Sustainability-Related Disclosures

The Group’s UK regulated entities are subject to the UK Financial Conduct Authority’s (FCA) implementation of the Task Force on Climate-Related Financial Disclosures (TCFD) applicable to asset managers from 1 January 2023.  We are evolving the Group’s capabilities to address the FCA’s requirements for TCFD recommendations and disclosures applicable to Evelyn Partners from 1 January 2023. This includes forward-looking scenario analysis and metrics on the financed emissions of our clients’ investments, that will enable us to assess the degree of alignment with the objectives of the 2015 Paris Agreement.

The Group is also subject to the UK FCA Sustainability Disclosure Requirements (SDR) and investment labels requirements (PS23/16) with an implementation roadmap from 31 May 2024 to December 2026. This includes an anti-greenwashing rule on sustainability related claims about our products and services and Naming and Marketing rules for investment products. At present, our Irish-based Sustainable Evelyn Active Portfolios (SEAP) are out of scope, as overseas funds are products that are based overseas and not subject to UK sustainable investment and labelling requirements.  Similarly, our Sustainable Model Portfolio Service (SMPS) are not currently in scope, until labelling and disclosure requirements are extended to portfolio management services.  Both are subject to ongoing FCA consultation e.g. CP24/8. This statement will be updated as we implement the SDR requirements applicable to the Group. 

The Group’s Irish regulated entity, Evelyn Partners Investment Management (Europe) Ltd (EPE), and in-house pooled funds managed in the EU are subject to the Sustainable Finance Disclosure Regulation (EU 2019/2088) and related Regulatory Technical Standards (SFDR). The SFDR includes provisions requiring relevant businesses to disclose how sustainability risks are integrated into their investment processes and how due diligence is performed on the Principal Adverse Impacts of their investment decisions and investment advice on sustainability factors.

The SFDR defines:   

• Sustainability risk as an Environmental, Social or Governance (ESG) event or condition which, if it occurs, could cause a material negative impact on the value of an investment. 
• Sustainability factors are defined as environmental, social and employee matters, respect for human rights, anti-corruption, and anti-bribery matters. 

Principal Adverse Impacts (PAIs) are the most significant negative impacts of investment decisions on sustainability factors.  

For the purpose of SFDR Article 7 product level disclosures, EPE provides portfolio management services which are defined as a financial product under the SFDR. For the purposes of reporting PAIs on our EPE portfolios, we assume that the service offered to clients is treated as one product. Accordingly, PAI disclosures for EPE are reported at an entity level. 

The Board of Evelyn Partners has delegated authority via the Board ESG Committee and other Committees, to the Investment Process Committee (IPC) to manage and develop the investment process, including investment risk.  

The IPC has appointed the Stewardship and Responsible Investment Group (SRIG) to oversee the Group’s approach to responsible investment and overseeing voting and shareholder engagement activities. The IPC reports via other Committees to the Group Executive Committee (GEC). 

The Board of EPE, assisted by the EPE Audit and Risk Committee (AROC), is responsible for ensuring the compliance of EPE with the SFDR. 

The Institutional Asset Management Committee (IAMC) is responsible for ensuring compliance for in-house pooled funds managed by Evelyn Partners, including both EU and UK based funds. 

Our primary source of responsible investment data, including sustainability-related ESG and PAI data, is MSCI. In addition, Evelyn Partners receives data on all securities in the MSCI ACWI and the MSCI UK IMI indices. MSCI also provides an ESG score for all securities that they cover. Our responsible investment perspective on securities is supplemented by our own fundamental research and analysis, and also from other third-party providers, to arrive at an overall qualitative assessment or recommendation for sustainability risks. 

We have the ability to include positive or negative screening using MSCI’s ESG Manager tool. 

We have built our own proprietary reporting tool to aggregate PAI indicators using MSCI data and we follow their aggregation methodology. Since launch, we have developed our tool to include SFDR additional PAIs or updates to our methodology and we will continue to review how we embed in our investment process as PAI data becomes more readily available and reliable.  

Considering current data shortcomings, we also provide coverage information by asset type alongside the PAI indicators.  We expect the availability of responsible investment data sourced from other fund managers and investee companies, including PAIs, to develop and improve over time. We will continue to work with our third-party data providers to improve the data availability and quality and integrate these considerations into our investment and financial advice processes.

Our investment process involves rigorous analysis across geographies, asset classes, collective funds and companies, and includes assessing the Environmental, Social and Governance (ESG) factors alongside more traditional financial appraisal techniques. This improves our ability to identify high quality investments and strengthens the resilience of the portfolios we build for clients over the long term.

