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 (PS23/6) 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, including proposals in CP 24/8 issued in April 2024 to extend SDR to portfolio management services. The application of SDR and labelling for overseas funds will be consulted on as part of the Overseas Funds Regime roadmap published in May 2024 by the FCA and HM Treasury, commencing in Q3 2024. This statement will be updated as we implement the SDR requirements applicable to the Group.

The Group’s Irish-regulated entity Evelyn Partners Investment Managers (Europe) Limited (EPE) and in-house pooled funds managed in the EU are subject to the Sustainable Finance Disclosure Regulation (SFDR) (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 entity level.

The Board of Evelyn Partners has delegated authority, via 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, 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 ESG-related 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 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. We are continuously developing 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.

The primary mechanism by which we exercise our duty as responsible investors is to ensure high standards of governance are met, and that social and environmental objectives are given due consideration.

Sector specialists conduct in-depth equity research. They rely on third-party research (including from brokers and MSCI), some primary research, and company meetings each year.

MSCI’s ESG scores are driven by historical disclosures and a formulaic system is used to derive ratings. This inherently leads to a selective focus based on geography, company size and specific company attributes, as well as providing a backward-looking measure.

When analysing a company, sector specialists must understand the reasons behind the MSCI ESG rating, and the most important ESG factors. The issues underlying the individual ratings for each sector are aggregated to establish the top five material risks per sector based on MSCI’s methodology. This information is then presented to the sector leads at dedicated annual meetings per sector along with the main sector risks identified by the Sustainability Accounting Standards Board. The sector leads then make a final qualitative decision on the top five material risks per sector for the purposes of our investment process.

Sector specialists 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.

This analysis incorporates an assessment of the likely impact of sustainability risks on the returns of these securities. In general, where such risk exists with an investment, there may be a negative impact on the value of those securities. 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.

Evelyn Partners assesses a wide range of sustainability risks as part of the investment analysis process. Some of these map across to the PAI indicators. However, the two lists are not mutually inclusive and we combine our approach to considering sustainability risks alongside monitoring and assessing PAI indicators (see section 4).

As part of our Due Diligence process, each company will be assessed based on its sector’s material risks and relevant outcomes are recorded in the sector specialist research notes.

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

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 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 enhanced 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 their impact through PAI indicators.

Collectives are then assessed for three categories:

• Funds subject to enhanced ESG integration due diligence: can be found in the wider collective list but have stringent responsible investment integration or positive inclusion policies.
• Responsible funds: eligible funds have specific responsible strategies/mandates in place. Evelyn Partners can accommodate bespoke negative and positive screening at the request of clients, or a combination of both
  • Other funds: all collectives are subject to responsible investment related due diligence even if they do not qualify for the two categories above

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.

Evelyn Partners monitors but does not currently consider the sustainability risks or PAIs of government debt, real estate, corporate debt, derivatives, structured products, private investments, and most alternatives. This will be kept under close review as reliable data on these asset classes becomes more readily available. However, these other asset classes are less material than the vast majority of our assets under discretionary management invested in public equities, 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. SRIG reviews PAIs on managed assets and 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 Stewardship and Responsible Investment team (SRI) for further escalation and engagement with investee companies and fund managers.

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

The firm will continue to adapt and improve its approach to considering PAIs as circumstances allow, including additional PAIs for material investments.

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 quarterly basis, and EPE’s annual PAI statement will be 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 quarterly 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.

Voting and engagement

As responsible investors, the group practices stewardship and active ownership through regular engagement with companies. This takes the form of informal discussions, as well as more formal voting and collaborative engagement. Through this, the aim is to improve environmental, social and governance performance of companies, along with other stakeholder interests.

Evelyn Partners’ voting policy can be found on the Stewardship section of its external website. This is built from the firm’s experience and engagement with companies, as well as the expertise of sector specialists and investment managers, which allow more nuanced judgements than the rules-based approach provided by proxy voting advisers.

Collaborative engagement

The group is a member of the below collaborative engagement platforms:

• The Investor Forum: is a community interest company set up by institutional investors in UK equities. The forum helps investors to work collectively to escalate material issues with the boards of UK-listed companies.
• Climate Action 100+: is an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
• Find it, fix it, prevent it is an initiative, started by CCLA Investment Management, which aims to bring the investment management industry together to push for meaningful, effective corporate action to end modern slavery.
• Corporate Mental Health Benchmark: we are founding member of the benchmark, which was launched in 2022 by CCLA, targeting FTSE 100 companies on how they manage employee mental health.
• FAIRR – a collaborative investor network that raises awareness of the environmental, social and governance (ESG) risks and opportunities in the food sector. FAIRR is involved in proactive dialogues with investors, food companies and stakeholders around material ESG issues, such as deforestation, biodiversity and climate.
• Seasonal Workers Scheme: we signed an investor statement with the aim of targeting companies who employ overseas workers though the Seasonal Worker Scheme.
• Nature Action 100: a global investor engagement initiative focused on driving greater corporate ambition and action to reverse nature and biodiversity loss.
• Votes against Slavery, was set up to urge companies to meet the reporting requirements of Section 54 of the UK Modern Slavery Act 2015..

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

Responsible investment is a rapidly evolving area for all investment firms and further changes will take place, 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.

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