The Global Climate Bond Fund (the Sub-Fund) has sustainable investment as its objective and is therefore considered to comply with Article 9 of the Sustainable Finance Disclosure Regulation (SFDR)1.
This disclosure is made in compliance with Article 10 of SFDR and sets out key information with regards to the sustainable investment objective of the Sub-Fund. This information is summarized as follows:
The sustainable investment objective of the Sub-Fund is to invest at least 85% of its net assets in a diversified portfolio of global fixed income securities, with the securities and/or issuers making positive contributions to climate change, either through reducing their own emissions or the products and services they offer (defined for the Sub-Fund as “Climate Leaders” and “Climate Focused Bonds”).
The Sub-Fund commits to investing a minimum proportion of 85% of its portfolio in sustainable investments with an environmental objective, with these investments contributing to the sustainable investment objective by making positive contributions to climate change.
Although the Sub-Fund does not commit to a minimum level of taxonomy alignment, the Investment Manager expects that the Sub-Fund’s sustainable investments may positively contribute to climate change.
The Investment Manager has fully integrated sustainability risks into the investment decision making process. As part of this overall approach, the Investment Manager and Co-Sub-Investment Managers ensure that the sustainable investments made by the Sub-Fund Do No Significant Harm (“DNSH”) to sustainable investment objectives by (a) adhering to a detailed exclusion framework and (b) identifying and considering the principal adverse impacts (“PAI”) on sustainability factors.
This financial product has sustainable investment as its objective.
The Sub-Fund commits to investing a minimum proportion of 85% of its portfolio in sustainable investments with an environmental objective, with these investments contributing to the sustainable investment objective by making positive contributions to climate change.
Although the Sub-Fund does not commit to a minimum level of taxonomy alignment, the Investment Manager expects that the Sub-Fund’s sustainable investments may positively contribute to climate change.
The Investment Manager has fully integrated sustainability risks into the investment decision making process. As part of this overall approach, the Investment Manager and Co-Sub-Investment Managers ensure that the sustainable investments made by the Sub-Fund Do No Significant Harm (“DNSH”) to sustainable investment objectives by (a) adhering to a detailed exclusion framework and (b) identifying and considering the principal adverse impacts (“PAI”) on sustainability factors.
In addition, the Investment Manager and Co-Sub-Investment Managers apply positive selection criteria as further explained in the “Investment Strategy” section below.
Each of these elements is further explained below:
a) Exclusion Framework
The Sub-Fund adheres to an exclusion framework where certain issuers are removed from the permissible investment universe. This includes screening out issuers, where possible, which are considered by third party data provider(s) used by the Investment Manager and Co-Sub-Investment Managers to be in violation of the Ten Principles of the United Nations Global Compact (“UNGC”). This also includes issuers with products or within industries that are considered by the Investment Manager and Co-Sub-Investment Managers to be unsustainable or associated with significant environmental or social risks. These may be updated from time to time depending on the assessment of each product or industry against the abovementioned principles, but currently issuers and/or bonds are automatically eliminated from investment consideration if the issuer of that bond derives:
(i) more than 25% of revenue from fossil fuel-based power generation. However, the Investment Manager and Co-Sub-Investment Managers may make exceptions in the case of Climate Focused Bonds where the use of proceeds of that bond is ring-fenced for sustainable purposes in line with the Sub-Fund’s sustainable investment objective. Any such exception will be considered by the Investment Manager and/or Co-Sub-Investment Managers on a case by case basis, carrying out a qualitative and/or quantitative assessment to determine that the issuance is a sustainable investment;
(ii) more than 5% of revenue from alcohol, tobacco, adult entertainment, gambling operations or conventional weapons;
(iii) any revenue from controversial weapons; and
(iv) any revenue from oil and gas extraction and production or thermal coal mining and sales. However, the Investment Manager and Co-Sub-Investment Managers may make exceptions in the case of Climate Focused Bonds where the use of proceeds of that bond is ring-fenced for sustainable purposes in line with the Sub-Fund’s sustainable investment objective. Any such exception will be considered by the Investment Manager and/or Co-Sub-Investment Managers on a case by case basis, carrying out a qualitative and/or quantitative assessment to determine that the issuance is a sustainable investment.
