7. Strict gifts and entertainment policy overseen by the CCO.
  8. Dedicated process for disclosing and managing events of insider information access by staff.
  9. As a last resort, where there is no other means of managing the conflict, or where the measures in place do not, in Impact-Cubed’ opinion, sufficiently protect the interests of the client, the conflict of interest will be disclosed to the client to enable an informed decision to be made by the client as to whether they wish to continue doing business with Impact-Cubed in that particular situation.
  10. Where Impact-Cubed considers it is not able to manage the conflict of interest in any other way, it may decline to act for the client.

4. Principle 4

Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.

Impact Cubed takes seriously its role as a financial market participant and its potential impact through this participation. We pay special attention to systemic risks related to sustainability, through a range of time horizons from short-term to long-term at 10+ years and further.

A significant systemic event that the financial market experienced in the last reporting period was the effects of the Covid-19 pandemic. Impact Cubed had already been addressing the threat of zootopic diseases in its investment activity by shifting capital away from animal-based products in favour of plant based nutrition. Impact Cubed is also a member of FAIRR, as an effective way for a small investor to collectively engage with animal protein producers. The Impact Cubed strategy proved robust to the effects of this systemic risk materialising and outperformed the market during the relevant period.

On an ongoing basis, Impact Cubed is actively promoting the awareness of and response to environmental risks. In the most recent reporting period we have done this through publicly accessible thought leadership pieces published on our website and social media, as well as acting as signatory in collective investor engagements through the CDP (collective engagement on CO2 disclosure with Impact Cubed investee companies) and FAIRR ("Where is the beef?" engagement).

5. Principle 5

Signatories review their policies, assure their processes and assess the effectiveness of their activities.

Impact Cubed has undertaken a full review of Impact Cubed’s ESG Policy in Q4 2021, involving research and investment teams working together to formulate the updated and expanded document, and to ensure its continued effectiveness. The next scheduled review will occur on an annual schedule, unless it is triggered ad-hoc.

We continually test the objectivity, fairness, and clarity of our reporting, both on our own strategies, and through our ESG analytics arm, Impact Cubed Ltd. The ESG analytics arm provides fund level ESG reporting, which we apply to our own investment activity. We gather feedback continuously on the accessibility and thoroughness of these reporting outputs, both from institutional audiences like our own and ultimate beneficiaries at asset owner clients.

6. Principle 6

Signatories take account of client and beneficiary needs, and communicate the activities and outcomes of their stewardship and investment to them.

We currently take advantage of our small client base to operate an open door policy with our clients. In practice this means frequent communication going beyond the scope of a typical quarterly client meeting. Alongside detailed performance and risk reporting, we also produce quarterly ESG impact statements for our strategies in addition. These statements include 15 quantitiative values calculated for the portfolio and its benchmark, based on its underlying holdings:

Carbon efficiency (S1+S2)

Carbon Scope 3tonnes Scope 1+2 & 3 GHG emissions per $1 million revenue
Waste efficiencytonnes of waste generated per $1 million revenue
Water efficiencythousands cubic metres of fresh water used per $1 million revenue
Gender equality% female executives and board members
Executive payratio of executive to median employee pay
Board independence% independent directors
Environmental good% revenues from products & services contributing to the UN SDGs on the environmental side
Social good% revenues from products & services contributing to the UN SDGs on the social side
Avoiding environmental harm% revenues from products & services detracting from the UN SDGs on the environmental side
Avoiding social harm% revenues from products & services detracting from the UN SDGs on the social side
Economic developmentGDP per capita in $ weighted by geographic distribution of the company's revenues
Avoiding water scarcityWorld Resource Institute water scarcity score weighted by geography of operations, from 0 being the least water scarce regions and 5 the most
Employment% unemployment rate weighted by the company's geographic distribution of revenues
Tax gapthe difference between the statutory tax rate weighed according to the company's geographic distribution of revenues, and their reported tax paid

This approach applies across all Impact Cubed investment products.

7. Principle 7

Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities.

