Climate-related Financial Disclosures (TCFD)

About this Chapter

This chapter describes Bellevue's progress towards implementing our climate change commitment in accordance with the Swiss regulation and global best practice standards. It serves as a summary and overview on our endeavours in advancing how we manage climate-related risks and opportunities. Bellevue recognizes that climate change poses a significant risk to society, nature, our business, our customers and partners. Our goal is to support the economy-wide transition to net zero with our ongoing climate engagement at corporate as well as at the level of our investment portfolio. A transition to a net zero future yields not only environmental but also long-term financial benefits for all our stakeholders including our clients, shareholders, employees and society in general.

This chapter has been prepared in accordance with the Swiss Federal Council’s adopted ordinance on mandatory climate disclosures for large Swiss companies and thus, the binding implementation of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). As a medium-sized enterprise, Bellevue is not obliged by the Ordinance on Climate Disclosures to publish a TCFD report. Nevertheless, as a responsible investor committed to the goals of the Paris Agreement, we have sought to incorporate the requirements laid out in the articles of the Ordinance on Climate Disclosures, the recommendations of the TCFD (2017), the cross-sectoral and sector-specific guidance outlined in the TCFD Implementation Guidance (2021) and, where possible and appropriate, the «Guidance on Metrics, Targets, and Transition Plans» (2021).

¹⁾ See communication by Federal Council on bringing the ordinance on mandatory climate disclosures for large companies into force as of 1 January 2024.
²⁾ Final Report – Recommendations of the Task Force on Climate-related Financial Disclosures, June 2017.
³⁾ Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, October 2021.
⁴⁾ TCFD Guidance on Metrics, Targets, and Transition Plans, October 2021.

Governance

a) Describe the board’s oversight of climate-related risks and opportunities

Climate-related opportunities and risks can potentially affect all areas of Bellevue and its business – in terms of our own business activities as well as the investments (portfolio level) – hence the fact that ultimate responsibility for this issue lies with Bellevue’s Board of Directors (BoD).

The BoD has ultimate responsibility for sustainability (including climate- and ESG-related matters). It approves the Group’s sustainability and climate strategy and plan. The BoD is informed and decides upon climate-related matters, such as goals and targets (including performance objectives), strategy, internal organisation, major plans of action, monitoring implementation and performance, risk management, and associated major capital expenditures (including acquisitions, and divestitures).

As the highest authority for strategic issues, the BoD is informed quarterly by the Group Executive Board and/or the ESG Working Group (management function) about measures and progress in the areas of sustainability and climate and is involved in the decision-making process.

The Audit & Risk Committee (ARC) oversees risk management activities for the company, including those associated with climate. It examines whether all systems created to monitor compliance with legal provisions are appropriate and whether they are being applied properly, and guides and monitors Bellevue’s risk policy and profile, which covers climate-related risks amongst other topics. Other Board-level committees further integrate ESG including climate-related considerations into their agendas and mandates. The ARC reports to the BoD and makes recommendations to the same via the Group Executive Board. The ARC is regularly informed by Risk Management (management function), including on climate- and ESG-related risks.

Reference

Annual Report: ESG - Sustainability strategy
Annual Report: Corporate Governance - Internal organization
Internal documents: Sustainability guidelines, Sustainability organization regulations

b) Describe management’s role in assessing and managing risks and opportunities

The Group Executive Board is the highest management body in matters of sustainability and is responsible for the sustainability strategy, including climate. Within the Group Executive Board, sustainability is headed by the Group CFO, in collaboration with the CFO of Bellevue Asset Management AG. To this end, the Group Executive Board defines climate-related operational objectives and approves the implementation plans. The Group Executive Board is responsible for managing risks and ensures that the risk assessment process is conducted in an encompassing manner. It is also responsible for the enaction of the relevant directives for risk assessment, risk management and risk control and the adequacy of the internal control system. This assessment is driven by a yearly strategic risk review. The Group CFO (at the same time CRO) is responsible for any risk control activities and leads the compliance department.

The ESG Working Group is responsible for coordinating and managing the measures at Group level. It monitors the latest developments on the sustainability and climate front and anticipates their impact on the business model of Bellevue Group. It supports the Group Executive Board with formulating and developing the sustainability strategy. The Group Executive Board ensures that the defined focal points of the Group-wide sustainability strategy are integrated and implemented in the divisions. The ESG Working Group also ensures that the Group Executive Board is involved as a steering body, reports on progress and liaises with key stakeholder groups at Group level.

