EU Sustainable Finance Disclosure Regulation
The European Union (EU) has developed a suite of legislative tools designed to reorient capital towards more sustainable businesses. The first of these, the Sustainable Finance Disclosure Regulation (SFDR), aims to improve transparency on the way the financial services industry integrates environmental, social and governance (ESG) factors into investments. The information on this page has been prepared in response to the SFDR requirements and applies to the following funds (the Funds):
- Maple-Brown Abbott Asia-Ex Japan Fund
- Maple-Brown Abbott Asia Pacific-Ex Japan Fund
- Maple-Brown Abbott Global Infrastructure Fund
- AMX UCITS CCF - Maple-Brown Abbott Global Infrastructure Fund
Sustainability risk within the SFDR are environmental, social and governance (ESG) events or conditions whose occurrence could have an actual or potential principal adverse impact on the value of the investment. Sustainability risks can affect all known types of risk (for example, market risk, liquidity risk, counterparty risk and operational risk), and as a factor, contribute to the materiality of these risk types. Maple-Brown Abbott’s approach to managing sustainability risk is detailed in the Responsible Investment Policy and summarised below.
Maple-Brown Abbott believes ESG factors may impact investment performance over the long term. Companies and other assets that soundly manage ESG risks are more likely to be financially sustainable over time and therefore deliver better long-term returns. Accordingly, consideration of ESG risks is a component of Maple-Brown Abbott's risk management framework and incorporated into investment processes. Traditional financial analysis is supplemented by the review of ESG-related management practices and performance, and investment decisions are based on both financial and non-financial factors. Each situation and its potential impact is considered on an individual basis with material issues discussed by the portfolio management team as part of the investment decision making process.
The ESG factors considered vary by industry and by company, and may include, but are not limited to:
- Climate-related risks, such as exposure and resiliency to acute and chronic weather events, and climate transition risks, such as potential exposure to stranded assets. For more detail on Maple-Brown Abbott's approach to climate risk, please refer to the Climate Change Policy.
- Environmental degradation, including biodiversity, deforestation and land use, environmental pollution including water, air and plastic waste management, and resource scarcity.
- Quality of environmental-related disclosure. Environmental factors can have a direct or indirect cost through the recognition of externalities, and may result in reputational damage, business interruptions and increased regulation.
- Health and safety, human rights (including modern slavery), labour practices and supply chain management, employee engagement, diversity, customer and stakeholder relationships, changing demographics and conflict zones and controversial weapons.
- Quality of social-related disclosure.
- Social factors can also have a direct or indirect cost, and may result in reputational damage, business interruptions and increased regulation.
- Quality, composition and diversity of board and management, executive remuneration and shareholder rights. Anti-bribery and corruption, cyber security, accounting and auditing, political spending/lobbying, aggressive tax planning and technological disruption.
- Quality of governance-related disclosure.
- Governance factors are qualitative in nature and are considered in the determination of terminal value and discount rate valuation adjustments
Integration of Sustainability Risks into the Investment Process
The investment manager of the Funds is Maple-Brown Abbott Ltd (MBA). As part of its investment process, Maple-Brown Abbott conducts in-house, bottom up, fundamental stock analysis. Maple-Brown Abbott includes all relevant financial risks in its investment decisions and evaluates these on an ongoing basis. In doing so, all relevant sustainability risks, including environmental, social and/or governance events or conditions that could have a significant negative impact on the return of an investment are also taken into account.
Using a range of qualitative and quantitative data inputs as relevant to each investment, sustainability risk is identified, monitored and managed by Maple-Brown Abbott in the following manner:
- Prior to acquiring investments on behalf of a Fund, Maple-Brown Abbott identifies and assesses the ESG risks and opportunities which may impact a company’s long-term earnings growth and valuation. These factors, along with an assessment of the quality of a company’s board and management, are discussed in the ESG section of all company research reports. Where the valuation impact is material, it is either explicitly factored into company’s earnings forecasts, through adjustments to revenue, cost, earnings, capex, cashflow and/or balance sheet items, and/or implicitly through the determination of the terminal value, discount rate or perpetuity growth rates. This process of ESG integration ensures that ESG risks and opportunities are systematically factored into the risk-return assessment, and that where an investment is made in a company with ESG risks, the forecast return is sufficient to compensate for the risk.
- During the life of the investment, sustainability risk is monitored through review of ESG data published by the company (where relevant) or selected data providers, as well as ongoing dialogue with the company, to determine whether the level of sustainability risk has changed since the initial assessment has been conducted.
- Maple-Brown Abbott seeks to manage sustainability risk within its investments via engagement and exercising voting rights. Engagement initiatives are conducted through various mediums, including company meetings and calls, letters and emails to the board and management, visits to operations and other company communication, and participation in collaborative engagement initiatives. Maple-Brown Abbott aims to exercise all applicable voting rights across all Funds.
Principal Adverse Impacts
Maple-Brown Abbott does not currently consider the principal adverse impacts of investment decisions on sustainability factors, as the relevant information required to assess the impact of investment decisions that may result in negative effects on sustainability factors is not yet available. Sustainability factors are defined in Article 2 of the SFDR as “environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters”.
When the finalised Regulatory Technical Standards, supplementing the SFDR are published and the rules are sufficiently clear, Maple-Brown Abbott intends to comply with the relevant requirements by developing processes to gather information on the sustainability impact of underlying investments and by making assessments of principal adverse impacts based on this reporting.