SFDR - Article 8
Sustainability-related disclosures
a) Summary
Hypoteket Fondförvaltning AB is the asset manager of the Hypoteket Group, which consists of three main companies - Our Interest Holding AB and Hypoteket Bolån AB being the other two. Hypoteket Fondförvaltning AB currently manages three different alternative investment funds - Bolånefond 1, Bolånefond 2 and Hypoteket Mortgages 3. The assets of the three funds managed are made up solely of Swedish Residential Mortgages, originated by Hypoteket Bolån AB, alongside residual cash which is deposited at a Nordic bank. This makes us an extremely niched player within the fund management industry, which to some extent both simplifies and complicates SFDR reporting.
We define all of our funds as Article 8 under the SFDR framework. The main goal of the funds is not sustainability, at least not as defined under these circumstances, but rather a good risk adjusted return for our investors. At the same time, there is nothing harmful with our assets. Not to society, not to planet earth and not to the individual. We exist in order to finance residential mortgages, meaning we help people finance their homes. Owning a home may not be a human right, but it is a cornerstone of society to be able to do so (if the financial situation permits).
Furthermore we lend in a sustainable way - responsibly and with the greatest transparency possible for our customers, without unjust price discrimination among peer borrowers (in traditional mortgage lending models price will typically depend on who sits on the greatest bargaining power). We also promote sustainability in a green, climate friendly way, helping in the overall transition to a net zero carbon economy by offering both green mortgages and green “additional” mortgages - top up loans directed at energy efficiency improving measures which will ultimately lower co2e emissions from the Swedish housing sector.
b) Sustainable investment objective
As mentioned above, and laid out in more detail below, our funds promote the transition to carbon neutrality in the scope of green mortgages and energy efficient housing. The Hypoteket group also promotes transparency and equal treatment in the lending sector by offering fair terms with no price discrimination. Hypoteket does however not have sustainable investments as its objective.
c) Environmental or social characteristics of the financial product
The fund management arm of the Hypoteket Group, Hypoteket Fondförvaltning AB, invests solely in Swedish residential mortgages originated by our sister company Hypoteket Bolån AB. Hypoteket Bolån wishes to move the Swedish mortgage market in a more transparent and equal direction, where the borrower can see what their mortgage rate will be already when applying. No discounts or negotiations take place. All our clients, who meet the same criteria, will receive the same mortgage rate throughout the lifetime of the mortgage.
Furthermore, Hypoteket Bolån wishes to be an active part in the transition to a carbon neutral world. Actions taken include offering green mortgages and green additional mortgages in order to promote an energy efficient private housing sector. Both of the above green mortgage products are subsidized to incentivize the customer.
Carbon footprints are measured in order to gather data and intelligence on emissions stemming from the houses and homes behind our residential mortgages. By gathering this data we will be able to track how emissions develop over time, on a portfolio level, as well as promote relevant measures and actions for our customers. The ambition is that our funds shall be aligned with, or outperform, Sweden’s overall target of Co2e neutrality by 2045.
At the end of the day, the outcome and pace of this objective will rely on both internal and external factors, where we can mainly impact the things we are in direct control of. External factors can be the ultimate motivation of the borrower to invest in energy efficiency and, of course, how clean the Swedish national power grid can become. It is worth noting that Nordic energy is already among the world's cleanest due to a relatively high proportion of hydro- and wind power and a low proportion of fossil fuel, but it can always be improved.
For the social aspects of sustainability, the Hypoteket Group was founded in order to create a better and more transparent residential mortgage market. We do not have the ability, today, to specifically target socially vulnerable groups etc as we require conservative LTVs (Loan to values) as well as strong credit scores, but we aim to be an active part of a new and fresh residential mortgage market where individually negotiated rates based on elevated public rates (listed rates) should ultimately be considered hopelessly outdated and where your rate will not depend on bargaining power, personal contacts and/or business bundling. Obviously all lending will also be carried out responsibly for the benefit of all parties involved.
d) Investment strategy
Hypoteket Fondförvaltning AB (Hypoteket Fund Management AB) invest exclusively in Swedish residential mortgages originated by our sister company, Hypoteket Bolån AB (Hypoteket Mortgages AB). The majority of mortgages will be traditional residential mortgages, i e not green, but there will be a portion of green residential mortgages and green additional mortgages. All mortgages must live up the defined criteria of the “Master Mortgage Sale Agreement” which regulates transactions between the originator and the asset manager.
e) (Sustainable) Proportion of investments
Green mortgages and green additional mortgages currently constitute around 1,3% of total fund assets. Green mortgages were recently launched (early 2023) and we expect the percentage of green assets to increase gradually over the coming years. In Sweden, around 2% of houses are categorized as Energy Class A and 12% as Energy Class B. As any of these two energy ratings are the criteria for green mortgages within Hypoteket Bolån AB, it seems natural to anticipate that fund assets will reflect the national average over time - perhaps more if we are successful in promoting our green offering.