The organization of the ESG Working Group is based on the Bellevue Group organization and is made up of sustainability officers from the various departments and teams. The ESG Working Group is led by a co-management team. This consists of one corporate and a product representative. The sustainability managers of the departments/teams ensure that the Group-wide sustainability and climate strategy is implemented through corresponding measures and initiatives, considering local regulatory requirements. It also initiates and supports relevant ESG training courses together with the ESG managers of the departments/teams.

The management of the ESG Working Group reports to the Group Executive Board on a quarterly basis. This in turn reports to the Board of Directors on a quarterly basis. In the event of urgent matters, the Group Executive Board should be informed immediately by the chairperson of the ESG Working Group.

The portfolio management team is responsible for implementing the investment strategy, with a focus on sustainability and climate themes as well as overarching principles and policies. It is also responsible of calculating and managing the financed emissions of our portfolio.

Reference

Annual Report: ESG - Sustainability strategy
Internal documents: Sustainability guidelines, Sustainability organization regulations

Strategy

a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term

Bellevue places great emphasis on environmental and climate protection. We consider the wide-ranging impact of climate change on its own business, shareholders, customers, and partners. We endorse and are committed to the goals of the Paris Agreement. We can play our part in achieving them through the way we structure our portfolios, as well as by analyzing climate-related risks and showing how they influence our investment decisions. Naturally, we apply exclusions for controversial industries (e.g. fracking/oil sands, thermal coal), maintain an active dialog with companies or other stakeholders regarding their climate strategy, and exercise our voting rights. We have worked to embed climate-related considerations into our group-wide sustainability strategy. To accelerate the pace of our own climate action and the support for our customers in an orderly transition to net zero, we have identified the relevant climate-related opportunities for our business model and assessed associated risks over short, medium, and long term.

We have applied the TCFD recommendations to identify climate-related physical and transition risks and opportunities that may not only influence our overall reputational standing but also our market, operations and regulatory exposure or financial outcomes. The identification of the relevant risks and opportunities was performed by an interdisciplinary group of executives from management, the heads of relevant departments (sustainability, strategy, finance, controlling, communication) and selected subject-matter experts. The process was mediated and supported by an external consulting company (Swiss Climate).

Our major priorities for future climate-related opportunities are anchored in the following streams:

