Tisa Esg Briefing Slide Deck 1

28 April 2020 | 9.00 – 11.
00 BST
Jeffrey Mushens
Technical Policy Director, TISA
Welcome from TISA – platform guide
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Why an ESG Briefing
 Because Government is interested
 Because the regulators want us to care
 Most importantly, because customers care
ESG Briefing - Preparing to deliver in 2021

Introduction to ESG
• What is ESG?
• What isn’t ESG
• Why ESG?

What do the Regulations say?
• What is the timetable?

• MiFID II
• ESG
• What the regulators say

ESG Timeline

ESG Timeline
Source: Eversheds Sutherland: Sustainable Investing - The roadmap for ESG and Sustainability ESG Briefing - Preparing to deliver in 2021
ESG Timeline
ESG Timeline
What do investment firms have to do?
• Asset managers
• Advisers
• Platforms

Why
www.tisa.uk.com 11
Decline of coal
• in 1922 1.1 million people worked in the mines
• In 2000, 11,000 worked in the mines (now 6,000)
• In 1922 237m tonnes were mined
• Now, about 20m.
Coal has not run out, nor will Oil, or Natural gas.
But will investments in Oil and Natural Gas go the way of Coal?

Introduction to Government objectives
Clean growth means growing national income while cutting greenhouse gas
emissions. Achieving clean growth, while ensuring an affordable energy supply for
businesses and consumers, is at the heart of the UK’s Industrial Strategy. It will
increase productivity, create good jobs, boost earning power for people right across
the country, and help protect the climate and environment.

UK and G7 economic growth and emissions reductions
In 2016, 47% of our electricity came from low
carbon sources, around double the level in 2010
and we now have the largest installed offshore wind
capacity in the world. Our homes and commercial
buildings have become more efficient in the way they use
energy which helps to reduce emissions and also cut
energy bills, for example average household energy
consumption has fallen by 17% since 19901. Automotive
engine technology has helped drive down emissions per
kilometre driven by up to 16%

Opportunities and Challenges
The UK played a central role in securing the 2015 Paris Agreement in which, for the first time, 195 countries
(representing over 90% of global economic activity) agreed stretching national targets to keep the global temperature
rise below 2 degrees. The actions and investments that will be needed to meet the Paris commitments will ensure the
shift to clean growth will be at the forefront of policy and economic decisions made by governments and businesses in
the coming decades. This creates enormous potential economic opportunity –– an estimated $13.5 trillion of public and
private investment in the global energy sector alone will be required between 2015 and 2030 if the signatories to the
Paris Agreement are to meet their national targets.

Action to deliver clean growth can
also have wider benefits. For
example, the co-benefit of cutting
transport emissions is cleaner air,
which has an important effect on
public health, the economy, and
the environment.
www.tisa.uk.com 16
Government Approach
• In the context of the UK’s legal requirements under the Climate Change Act,
the UK’s approach to reducing emissions has 2 guiding objectives:
• To meet our domestic commitments at the lowest possible net cost to UK
taxpayers, consumers and businesses; and,
• To maximise the social and economic benefits for the UK from this transition.
• In order to meet these objectives, the UK will need to nurture low carbon
technologies, processes and systems that are as cheap as possible.
• We need to do this for several reasons. First, we need to protect our
businesses and households from high energy costs. Second, if we can
develop low cost, low carbon technologies in the UK, we can secure the
most industrial and economic advantage from the global transition to a low
carbon economy. Third, if we want to see other countries, particularly
developing countries, follow our example, we need low carbon
technologies to be cheaper and to offer more value than high carbon ones.
Key policies and proposals
• Accelerating clean growth
• Improving business and industry efficiency – 25% of UK emissions
• Improving our homes – 13% of UK emissions
• Rolling out low carbon heating
• Accelerating the shift to low carbon transport – 24% of UK emissions
• Delivering Clean, Smart, Flexible Power – 21% of UK Emissions
• Enhancing the benefits and value of our natural resources – 15% of UK emissions

What about the customers?

