1. Summary

The Single-Asset Class Mandate - Sustainability promotes environmental and social characteristics and in addition in part makes sustainable investments according to the Sustainable Finance Disclosure Regulation (EU 2019/2088). However, the mandate does not have as its objective a sustainable investment. In other words, investments are made in companies with sound company management practices while simultaneously concentrating on structural changes within the economy and society. Principal adverse impact metrics are taken into account in the investment decision-making process for the mandate’s partial sustainable investments.

Good governance by investee companies is managed via the Julius Baer ESG categories “Responsible” and “Sustainable” given that to fall within the scope of either of these ESG categories, one of the criteria is that investee companies must follow good governance practices according to the view of Julius Baer. In particular, good governance is ensured through the Julius Baer’s proprietary Governance and Human Capital Scores. Please find below the link to the Julius Baer ESG Investment Framework brochure for further details on the ESG categories. The mandate permits direct holdings as well as investments in funds or similar products such as ETFs. The asset classes considered cover the money markets/liquid funds, equities, and bonds. At least 80% of the investments take environmental and social characteristics into account. At least 50% of the net asset value is investment in sustainable investments.

The other investments consist of financial instruments categorised as “Traditional” as well as investments in instruments that were not evaluated by the Julius Baer ESG Investment Rating Methodology and investments in money markets/liquid funds. The environmental and social characteristics as well as the sustainability indicators are monitored by the Julius Baer Portfolio Management Team. Our Investment Controlling monitor alignment with the investment guidelines on an ongoing basis. Additionally, our Responsible Investment Committee is responsible for ensuring that the Julius Baer ESG Investment Rating Methodology is reviewed and adjusted on a regular basis.

The following principal adverse impact metrics are currently used as sustainability indicators to measure the attainment of the environmental and social characteristics of the mandate: greenhouse gas emissions, emissions in water, ratio of hazardous and radioactive waste, violations of the UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, and exposure to controversial weapons.

With regards to data sources, Julius Baer has created a proprietary ESG Investment Rating Methodology, which is managed by an internal team of sustainability specialists. In some cases, the data coverage from external data providers does not fully cover all attributes that are needed for the methodology. In such cases, industry averages from the external data providers may be applied. The overall proportion of estimated data is less than 20% of the entire amount of input data that is used to compute any ESG scores or categories. With regards to due diligence Julius Baer has developed a set of ESG categories based on its proprietary ESG Investment Rating Methodology, upon which the investment universe is defined. The Responsible Investment Committee oversees and provides guidance on the applicability of the JB ESG Investment Rating Methodology and related ESG offering.

As regards engagement policies, Julius Baer believes that it is an integral part of the responsibilities of its analysts and portfolio managers to identify and analyse critical ESG risks that affect the companies in their coverage and to discuss these issues as part of their regular meetings with companies’ management teams. However, proxy voting does not apply for Julius Baer mandates and at this stage, engagement is not promoted as part of the environmental, social characteristics or partial sustainable investments of this mandate.  

2. No sustainable investment objectives

Although the mandate does not have as its objective a sustainable investment, a share of at least 50% of the net asset value is invested in sustainable investments.

Principal adverse impact metrics are taken into account in the investment decision-making process for the mandate’s sustainable investments. In addition, the key principal adverse impact indicators are taken into account directly or indirectly given that they are considered as part of the Julius Baer ESG Investment Rating Methodology. Please find below the link to the Julius Baer ESG Investment Framework brochure, explaining the Julius Baer ESG Investment Rating Methodology in further detail.

The Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights are also taken into account for the partial sustainable investments of the mandate during the investment decision-making process. Financial instruments of issuers associated with a breach of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights, in the view of Julius Baer, are in general excluded.

3. Environmental or social characteristics of the financial product

The mandate promotes environmental and social characteristics by investing a substantial portion of the portfolio in companies with sound ESG quality. ESG data from independent data providers, as well as internal thematic research related to investment themes, are used to assess the ESG quality of companies by applying the Julius Baer ESG Investment Rating Methodology.

4. Investment strategy

Julius Baer begins the investment process for the mandate by identifying and classifying companies based on particular criteria in order to narrow down the investment universe to be considered. Among other things, Julius Baer considers the following as filter criteria:

  • Julius Baer´s Climate Score which addresses the questions of greenhouse gas emissions and a company’s exposure to the shift towards a net-zero world.
  • Julius Baer´s Natural Capital Score which addresses the topic of biodiversity, air pollution and other pollution, and allows the identification of companies with a significant exposure to, and impact on, environmental issues beyond climate.
  • Julius Baer´s Human Capital Score which assesses companies based upon the social element of ESG i.e., employee conditions (e.g., pay or secondary benefits), workplace policies in relation to diversity, inclusion, and the prevention of harassment.
  • Julius Baer´s Global Norms Score which measures if a company is involved in the production and/or sale of conventional weapons and how it complies with global norms standards.
  • Julius Baer´s Governance Score which addresses the question of a company’s business behaviour (i.e., in terms of policies, organisation structures, ethics, code of conduct, or transparency and reliability of accounting, including tax compliance).

