As part of its Sustainable Finance Action Plan, the European Commission has enacted the new Sustainable Finance Disclosure Regulation (“SFDR”). This regulation imposes an obligation on fund managers, financial advisers and certain other regulated firms in the European Union (“EU”) to disclose information on various environmental, social or governance (“ESG”) considerations to potential investors, in pre-contractual documentation and on their websites. Much of SFDR applies from 10 March 2021, with the remainder, notably reporting, coming into effect on January 2022 at the earliest.
The regulation can be broken down into 3 sets of requirements, the article 3 disclosure of the manager’s policy on the integration of sustainability risks, the requirement to assess and publish the Principal Adverse Impacts (i.e. a range of metrics for example carbon emissions) of the companies in which it invests, and finally the article 8/9/other classification regime, with a more detailed regime to follow as a result of a separate Taxonomy Regulation. This document summarises Acadian’s position and policy on each of these in turn.
1. SFDR Article 3: Policy on Integration of Sustainability Risks into Decision Making Process
Acadian considers sustainability risks to be material investment issues, meaning here an environmental, social or governance event or condition that if it were to occur could cause an actual or potential material negative impact on the value of an investment. As such, we were the first quantitative manager to become a signatory to the Principles for Responsible Investing in 2009.
As a quantitative manager, our process is well-suited to assessing materiality and to ensuring the broad integration of sustainability risk and other ESG concepts. Our investment process integrates a full suite of environmental, social, and governance issues; likewise, we undertake responsible investing initiatives in all aspects of our process, from oversight of our Strategy & Governance, to Integration, Active Ownership and Portfolio Reporting.
Acadian incorporates sustainability risk in all parts of our investment process as it is integrated through factors in our bottom-up and top-down forecasting frameworks, as well as client-mandated portfolio exclusions, portfolio tilts, and/or proxy voting direction. Acadian’s approach focuses on the issues that our research has found to have a material impact on investment outcomes. Therefore, Acadian integrates factors into our core investment process that account for governance quality, sociopolitical risk and other considerations. In addition, we have an active research agenda to potentially integrate other ESG factors into our process, provided we would still be able to meet our fiduciary duty to our clients to maximize risk-adjusted returns.
Further information can be found on the responsible investing page.
2. Principal Adverse Impacts
In accordance with article 4 of the Sustainable Finance Disclosure Regulation (“SFDR”), Acadian Asset Management as a “financial market participant” under the SFDR is required to either implement an investment due diligence policy to consider the principal adverse impacts (“PAI”) of its investment decisions on “sustainability factors” as defined under the SFDR, or explain why it has determined not to do so.
Acadian Asset Management has carefully considered the requirements of article 4, together with the more detailed provisions set out currently in draft form in the Level 2 Regulatory Technical Standards (“RTS”) supporting article 4, and has determined that it is currently not appropriate for Acadian Asset Management to seek to comply with the provisions of this article as a matter of commercial preference and through the lack of final RTS. Acadian Asset Management proposes to continue to monitor progress in this area post 10 March 2021, and to revisit this requirement. In the interim, should you have an urgent requirement for the PAI data pertaining to a given strategy please let us know and we will be more than happy to discuss the provision of data which is available to Acadian Asset Management as at the current time.
3. Article 8/9 labelling
The intention of the article 8 and 9 labelling introduced under SFDR is to facilitate the decision making process for investors looking to invest in funds having the management of sustainability risks as a key part of their objective, and to that end it is our view that only those funds or strategies which seek to promote Environmental, Social or Governance characteristics as part of their binding investment objective should classify as article 8, with the remainder classified as mainstream funds. Therefore, even though all of Acadian’s funds and strategies integrate E, S and G characteristics and risks to the extent these could impact negatively on returns, only the following funds have been assessed as article 8 compliant as at the current date:
- Acadian Sustainable Global Managed Volatility UCITS
- Acadian Sustainable Global Equity UCITS
- Acadian Sustainable Emerging ex Fossil Fuel UCITS
- Acadian Sustainable Multi Factor UCITS
Further information (including the revised prospectus and the associated website disclosures) on the above can be obtained from the UCITS Management Company, Russell Investments Ireland Limited. As at the current time the article 8/9 labelling has been based on the level 1 SFDR. Accordingly the disclosures may be amended over the coming months, as the requirements of the Taxonomy Regulation emerge, together with the required annual reporting.
Further information on Acadian’s approach to ESG as well as our voting and engagement policy can be found on the following links: