ESG investment strategies consider environmental (E), social (S) and governance (G) aspects in addition to traditional fundamental aspects such as micro- and macroeconomic information. The term "ESG investments" encompasses a range of approaches and is often used interchangeably with terms such as "ethical screening," "sustainable / responsible investing," and others.
In our view, the social and environmental sustainability of a business model and the integrity of management teams are important factors for creating long-term value. To address certain risks arising from controversial business areas or problematic business practices, we apply ESG exclusion criteria. Additionally, we consider positive factors that promote and sustain earnings growth, such as good corporate governance. Alongside our own research, we use external data to understand the sustainability profile of companies and issuers. We strive to identify material factors that are critical to improving long-term returns and the sustainability profile as part of our ESG investment process.
We have defined different approaches for incorporating ESG, which differ in the scope and depth of their application of ESG instruments.
Our ESG SCREENED strategies are based on binding exclusions and restrictions of certain activities to minimise material ESG risks. Strategies in this category apply our general ESG exclusion criteria.
Our ESG INTEGRATED strategies combine different ESG instruments in order to exclude or limit certain activities, to consider ESG risks and opportunities as part of the investment analysis, and to positively influence issuers through engagement and proxy voting activities.
Our ESG TARGETED and IMPACT FOCUSED strategies apply targeted ESG approaches, such as positive screening based on specific ESG or impact criteria. Additional ESG exclusion criteria may be applied in order to further limit investments in activities that do not support positive impact. ESG targeted strategies implement a specific ESG objective. Impact-focused strategies invest in companies, issuers, and project-based investments such as green bonds that generate measurable positive impacts on society or the environment and contribute to solving global challenges through their products, services, or financed projects.
ESG integration can vary significantly between different asset classes for several reasons. These can include for example availability, type and quality of data, as well as the stage of development of methodological approaches or even market conditions. The information provided here is therefore intended as a general description of ESG approaches. For a product-specific description, we refer to materials and documents provided in for each product.
Exclusion criteria serve as gatekeepers for portfolios: based on these criteria, investments in companies or countries are excluded if they do not meet or violate defined criteria. At the company level, these criteria typically relate to business activities such as the production of controversial products, or business practices such as the violation of human rights. The definition of specific revenue thresholds or the inclusion of further parts of the value chain (e.g. suppliers) allows for the fine-tuning of the exclusion criteria. Criteria for the exclusion of certain business practices are often based on internationally recognized norms, such as the principles of the UN Global Compact or the standards of the International Labor Organization (ILO).
In the context of government bonds, exclusion criteria typically relate to restrictions on fundamental freedoms, high levels of corruption, or not being part of internationally established environmental agreements.
For more information on our use of exclusion criteria, please see our publicly available ESG Exclusion Policy at www.berenberg.de/en/esg-publications.
We monitor ESG risks relating to controversial business activities and practices throughout the entire holding period of an investment. Through the automated integration of external data into our internal systems, compliance with exclusion criteria and the associated ESG risks are continuously monitored.
ESG ratings from external data providers are a relevant input into a comprehensive ESG analysis. They provide helpful information by highlighting potential strengths and weaknesses of companies and other issuers.
In our view, standardized ESG rating frameworks do not always adequately capture the complexity and nuances of individual companies. For smaller companies in particular, excessive reliance on such standardized frameworks may result in risks and opportunities being overlooked. While overall ESG data availability continues to improve, significant differences in data coverage and quality remain across companies, often depending on their size. We have published two studies on the ESG data gap for smaller companies and the resulting negative consequences regarding external ESG ratings.
External ESG analysis and ratings should therefore complement, but cannot replace, in-depth internal ESG analysis and direct interaction with companies and issuers.
Our ESG Office is responsible for our ESG strategy and integration, verifies compliance with the set standards and is responsible for internal knowledge building regarding ESG topics.
Our ESG Committee forms the governance and oversight body within the business unit. The committee reviews the progress of our ESG activities and discusses their further development, taking into account client needs, regulatory changes and overall market trends.
By "Active ownership" we refer to actively exchanging views with companies and issuers through engagements as well as communicating our views by providing proxy voting recommendations for shareholder meetings.
Engagement allows deep insights into strategies and processes of companies and issuers. We can initiate relevant improvements and increase transparency. In this way, as an active investor, we can help improve the sustainability profile of companies in the long term and reduce risks.
Exercising voting rights is an important tool for positively influencing corporate governance structures and for strengthening shareholder rights. To this end, we make recommendations for agenda items of shareholder meetings based on our Proxy Voting Policy in coordination between portfolio management and ESG Office. This approach covers equity investments in our mutual funds. Since the voting rights for these holdings are legally held by the capital management company of the funds, we pass on our recommendations to the capital management company, which takes them into account in its voting.
For more information, please see our publicly available Engagement Policy and Proxy Voting Policy at www.berenberg.de/en/esg-publications.
Investments with a focus on positive impact aim to have a positive social and/or environmental impact in addition to a financial return. There is no single, clear-cut definition of the term “Impact Investing”, and it now includes various forms of investment. In the past, the term mostly referred to investments in specific social and/or environmental projects or social enterprises with limited access to capital. Nowadays, the term may also refer to public market investments with a focus on positive impact or the Sustainable Development Goals. What most impact investments have in common, however, is that a defined positive impact is to be achieved, and certain metrics should help to determine the extent and development of this impact.
We offer strategies that select investments based on their positive contribution to specified global challenges. These are based on a selection of investable Sustainable Development Goals (SDGs).
Impact measurement is a complex field that a wide range of stakeholders from academia, business, and non-profit organizations are grappling with. There are many different approaches to impact measurement and several questions remain unanswered.
Nevertheless, certain standards have been established in recent years that define a basic system for impact measurement in various areas, including the public capital market. These are aimed at intentionality, measurability and targeted management according to the impact goal.
For our impact-focused strategies, we use a proprietary developed impact measurement tool alongside all other implemented ESG tools. Specific impact indicators are analysed based on quantitative and qualitative data and assigned a score using clear evaluation frameworks. The scores are added up at issuer level and can be aggregated at a portfolio level.
The United Nations’ 17 Sustainable Development Goals (SDGs) form an ambitious global roadmap of social, environmental and economic aspects. They are to be implemented by 2030. At the same time, they also serve as a framework for governments as well as for civil society, businesses and science. The SDGs are also increasingly being used as reference for investment activities.
As part of our impact analysis for relevant strategies we assess and classify portfolio holdings according to their contribution to relevant SDGs. We focus on 10 SDGs that we consider investable and relevant based on our studies.
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