Sustainable Finance Disclosures Regulation (SFDR)
Sustainable Finance Disclosures Regulation
(Regulation (EU) 2019/2088)
The EU Sustainable Finance Action Plan, includes mandatory reporting and disclosure regulations in the form of the Sustainable Finance Disclosures Regulation (SFDR). The SFDR establishes a hierarchy of categories based on the products sustainability objective.
Compliance with the SFDR imposes mandatory sustainability disclosure obligations for asset management organisations promoting and distributing products and supplying portfolio management services within the EU. The regulation specifically applies to Stewart Investors funds within the First Sentier Investors Global Umbrella Fund plc.
Under Article 6 all investment products have to disclose the manner in which sustainability risks are integrated into investment decisions and the results of assessments of the likely impact of sustainability risks on the returns of the product. Products may also be classified as Article 8 (if they promote environmental or social characteristics) or Article 9 (if they have a sustainable investment objective). The Stewart Investors strategies are aligned to Article 9.
Article designations for our strategies
* Also includes Global Emerging Markets Leaders products within this strategy.
What does Article 9 require us to do?
While Article 9 categorisation does not change our investment objective or our approach, it does require us to change the way we explain, illustrate and report the sustainable development objectives and contributions of our approach. We have been evolving our articulation over the last few years and examples of the steps we have taken include our work on Human Development Pillars, Project Drawdown climate solutions and Portfolio Explorer which provides information on the investment rationale for every company we invest in, the contribution it makes to sustainable development, key risks and engagement topics.
Below is a summary of disclosures and explanations required for the official product documentation.
Sustainable investment objective
Our strategies seek to achieve long-term capital appreciation by investing in companies which both contribute to, and benefit from, sustainable development, achieving positive social and environmental sustainable outcomes.
- Positive social sustainability outcomes include the enablement of improved health and wellbeing; access to income-generating and enterprise opportunities; fair employment and workplace safety; access to education and learning opportunities; communication and access to information; financial inclusion; sustainable transport and mobility; better access to housing, water, sanitation and electricity; and social inclusion and reduced inequality.
- Positive environmental sustainability outcomes include more careful, efficient and productive use of natural resources; reduced waste and improved waste management; the wider adoption of circular economy practices and measures; the adoption of renewable and cleaner energy technologies; reduced greenhouse gas emissions; reduced water, air and other environmental pollution; a slowing in the rate of land degradation, land use change and loss of forests and biodiversity; and measures and technologies that enable climate change adaptation and resilience.
The Prospectus for the First Sentier Investors Global Umbrella Fund plc includes the latest SFDR appendix disclosing the required pre-contractual information for the Stewart Investors Article 9 funds such as environmental and social objectives (including any alignment to EU taxonomy).
Summary of sustainability objectives which apply to all strategies:
Does this financial product have a sustainable investment objective? Yes
% minimum of sustainable investments with an environmental objective: 40%
- In economic activities that qualify as environmentally sustainable under the EU Taxonomy - No
- In economic activities that do not qualify as environmentally sustainable under the EU Taxonomy – Yes
% minimum of sustainable investments with a social objective: 90%
The contribution of investments to the social and environmental objectives are assessed by reference to two framework indicators – our human development pillars and Project Drawdown climate change solutions.
Human development pillars - We have developed our own 10 human development pillars inspired by the United Nations Human Development Index that we believe encapsulate the essence of human development and which can be mapped to companies. Each investee company must be contributing in a tangible way to at least one of the pillars.
Visit our Portfolio Explorer tool to find out more about the pillars and the diverse contributions companies are making to human development.
Climate change solutions - Project Drawdown is a non-profit organisation, founded in 2014, which has mapped, measured and modelled over 90 different solutions to global warming, with the ultimate goal of reaching drawdown – i.e. the point in the future when emissions stop increasing and start to steadily decrease. We map each investment against the c.90 solutions. Our focus is on whether the companies themselves are making a meaningful contribution and will have meaningful involvement with the delivery of any of those solutions.
