SUSTAINABILITY-RELATED DISCLOSURES
BRIDGEWATER ALL WEATHER SUSTAINABILITY 11%, L.P. — DEC 2022
Legal entity identifier: 254900YYTVT7F4QZ3Y41
(a) ‘Summary’
Norwegian translation; Dutch translation, Swedish translation
The Bridgewater All Weather Sustainability 11%, L.P. (the “financial product” or the “Fund”) has been set up to generate the highest return-to-risk ratio for a beta portfolio using assets that are positively aligned or are on a clear and credible path to alignment to the 17 UN Sustainable Development Goals (“SDGs”). The SDGs represent a broad global framework for social and environmental impact, and range from ending poverty to providing affordable and clean energy. The investment strategy incorporates both environmental and social impact objectives, as characterised by the SDGs, and financial risk and return objectives.
We have built a systematic assessment process for evaluating whether securities across asset classes are aligned with the UN SDGs, including for global nominal bonds (including green bonds and development bank bonds), global inflation-linked bonds, global equities and select commodities (including gold).
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
Good governance is assessed as part of our analysis of the SDG-alignment of investee companies.
All of the securities and instruments in which the Fund may invest are aligned or are on a clear and credible path to alignment with characteristics that the Fund seeks to promote.
The environmental or social characteristics promoted by the Fund and the sustainability indicators used are monitored on a continuous basis.
We have developed a proprietary methodology drawing on a range of internal research and external data sources to determine the extent to which a security is aligned with the SDGs. We measure, track, and report on the SDG-alignment of All Weather Sustainability at the portfolio level. We continuously obtain economic and market data from all major developed and emerging governments, central banks, exchanges, ESG data specialists as well as public and private databases in order to build out our sustainability data ecosystem.
We ensure data quality with substantial analytical work to disaggregate external data and reconfigure it in order to map it against our own framework for assessing SDG-alignment. Data is processed through triangulation of (1) using multiple industry-leading data providers; (2) consulting a range of academic sources; and (3) selecting assets where we have a triangulated read of sustainability alignment.
The sustainability assessment process uses reported as well as estimated data from companies, third party data providers, national governments and non-governmental organizations.
The SDGs and its associated indicators do not directly contemplate actions undertaken or impacts achieved by the types of assets in which the Fund will be invested. As a consequence, assessing SDG-alignment is an imperfect and difficult exercise with significant conceptual and analytical challenges. In order to overcome these limitations, our SDG alignment process starts with a conceptual framework of what determines an asset issuer’s alignment to the SDGs, and then we build a system that uses logic and technology to transform the observable data into alignment measures across many different securities.
We seek to deeply understand the linkages and relationships between issuers and environmental and social dynamics, and to understand the activities of asset issuers and assess how those activities connect to the SDGs. We use the data from our due diligence to build an extensive data ecosystem and we have conducted extensive data diligence to identify thoughtful methodologies and quality data sources.
Our Sustainable Investing Committee is responsible for our overall engagement strategy, including prioritizing thematic areas, selecting target companies, and using engagements to triangulate our sustainability assessments and integrate any outcomes into our systems. Our overall approach to stewardship and engagement emphasizes collaboration across multiple stakeholders. We also work with an engagement services provider to effectively scale our engagement operations and align our focus areas with other investors.
No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the financial product.
(b) ‘No sustainable investment objective’
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
(c) ‘Environmental or social characteristics of the financial product’
The All Weather Sustainability strategy represents Bridgewater Associates L.P. (“Bridgewater” or the “Investment Manager”)’s approach for incorporating both environmental and social impact objectives and financial risk and return objectives into a scalable strategic asset allocation. The strategy is designed to generate the highest return-to-risk ratio for a beta portfolio using assets that are positively aligned or are on a clear and credible path to alignment to the SDGs. The SDGs cover a broad range of environmental and social matters.
The SDGs are a collection of 17 global goals set by the United Nations General Assembly for the year 2030 that have been ratified by 193 countries. The SDGs represent a broad global framework for social and environmental impact.
Although not explicitly designed for investors, the SDGs are emerging as a widely agreed-upon framework for governments and increasingly for asset owners and asset managers. The SDGs are expansive, ranging from ending poverty to providing affordable and clean energy, and the Investment Manager believes they address many investors’ most important sustainability goals.
We have built a systematic assessment process for evaluating whether securities across asset classes are aligned with the SDGs. We have selected the alignment to the SDGs as the foundational framework for this approach because they are oriented towards positive environmental and social goals, are widely accepted by governments and asset owners, and contain specific and measurable indicators that help investors and researchers to assess whether a given entity is helping to achieve any of the 17 goals. To assess whether issuers are on a clear and credible pathway to SDG alignment we consider multiple factors, potentially including: feasibility of improvement path, intention to improve, concrete actions and results regarding improvement, etc. We asses issuers against these factors on an ongoing basis throughout the holding period and will divest in cases where an issuer is not considered to be achieving SDG alignment or on clear and credible pathways towards SDG alignment.
