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Sustainability-related disclosure | Dicretionary mandate according to Art. 9 SFDR

Sustainability-related disclosure according to Article 10 of Regulation (EU) 2019/2088 in conjunction with Article 24 et seq. of Delegated Regulation (EU) 2022/1288

The subject of this document is mandatory information about the environmental and/or social characteristics of this asset management strategy. It is not marketing communication. This information is required by law to transparently explain the environmental and/or social features advertised by the asset management strategy.

a) Summary

No significant harm to the sustainable investment objective

As part of the ESG exclusion process, companies are excluded on the basis of activity- and norm-based exclusion criteria. The ESG exclusion criteria represent a minimum standard that companies must meet in order to be investable for the portfolio. Among others, companies which are directly involved in ongoing very severe ESG controversies are identified and fundamentally excluded from an investment.

Further ESG elements are applied so that sustainable investments do not cause significant harm to the sustainable investment objective:

Sustainable investment objective of the financial product

This strategy seeks sustainable investments within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation.

The sustainable investment objective of the strategy is to invest in securities that make a positive contribution to solving global challenges through their products, services or projects. The focus is on four global challenges or key structural topics that relate to some of the United Nations’ Sustainable Development Goals and which have been defined by the Berenberg Wealth and Asset Management ESG Office in collaboration with the portfolio management units of Berenberg Wealth and Asset Management:

  1. Demography & Health;
  2. Climate Change;
  3. Sustainable Growth & Innovation;
  4. Responsible Use of Resources.

Investment strategy

The strategy strives for long-term capital appreciation with due regard to the sustainable investment objective (within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation).

The core of the investment strategy is fundamental single security selection (bottom-up approach) with due regard to sustainability-relevant top-down trends. In addition to thorough internal analysis, research from external data providers is used to understand the sustainability profile of a company and its products and services.

Proportion of investments

The asset allocation of the asset management strategy and the extent to which it may take direct or indirect risk positions vis-à-vis companies can be found in the investment guidelines.

This asset management strategy strives for sustainable investments within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation. The minimum share of sustainable investments is 51%.

The strategy has a minimum share of 1% of sustainable investments with a social objective, and 1% of sustainable investments with an environmental objective. The investments underlying this strategy do not take into account the EU-Taxonomy criteria for sustainable investments; however, due to the interlinkages of the four global challengers/key structural topics with the Taxonomy objectives, investments may contribute particularly to the objectives of climate change mitigation and climate change adaptation.

The category "Other investments" includes cash holdings as well as investments in products used for hedging purposes or portfolio balancing.

Monitoring of sustainable investment objective

The attainment of the sustainable investment objective is monitored, among other things, by system-side checks for compliance with the ESG exclusion criteria as well as the controversies. The evaluation is based on data from external data providers that are provided automatically in our systems. Underlying screens for this automated external data are defined and regularly reviewed by the Berenberg Wealth and Asset Management ESG Office. Further, through the application of the Berenberg Net Impact Model, the attainment of the sustainable investment objective is monitored.

Methodologies

The following sustainability indicators are used to measure the achievement of the sustainable investment objective:

  • The Net Impact Score for each portfolio position (excluding cash and investments in products used for hedging purposes), derived from the proprietary developed Berenberg Net Impact Model
  • The revenue exposure in at least one of the four structural investment topics Demography & Health, Climate Change, Sustainable Growth & Innovation and Responsible Use of Resources.
  • Percentage of portfolio's market value exposed to companies in violation of global norms and conventions (incl. ILO standards, UN Global Compact Principles, OECD Guidelines for Multinational Enterprises)
  • Percentage of portfolio's market value exposed to companies directly linked to ongoing very severe ESG controversies
  • Percentage of portfolio companies by ESG controversy flag
  • Percentage of portfolio's market value exposed to companies with involvement in excluded business activities

Data sources and processing

To attain the sustainable investment objective of the strategy, the following data sources are used:

  • Exclusions and controversy monitoring based on data provided by MSCI ESG Research.
  • ESG and Impact opportunity and risk analysis is based on internal research, exchanges with the companies, and data from external ESG data providers including MSCI ESG Research and further, such as RepRisk.

Limitations to methodologies and data

There may be limitations on the retrieval of data from data providers such as MSCI ESG and RepRisk due to their lack of coverage in the universe for certain companies, data errors, or methodological shortcomings. However, internal ESG and Impact analysis which includes in-depth checking on environmental and social characteristics and potential further direct engagements with companies to retrieve information, reduces the impact of such limitations on meeting the environmental and social characteristics that the asset management strategy promotes.

