As at the date of this disclosure, in providing discretionary portfolio management services, we work with portfolio management partners.
The Sustainable Finance Disclosure Regulation (SFDR) defines sustainability risk as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.”
We recognise that sustainability risks can lead to outcomes that may have a negative impact on the value of investment returns. Therefore, we work closely with our portfolio management partners to generate ideas and recommendations for portfolio construction whilst benefiting from their securities analysis and risk management tools.
Our portfolio management partners use third party screening providers to identify companies with a poor track record in key areas of sustainability risk (e.g. environmental, social and employee matters, human rights and anti-bribery/anti-corruption). They do this because if ESG risks are not managed well by the companies and governments they invest in this could impact their profitability and therefore the investment returns for our clients. Their pre-investment analysis may sometimes identify risks which prevent them from investing in some companies or government securities. And if their ongoing risk-monitoring identifies risks then they may take a “do not make further investments” stance, reduce their existing position or, in extreme cases, they may choose to sell the investments they hold. However, ESG data provided by third parties may not always be reliable or consistent and this may impact a portfolio manager’s ability to accurately assess sustainability risks and effectively promote environmental and social characteristics, where relevant. To mitigate these operational and data quality risks associated with reliance on third party service providers and data sources, we work with our portfolio management partners to carry out due diligence where potential sustainability risks are identified so that appropriate investment decisions can be taken.