Sustainability Assessment

Deep Alpha's Sustainability Assessment offers a complete regulatory questionnaire based on best practices in the industry. It includes the assessment of investor's preferences, suitability analyses and an automatically generated investment advice report meeting all compliance requirements.



There are 4 types of assessment questions that can be used to configure the questionnaire.

Overall Assessment Question

This question is used to assess the investor’s overall sustainability preference. This assessment component offers two answer alternatives (positive and negative) and has built-in dependency logic. If the investor chooses the positive alternative, their sustainability assessment will be mapped in detail. If the investor chooses the negative alternative, further assessment will not be presented. Example: Is it important to you that your sustainability preferences are assessed and considered in the investment proposal, even if it limits the selection of potential investment products? a) The proposal may include products that focus on sustainable investments and consider principal adverse impacts. However, I prefer not to complete additional questionnaires on these criteria. b) I have some views on sustainability and wish to proceed with the assessment to understand the associated financial risks and how sustainability-related risks may affect my portfolio.

Granular Preference Question

This question type allows collecting invetor's preferences in a detailed, granular manner. The scale, number of steps, and the naming of each step are fully customizable.

Example: To what extent is it important to you that your money is invested sustainably by taking into consideration environmental, social and governance objectives? 1) High priority - minimum of 80% of the portfolio 2) Significant - minimum of 60% of the portfolio 3) Considerable - minimum of 40% of the portfolio 4) Relevant - minimum of 20% of the portfolio 5) Not a priority - no minimum requirement

Binary Assessment of Preference Criteria

This question type measures various preferences using a yes/no binary format. It is commonly used to map investor preferences when collecting feedback on preferred exclusions or adverse impacts. Example:

Off-Model Question

This question type gathers investors preferences outside of score-based suitability model. This question type is typically used to ask additional sustainability related questions for various compliance reasons and more (preferences for the mandate, additional preferences, map investor's level of sustainability knowledge etc.)

Example: Do you have any other preferences regarding governance practices, social, and environmental issues that we have not addressed? 1) No 2) Yes (advisor fills out free text field)

Generic assessment question for the investor is a dependency questions with a logic defining whether further questions about sustainability will be presented to the investor or not. It is possible to define two answer alternatives whereas 1st alternative will end the questionnaire (negative alternative) and the 2nd alternative (positive alternative) enables the rest of the questionnaire and provides detailed assessment of investors sustainability preferences. A dependency question allows the investment firm to map the investor’s overall preference regarding sustainability. If the dependency question is configured in the sustainability model, it is mandatory to fill out. Advisor notes can be added to the question and set to required if needed.

This sustainability assessment question enables the configuration of questions that are measured on a granulation bar.

Key points

Granulation bar settings

Binary Assessment component in the sustainability assessment allows advisors record investors preferences by asking a question about 1 - 20 criteria that investor can answer "yes" or "no" to. This component is widely used to map investors ethical choices or product exclusion preferences. Binary Assessment data configuration in the universe file uses true or false values given to every instrument. Those valus are set based on the raw data and the tenant will define the threshold per each criteria. Key Points

Data

It is important to acknowledge that the sustainability data utilized to evaluate preference criteria (i.e., exclusions, inclusions, PAI) must be provided in binary format (true/false), as investors' responses will be captured as binary values (yes/no). Should the sustainability data from Morningstar (or other data sources) not be in a binary format, the tenant has to establish a threshold for each criterion, enabling Deep Alpha to convert the data into a suitable binary format ("product involvement %" and EET Exclusions are most used datapoints). Tenant who have chosen to utilize "product involvement % in portfolio" datapoint from Morningstar, often set this threshold to more than 0% (typically something between 0,5-5%) to avoid random errors caused by data capture. The threshold determined by the tenant should be clearly communicated within the educational modal to investor to uphold transparency in data usage. The tenant must make a strategical data choice whether they want to to use ESG datapoints that origin from instruments mandate or actual data as reporte per last year. The choice of ESG datapoints is critical, as it directly impacts the evaluation of instruments. Selecting datapoints based on the instrument’s mandate may result in more instruments receiving better (or sometimes worse) scores compared to using actual data reported for previous year.