Due diligence

In addition to reviewing legal and contractual requirements as well as analysing financial metrics, the portfolio management conducts an in-depth analysis of the environmental and social characteristics of portfolio positions and their contribution to the strategy’s sustainable investment objective.

The ESG exclusion criteria represent a minimum standard that companies must meet in order to be investable for the portfolio. The compliance with the ESG exclusion criteria is monitored, among other things, by system-side checks for compliance. The evaluation is based on data from external data providers that are provided automatically in our systems. Underlying screens for this automated external data are defined and regularly reviewed by the Berenberg Wealth and Asset Management ESG Office.

Engagement policies

Part of the ESG integration and analysis within the asset management strategy is our work in the area of active ownership; whereby, we – as investors – attempt to exert a positive influence on companies in regards to their handling of ESG aspects. This includes, among other things, so-called engagement (i.e., direct dialogue with companies on specific ESG aspects). Existent and/or potential ESG controversies and other ESG-relevant aspects are addressed in a structured engagement process. Based on this engagement, the portfolio management can determine whether a company/issuer acknowledges existent and/or potential problems and whether it is developing strategies both to solve these and to identify opportunities related to ESG/sustainability.

Attainment of the sustainable investment objective

The asset management strategy does not currently use an index as a benchmark to determine whether the strategy is aligned with the sustainable investments.

b) No significant harm to the sustainable investment objective

As part of the ESG exclusion process, companies are excluded on the basis of activity- and norm-based exclusion criteria. The ESG exclusion criteria represent a minimum standard that companies must meet in order to be investable for the portfolio. Among others, companies which are directly involved in ongoing very severe ESG controversies are identified and fundamentally excluded from an investment.

Furthermore, the following elements ensure that sustainable investments do not cause significant harm to the sustainable investment objective:

  • Consideration of mandatory principal adverse impacts (PAIs) on sustainability factors
  • ESG controversy monitoring and engagement with portfolio companies linked to severe ESG controversies
  • Analysis and scoring of negative impact indicators within the Berenberg Net Impact Model. Aspects considered include:
    • ESG controversies
    • Involvements in controversial business
    • Carbon intensity and management, wherein a defined minimum scoring threshold must be met
    • Overall transparency level and openness to dialogue

The strategy considers principal adverse impacts on sustainability factors through binding elements of its investment strategy. More specifically, PAI are considered in a binding manner through activity-based exclusions, using company revenues, norm-based exclusions, as well as within the Berenberg Net Impact Model.

The strategy further applies norms-based screening against international frameworks such as the UN Global Compact Principles, OECD Guidelines for Multinational Enterprises and International Labour Organisation (ILO) Standards. The strategy also applies further standards-based screening based on MSCI ESG Research's ESG controversy methodology. On this basis, companies are identified that are directly involved in ongoing, particularly serious ESG controversies. These are generally excluded for investment.

c) Sustainable investment objective of the financial product

This strategy seeks sustainable investments within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation.

The sustainable investment objective of the strategy is to invest in securities that make a positive contribution to solving global challenges through their products, services or projects. The focus is on four global challenges or key structural topics that relate to some of the United Nations’ Sustainable Development Goals and which have been defined by the Berenberg Wealth and Asset Management ESG Office in collaboration with the portfolio management units of Berenberg Wealth and Asset Management:

1. Demography & Health;

2. Climate Change;

3. Sustainable Growth & Innovation;

4. Responsible Use of Resources.

The assessment and measurement of the positive impact is carried out as part of the fundamental financial and impact analysis. After a security has been mapped to one of the four global challenges based on its revenues within relevant business activities, the positive and potentially negative impact is assessed and measured both qualitatively and quantitatively within the framework of the proprietary impact measurement tool, the Berenberg Net Impact Model.

Specific measures in the positive as well as the negative impact space have been defined, in order to holistically capture the net impact of the portfolio holdings. For each holding, every impact measure is analysed individually and given a score, which is summed up at the individual security level and finally aggregated at the portfolio level. Information taken into account are, among others, financial metrics such as revenues, capital expenditures for e.g. improving physical assets and expenditures for research and development (R&D) as well as carbon metrics, controversies, controversial business ties and ESG- and Impact-related transparency and strategy. Through direct contact with the companies, the sustainability strategy and the potential to generate a positive impact are further determined.