Approach to global systemic risks

Evelyn Partners employs a flexible, multi-faceted approach to identify financial or non-financial systemic risks in its investments, Our investment strategy team serves as the primary influence, who are complemented by relevant industry bodies (such as the Investment Association and PIMFA), new engagement collaborations, and analytical expertise to scan the horizon and ultimately act on these risks. We also draw upon our firm’s risk management framework.

The Financial Stability Board (FSB) defines systemic risk as ‘the risk of disruption to the flow of financial services that is caused by an impairment of all or parts of the financial system and has the potential to have serious negative consequences for the real economy’. ESG risks, where material, can have a negative effect on an individual investment or more widely, stretching across borders and jurisdictions, as in the case of climate change.

The strategy team provides regular insight into four megatrends that we believe will shape the next decade and monitors emerging risks, geopolitical developments, and important long-term trends that may span geographies. This themed approach supports timely identification of systemic issues and supports our commitment to stewardship and responsible investment.

Megatrends are powerful, disruptive forces that shape economies, businesses and societies. These themes include high-level ESG factors and represent our responsible approach from a strategic level. Identifying these trends help steer us towards sectors and industries with a clear runway of growth, enabling us to build better, future-proof investment portfolios. The four megatrends identified by Evelyn Partners include:

Shifting demographics

How we are addressing this risk: we note that ageing global populations, as is forecast by the megatrends research, can have significant impacts on the availability of labour in different areas and might also contribute the incidence of forced or child labour. How we are addressing this risk: our participation in the modern slavery Find it, Fix it, Prevent it collaboration helps to mitigate this aspect of risk. We have also instigated direct engagements with both investee companies and with collective funds where our data suggests contain this risk.

Changing world order and risk to financial systems

How we are addressing this risk: Evelyn Partners works to maintain and enhance financial standards by its membership of the Investment Association, TISA and PIMFA, where the aim is to improve standards, influence the direction and substance of regulation and provide practical industry guidance for financial institutions. These bodies provide support to the government and regulators to not only strengthen our system, but also help improve the health of the system for consumers by indirectly improving the framework and underpinning investment process and disclosures behind products and services on offer.

Bumpy energy transition

How we are addressing this risk: we have been incorporating climate-related metrics into our investment process, which are outlined in our TCFD report on climate-related disclosures for our discretionary managed investments, including physical and transition risk data, Paris Agreement alignment related metrics and data showing the contribution to renewable energy solutions (green revenues). This all serves to improve the resilience of our analysis. We have also been conducting engagements with investee companies and funds with the largest contribution to our overall carbon exposure to establish what decarbonisation steps are being taken, as well as encouraging ambition in this area.

Technological revolution

How we are addressing this risk: there are many ways in which technological changes are covered within the investment process – it is defined as key enabler for economic growth. For example, our technology analysts cover the impact of artificial intelligence (AI) both as an opportunity for investee companies and also regarding the degree to which power demand may increase at a time when reducing energy needs also improves profits. Megatrends analysis also suggests that AI may be a means of alleviating labour shortages arising from changing demographics, thus providing a link to systemic risks.

Strategic asset allocation (SAA) – determining country level risk

An ESG overlay is applied to our SAA process, with the aim of capturing potential risks that may be unmonitored using traditional financial methods. Country risks are therefore identified, considered, and monitored using a proprietary screening framework for ESG factors. The framework focuses on key material environmental, social and governance metrics that are deemed relevant proxies for country-level ESG risk exposure. These include exposure to climate risk, corruption, as well as restricted civil liberties and political rights.

Country-level ESG scores are assigned and ranked based on the relative performance across the identified ESG metrics. Country scores are then aggregated to regional level for the equity and fixed income asset classes and incorporated to generated portfolio-level ESG scores using approved SAA weights. ESG factors are periodically reviewed ahead of the SAA publication cycle.

Sector Level – material ESG risks

The most important ESG risk factors for each sector are derived by aggregating MSCI ESG scores from all companies in the MSCI ACWI and the MSCI UK IMI by sector. An example of these ESG risk factors can be seen in Table 1 below.

Our approach to selecting material risks on a sectoral basis aligns with MSCI’s methodology and compares with the Sustainability Accounting Standards Board (SASB) Materiality finder.

As of December 2024, the model also includes MSCI’s Climate Value at Risk (CVaR) scenario analysis methodology to identify which industry sectors are particularly vulnerable to climate Policy or Physical risks as well as which sectors are likely to benefit from Technology climate-related opportunities.