All of Impact Cubed’s strategies integrate principles of long-term stewardship responsibilities, conscientious risk management, and consideration of environmental, social, and governance issues in the best interest of our clients. Impact Cubed is a dedicated ESG impact investor and contributing to positive societal and environmental outcomes while guarding the best interests of our clients as a fiduciary is the foundation of all of our strategies. The mechanics of the implementation of these principles are laid out in detail in the Esg Policy.

Evidence of thought leadership in the area of sustainable investing is visible through Impact Cubed’s white papers and research publications available on our website.

8. Principle 8

Signatories monitor and hold to account managers and/or service providers.

Impact Cubed does not rely on external managers, or service providers of sustainability content. All ESG data and sustainability research for the purposes of the Impact Cubed strategies is created in-house. As such, and in alignment with the design principles of the ESG data and sustainability analytics solutions of Impact Cubed, the investment and research teams have full insight and transparency into the research methods employed, and the robustness of the data and analytics.

9. Principle 9

Signatories engage with issuers to maintain or enhance the value of assets.

Impact Cubed solutions are divided between:

  • Assets managed for clients who elect to take direct responsibility for active ownership activities. Impact Cubed supports those clients with data and analytics requested to facilitate the clients’ activity and ensure the best possible outcomes.
  • Assets in strategies that have synthetic exposures to securities, providing no direct ownership that would form the basis of active ownership activity.

10. Principle 10

Signatories, where necessary, participate in collaborative engagement to influence issuers.

Impact Cubed monitors the opportunities for collaborative engagement with issuers, and prioritises participating according to impact on its strategies and known client interests. The latest examples of participation in 2021 are through the CDP (collective engagement on CO2 disclosure with Impact Cubed investee companies) and FAIRR ("Where is the beef?" engagement).

11. Principle 11

Signatories, where necessary, escalate stewardship activities to influence issuers.

As is appropriate for the extent of its current active ownership activity disclosed under principle 9 and 10, and Impact Cubed’s size, Impact Cubed fully supports escalation of such activity by clients and as part of collective engagements. In addition to influence via stewardship activity, Impact Cubed actively allocates capital according to its sustainability considerations, going beyond divestment by placing companies that have negative impacts on society and the environment in its short book.

12. Principle 12

Signatories actively exercise their rights and responsibilities.

Impact Cubed solutions are divided between:

  • Assets managed for clients who elect to take direct responsibility for active ownership activities. Impact Cubed supports those clients with data and analytics requested to facilitate the clients’ activity and ensure the best possible outcomes.
  • Assets in strategies that have synthetic exposures to securities, providing no direct ownership that would form the basis of active ownership activity.

As such, Impact Cubed does not currently have the basis for participating directly in proxy voting activity.

Pillar 3 Disclosure Statement

Impact Cubed Limited ("Impact Cubed" or "the company") is authorised and regulated by the UK Financial Conduct Authority ("FCA") as CPMI firm. As a CPMI firm Impact Cubed is subject to the capital adequacy rules of both the MiFID and AIFMD regimes. Of these the more onerous, given the nature of Impact Cubed’s business is the AIFMD rules.

The FCA capital adequacy framework consists of three Pillars:

Pillar 1 sets out the minimum capital amount that meets the Firm's credit, market and operational risk;

Pillar 2 requires the Firm to assess whether its Pillar 1 capital is adequate to meet its risks and is subject to annual review by the FCA (the ICAAP as set out below); and

Pillar 3 requires disclosure of specified information about the underlying risk management controls, capital position and remuneration. This document is Impact Cubed’s Pillar 3 disclosure statement.

As required by the rules of the FCA the company has undertaken an 'Internal Capital Adequacy Assessment Process' ("ICAAP"). The ICAAP is reviewed annually or whenever there is a material change to the business, whichever is sooner. The most recent ICAAP review was undertaken as at 31 December 2021 during the early part of 2022. The ICAAP process considered the risks that the company is exposed to and the controls that exist to mitigate those risks. It further considered whether additional capital was required to meet the risks that the company faces including, as required by the FCA rules, the potential cost of closing the company down in the unlikely event that such action was necessary. The company's Pillar capital requirement is the higher of the base capital requirement of €50,000, the sum of the credit risk and market risk requirements and the fixed overhead requirement. Currently the base capital requirement, which is €125,000 or £105,000 is in excess of the alternative capital requirements and thus the Pillar 1 capital requirement is £105,000. The company has assessed that the risks that it takes do not generate an additional capital requirement under Pillar 2 other than the company allowed for a 10% potential change in GBP/EUR exchange rates. The company will re-evaluate the exchange rates periodically.