For the evaluation and measurement of the positive impact, the portfolio management uses company-specific data (e.g., corporate reporting), insights from company engagements, in-house research (e.g., using broker research, industry experts) as well as information from external data providers. Leveraging a combination of our own ESG/Impact analyses and external data, qualitative and quantitative company valuations are prepared based on the sources and processes described above, which are used to assess the positive added value and, based on this, the ability to invest. The impact analysis and the impact scores are based on quantitative and qualitative data. All impact-related information is compiled within an internal database.

The investments underlying this strategy do not take into account the EU-Taxonomy criteria for sustainable investments; however, due to the interlinkages of the four global challengers/key structural topics with the Taxonomy objectives, investments may contribute particularly to the objectives climate change mitigation and climate change adaptation.

d) Investment strategy

The strategy strives for long-term capital appreciation with due regard to the sustainable investment objective (within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation).

The core of the investment strategy is fundamental single security selection (bottom-up approach) with due regard to sustainability-relevant top-down trends. In addition to thorough internal analysis, research from external data providers is used to understand the sustainability profile of a company and its products and services.

Good governance practices of the investee companies are assessed based on the following elements of the investment strategy:

  • Application of norm-based ESG exclusion criteria and ESG controversy monitoring with exclusion of companies directly linked to ongoing very severe ESG controversies including governance practices and compliance with international norms based on Berenberg Wealth and Asset Management ESG Policy and ESG Exclusion Policy
  • Engagement with portfolio companies linked to severe ESG controversies based on Berenberg Wealth and Asset Management Engagement Policy
  • ESG analysis based on internal research, exchanges with the companies, and data from external ESG data providers, covering, among others, governance practices
  • Overall level of ESG transparency and openness to dialogue assessed as part of the Berenberg Net Impact Model
  • ESG-/Impact-related strategy and credibility of the company assessed as part of the Berenberg Net Impact Model

e) Proportion of investments

The asset allocation of the asset management strategy and the extent to which it may take direct or indirect risk positions vis-à-vis companies can be found in the investment guidelines.

This asset management strategy strives for sustainable investments within the meaning of Article 9 of the Sustainable Finance Disclosure Regulation. The minimum share of sustainable investments is 51%.

The strategy has a minimum share of 1% of sustainable investments with a social objective, and 1% of sustainable investments with an environmental objective. The investments underlying this strategy do not take into account the EU-Taxonomy criteria for sustainable investments; however, due to the interlinkages of the four global challengers/key structural topics with the Taxonomy objectives, investments may contribute particularly to the objectives of climate change mitigation and climate change adaptation.

#1 Sustainable covers sustainable investments with environmental or social objectives.

#2 Not sustainable includes investments which do not qualify as sustainable investments.

The category "Other investments" includes cash holdings as well as investments in products used for hedging purposes or portfolio balancing.

For "non-sustainable investments" that do not fall under the sustainability strategy of the asset management strategy, there are no binding criteria for considering a minimum ecological and/or social protection. This is also due to the nature of the assets, for which at the time these contractual documents were prepared there were no legal requirements or standard market procedures for implementing minimum ecological and/or social protection for such assets.

f) Monitoring of sustainable investment objective

The attainment of the sustainable investment objective is monitored, among other things, by system-side checks for compliance with the ESG exclusion criteria as well as the controversies. The evaluation is based on data from external data providers that are provided automatically in our systems. Underlying screens for this automated external data are defined and regularly reviewed by the Berenberg Wealth and Asset Management ESG Office. Further, through the application of the Berenberg Net Impact Model, the attainment of the sustainable investment objective is monitored.

The internal control of this monitoring and the underlying regulatory classification is carried out by Portfolio Management, the ESG Office, Compliance and Internal Audit, among others.

g) Methodologies

The following sustainability indicators are used to measure the achievement of the sustainable investment objective:

  • The Net Impact Score for each portfolio position (excluding cash and investments in products used for hedging purposes), derived from the proprietary developed Berenberg Net Impact Model
  • The revenue exposure in at least one of the four structural investment topics Demography & Health, Climate Change, Sustainable Growth & Innovation and Responsible Use of Resources.
  • Percentage of portfolio's market value exposed to companies in violation of global norms and conventions (incl. ILO standards, UN Global Compact Principles, OECD Guidelines for Multinational Enterprises)
  • Percentage of portfolio's market value exposed to companies directly linked to ongoing very severe ESG controversies
  • Percentage of portfolio companies by ESG controversy flag
  • Percentage of portfolio's market value exposed to companies with involvement in excluded business activities

h) Data sources and processing

To attain the sustainable investment objective of the strategy, the following data sources are used:

  • Exclusions and controversy monitoring based on data provided by MSCI ESG Research.
  • ESG and Impact opportunity and risk analysis is based on internal research, exchanges with the companies, and data from external ESG data providers including MSCI ESG Research and further, such as RepRisk.