For all companies within the universe chosen, the average policy CVaR, technology opportunity CVaR and Physical CVaR is computed for each sector under a 2-degree NGFS Disorderly scenario. This is then compared to the average CVaR across all sectors to provide a view on whether the sector CVaR is above/below average and whether the sector has high/low risk or high/low opportunities.

Please refer to our Task Force for Climate Disclosures (TCFD) report for further details on CVaR.

MSCI, SASB model and CVaR outputs are then presented to our Sector Specialists, who make a final qualitative judgement in relation to the top five material risks facing each sector; this will inform security selection within the investment process’s monitored universe.

The framework to identify the ESG factors is reviewed annually by the Responsible Investment team to help ensure our methodology remains relevant. Any significant change to sector level ESG factors, from one year to the other, is highlighted to the Sector leads for their final assessment.

This process enables us to identify the top material ESG factors, typically three to five in total, for each industrial sector. These factors form part of the recommendation and security selection process. Where an ESG factor impacts the investment case of an individual investee company’s stock, this feeds into the overall stock recommendation.

In general, where a sustainability risk occurs in respect of these securities, there may be a negative impact on its value. Sustainability risk can either represent a risk on its own, or impact and contribute significantly to other risks, such as market risks, operational risks, liquidity risks or counterparty risks.

Issuer level risks: direct equity and corporate bonds

When analysing a company, analysts can consider the ESG rating as a starting point and the sector-level material ESG factors in which the company operates. Sector Specialists are encouraged to understand the drivers behind the ESG rating, alongside their own judgement, to ascertain if the factors are important to the long-term performance of the individual company. In particular, it is important to understand the reasons behind low scores.

Every week, direct Sector Specialists (equity and fixed income) and RI analysts attend a review meeting, alongside representatives from the Investment Strategy team, the Fixed Income team, Head of RI and the Director of Stewardship & RI . The purpose of this meeting is to review recommendations within the industry sector being covered and explore additional inputs; including material ESG factors from the aforementioned teams. Each sector is reviewed on a quarterly basis.

For each quarterly review meeting, a summary of ESG rating changes, new controversies, and material risks is given by the relevant RI analyst. This helps Sector Specialists understand ESG issues and ensure that any conclusions have been integrated into the investment recommendation.

The analysis also provides information about SFDR PAIs and key TCFD historical metrics for sector leads to consider in their periodic review. The data is also incorporated within the research notes template to help ensure the analysis is understood and embedded in the research process.

Our proprietary RI Dashboard allows Sector Specialists to easily access these datapoints and take relevant actions.

Sector Specialists also provide updates to all investment managers on their respective sectors, including coverage of key RI risks and metrics at the Wednesday Investment Meeting (WIM) following the earlier meeting.

In addition, semi-annual RI reports are provided to sector leads for them to assess impact on the companies within their specific sectors, including climate related metrics and PAIs for monitoring and risk management.

The risk factors we consider as part of our sector analysis are as follows:

Collective Investment Schemes (CIS or collectives)

Evelyn Partners monitors a selection of funds which then can be used to construct and maintain suitable portfolios. The PAI and escalation process for collectives is by and large the same as for direct investments, with additional details as outlined below:

Due diligence is undertaken on our funds under the following headings:

• Industry bodies: the investment firm/company should be a signatory to the UN Principles for Responsible Investment (PRI) and/or the UK Stewardship Code, or another equivalent body.
• Investment policy: a fund’s investment policy should incorporate the principles of the UN PRI and/or the UK Stewardship Code in their approach to responsible investment.
• Investment process: The fund manager should be able to describe how responsible investment and consideration of material ESG factors is integrated into the investment process.
• Responsible Investment resource: training should be available to all investment professionals. Additional note will be taken where there is dedicated resource and/or external ESG data providers.
• Stewardship: voting and engagement policies are being developed to also cover responsible investment and material ESG issues.
• Principal Adverse Impacts: the investment firm/ company should consider and disclose the PAIs of their investments.

Evelyn Partners uses a third-party platform (Door) to obtain relevant due diligence information on our collectives, in addition to data available through our ESG data provider MSCI.

As part of the due diligence process, sector specialists consider each fund’s approach to sustainability risks and factors, as well as whether they measure their impact through PAI indicators.

