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 understand and efficiently record investor’s specific views and objectives to help investors understand sustainability, enable educational components that help advisors explain various esg investment options, related sustainability risks, data utilization, scoring methodologies, and other aspects there is a wide range of flexibility to configure sustainability assessment questions and the sustainability data model advisory flow both visualizes and documents alignment of portfolio with investor’s sustainability preferences custom portfolio provides a simple process to replace instruments based on sustainability metrics and investor's preferences adjustments to investor's preferences during the session can be logged and documented adjustments made during the session and other sustainability related activity such as preferences, answers etc , is available via session api ask your own non regulatory questions to gain insight into investor’s additional preferences to provide better impact strategies in the future sustainability assessment data model for configuring in the investment universe and data logic mechanism for aggregated data to match investors' preference scale summary 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) questionnaire components overall assessment question 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 granular preference question this sustainability assessment question enables the configuration of questions that are measured on a granulation bar key points possible to configure up to 5 questions measured on the granulation bar configuration consists of the headline of the question, question itself, answer alternatives, optional advisor note, mandatory field settings for the question and for the advisor note possible to configure advisor notes for each question, and define whether the advisor note is by default required or not possible to configure order of questions possible to configure order of questions in the combination of other sustainability components possible to configure the order of questions in combination with other sustainability components granulation bar settings define the label (name) for each step on the granulation bar minimum number of steps on the granulation is 3 maximum number of steps on the granulation bar is 7 steps granulation bar setup and scoring logic applies for every alignment question each step on the granulation bar requires configuration of scoring this score is linked to investors answer and used on the proposal page when investors answers and instruments score are compared example configuration of granulation bar step 1 score 0, lable undecided step 2 score 1, lable not important step 3 score 2, lable important step 4 score 3, lable very important binary assessment of preference criteria 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 possible to configure 1 20 different preference criteria possibility to set custom icons to preference cards (svg file), but also possible to use deep alpha icons, or disabled the usage of icons preference criteria that investor selected, will be presented in the proposal page alignment overview 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 question 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 question may have 1 10 answer alternatives alternatives in the ui are using radio button component the question allows selection of one answer alternative possible to configure multiple off model question assessment with a combination of the granulation questions and off model question is possible pdf documentation will capture automatically questions and investors answers educational modals advisor notes assessment change log mandatory input y/n and validation error 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 recording the adjustments to investor's sustainability preferences 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 change tracking advisors can track an actual adjustment or adoption of sustainability preferences during the advisory session if investor's preference is initially recorded and then modified, the system prompts for confirmation to ensure the modification reflects an intentional adjustment session api data regarding these recordings is available as a binary attribute in the session api this indicates whether any investor preferences were adjusted, with a detailed list providing insights into which specific assessment questions were adjusted model portfolio 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 custom portfolio 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 tab displays investor's preferences to questions measured on the granulation bar (scores for each question) and scores for each instrument it is possible to add custom product attributes into this tab (text, number, percentage data) limitation maximum 10 product attributes across one product platform across all data tabs ps! if investor did not have any preferences that need to be considered in the portfolio, custom portfolio data tab will not show any alignment binary assessment criteria tab displays investor's preferences to questions measured on the binary scale (true/false) possibility to configure custom product attributes with limitation (max 10 across platform) proposal stage 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 educational modals 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 calculations 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 frequently asked questions how does investor's preferences for sustainable investment affect the advice given? sustainability preferences do not directly affect the proposed model portfolio (this is subject to change in 2025) instruments in the suggested or chosen portfolio are compared with the customer's response to sustainability alignment (in the proposal section) if there is a discrepancy between the advice and the customer's preference, it is possible to replace the instruments within an asset class (custom portfolio functionality) such process is a dialog between the advisor and investor, any changes must be documented in the flow in case the investor chooses to adapt their preference(s) for sustainable investments how and where can this decision be documented? reference to mifid ii (eu) "where no financial instrument meets the sustainability preferences of the client or potential client, and the client decides to adapt his or her sustainability preferences, the investment firm shall keep records of the decision of the client, including the reasons for that decision " there are three scenarios 1\) investor changes their initial preferences, there is no change to suggested portfolio 2\) investor do not change their initial preference, advisor adjusts the suggested portfolio by removing some instruments and replacing them with instruments that meet investors preferences 3\) investor changes their initial preference after reconsideration, proposed portfolio remains the same, advisor documents the dialog and reasoning for investors new preferences (read "recording the adjustments" above in this document) investor adapts sustainability alignment (scores and status)is shown under the sustainability analytics on proposal page in that stage, it is natural to discuss the portfolio's sustainability alignment and investor's preferences if investor chooses to change their initial preference, the advisor will return to sustainability assessment page, change the preference and fill in the additional information field to provide the background for this decision documented decision will appear in the final report 2 advisor adjusts proposal and creates a custom advice if the result of the discussion around portfolio's sustainability alignment and investor's preferences lead to adjustments in portfolio, the advisor will return to advice page and adjust the portfolio in custom portfolio mode if it is possible, the advisor will replace the instruments (or edit instruments' allocation) to meet investor's preferences the advisor will then fill in the advisor notes to provide the background for the decision for changing the instruments based on investors sustainability preferences documented decision will appear in the final report