To ensure data quality and to process data, the following measures are taken:

  • A due diligence is being performed as part of the data procurement process when selecting data providers by subject matter and technical experts, incl. evaluation of portfolio and benchmark universe coverage, review of providers’ underlying models and frameworks, comparison of provider data with internal analysis and assessments,
  • Furthermore, an engagement with data provider will take place in case of material changes to underlying data and/or data concerns,
  • An automatic integration of provider data feeds into internal systems for portfolio management and monitoring purposes,
  • Internal assessment and analysis of controversy data,
  • As part of the ESG opportunity and risk analysis relevant data/ information from internal research is aggregated, exchanged with the companies, and validated with data from external ESG data providers.

Estimated figures may be required e.g., in case of non-existent corporate disclosure and may be directly sourced from data providers. As coverage and methodologies changes and further develops, a proportion of data that is estimated cannot be given.

i) Limitations to methodologies and data

There may be limitations on the retrieval of data from data providers such as MSCI ESG and RepRisk due to their lack of coverage in the universe for certain companies, data errors, or methodological shortcomings. However, internal ESG and Impact analysis which includes in-depth checking on environmental and social characteristics and potential further direct engagements with companies to retrieve information, reduces the impact of such limitations on meeting the environmental and social characteristics that the asset management strategy promotes.

j) Due diligence

In addition to reviewing legal and contractual requirements as well as analysing financial metrics, the portfolio management conducts an in-depth analysis of the environmental and social characteristics of portfolio positions and their contribution to the strategy’s sustainable investment objective.

The ESG exclusion criteria represent a minimum standard that companies must meet in order to be investable for the portfolio. The compliance with the ESG exclusion criteria is monitored, among other things, by system-side checks for compliance. The evaluation is based on data from external data providers that are provided automatically in our systems. Underlying screens for this automated external data are defined and regularly reviewed by the Berenberg Wealth and Asset Management ESG Office.

In the event of severe ESG controversies as identified by the ESG controversy analysis of our external ESG data provider, the portfolio management engages directly with the company, in the case of both existing holdings and potential new investments, in order to analyse the controversy with the company and to make a final investment decision on this basis. Existent and/or potential ESG controversies and other ESG-relevant aspects are addressed in a structured engagement process. Based on this engagement, the portfolio management can determine whether a company/issuer acknowledges existent and/or potential problems and whether it is developing strategies both to solve these and to identify opportunities related to ESG/sustainability.

The ESG opportunity and risk analysis is based on internal research, exchanges with the companies, and data from external ESG data providers. Relevant ESG issues are openly discussed or monitored within the investment team and in dialogue with the ESG Office. Based on a bottom-up approach, exclusion criteria are applied, and industry-relevant ESG criteria are analysed in a basic evaluation process to determine a sustainability profile of companies. In addition to ESG compliance, long-term profitability remains the decisive selection factor.

A due diligence is being performed as part of the data procurement process when selecting data providers by subject matter and technical experts, incl. evaluation of portfolio and benchmark universe coverage, review of providers’ underlying models and frameworks, comparison of provider data with internal analysis and assessments. An engagement with the data provider will take place in case of material changes to underlying data and/or data concerns.

k) Engagement policies

Part of the ESG integration and analysis within the asset management strategy is our work in the area of active ownership; whereby, we – as investors – attempt to exert a positive influence on companies in regards to their handling of ESG aspects. This includes, among other things, so-called engagement (i.e., direct dialogue with companies on specific ESG aspects). Existent and/or potential ESG controversies and other ESG-relevant aspects are addressed in a structured engagement process. Based on this engagement, the portfolio management can determine whether a company/issuer acknowledges existent and/or potential problems and whether it is developing strategies both to solve these and to identify opportunities related to ESG/sustainability.

More detailed information on our engagement approach can be found in the publicly available Berenberg Wealth and Asset Management Engagement Policy as well as the annual Berenberg Wealth and Asset Management Active Ownership Report.

l) Attainment of the sustainable investment objective

The asset management strategy does not currently use an index as a benchmark to determine whether the strategy is aligned with the sustainable investments.