Objectives
• Why now?
• Consumer engagement
• Insight from other industries
• Making sustainability visual
• Collaboration & competition
• Next steps & summary

Why now?
• PRA: Enhancing banks’ and insurers’ approaches to managing the • EC: Integration of ESG considerations • EC: Integrating sustainability risks and factors in
financial risks from climate change (Oct) into investment advice and portfolio MiFID II (Nov)
• FCA: SIPs to be updated by trustees to include non financial matters management (Apr) • EC: Integrating sustainability risks into IDD (Nov)
and stewardship engagement (Oct) • EC: Harmonised templates and taxonomy • FCA: DC scheme trustees produce &
• FCA: DC schemes must publish Statement of Investment Principles for ICT incident reporting (Proposals) implementation report against their Statement of
(SIP) on publicly available website (Oct) • TEG: Final report on EU taxonomy (June) Investment Principles (SIP) (Oct)
• FCA: Final rules published requiring Independent Governance • ESAs: Technical standards for regulation • EC: Deadline to adopt delegated regulation on
Committee to oversee firms ESG policies. on sustainable disclosures (Technical climate change adoption, mitigation and
• EU: Framework to facilitate sustainable investment (taxonomy) (OJ Standards) environmentally sustainable economic activities
publication)
• BoE: BES Climate Stress Test 2021 (Consultation)
Jan-20 Jan-21
2019
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
• ESMA: Advises on credit rating sustainability issues and sets disclosure • ESMA: Credit rating • EU: Sustainable Investment
requirements (Jul) disclosure requirements Taxonomy - climate change (Jan)
• GOV: Green finance strategy – Transforming finance for a greener become effective
future (Jul) (March)
• FCA/PRA/TPR: Joint declaration on climate change (Jul) • EC: European Council • EU: Disclosures relating to sustainable
• FCA: Climate Change and Green Finance (Response) and EP Agreement investments and risks (Sep)
• BSI: PAS 7340: Sustainable Finance Framework (Consultation ) (March) • FCA: 2nd Assessing Suitability Review
• BSI: PAS 7341: Sustainable Investment Management (Consultation ) • EP: Approves final (Findings)
• EC: Integrating sustainability risks and factors in MiFID II & IDD (Final report at plenary
Rules) session (March)
• EC: Integration of ESG into investment advice and portfolio management
(OJ publication)
• EU: Disclosures relating to sustainable investments and risks (Final Rules)
Consumer Engagement
• Advice gap across protection,
pensions & investments
• When should consumers engage?
• Customers can go it alone
• Some choices are tough
• Confidence is low
• Value for money
• Easy to delay
Insight from other industries
Making sustainability visual
Making Sustainability Visual
Top
Overall rating that is easily comparable for
all consumers.
Middle
People, planet and fair play clusters useful
for engaged consumers. Each small square
represents a pressing issue, with relevant
colour (explained below right) to depict the
level of engagement.
Bottom
Information whether harmful industries are
contained or excluded from the fund.
Animal
Welfare
Responsible Biodiversity &
Consumption & Habitat
Production Preservation
Carbon Energy Source &
Emissions Use
Climate Waste & Recycling
Control
Water
Scarcity
Employee Good health & Shareholder Voting Executive Pay &

Remuneration Wellbeing Rights Remuneration
Supplier Quality Education Innovation Stewardship
treatment
Customer Equality Diversity Board Independence Tax & Accounting
Management & Inclusivity & Diversity Standards
Health & Safety Social Impact Regulatory Culture &
Standards Transparency
Passive FTSE Active Multi-Manager Environmental Impact

Tracker Fund Fund
For illustrative purposes only, not representative of an individual fund
Investor objectives
What does consumer want vs what manufacturer is selling
• The question of an investor’s ─ The product should potentially investment preferences

objective, may be discrete cater for the lowest common but there may be
from the objective of the denominator. products with better
product: performance and other
─ Tools might be used to filter characteristics that
• Purely financial products. This should be a make less of a selling
objective (capital function of the manufacturer point of that specific
growth, income, tax making available information feature.
efficiency) about the product and
platforms/advisers can use this. • So cannot rely solely on
• Financial but manager categorisation.
accounting for SRI • The best product for a
principles particular investor may ─ Manufacturer should describe
not be the one that the product’s objectives
• SRI focussed but describes itself best in
seeking a return (e.g. the terms that investor is ─ Disclosure should be simple
prepared to sacrifice looking for.
performance)
• E.g. a product called
• Essentially “nuclear free bond”
philanthropic might appeal to certain
Eversheds Sutherland | Tuesday, August 23, 2022 | Notes from TISA Ideation Day 30
Investor objectives
What product is actually doing vs trying to do.
What the product is trying to do What the product is actually doing

