SFDR entity level disclosures
Entity-level disclosures required under the EU Sustainable Finance Disclosure Regulation (SFDR)
Transparency of sustainability risk policies
“Sustainability risks” relating to our investee companies and assets are defined in SFDR as environmental, social or governance (ESG) events or conditions which could cause an actual or potential material negative impact on the financial value of an investment. Sustainability risks may emerge from internal issues (such as how the Board holds executives accountable, lack of board diversity, or risks arising from health and safety, human rights, or environmental violations) or external sources (such as supply chains, regulatory change caused by industry change or inequality). Inadequate sustainability practices of investee companies can lead to, among other things, inefficiencies, operational disruption, litigation, and reputational damage. These factors have the potential to adversely affect the financial value of investments.
Hermes GPE’s Sustainability and ESG Risk policy outlines how sustainability risks are integrated within our investment decision-making processes and can be found here.
Transparency of remuneration policies in relation to the integration of sustainability risks
Hermes GPE pays staff total compensation, comprised of fixed remuneration (including base salary, pension etc.) and variable remuneration (including bonus, carried interest etc.).
Hermes GPE’s Sustainability & ESG policy sets out how Sustainability & ESG risks and opportunities are integrated within the investment decision-making process. These risks, along with a focus on long-term results, form part of the overall risk management processes and practices that are integrated within the firm’s remuneration policy. This enables variable remuneration to be adjusted based on performance. The Hermes GPE remuneration policy is reviewed annually by the Remuneration Committee, with input from Human Resources.
Transparency of adverse sustainability impacts at entity level
Hermes GPE is guided by the conviction of our parent company, the international business of Federated Hermes (“Federated Hermes”), that responsible investing is the best way to create sustainable long-term wealth. Our goals are to help individuals invest and retire better, to help clients achieve better risk-adjusted returns, and where consistent with client investment return objectives and applicable requirements to contribute to positive environmental and social outcomes in the wider world.
While we consider material sustainability risks as part of our investment decision making process and are a signatory to the United Nations Principles for Responsible Investment (PRI), at this stage Hermes GPE does not consider the principal adverse impacts of investment decisions on sustainability factors, as defined under and in accordance with the SFDR. This is due to the following reasons. Firstly, final EU regulatory technical standards required in relation to adverse impacts assessment have not yet been adopted by European legislators, and hence there remains legal uncertainty. Secondly, we are cognisant of the challenges with data availability and access, especially for co-investments and fund investments, required to comply with the technical reporting requirements under SFDR. Thirdly, since most companies that we invest in are private companies, which track limited data due to resource and size constraints, we are currently unable to obtain and/or measure all the relevant principal adverse impact data in a cost-effective manner, and therefore unable to provide data to the quality standards set internally.
However, Hermes GPE continues to assess mandatory data collection and disclosure requirements which are applicable to firms which opt in to consider the Principal Adverse Impacts of investment decisions and will continue to review our position as matters evolve.
Sustainability and ESG 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. The assessment of sustainability and ESG risks is complex and often requires subjective judgements, which may be based on data which is difficult to obtain, incomplete, estimated, out of date or otherwise materially inaccurate. Even when identified, there can be no guarantee that the impact of sustainability and ESG risks on a fund’s investments will be correctly assessed or that it will be possible to fully mitigate these impacts. No assurance can be given that Hermes GPE will be able to avoid and/or mitigate the impact of sustainability and ESG risks and losses may be incurred.