Julius Baer checks financial instruments that are considered for the investment universe based on its own ESG Investment Rating Methodology. Direct investments (unlike funds) in companies, which are committed to one or more of the following fields, are in general excluded from the mandate’s investment universe: manufacture and/or sales of prohibited war material, as specified in the Swiss War Materials Act of 13 December 1996, including chemical/biological weapons, cluster munitions and land mines and weapons, munitions and armaments that contain enriched uranium. This also applies to companies that breach the guiding principles of the UN Global Compact, in the view of Julius Baer.

Good governance by investee companies is managed via the Julius Baer ESG categories “Responsible” and “Sustainable” given that to fall within the scope of either of these ESG categories, one of the criteria is that investee companies must follow good governance practices according to the view of Julius Baer. In particular, good governance is ensured through the Julius Baer’s proprietary Governance and Human Capital Scores. Please find below the link to the Julius Baer ESG Investment Framework brochure for further details on the ESG categories.

5. Proportion of investments

The mandate permits direct holdings as well as investments in funds or similar products such as ETFs with underlying investments in equities. The asset classes considered cover the money markets/liquid funds, equities, and bonds.

Only portfolio companies that meet the selection criteria of the mandate are included in the investment universe. These include the criteria from the above-mentioned exclusions and application of the filter criteria.

For the mandate at least 80% of the investment must be made in financial instruments categorised as “Responsible” or “Sustainable” by the Julius Baer ESG Investment Rating Methodology and a minimum of 50% of the investments must be made in financial instruments categorised as “Sustainable”. Consequently, at least 80% of the investments take environmental and social characteristics into account and at least 50% are sustainable investments.

The other investments consist of financial instruments categorized as “Traditional” as well as investments in instruments that were not evaluated by the Julius Baer ESG Investment Rating Methodology and investments in money markets/liquid funds. The share of liquid funds may be 0-20%.

#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product.

#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments.

The category #1 Aligned with E/S characteristics of the financial product covers the following sub-categories:

The sub-category #1A Sustainable includes the investments of the financial product which qualify as sustainable investments.

The sub-category #1B Other E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product but which do not qualify as sustainable investments.

6. Monitoring of environmental or social characteristics

The environmental and social characteristics as well as the sustainability indicators are monitored by the Julius Baer Portfolio Management Team. Our Investment Controlling monitor alignment with the investment guidelines on an ongoing basis. Additionally, our Responsible Investment Committee is responsible for ensuring that the Julius Baer ESG Investment Rating Methodology is reviewed and adjusted on a regular basis. The Julius Baer Responsible Investment Committee also oversees key decisions including deciding about key single instrument methodological considerations, criteria that assign collective investments and discretionary mandates into a specific sustainable investment category as well as how ESG risks and opportunities are integrated into the offering and investment process.

Please find below the link to the Julius Baer ESG Investment Framework brochure, explaining the Julius Baer ESG Investment Rating Methodology in detail, including how the environmental and social indicators as well as sustainability indicators are considered and monitored as part of the methodology.

The monitoring of Julius Baer’s ESG Investment Rating Methodology for financial instruments is the responsibility of the Responsible Investment Committee, which reports to the Executive Board of the Julius Baer Group as a whole. A dedicated framework ensures the functionality and further development of the Julius Baer ESG Methodology at the strategic as well as the operational level.

7. Methodologies

The following principal adverse impact metrics are currently used as sustainability indicators to measure the attainment of the environmental and social characteristics of the mandate:

  • Greenhouse gas emissions that cover three indicators:
    a) Scope 1 greenhouse gas emissions
    b) Scope 2 greenhouse gas emissions
    c) Total greenhouse gas emissions (total of Scope 1 and 2)

The above-mentioned indicators are calculated as tonnes emitted for the amount invested.

  • Emissions in water: emissions in water caused by portfolio companies, measured in tons per invested million
  • Ratio of hazardous and radioactive waste: hazardous waste, measured in tons per invested million
  • Violations of the UN Global Compact principles and Organization for Economic Cooperation and Development (OECD): share of investments in investee companies that have been involved in violations of the UNGC Guiding Principles or the OECD Principles for Multinational Enterprises
  • Exposure to controversial weapons1: share of investments in investee companies involved in the manufacture or sale of controversial weapons.

Please note that based on the on-going developments in the area of ESG data, Julius Baer reserves the right to expand, amend or replace the above-mentioned indicators and/or metrics.

Please find below the link to the Julius Baer ESG Investment Framework brochure, explaining the Julius Baer ESG Investment Rating Methodology in detail, including how the sustainability indicators are considered as part of the methodology.