• Looks at manufacturer’s methods ─ Looks at the portfolio
• Manager can probably assess this
• But could still be external. E.g. expert panel / ─ Needs external assessment to gain trust
independent rating / accreditation. • Look at the portfolio weighed across assessment
• There is a Belgium eco label – consider? period?
• Important: Disclosure method. There must be • Look at the portfolio as is or how the constituents
consistency of disclosure and for all products
(even non-ESG ones) have improved etc?
• This approach can factor in activism etc that ─ Use a single standard or multiple?
might not be reflected in the portfolio
• E.g. fairtrade / rainforest alliance
• E.g. credit rating agencies (AA vs Aa2 etc)
• Must be an integrity of underlying data
• Must be a consistency / comparability /
correlation of ratings
Ratings
• Would want a ‘rating’ (e.g. 5*) to be on the same That argument can be said for ‘ESG’ as a group but
methodology, so comparable equally to a rating applied just to ‘E’.
• Ideally independently calculated/verified/audited We prefer a focus on what manufacturer wants to
• Would need a ‘vintage’ as the rating could only do and less on what portfolio contains (at this stage
be accurate at a single point in time at least)
• May require legislative compulsion on
underlying investments (other groups might
consider)
• A single rating covering all attributes would be
reductive. Nuances get lost and good products
may look poor when assessed against criteria
they aren’t seeking to compete in.
Our concern is that while it might be what an investor
would say that they want, a single score/rating would
not allow sufficiently for nuance.
Mockup: Phil Spyropoulos, Eversheds
Potentially there could be some sort of
recognisable industry logo and an agreed slogan. Sutherland
We thought ‘responsible investment’ or
something based on ‘SRI’ might be easier to
understand than ESG or sustainability The entire label could be used on any document
as brief summary. However, we propose that it is
used to best effect on a broader ESG-summary
(shown overleaf)
This label looks at the manufacturer’s intentions

rather than the resulting reality (i.e. is ex ante not
ex post). We would label this the ‘investment
intention’ or similar We suggest avoiding the colour green, to avoid
inferences of green=environment and/or
green=good.
No specific preference for blue
We explored ways of explaining the integration of

ESG into the investment philosophy. Phrases like
‘impact’ investing may be understood in the
industry but we thought it might be more readily
understandable to explain to what extent the
manager prioritises the particular attribute – and
suggest ‘basic’, ‘core’ and ‘priority’.
We liked substitution of ‘ESG’ with People, Planet

and Fairplay. However, we felt that ‘fairplay’
might not capture the totality of ‘governance’ and
therefore suggest ‘company management’.
A presentation that uses all three (or more)
phrases helps to contextualise where on the scale If we went with longer descriptions, we could
of engagement the manufacturer sits on the label this with ‘how well is the company run?’
subject in question. Key in existing scorecard
does similar
This could be presented

in other ways e.g.
Core
Eversheds Sutherland | Tuesday, August 23, 2022 |
XYZ INVESTMENT PRODUCT Mockup: Phil Spyropoulos, Eversheds
OPERATED BY INVESTMENT HOUSE Sutherland
Description of investment strategy…..
GAMBLING
THIS PRODUCT LIMITS GAMBLING ANIMAL TESTING MUNITIONS
EXPOSURE TO THESE
5%
INDUSTRIES AND 5% 5% 5%
PRACTICES
TOBACCO ALCOHOL …AND 8 OTHER
CATEGORIES
THIS PRODUCT LIMITS 5% 5%
EXPOSURE TO THESE
INDUSTRIES AND
PRACTICES Building on the iconography in the strawman
THIS PRODUCT MAY
INVEST IN THESE
AVIATION PHARMACEUTICALS ENERGY
STORAGE example, we suggest a text label next to each icon
INDUSTRIES TO DRIVE
TECHNOLOGIES to ensure understanding. An exposure threshold
CHANGE is also stated – and there is a key at the footer of
CONSTRUCTION AGROCHEMICALS PETROCHEMICALS
the page.
Rather than using jargon like ‘screening’, it may

be more effective to just explain the approach in
relation to such industries/companies
THE PRODUCT WILL SUSTAINABLE RECYCLING SUSTAINABLE
The icons next to the text give an indication of SEEK SUITABLE FISHING TECHNOLOGIES AGRICULTURE
what to expect: INVESTMENT IN THESE
• minus/do not enter sign: to show an exclusion INDUSTRIES WHICH WE
ELECTRIC
CONSIDER POSITIVE
• an exclamation: to show that there is AUTOMOTIVES
something reader is alerted to
• The tick: to show that certain investments are …AND 8 OTHER
thought of positively
CATEGORIES
The “…and X other categories” allows

reproduction on paper with a prioritised list of
exclusions (e.g. manufacturers top 5) with further
information provided in an online/app formats .
MAXIMUM
INDIRECT
5% EXPOSURE
Eversheds Sutherland | Tuesday, August 23, 2022 |

