ESG-related Obligations for Retail Funds

"Under the SF(CIS)R, a scheme's prospectus should disclose its investment objective, focus and approach, as well as the risks of investing in the scheme.

In the context of an ESG Fund, the following should be disclosed in the prospectus:

• Investment focus: The prospectus should disclose the scheme's ESG focus (e.g. climate change, low carbon footprint, sustainability, reduction in greenhouse gas emissions) and the relevant ESG criteria, methodologies or metrics (e.g. third-party or proprietary ratings, labels, certifications) used to measure the attainment of the scheme's ESG focus.

• Investment strategy: The prospectus should include a description of the sustainable investing strategy used by the scheme to achieve its ESG focus, the binding elements of that strategy in the investment process, and how the strategy is implemented in the investment process on a continuous basis. In addition, relevant ESG criteria, metrics or principles considered in the investment selection process should be disclosed (e.g. a climate-focused fund may use climate-related indicators such as carbon footprint, weighted average carbon intensity, and greenhouse gas emissions). The minimum asset allocation into assets used to attain the ESG focus of the scheme should also be disclosed.

• Reference benchmark: Where the scheme uses a benchmark index to measure the attainment of its ESG focus, an explanation of how the benchmark index is consistent with or relevant to its investment focus must be included. Where the scheme uses a benchmark index for financial performance measurement only, a statement of that fact must be included.

• Risks: Risks associated with the scheme's ESG focus and investment strategy should be disclosed (e.g. concentration in investments with a certain ESG focus, limitations of methodology and data, lack of universal ESG standards or taxonomy, or reliance on third party information sources)."

Source: Allen & Gledhill, last revised on 5 August 2022

According to MAS (Guidelines),
last revised on 28 July 2022

1. 10 The Third Schedule of the SF(CIS)R requires that a scheme’s prospectus should disclose its investment objective, focus and approach, as well as the risks of investing in the scheme.

   11 In relation to an ESG Fund, the prospectus should disclose the following:

   1. Investment focus
      1. the scheme’s ESG focus (e.g. climate change, low carbon footprint, sustainability, reduction in greenhouse gas emissions);
      2. the relevant ESG criteria, methodologies or metrics (e.g. third-party or proprietary ratings, labels, certifications) used to measure the attainment of the scheme’s ESG focus;
   2. Investment strategy
      1. a description of the sustainable investing strategy used by the scheme to achieve its ESG focus, the binding elements of that strategy in the investment process, and how the strategy is implemented in the investment process on a continuous basis;
      2. any relevant ESG criteria, metrics or principles considered in the investment selection process (e.g. a climate-focused fund may use climate-related indicators such as carbon footprint, weighted average carbon intensity, greenhouse gas emissions and exposure to carbon-related assets);
      3. the minimum asset allocation into assets used to attain the ESG focus of the scheme;
   3. Reference benchmark
      1. where the scheme uses a benchmark index to measure the attainment of its ESG focus, an explanation of how the benchmark index is consistent with or relevant to its investment focus;
      2. where the scheme uses a benchmark index for financial performance measurement only, a statement of that fact; and
   4. Risks
      1. risks associated with the scheme’s ESG focus and investment strategy (e.g. concentration in investments with a certain ESG focus, limitations of methodology and data, lack of universal ESG standards or taxonomy, or reliance on third party information sources).

12 Any ESG-related terms used in the prospectus should be clearly defined.