Where no data is available from the third party data provider(s) regarding compliance with the exclusion framework above, issuers will not be excluded from the Sub-Fund’s investment universe provided that they satisfy the positive screen applied by the Investment Manager and Co-Sub-Investment Managers and any other quantitative or qualitative analysis the Investment Manager and Co-Sub-Investment Managers consider relevant in order to satisfy the principle of “do no significant harm”.
The Sub-Fund will also consider other sustainability and/or ESG-related attributes of issuers when choosing whether to invest in Climate Leaders, subject to data availability. These attributes may include, but are not limited to, an issuer’s performance on and management of certain environmental factors, such as natural resource use, social factors such as labour standards and diversity considerations, and governance factors such as board composition and business ethics. This forms a material part of the Sub-Fund’s DNSH test.
The Sub-Fund will also consider other sustainability and/or ESG-related attributes of issuers when choosing whether to invest in Climate Leaders, subject to data availability. These attributes may include, but are not limited to, an issuer’s performance on and management of certain environmental factors, such as natural resource use, social factors such as labour standards and diversity considerations, and governance factors such as board composition and business ethics. This forms a material part of the Sub-Fund’s DNSH test.
The exclusionary framework explained is aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organization on Fundamental Principles and Rights at Work and the International Bill of Human Rights.
b) PAI on sustainability factors
The Investment Manager and Co-Sub-Investment Managers have assessed the PAI indicators relevant to the Sub-Fund and which the Investment Manager and Co-Sub-Investment Managers consider should be taken into account for the purposes of assessing whether sustainable investments otherwise cause significant harm to the sustainable investment objective.
Based on data availability, the following PAI indicators are taken into consideration for investments in equities and/or fixed income products issued by corporate issuers for the proportion of holdings where data is available and reliable:
1. Scope 1 Green House Gas emissions
2. Scope 2 GHG emissions
3. Scope 3 GHG emissions
4. Total GHG emissions
5. Carbon footprint
6. GHG intensity of investee companies
7. Share of investments in companies active in the fossil fuel sector
8. Share of non-renewable energy consumption and non-renewable energy production of investee companies from non-renewable energy sources
9. Energy consumption in GWh per million EUR of revenue of investee companies, per high impact climate sector
10. Share of investments in investee companies with sites/operations located in or near to biodiversity-sensitive areas
11. Tonnes of emissions to water generated by investee companies per million EUR invested, expressed as a weighted average
12. Tonnes of hazardous waste generated by investee companies per million EUR invested, expressed as a weighted average
13. Share of investments in investee companies that have been involved in violations of the UNGC principles or OECD Guidelines for Multinational Enterprises
14. Share of investments in investee companies without policies to monitor compliance with the UNGC principles or OECD Guidelines for Multinational Enterprises or grievance /complaints handling mechanisms to address violations of the UNGC principles or OECD Guidelines for Multinational Enterprises
15. Average unadjusted gender pay gap of investee companies
16. Average ratio of female to male board members in investee companies
17. Share of investments in investee companies involved in the manufacture or selling of controversial weapons
For investments in sovereign bonds and bonds issued by supranational entities, the following PAI indicators will be considered:
1. GHG intensity of investee countries
2. Absolute number of investee countries subject to social violations
3. Relative number of investee countries subject to social violations
4. Non-cooperative tax jurisdictions
The Investment Manager and Co-Sub-Investment Managers aim to identify the adverse sustainability impact from the Sub-Fund’s investments in several ways, including via general screening criteria, ongoing review of PAIs and where appropriate supplemented by fundamental research during the Investment Manager’s and Co-Sub-Investment Managers’ investment processes. Subject to data availability, the Sub-Fund’s Investment Manager and Co-Sub-Investment Managers, with Manulife IM’s subject matter support from the Sustainable Investment team, are responsible for assessing and monitoring the above PAI indicators for all in-scope assets on an ongoing basis using an internally developed monitoring system, third-party data, company issued data and public information. This assessment may include both fundamental as well as quantitative analysis. Issuers identified as outliers on specific indicators, or which exhibit high adverse impact across several indicators will be subject to further analysis by the Investment Manager and Co-Sub-Investment Managers and may be reviewed by the Sustainable Investment team.