• Clean operations: We are committed to reduce the carbon footprint from our own operations to support the goals of the international and Swiss community that aim to attain net zero greenhouse gas emissions by 2050. We have set clear targets to reduce our operational emissions and assess our direct and indirect emission from Scope 1, Scope 2 and operational Scope 3 categories (mainly: business trips, employee commuting, IT equipment, paper and printing, waste and water) as well as Scope 3 financed emissions. The decarbonization targets are outlined in the section Metrics & Targets c). We outline our measures to reduce the carbon footprint and communicate on our short-, medium- and long-term climate targets transparently. For example, at Bellevue’s headquarters in Küsnacht, the building as well as the premises of our data centres are heated and cooled with natural lake water. When procuring electronic devices such as computers, monitors, printers, etc., we make sure to use energy-efficient equipment. Wherever possible, power consumption settings are configured to automatically switch IT equipment – whether entire groups of systems or individual devices – to stand-by mode at certain times. The buildings are only lit when they are in use. We use additional energy consumers such as air conditioners or radiators only for extreme external weather conditions. Our locations are very easy to reach by public transport. Employees are motivated to travel by public transport. We actively support this through financial incentives. Parking spaces are not subsidized and are charged at full market rates. Showers and changing rooms are available at company headquarters, which makes commuting to work by bicycle an attractive alternative. Public transport options will become even more attractive when the head office is relocated from Küsnacht to central Zurich in 2025. International contacts are important given our global investment strategies and distribution activities with employees at different locations. All locations have video conferencing infrastructure. Most of the meetings are through telephone and video conferencing as a substitute for physical meetings to limit travel. Where possible and appropriate, we substitute air travel with public transportation such as train travel and coordinate joint site visits.
• Low Carbon Investment Portfolios: Bellevue invests mainly in healthcare industries, thus we contribute to the well-being of millions of people throughout the world. We also contribute to improving the medical research and technological improvement in the healthcare sector. When investing, we take special care to select firms, which have limited impact on the environment and that have a clear climate transition plan in place. For example, the first calculation of the carbon intensity of our financed emissions at portfolio level in 2023 revealed that Bellevue is not heavily invested in climate-sensitive sectors. Using the WACI (Weighted Average Carbon Intensity) methodology, we were able to analyze our different funds and we have determined the funds that were more carbon intensive than others. We aim to increase the proportion of low carbon investments over time. This allows us to manage the future carbon intensity of the portfolio in a direction that reduces the carbon intensity (see section on Metrics & Targets). We are committed to adhering to internationally recognized norms and systematically exclude from the managed investment portfolios any companies that seriously harm the environment and climate. No investments may be made in companies that are implicated in serious environmental issues. Compliance with the principles and guidelines of the UN Global Compact and the UN Principles for Responsible Investment (UN PRI) serve as an indicator in such cases. ESG factors, including climate-related factors, are integrated into the fundamental analysis of every company through an ESG integration process in which the associated financial risks or opportunities are evaluated with respect to future stock market performance. This approach gives our portfolio managers a holistic picture of an enterprise. Within the scope of our ESG integration approach, strict exclusion criteria are applied and climate-related factors are an integral part of our fundamental research and analysis across all portfolios and funds. At the same time, our experts strive to build climate-friendly portfolios and they maintain an active and constructive dialog on ESG aspects with company executives and relevant stakeholders.  In 2023, a dedicated focus on climate-related metrics in our ESG integration process to measure and manage carbon intensity has been established. For example, the environment sub-category focused on aspects such as whether a company systematically measures its carbon footprint and discloses the related data. A system of ESG ratings forms the basis by which sustainability and climate-related 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 scores are based on data from independent third-party providers MSCI ESG Research and Morningstar Sustainalytics. Bellevue believes in the importance to interpret ESG scores with caution and a critical eye. Most ESG rating methods are based on a predefined systematic approach that does not always result in an objective or «fair» assessment of 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. That is why our portfolio managers always take a closer look at potential or ostensible «ESG laggards» (CCC, B rating) and reach out to the ESG specialists at our external ESG research providers and at the companies with lagging ESG ratings. Investments in «ESG laggards» must be documented in detail. Bellevue does not apply a «best-in-class» approach for the reasons mentioned above, unless otherwise dictated by a specific investment strategy.
• ESG Stewardship: Bellevue acts as a responsible long-term investor on behalf of its clients. We believe that the enduring influence of climate risk can be impacting businesses and economies worldwide. While the impact may vary across sectors and geographical locations, we consider this transition a significant investment factor with the potential to significantly affect numerous companies. To that end, we consider ESG Stewardship a fundamental tool to effectively investing in and promoting sustainable enterprises. Sustainable financial investments and services not only help reduce investment risks, but also positively support desired economic, societal and environmental changes. Bellevue integrates ESG Stewardship into its investment processes to promote a more sustainable and value-enhancing economy, and also to help increase the long-term return for our clients, adjusted for sustainability and climate risks. For example, in 2022, Bellevue established a proprietary tool in which ESG engagement activities are systematically recorded and subsequent developments documented over time. During the financial year 2023, Bellevue lead a total of 32 ESG engagements (22 in 2022), out of which 6 were related to climate and/or environmental issues. Bellevue is firmly committed to the UN Principles for Responsible Investment (UN PRI) and continuously adapts its ESG investment guidelines to reflect the latest findings, including on climate-related aspects. For the near future (see section on Metrics & Targets), Bellevue’s ambition is to be compliant with the Swiss Stewardship Code, drawn up by the Asset Management Association Switzerland and Swiss Sustainable Finance, which provides recommendation and guidance for integrating stewardship into investment processes. The Code includes nine stewardship principles – governance, stewardship policies, voting, engagement, escalation, monitoring of investee entities, delegation of stewardship activities, conflicts of interest, transparency and reporting – and describes the most important elements for effective and successful implementation.

While changes associated with a transition to a lower-carbon economy presents substantial opportunities to Bellevue, they also create significant climate-related risks for the organization. We have identified the following major climate-related risks for our business model:

• Strategy risk: Strategy risk(s) arises due to climate-related market developments such as increasingly changing behaviour of current and future customers concerning climate-friendly investments. Relating thereto are potential untapped strategic opportunities (see climate-related opportunities) if realized by competitors, which may lead to losses in market share or lower revenues from transition savvy clients. This risk is mostly related to our sustainable product/investment offerings, such as a lack of climate-friendly ESG investment solutions and related loss of clients/market share.
  TCFD risk category: Transition risk – Market
• Reputation risk: Bellevue is exposed to reputation risk related to climate change due to increased stakeholder concerns, e.g. through rating agency channels (e.g. S&P ESG Rating), clients or shareholders. The reputation risk is tied to changing customer or community perceptions of Bellevue’s relative contribution to or detraction from the transition to a low-carbon economy. The risk is thus directly related to Bellevue’s current and future climate engagement and measures to realize its transition plan, such as the relative speed and magnitude of Bellevue’s transition in comparison to peers and other market participants (or rather the transition of Bellevue’s AuMs).
  TCFD risk categories: Transition risk – multiple (Policy and Legal, Reputation)
• ESG (Compliance) Risk: A compliance risk may emerge for Bellevue if existing and emerging regulatory requirements are not met by the Company. Bellevue has identified two types of climate-related compliance risks:
  - Type 1: Policy actions that attempt to constrain actions that contribute to the adverse effects of climate change or policy actions that seek to promote adaptation to climate change.
  - Type 2: Legal risk in the form of litigation in case of «non-adherence» with law/regulation or if climate-related litigation claims are being brought forward.
  Direct consequences may be additional compliance efforts for internal processes and reporting (increased internal cost), and potential litigation cost.
  TCFD risk category: Transition risk – Policy and Legal
• Market risk: Climate-born market risk may adversely affect the performance of Bellevue’s investment portfolio and strategies (including default of a company in the investment portfolio). Market volatility or capital market fluctuations may occur due to technological progress (e.g. due to the substitution of lower emissions services/goods) and/or market-side developments (e.g. due to changes in customer demand/preferences).
  TCFD risk categories: Transition risk – multiple (Technology, Market)
• Counterparty (credit) risk: Counterparty default risk due to climate change for relevant financial institutions such as banks, brokers, custodians is considered rather low (e.g. due to technological progress, changes to policy, legal and market-side developments).
  TCFD risk category: Transition risk – Market
• Physical risk: Physical risks resulting from climate change mainly materializes in the investment portfolio, for example due to acute or chronic physical risk for a specific company in our portfolio. We consider immediate physical risks to be rather low for Bellevue.
  TCFD risk category: Physical risk – Acute, Chronic

An important aspect for organizations to consider is the time horizon for assessing climate-related risks and opportunities. While some of those risks or opportunities may materialize in the short term, others may be of higher relevance in the long-term. Bellevue thus carefully considered the relevant time horizons that are used to evaluate any impact from climate-related issues in alignment with our transition plan. We have defined time horizons consistent with the one mentioned in the Explanatory Report to the Ordinance on Climate Disclosures issued by the Swiss Federal Council on November 23, 2022:

• Short term is 1 – 5 years
• Medium term is 6 – 15 years
• Long term is 16 – 30 years

The above-mentioned time horizons were determined based on considerations on our business activities, existing targets and goals, existing law, emerging Swiss and EU regulations, current market developments and the national and international climate agenda.

In the sections that follow, we provide an overview on the impact of climate-related risks and opportunities for the above mentioned short-, medium- and long-term horizons.

Reference

Annual Report: ESG - Sustainability strategy
Internal documents: Sustainability guidelines, Sustainability organization regulations

B) Describe the impact of climate-related risks and opportunities on the organization's businesses, strategy, and financial planning

The impacts of climate change on Bellevue are driven by the identified climate-related opportunities and risks. Bellevue has assessed the impact of the relevant risks and opportunities on the organization in terms of:

• Likelihood (Low/Medium/High): The probability that the climate-related risk might materialize or the climate-related opportunity can be realized in the given time horizon
• Impact (Low/Medium/High): Qualitative assessment of the impact on Bellevue in the defined time horizon
• Time horizon (Short term/Medium term/Long term): The time horizon in which the impact will occur (earliest possible), in accordance with the relevant time horizons for Bellevue

The results of the assessment are described below:

The impact assessment was performed by an interdisciplinary group of executives from management, heads of relevant departments (sustainability, strategy, finance, controlling, communication) and selected subject-matter experts. The analysis in terms of impact and likelihood also serves as an indication on our prioritization for future climate-related initiatives, action plans and the relative importance of each stream during the respective time horizon.

Overall, the impact assessment indicates that implementing Low Carbon Investment Portfolios is considered the most material climate-related opportunity for Bellevue in terms of impact. We also consider ESG Stewardship as medium impact opportunity. While the impact for further measures to establish Clean Operations is considered rather low, the likelihood is considered high. The latter also applies for implementing Low Carbon Investment Portfolios.

For climate-related risks, market risks associated with our societies’ climate transition are considered most material, both in terms of impact and likelihood. Climate-related risks considered high in terms of impact and medium in terms of likelihood are strategy risks related to climate-related market developments and our ability to offer sustainable product/investment solutions, as well as reputation risks related to Bellevue’s current and future climate engagement and measures to realize its transition plan. Further, climate-related risks considered medium in terms of impact and likelihood are ESG (compliance) risks related to Bellevue’s compliance to existing and emerging regulatory requirements. Counterparty (credit) risks as well as physical risks are considered low both in terms of impact and likelihood.

