On March 10, 2021 the Regulation (EU) 2019/2088 of November 27, 2019 on sustainability-related disclosures in the financial sector (the “Regulation”) entered into force. This regulation aims to support sustainable investments by requiring Financial Market Participants and Financial Advisers, both as defined in the Regulation, to disclose information regarding sustainability risks to investors and clients.
What are sustainable investments? The Regulation defines this as:
An investment in an economic activity that contributes to an environmental objective, as measured, for example, by key resource efficiency indicators on the use of energy, renewable energy, raw materials, water and land, on the production of waste, and greenhouse gas emissions, or on its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective, in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations, or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices, in particular with respect to sound management structures, employee relations, remuneration of staff and tax compliance.
What is a sustainable risk? The Regulation defines this as:
An environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.
Article 3 of the Regulation requires information to be shared with regards to the integration of sustainability risks and consideration to be given to any principal adverse effects within the investment decision-making and advice-giving processes. Sovereign Pension Services Limited (“Sovereign”), as a retirement scheme administrator, does not make any considerations regarding any principal adverse impacts of investment decisions due to the following reasons:
- Sovereign’s personal pension schemes are member-directed, meaning that the retirement scheme administrator does not make investment decisions on behalf of its members. Members appoint an investment adviser and/or investment manager to advise and/or manage their investments. Alternatively, the member is eligible to be appointed as a professional member and is hence considered to be a professional investor and can therefore make individual investment decisions for his portfolio. Nonetheless, the schemes’ investment guidelines require our members’ overall portfolio to be adequately diversified, and this reduces the effects of the occurrence of sustainability risks. We also require all new client investment advice mandates to consider sustainability risks.
- The Sovereign Malta Occupational scheme, which is not member directed, has not yet reached a size for which it would be appropriate to integrate environmental, social and governmental risk factors in its investment decisions or processes. We therefore do not consider the size of the portfolio to be such that it would have any principal adverse impacts on sustainability factors. We will keep conducting sustainability risk assessments on a regular basis in line with our corporate governance practices and monitor whether the size of the scheme is still such that it is not conducive to sustainability considerations.
In the meantime, we encourage our clients who form part of our member-directed schemes to familiarise themselves with their investment products and consider any sustainability risks integrated in these products together with their chosen investment adviser or manager.
Our remuneration policies are independent of variable factors, and since sustainability risk is not considered in investment decisions, there has been no change to Sovereign’s remuneration policy.