For 2022, the MiFID capital rules will change. This will have no practical impact on the company.

Risk Management

The company is an asset manager and does not risk its own capital in the financial markets. The company does not have regulatory permission to take proprietary trading risk and does not take such risk. Accordingly, the risks that the company faces are more limited in scope than for other types of regulated firms. The risks and controls detailed below are, in accordance with the BIPRU rules, risks that the company faces in respect of its own activities. The risk management processes and controls for monies managed by the company are not part of these disclosures.

Capital

The capital of the company is in the form of capital contributed by members less cumulative losses. All of the capital of the company is Tier 1 capital. As at 31 December 2021 the company had Tier 1 capital of £127,143 made up of members’ capital of £914,904 less amounts due from members of £787,760.

Principal risks and uncertainties

The company has identified and performed an assessment of the key risks that may impact its

business. The company is an investment manager and does not undertake proprietary trading. The

material risks to the company largely fall within the "Business Risk" and "Operational Risk" categories.

Market risk

For the purposes of these disclosures, market risk is the risk value of, or income arising from, the company's assets and liabilities varying as a result of changes in the market price of financial assets, changes in exchange rates or changes in interest rates.

The company does not take proprietary trading risk. The company's risk management activities are on behalf of clients and the company's own money is not at risk. The only market risks that the company potentially faces are: risks related to the short term investment of surplus cash belonging to the company and currency risk due to the mismatch of the currencies in which income is earned and the currencies in which costs are incurred.

For capital adequacy purposes, in accordance with the rules, the company monitors its current exposure due to amounts held and receivable in currencies other than sterling. The directors consider potential future exposures as part of their overall risk monitoring.

Credit risk

Credit risk refers to the potential risk that the company's bankers or customers fail to meet their obligations as they fall due.

The company has credit risk on its clients for fees earned but not received. The company has appropriate policies to monitor this exposure on an ongoing basis.

The company also has credit exposure to its bankers and monitors this risk regularly.

Liquidity risk

The company's liquidity policy is to maintain sufficient liquid resources to cover cash flow imbalances and fluctuations in fees received/receivable. The company maintains cash balances at its bankers to cover liquidity risk.

Operational risk

Operational risk is the risk of loss arising from failed or inadequate internal processes or systems, human error or other factors. The risk is managed by the directors who have responsibility for putting in place appropriate controls for the business. The company documents the risks that it is exposed to and the compensating controls in its ICAAP.

Business risk

Business risk is the risk that the company may not be able to carry out its business plan and could therefore suffer losses if its income falls. This is a risk that all businesses face. The directors continuously monitor income and expenditure levels and adjust their plans accordingly.

Concentration risk

Concentration risk is the risk that the company is overly dependent upon any one customer or any one group of connected customers either in terms of income dependency or in terms of credit risk. Currently the only such exposure is to the company's bankers.

Pension obligation risk

The company has no defined benefit schemes and thus has no pension obligation risk.

Interest rate risk

The company is not exposed to interest rate risk.

Residual risk

Residual risk is any risk not covered by the specific risk categories outlined above.

The directors do not consider that there are any residual risks that require the company to maintain any additional capital.

Overall Capital Summary £,000
Capital
Total Tier 1 Capital 127
Pillar 1 Capital requirement 105
Additional requirement under Pillar 2 11
Total Capital requirement 116
Capital surplus 11
Capital adequacy percentage 109%

Remuneration disclosures

Under the Remuneration Code (the "Remuneration Code"), the company, as is standard for an

investment management firm, is classified as a Proportionality Level three firm. Proportionality Level

three firms are permitted to disapply many of the technical requirements of the Remuneration Code

and proportionately apply the Remuneration Code's rules and principles in establishing the company's

policy.

During the year ended 31 December 2021 the company had 5 code staff members. All of the code staff are members of the company. The total remuneration paid to members of the company was £89,652.00. The company has only one business area which is its investment management business.