Generally, the fact that all opportunities and risks are expected to materialize or are to be realized in the short to medium term indicates our commitment to our ongoing and future climate engagement. However, climate-related risks with high impact are rather to be expected to materialize in the medium term. This is mainly driven by current market expectations and regulatory developments.

See further details on the process to assess climate-related risks and opportunities outlined in the section Risk Management.

C) Describe the resilience of the organization's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario

We are convinced that our strategy is directly affected by climate-related risks and opportunities. It is for this reason that we have established a transition plan that serves as a blueprint for our own business in the transition to a low-carbon economy. It is our assumption that such a transition occurs in an orderly fashion that is consistent with a 2°C or lower scenario. Targets and measures taken by Bellevue are consistent with this assumption.

Our encompassing identification and impact assessment of climate-related opportunities described under Strategy a)/b) of this report was guided by questions such as:

• How do we believe is our strategy affected by climate-related risks and opportunities?
• Which strategic changes need to be addressed such that these opportunities can be realized, or the risks can be managed?
• What is the impact and relevance of these climate-related issues for our company and business model?
• What is the associated time horizon?

Currently, multiple elements contribute to the resiliency of our climate strategy:

• The top climate-related opportunity (Low Carbon Investment Portfolios) is directly related to Bellevue’s investment focus in the healthcare sector. When investing, we take special care to select firms, which have limited impact on the environment and that have a clear climate transition plan in place in line with the Paris Agreement. According to the carbon intensity of our financed emissions at the portfolio level in 2023, Bellevue is not heavily invested in climate-sensitive sectors.
• Bellevue measures its carbon footprint and has set ambitious targets to reduce its emissions over short, medium and long term. The ambitious targets are backed by effective measures to decarbonize our direct and indirect emissions (see section on Metrics & Targets).
• We continuously integrate climate-related risks as a risk driver in our existing risk management framework and the associated processes.
• Diversity in geographic areas in terms of investments and clients, which mitigates both physical and transition risks.

While we have not yet performed a climate-related scenario analysis to assess the resiliency of our strategic considerations under different scenarios, we plan to perform such an assessment in the upcoming years. Any additional regulatory requirements by the Swiss Financial Market Supervisory Authority (FINMA) will be considered in the development of such an analysis.

Risk Management

a) Describe the organization's processes for identifying and assessing climate-related risks

b) Describe the organization's processes for managing climate-related risks

c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organization's overall risk

Our climate-related risk management framework

In accordance with FINMA’s understanding on climate risk management, we consider climate risk as a risk driver to other «classical» financial sector risk categories. Climate-related risks – in the form of physical risks and transition risks – are thus not considered a separate risk category but are rather managed as part of the existing risk management framework. Transition risks driven by technology, policy and legal, market or reputational concerns or chronic and acute physical risks in accordance with the TCFD categorization are managed through the existing processes for managing financial and non-financial risks. The mapping of climate-related risks against our traditional risk categories is disclosed in the section Strategy a).

The existing risk governance is outlined in the section Governance and applies to climate-related risks. As part of the existing risk policy and our framework for risk management and risk control, we have established processes for:

• Risk identification and assessment;
• Risk management and control; and
• Risk reporting and disclosure.

To ensure that climate-related risks are identified, assessed and managed, they are integrated as part of the Group-wide risk policy and in the above-mentioned processes for risk management and risk control.

Risk identification and assessment

We identified the relevant climate-related risks for Bellevue and assessed their impact as part of the encompassing analysis outlined in section Strategy a)/b). The analysis was performed by an interdisciplinary group with the participation of executives from management, the heads of relevant departments (sustainability, strategy, finance, controlling, communication) and selected subject-matter experts. The identification of relevant risks for Bellevue was performed in accordance with the TCFD recommendations and was based on guidance by regulatory bodies, best practice, peers and professional judgement by the relevant stakeholders within the company. The encompassing analysis also included a qualitative assessment for all relevant climate-related risks of Bellevue with regards to impact, likelihood and the associated time horizons. The results of this assessment are outlined in section Strategy b).

Bellevue has risk identification and assessment processes in place that are performed by risk management at Group level but also at the individual operating unit level on a regular basis. To ensure that the initial assessment of climate-related risks outlined above is institutionalized, we are planning to integrate the encompassing analysis as part of the existing risk- and/or business-specific processes (e.g. annual Risk Assessment).

