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Disclosure
Our investment selection process for sustainable strategies
Barclays Private Bank’s Discretionary Portfolio Management (DPM) strategies are underpinned by the objective of maximising risk-adjusted return while integrating Environmental, Social and Governance (ESG) considerations in the investment process.
There is currently no market consensus, universally accepted framework (legal, regulatory or otherwise), criteria or purely objective way to select investments for sustainable strategies. We undertake multiple screening processes and analyse a number of factors in our investment selection process that we consider relevant in accordance with our internally defined criteria. A high level overview of our investment selection process is set out in Barclays Private Bank’s Responsible Investing Policy for its Discretionary Portfolio Management business.
Our investment selection process includes subjective elements which require us to consider whether, on balance, a particular investment is appropriate for inclusion in a sustainable strategy based on our criteria, available information (including ESG data) and professional judgement. This means there may be companies and investments that, on balance, we deem appropriate to include in a sustainable strategy, but a specific company or investment may still have certain areas where it could improve its ESG profile (including in relation to any adverse sustainability-related impacts of such companies and investments) or where ESG controversies exist.
While we seek to screen for adverse sustainability-related impacts and ESG controversies against our internally defined criteria as part of our investment selection process, this process includes subjective judgements and investors should review our Responsible Investing Policy and disclosures relevant to any sustainability strategy, to understand our approach and determine whether this aligns with their ESG expectations for their investments.
Further, ESG considerations are rapidly evolving and may vary by sector/industry, market trends, current science or academic thought, and the macro environment. Therefore, any information herein should not be relied upon as being an exhaustive or complete view of the ESG profile or characteristics of any particular company or investment. No assurance can be given that a sustainable strategy will meet any or all client expectations regarding ‘ESG’, ‘sustainable’, ‘responsible’, or other similarly labelled objectives or that no adverse environmental, social, and/or other impacts will occur.
Our sustainable strategies rely on ESG data. There is currently no universally accepted way of reporting, rating or categorising ESG data and so, where we rely on third-party data, such data may be subject to certain limitations (including in relation to the quality, timeliness, completeness and availability of such ESG data).
Importantly, ESG data may not be audited or otherwise reviewed by an independent third party and while Barclays will use sources it believes to be reliable, we do not guarantee the information is accurate, complete, and up-to-date. The ESG data, models and methodologies used, and the judgements, estimates or assumptions made, are rapidly evolving and this may directly or indirectly affect the metrics and data contained herein.
Key investment risks
ESG interpretation risk: The Private Bank’s DPM business incorporates Environmental, Social and Governance (ESG) considerations and certain exclusions across all of its strategies to varying degrees across all booking centres except for India. The extent to which these considerations and exclusions are applied, varies based on different factors such as the type of strategy, including but not limited to whether the strategy is internally categorised as a ‘traditional strategy’ or a ‘sustainable strategy’ and the assets the strategy invests in. As a result, a strategy will perform differently from a strategy or reporting benchmark that uses a different methodology to identify and/or incorporate environmental and/or social impact criteria or relies solely or primarily on financial metrics.
There is currently no globally accepted framework or definition (legal, regulatory or otherwise) of, nor market consensus as to what constitutes, an ‘ESG’, ‘green’, ‘sustainable’, ‘climate-friendly’ or an equivalent company, investment, strategy or consideration or what precise attributes are required to be eligible to be categorised by such terms. This means there are different ways to evaluate a company or an investment and so different values may be placed on certain ESG credentials as well as adverse ESG-related impacts of companies and ESG controversies where these are considered.
The evolving nature of ESG considerations, models and methodologies means it can be challenging to definitively and universally classify a company or investment under an ESG label and there may be areas where such companies and investments could improve or where adverse ESG-related impacts or ESG controversies exist.
The evolving nature of sustainable finance related regulations and the development of jurisdiction-specific regulatory criteria also means that there is likely to be a degree of divergence as to the interpretation of such terms in the market. We expect industry guidance, market practice, and regulations in this field to continue to evolve.
Any references to ‘sustainable strategy’ ‘sustainable investment’, ‘ESG considerations’, ‘ESG factors’, ‘ESG issues’ or other similar terms or related exclusions in this document are as used in our internal framework and as explained in our Responsible Investing Policy and not to any jurisdiction-specific regulatory definition or other interpretation of these terms unless specified otherwise. Further details are set out in this document and in our Responsible Investing Policy. Investors with specific sustainability preferences or sustainability-related objectives should review and consider our Responsible Investing Policy and disclosures relevant to any sustainability strategy in detail to ensure the sustainability profile of the sustainable strategy (including the approach we take to evaluating and screening adverse ESG-related impacts or ESG controversies) reflects such preferences or objectives.
There can be no guarantee that the aims or characteristics of any sustainability strategy will be achieved, or any adverse ESG-related impact or controversy avoided. Any decision to invest in a sustainable strategy should take into account both the financial and non-financial characteristics of the strategy.
The approach taken by the Private Bank DPM business may differ from decisions made by other Barclays entities and lines of business.
ESG analysis risk: In respect of Fixed Income strategies only, each fixed income investment undergoes fundamental qualitative Environmental, Social and Governance (ESG) analysis where data is available. For a minority of issuers, such as where the quantitative data is not deemed appropriate by the investment team and/or the data is not available, additional qualitative investigation is undertaken.
