Sustainability at portfolio level

Our approach to sustainability risks and our ESG integration process are described in detail below. The articles mentioned below refer to Regulation EU SFDR 2019/2088.

Bellevue Asset Management AG does currently not consider adverse impacts of investment decisions on sustainability factors at the company level, unless otherwise stated on its website at a later date. The main reason is the actual lack of available information and data to adequately assess such material adverse effects.

As soon as the Management Company takes into account any adverse impact of investment decisions on sustainability factors, the relevant disclosure will be updated (i) on its website and (ii) in the prospectus at the earliest opportunity.

Notwithstanding the above, individual investment strategies may take into account adverse impacts on sustainability factors as part of the investment decisions according to EU SFDR Art. 7.

In the spirit of identification with the company and the entrepreneurial activities of each employee at his or her level, we give employees across all hierarchical levels a share in the success of their own company.

Part of the variable salary components (profit-sharing) are distributed in the form of treasury shares or fund units and remain blocked for a predefined period. In this way, the interests of employees are to a large extent aligned with the interests of investors, shareholders and other stakeholders.

Furthermore, Bellevue Asset Management periodically offers an employee share ownership program under which rights to purchase Bellevue Group shares are offered at a discounted purchase price.

The compensation of Bellevue Asset Management employees is designed to motivate employees in all units to perform very well. This is «entrepreneurial compensation with commitment» – a meritocratic model. An attractive entrepreneurial profit-sharing bonus is available as variable compensation. This profit-sharing is directly linked to the operational financial performance of Bellevue Group. In addition, part of this variable profit-sharing is paid out in the form of blocked shares and commitments in managed products (credo: «We eat our own cooking»). This approach promotes a long-term performance culture. Further details and numbers are publicly disclosed in the audited annual Remuneration report of Bellevue Group AG.

“Sustainability risks” is defined in Regulation (EU) 2019/2088 of the European Parliament and of the Council of the European Union of November 27, 2019 on sustainability-related disclosures in the financial services sector (Sustainable Finance Disclosure Regulation, 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.

Bellevue Asset Management AG and its subsidiaries have integrated sustainability risks into the investment decision-making processes of all their actively managed strategies and associated funds with the aim of identifying, assessing and, if possible and appropriate, mitigating such risks.

While every investment strategy can be exposed to such sustainability risks to varying degrees, the projected impact of sustainability risks on the returns of the investment strategies will depend on the specific investment strategy.

The results of this integration and evaluation are summarized as follows:

For those investment strategies that promote environmental or social characteristics in the sense of SFDR, the projected negative impact on financial returns is lower compared to “non-ESG” investment strategies. This is attributed to the risk-mitigating ESG investment strategies, their future-oriented investment approach, their emphasis on sustainable financial frameworks, their activism in dealings with companies/issuers as well as their avoidance of non-compliant companies/issuers.

All investment strategies may invest in accordance with international environmental, social and corporate governance standards (hereinafter referred to as "ESG"). The investments or securities selected in accordance with such criteria can entail a significant subjective element. ESG factors that are integrated into the investment process may differ with respect to investment themes, investment categories, investment philosophy and the subjective application of ESG indicators that determine portfolio design and the underlying assets. Accordingly, no guarantee is made that every investment by an investment strategy will meet all of the ESG criteria.

Bellevue Asset Management Ltd is committed to adhering to internationally recognized norms and excludes companies with serious violations of human rights, environment, labor norms and involvement in corruption. No investments may be made in companies that are implicated in serious environmental, human rights and business ethics issues. Compliance with the principles and guidelines of the UN Global Compact Compliance and the UN Guiding Principles on Business and Human Rights and with the standards and rights of the International Labour Organization serves as an indicator in such cases.

In contrast to exclusions based on violations of global principles and standards, value-based exclusions are based on social, ethical or moral values. Thresholds have been defined for the percentage of overall revenues that can be generated from business areas with high ESG risk scores such as conventional weapons, thermal coal or tobacco production. Companies that exceed the generally accepted annual revenue thresholds in the business areas below are excluded from Bellevue’s investable universe:

Even if most strategies, especially in the healthcare sector, have no involvement in the business areas in highlighted above, compliance with these thresholds is systematically monitored. The defined thresholds primarily facilitate the practical implementation of the exclusion criteria and are based on empirical values with institutional investors and industry experts. For individual strategies with a dedicated sustainability focus, more extensive and/or stricter exclusion criteria may be applied.Company affiliations with animal experiments, medical genetic engineering and embryonic stem cell research may also fall into this category. As a healthcare investment specialist, Bellevue Asset Management applies a nuanced approach in this respect. Their healthcare strategies accommodate generally recognized principles where possible. They categorically rule out investments in companies associated with illegal activities, an example of which would be intervention in the human genome for cloning purposes. However, nowhere in the world can medical products be approved without animal testing, even today. Their healthcare experts prioritize compliance with humane animal research principles in line with the principle of the 3Rs: Replace, Reduce and Refine.

Bellevue Asset Management AG’s investment process also entails – in addition to its conventional investment research – an “ESG integration approach”, which refers to the sub-categories Environment (“E”), Social (“S”) and Governance (“G”). The Environment sub-category focused on aspects such as whether a company systematically measures its carbon footprint and discloses the related data.  The Social sub-category covers aspects such as product quality, data privacy policies and human capital development. Examples of Governance issues are board independence, board compensation and corporate ethics.

Based on the premise that sustainability risks can have a negative impact on returns, the aim of ESG integration is to identify and address such risks within the scope of the investment process. The data gained through ESG screening is also used by the asset manager to anticipate new developments with respect to sustainability and to incorporate these findings into its investment decisions.