In addition to this overarching process, the assessment of relevant climate-related risks is further performed as follows (see further details under Metrics & Targets):

• Strategy risks: Our ESG Working Group is assessing the transition risk related to climate-related market developments and our ability to offer sustainable product/investment solutions, and informs our Group Executive Board and the BoD on a regular basis. A quantitative and qualitative metric are in place to ensure that our proportion of AuM linked to carbon-related assets is assessed.
• Climate-related reputation risks are periodically assessed by the Group Executive Board. The Group Executive Board directly manages and supervises those risks, recognizing their significance for Bellevue and the difficulty to quantify them.
• Climate-related compliance risks are overseen by the ARC and managed by Compliance where an active monitoring on existing and emerging laws and regulation related to climate change (e.g. Climate and Innovation Act, EU regulation, regulatory requirements or communications by the FINMA, etc.) is implemented.
• Climate-related market risks are periodically assessed by the Group Executive Board and are measured and monitored as part of the existing risk management processes. A quantitative measure is in place to monitor the Weighted Average Carbon Intensity (WACI) of all funds over time.

Risk management and control

We are convinced that the limitation of climate-related risks is crucial to ensure that the understanding of the level and type of those risks that is accepted in pursuit of our strategy is aligned. Bellevue has processes in place that allow the company to mitigate, transfer, accept and control risks, including climate-related risks:

• Definition and monitoring of risk appetite / limits / tolerances (incl. escalation procedure in case of breach). Limitation of climate-related risks serve as a crucial decision-making tool for the BoD and the Group Executive Board. Our risk appetite and tolerance limit framework is approved by the BoD and integrated in our risk policy. For example, the BoD approved a quantitative tolerance to limit the reduction path for GHG emissions for our defined climate reduction targets to assess Bellevue‘s progress in the transition towards a net zero economy.
• Climate-related ESG criteria integration in investment processes: When investing, we take special care to select firms, which have limited impact on the environment and that have a clear climate transition plan in place. ESG factors, including climate-related factors, are systematically integrated into the fundamental analysis of every company through an ESG integration process in which the associated financial risks or opportunities are evaluated with respect to future stock market performance. This approach gives our portfolio managers a holistic picture of an enterprise. It includes climate change factors to be considered to measure climate-relevant indicators (e.g. carbon intensity) and plans as well as intentions to reduce carbon emissions at portfolio level. Additionally, while considering principal adverse impact on sustainability criteria (PAI) analysis, if a security exhibits an absolute CO₂-Intensity in the range of «mid» to «very high» (according to MSCI ESG) and if its intensity exceeds the industry average by more than 50%, the security cannot be classified as a sustainable investment which then impacts our sustainable investment quota (most investment products under EU SFDR article 8 require a minimum quota of sustainable investments). Moreover, this can culminate in an ESG engagement. Furthermore, in the frame of our TCFD implementation process, we have identified Low Carbon Investment Portfolios as one key climate-related opportunity, for which we will further elaborate strategic priorities and actions as well as related risk management criteria in the short term (next 1 – 5 years) (see chapter on Strategy).
• Mitigation through ESG stewardship with investees: Our portfolio managers are engaged in an active and constructive dialog with the executives and other relevant stakeholders of portfolio companies on ESG issues. Climate change is amongst our key priorities of engagement in terms of ESG considerations. If there are any indications of a significant controversy related to ESG issues, including climate-related, they are constructively discussed with the company and subsequent developments (e.g. change in strategy or processes, improvement of ESG rating) documented over time.. Engagement activities are undertaken in the context of materiality and proportionality considerations. Written records of ESG engagement activities are maintained as part of the regular documentation of conversations with company representatives. In 2022 we also established a proprietary tool in which ESG engagement activities are systematically recorded and subsequent developments documented over time. In addition, Furthermore, we seek compliance with the Swiss Stewardship Code and its 9 principles (governance, stewardship policies, voting, engagement, escalation, monitoring of investee entities, delegation of stewardship activities, conflicts of interest, transparency and reporting) in order to effectively manage our climate-related risks.

Risk reporting and disclosure

The relevant climate-related risks are continuously monitored and reported as part of the existing risk governance structures (see also section Governance), notably the following:

•  The BoD, assisted by the ARC, is ultimately responsible for the management of climate-related risks as part of Bellevue‘s risk management framework and sustainability mandate.
•  The ARC oversees risk management activities for the company, including those associated with climate, on a regular basis.
• The Group Executive Board is responsible for managing risks and ensures that the risk assessment process is conducted in an encompassing manner. It is also responsible for the enaction of the relevant directives for risk assessment, risk management and risk control and the adequacy of the internal control system. This assessment is driven by a yearly strategic risk review.
• The CFO (at the same time CRO) is responsible for any risk control activities and leads the compliance department.

