Read our latest briefing note on the circular issued by the Securities and Futures Commission (“SFC”) on management and disclosure of climate-related risks by fund managers.
On 20 August 2021, the Securities and Futures Commission (“SFC”) issued a circular on the Management and disclosure of climate-related risks by fund managers.
With transition periods varying from August 2022 to November 2022, it is important for asset managers to understand the requirements to prepare in advance.
First, managers will need to assess whether they have discretion over the investment management process. The SFC Flowchart in this update may also provide additional detail on scope.
The SFC created two sets of requirements:
The SFC divided the baseline requirements into three buckets:
Board’s roles and responsibilities:
Management’s roles and responsibilities:
Where a Fund Manager assesses that climate-related risks are irrelevant to certain types of investment strategies or funds, it should disclose these exceptions when it discloses how it incorporates climate-related risks into its investment and risk management processes. Fund Managers should also maintain appropriate records which explain why climate-related risks are irrelevant. It must be noted these requirements shall not prohibit or restrict a Fund Manager from complying with applicable laws and discharging their fiduciary duties.
Take climate-related risks into consideration in risk management procedures and ensure that appropriate steps have been taken to identify, assess, manage and monitor the relevant and material climate-related risks for each investment strategy and fund managed.
Fund Managers must also determine the process and frequency by which the board is informed about climate-related issues
3.1 Managers are also expected to apply appropriate tools and metrics to assess and quantify climate-related risks.
|20 November 2022|
Large Fund Managers will be required to comply with enhanced requirements:
Formula for Portfolio carbon footprint
The SFC also provided a formula for the calculation of the portfolio carbon footprint.
Large Fund Managers can refer to the PCAF Standard3 which provides guidance on methods to estimate and calculate the GHG emissions of various asset classes.
Fund Managers will need to make the appropriate disclosures to investors via various channels, such as websites, newsletters or reports and ensure investors’ attention is drawn to the information.
They should also observe the following when making the disclosures:
If climate-related risks have been assessed to be irrelevant to certain types of investment strategies/
funds under their management, exceptions’ disclosures are required at the entity or fund level.
Should you require our expert services and need assistance on the implications of above new developments, we would be delighted to speak with you to discuss how Sanne can assist. Please contact Catherine, Karlien or Paul directly.Our Expertise