Integration of Sustainability Risk
Article 3(1) of the European Union’s Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (as amended)) (SFDR) requires all financial market participants to publish on their websites information about their policies on the integration of sustainability risks in their investment decision-making process. “Sustainability risk” is defined in SFDR as “an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment.”
Citi Private Advisory, LLC (CPA) is a financial market participant where it acts as the alternative investment fund manager (AIFM) for alternative investment funds offered within the European Union. In this context CPA acts as an AIFM to ‘feeder’ funds which invest predominantly all of their assets into underlying third party ‘master’ funds and also as the AIFM of a fund of funds which invests in underlying third party funds. These underlying funds are selected and approved under CPA’s due diligence and approvals processes, and then monitored on an ongoing basis.
CPA implements a two-tier assessment covering both the third-party manager and the fund. At manager level, the relevant investment research and operational due diligence teams will assess how far sustainability risk is embedded into the organisation, its governance, the day-to-day running of the fund, and the manager’s investment decision-making process. At fund level, the investment research team will assess the extent to which the manager has integrated sustainability risk into its investment decision-making process for the fund. The manager level and fund level sustainability risk assessments are then combined to produce an overall sustainability risk profile.
As part of the approval process for including third party funds in its investment universe, the overall sustainability risk profile of the manager and the fund is considered along with other factors, including the depth and breadth of experience within the investment team, a consistent and disciplined investment approach, track record, market opportunity, and other risk factors. Accordingly, sustainability risk is considered in the round on an integrated basis, along with these other factors, which collectively drive an overall assessment of the fund.
We also review managers of third-party funds included in our platform on a periodic basis. As part of these reviews, we assess whether there have been any material changes to the sustainability risk profile associated with the fund or third party manager, and where this is the case, may escalate matters internally to determine any appropriate action.
No Consideration of Sustainability Adverse Impacts
This disclosure is made for the purposes of Article 4(1)(b) of SFDR.
CPA does not consider the adverse impacts of investment decisions on sustainability factors at the present time in respect of the alternative investment funds which it markets into the European Union. “Sustainability factors” are defined by SFDR as environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters.
CPA is currently considering the sufficiency and accuracy of the data available to it in respect of the investments made by those funds and intends to publish its approach on or before 30 June 2021.
At CPA, we revisit our processes on a regular basis to ensure they are informed by industry practice. Our Sustainability Risk Standard is no exception, recognising that the integration of sustainability risk is an evolving and dynamic area. As such, we may edit this page from time to time to ensure it accurately reflects our practices.
For further information about how we integrate sustainability risk in our investment decision-making process, please contact us.
This page was last updated on 10 March 2021.