Hi, we are a wealth manager that manages mainly discretionary portfolios for a range of clients, under a range of sustainable mandates. We exclusively invest in collectives (funds). Our portfolios are most akin to funds of funds.
Under current SBTi guidance, page 53-57, fund of funds are “optional” to cover in your Scope 3 target setting. Naturally, we are keen to cover them as we would otherwise ignore our financed emissions.
Given we are indirect holders of these investments, is there guidance on target setting and implementation? The theory of change and points of leverage are different for us vs holding shares/bonds/assets directly.
I would love to hear if you could help us with our ambition to set SBTs.
Best
Louisiana
EQ Investors
Hi @LouisianaSalge,
Welcome to the community. Fund-of-funds (FoF) are currently optional, which is more a reflection on the sometimes limited data availability for e.g. hedge funds and other illiquid strategies.
If you are investing your clients’ assets in e.g. equity and fixed income funds with a discretionary mandate you should include these in your target, as SBTi would most likely not view that as FoF investments, unless you are actually buying FoF products. Even so, you are naturally encouraged to set targets for these asses, mandatory of optional.
Engagement-wise, your counterparty and first line of engagement is naturally the investment manager managing the funds that you are investing client assets into, and to influence these to managed the funds to be aligned with the Paris agreement ¶ and ultimately set their own SBTi-approved targets. That is what we’re asking companies ex finance to do when using the supplier engagement method.
For a more engaged conversation with them, most portfolio management solutions are able to do x-ray analysis on funds, allowing you to do for instance temperature rating and portfolio coverage calculations for holdings in individual funds (and for your full portfolio) to have a more informed conversation with investment managers and to be able to track how they are actually progressing in managing the funds aligned with the PA. This would also allow you to report back to your clients and to the SBTi on the underlying target setting progress.
Hi Donald,
Thank you for the clarification, that’s helpful.
To be clear, we indeed aim to monitor the underlying holdings in each fund/full portfolios over time across % SBT coverage and financed emissions, etc. We already to this for most portfolios.
I am mainly still unsure about the level at which EQ needs to set targets. Despite not having direct control, will we still need to set targets at the underlying holding level (look-through the funds) via one of your three verified methods? Or, would we set taregts in relation to % of our external fund managers applying SBT themselves?
(e.g. assuming we are going with the portfolio coverage method, would EQ need comitt to 100% underlying holdings with SBTs by 2040, or 100% of fund managers with SBTs covering their AUM, including that managed for us, by 2040?). Arguably the only way we at EQ can achieve 100% underlying holdings with SBTs is if the fund managers we work with also make SBT coverage increases part of their fund objectives and engagement plans.
Your guidance is much appreciated! Thank you so much in advance.
Louisiana
Hi Louisiana,
I would say that both ways could work but with the caveat on the second option that the fund managers’ SBTs would need to specifically cover 100% of EQ’s underlying holdings.
Thanks,
Howard
Hi @HowardS ,
We are an Asset Manager and currently defining our portfolio targets.
I understand that FoF with no transparency are optional, but the SBTi FI guidance refers to this possibility using only certain hedge funds as examples, whereas for several reasons (such as reporting & technical/IT capacities) we have no transparency for all our external funds of funds.
In these conditions, can we consider these funds (equity & bonds via funds with unknown underlying assets) as optional and therefore not include them in our mandatory target boundary?
Thank you for your help !
Igor
Under FINT V2, more granular specifications on coverage requirements are provided on investments in funds via discretionary, advisory, or execution-only mandates. Meanwhile, investments in fund of funds (to be clear, this means you invest in funds that invest in funds that then invest in funds or assets) are optional but potentially subject to a new 67% coverage requirement floor (see Figure A-1).