1Anti-personnel mines, cluster munitions, chemical weapons and biological weapons

8. Data sources and processing

With regards to data sources, Julius Baer has created a proprietary ESG Investment Rating Methodology, which is managed by an internal team of sustainability specialists and overseen by the Responsible Investment Committee, structured in two panels: the Strategic Panel, that define the strategic guidelines and the Operational Panel, ultimately responsible for reviewing and validating outcomes of the methodology on an issuer or investment fund level. This methodology is based on a combination of data from external ESG data providers and Julius Baer’s own research for various instrument classes and asset classes. The outcome is a set of thematic scores and ESG categories, which are used by portfolio managers and investment advisors when selecting investments. In certain cases, the Operational Panel of the Responsible Investment Committee can approve overrides to thematic scores and ESG categories, ensuring the correct implementation of the methodology on day-to-day operations.

In some cases, the data coverage from external data providers does not fully cover all attributes that are needed for the methodology. In such cases, industry averages from the external data providers may be applied. Additionally, internal thematic research is used to assess the sustainable transition element of companies associated with sustainability-related themes.

The data that is sourced from external providers is not based on any estimates made by Julius Baer. However, in certain cases if the data quality does not reach a sufficient level, it may be ignored or not considered for certain industries. Information based on internal thematic research is to some extent processed, normalised and estimated. The overall proportion of the estimated data is less than 20% of the entire amount of input data that used to calculate any ESG scores or categories.

While Julius Baer draws on ESG data from external data providers, there are still limitations regarding data coverage. There are certain data points that Julius Baer cannot source due to outstanding regulations or guidelines.

Additionally, the Julius Baer ESG Investment Rating Methodology will be continuously developed to include new regulatory requirements or adjustments to existing regulations, as well as to cover additional instrument types or asset classes. Please find below the link to the Julius Baer ESG Investment Framework brochure, explaining the Julius Baer ESG Investment Rating Methodology in detail.

Planned actions to mitigate limitations include the continuous review of the data quality from external providers to improve coverage and quality through various checks and controls, on a monthly basis when the quantitative model is updated as well as on an ad hoc basis (e.g., ad hoc analysis), the monitoring of the availability of regulatory required data, and increasing coverage with respect to additional instrument types or asset classes.

9. Limitations of the methodology and data

Key limitations to Julius Baer methodologies may include a lack of data coverage and/or quality. Furthermore, key ESG data, such as ratings, is currently not available for all asset classes.

Planned actions to mitigate the limitations include the harmonization of ESG data methodologies and the increase of coverage by continuously developing the Julius Baer ESG Investment Rating Methodology. The Julius Baer sustainability specialists are monitoring any developments in the field of ESG data metrics with the objective to continuously include that additional information into the assessment and monitoring process. Please find below the link to the Julius Baer ESG Investment Framework brochure, explaining the Julius Baer ESG Investment Rating Methodology in detail.

10. Due diligence

With regards to due diligence, Julius Baer has developed a set of ESG categories based on its proprietary ESG Investment Rating Methodology, upon which the investment universe is defined. Please find below the link to the Julius Baer ESG Investment Framework brochure for further details on the ESG categories as well as the Julius Baer ESG Investment Rating Methodology. The Responsible Investment Committee oversees and provides guidance on the applicability of the Julius Baer ESG Investment Rating Methodology and related ESG offering. It actively engages with Julius Baer’s analysts and portfolio managers to limit investment risks without compromising their independence. Companies with low ESG scores and public controversies are discussed in-depth among experts to assess risks. Analysts and portfolio managers are required to consult the Responsible Investment Committee if they disagree with poor ratings supplied by data providers. They must then collect the necessary arguments and convince the Responsible Investment Committee that the ratings should be revised. The Responsible Investment Committee can approve overrides to thematic scores and ESG categories by majority vote. Each year, the Responsible Investment Committee conducts a review of the approved and applied overrides.

11. Engagement policies

Julius Baer believes that it is an integral part of the responsibilities of its analysts and portfolio managers to identify and analyse critical ESG risks that affect the companies in their coverage and to discuss these issues as part of their regular meetings with companies’ management teams.  Proxy voting does not apply for Julius Baer mandates and at this stage, engagement is not promoted as part of the environmental, social characteristics or partial sustainable investments of this mandate. 

12. Designated reference benchmark

No reference benchmark has been designated for the purpose of attaining the environmental or social characteristics, nor the partial sustainable investments promoted by the mandate.

Version Date of Publication Changes made versus the respective previous version
Version 3 06.11.2023 Extensive amendments to the following sections due to
annual review and updated mandate investment
guidelines:
• Summary
• No sustainable investment objective
• Investment strategy
• Proportion of investments
• Methodologies
• Engagement policies
Version 2 01.01.2023 Extensive amendments due to extended regulatory requirements according to Commission Delegated Regulation (EU) 2022/1288 as of 6 April 2022 Art. 23-36
Version 1 10.03.2021 Version 1: Original Version