In respect of direct equity and fixed income holdings in companies across all other strategies, as part of our investment due diligence process, ESG factors are analysed to gain insight into the operational quality of a business and its resilience to ESG risks. For those that are eligible, each investment undergoes fundamental quantitative ESG analysis, which highlights areas where we then undertake further qualitative investigation. In all cases, there is no guarantee that the assessment undertaken is exhaustive in nature or that this will influence our investment decisions. Certain asset classes, such as cash or hedging derivatives, are ineligible for ESG analysis.
Where third-party funds are included in a strategy, this may include funds that we consider to have ESG factors integrated into the third-party fund manager’s investment decisions. We do not seek to integrate ESG considerations in our allocation to passive investment such as exchange-traded funds.
Where we use ESG data, models and methodologies, we consider such data, models and methodologies to be appropriate and suitable for these purposes as at the date on which they were deployed based on our knowledge at the time. This includes data, models and methodologies made available by third parties (over which we have no control) and which may have been prepared using a range of different methodologies, or where the basis of preparation may not be known to us. Methodologies, interpretations or assumptions may not be capable of being independently verified and may therefore be inaccurate. Climate and sustainability data, models, and methodologies are subject to future risks and uncertainties and may change over time.
ESG data, models and methodologies are not of the same standard as those available in the context of other financial information and use a greater number and level of judgements, assumptions and estimates, including with respect to the classification of ESG activities. ESG data, models and methodologies are also not subject to the same or equivalent disclosure standards, historical reference points, benchmarks or globally accepted accounting principles. Historical data cannot be relied on as a strong indicator of future trajectories in the case of climate change and its evolution. Outputs of models, processed data analysis and the application of methodologies will also be affected by underlying data quality, which can be hard to assess, or challenges in accessing data on a timely basis.
The data, models and methodologies used (including those made available by third parties), and the judgements, estimates or assumptions made in them or by us, are rapidly evolving and this may directly or indirectly affect the metrics, data points and targets we use. Further, changes in external factors which are outside of our control such as accounting and/or reporting standards, improvements in data quality, data availability, or updates to methodologies and models and/ or updates or restatements of data by third parties, could impact – potentially materially our approach to data, models and methodologies. We will continue to review and develop our approach to data, models and methodologies in line with market principles and standards as this subject area matures on a reasonable endeavours basis.
Third-party risks in respect of ESG data (including research): There are differences in approach, coverage and methodology applied by third parties in compiling ESG data across the market (including but not limited to assignment of ESG ratings), which may lead to divergent views and opinions as to ESG credentials and considerations (including but not limited to the ESG rating applicable, if any).
Where we rely on third-party data (including research), we will consider the credibility of the source, however, we note that underlying data quality can be challenging to verify and assess due to certain limitations. We expect industry guidance, market practice, and regulations in this field to continue to change and we will review and develop our approach as appropriate.
Any use of third-party data, including as part of the investment due diligence process, may therefore be subject to limitations. As such, Barclays Private Bank and its affiliates shall have no liability for any errors or omissions in connection with any third-party data (including ESG ratings) which they consider to be credible.
Sustainable strategy risk: Our sustainable strategies look to identify businesses that are helping to address either an environmental or social consideration through the products and services that they sell. The disparate nature of global businesses means that this analysis is subjective, using a combination of qualitative and quantitative inputs. Such strategies may not succeed in generating a positive environmental and/or social impact.
The incorporation of environmental and/or social impact criteria into an investment process may cause a sustainable strategy to select, screen or require the disposal of investments for reasons other than financial performance. As a result, a sustainable strategy will perform differently from a strategy that uses a different methodology to identify and/or incorporate environmental and/or social impact criteria or relies solely or primarily on financial metrics.
There is no assurance that an investment objective will be achieved. For further information, see the section entitled “Our investment selection process for sustainable strategies” further above. Investors with specific sustainability preferences or sustainability-related objectives should review and consider our Responsible Investing Policy and the relevant disclosures relevant to any sustainability strategy in detail to ensure the sustainability profile of the sustainable strategy reflects such preferences or objectives.
Any decision to invest in a sustainable strategy should take into account both the financial and non-financial characteristics of the strategy.
Purpose of information: Any information contained or referred to herein, in relation to any actual or potential ESG objective, issue or consideration is not intended to be relied upon for EU Sustainable Finance Disclosures Regulation classification purposes, EU Taxonomy Regulation classification purposes, or equivalent classification regimes.
Disclaimer
This communication:
- Has been prepared by Barclays Private Bank and is provided for information purposes only
- Is not research nor a product of the Barclays Research department. Any views expressed in this communication may differ from those of the Barclays Research department
- All opinions and estimates are given as of the date of this communication and are subject to change. Barclays Private Bank is not obliged to inform recipients of this communication of any change to such opinions or estimates
- Is general in nature and does not take into account any specific investment objectives, financial situation or particular needs of any particular person
- Does not constitute an offer, an invitation or a recommendation to enter into any product or service and does not constitute investment advice, solicitation to buy or sell securities and/or a personal recommendation. Any entry into any product or service requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding documents
- Is confidential and is for the benefit of the recipient. No part of it may be reproduced, distributed or transmitted without the prior written permission of Barclays Private Bank
- Has not been reviewed or approved by any regulatory authority.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. Law or regulation in certain countries may restrict the manner of distribution of this communication and the availability of the products and services, and persons who come into possession of this publication are required to inform themselves of and observe such restrictions.
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