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
|Article designation||Summary features||Investment strategy alignment|
|Article 6||All products must disclose the manner in which sustainability risks are integrated into their investment decisions.||
|Article 9||Any product which has a clear sustainability objective, incorporating both environmental and social aims, and that also meets various sustainability-related disclosure and reporting requirements.|
* 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 investment objective. 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
The sustainable investment objective of the strategies is to invest in companies which both contribute to, and benefit from, sustainable development, achieving positive social and environmental sustainable outcomes.
All investee companies contribute to improving human development, while many also contribute to positive environmental outcomes.
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 sustainable investment 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%
We consider that a company contributes to, and benefits from, sustainable development if its activities lead to positive social outcomes and may also contribute to positive environmental outcomes. 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.
Positive social outcomes
We will only invest in a company if we believe its activities lead to a positive social outcome.
We assesse positive social outcomes by reference to the below human development pillars. We have developed these human development pillars, by reference to, amongst other things, the UN Human Development Index.
- Health and well-being – improved access to and affordability of nutrition, healthcare and hygiene, water and sanitation
- Physical infrastructure – improved access to and affordability of energy and housing
- Economic welfare – safe employment offering a living wage and opportunities for advancement, access to finance and improved standards of living
- Opportunity and empowerment – improved access to and affordability of education and information technology
Positive environmental outcomes
We assess positive environmental outcomes by reference to the climate solutions developed by Project Drawdown* a non-profit organisation that has mapped, measured and modelled over 90 different climate solutions that it believes will contribute to reaching ‘drawdown’, i.e. the future point in time when levels of greenhouse gases in the atmosphere stop climbing and start to steadily decline.
Below is a list of climate solutions together with corresponding examples we believe lead to positive environmental outcomes:
- Food system - Sustainable farming, food production and distribution of food-related products and services
- Energy - adoption of renewable energy and other clean energy and related technologies
- Circular economy and industries - improved efficiency, reduced waste, and new business models for closing resource loops in linear value chains and production processes
- Human development - Advancement of human rights and education that drive environmental conservation and sustainable use of resources
- Transport - efficient transport technologies and growth in fossil fuel free transportation options
- Buildings - products and services which reduce the environmental footprint of the built environment, including energy efficiency, electrification, improved design, and use of alternative materials
- Water - less energy intensive methods for treating, transporting and heating water
- Conservation and restoration - supporting deforestation free and environmentally regenerative supply chains, operations and end of life impacts
Not every company will necessarily map to an environmental solution.
In assessing whether a company ‘contributes to, and benefits from’ sustainable development, we will consider whether:
- there is either a direct or enabling** link between the activities of the company and the achievement of a positive social or environmental outcome;
- the company can benefit from any contribution to positive social or environmental outcomes through revenue or growth drivers inherent in the company’s business model, strategic initiatives that are backed by research and development or capital expenditure, or from the company’s strong culture e.g. for equity and diversity; and
- the company recognises potential negative social or environmental outcomes associated with its product or services and works towards minimising such outcomes (e.g., a company that sells affordable nutritious food products in plastic packaging, but is investigating alternative packaging options).
No significant harm to the sustainable investment objectives
Our strategies only invest in companies which both contribute to, and benefit from, sustainable development, achieving positive social and environmental outcomes.
Any exposure to harmful or controversial products, services or practices is monitored on at least a quarterly basis. For harmful products and services which are revenue-generating, we apply a 5% revenue threshold. In other areas where harmful or controversial activities are not attributable to revenue (for example, employee or supply chain issues) we use internal analysis and research from external providers to monitor and assess companies. 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.
We meet with companies on an on-going basis to continuously assess their sustainability credentials. Where we identify changes to a company’s sustainability positioning through either meetings, ongoing monitoring and reviewing their annual reports, we will re-evaluate the investment case.
Portfolios are assessed on an ongoing basis by external service providers including controversy monitoring, product involvement, carbon footprints and other impact measures, and breaches of social norms including the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
The Principal Adverse Sustainability Indicators (as prescribed under the SFDR) are incorporated into our company analysis, team discussion and engagement programme. Every investment in portfolios must do no significant harm, based on the adverse impact indicator assessment. It is possible that an investor does no significant harm but still have some adverse sustainability impacts. In those cases, we shall engage with the company either directly or as part of collaborations with other investment institutions.
Product level data on PAI indicators in disclosed in the SFDR periodic reports.
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 report on the data that is available and monitor the availability of data as the new objectives fall into scope.
Our portfolios do not invest in fossil gas and/or nuclear energy related activities that comply with the EU Taxonomy.
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.