All specific PAI indicators that are taken into consideration for the Sub-Fund, both at an overall portfolio level and in relation to the DNSH assessment for sustainable investment, are subject to data availability. The Investment Manager and the Co-Sub-Investment Managers monitor data availability on an ongoing basis with the aim to improve both data quality and availability.
PAI value outcomes for the Sub-Fund will be reported to clients on an ongoing basis in the periodic reporting required by SFDR.
The sustainable investment objective of the Sub-Fund is to invest at least 85% of its net assets in a diversified portfolio of global fixed income securities, with the securities and/or issuers making positive contributions to climate change, either through reducing their own emissions or the products and services they offer.
Further details on the Investment Manager’s and Co-Sub-Investment Managers’ selection process are included in the section “Investment Strategy” below.
The Sub-Fund has not designated a benchmark for the purpose of attaining the sustainable objective of the Sub-Fund, as the Investment Manager and the Co-Sub-Investment Managers consider that the sustainability indicators and other measures monitoring the attainment of the sustainable investment objective are a more appropriate reference.
The sustainability indicators used by the Investment Manager and the Co-Sub-Investment Managers to measure the attainment of the sustainable investment objective of the Sub-Fund include:
The Sub-Fund will invest at least 85% of its net assets in a diversified portfolio of global fixed income securities issued or guaranteed by governments, agencies, supra-nationals and corporate issuers, where:
The selection criteria applied by the Investment Manager and Co-Sub-Investment Managers to Climate Focused Bonds is different to that applied to Climate Leaders as explained in detail below.
The Investment Manager and Co-Sub-Investment Managers will start with the broader global fixed income universe and narrow it down by: (i) adherence to an exclusion framework in respect of both Climate Leaders and Climate Focused Bonds (as described above); and (ii) applying a quantitative and qualitative positive screening to Climate Leaders. The evaluation will be determined by the Investment Manager and Co-Sub-Investment Managers who consider and process third-party data. In order to select Climate Focused Bonds, the Investment Manager and Co-Sub-Investment Managers will rely on the application of the relevant recognized bond standards and/or its own evaluation, and for bonds issued by non Climate Leaders, considering the use of proceeds of the bond, rather than focusing on the attributes of the issuer.
In selecting Climate Leaders, the Sub-Fund applies a positive screen which captures issuers that demonstrate positive contribution to climate change. The positive screening has both a quantitative and a qualitative element and aims to identify issuers which meet one or more of the following criteria:
The Sub-Fund will also consider other sustainability and/or ESG-related attributes of issuers when choosing whether to invest in Climate Leaders, subject to data availability. These attributes may include, but are not limited to, an issuer’s performance on and management of certain environmental factors, such as natural resource use; social factors such as labour standards and diversity considerations; and governance factors such as board composition and business ethics.
With regards to the limited data availability, missing data or lack of coverage from raw datapoint sets will be supplemented with company reported data and/or findings from proprietary credit analysis, and/or ESG research for qualitative assessment.
Given the Investment Manager’s and Co-Sub-Investment Managers’ focus on the use of proceeds of Climate Focused Bonds, issuers of Climate Focused Bonds, which are not Climate Leaders, are not subject to the quantitative screening process described above.
Over time issuers’ eligibility status with respect to the relevant ESG criteria in the Sub-Fund’s stock selection process as described above may change and some issuers who were eligible when purchased by the Sub-Fund may become ineligible. When this occurs, the Investment Manager and the Co-Sub-Investment Managers may engage with issuers to have a constructive dialogue in order to improve factors that lead to ineligibility within the next 90 days. The position in respect of such issuers may be divested at any time or for any reason during this 90-day period.