How are ESG criteria expected to affect returns?
32%
of advisers
14%
of fund investors expect
ESG funds to underperform
expect ESG funds to
underperform
12%
43%
think ESG funds will
think they will outperform
outperform
35
The technical voice
“Exclusions at worst don’t destroy

value… At best they deliver a bit of
alpha.
Quant back-testing reveals G adds

value and E and S destroy value…”
What do we know people want to see?
37
Delivering the data

ESG DATA EXCHANGE : HOW TO IMPROVE SCORING
RELIABILITY AND TRANSPARENCY ?
TISA ESG CONFERENCE – 24 SEPTEMBER 2019
Abu Dhabi - Amsterdam - Barcelona - Berlin - Birmingham - Brussels - Budapest - Buenos Aires - Cairo - Galway - Gothenburg
Istanbul - Lisbon - Mexico City - Milan - New Delhi - New York - Paris - Riyadh - São Paulo - Seoul
EFESO © 2019 Shanghai - Singapore - Saint Petersburg - Stockholm - Tokyo
Abu Dhabi - Amsterdam - Barcelona - Berlin - Birmingham - Brussels - Budapest - Buenos Aires - Cairo - Galway - Gothenburg
Istanbul - Lisbon - Mexico City - Milan - New Delhi - New York - Paris - Riyadh - São Paulo - Seoul
EFESO © 2019 Shanghai - Singapore - Saint Petersburg - Stockholm - Tokyo
How to compare and select Funds from an ESG point of view ?
ESG PROJECT EFESO © 2019 41

Two main approaches to be combined
Asset Management company and Portfolio Analysis

Funds investment process evaluation (look through)
 Asset Management company ESG related  ESG scoring of portfolios based on a look
policies and commitments. through approach
 Strategy and investment process of the fund.  Aggregated extra financial indicators (carbon
intensity…)
› Investment objectives of the fund : from “pure
financial performance”, “ESG integration” to
“impact investing” and “philanthropy”.
› Exclusions policies to avoid investments in
controversial economic sectors and/or
activities
› ESG “screening” to select investments

Asset management and fund investment process evaluations
 The approach is based on rising standards and label

across Europe :
PRI, FNG Siegel, Febelfin, Luxflag, Umweltzeichen,
Nordic Swan ecolabel… No common standard at this
stage….
 These Labels do have different views :

› Organization and attribution of the label
› Asset classes covered
› Scope of ESG topics (ie Environmental, Social or
Governance issues)
› % of portfolio covered by ESG analysis
› Exclusion policies
› Requirements : specific reports, commitments…
› Grade

Portfolio approach
773984
 The approach is based on evaluating the positions of
9594
the fund portfolio either by scorecards methods or key
ESG indicator computation. 3776
23663
8749
 Raw data availability and sourcing, combined with
materiality considerations may alter the significance of pure
839642
ESG indicators approaches.
 Scoring approaches are more holistic but scorecards

based only on metrics are giving a false sentiment of
objectivity.
873984
 In this context, 9594
› ESG analysis coverage is a key element 2776
› We need to be able to compare the different approaches 56663
followed by analysts ( weighting of E/S/G, key ESG topics, 2149
metrics…)
469642
The E project initiative
A common ESG data dictionary to exchange ESG information on Funds between investors, distributors,
services providers and asset managers
 Launched in march 2018

 Should cover the fund investment process approach and portfolio approaches
 First draft issued in June 2019, consolidating different views and standards from across Europe
and all kind of products, to be completed
Asset management company policies and commitments 

Asset management and fund
Fund strategy and policies 
process evaluation Fund exclusions 
Fund ESG screening approach 
ESG analysis coverage 

