SFDR: Sustainable Finance Disclosure Regulation

The SFDR is a European regulation that requires financial market participants and advisers in the EU to disclose information related to Environment, Social aspects and Governance (ESG). This Regulation came into effect on 10 March 2021 and is part of the European Commission’s 2018 Action Plan on Financing Sustainable Growth to reach the climate change mitigation targets under the Paris Agreement. The Regulation aims to provide more transparency on how financial market participants and advisers consider sustainability risks in their investment decisions and advice where applicable. SFDR brings changes to the current mandatory disclosure requirements for financial institutions providing investment advice. This investment advice includes advice with regard to hedging interest risks in your portfolio via derivatives transactions (hedging advice). Below you will find the SFDR disclosures in relation to hedging advice as provided by Rabobank.

Date of publication d.d. 02 Aug 2021

Sustainability risks in relation to hedging advice provided through Rabobank

Rabobank provides hedging advice to its clients where clients are seeking to hedge interest risks in their portfolio. This type of advice is recognized as “investment advice” under MiFID II and therefore in scope of SFDR regulations. SFDR requires Rabobank to inform its clients on the relevance of sustainability risks in the provision of investment advice. ‘Sustainability risks’ are environmental, social or governance events or conditions that, if they occurs, could cause an actual or a potential material negative impact on the value of the investment. Sustainability risks are no risks for which hedging advice is provided. As the investment advice is concerned with hedging the interest risks in the client’s portfolio, these interest risks and the related hedge are considered leading. As sustainability risks are not part of the risks Rabobank offers to hedge, they are not taken into account when providing hedging advice.

For hedging services in general (except when sustainability risks would be the specific risk to be hedged) sustainability risks are not relevant. Sustainability risks are related to possible negative impact on return in investment. Return on investment is not the goal of hedging. The goal of hedging is limiting or minimizing certain risk in the portfolio of a company or financial institution.

No consideration of sustainability adverse impacts

When providing investment advice, SFDR requires to provide information on how in the investment advice, principle adverse impact on sustainability factors are considered. Sustainability factors are environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters. Rabobank, however, is solely involved in hedging advice focussed on the interest risks to be hedged.

As this hedging advice deals with hedging the interest risks in the portfolio of the client, these risks and the possibilities to hedge these risks are considered and leading. Considering adverse impact on sustainability factors is better suited for investment advice in relation to investment decisions in financial instruments which will fund an economic activity and for which return on investment is the primary focus. This is because this economic activity will have a sustainability impact.

In case of hedging, the economic activity is already performed/funded and only the risks related to this economic activity have to be mitigated by hedging them with a counterparty.

Therefore adverse impact on sustainable factors are not taking into account in case of advice to hedge the risks of the clients.

Relevance of sustainability risks for the remuneration of persons providing hedging advice

Rabobank does not advice clients with regard to their investments but to the interest risks in their portfolio they want to hedge (hedging advice). Sustainability risks as mentioned in the European Regulation are no risks which are hedged for of the client and Rabobank gives advice on. Therefore sustainability risks are not a specific part of the remuneration policy of advisers which give hedging advice and the responsible management of these advisers.

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