The Sub-Fund may hold up to 15% of the remaining assets in cash, cash equivalents, derivatives and/or short-term securities for liquidity purposes.
The investment strategy and selection process are applied to all assets of the Sub-Fund, except for cash and cash equivalents or derivatives.
Please also see the Investment Manager’s and Co-Sub-Investment Managers’ Sustainable Investing and Sustainability Risk Statement for further details on how the Investment Manager and Co-Sub-Investment Managers integrate sustainability into their investment process to ensure that it is applied on a continuous basis.
The following elements of the investment strategy are binding within the selection process:
All of the above elements are binding on the Investment Manager and Co-Sub-Investment Managers on a continuous basis.
Good governance practices of investee companies of the Sub-Fund are evaluated across various steps of the security selection process. Governance safeguards are inherent in the Investment Manager’s and Co-Sub-Investment Managers’ level norms-based screening as well as the Investment Manager’s and Co-Sub-Investment Managers’ PAI processes for the Sub-Fund.
Furthermore, at the Sub-Fund level, investee companies are screened for good governance principles at the point of investment and on an ongoing basis. This screening process includes sound management structures, employee relations, remuneration of staff and tax compliance, and is based on third-party data, and/or a proprietary assessment.
A proprietary assessment will be used and may take precedence over the third-party data, when the Investment Manager and Co-Sub-Investment Managers determine to engage with the investee companies or the Investment Manager and Co-Sub-Investment Managers otherwise evidence the good governance practices of investee companies, or when third-party data is lacking, the Investment Manager and Co-Sub-Investment Managers apply these principles by assessing issues including but not limited to: companies’ board composition and oversight, executive compensations, labor management and human capital, and tax controversies. The selection of these specific indicators is subject to change from time to time although the overall principles will remain.
Where the Investment Manager and Co-Sub-Investment Managers identify any areas for improvement, and subject to an overall assessment of good governance, it may engage with the relevant investee company to seek improvements before choosing to divest, which will typically occur within 90 days. The assessment is not applicable to any cash, cash equivalent or derivatives investment or investments in securities issued by sovereigns or government-related entities.
The Sub-Fund invests at least 85% of its net assets in a diversified portfolio of global fixed income securities, with the securities and/or issuers making positive contributions to climate change, either through reducing their own emissions or the products and services they offer, with such investments categorised as “Climate Leaders” or “Climate Focused Bonds”.
In order to select issuers that are Climate Leaders, the Sub-Fund applies a positive screen to identify issuers : (i) committed to Science-Based Targets with the Science Based Targets initiative (SBTi); or (ii) with low GHG emissions measured by a 50% lower GHG intensity versus the Sub-Fund’s investment universe; or (iii) a portion of revenues resulting from climate solutions including, but not limited to, renewable energy and energy efficient technologies.
Climate Focused Bonds are securities are bonds labelled as “green”, “sustainable” or “sustainability-linked”, which align with a combination of one or more of the relevant bond standards, including but not limited to the International Capital Market Association (ICMA) Green Bond Principles, and the ICMA Sustainability Bond Guidelines, or based on the Investment Manager’s and Co-Sub-Investment Managers’ evaluation, the proceeds of which are used for projects that have a positive impact on climate change.
The exposures to these investments will be direct. The Sub-Fund may use derivatives for hedging and/or efficient portfolio management purposes. However, derivatives instruments will not be used to attain the sustainable investment objective of the Sub-Fund.
The Sub-Fund may hold up to 15% of the remaining assets in cash, cash equivalents, derivatives and/or short-term securities.
The Sub-Fund will have a minimum proportion of 85% of its net assets invested in sustainable investments. The remaining investments will be in cash, cash equivalents and derivatives.