Portfolio approach Key metrics
ESG score 
Some few basic rules need to be defined to enhance transparency on ESG rating of
portfolios and funds
Multiple topics are causing different appreciations of a given portfolio and need to be addressed by industry
participants ( issuer, distributors, asset managers…) and by specialists (ESG and financial analysts, Risk
manager, Portfolio managers…).
 Scope of ESG data published by issuer supporting the assessment
 Materiality of ESG data ( at issuer level, financial instrument level, portfolio level)
 Raw data collection process : sourcing, normalisation, estimation…and confidence level
 Quantitative versus qualitative evaluation
 Actual vs projected situation : Time horizon
 Scope and weight of the different ESG topics for scorecard approaches
 Risk versus opportunity focused

#1
ESG data quality is improving rapidly
Holistic
Limited ESG
ESG
Data
Insights
For illustrative purposes only.
FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY ESG Briefing - Preparing to deliver in 2021
#2
57 36 US Fed
“The Federal Reserve does use
Carbon pricing initiatives central banks and supervisors
have joined the “Central Banks its authorities and tools to
have been implemented or are
and Supervisors Network for prepare financial institutions
scheduled for implementation,
Greening the Financial for severe weather events.”
covering >20% of global
greenhouse gas emissions System” (NGFS) -- Jerome Powell, Chair of the
Federal Reserve
Source:
The Central Banks and Supervisors Source: Board of Governors of the
Source: World Bank. “Carbon Pricing
Network for Greening the Financial Federal Reserve System, Memo from
Dashboard” portal, with data as of July
System (NGFS), using network Jerome Powell. April 2019.
2019:
member data as of June 2019: https://www.schatz.senate.gov/imo/
https://carbonpricingdashboard.worldbank
https://www.mainstreamingclimate.org media/doc/Chair%20Powell%20to
.org/map_data
/ngfs/ %20Sen.%20Schatz%204.18.19.pdf
Studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.
FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY ESG Briefing - Preparing to deliver in 2021
#3
>4% 15% 90%

more alpha reported for Increase in volatility in stocks studies find a nonnegative relationship
companies with top quintile with worst ESG exposures and between ESG and corporate financial
ratings on material up to 3% increase in betas, than
performance, of which 63% reports
sustainability issues vs. firms stocks with the best ESG
with bottom quintile ratings, a positive findings, a meta-analysis on
exposures, AQR finds
study finds >2000 studies shows
Source: AQR,(2017) , Source: Journal of Sustainable

Source: Khan, Serafeim and Yoon (2016), Finance & Investment (Friede, G.,
https://www.aqr.com/Insights/Resear
“Corporate Sustainability: First Evidence Busch, T. and Bassen, A.), “ESG and
ch/Journal-Article/Assessing-Risk-
on Materiality.” financial performance: aggregated
through-Environmental-Social-and-
https://dash.harvard.edu/bitstream/handle/ evidence from more than 2000
1/14369106/15-073.pdf?sequence=1 Governance-Exposures
empirical studies”, November 2015
Studies are for illustrative purposes only, using data as of 2016, 2017, and 2015, respectively; they are not meant as a guarantee of any
future results or experience, and should not be interpreted as advice or a recommendation.
FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY

BSIH0919E-955095-19/38 ESG Briefing - Preparing to deliver in 2021
What do investment firms have to do?
• Asset managers
• Advisers
• Platforms

Regulatory Perspective –
ESG/Sustainable Finance
Presentation to TISA ESG Conference

Mark Manning, 24 September 2019
51
Overview
• The market for sustainable finance
• The role of regulation
• Some key areas of focus for the FCA

o TCFD recommendations
o Shareholder engagement and stewardship
o Product disclosures and advice
52
Sustainable finance… a niche that is
becoming mainstream (i)
Key drivers of the growth of sustainable finance…
• Urgency of the climate threat
• Public policy direction of travel
• Shifting corporate attitudes and evolving consumer preferences
53
Sustainable finance… a niche that is
becoming mainstream (ii)
54
Sustainability issues
55
Source: Sustainability Framework, Sustainability Accounting Standards Board
The role of regulation
• Finance can support the transition to a sustainable long-term future
• Regulatory settings internationally and domestically are adjusting to

accommodate this role
o In Europe this is being done via the Sustainable Finance Action Plan
• Impacts the FCA as both securities regulator and conduct regulator

o Relevant to our strategic objective to make relevant markets function well
o And our operational objectives: market integrity, consumer protection and

competition in the interests of consumers
• Work in this area requires close cooperation with Government, industry