Reporting provided to any of those bodies covers the specific climate-related risks and includes, if appropriate, respective assessments of these risks (e.g. metrics) and the climate-related risk tolerance.

Bellevue fulfils its responsibilities in relation to ESG and climate reporting via the following channels:

• Monthly factsheets on individual strategies, with information on portfolio positioning and performance as well as summarized ESG and climate data (CO₂-intensity Scope 1 and 2). In 2023, we expanded our reporting by making dedicated sustainability fact sheets available to our investors sharing a quarterly update.
• Our website www.bellevue.ch includes a dedicated page focused on sustainability at both corporate and portfolio level. Advances and news on sustainability matters are posted on a continuous basis, including information regarding the regulatory requirements (EU SFDR/MiFID II sustainability preferences).
• Annual UN PRI Report to provide accountability and transparency regarding our responsible investment activities.
• Annual Report including a dedicated section on ESG, including our TCFD disclosure.

References
Internal documents: Risk Management Framework, Risk Management and Risk Control Directive

Metrics and Targets

a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process

Based on the recommendations by TCFD, and our sustainability and risk strategy, we measure and monitor metrics that allow us to assess the climate-related risks and opportunities identified under section Strategy a). The following metrics are considered relevant for Bellevue to further accelerate the transition of our business model towards a net zero economy:

GHG emissions

• Measure, monitor and manage the absolute carbon emissions based on our carbon footprint for Scope 1, Scope 2 and operational Scope 3 (Scope 3.1–3.14) in accordance with the GHG Protocol.
• Measure, monitor and manage the financed emissions associated with the investment portfolio in accordance with the PCAF Standard, and based on MSCI ESG data.

Short to long term targets have been defined for this metric (see Metrics & Targets c) to assess and monitor our ongoing measures to reduce our carbon footprint as well as our exposure to climate-sensitive sectors. These metrics and associated targets are crucial to monitor our key climate-related opportunities such as Clean Operations and Low Carbon Emissions Portfolio.

Exclusion criteria

• Apply thresholds for the percentage of overall revenues that can be generated from morally or ethically controversial business areas, in particular carbon-intensive such as fracking/oil sands or thermal coal. Exclude companies that exceed the generally accepted annual revenue thresholds in their specific business areas.

The metric and associated targets is important to monitor our key climate-related opportunity on Low Carbon Emissions Portfolio.

ESG integration

• Assess ESG ratings as basis by which climate-related criteria are integrated into asset manager’s investment decision process.
• Detailed documentation of investments in «ESG laggards».
• Periodic PAI # 3 (carbon intensity) analysis with quantitative implementation into our sustainable investments quota.
• Bellevue does not apply a «best-in-class» approach for the reasons mentioned below, unless otherwise dictated by a specific investment strategy.

ESG stewardship

• Qualitative description of our ESG Stewardship engagement processes over time by systematically recording and documenting subsequent developments with our established proprietary ESG engagement tool.
• Qualitative assessment of compliance to the 9 principles of the Swiss Stewardship Code (governance, stewardship policies, voting, engagement, escalation, monitoring of investee entities, delegation of stewardship activities, conflicts of interest, transparency and reporting).
• Note: Climate-related voting is currently not in scope for Bellevue.

