The European Union's Sustainable Finance Disclosure Regulation 2019/2088 (“SFDR”) requires financial market participants such as Keppel Ltd ("Keppel") to provide information to investors with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the remuneration policies in relation to the integration of sustainability risks and the promotion of environmental and/or social characteristics.
The information below regarding the policies of Keppel on sustainability is made in accordance with Articles 3, 4 and 5 of the SFDR.
SFDR defines sustainability risk as an environmental, social or governance event or condition that, if it occurs, could cause a negative material impact on the value of the relevant investment. KFM aligns with Keppel’s sustainability management framework. Keppel embraces sustainability not only as a guiding principle, but on all strategic and operational levels. With sustainability at the heart of its strategy, Keppel aims to create enduring value for its stakeholders – through environmental stewardship, responsible business practices and nurturing its people and the communities, wherever it operates.
KFM has adopted Keppel’s Fund Management and Investment (“Keppel FM&I”) platforms’ Responsible Investment (“RI”) Policy, which communicates its overarching investment approach towards Environmental, Social and Governance ("ESG") issues and to operationalize these commitments, Keppel FM&I has in place an Environment, Social and Management System (“ESMS”) that outlines how ESG factors material to Keppel FM&I across its investment decisions and operations are integrated in its investment vehicles’ investment cycle. These documents apply to investments in Singapore and globally, where Keppel FM&I invests and operates.
The integration of sustainability starts at screening and due diligence and continues through portfolio management and value creation. At the screening stage, potential investments are assessed against Keppel FM&I’s exclusion list, including breaches of the UN Global Compact principles, involvement in illegal activities, severe human rights violations, and direct exposure to thermal coal and peat. Investments falling within these exclusions are rejected. Where required, investments are screened at an early stage for initial risk assessment and categorised according to different risk levels. This screening could involve filling in checklist(s) and questionnaires or using the fund’s proprietary screening tool(s) based on available information obtained from desktop research and/or through stakeholder consultation.
The outcome of the categorisation determines the level of documentation required and the processes to be followed. This approach allows for a differentiated process based on the specific ESG risks of each investment. During due diligence, ESG risks are further analysed and external consultants may be appointed to conduct the due diligence assessment. ESG findings are documented in the final investment approval materials and may lead to rejection where risks are deemed unacceptable. Following investment, ESG performance is monitored on an ongoing basis through the collection of relevant data where practicable and the use of third-party or proxy data where necessary.
Keppel FM&I has formed an ESG Committee which is responsible for communicating structure, policies and regulations within the organisation. In terms of hierarchy, the ESG Committee reports to Keppel FM&I's senior management who hold the ultimate ownership of ESG-related investment decisions. The Committee meets at least twice in a year to discuss updates, where applicable, relating to materiality, performance, risks, disclosures, regulations, and investment approach. Keppel FM&I strives to build long term capabilities and integrate ESG at the core of its investment decisions.
KFM recognises that sustainability risks can significantly impact society, the environment, and investment returns, and therefore follows a structured five-stage ESG Framework to identify and address various ESG issues throughout its investment life cycle.
KFM, headquartered in Singapore, primarily operates outside the EU and offers limited financial products within the EU. The availability of data pertinent to Principal Adverse Impacts ("PAI") on sustainability factors is often limited and KFM may need to obtain this data through third-party providers or make informed assumptions. Additionally, KFM considers the lack of reasonably priced and readily available data when addressing many of the technical reporting requirements of the PAI regime. Furthermore, the topics to which the PAI relate are covered, where relevant, through KFM’s existing ESG Framework. KFM has considered the PAI requirements and, taking into account the resources required and nature of its activities, does not currently consider the compliance costs, which would ultimately be borne by Limited Partners, to be proportionate to the benefits such disclosures would provide.
Furthermore, the European Commission has initiated a public and targeted consultation on the SFDR, which includes a review of the necessity and efficacy of entity-level PAI disclosures. KFM will continue to review the relevant regulatory developments, including the outcome of the SFDR consultation.
In this respect and in accordance with article 4.1(b) of the SFDR, KFM therefore states that it does not consider the adverse impacts of investment decisions on all the sustainability factors as referred to in article 4.1(a) of the SFDR and does not make the disclosures as described in article 4.1(a) of the SFDR.
KFM remains committed to responsible investment practices. KFM adheres to several international codes for responsible investment, including the UN Global Compact’s Ten Principles and the UN Principles for Responsible Investment. This commitment reflects the KFM’s ongoing engagement with responsible investment principles, even as it awaits further regulatory clarity.
KFM adheres to Keppel FM&I’s general principles, policies and practices. The remuneration of Keppel FM&I takes into account compliance with its policies and procedures, including Keppel FM&I's RI Policy, and meeting the applicable environmental objectives of its Fund products. Keppel FM&I promotes sound and effective risk management and ensures that the remuneration policy discourages excessive risk taking among others in relation to sustainability risks.
