Sustainability

Shelter Investment Management

 

Statement on Adverse Impacts of Investment Decisions on Sustainability Factors (SFDR)

 

The European Sustainable Finance Disclosure Regulation “SFDR” requires Shelter Investment Management (SIM) to disclose via its website whether the company will align its investment decisions with these new EU regulations. In particular SIM is required to disclose if it will take into consideration “adverse impacts in investment decisions on sustainability factors”.

 

However, as a company with less than 500 employees, SIM is authorized to make use of the “de minimis rule,” and therefore it can decide and must then disclose that it is not considering the “adverse impacts of its investment decisions on sustainability factors”, for both its advisory and discretionary management.

 

The Board of Directors of SIM has decided that for the time being, it does not wish to incorporate “adverse impacts of investment decisions on sustainability factors” in the manner as proposed in Art 3 and 4 of the SFDR regulation.

 

SIM has decided for this “opting out” after careful analysis of the SFDR and RTS regulations for the following reasons:

 

  • SIM strongly supports “sustainable” portfolio management and believes that careful consideration of environmental social and governance factors is important when making portfolio investment decisions.
    • This incorporation of ESG elements is in the view of SIM however ultimately the choice and decision of our investors and the investor should not be forced into this direction by forcing the portfolio manager into a “binary” choice.
    • That is why SIM continues to offer different types of solutions that take into account different ESG considerations next to solutions that do not.
    • SIM’s ESG approach to investments cannot be guaranteed to be fully aligned with the specific requirements of the new EU regulations.

 

  • SIM is of the opinion that the EU SFD and RTS regulations are, at this stage, not fully “compatible” with efficient discretionary portfolio management in the interest of the investors :

 

  • Regulatory uncertainty : The EU regulations are – at this stage – in the opinion of SIM, unclear and highly complex. This creates the risk that SIM – if it would opt-in – would face government controls (and eventually fines) based on alignment with unclear and highly complex rules.
  • Ideologic direction: The EU regulation appears to reflect certain ideological views regarding what is to be considered environmentally friendly. SIM does not always support such ideological views. Examples include the views on nuclear power, pellets, private electric transportation means, coal.
  • Data quality: The data required to analyze sustainability risks and factors in accordance with the new EU regulations is at this stage – in the opinion of SIM – uncomplete and highly divergent. SIM has reviewed reports that confirm this. Applying “sustainability screenings” within portfolio management leads to different portfolio compositions and thus results, depending on the data provider. Without reliable data, the outcome might not be in line with regulation or investor preferences.
  • Cost Impact: The actual cost of the sustainability data offered by data providers is highly expensive and pricing is not (yet) sufficiently aligned to the “company size” of the different users of this data. SIM is of the opinion that this cost can have important negative effects on the return of “sustainable” investment portfolio solutions. Especially as SIM is of the opinion that only these portfolio’s should pay for these costs.
  • Return Impact: As evidenced by the preliminary 2022 results, the impact of investors’ sustainability preferences can lead to particularly negative deviations in portfolio returns in comparison to standard non-sustainable benchmarks. The EU does not require notification of this important risk factor instead requires informing investors only about the risks of not applying sustainability factors. We believe it is a necessary element of communication to investors when making disclosures to inform “both ways”.

 

SIM does not target a specific date when it intends to align its discretionary and advisory to these new European regulations. However regulatory certainty, quality of data at an acceptable pricing will be critical elements in SIM’s decision-making process. SIM continues to be committed to sustainable finance and it will continue to follow-up the developments on the regulatory and data side with the view to (re-)consider its position on a regular basis.

 

The Board of Directors

Shelter Investment Management

September 2022 (second statement)