The sustainable investment objective of the Sub-Fund is measured and monitored by the Investment Manager and Co-Sub-Investment Managers throughout the lifecycle of an investment using the sustainability indicators. These are:
The sustainable investment objective and the sustainability indicators of the Sub-fund are monitored during initial security selection and ongoing portfolio management using a combination of internal and external data.
Once an investment is made, and to ensure that investments continue to meet the Sub-Fund’s sustainability criteria, the Investment Manager and Co-Sub-Investment Managers continue to monitor material factors that could impact an investment, including sustainability risks and factors. Relevant risks or concerns are addressed as part of the Investment Manager’s and Co-Sub-Investment Managers’ ongoing investment process which may result in changes in a fund position size or divestment. The Sustainable Investment team may also conduct reviews on a periodic basis and engage with the investment team about potential sustainability risks.
The Investment Manager and Co-Sub-Investment Managers use a combination of externally sourced data and proprietary research to ensure that the information used when monitoring the sustainable investment objective of the Sub-Fund is suitably robust, given the current levels of disclosure by companies, and performs periodic reviews allowing the Investment Manager and Co-Sub-Investment Managers to seek to identify gaps and/or data that may require further review. The current level of disclosure of environmental and social characteristics remains comparatively limited in comparison with other financial data, and that which is available is typically subject to more limited review (such as audits).
The Investment Manager’s and Co-Sub-Investment Managers’ overall investment process includes both quantitative and qualitative metrics to measure how the sustainable investment objective of the Sub-Fund is met, including an exclusionary framework, positive selection process and use of PAI metrics. In addition, the Investment Manager and Co-Sub-Investment Managers seek to understand the sustainability risks and opportunities by using a range of external research providers as well as internal research.
Each sustainability indicator for the Sub-Fund is subject to measurement using clearly defined metrics on an ongoing basis, using a combination of internal and external data and research as is appropriate for the particular indicator.
The Investment Manager and Co-Sub-Investment Managers use a range of data sources in order to monitor the sustainable investment objective of the Sub-Fund, including both in-house research and third party data provider(s). These are used to systematically screen client portfolios for sustainability risks, identify priority companies for engagement and to inform company analysis as described in the Sub-Fund’s investment policy. The third party data provider(s) are subject to ongoing review and change and may differ between asset classes or sub-funds depending on the nature of the indicator to be measured.
The Investment Manager and Co-Sub-Investment Managers acknowledge that, given the lack of a consistent standard of global regulatory requirements on sustainability disclosures generally, third party provider(s) upon whom the Investment Manager and Co-Sub-Investment Managers place reliance, do have to estimate datapoints and the proportion of estimations used will vary depending on the subject matter and asset in question. The Investment Manager and Co-Sub-Investment Managers do not seek to systematically audit those estimates but does challenge numbers with third-parties if it identifies data it believes is inaccurate, and where possible places greater reliance on actual disclosed data. The Investment Manager and Co-Sub-Investment Managers seek to encourage adoption of sustainability disclosure standards by issuers and thus decrease reliance in the industry on estimated or incomparable information.
The main limitation to the methodologies and data sources is the lack of global reporting standards and availability of consistent data. Where data is available, this also has limitations and is subject to estimation and reporting gaps and continues to evolve. The Investment Manager and Co-Sub-Investment Managers keep under review the sources of data they use for the implementation of their sustainability policy and will make changes where it considers this is necessary.
In case data gaps pose challenges to making an informed decision on an aspect of the investment process, the Investment Manager’s Sustainable Investment team, together with the investment analysts and fund managers may seek further information. Such options may include a direct dialogue with the company, a dedicated engagement plan or a decision against holding the company.
Due diligence is a key element of the methodology for integrating sustainability factors into the investment decision making process, on both a pre-investment and ongoing basis. As part of the due diligence process, the investment team seeks to assess sustainability risks and factors material to an investment, and incorporate these issues into fundamental analysis, which then may influence their valuations, portfolio construction decisions, and transaction underwriting, where relevant.
