CLIMATE-RELATED DISCLOSURES
Merlin Fidelis Asset Management’s climate-related exposures, adopting the recommendations of the Task Force on Climate-Related Financial Disclosures (“TFCD”) and the requirements of the Securities and Futures Commission (“SFC”) of Hong Kong.
As a licensed corporation in Hong Kong, Merlin Fidelis Asset Management (“Merlin Fidelis”, the “Firm”, “We”) complies with the relevant regulatory requirements and expected standards in relation to climate-related risks.
Governance around climate-related risks & opportunities
The Board of Directors of the Firm (the “Board”) bears the ultimate responsibility for the conduct, operations and financial soundness of the Firm. The Board reviews the risk management framework of the Firm, which covers climate-related risks; oversees the Firm's incorporation of climate-related considerations into the investment management and risk management processes; and monitors progress against the goals for addressing climate-related issues. The Board meets quarterly.
Various responsibilities are delegated by the Board to the Investment Committee, Risk Management Committee and Compliance Committee, which each comprise senior management of the Firm and report to the Board periodically. Climate-related issues are integrated into each of the Committees and are reviewed on an ongoing basis.
Senior management responsibilities are split between the investment and risk management functions. The Chief Investment Officer is responsible for ensuring that the relevant and material climate-related risks are fully incorporated into investment decision making in order to maintain the durability and resilience of client outcomes. The Chief Risk Officer, supported by the Risk Management Committee, is responsible for ensuring that the relevant and material climate-related risks faced by the organization are fully incorporated in the risk management process, for example via contingency measures as detailed in the business continuity plan.
Strategy regarding the actual and potential impacts of climate-related risks & opportunities
Climate-related risks and opportunities (short-, medium- and long-term) are a key component to our responsible investment approach, which is core to Merlin Fidelis Asset Management for three compelling reasons.
- Reputation: Our reputation as an asset manager, and any potential reputational risk to our clients as asset owners, is our highest priority. As beneficiaries of corporate profitability, investors and asset owners might be perceived as endorsing the corporate activity of investee companies. We therefore seek exposure to well-run, ethical and sustainable companies to invest in.
- Investment Advantage: Climate-related issues are typically enduring, changing only incrementally, and their incorporation into the investment decision advantages the long-term active investor who has the patience and foresight to benefit from their evaluation.
- The Emerging Markets Opportunity: The Emerging Markets typically lag the more developed markets regarding the awareness, compliance and disclosure of climate-related issues. We view this as both an investment opportunity and a business opportunity. There is greater potential for improvement, which in time will be reflected in the quality of companies and their cost of capital. Furthermore, we expect our investment approach, efforts and engagement to benefit our clients such that we become their trusted partner to invest on their behalf in these markets.
We consider climate-related risks to be both material and relevant. The greatest potential impact of climate-related risks and opportunities is their effect on clients’ investment returns, and in turn the sensitivity to the climate-related risks faced by investee companies. Our priority is to ensure that climate-related risks are fully incorporated into investment decision making. We believe that our investment approach is resilient under different climate-related scenarios because they are explicitly considered, including the potential transition to a low-carbon economy (the “2°C or lower” scenario).
Risk Management processes to identify, assess, and manage climate-related risks
As an integral part of the investment decision, climate-related risks are identified and assessed within the investment function whereby a company’s key climate-related sensitivities are understood and quantified in terms of its prospects, possible operating conditions and plausible extremes. Should a company be particularly sensitive to climate-related issues, we conduct a separate payoff calculation that considers plausible improvement or deterioration, and then factor this into the weighted-probability payoff that underpins the investment decision. The exposure of clients' assets to these climate-related risks is managed by weighing the investment payoffs and position sizes, with comprehensive reviews at explicit price and event triggers. In the long-term, a transition to a low-carbon economy should help mitigate the frequency and intensity of physical climate-related risks affecting client assets, and should thus be the most beneficial scenario for Merlin Fidelis Asset Management and its clients.
Other climate-related risks faced by the organization, such as potential disruption to portfolio management and business activities, or threats to infrastructure, are identified and addressed via contingency measures as detailed in the business continuity plan.
Please refer to our publicly available ESG Policy, which provides further details on how climate-related risks and opportunities (and ESG issues more broadly) are incorporated into the investment and risk management processes.
Metrics and Targets to assess and manage relevant climate-related risks & opportunities
The scope 1, 2 and 3 greenhouse gas emissions of the investment portfolio provide a snapshot of the broad climate-related exposures of client assets; the underlying climate-related risks and opportunities are, however, company-specific. Metrics used include the portfolio's emissions exposure, emissions financed and emissions intensity, and the portfolio's weighted average emissions intensity and the portfolio coverage (as defined in Table 1 below).
Table 1 – Greenhouse gas emissions, aggregated at the portfolio level for the Merlin Fidelis Emerging Markets Fund as at 31st December 2024, is as follows:
Scope 1 & 2 |
Scope 3 |
|
Emissions Exposure: greenhouse gas emissions (tonnes CO2-e) per million USD of portfolio investment |
342 |
2,527 |
Emissions Financed: greenhouse gas emissions (tonnes CO2-e) per million USD of enterprise value (including cash) |
207 |
1,231 |
Emissions Intensity: total greenhouse gas emissions (tonnes CO2-e) per million USD of revenue |
210 |
492 |
Weighted Average Emissions Intensity: greenhouse gas emissions (tonnes CO2-e) per million USD of revenue, weighted by portfolio exposure |
293 |
12,444 |
Portfolio Coverage: portion of portfolio included in calculations |
98.8% |
75.3% |
Source: company estimates
Fidelis Asset Management publicly discloses its corporate scope 1, 2 and 3 greenhouse gas emissions.
Table 2 – Merlin Fidelis Asset Management greenhouse gas emissions (tonnes CO2-e)
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
Scope 1 |
0 |
0 |
0 |
0 |
0 |
0 |
Scope 2 (location-based, using the average emissions intensity of the electricity grid) |
0.6 |
1.5 |
1.5 |
1.5 |
1.8 |
2.0 |
Scope 2 (market-based, using the emissions intensity of the electricity contracted) |
0.6 |
1.5 |
1.5 |
1.5 |
1.8 |
2.0 |
Scope 3 |
4.4 |
3.9 |
0.2 |
3.1 |
29.6 |
22.5 |
Sources: United Nations Framework Convention on Climate Change, International Civil Aviation Organization