We launched green additional mortgages in August 2021. They are likely to be less significant in terms of volume as they tend to be limited in size, but have the potential to make a real impact in the transition to a carbon neutral economy. Our customers typically use green additional mortgages to install solar panels or geothermal heat pumps - both measures utilizing clean and renewable energy.
It is worth noting that the part of investments that are not categorized as green are not harmful to the environment in any way. They are regular, standardized residential mortgages which in themselves are carbon neutral, as Hypoteket Bolån AB is a carbon neutral company. They also fulfill an important role in society as financiers of flats and houses - a foundation for the ability for the many to own their own home.
f) Monitoring of environmental or social characteristics
Monitoring green assets in the Hypoteket funds are easy to do and carried out on an ongoing basis, with values updated regularly. Sustainability however reaches far beyond what is strictly seen as green according to the taxonomy. A lender can not be sustainable unless sustainability is incorporated into all parts of the company. This is especially true for the credit approval processes, where money shall only be lent to clients who meet all our credit criterias and who ultimately benefits from taking on the loan.
On the climate and energy transition side we are already gathering data on the carbon footprints of our mortgage portfolios. These numbers will be refreshed at least yearly. As availability of data improves by the day, thanks to a growing number of new businesses who are dedicated to housing related energy efficiency matters, our intelligence will evolve and, with that, the palette of products and services offered to our clients. Furthermore, data on climate related risks are gathered and currently used as a flag/warning system for lending to certain areas where risks appear to be elevated.
On governance, In line with the Sustainability Policy of the Hypoteket Group, The Head of Sustainability together with the managing director (CEO) of each business are responsible for establishing and maintaining a sustainability plan for the respective business area. The sustainability plan will be reviewed and determined by the governing board of each company.
Every year there will be a follow up and evaluation of the measures taken within the scope of sustainability. The evaluation will be carried out by the Head of Sustainability together with the respective managing director for each company. The result will be compiled and presented at the last board meeting for each company every year.
g) Methodologies
Green mortgages are defined as homes with Energy Class A or B in their energy declaration according to The Swedish National Board of Housing, Building and Planning (Boverket). The seven energy classes A-G are based on the requirement for energy use that is placed on new buildings being constructed today. These requirements are found in The Swedish National Board of Housing, Building and Plannings building code (BFS 2011:6) and depend on the type of building, whether it is electrically heated or not, and where in Sweden it is located. Energy class C corresponds to the requirements that apply to the building if it were to be built today. Information about a housing's Energy Class is obtained directly from Boverket. Green supplementary mortgages that finance an energy-improving renovation are also defined as Green mortgages.
The fund’s carbon footprint is measured annually through an internally developed model that utilizes data from different official public sources such as the Swedish Energy Agency.
h) Data sources and processing
Data on Energy Class is obtained from The Swedish National Board of Housing, Building and Planning. The data is used in the lending process to be able to classify a loan as a "Green Mortgage". For Green additional mortgages we have a list of approved measures and actions that qualify for payout. When applying the borrower must be able to prove that the money will be used for any of these approved measures. This is typically done via a tender copy.
i) Limitations to methodologies and data
There are limitations with using energy classification using the official Energy Class system as not all buildings have a letter classification. Energy classification with letters was introduced in January 2014 and older energy declarations cannot be converted to letter classification. In that case, a new energy declaration needs to be drawn up, which is associated with a cost.
The data used to calculate the fund's carbon footprint is based on standard calculations of energy consumption and energy sources and is not based on actual energy consumption and actual energy production. This model is being refined as additional data becomes available.
j) Due diligence
Hypoteket analyzes potential investments with the aim of identifying sustainability risks in the investment objects. The risks are integrated into the funds' overall risk level and form part of the financial risk analysis carried out for the funds.
Sustainability risks are defined as an environmental, social or governance-related event or circumstance that, if it were to occur, would have an actual or potential significant negative impact on the investment's value.
k) Engagement policies
N/A. The fund does not invest in companies.
Hypoteket does not use a designated index as a reference benchmark.