(d) ‘Investment strategy’
Investment strategy used to meet the environmental or social characteristics
The strategy is designed to generate the highest return-to-risk ratio for a beta portfolio using assets that are positively aligned or are on a clear and credible path to alignment to the SDGs.
We approach the challenge of sustainable investing in liquid markets by applying Bridgewater’s fundamental, systematic, and diversified approach. Using this approach, we have built a systematic assessment process for evaluating whether instruments are aligned with environmental and social goals. This process assesses the alignment of major public market instruments (across asset classes) to the SDGs.
These asset classes include global nominal bonds (including green bonds and development bank bonds), global inflation-linked bonds, global equities, and select commodities (including gold).
Policy to assess good governance practices
Good governance is assessed as part of our analysis of the SDG-alignment of investee companies. In particular, in order for an investee company to qualify as SDG aligned or on a clear and credible path to alignment under our framework, we will assess both what the company does (defining the revenue generating lines of a business, mapping each to applicable SDGs and scoring that alignment), and how the company does it (mapping key business parameters (e.g., corporate governance, environment/labor practices) to the applicable SDGs and scoring that alignment).
(e) ‘Proportion of investments’
This financial product promotes environmental or social characteristics, but does not have as its objective sustainable investment.
As the investible universe for the Fund is defined by determining those securities that have positive alignment or a clear and credible path to alignment with the SDGs, 100% of the securities and instruments in which the Fund may invest (other than cash held for liquidity purposes and investments used for hedging purposes, each as described below) are aligned with characteristics that the Company seeks to promote.
The Fund does not specifically use derivatives to attain the environmental or social characteristics; however, derivatives will generally be used where they enable us to obtain relevant exposures at a reduced cost of capital. Accordingly, indirect positions held through the use of derivatives will also be in assets that we have assessed as being positively SDG aligned or on a clear and credible path to alignment to the SDGs.
The Investment Manager may use hedging positions, for example, foreign currency hedges to remove currency exposure that can come with foreign assets or nominal bond hedges to establish breakeven inflation (“BEI”) positions in the financial product’s rising inflation bucket. The Investment Manager generally hedges currency risk back to the base currency of the fund, which is a consequence of the strategy’s design.
The Investment Manager may also hold cash for liquidity purposes.
No minimum environmental or social safeguards are applied to such cash or hedging positions.
(f) ‘Monitoring of environmental or social characteristics’
Monitoring of the environmental or social characteristics promoted by the financial product and the sustainability indicators used to measure the attainment of each of those environmental or social characteristics is undertaken on a continuous basis through our sustainability research.
(g) ‘Methodologies for environmental or social characteristics’
Bridgewater has developed a proprietary methodology drawing on a range of internal research and external data sources in order to determine the extent to which a security is aligned with the SDGs. We measure, track, and report on the SDG-alignment of the Fund at the portfolio level.
(h) ‘Data sources and processing’
Data sources
While our research is internally generated, we use a variety of external data sources as inputs into our research process. We obtain economic and market data from all major developed and emerging governments, central banks, and exchanges. We access data from the major, external public and private databases.
In terms of sustainability research, we continuously assess sustainability data in order to build out our sustainability data ecosystem. We leverage our decades of accumulated expertise in data diligence, data processing, data management technology, and data systemization talent.
We currently ingest, process, clean, and work with sustainability data sources and data providers across asset classes and themes. This data comes from a wide range of quality sources such as ESG data specialists, financial industry partnerships, major institutional data providers, academic sources, international public institutions, and NGOs.
How is data quality ensured?
In building our sustainability systems (as with any system we build), while we leverage external expertise and data, we do not simply take the data as originally packaged. Rather, we disaggregate external data and reconfigure it in order to map it against our own framework for assessing SDG alignment. There is substantial analytical work involved in this step, such as ingesting data, cleaning and systemizing it, normalizing it (e.g., weighing the impacts of level and change measures, considering an absolute or relative bar for normalizing alignment), aggregating indicators to each SDG, etc.
We are continuously monitoring developments in the field given the dynamic nature of the space (relatively new, increasing focus and requirements), and as a result, we expect that our data ecosystem will change over time via addition and potential replacement based on longer-term dynamics to improve our systematic processes.
How is data processed?
Our process incorporates triangulation by 1) using multiple industry-leading data providers, 2) consulting a range of academic sources and practitioners to understand sustainability considerations, and 3) selecting assets where we have a triangulated read of sustainability alignment.
Because no two asset classes are exactly alike, this systematic selection process can work differently depending on the asset class to which it is applied. However, our approach of fundamental, systematic, and diversified assessment applies across all of the assets we assess. By following this approach across a variety of asset classes, we are able to create a universe of assets that are aligned to the UN SDGs.
What proportion of data is estimated?
We use both reported and estimated data in our sustainability assessment process, across the asset classes included in the portfolio:
- Equities – The relevant data across the revenue lines and business practices of companies is largely reported data from companies, as well as some estimated data from third party data providers
- Sovereign Bonds – Our data includes both data reported by national governments (some of which is itself estimated), as well as sustainability assessments from NGOs.