Transition risk

• Strategy risk: Scanning of sustainable finance journals to get an understanding of the ESG trends, and report on the findings (qualitative metric). Tolerance limit: When a specific topic is reported more than 5 times from different sources, then report to Management. Control frequency: semi-annually.
• Strategy risk: Assess the proportion of AuM linked to carbon-related assets as share of carbon-intensive AuM (classified as unsustainable) of total AuM. Tolerance limit: A carbon-intensive AuM is considered unsustainable if the absolute intensity of an emitter exceeds 70 t CO₂ / USD 1 mn turnover (i.e. higher than «low» value according to the MSCI ESG methodology), and if this value of the emitter exceeds 50% of the relevant industry average. Control frequency: quarterly. Based on this methodology, a total of 8 emitters (or 0.1% of AuM) whose carbon intensity was classified as unsustainable were identified in the portfolio under management as at the end of 2023.
• Reputation risk: Assess the transition of Bellevue’s AuMs, peers and other market participants towards a low-carbon economy by scanning ESG ratings (e.g. S&P) and review Bellevue’s transition plan considering peers’ commitments and the evolution of market players (e.g. commitments to SBTi or NZAM). Tolerance limit: When a specific climate-related issue (e.g. a specific firm or sub-sector is impacted by a scandal) is reported more than 5 times from different sources, then report to Management. Control frequency: semi-annually.
• Reputation risk: Assess the total exposure to climate-sensitive sectors (in mn USD). Bellevue identifies climate-sensitive assets through industry-identifying attributes. As defined by the TCFD, Bellevue includes the following non-financial sectors addressed by the TCFD: fossil fuel extraction, carbon-based power generation, transportation (air, sea, rail, and auto manufacture), metals production and mining, manufacturing industries, real estate development, chemicals, petrochemicals, and pharmaceuticals, building and construction materials and activities, forestry, agriculture, fishing, food and beverage production, as well as trading companies that may trade any of the above (e.g., oil trading or agricultural commodity trading companies). This metric is agnostic of risk rating, and therefore may include exposures of companies that may be already transitioning or adapting their business models to climate risks. According to the European Union's definition, the NACE ( «nomenclature statistique des activités économiques dans la Communauté européenne») sectors A - H and L are classified as «high climate impact sectors». As of December 31, 2023, 59.6% of assets under management are allocated to these sectors according to the EU nomenclature.
• ESG (compliance) risk: Assess the future development of climate-related legislation and regulation (Switzerland, EU, US), relevant market developments, and the national and international climate agenda. Tolerance limit: When new regulations or market best practices arise, the Management should be informed and decide on actions to be taken. Control frequency: annually.
• Market risk: Monitor and assess the Weighted Average Carbon Intensity (WACI Scope 1, 2, 3) of all AuM (in t CO₂e / USD 1 mn turnover). Currently no specific tolerance limit defined, but comparison with the index-weighted positions of the MSCI AC World Index. Control frequency: annually. In 2023, the carbon intensity (WACI Scope 1, 2, 3) of our measurable investment strategies (approx. 94% of all AuM) was 528.3 t CO₂e / USD 1 mn turnover, which is 42% below the index-weighted positions of the MSCI AC World Index (905.9 t CO₂e / $M USD turnover).
• Counterparty (credit) risk: Monitor and assess the likelihood of possible default from counterparties due to climate-related impacts. Tolerance limit: If there are signs, then report to Management. Control frequency: annually.

Internal carbon pricing

Bellevue does not apply an internal carbon price mainly due to the following reasons:

• We are not directly exposed to the EU or Swiss emission trading system (EU ETS).
• We are not subject to a complex organization and/or business model, which requires an elaborated carbon price system.
• The existing metrics outlined above are considered sufficient to incentivise and drive business decisions to facilitate a transition to a net zero economy.

While such a carbon price mechanism is helpful for larger organizations to incentivize the business and mobilise resources by allocating the effective cost of carbon, such an instrument does not add any additional benefit to the existing metrics and targets at Bellevue. The necessity to implement an internal carbon price (e.g. on business travel) is and further will be assessed on a regular basis.

Reference

Annual Report: ESG - Climate change, ESG - Responsible investments

b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks

Our measurement and disclosure of the GHG emissions for Scope 1, Scope 2 and operational Scope 3, as well as the financed emissions of our portfolio are included in the Annual Report under the chapter ESG.

Reference

Annual Report: ESG - Climate change, ESG - Responsible investments

c) Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets

We have established short term, medium term and a long term target to ensure that we uphold our commitment to facilitate the transition to a net zero economy. The targets are aligned with our relevant time horizons on the short- medium- and long-term.

The following targets are in place:

• Short term target for 2026 to reduce the absolute carbon emissions from commuting Scope 3.7) by 40% (basis year 2019).
• Medium term target for 2030 to reduce the absolute carbon emissions from Scope 1, Scope 2 and operational Scope 3 (scope 3.1.–3.14) per employee (FTE) by 30% (basis year 2019).
• Medium term target for 2035 to reduce the absolute carbon emissions from Scope 1, Scope 2 and operational Scope 3 (Scope 3.1.–3.14) by 40% (basis year 2019).
• Net zero target in 2050 that includes Scope 1, Scope 2 and operational Scope 3 (Scope 3.1.–3.14) emissions (basis year 2019), as well as a reduction of the Scope 3.15 emissions (financed emissions) by 90%.

A detailed decarbonization plan with concrete reduction measures will be developed in 2024, based on the transition plan outlined in this TCFD reporting.

Reference

Annual Report: ESG - Sustainability strategy

Bellevue's transition plan