Introduction

SICO is a leading regional asset manager, broker, and investment bank headquartered in the Kingdom of Bahrain with a growing regional presence in Saudi Arabia and the UAE. SICO has a well-established track record as a trusted regional wholesale bank offering a comprehensive suite of financial solutions, backed by a robust and experienced research team that provides regional insights and analysis of many of the region’s major equities and fixed income securities. Our mission as an organization is to inspire, enable, and create sustainable value for our stakeholders, clients, people, and the communities we serve.

We acknowledge that ESG is continuously gaining traction in the region, and we want to be ahead of the curve by aligning our operations with international best practices, as well as global and regional peers who are working to become responsible investors, integrating ESG considerations in our investment decision process.

The long-term performance of the investment portfolio can be affected by ESG issues (such as the increased focus on sustainable development, climate change, or the global transition to more sustainable and inclusive economies), and by integrating ESG criteria as part of our investment process, we are gaining a deeper insight into potential underlying risks to prospective gains and mitigate them accordingly.

Developing a comprehensive ESG framework as defined by the UNPRI, the world’s leading proponent of Responsible Investment, is very important for SICO. As a regional wholesale bank, SICO remains committed to promoting responsible investment, and is continuously working to integrate ESG considerations into the fabric of its operations, which allows SICO to create long-term value for its stakeholders.

Furthermore, SICO is committed to promoting transparency in the presentation of its investments and, therefore, adopts the highest international standard and global practices, such as the Global Investment Performance Standards (GIPS), to protect the interests of its shareholders and clients above all else.

Objective and scope of this policy

This Responsible Investment Policy covers SICO’s Equity and Fixed income asset management department and the Strategy, Partnership and Treasury department. This document seeks to assist in creating an efficient process by acting as a point of reference and providing a series of initiatives to be carried out by all the relevant employees involved in the integration of ESG considerations into SICO’s investment decision process.

This policy has been developed to provide guidance to the organization on how ESG factors should be integrated into its investment decision process as an additional lens to support the identification of potential risks likely to affect our investment portfolio. We expect this policy to evolve over time to reflect changes in business practices and the regulatory landscape. Accordingly, we monitor this policy annually and will typically review our approach when required.

Governance

ESG is a component of our investment due diligence process which involves integrating additional views of an investment that go beyond a common quantitative analysis. SICO’s investment teams will have access to sufficient ESG data to assess existing and expected investments and monitor investments for significant developments.

The firm will establish an ESG Senior Management Committee consisting of Senior Management as well as senior members of the corporate and asset management departments and control functions. This committee will be the main governance structure to drive and manage ESG initiatives for the different departments involved (Asset Management Dept. and Strategy, Partnership and Treasury department). The committee meets at least twice a year to assess SICO’s efforts across the organization as a whole and each of the different departments and identify those areas which will help SICO to further improve its performance in terms of ESG.Furthermore, the oversight of the responsible investment activities at SICO is also integrated across the investment departments mentioned before, as follows:

Equity and Fixed Income Asset Management Department:

• The Asset Management Committee (AMC) is the responsible body reviewing the investment strategy of the different Portfolio Managers and all investment activities performed by the Asset Management Department and acts as a control mechanism to manage the risks inherent in the investment process, including those associated with ESG topics.

Strategy, Partnership, & Treasury Department:

• The Asset, Liabilities, and Investment Committee (ALIC) acts as the principal body responsible for overseeing SICO’s capital and financial resources, as well as the balance sheet and all the treasury activities, including the investment strategy, asset, country, and industry/sector allocations, and the balance risk sheet, including those associated with ESG topics. The committee is also responsible for formulating and reviewing the Bank’s investment policies, strategies, and performance measurement and assessment.

ESG Investment Approach

Our ESG Investment approach is based on the following principles:

• At a minimum, compliance with applicable local and international laws and regulations (“Applicable Laws”).
• At a minimum, compliance with all applicable laws relating to the Environment, Labour, Health & Safety, and the prevention of extortion, bribery, and financial crime (including tax evasion).
• We consider topics such as climate, gender equality, local community development, and corporate governance to be additional risk areas to be included in our investment portfolio analysis, as well as current threats to society and the environment.
• While our overriding duty, as mandated by our clients, is to maximize the investment returns without undue risk of loss, our investments will not consider companies that do not comply and monitor compliance with all the applicable laws at the national/local level. The compliance assessment will be conducted based on publicly available information.
• We have a responsibility to engage with companies to both protect and represent our clients’ interests.

Our ESG Investment approach entails the integration of ESG considerations within SICO’s investment process, combining traditional internal financial analysis with additional third-party data (e.g., ratings) associated with environmental, social, and governance topics. A list of potential ESG factors considered in the investment analysis include, among others:

• Environmental: climate change, energy resources, waste management, and water resources and pollution.
• Environmental: climate change, energy resources, waste management, and water resources and pollution.
• Governance: Business integrity, Board independence and composition, and expertise, and Transparency/Accountability.

Given the differences in the investment decision process of our varying investing lines of business, SICO takes a bespoke approach to the integration of ESG considerations within each of our asset management departments. However, our general approach focuses on integrating ESG factors in our existing investment decision process to identify, assess and mitigate potential risks and benefit from potential opportunities linked to our investment portfolio.

SICO’s investment teams are responsible for the integration of third-party ESG data when conducting the appropriate research on investment trends, market potential, investor segments, and investment opportunities, as well as for the analysis of credit research, and debt analysis, etc., as well as when identifying potential risks likely to impact our investment portfolio.

Furthermore, the third-party ESG data is also used to obtain information on the impact of selected ESG issues on general market conditions and specific investment avenues, present critical research information and risk parameters to the investment teams, while ESG considerations are also included as criteria within SICO’s due diligence processes.

Equity Management

Within our Equity Investment operations, we integrate third-party ESG data to identify potential risks and opportunities in our asset managers’ investment analysis and decision-making process, as an additional mechanism to determine if any of our investments might be impacted by any reputation or business issues. The process is led by the Buy-side Research team, who uses the information provided by third-party rating agencies to incorporate ESG data in the investment analysis, including:

• Obtaining ESG scores for the companies in the investment universe from the third-party ratings provider. When the ESG score of a company is below a certain minimum threshold decided by the Head of Buy Side Research, the research team will request detailed report form the rating agency to evaluate the company further in terms of ESG related risks.
• When deemed necessary by the research team, create specific ESG questionnaires to assess the ESG risks and opportunities associated with our investments to be circulated among our investees.

The Strategy, Partnership & Treasury department

Our treasury operations include investments in different types of products such as direct investments (Equity and Fixed Income), Externally Managed Funds (such as Mutual or Hedge Funds), SICO’s Funds, and Derivatives.
Within the operations of this department, we integrate third-party ESG data (e.g., ratings) in the investment analysis and decision-making process. Particularly for our Externally Managed Fund Investments, we strive to identify the level of incorporation of ESG considerations by the Fund Managers in their own investment decisions through:

• Discussions with the Fund Managers on whether and how they consider ESG factors in the construction of their investment portfolio; and
• Integration of ESG questions in the various RFPs and meetings with new Fund Managers to have a better understanding of their ESG Investment approach.