Sustainable Finance Disclosure Regulation (SFDR) Product Disclosures

Introduction

Sustainable Finance Disclosure Regulation (SFDR) is mandatory Environmental, Social and Governance (ESG) disclosure regulation that obliges financial market participants to follow a standardized approach to disclose the ESG credentials of the assets they manage and/or advise. The aim of the EU rules is to ensure a sufficient level of detail is provided to investors in relation to sustainability of an investment, as well as to make it easier to compare investment opportunities from different providers via standardization.

Definitions

Sustainability Risk

Sustainability risk means an environmental, social or governance event or circumstance that, if it occurs, could have financially negative impact on the value of the investment.

At present there is limited access to data on sustainability risks, nor is there a strong alignment methodology between vendors. At present, Saxo Bank receives sustainability risk data from Sustainalytics. However, each portfolio is invested via its own methodology and in partnership with different investment companies that have their own methodology for determining sustainability risk. This means that the portfolios’ interpretations of sustainability risk may or may not align well to Sustainalytics scoring methodology and therefore the sustainability risk scores from Sustainalitics are used as a reference to trigger further enquiry for ensuring sustainability risk is maintained within the guidelines (if any) of the portfolio mandate. A change of manager or termination of the portfolio may occur if it is determined that major negligence has occurred resulting in inexcusable sustainability risk exposure in the portfolio.

Principle Adverse Impact

Principle Adverse Impact (PAI) indicators are a set of mandatory indicators and metrics as per SFDR with the purpose of showing financial market participants how investments may have an adverse impact on environment, social and/or governance (ESG) factors. There are a large number of PAI indicators, of which can be categorized as environmental, social or governance related.

Given that PAI metrics are new, data vendors who calculated PAI metrics may compute different values for the same PAI indicator, since there is no standardized source of data. Further, such vendors are not yet able to compute the metrics for all PAI indicators, given the unreliability or lack of data sources.

Saxo uses Matter as a data vendor for PAI indicators and metrics for the calculation of its PAI metrics on managed and advised investments./p>

Article Definitions

Article 6

Investments categorized as Article 6 do not promote environmental or social aspects and do not have sustainable investment as a goal. Such investment will transparently disclose whether sustainability risk is integrated into the investment decision making process.

Article 8

Building on top of Article 6, investments categorized as Article 8 promote environmental goals or social characteristics, among others, or a combination of those, provided that the companies in which the investments are made follow good governance practices. Objectives of such investments could be, for example, investing in human capital, renewable energy, reducing inequalities and fighting against corruption and bribery.

Article 9

Building further on top of Article 8, Article 9 is reserved for sustainable investments with the highest ambition, investments which set sustainable investment as their primary objective. These investments focus solely on sustainable investments, for example, on climate change, renewable energy, conserving clean water, habitats and species.

Product disclosures

Nasdaq DW Global Momentum

Article Categorisation

This portfolio is categorized as Article 6 as per the European Sustainable Finance Disclosure Regulation (SFDR). This means that it has no sustainability promoting characteristics or objectives.

Sustainability Risk

This portfolio does not integrate sustainability risks into the investment decision making of this portfolio. Moreover, the potential impact that sustainability risks may have on returns are not assessed. The portfolio investment process does not use sustainability risk as a framework for capturing financial risks within the portfolio. This is because the investment decision making process is entirely driven by the movement of stock prices (“technical analysis”) and has no consideration for the underling health, financial prospects or risks of the company (“fundamental analysis”). Whilst sustainability risk could impact the price returns of a stock invested via this strategy, the technically driven investment approach does not use fundamental analysis, inclusive of sustainability risks, as a method for measuring risk or identifying investment opportunities.

The result of this approach means that sustainability risk is not deliberately mitigated and, upon a sustainability risk event, the subsequent return impact – which may be of bigger or lesser impact versus other investments – is purely coincidental.

Principle Adverse Impact

This portfolio does not consider principle adverse impacts (PAI) within the investment decision making process. This is because the investment decision making process is entirely driven by the movement of stock prices (“technical analysis”) and has no consideration for the underling health, financial prospects or risks of the company (“fundamental analysis”), including adverse impacts on ESG factors.

Macro FX

Sustainability Risk

This portfolio does not integrate sustainability risks into the investment decision making of this portfolio and the potential impact that sustainability risks may have on returns are not assessed. This is because the portfolio invests exclusively into currency spot, an instrument deemed out of scope for sustainability risk consideration. Whilst currency could indirectly be impacted by a sustainability risk event, it is not directly impacted in the same way an asset such as a company stock is impacted from, for instance, a natural disaster. Thus, predicting the loss of value of a currency (if at all) in such circumstances is not feasible to an acceptable degree of accuracy.