and other regulators
o E.g., initiatives like the Climate Financial Risk Forum
56
A spectrum of strategies
Note. Some assets are managed using more than one strategy
57
Most
Note. Some assets are managed usingsustainable finance
activity is
more than one strategy
58
currently in these strategies
Issuer disclosures: TCFD
recommendations
• In October 2018, we issued a Discussion Paper (DP 18/8) on
climate change and green finance
• Disclosure (by both issuers and firms) was a key area of focus
• Extensive feedback on TCFD – considering this carefully
• Aim to publish a Feedback Statement in the coming weeks
• Government’s Green Finance Strategy – included the following:
• Government expects all listed companies and large asset owners to
disclose in line with TCFD recommendations by 2022
• Government-led cross-regulator task force considering how best to
achieve this expectation
• Funding a British Standards Institution (BSI) initiative on standards for
sustainable finance
59
Some key areas of focus for FCA
Issuer
We want issuers to inform the market
disclosure on how ESG factors impact company
initiatives prospects
We want regulated firms to give Stewardship

appropriate consideration to ESG in and
their business, risk and investment shareholder
decisions engagement
Product and We want consumers to have access

service to products that meet their needs and
disclosures/ preferences, and receive reliable
investment disclosures and advice
advice
60
EU Sustainable Finance
Action Plan is promoting a
positive impact
Note. Some assets are managed using more than one strategy
61
TCFD – Key elements of disclosure
Source: TCFD Final Report, June 2017

62
Stewardship & shareholder engagement
• A long-term perspective in investment decisions is particularly important
where clients and beneficiaries have long-term liabilities (eg, pension
funds)
• Active stewardship and shareholder engagement contribute to a long-

term perspective
• We have a number of relevant initiatives in this area:

o In June, new FCA rules for insurers and asset management came into
effect, aligned with SRD II
o In parallel, we issued a joint Discussion Paper with FRC (DP 19/1)
calling for strategic input on investor stewardship
o FRC consulted at the same time on revisions to UK Stewardship Code
o In related work, we consulted earlier in the year on the duties of
Independent Governance Committees
63
Key Attributes of Effective Stewardship
Clear purpose
Constructive oversight, engagement and challenge
Culture and institutional structures that support effective

stewardship
Disclosure and transparency of stewardship activities

Agenda
Distributors - key regulations ESG data issues
The challenge Labelling – anti-greenwash provisions
ESG integration - what is it? Client-facing issues

Charles Stanley :
Impact of MiFID and Disclosure regulations Reviewing ESG in your business
65 How we are approaching ESG in our business

Distributors - key regulations
For distributor firms the two key EU regulations are:
1. Delegated Regulation amending MiFID II as regards

the integration of Environmental, Social and
Governance (ESG) considerations and preferences Both apply 12 months following publication in the EU
into investment advice and portfolio management Official Journal (Nov/Dec 2019).
(the ‘MiFID ESG regulation’)
Effective from November or December 2020,
2. Regulation on disclosures relating to sustainable regardless of the Brexit outcome (both are listed in
investments and sustainability risks HMT’s onshoring regulations).
(the ‘Disclosure regulation’)


MiFID ESG regulation - The challenge…
COBS 9A.2.4 (Assessing the extent of the information required: MiFID business)
54(2) Investment firms shall determine the extent of the

information to be collected from clients in light of all the
features of the investment advice or portfolio management
services to be provided to those clients. Investment firms shall
obtain from clients or potential clients such information as is
necessary for the firm to understand the essential facts about
the client and to have a reasonable basis for determining, giving
due consideration to the nature and extent of the service
provided, that the specific transaction to be recommended, or
entered into in the course of providing a portfolio management
service, satisfies the following criteria:
(a) it meets the investment objectives of the client in question, ESG preferences means a client’s or potential
including the client’s risk tolerance and any preferences, client’s choice as to whether and which
including ESG preferences, where relevant; environmentally sustainable investments, social
investments or good governance investments
(b) it is such that the client is able financially to bear any related should be integrated into his or her investment
investment risks consistent with his investment objectives; strategy.
(c) it is such that the client has the necessary experience and
knowledge in order to understand the risks involved in the
transaction or in the management of his portfolio.

ESG integration – what is it?
ESG integration = mitigate ESG risks to financial performance
Taking account of ESG risks to investments when making Some thoughts:

decisions or giving advice.
If ESG integration is about mitigating risks to investments,
Making the planet a better place is a second order effect. firms need to integrate ESG into advice/decisions as a
standard practice, regardless of client preferences. In
Regulatory view is that: which case, what is the point of collecting client
preferences?
1. ESG integration should results in improved financial
performance. It is not a trade-off. Impact of new EU regulations on Funds
(UCITS and AIFs), which must integrate ESG.
2. Firms should be considering ESG risks already
(MiFID). Role of emerging EU Taxonomy unclear….
Finally…
Will ESG integration really help achieve the SDGs?

