press release


Lupus alpha introduces binding ESG methodology for small and mid-cap funds

Two successful funds strategically adjusted and renamed

On 1 December 2020, Lupus alpha introduced a binding ESG methodology for two European small and mid-cap funds. Lupus alpha Smaller Euro Champions (LU0129232525, now Lupus alpha Sustainable Smaller Euro Champions) and Lupus alpha Smaller Pan European Champions (DE000A1J9DT9, now Lupus alpha Smaller Sustainable Pan European Champions) already broadly met minimum ESG standards. The difference is that these funds now have a binding commitment to comply with transparent ESG criteria. This means that investors have access to two small and mid-cap funds with a long track record of success that also meet clear sustainability standards. In the challenging trading year of 2020 alone, both funds achieved their highest outperformance since their launch, exceeding their benchmark by over 12%.

Frankfurt, January 21th, 2021: In the past Lupus alpha has already excluded equities that do not satisfy certain minimum requirements, such as manufacturers of controversial weapons, from both mutual funds. “If companies do not meet basic sustainability standards, this is often a driver or accompanying factor in financial risks,” explained Dr. Götz Albert, Managing Partner and CIO of Lupus alpha. Governance in particular has traditionally been an integral part of company analysis at Lupus alpha. “From a company perspective, good governance is the key to charting a sustainable course“, said Albert.

The investment process for both reorganised small and mid-cap funds is as follows: As a first step, comprehensive minimum ESG standards are used as part of a negative screening process to analyse the equity universe for both funds, and any critical companies are excluded. This happens if companies violate the UN Global Compact, manufacture controversial weapons or exceed specific revenue limits in the areas of armaments, coal, nuclear power, fracking and tobacco. All companies that do not violate any of the exclusion criteria are fundamentally eligible for investment. 

The second step is a multi-stage selection process that combines a detailed sustainability analysis of the equities with a traditional fundamental company analysis. All investable companies are classified according to ecological, social, ethical and governance criteria based on Lupus alpha’s own research and using data provider MSCI’s 37 ESG categories. This is followed by an ESG potential risk analysis that includes factors such as social standards, environmental management, product portfolio and corporate governance as well as the impact of business activities on the 17 Sustainable Development Goals (SDGs) of the United Nations. 

The final investment decision also takes into account the strengths of potential portfolio companies with regard to management, market position, earnings performance and market valuation. The basic principle is that a better ESG rating and a greater contribution to the SDGs increases the likelihood that an equity will be included in the portfolio.

Dr. Götz Albert: “This new, two-stage process necessarily limits our European small and mid-cap universe to a certain extent. However, as ESG assessments have been incorporated into our investment decisions since the strategies were launched, these changes will have a minimal impact on the portfolios of both funds. Our portfolio managers have always raised sustainable corporate governance issues in their discussions with management.”

The sectors primarily impacted by the exclusion are those such as utilities and energy (oil and gas) that perform worse on ESG issues. As these are usually large caps, equities in these sectors already played a secondary role in the portfolios of both funds. The funds’ long-term focus on high-quality companies with good governance also limits the impact of these restrictions.

Lupus alpha Sustainable Smaller Euro Champions and Lupus alpha Sustainable Smaller Pan European Champions ended the challenging trading year of 2020 with the best performance since their launch. The eurozone fund and pan-European fund both exceeded their benchmarks by more than 12%. The new ESG factsheets for both funds provide information on their performance in previous periods as well as the CO2 footprint of the overall portfolio and additional ESG indicators.


Download the new ESG factsheets:

Lupus alpha Sustainable Smaller Euro Champions

Lupus alpha Sustainable Smaller Pan European Champions