Principle Adverse Impact

This portfolio does not consider principle adverse impacts (PAI) within the investment decision making process. This is because currency spot investment is ineligible for the consideration of adverse impact on ESG factors.

Saxo Morningstar Moat and Saxo Morningstar High Dividend Portfolios

Sustainability Risk

This portfolio does consider sustainability risks into the investment decision making of this portfolio.

Morningstar equity analysts assess whether ESG-related risks could threaten the value creation capabilities of an otherwise competitively advantaged business, thereby precluding or limiting an economic moat and impacting the fair value of its stock price. All else equal, companies that face greater ESG risks have more uncertain futures. This therefore demands a greater margin of safety before recommending long-term investment for those firms.

Sustainalytics’ company-level ESG risk rating is used to focus on the most valuation-relevant risks and then considering the materiality and probability of sustainability risk, which may impact the economic MOAT rating and fair value estimation.

Companies that have poor economic MOAT or unattractive fair value estimations, including those because of their sustainability risk assessment, are deemed unattractive for investment thereby eliminated as an option within the portfolio.

By integrating sustainability risk into the investment process, the ambition is that any major loss of value resultant of a major sustainability risk event is avoided, whilst any sustainability risk that is taken is considered and controlled. Therefore the target is for the strategy, on average through time, to incur less negative returns derived from sustainability risks than if sustainability risk was not considered in the portfolio.

Principle Adverse Impact

This portfolio does not consider principle adverse impacts (PAI) within the investment decision making process. This is because this strategy is neither Article 8 or 9 and does not have any ESG mandate to consider adverse impacts.

Brown Advisory Ethical Selection Portfolio

Article Categorisation

This portfolio is categorized as Article 8 as per the European Sustainable Finance Disclosure Regulation (SFDR). This means that it promotes environment and social characteristics.

Sustainability Risk

All investments within the Brown Advisory Ethical Selection portfolio are vetted for Sustainability Risk. This is conducted via a dedicated ESG research team, who contributes to the company analysis of the sector analysts, to give a combined verdict on the company’s attractiveness for investment. A company that is identified to have excessive sustainability risk is filtered out of the investable universe.

The ambition of the sustainability risk analysis is to mitigate investment into those companies which have sustainability risks that are unattractive from a risk reward perspective.

By integrating sustainability risk into the investment process, the ambition is that any major loss of value resultant of a major sustainability risk event is avoided, whilst any sustainability risk that is taken is considered and controlled. Therefore the target is for the strategy, on average through time, to incur less negative returns derived from sustainability risks than if sustainability risk was not considered in the portfolio.

Principle Adverse Impact

This portfolio does not consider principle adverse impacts (PAI) within the investment decision making process. This is because Brown Advisory uses its own proprietary methodology for considering both the sustainability risk and sustainability opportunities of this strategy.

BlackRock Growth Portfolios

Sustainability Risk

This portfolio has a consideration towards sustainability risks within the investment decision making of this portfolio, with the ambition to improve the sustainability risk characteristics of the portfolio, where feasible, on a relative basis versus the general (non-ESG considered) financial markets it seeks to invest into.

Where possible, the strategy seeks to reduce the sustainability risk whilst gaining access to the desired market exposure by purchasing ETFs that offer such an opportunity. An example may be a viable “ESG Screened” ETF, which reduces the sustainability risk whilst closely tracking the targeted market index.

Note, this sustainability risk improvement is conducted on the basis that it does not hinder the investment return characteristics, such as tracking error versus the non-ESG considered market index exposure sought.

The ETFs that comprise this portfolio are iShares and the MSCI ESG methodology is adopted by iShares for measuring sustainability risks. For example, a feasible opportunity would be an ETF that is labelled “ESG Filtered” or “ESG Screened” which has a return profile that closely correlates to their non-ESG considered counterpart, whilst lifting their sustainability risk score as assessed by the MSCI.

By integrating sustainability risk into the investment process, the ambition is that any major loss of value resultant of a major sustainability risk event is avoided, whilst any sustainability risk that is taken is considered and controlled. Therefore the target is for the strategy, on average through time, to incur less negative returns derived from sustainability risks than if sustainability risk was not considered in the portfolio.

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