Impact of MiFID and Disclosure regulations
Key issues:
1. Services in scope: Discretionary Management, 4. ESG is not about:

Advisory Dealing/Managed, Financial Planning.
a) ‘Ethical’ investing (negative screening).
2. Mandatory, not optional. Must collect KYC on client b) Impact investing.
ESG preferences and, where they exist, act on them. c) Expressly labelled ‘green’, ‘ESG’ or ‘sustainable’
investments.
3. Suitability: d) Just about products. Direct investments in scope.
e) Buy lists, as existing investments also in scope.
a) Firms must be able to assess a client’s existing/ f) Stewardship/engagement.
transferred investments.
b) SYSC/evidential implications - similar to 5. Client ESG preferences do not take precedence over
volatility/market risk. ‘core’ Suitability (the mandate). First we satisfy core
c) ESG considerations must be incorporated into Suitability, then within the agreed mandate we take
policies and procedures, including T&C. account of any ESG preferences.
6. ESG preferences are aspirational, not a guarantee.

ESG data issues
Firm’s own ESG analysis vs. buying in third party ESG data
Depends on nature of firm’s service offering: Issues:
1. Restricted vs whole of market 4. How will your firm obtain ESG data?
2. Funds-only vs. mixed asset 5. Which ESG rating tools perform better?
3. Models vs. bespoke 6. What about the data gaps?
7. How do client ESG preferences map to ratings?
Can these vendor/IT issues be resolved by Q4 2020?

Labelling – anti-greenwash provisions
Difference between ESG integration and
labelling fund/portfolio as ‘ESG’, ‘Green’ or ‘Sustainable’
Only Funds and Model Portfolios should consider such labelling.

Not clear if bespoke portfolios can meet with the requirements, 4. Distributor’s website needs to show, for each relevant
Fund/Discretionary portfolio:
which apply to expressly labelled funds / Disc. portfolios. a) the information above;
b) a description of the sustainable investment target;
1. A benchmark relevant to the ESG ‘target’ must be selected. c) information on the methodologies used to assess, measure and
monitor the impact of the sustainable investments selected,
2. Pre-contractual information needs to include including its data sources, screening criteria for the underlying
a) information on how the designated index is aligned with that target;
assets and the relevant sustainability indicators used to measure
b) explanation as to why the weighting and constituents of the
the overall sustainable impact.
designated index aligned with that target differ from a broad
market index.
5. Quarterly periodic reports need to include
a) the overall sustainability-related impact by means of relevant
3. Client terms need to sustainability indicators; and
a) explain how ‘remuneration policies… are consistent with the
b) where an index has been designated as a reference benchmark, a
integration of sustainability risks and are in line, where relevant, comparison between the overall impact of the portfolio with the
with the sustainable investment target of the [Fund or designated index and a broad market index in terms of weighting,
Discretionary portfolio]’. constituents and sustainability indicators.
b) include a reference to a prominent webpage where further
references to benchmark/index methodologies can be kept up to
date; the methodologies are not the distributor’s, but those of the 6. If a Fund/Discretionary portfolio has an express carbon reduction
benchmark/index providers. target, it must benchmark against the targeted low carbon emission
exposure (there appears to be an EU standard for this in development,
which may become mandatory once finalised).

Client-facing issues
1. Client KYC updated to include ESG questions: websites and brochure-ware.
3. Repapering clients: Q4 2020 for Terms update, but less
a) KYC more granular than ‘ESG’ in aggregate, we may need clear when we need to capture ESG KYC on existing
to collect preferences on E, S and G. This is because the Discretionary/Advisory clients.
definition of ESG preference includes the client’s choice
as to whether and which environmentally sustainable 4. Suitability reports for Advisory clients updated to
investments, social investments or good governance evidence how a client’s investment objectives have been
investments should be integrated into his or her achieved, with reference to expressed ESG preferences. No
investment strategy exemption for Sale recommendations.
b) ESG questions must be positioned later in the on-
boarding documentation than the ‘standard’ Suitability 5. Periodic client reporting: regulation silent on ESG in
KYC. quarterly or annual reports, however general obligation in
c) Question: how to map ESG preferences to an ESG profile. MiFID to report to clients on services provided.
6. Website polices on ESG integration: online UK

