Active is: Creating a sustainable portfolio

AllianzGI implements sector exclusion criteria for Towards Sustainability Labeled Funds which are listed in section B.1. Within the implementation of these criteria, AllianzGI distinguishes between companies directly involved in the execution of harmful activities and companies indirectly involved in harmful activities.

Companies directly involved in the execution of harmful activities directly perform the harmful activities per sector listed in section B.1. Consequently, those companies are in scope for applying exclusion criteria listed in section B.1.

Companies with indirect involvement are not in scope for applying exclusion criteria in section B.1. These companies merely provide dedicated products/services to a directly involved company and are therefore eligible for the following value chain criterium:

• On a best effort basis, companies with more than 25% of their revenues derived from bespoke products, equipment or services dedicated to enabling the execution of harmful activities will be excluded and are thereby subject to the exclusion criteria in section B.1. Products/services aimed at mitigating or reducing negative effects of these activities should not be included.

1. Exclusion criteria for Towards Sustainability Funds (“TS Exclusion Criteria”)

Tobacco

Towards Sustainability Funds does not directly invest in:

• Securities issued by companies involved in the production of tobacco and/or e-cigarettes
• Securities issued by companies involved in the distribution of tobacco and/or e-cigarettes with more than 5% of their revenues.

Weapons

Towards Sustainability Funds does not directly invest in companies involved in developing, producing, using, maintaining, offering for sale, distributing, storing, or transporting controversial weapons:

• Anti-personnel mines
• Cluster munitions
• Submunitions
• Chemical weapons
• Biological weapons
• Depleted or any other industrial uranium weapons
• White phosphorus weapons
• Nuclear weapons 
  
   

Additionally, Towards Sustainability Funds does not directly invest in companies that derive more than 5% of its revenues from the production of weapons, military equipment and services, and/or which are involved in the distribution or sales of military equipment and services, and/or which provide services in relation to military equipment and services. 

This policy applies to direct investments in listed or unlisted equity and debt instruments issued by companies meeting certain exclusion criteria, as well as to derivatives on single securities.

Relevant international conventions and local regulations include the Ottawa Treaty, the Convention on Cluster Munitions, the Chemical Weapons Convention, the Treaty on the Non-Proliferation of Nuclear Weapons, and the Belgian Loi Mahoux – the ban on financing depleted uranium weapons.

Coal

Towards Sustainability Funds does not directly invest in companies that derive more than 5% of their revenues from coal-based energy generation. The aforesaid exclusion criterium is not applicable for those issuers which have a Science Based Targets initiatives (SBTi) target set at well-below 2°C or 1.5°C, or have a SBTi ‘Business Ambition for 1.5°C’ commitment.

Non-conventional oil, Conventional oil, gas and gas-related activities

Towards Sustainability Funds does not directly invest in companies that generate more than 5% of their revenues from conventional oil and gas or non-conventional oil and gas-related activities such as exploration, mining, extraction, transportation, distribution, or refinement, or providing dedicated equipment or services. This includes, but is not limited to, the extraction of tar/oil sands, coalbed methane, extra heavy oil, shale oil, shale gas and ultra deep drilling. The aforesaid exclusion criterium is not applicable for those issuers which have a Science Based Targets initiatives (SBTi) target set at well-below 2°C’ or 1.5°C’, or have a SBTi ‘Business Ambition for 1.5°C’ commitment.

Nuclear-, gas- and coal-based Energy generation

Towards Sustainability Funds does not directly invest in securities issued by companies which are involved in nuclear-, gas-, or coal-based energy generation related products or services unless they derive more than 50% of their revenues from contributing activities (economic activities included in the EU taxonomy). The aforesaid exclusion criterium is not applicable for those issuers which have a Science Based Targets Initiative (SBTi) target set at well-below 2°C’ or 1.5°C’, or have a SBTi ‘Business Ambition for 1.5°C’ commitment.

Power generation 

Towards Sustainability Funds does not directly invest in securities issued by companies involved in exploration and involved in exploitation or development of new unconventional oil or gas fields or the exploitation or development of new coal mines building new coal-fired power stations or absolute production of or capacity for coal-based power exceeds 5 GW. The non-expansion criteria can temporary be ignored in case of national legal obligations in the context of energy provision security.

Sovereigns

Towards Sustainability Funds refrain from investing directly in securities of sovereign issuers of countries:

• that have not ratified or implemented the eight fundamental conventions identified in the International Labour Organisation’s declaration of the Fundamental Rights and Principles at Work, 
• that have not ratified or implemented at least half of the 18 core International Human Rights Treaties national legislation or equivalent,
• which are not party to the Paris Agreement, the UN Convention on Biological Diversity, or the Nuclear Non-Proliferation Treaty,
• with particularly high military budget exceeding 4% of the respective country’s Gross Domestic Product (GDP),
• which are considered as the jurisdictions with strategic deficiencies in their regimes to counter money laundering and combating the financing of terrorism and proliferation by the Financial Action Task Force (FATF),
• scoring below 40/100 on the Transparency International Corruption Perception Index or qualified with a score as ‘Not Free’ by the Freedom House Index, or
• in which the death penalty is legal and in use
  
   

2. General aspects of the investment process for Towards Sustainability Funds

CLA has set up guidelines for companies involved in activites covered by the exclusion criteria in section B.1. above (“Harmful Activities”). For companies involved in Harmful Activities, the portfolio managers consider certain governance criteria and business criteria in their investment decisions. Such consideration does not necessarily result in refraining from investment or divestment of companies not complying with the governance and business criteria but the investment in such companies is subject to further considerations

a)   Definition of covered companies (Scope)

