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SFDR: Report on integration of sustainability

Everyone who provides financial advice is required to publish a report on how sustainability is integrated into their investment advice. Here is DNB Markets’ report.

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A sustainable investment is an investment in an economic activity that contributes to a climate or environmental goal. Sustainability risk can affect an investment negatively.

Investment advice at DNB Markets - integration of sustainability

Background: EU Disclosure Regulation

Pursuant to the EU's Disclosure Regulation “SFDR”, incorporated into the Norwegian Act on sustainable finance, financial market participants and financial advisers must integrate all relevant financial risks into their investment advice, as well as all relevant sustainability risks that may have a relevant significant negative impact on the return on an investment or a piece of advice and must regularly assess them.

DNB Markets forms part of DNB Bank ASA, which is licensed as an investment company. DNB Markets provides advice on investment in financial instruments and, in accordance with the Financial Services Act, is defined as a financial adviser.

Sustainability risk can negatively affect the value of an investment.

What is SFDR?

SFDR stands for “Sustainable Finance Disclosure Regulation”, which is the EU regulation on disclosure of how advice on sustainability is being handled by financial advisers.

SFDR has been incorporated into Norwegian law and is in Norwegian called “Offentliggjøringsforordningen”. The regulation requires all financial advisers in Norway to publish an account of how sustainability is integrated.

Sustainability risk in the investment advisory service

Sustainability risk means an environmental, social or governance event or circumstance that, if it occurs, could have an actual or potentially significant negative impact on the value of the investment.

Currently, access to information from issuers of securities about their exposure to sustainability risks is limited. Until Markets has satisfactory data and data integration that actually integrates sustainability risk into the assessments forming the basis for investment advice, Markets will not integrate sustainability risk into investment advisory services.

DNB Markets expects that information about sustainability risks will become more accessible in the future. There is information about issuers’ sustainability risks in DNB Markets’ investment analyses.

For customers who need financial instruments to secure an underlying hedge in the currency, interest or commodity markets, there will normally be no sustainability risks that are deemed to be relevant. In investment advice where the purpose is to hedge underlying exposure, DNB Markets will not take sustainability risk into account when proposing suitable instruments.

Sustainability preferences for investment advice

Customers of DNB Markets can receive investment advice on the following types of financial instruments:

  • Shares and equity-like instruments and derivatives with shares as the underlying instrument
  • Bonds and commercial papers
  • Derivatives with currency, interest or commodity instruments as underlyings.

These instruments have different properties and customers can have different purposes and objectives when seeking advice.

For investment advice, the customer’s contact at DNB Markets will suggest financial instruments suitable for the individual customer, given the client's preferences and particular circumstances. For customers who state that they have sustainability preferences that they would like taken into account as part of the advisory service, Markets will seek to clarify whether the customer wants:

  • Instruments with a minimum degree of environmentally sustainable investment according to the EU taxonomy,
  • instruments with a minimum degree of environmentally sustainable investment in accordance with the Sustainable Finance Disclosure Regulation, or
  • Instruments that take into account significant negative sustainability effects – PAI (Principal Adverse Impact)

Customers who wish to invest in securities may have various purposes for the investments. For investment advice where the purpose is return, DNB Markets will seek to take into account investment goals, risk appetite, time horizon, knowledge, experience, financial position, the ability to bear losses – and when Markets has satisfactory data and data integration that actually integrates sustainability risk – sustainability risk will also be taken into account when investing.

More about remuneration schemes at DNB Markets

Under the EU's public disclosure regulation, financial advisers must state how remuneration schemes are consistent with the integration of sustainability risk. DNB Markets has established a risk-adjusted remuneration scheme that is intended to promote long-termism and good risk management. Sustainability risk is currently not included in the assessment basis when determining compensation at DNB Markets.

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