Brandes EMEA | Sustainable Finance Disclosure Regulation

Sustainable Finance Disclosure Regulation

The integration and evaluation of sustainability risks form part of the investment process implemented by Brandes Investment Partners (Europe) Limited (“Brandes Europe”). 

When assessing the sustainability risk associated with underlying investments, Brandes Europe is assessing the risk that the value of such underlying investments could be materially negatively impacted by an environmental, social or governance event or condition (“ESG Event”).

Brandes Europe is part of the Brandes Investment Partners group (“Brandes”).  Brandes believes that responsible corporate behaviour, the promotion of sustainability, and sound governance practices contribute to the long-term performance of public companies. Such practices and behaviours address the interests of a broad range of a company’s stakeholders including shareholders, creditors, employees, customers, suppliers, and the communities in which it operates.  All else being equal, we believe the proper assessment, mitigation, and management of sustainability risks by a company’s management and board of directors helps to improve its long-term returns.

Accordingly, as part of fulfilling our fiduciary duties and seeking to maximise risk adjusted returns for our clients, our long-term, fundamental investment research has always included the evaluation and integration of material environmental, social, and governance (“ESG”) issues into our investment process and the allocation of client capital.

Brandes Europe is guided by a singular long-term valuation driven investment philosophy and seeks to integrate all material value drivers and risk-factors, including those related to ESG issues, into our investment process. As a fundamental, bottom-up manager, detailed company level research is at the core of our investment approach. The objective of this research is to establish an intrinsic value estimate for each company and to build portfolios consisting of companies trading at discounts to conservative intrinsic value estimates.

Given the depth of due diligence conducted, combined with years of company and industry knowledge, Brandes’ research analysts are in the best position to understand and integrate ESG issues into their company valuations. Integral to our research process is a detailed written initiation report that includes an assessment of all material factors. A component of the core initiation report is an ESG summary (supported by third-party research provided by Sustainalytics) that serves to identify and address ESG issues materially impacting the company and industry in which it operates. Brandes’ fundamental research analysts utilise proprietary company analysis, third party reports, and supplementary data and research where relevant, in order to best incorporate material ESG factors into company valuations. Additionally, Brandes company valuation reports, and the ESG summary within them, serve to identify ESG-related risks and opportunities to be considered by Brandes when constructing guideline portfolios.

Brandes Europe has adopted a policy which details the integration of sustainability risks in the investment decision-making process which is consistent with the above and covers areas such as our investment process, research, company interactions, corporate actions and shareholder resolutions and investment decisions. In addition, Brandes Europe has updated its Remuneration Policy to include information on the integration of sustainability risks in Brandes Europe’s remuneration policies, as required by the EU Sustainable Finance Disclosure Regulation (2019/2088).

An ESG Event, should it occur, may negatively impact on the return of a sub-fund/account. While any such impact may vary depending on the specific risk and relevant asset class, an ESG Event may impair the value of investments made by a sub-fund/account, including the loss of the entire amount invested. Further information as to how sustainability risks are integrated into Brandes Europe’s investment decision-making process is detailed above.

Brandes Europe has less than 500 employees, and accordingly falls outside the scope of Article 4 of the EU Sustainable Finance Disclosure Regulation (2019/2088) (“SFDR”). Brandes Europe has chosen not to opt into the requirements regarding the consideration of the principal adverse impacts of investment decisions on sustainability factors at this time. We offer the following information regarding our rationale:

  • we believe that responsible corporate behaviour, the promotion of sustainability, and sound governance practices contribute to the long-term performance of public companies. Such practices and behaviours address the interests of a broad range of a company’s stakeholders including shareholders, creditors, employees, customers, suppliers, and the communities in which it operates.
  • we believe the proper assessment, mitigation, and management of sustainability risks is a primary duty of company’s management and board of directors.
  • while the integration of material environmental, social, and governance issues is a fundamental component of our investment process, we do not believe our investment decisions have a direct adverse impact on sustainability factors.
  • rather, we believe our most influential strategy for addressing sustainability factors is through engagement activities and exercising proxy voting rights.

Brandes Europe may choose at a later date to publish and maintain on its website the consideration of principal adverse impacts of investment decisions on sustainability factors.