|Signatory type||Investment manager|
|Region of operation||Global|
|Assets under management||CHF1,370bn|
|COVERED IN THIS CASE STUDY|
|Fund||Credit Suisse (Lux) Environmental Impact Equity Fund1|
|Sector2||Sustainable infrastructure (SDG 6 and 11)
Resources (SDG 7, 14 and 15)
Waste mitigation (SDG 8 and 12)
Carbon reduction technologies (CRT) (SDG 9 and 13)
|Geography||Global - around 36% US, around 39% Europe, around 22% rest of world.|
|Environmental objective||Mitigation and adaptation|
Credit Suisse (CS) offers sustainable investment solutions in line with its ESG Framework by specifying criteria and thresholds for sustainable portfolios.
Credit Suisse is committed to playing an active part in solving the global challenges related to sustainability. This is reflected in how CS is managing operations, collaborating with clients for successful transition towards a more sustainable economy and providing innovative sustainable and impact-oriented solutions.
We welcome the EU taxonomy and the EU action plan as a useful framework to create transparency around ESG for investors and clients, and as an important element to mobilise capital for sustainable and impact investments.
Principles, criteria, thresholds
Credit Suisse analysed the fund portfolio and selected a sample of 10 underlying companies from different sectors and across geographical areas. In parallel, CS has discussed data set-up used by external providers and analyse whether they can provide all information needed for the taxonomy implementation.
CS verified eligibility and mapped applicable criteria against available data from the Sustainable Finance Technical Expert Group (TEG) taxonomy tool, focusing on the different levels of macro-sector classification, relevant codes and mitigation criteria. CS carried out a review of data availability against Substantial Contribution thresholds and where companies were shown as not eligible, additional clarification was sought from the providers. In one of the two cases in which this occurred, the provider resolved the issue after an investigation.
CS conducted a deep dive into four companies (including one originally identified as non-eligible), leveraging publicly available data such as annual and sustainability reports. As part of that process, CS assessed relevant business activities, aiming to verify whether a non-eligible company was able to fulfil the criteria and achieve eligibility after all.
Do no significant harm and social safeguards assessment
CS adopted the same approach for both the DNSH and social safeguards assessments. CS used an external provider to check the sample of companies against available data, providing assistance with data set-up and collection.
CS was required to rely on current frameworks for controversy assessment and ESG scoring, as the provider has not yet fully expanded data availability for the EU Taxonomy. CS analysed the data provided and assessed the possibility of mapping against DNSH criteria and Social Safeguards. Where necessary, CS investigated controversy flags, alongside factors related to the UN Global Compact, the UN Guiding Principles for Business and Human Rights and the ILO’s broader set of labour standards.
In addition, the companies overall ESG ratings and the provider’s reports were looked at CS scrutinised the taxonomy laws and regulations and assessed to what extent it was possible to check alignment for each of the companies. Again, CS conducted a deep dive into four companies (including one originally identified as non-eligible), leveraging publicly available data such as annual and sustainability reports. CS compared data check outcomes and the quality of company disclosures and held internal discussions on framework and methodology to determine the best way to complete the assessment.
CS analysed company turnover by industry as per data and examined the mapping of turnover against taxonomy-eligible industries as per the data.
Overall, Credit Suisse found it challenging to calculate taxonomy alignment for the chosen sample of companies, mainly due to a lack of relevant data. CS used two separate data providers to check Eligibility and DNSH criteria. While current screens offer a high-level overview, the eligibility provider could only give a steer on identifying the percentage of taxonomy-eligible activities. Though only one company was ineligible, according to the provider (illustration 1), an analysis of disclosures showed that there are many factors that should have been taken into account in their assessment. In CS’s view, to make a decision on eligibility in such cases, it would be vital to engage with companies directly to obtain more information.
Metric & Threshold information for mitigation criteria is very specific and can be difficult to understand. For example, “(…) low thermal conductivity (lambda lower or equal to 0.045 W/mK), external cladding with U-value lower than 0.5 W/m2K and roofing systems with U-value lower than 0.3 W/m2K”. Consequently, in most cases it was not possible to assess whether a company met the thresholds, despite reviewing annual and sustainability reports. Indeed, company disclosures were at times insufficient and even when detailed data was provided (e.g. ISO certificates) they often did not match examples mentioned in the taxonomy tool, hindering a proper assessment.
Information on most criteria is more readily available for established companies, whereas developing and smaller companies are less likely to be covered by data providers and have lower reporting levels. Assessments of larger companies were time-consuming as thresholds had to be separately checked for each product.
|List of companies||Eligibility|
|Eligible sectors||BICS name||BICS code||% revenue|
|Company 1||Energy||Fuel cells & industrial batteries||13111115||100.0%|
|Company 2||Manufacture plastic & chemicals||Food additives||1710121812||78.0%|
|Company 3||Energy||Geothermal equipment||1311111210||100.0%|
|Company 4||Manufacture low carbon tech||Elec measuring instruments||16111310||100.0%|
|Company 5||Construction||Insulation products||17111214||83.9%|
|Company 6||Manufacture plastic & chemicals||Advanced materials||17101211||30.5%|
|Manufacture plastic & chemicals||Consumer retail chemicals||17101213||66.9%|
|Manufacture plastic & chemicals||Other organic based chemicals||17101111114||0.5%|
|Company 8||Manufacture low carbon tech||Recycle Matl hlding equip & machinery||1612151714||100.0%|
|Company 9||Catalysts||Carbon filter||1710121111||15.6%|
|Real estate||Real estate investments||1410216||4.8%|
|List of companies||ESG rating||UNGC compliance||UN business and HR compliance||ILO standards compliance||Controversy flag|
Challenges and solutions
|1||Lack of appropriate data and time-consuming checks.||This is something that needs to be addressed at a higher level. Please see more information in the “Main recommendation or guidance to give to market participants while implementing the Taxonomy” section.|
|2||The mapping methodology of one of the providers was not clear, for example when making reference to a taxonomy category that did not match the activities of the company. One of the companies was not eligible despite its activities, which in CS view should have been taken into account in assessing eligibility.||CS maintained close contact with the data provider in order to flag discrepancies and clarify the approach. CS also undertook extra in-house research that proved to be time-consuming.|
|3||A need for expert know-how to assess technical screening and DNSH criteria.||No solution available. See ‘Recommendations’ section for details.|
Since it is currently difficult to obtain all relevant data from providers or companies, CS would advise market participants to work on a framework to address this issue. Market participants should decide whether they have enough resources to collect data and implement the taxonomy independently, or whether they need to liaise with data providers while waiting for data availability to improve.
Considering the broad scope and multitude of industries and products covered, CS recommends collaborating closely with data providers to flag issues and/or discrepancies while methodologies are still being developed. When directly engaging with companies, detailed knowledge of the particular business is vital to evaluate whether the company is meeting certain criteria.
1 The fund investment strategy is based on implementing ESG factors, evaluating impact and carrying out a detailed analysis of companies. The approach prioritises disciplined portfolio construction, risk exposure management, diversification and liquidity. The portfolio focuses on 40-50 high-conviction stocks, and is diverse in terms of its regional spread, the four subgroups and at an individual stock level. Given that the focus is businesses that aim to deliver solutions to the biggest environmental challenges, there is a bias towards small- and mid-cap companies.
2 The fund seeks to make profitable investments in companies that drive environmental change from the inside. It invests in publicly traded companies that provide products, services and technologies designed for solving the world’s most pressing environmental challenges. CS established subgroups to address the challenges of the Sustainable Development Goals (SDG).