To inform their assessment framework, teams may utilise ESG research and data as described above as well as support from the dedicated in-house Sustainable Investment team assigned to the investment team. The investment team may also consider the responses of investee company management teams to inquiries focused on their ability and willingness to manage ESG issues. Conclusions about the sustainability risks and factors are documented in investment research. The Investment Manager and Co-Sub-Investment Managers may engage with company management to understand their ESG strategy, influence best practices towards disclosure, seek improvement in key sustainability metrics over time, and to address issues pertinent to the specific investment thesis.
Once an investment is made, the investment teams continue to seek to monitor material issues that could impact an asset or company, including sustainability risks, factors and opportunities. Relevant risks or concerns are addressed as part of the investment teams’ ongoing investment process, via ongoing company surveillance and engagement, where relevant, portfolio positioning and risk monitoring.
The Sustainable Investment team may also conduct, on a periodic basis, reviews of individual portfolios, and engage with investment teams about potential sustainability risks as a further support to the investment process. The nature of any material risks identified will inform decisions as to next steps within the context of the investment teams’ overarching investment process, including further company research and company engagement among other considerations.
Responsible stewardship is an integral component of the Investment Manager’s business and culture.
Engagement with investee companies provides an opportunity to gather further information, which feeds into the Investment Manager’s and Co-Sub-Investment Managers’ due diligence processes. The Investment Manager and Co-Sub-Investment Managers will also engage to enact positive change in disclosure, management, and performance related to sustainability risks or factors.
The Sub-Fund’s investment team will meet with company management as part of its fundamental research process. These meetings provide analysts and portfolio managers with insights into management quality, business drivers, and the strategies of the companies in which they invest. In addition, these meetings allow the investment team to assess companies’ risk, including exposure to sustainability factors and the companies’ management of that exposure to protect shareholder value. Where appropriate, members of the Sustainable Investment team may also participate in company meetings alongside investment analysts and portfolio managers.
The Investment Manager and Co-Sub-Investment Managers also participate in collaborative engagements with other firms in the industry. Engaging collaboratively with other investors amplifies the Investment Manager’s and Co-Sub-Investment Managers' impact on the companies, industries, and markets in their collective orbit of influence. For the companies the Investment Manager and Co-Sub-Investment Managers engage with, collaborative efforts reduce the noise of numerous points of view, helping focus on goal setting and real outcomes. Collaboration is always in alignment with the Investment Manager’s and Co-Sub-Investment Managers’ fiduciary duty to its clients as an asset manager.
If in the Investment Manager’s or Co-Sub-Investment Managers’ opinion issues of concern remain unaddressed by a company’s leadership after a process of engagement conducted over a reasonable period of time, then the Investment Manager or Co-Sub-Investment Manager may consider an escalation. Depending on the asset in question, this could include voting their equity proxies in accordance with their views, filing or co-filing a shareholder resolution, or divesting, where applicable.
The Investment Manager or Co-Sub-Investment Managers may also occasionally engage with regulators where the Investment Manager or Co-Sub-Investment Managers believes it is appropriate and in the best interests of their clients.
For additional detail, please see the Investment Manager’s ESG Engagement Policy.
1 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector
The Sub-Fund uses the Bloomberg Global Aggregate Corporate Index (USD hedged) index as a benchmark for performance comparison purposes only and not as a reference benchmark for SFDR purposes.
Due to the lack of consistent sustainability disclosure requirements and available data in the countries in which the Sub-Fund is invested, the Investment Manager and co-Sub-Investment Managers are not currently able to collect or evaluate complete or reliable data on the environmental objective(s) set out in Article 9 of the Taxonomy Regulation and on how and to what extent the investments underlying the Sub-Fund are in economic activities that qualify as environmentally sustainable under Article 3 of the Taxonomy Regulation (“Taxonomy Aligned Investments”). The Investment Manager and co-Sub-Investment Managers will continue to monitor this position and will seek to improve access to such data where reasonably possible to do so.
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