Thematic review of engagement information

The Danish Financial Supervisory Authority (the “DFSA”) has conducted a thematic review of six pension companies and investment managers and their engagement information (active ownership). The results of the review have been gathered in a good practice report on engagement policies (the “Report”).

In general, the review focused on clarifying whether the investigated companies are clear, understandable and comprehensive when disclosing information on their approach to engagement, i.e. how they exercise their influence on governance, development etc. in the companies in which they invest. Since engagement information can be presented in various ways, it places, according to the DFSA, additional demands on ensuring that disclosures on engagement are sufficiently nuanced for investors, customers etc. to understand the specific approach in each case. The DFSA concluded that all investigated companies had published an engagement policy on yearly basis and reported annually on their implementation of the policy. However, the DFSA found that the information in several cases was incomplete and did not describe all elements required by law.

The thematic review also focused on how information on engagement policies is disclosed in the sustainability disclosures of the investigated companies in accordance with the SFDR. Institutional investors and investment managers shall provide information on their engagement policies in both the “Statement on principal adverse impacts of investment decisions on sustainability factors” (“PAI statement”), cf. SFDR article 4(2)(c) and SFDR level 2 article 8, and in their website disclosures, cf. SFDR article 10 and level 2 article 24(k), 35, 37(k) and 48.

 

Based on the thematic review, the following conclusions and recommendations regarding disclosures in accordance with the SFDR have been presented by the DFSA:

• PAI statement: Companies are required to specify which PAI indicators they take into consideration in their engagement policies as well as how these are included in their engagement policies. The investigation showed that most of the companies had separate sections on engagement in their PAI statement. However, most often the companies did not provide sufficient information on how they specifically incorporated PAI indicators for this purpose. On that basis, the DFSA issued an order to, among others, one of the investigated companies on providing comprehensive information on how it considers the principal adverse impacts of its investment decisions on sustainability factors, including in relation to engagement. The purpose is to ensure that investors are correctly informed about what companies actually do, including through their engagement, to reduce adverse impacts.
• Website disclosures: Companies with SFDR article 8 and 9 products are required to disclose on their websites how engagement policies are integrated in their investment strategies. The investigation showed that information most often was too general and generic. The DFSA concluded that companies in their sustainability disclosures must include nuanced descriptions based on the relevant and current engagement policies for each product.

 

The conclusions from the investigation have been published in a good practice report including an appendix with examples of good and inadequate practices.

Tags:  SFDRSustainability