Where investee companies do contribute to any of the solutions, they will be involved in making products and delivering services directly, or by enabling/supporting those solutions.
Visit our Portfolio Explorer tool to find out more about the solutions and the diverse contributions companies are making to climate change.
Not all investments will necessarily align with a Project Drawdown climate solution (hence the 40% environmental objective) but all companies will be aligned with a human development pillar (hence the 90% social objective).
No significant harm to the sustainable investment objectives
Our strategies only invest in companies that are sustainable investments which contribute to a social and/or environmental objective.
The hallmarks and binding elements of our investment strategy are an exclusive focus on companies that contribute to, and benefit from, sustainable development; a research-driven, fundamental, bottom-up approach to the selection and ongoing analysis of investments; a focus on the quality and sustainability attributes of every company; a focus on company stewardship and sound governance; a long-term investment horizon; and a commitment to engagement in order to address sustainability concerns and issues.
Our bottom-up investment process results in portfolios composed of companies without material exposure to harmful products and services. Our Position Statement on harmful and controversial products and services defines the harmful business activities we avoid as a result of our bottom-up approach, our materiality thresholds and quarterly disclosure of any investments we make that are above the stated thresholds.
Adverse impacts on sustainability factors
Adverse impact indicators, relevant to each investee company, are taken into account through our bottom-up research, company engagement, adherence to our position statement on harmful and controversial products and services, Group-wide exclusion policies and third-party research providers.
Portfolios are assessed by an external service provider for compliance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, UN global norms and exposure to high-risk sectors. We also receives regular updates from a controversy monitoring service. This information is incorporated into our company analysis, team discussion and engagement programme.
The EU Taxonomy includes six environmental objectives - climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and the protection and restoration of biodiversity and ecosystems.
Climate change mitigation and adaptation are currently in scope for our products. Our products do not explicitly seek to invest to a minimum extent in EU Taxonomy aligned assets, and therefore the minimum share of investments in transitional and enabling activities is 0%. We will report on the data that is available and monitor the availability of data as the new objectives fall into scope.
The frameworks we use to measure the sustainability indicators, alongside our own bottom-up analysis, lean on measurable and reportable outcomes as evidence for determining a company’s meaningful contribution to sustainable development.
Meaningful company contribution:
- Demonstrates a clear link to the underlying issue and solution, including whether the contribution is direct or enabling/supporting.
- Is relevant for the company either as a revenue/growth driver, as strategic initiatives backed by research and development or capital expenditure, or a function of strong culture or behaviours and ‘how they do things’ e.g. for equality and diversity.
- Recognises negative impacts from the company, including contradictions and risks of perverse outcomes.
The SFDR Level 1 reporting template for each of our Article 9 funds within the First Sentier Investors Global Umbrella Fund plc are available via the 2021 Annual Report. The social and environmental outcomes for the Funds are also available on the ESG reporting page.
The 2022 Annual Report, published Q2 2023 will contain the SFDR Level 2 reporting templates.
Below are links to the firm-level disclosures required to be made under SFDR by the First Sentier Investors group.
Article 3 – Policy relating to the integration of sustainability risks in our investment decision-making process.
Article 4 - Transparency of adverse sustainability impacts at entity level – Principal Adverse Impacts Statement.
Article 5 - Transparency of remuneration policies in relation to the integration of sustainability risks.
Article 10 - Transparency of the promotion of environmental or social characteristics and of sustainable investments on websites.
The Prospectus for the First Sentier Investors Global Umbrella Fund plc includes the latest SFDR appendix disclosing the required pre-contractual information for the Stewart Investors Article 9 funds such as environmental and social objectives (including any alignment to EU taxonomy), sustainability indicators, and principle adverse impacts.
The 2021 Annual Report for the First Sentier Investors Global Umbrella Fund plc contains SFDR Level 1 reporting templates. The 2022 Annual Report, published Q2 2023 will contain the SFDR Level 2 reporting templates.