- Green & Development Bank Bonds – The relevant data is largely reported from the asset issuers.
- Commodities – Our data is estimated by third party data providers
- Equities – The relevant data across the revenue lines and business practices of companies is largely reported data from companies, as well as some estimated data from third party data providers
(i) ‘Limitations to methodologies and data’
The SDGs are not explicitly designed for investors, and the SDGs are instead intended to be a widely agreed-upon framework used by governments, rather than asset owners or asset managers.
More generally, the SDGs set out high level goals that are expansive, ranging from ending poverty to providing affordable and clean energy. Although the SDGs are underpinned by roughly 200 specific and measurable indicators defined by the UN, the indicators do not directly contemplate actions undertaken or impacts achieved by the types of assets (other than sovereign instruments) in which the Fund will be invested.
Assessing SDG alignment is an imperfect and difficult exercise, with significant conceptual and analytical challenges. There is no one optimal methodology, the SDGs differ in how measurable and relevant they are depending on the asset class or entity, and precisely quantifying the SDG alignment or measuring the impact of a given asset is difficult. Global assessments require large-scale, multivariable analysis, the data quality and availability required for such analysis is imperfect, and no single viewpoint can provide a complete picture of an issuer’s SDG alignment.
In order to overcome these limitations, our SDG alignment assessment process starts with a conceptual framework of what determines an asset issuer’s alignment to the SDGs, and then we build a system that uses logic and technology to transform observable data into alignment measures across many different securities. It should not be assumed that any ESG initiatives, standards, or metrics have been applied to each of Bridgewater’s investments or prior investments.
(j) ‘Due diligence’
In order to measure how assets relate to the SDGs, it is necessary to understand the activities of asset issuers and assess how those activities connect to the SDGs. Our starting point for understanding SDG alignment is to construct a framework, or model, to think about the sustainability of issuers in each asset class, based on our understanding about the relationship between assets and environmental and social issues, which we triangulate with external research.
To do this, we first seek to deeply understand the linkages and relationships between issuers and environmental and social dynamics. For example, companies affect the environment and society through their actual products and services (e.g., an oil company versus a renewable energy company), as well as through their company behavior (e.g., labor practices, supply chains, and environmental standards). Governments relate to the SDGs through their current outcomes relative to the SDGs, as well as their actions and commitments toward achieving the SDGs. And commodities relate to the SDGs as a function of the sustainability of their production and the sustainability of their consumption.
A clear working model of how assets relate to the SDGs is an important starting point because there are many different definitions and pathways one can look at in considering a sustainability assessment, which can result in dramatically different sustainability results and analyses. For example, some sustainability data measures the financial impact of environmental factors on a business while other data measures the environmental impact of a business’s operations. These are fundamentally different concepts that will yield entirely different analyses and results.
To support these frameworks with rigorous analysis, we have built an extensive data ecosystem (described above). We have conducted extensive data diligence to identify thoughtful methodologies and quality data sources, speaking to and researching several dozen different data sources—from institutions, to boutique ESG research organizations, to startups. In addition to the extensive existing Bridgewater data ecosystem, we have added sustainability-oriented data sources and continue to search for and conduct diligence on others in order to expand our access to quality data. We do not have formalized external due diligence process, the above systematic sustainability assessment represents our one system for assessing the sustainability of assets.
(k) ‘Engagement policies’
Bridgewater’s Sustainable Investing Committee is responsible for our overall engagement strategy, including prioritizing thematic areas, selecting target companies, and using engagements to triangulate our sustainability assessments and integrate any outcomes into our systems. When engaging with companies, we start by identifying situations where engagement may significantly enhance a company’s sustainability performance, based on our systematic assessment of their products and services and their business behavior. We focus on these issues during our targeted engagements, and we integrate learnings from the dialogue back into our systematic company assessments, in essence “closing the loop” across our end-to-end sustainability process.
Our Thematic Approach: Because we generally have diversified equity portfolios with small ownership stakes, we have chosen to engage thematically and partner with other investors to push forward positive change across key industries. This is in line with our overall approach to stewardship and engagement, which emphasizes collaboration across multiple stakeholders. By approaching these engagements thematically, we aim to think broadly and deeply about the challenges that companies are facing, play a role in helping to shape industry standards and best practices, and be more targeted in specific conversations. We share thematic observations to our clients in our Sustainable Investing Annual Report.
Implementation and Execution: To help supplement and facilitate our engagements, we work with an engagement services provider to effectively scale our engagement operations (company outreach, meeting coordination, documentation) and align our focus areas with other investors to strengthen our collective messaging. Our partnership with our engagement services provider is centered on a rigorous and constructive approach to engagement, which is aimed at “encouraging companies to improve their approach to themes identified and agreed to by the parties, resulting in reduced reputational and operational risks and raising standards at the sector level.”
(l) ‘Designated reference benchmark’
No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by the financial product.
Bridgewater All Weather Sustainability 11% L.P. — EU SFDR ANNEX II Disclosures