A system of ESG ratings forms the basis by which sustainability criteria are integrated into the asset manager's investment decision process. Every issuer of securities in its investment universe is assigned an ESG rating based on various sub-scores. These sub-scores are based on data from MSCI ESG and Sustainalytics, if available. Any data gaps or objective misjudgments resulting from shortcomings in the ESG rating methodology are addressed to the best of the asset manager's knowledge and ability through in-house evaluations based on fundamental research or by referencing other data sources (e.g. Bloomberg).

Subsequently, the relevant ESG factors for an industry or individual company, examples of which are product quality, data privacy, human capital development and corporate ethics, are qualitatively integrated into the regular fundamental research process, in which metrics such as valuation multiples, sales growth rates, profit margins and competitive positions are examined, and thus help the asset manager to make sound security selection and portfolio weighting decisions.

Most ESG rating methods are based on a predefined systematic approach, although this does not always result in an objective or “fair” assessment of a company’s ESG risks. In fact, such methods often systematically disadvantage start-ups and small-cap companies relative to large-cap companies. A lack of manpower and experience in handling ESG issues can result in a company being underrated, and the rating methodology used might not be equally applicable to every company in a given sector. In the biotech industry, for instance, early stage companies still in the drug research and development stage may be systematically underrated because they are not yet generating (much) revenue from the sale of medicines, which naturally puts them at a disadvantage versus established healthcare giants in the highly weighted “access to healthcare” criterion. It is also not unusual for a newly listed company to have a weaker ESG rating, simply because the ESG data available is still insufficient. That is why Bellevue Asset Management AG's portfolio managers always take a closer look at ostensible «ESG-Laggards» and reach out to the ESG specialists at its external ESG research providers and at the companies with lagging ESG ratings. Investments in «ESG-Laggards»  must be documented in detail. Bellevue Asset Management AG does not apply a “best-in-class” approach for the reasons mentioned above, unless otherwise dictated by a specific investment strategy.

As a responsible investor with a long-term focus, Bellevue Asset Management AG supports all measures and initiatives that increase the value of the invested companies over the long term in the interests of shareholders and investors. This includes engagement activities as well as the exercise of voting rights on the occasion of general and shareholders' meetings.

Active management means: Investing with conviction. We know exactly what we are investing in and are highly disciplined investors. Investment ideas don’t have to be run past any high-level investment committees or a CIO. Our expert investment teams within the various product areas operate autonomously while maintaining high standards of responsibility, mutual respect and visionary leadership. And our employees are investment experts and entrepreneurs at the same time and have a personal stake in the success of their clients.

This commitment to active investment management also highlights the importance of engagement as a key element in our ESG framework. Portfolio managers generally engage in an active and constructive dialog with the management and other relevant stakeholders of the invested companies regarding environmental, social and governance aspects. If there are indications of substantial controversies in the area of ESG, these are constructively raised in the company dialog and progress (e.g. strategy, process adjustments, improvement of ESG rating) is documented over time. Engagement activities must also be placed in the context of materiality and proportionality. Engagement activities can take place to varying degrees depending on the size of the investment strategies involved, the capitalization of the company, the stage of development of the company, and other factors.

Written records of ESG engagement activities are maintained as part of the regular documentation of conversations with company representatives. Individual case studies may be suitable for external publication and thus for distribution to a wider audience.

Bellevue Asset Management AG protects the long-term interests of its investors by making active use of its voting rights at the general meetings of shareholders of the companies in its portfolios via proxy voting. We are supported in this by International Shareholder Services (ISS). ISS has many years of experience in proxy voting and implements market-leading practices. However, there is no obligation to implement the voting recommendations provided by ISS.. It may go against the voting recommendations of third parties if it determines that these are not in the best interests of the investors.

Bellevue Asset Management AG actively exercises its voting rights as a rule.

It generally votes in line with the recommendations of company boards regarding agenda items that will not have a material impact on the long-term development of the company in question. Agenda items that we believe could have a material impact on the long-term development of the company will be examined in detail before deciding how to vote. Below are typical examples of such items:

• Mergers and acquisitions
• Divestment of business units
• Changes in capital structure or outstanding voting rights
• Corporate governance matters (acquisitions, restructuring projects, etc.)

The responsible portfolio managers will conduct this analysis. The analysis is based on the currently available information from various sources, for example, analyst reports or media releases and other reports published by the company itself.

Voting rights can be exercised directly through active participation in a general meeting; via an online voting platform or through one or several representatives / proxy advisory firms.

With reference to the Paris Climate Agreement of December 2015, Bellevue Asset Management AG is committed to the related climate targets and supports measures to reduce global warming. Carbon intensity (tons of carbon emitted per USD 1 million of revenues) is measured regularly at portfolio level and scored based on the relevant investment universe or fund benchmark. It should also be noted that more than 85% of our assets under management (as at December 31, 2022) are invested in the healthcare sector, which is characterized by lower levels of carbon emissions than the manufacturing, commodities or energy sectors and the broadly diversified global equity indices.

Some investment strategies may consider the main adverse impacts of investment decisions on sustainability factors (Principle Adverse Indicators - PAI) as part of their investment and portfolio management activities. This can be implemented through direct action within portfolio management, issuer exclusion, engagements, or through combinations of the activities described.

Consideration of adverse sustainability impacts depends largely on the availability of relevant information. The necessary data is not always available in sufficient quantity and quality for all assets in which Bellevue Asset Management invests. Consequently, the list of PAI indicators taken into account is continuously reviewed depending on data availability and data quality.