2. Client terms need to include: Stewardship Code disclosure or Engagement Policy needs
to be updated to reflect ESG integration.
a) section explaining how integrate ESG factors into our
investment decisions;
b) ESG risk factor; and
c) limitation clause - no guarantees, and ESG factors are
only one set of factors amongst many.
Explanation of ESG considerations needs to be added to

Reviewing ESG in your business
ESG working group to assess impacts on your firm, before commencing project.
Senior management engagement.
Move fast…
Charles Stanley workstreams:
Investment Research/ Investment Charles Stanley’s

Regulation Proposition
Philosophy Data Systems managers own ESG rating
Formulate the house Looking at the new Looking at what the Build on the initial Undertake gap analysis Looking at Charles
view - our ESG/ethical requirements coming market wants/expects conversations with data around knowledge & Stanley Group PLC’s
policy and taxonomy. into effect in the near and how ESG/ethical we providers and propose experience of own ESG rating against a
future. think our offering the recommended incorporating ESG/ set criteria, as it was
This will include the should be. solution(s). ethical information into agreed that it could be
information we will How will we educate Understanding what our practitioners’ detrimental to go out
need to collect on client and explain information information we need investment process and with a strong
preferences, how this to clients/prospects, and how users/systems understand what ESG/ethical message if
will be incorporated into building on the need to access it. additional information we do not show as an
reporting to clients and taxonomy that we and training is required organisation that we
the SYSC issues, such as believe clients will relate for IMs. care about these things
MI to senior managers. to and understand. ourselves as a company.

What TISA is doing
• Communicating with customers

• Data standards

Objectives of the TISA ESG ExCo
• Understand the regulatory requirements, including timetable
• Implement
• Develop good practice guides
• Recommend templates for a standard way of reporting and disclosing
• Derive data standards to underpin reporting

• We want a simple way of showing how a product is E, S, G on a consistent,
objective and comparable basis.
• So customers and their advisers can make meaningful choices.

How we are doing the work
Three working groups
• MiFID II Distributor Guidance
• Communicating with customers
• ESG/Impact data

Thank you
Any questions?

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28 April 2020 | 9.00 – 11.

Audio and questions

Recording: This session is being recorded for training purposes only.

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

• What is the timetable?

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

ESG Briefing - Preparing to deliver in 2021

Employee Good health & Shareholder Voting Executive Pay &

Passive FTSE Active Multi-Manager Environmental Impact

• The question of an investor’s ─ The product should potentially investment preferences

What the product is trying to do What the product is actually doing

This label looks at the manufacturer’s intentions

No specific preference for blue

We explored ways of explaining the integration of

We liked substitution of ‘ESG’ with People, Planet

This could be presented

THIS PRODUCT LIMITS 5% 5%

Rather than using jargon like ‘screening’, it may

The “…and X other categories” allows

Eversheds Sutherland | Tuesday, August 23, 2022 |

“Exclusions at worst don’t destroy

Quant back-testing reveals G adds

ESG Briefing - Preparing to deliver in 2021

ESG PROJECT EFESO © 2019 41

Asset Management company and Portfolio Analysis

ESG PROJECT EFESO © 2019 42

 The approach is based on rising standards and label

 These Labels do have different views :

ESG PROJECT EFESO © 2019 43

 Scoring approaches are more holistic but scorecards

 Launched in march 2018

Asset management company policies and commitments 

ESG analysis coverage 

 Scope of ESG data published by issuer supporting the assessment

 Raw data collection process : sourcing, normalisation, estimation…and confidence level

 Quantitative versus qualitative evaluation

 Actual vs projected situation : Time horizon

 Risk versus opportunity focused

ESG PROJECT EFESO © 2019 46

ESG data quality is improving rapidly

For illustrative purposes only.

>4% 15% 90%

Source: AQR,(2017) , Source: Journal of Sustainable

FOR PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY

ESG Briefing - Preparing to deliver in 2021

Presentation to TISA ESG Conference

• The market for sustainable finance

• The role of regulation

• Some key areas of focus for the FCA

Key drivers of the growth of sustainable finance…

• Urgency of the climate threat

• Public policy direction of travel

• Shifting corporate attitudes and evolving consumer preferences

• Regulatory settings internationally and domestically are adjusting to

• Impacts the FCA as both securities regulator and conduct regulator