• Companies involved in Harmful Activities that could lead to adverse impacts on sustainability factors, or companies providing dedicated equipment or services to enable these activities fall into the scope of this section B.2.
• Value chain to be taken into account:
1. Companies with direct involvement in the execution of Harmful Activities
2. Companies with more than 25% of their revenues derived from products/services dedicated to the execution of Harmful Activities. Products/services aimed at mitigating or reducing negative effects of Harmful Activities should not be included. 
3. On a best effort basis, companies with more than 50% of their revenues derived from companies in i. or ii. 
• Parent-Subsidiary relationships
1. The eligibility of a parent company takes into account eligibility of subsidiary companies.
2. The eligibility of subsidiary companies is not dependent on the eligibility of the parent company.

b)   Governance criteria

• To assess that Sustainable Investments do not significantly harm any other environmental and/or social objective, the Investment Manager is using indicators regarding principal adverse impacts (PAI) on sustainability factors. 

c)   Business criteria

Companies with direct involvement shall comply with a selection of quantitative criteria appropriate to their activities. 

Indicators to measure avoidance of harm: 

• Absolute production of harmful products or absolute capacity for Harmful Activities
• Revenue/turnover derived from Harmful Activities
• Capital expenditures (CapEx) dedicated to Harmful Activities

Indicators to measure transition:

• Ambitious measurable & auditable commitment to reduce principle adverse impacts within strict timelines.
• Capital expenditures (CapEx) dedicated to contributing activities. Contributing activities are economic activities included in Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (“Taxonomy Regulation”) or other economic activities that contribute of environment or social objectives.

Indicators can be understood as an annual average over the previous 3 years, if available. 

Where information relating to any of the indicators used is not readily available, AllianzGI shall use best efforts used to obtain the information either directly from investee companies, or by carrying out additional research, cooperating with third party data providers or external experts or making reasonable assumptions. Such assessments and estimates should only compensate for limited and specific parts of the desired data elements and produce a prudent outcome.

d)   Investment in companies not complying with business criteria (Phase-out margin)

Some companies performing activities in scope currently do not yet meet the business criteria but are nevertheless within the best of their peer group in transitioning their business model. A sustainable financial product can finance these companies selectively and to a limited extent, under the following conditions:  

• The total portfolio exposure to non-compliant companies (only concerning eligible activities) is until 30 June 2025 below 2% of the net asset value of the respective Towards Sustainability Fund. The percentage will decrease to 0% from 1 July 2025 onwards.
• Additionally, companies in this margin shall be subject to a best-in-class selection that selects from the 25% highest ESG-rated companies (leaders), with special attention to sustainable energy transition. 
• Companies in this margin shall still meet the aforementioned governance criteria. 
  
   

Section B.2.d) is only relevant for power generation. It does not apply to other Harmful Activities such as tobacco, weapons, coal and unconventional oil & gas and conventional oil & gas.

3. Assurance of proper treatment of TS Exclusion Criteria within AllianzGI’s investment process

In order to fully comply with the requirements of Towards Sustainability Label, AllianzGI’s investment process includes the following specific steps.

AllianzGI applies a distinct exclusion list ex ante which contains the TS Exclusion Criteria (“TS Exclusion List”). Given evolving data requirements set by the Towards Sustainability Label, AllianzGI is always engaging with its primary data providers and if they are not ready, AllianzGI acquires additional data from further third-party data providers in order to fulfill the Towards Sustainability Label at the best level possible. Usage of NGO or public sources is also an option.

These restrictions are coded ex ante within AllianzGI’s Front Office System for Portfolio Managers. AllianzGI’s Compliance department is responsible for coding these restrictions and for performing ex-post monitoring.

The TS Exclusion List is updated at least three times per year. AllianzGI will ensure that any updated rules set by Towards Sustainability are coded within AllianzGI Front Office System and controls for ex-ante and ex-post monitoring are enhanced.

In cases where issuers, which are held by Towards Sustainability Funds, will be newly added to the TS Exclusion List, the portfolio manager will be alerted via the Compliance function of the Front Office tool. Such an event is considered as a passive breach and the portfolio manager will divest based on market liquidity and conditions.

New Issuers / IPO can be temporarily part of a portfolio without having a completed Sustainability Research Process while the analysts are covering this new issuer and come to a positive conclusion about its Sustainability perspective.

4. Sustainability data sources

AllianzGI uses a variety of information sources and data to analyze companies and issuers with respect to sustainability. This includes sustainability providers’ quantitative datasets, independent extra-financial ratings agency reports, broker reports, dialogue with company representatives, experts on corporate social responsibility and other media sources. The data sources are reviewed and updated, and we will incorporate new sources if this is deemed necessary.

5. Additional considerations related to absolute production of/ capacity for Harmful Activities

In addition to the aforementioned exclusion criteria, Towards Sustainability Funds monitor whether companies’ absolute production of or capacity for the following activities is increasing: 

• Thermal coal-related products/services
• Non-conventional oil and gas-related products/services

These criteria are tracked by portfolio managers in the investment process of Towards Sustainability Funds.

For information on our key policy documents please see AllianzGI’s Key policy documents and reports.

This section thematizes how AllianzGI as a company deals with diversity & equality, fair and sustainable remuneration, and taxation.

Diversity and equality

For information on diversity and equality please see AllianzGI’s Inclusion and Diversity Policy.

Fair and sustainable remuneration

For information on remuneration please see AllianzGI’s Remuneration Policy.

Taxation

For information of taxation, please see the Allianz Tax Transparency Report 2020.