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SUSTAINABILITY IN FOCUS
September 2022

Embracing SFDR with Sustainable Investments

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The Sustainable Finance Disclosure Regulation (SFDR) aims to increase transparency through improved disclosures, classifying the sustainability ambitions of investment funds, and defining sustainable investments.

SFDR product classifications in a nutshell

The EU Sustainable Finance regulation aims to direct capital flows towards meeting its sustainability objectives such as climate goals. An important component of this is the Sustainable Finance Disclosure Regulation (SFDR), which aims to improve the transparency of investment products through mandatory disclosures. With SFDR, financial instruments can be classified based on their level of sustainability ambition. More specifically, investment funds can be classified by the manufacturers themselves, based on three relevant SFDR articles:
  • SFDR Article 6:  Does not integrate sustainability or only uses very basic ESG considerations
  • SFDR Article 8: Addresses sustainability risks and promotes sustainability characteristics
  • SFDR Article 9: Integrates sustainability risks and has an explicit sustainability objective (i.e. environmental or social)
JSS Lux Funds according to SFDR Art. 6/Art.8/Art.9
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Source: Bank J. Safra Sarasin Ltd, as of 30.06.2022

SFDR-classified investment strategies at Bank J. Safra Sarasin

Bank J. Safra Sarasin currently offers 48 investment strategies with an SFDR classification. Of these, 40 are classified as Article 8 and the four that have a sustainability objective, on top of financial ones, are labelled Article 9. In terms of assets under management, 67% of our strategies registered in Luxembourg are classified as either Article 8 or 9 and follow the Bank’s sustainability approach.

What is a "sustainable investment"?

A key aspect of SFDR is the article 2/17, which defines a “sustainable investment into an economic activity” of an investee company, in contrast to commonly used ESG ratings that assign a score to a company. This specific definition is not only used by SFDR but also in other EU Sustainable Finance regulations, including MiFID II. The definition of a “sustainable investment” considers three steps:
1.Contributes to an environmental or social objective,
2.Does no significant harm (DNSH) and
3.Follows good governance

Bank J. Safra Sarasin’s approach to "sustainable investment"

Concrete rules for applying the three steps are not specified by SFDR. Therefore, we have built a bridge between our existing sustainable investing approach and the SFDR requirements. We do this by leveraging our sustainable investment tools and the Sustainability Matrix® to assess if an investee company’s economic activity contributes to an environmental (E) or social (S) objective by outperforming 75% of its peers, based on material sustainability topics. In addition, a company qualifies as contributing to E or S, if it generates revenues in support of the UN Sustainable Development Goals (SDG). Industry laggards and firms on our exclusion list will not be eligible for our sustainable investment strategies and do not pass the “do no significant harm” test under SFDR. Lastly, good governance is considered by using the UN Global Compact principles as a screening tool and by eliminating E, S or G outliers.
While the initial consequences of the new regulation appear complex, understanding and alignment in the market will improve over time with additional regulatory guidance. Here at Bank J. Safra Sarasin, we strive to support clients on their sustainability journey by offering greater transparency in our products and solutions.
  

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