Collectives have then been assessed and ranked for their ESG integration and stewardship capabilities into two categories:

• Responsible /Sustainable funds with investment labels or using sustainability-related terms: eligible funds have specific responsible strategies/mandates in place. Evelyn Partners can accommodate bespoke negative and positive screening at the request and preference of clients, or a combination of both using this category of funds.
• Other funds:  we have extended our assessment to the rest of the monitored universe (i.e. those with no specific sustainability-related objective or criteria) and will continue our work to cover all funds with our standard due diligence approach over time.

Sector Specialists regularly meet with fund managers and closely track the performance of funds. Sector Specialists use MSCI ESG fund ratings as a starting point and include them in their research notes. They have the autonomy to override the MSCI ESG views with their qualitative assessment where there is a significant divergence between the MSCI ESG score and their own judgement.

Analysis of collectives incorporates an assessment of the likely impact of sustainability risks on the returns of these funds. In general, where a sustainability risk exists with an investment, there may be a negative impact on its value. Sustainability risk can either represent a risk on its own, or impact and contribute significantly to other risks, such as market risks, operational risks, liquidity risks or counterparty risks.

Fixed income- sovereign bonds

Our proprietary sovereign and SSA bond ESG risks scores are available for our monitored universe for sovereign bond assets.  This reflects the more direct relationship between these asset classes and country risks. Updates to our proprietary country ESG screens are provided by the Responsible Investment team at the Fixed Income Group to ensure that these risks are considered in this part of the investment process and incorporated into our SAA.

Integrated direct securities ESG research on material risks is provided at sector level quarterly meetings by RI analysts.  This also includes fixed income team participants which cover sovereign bonds. External credit research used by fixed income analysts contains ESG factors. Individual issuer analysis conducted by the fixed income team, includes the consideration of changing factors over time, including sustainability-related and ESG factors.

Fixed income - corporate bonds

As explained above, the weekly meetings that take place involve key investment professionals on direct securities includes ESG research on material risks.  Similarly, this also includes fixed income team participants which cover corporate bonds. In addition, external credit research used by fixed income analysts also contains ESG factors. In terms of proprietary analysis, individual issuer analysis conducted by the fixed income team includes the consideration of changing factors over time, including sustainability-related and ESG factors.

Other asset classes

Evelyn Partners does monitor, but does not currently consider, the sustainability risks or PAIs on derivatives, structured products, private investments and most alternatives. This will be kept under close review as reliable data on these asset classes becomes more available. However, these other asset classes are not as material as the vast majority of our assets under discretionary management are invested in public equities and bonds, directly or indirectly.

As stated above, in addition to the consideration of sustainability risks, we also monitor and evaluate PAI indicators and the adverse impacts of investment decisions on sustainability factors, which include:

PAI considerations for the Group

We extract the highest contributors per PAI indicator and identify any outliers on a specific PAI or across several PAIs for the Group’s discretionary managed assets under management. SRIG reviews PAIs on managed assets and semi-annual reports are escalated to the relevant investment groups for direct investments and collectives for further analysis. These groups then decide on relevant actions to be taken, including referring to the Responsible Investment team for further consideration, escalation and engagement with investee companies or fund managers. Relevant actions could include deep dives into stocks, engagement activities, dropping coverage, querying the accuracy of data with sector specialist, or escalating to our data providers. 

PAI data is monitored on a semi-annual basis for the Group’s discretionary managed assets for internal purposes only.  

PAI materiality assessment

The firm will continue to adapt and improve its approach to considering PAIs as circumstances allow, including additional PAIs for material investments. Beyond the mandatory PAIs required by SFDR, we have assessed the materiality of additional PAIs through a proprietary framework. This involved the mapping of additional PAIs to our material risks, defining a minimum coverage threshold, assessing the materiality for our investment holdings and the probability of occurrence. The shortlist of potential additional PAIs to consider is then presented to SRIG for a final qualitative assessment. The agreed material additional PAIs are then added to the semi-annual RI report, which is produced for CIG and DIG and sector specialists.

Bottom-Up RI priorities

Evelyn Partners has identified a series of bottom-up RI priorities of Environmental Resilience, Workplace Standards and Excellence in Governance:  

• Environmental Resilience includes the examination of a company’s business model in terms of its environmental footprint, including carbon, and its plans to adapt to our future, both in terms of risk mitigation as well as finding ways to generate revenues in climate-related solutions. 
• Our social orientated theme is Workplace Standards, which looks at the commitment of investee companies to maintain acceptable working conditions in their own operations and in their supply chain. We believe that fair and equitable policies form a solid foundation for ongoing productivity and success.
• The final theme of Excellence in Governance comes with the expectation of a competent, independent, inclusive and committed board that aligns strategies with goals and with reasonable, long term remuneration terms. We expect them to have appointed credible management teams and make changes where necessary.
  The aim of the priorities is to provide a focus on key areas where we wish to focus for investee companies and with funds. The priorities are comprised of PAIs, MSCI metrics and forward-looking climate metrics and this provides us with a framework for us to understand the key risks at bottom-up level. They give us a focus for risk identification and stewardship activities.

