Sustainable Finance Disclosure Regulation (SFDR)
What are sustainability risks ?
Sustainability risk is the risk arising from any environmental, social or governance events or conditions that, were they to occur, could cause a material negative impact on the value of the investment. Specific sustainability risks will vary for each investment, and include but are not limited to the following:
Environmental risk: The risk posed by the exposure to issuers that may potentially be causing or affected by environmental degradation and/or depletion of natural resources. Environmental risk may result from air pollution, water pollution, waste generation, depletion of freshwater and marine resources, loss of biodiversity or damages to ecosystems. Environmental risks may negatively affect the value of nvestments by impairing assets, productivity, or revenues, or by increasing liabilities, capital expenditures or operating and financing costs.
Transition risk: The risk posed by the exposure to issuers that may potentially be negatively affected by the transition to a low carbon economy due to their involvement in exploration, production, processing, trading and sale of fossil fuels, or their dependency upon carbon intensive materials, processes, productsand services. Transition risk may result from several factors, including rising costs and/or limitation of greenhouse gas emissions, energy-efficiency requirements, reduction in fossil fuel demand or shift to alternative energy sources, due to policy, regulatory, technological and market demand changes. Transition risks may negatively affect the value of investments by impairing assets or revenues, or by increasing liabilities, capital expenditures or operating and financing costs.
Physical risk: The risk posed by the exposure to issuers that may potentially be negatively affected by the physical impacts of climate change. Physical risk includes acute risks arising from extreme weather events such as storms, floods, droughts, fires or heatwaves, and chronic risks arising from gradual changes in the climate, such as changing rainfall patterns, rising sea levels, ocean acidification, and biodiversity loss. Physical risks may negatively affect thevalue of investments by impairing assets, productivity, or revenues, or by increasing liabilities, capital expenditures or operating and financing costs.
Social risk: The risk posed by the exposure to issuers that may potentially be negatively affected by social factors such as poor labour standards, human rights violations, damages to public health, data privacy breaches, or increased inequalities. Social risks may negatively affect the value of investments by impairing assets, productivity, or revenues, or by increasing liabilities, capital expenditures or operating and financing costs.
Governance risk: The risk posed by the exposure to issuers that may potentially be negatively affected by weak governance structures. For companies, governance risk may result from malfunctioning boards, inadequate remuneration structures, abuses of minority shareholders or bondholders’ rights, deficient controls, aggressive tax planning and accounting practices, or lack of business ethics. For countries, governance risk may include governmental instability, bribery and corruption, privacy breaches and lack of judicial independence. Governance risk may negatively affect the value of investments due to poor strategic decisions, conflicts of interest, reputational damages, increased liabilities, or loss of investor confidence. Consequent impacts to the occurrence of sustainability risks can be many and varied according to a specific risk, region, or asset class. Generally, when a sustainability risk occurs for an asset, there will be a negative impact and potentially a partial or total loss of its value. However, the integration of sustainability risk analysis should mitigate the impact of such risks on the value of the investments and could help enhance long-term risk adjusted returns for investors.
How does Pictet integrate sustainability risk?
The Pictet Group entities integrate sustainability risks in the investment decision-making process, in investment advice and insurance advice for products they actively manage, subject to product and service specificities and to locally applicable regulations. Across research, investment activities, risk management and advisory services, we place emphasis on the inclusion of high-quality environmental, social and governance data when evaluating corporate issuers. To this extent we have developed a proprietary ESG Scorecard that provides a focused view of both ESG risks and opportunities. Our ESG Scorecard is based on a curated set of the most material data points, across four pillars: Corporate Governance, Products & Services, Operational Risks, and Controversies.
Similarly, for external-manager selection we systematically address ESG issues with our investment partners and encourage improvements of current practices, if necessary. We have developed a dedicated ESG questionnaire that covers our investment partners’ engagement to ESG, the level of ESG integration in their processes or operations as well as reporting and transparency issues.
Bank Pictet & Cie (Europe) AG and branches apply the core tenets of good company ownership, with a focus on the investee company’s corporate strategy, the company’s management team and its effective leadership, its financial strength, its capital structure, the fair valuation of issued securities, sustainability risks & opportunities and adverse impacts of investments on society and/or the environment.
Bank Pictet & Cie (Europe) AG has adopted a Responsible Investment Policy that describes how the Bank integrates sustainability risks in its investment process (ESG Integration), implements responsible investing strategies and performs its active ownership responsibilities on behalf of its clients, in full acknowledgement of their rights as investors and for their benefit. This includes the monitoring of investee companies, proxy voting and issuer engagement.
How does Pictet integrate sustainability risk in remuneration policies?
The remuneration policy integrates sustainability risks by way of the policies and procedures which Pictet employees are bound to respect. Compliance with internal (Policies & Procedures) P&Ps form a part of an employee’s annual review, which may include ESG limitations and taking into account sustainability risks based on the type of products or services selected by clients served by that employee. In addition, Pictet employees are held to the Group’s general engagement on sustainability and responsible investing, as relevant to their function.
How does Pictet integrate Principal adverse impacts?
Bank Pictet & Cie (Europe) AG (Legal Entity Identifier (LEI): 549300GSSPQ1QSKI1376) and its EU branches consider principal adverse impacts of its investment decisions on sustainability factors. The present statement is the consolidated statement on principal adverse impacts on sustainability factors of Bank Pictet & Cie (Europe) AG and its EU branches. This statement on principal adverse impacts on sustainability factors covers the reference period from 1 January to 31 December 2022.
Principal Adverse Impacts (PAI) refer to those impacts of investment decisions that significantly harm environment or society. Specific indicators have been defined by the European Union to measure, consider and avoid those adverse impacts. Investments in certain companies, for instance, might be successful from a financial perspective in the near term, but operations might include methods that are hazardous to the environment and lack safety regulations that put workers at risk.
Product specific content
Pictet Wealth Management
Bank Pictet & Cie (Europe) AG
Commercial Register, Frankfurt am Main, Germany: number HRB 131080 (corporations)