Off-model sustainability question enables the collection of investor's preferences that are not tied to the sustainability alignment model (scoring model). This feature is designed to allow wealth managers to tailor sustainability questions that meet compliance rules and align closely with investor preferences. The

Key Points

Off-model questions can cover wide range of business needs: 1. The limited availability of Taxonomy data restricts advisors to precisely map investors' preferences to suggested portfolios. To facilitate the recording of investors' preferences until more reliable data becomes available, the following question can be configured: 🍃 Question: Do you prefer investing in financial instruments that cause no significant harm and contribute to the transformation to a sustainable economy, even if detailed alignment data is currently limited? 2. Mandate for portfolio management: collect and assess the client's sustainability preferences during the mandate agreement, discuss any limitations with the client, and record the client’s final decision in the mandate:

🍃 Question: As we define your investment strategy within the portfolio management mandate, if we encounter limitations in meeting your preferences regarding sustainable investing, would you like to adapt your preferences? Your decision will be recorded in the mandate.

3. Provide exceptional service: Identify investor needs, and ensure that advisors have given the client the opportunity to express any preferences they may have regarding their investments, even if the assessment does not explicitly ask for it: 🍃 Question: Do you have any other preferences regarding governance practices, social, and environmental issues that we have not addressed? 4. Record the client’s understanding of sustainable investing to ensure they are fully informed of their choices. This documentation supports compliance needs and allows for internal audits, helping to track the education provided to investors and refine your understanding of the developing sustainability knowledge and trends among your clients: 🍃 Question: As we discuss investment options, please assess your level of knowledge regarding sustainable investing? Example alternatives: a) I'm new to this b) Familiar with key concepts c) Confident in making sustainable investment decisions



In response to regulatory reporting requirements and the need for auditing internal compliance adherence, Deep Alpha provides functionality enabling advisors to record adjustments to investors' sustainability preferences during the advisory session.

Show sustainability analytics in the Model Portfolio work mode

Investors' sustainability preferences and suggested risk portfolio's sustainability performance can be enabled in the Model Portfolio work mode. This functionality is designed to give advisors immediate insight into how well the funds in the portfolio align with investor sustainability preferences. Advisors can efficiently assess whether any adjustments to the portfolio are needed before proceeding to Proposal stage.

The alignment table supports also custom product attributes enabling the presentation of sustainability raw data, such as SFDR article number, sustainable investments percentage, etc., to create more transparency and simplify the decision-making and enhance client satisfaction.

Sustainability data in custom portfolio shows investors preferences and simplifies the creation of custom portfolio based on those preferences.

Custom portfolio work mode provides two data tabs to present sustainability related data for each instrument when creating or altering the portfolio. There are two different data tabs that can be enabled (separately or together).



Sustainability assessment of investors preferences and instruments sustainability scores are presented on the Proposal page. It is possible to add custom product attributes to Proposal page alignment table overview (table with scores).

About product attributes in general

Product attributes functionality, as mentioned earlier enhance transparency and informed decision-making. Product attributes provide the possibility to display specific data in the table in the form of a text, number, percentage, or binary true/false value.

This feature targets the gap experienced by advisors who prefer to point to specific sustainability metrics, such as Article 8/9, Morningstar Sustainable Asset true/false etc., at the end of the advisory process. Also, advisors assessing investors' preferences without leveraging the scoring model can now show only product attributes in this table. Advisors who align investors' preferences using the scoring model can now add instrument-specific sustainability data next to alignment scores. Configured data attributes will appear on the right-most side of the table and provide a clear and comprehensive view of each product's alignment with sustainability goals.

The content of educational modals, text and visual elements, are configurable. Deep Alpha Advisory Platform provides the set of pre-designed educational modals covering regulatory terms such as sustainable investment according to Taxonomy and SFDR, visualize and clarify how investor's preferences are being used and what data provider(s) are being used to classify the funds.

An educational modal can be enabled for each alignment criteria. One educational modal can include up to 5 pages.

Sustainability model calculates portfolio score per alignment criteria based on the configured model. It takes the sustainability score per instruments for given alignment criteria, considers instruments proportion in the portfolio and aggregates portfolio weighted average score per criteria. Example Fund A: allocation 33,3% score: 3 Fund B: allocation 33,3% score: 3 Fund C: allocation 33,3% score: 1 Portfolio's sustainability score is: 2.331 If investors preference score was 2, this portfolio would be suitable. If investors preference score was 3, this portfolio would not be suitable. Weights of the instrument C should be adjusted or instrument C should be replaced with an instrument that has better score.