PAI considerations for EPE

EPE is the Group’s only EU-based legal entity directly in scope of the SFDR’s requirement to disclose a principal adverse sustainability impact statement by the 30 June of each year. EPE AROC receives PAI reports on a semi-annual basis, and EPE’s annual PAI statement is published on the Group’s website under Legal and Regulatory disclosures.

Financial advice PAI considerations for EPE

EPE follows the group process for considering PAIs described above for its managed advisory service, where sufficient and reliable data is available. 

To support this activity, we collect PAI data for EPE’s managed advisory business on a quarterly basis and report this to AROC for further consideration. This informs decisions on the portfolios or advice given to clients, which they may or may not choose to implement. 

We do not rank and select financial products based on the PAI indicators but will review the most significant investments per PAI as part of the semi-annual PAI review. 

We do not currently define a threshold based on the PAIs to select, or advise on, financial products but will continue to review our methodologies and client documentation to align to the SFDR.   

Active ownership (stewardship) and engagement can take a variety of forms: 

• direct communication (sometimes repeated) with board members – direct engagement
• direct communication with fund managers of third-party collective investments – direct engagement
• acting in collaboration with other investors in working groups – collaborative engagement
• communicating with relevant stakeholders of the investee companies 
• abstaining or voting against management – use of voting 

Further information on our stewardship disclosures and related activities can be found on Evelyn Partners’ website, including voting and engagement policies separately, available online at www.evelyn.com.

Remuneration – Sustainability Disclosure

Evelyn Partners’ remuneration policy takes into account sustainability-related disclosures in the financial services sector. The policy is consistent with Evelyn Partners’ approach to the integration and management of sustainability risks in its investment process. Relevant feedback, including non-financial criteria, is provided to the remuneration committee for consideration in the assessment of variable remuneration. This includes whether the investment process has been followed with regard to matters such as asset allocation, security selection, responsible investment and investment risk management, including sustainability risks.

International standards

We are signatory to the United Nations Principles for Responsible Investing (UN PRI) and are committed to the principles and are a signatory of the UK Stewardship Code 2020. We have also committed to completing the Carbon Disclosure Project (CDP) disclosures each year from 2022, in addition to our TCFD disclosures.

For further information, please see our website for our Corporate Responsibility Report and climate-related disclosures.

Industry associations

We are members of several industry associations.  They provide a valuable source of additional information in this area. Many have published guidance on best practice and continue to track ongoing developments for responsible investment and sustainability-related finance regulation. Evelyn Partners is an active participant in relevant working groups for sustainability-related initiatives and is a member of the following bodies:

• The Investment Association
• Personal Investment Management & Financial Advice Association (PIMFA)
• The Investing and Saving Alliance (TISA)

Training

Responsible investment is a rapidly evolving area for all investment firms and changes are regularly communicated, especially as Evelyn Partners implements ongoing UK and EU regulatory requirements in its investment process. Training for Investment Managers and Sector Specialists will continue to be provided as these changes are implemented, including on FCA anti-greenwashing and the SDR regime and additional climate related training to sector specialists.

Further information on Policies and Stewardship activities

Please refer to our Group website (Responsible investing | Evelyn Partners), our Corporate Responsibility Report, including TCFD climate-related disclosures, and Legal and Regulatory disclosures for further information.

Specific detailed policies covering Responsible Investment and Stewardship include:

• Responsible Investment Policy
• Voting Policy
• SRD II Engagement Policy

This statement applies to the following Evelyn Partners legal entities:

Evelyn Partners Asset Management Limited*
Evelyn Partners Discretionary Investment Management Limited*
Tilney Discretionary Portfolio Management Limited*
Evelyn Partners Securities*
Evelyn Partners Investment Management Services Limited*
Evelyn Partners International Limited**
Evelyn Partners Investment Management LLP*
Evelyn Partners Investment Management (Europe) Limited***
Evelyn Partners Investment Services Limited*
Smith & Williamson Investment Management Ireland Limited***

* Evelyn Partners UK firms authorised and regulated by the Financial Conduct Authority.
** Evelyn Partners International Limited is regulated by the Jersey Financial Services Commission.
*** Evelyn Partners Irish entities regulated by the Central Bank of Ireland