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Multi-Asset Class Mandate - Sustainability Focus Europe

1. Summary

The Multi-Asset Class Mandate – Sustainability Focus Europe promotes environmental and social characteristics, while also partially investing in sustainable investments according to the Sustainable Finance Disclosure Regulation (SFDR)(EU 2019/2088). It does this by investing in companies with excellent governance practices while focusing on structural changes within economy and society.  A minimal environmental, social and governance (ESG) rating for investee companies and exclusions of controversial economic activities as well as a thematic and best-in class investment approach are applied, to align investments with the environmental and social characteristics promoted.

Furthermore, the Julius Baer Responsible Investment Committee ensures sound product governance of the mandate, conducts due diligence on underlying investments and continuously monitors alignment with environmental and social characteristics.

2. Sustainable investment objective

This financial product invests partially in sustainable investments according to SFDR.

3. Environmental or social characteristics of the financial product

The characteristics promoted by the Multi-Asset Class Mandate – Sustainability Focus Europe consist of investing in companies with excellent governance practices while focusing on structural changes within economy and society.
The underlying thematic approach of the mandate seeks for companies that are innovative market leaders and providing profound solutions for the following topics: Water, Low-Carbon, Optimal Material Usage, Nutrition, Health and Economic Empowerment. We focus on structural changes within the economy and society.

4. Investment strategy

For the Multi-Asset Class Mandate – Sustainability Focus Europe companies involved in weapon manufacturing, nuclear energy, violations against human rights or global norms are excluded from the investable universe. Also excluded are companies with a low ESG rating or those that generate a significant share of their revenue from tobacco production, gambling, alcohol.

Good governance by investee companies is managed, through reducing risk by eliminating companies with poor governance, such as companies that display controversies, unethical behaviour bribery or corruption.

A governance screening methodology is also applied to check for:

  •              Accounting practices
  •              CAPEX and Research & Development
  •              Sustainability related goals for management
  •              Responsible and sustainable remuneration policies

Additionally the Multi-Asset Class Mandate – Sustainability Focus Europe applies the best-in-class filter based on the company environmental, social and governance (ESG) ratings. It selects the approximately top 30% companies related to each sub-sector to become part of the investable universe. As part of this investment strategy, the mandate invests partially in sustainable investments according to the SFDR.

The Multi-Asset Class Mandate – Sustainability Focus Europe invests on a thematic basis, selecting themes that will be important for the future.

The six themes are the following:

  1.  Water
  2.  Low-Carbon
  3.  Efficiency / Optimal Material Usage
  4.  Nutrition
  5.  Health
  6.  Economic Empowerment

5. Proportion of investments

The Multi-Asset Class Mandate – Sustainability Focus Europe allows for direct holdings as well as funds or fund-like products such as ETFs with underlying investments in equities. The asset classes covered are money market/cash, equities and bonds.

Only investee companies that have passed the screening criteria, which consist of exclusions, governance screen, best-in-class filter and thematic approach, are eligible for the investable universe. As such all investments of the mandate are aligned with its environmental and social characteristics, while a minimum proportion of at least 10% of the investments are sustainable investments according to SFDR. The long-term average1 cash allocation of the mandate is 5% of assets. The cash portion is allowed to range from 0-30%.

1 Long-term average cash allocation refers to the two year historic average as per 14.10.2021

6. Monitoring of environmental or social characteristics

The environmental and social characteristics of the Multi-Asset Class Mandate – Sustainability Focus Europe as well as the sustainability indicators, detailed in section 7, are monitored by the Julius Baer Portfolio Construction Team. Additionally, our Investment Controlling and Responsible Investment Committee monitor alignment with the investment strategy on an ongoing basis.

7. Methodologies

Three sustainability indicators are currently used to measure the attainment of the environmental and social characteristics of the mandate: greenhouse gas emissions, water consumption and waste management. The metrics currently used to measure the indicators are the following:

  • Greenhouse gas emissions:
    Tonnes emitted / revenue in million1
  • Water consumption:
    Cubic meters used / revenue in million
  • Waste management:
    Tonnes of waste / revenue in million

Once data becomes available on further indicators by data providers, Julius Baer Group will assess whether to include those indicators in the process to assess the attainment of the environmental and social characteristics. Hence, 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.

1revenue is measured in the reference currency of the mandate

8. Data sources and processing

With regards to data sources, portfolio managers are supplied with both, ESG data provided by MSCI and Julius Baer’s internal instrument categorizations reflecting the sustainable ambition level of an investor.

MSCI ESG data is based on company data, such as annual reports and company websites, and company data originating from more than 2000 independent media sources and specialized databases. This broad range of data and the MSCI ESG ratings methodology allows MSCI to provide a variety of ESG data sets.

Julius Baer’s sustainability specialists have access to both the MSCI ESG data and Julius Baer’s internal sustainable categorization. Due to the long standing business relationship with MSCI, as well as their reputation as a high–quality data provider, only few further data quality measures have been integrated in order to mitigate short-comings in the area of governance data interpretation and to ensure ESG data quality. The aforementioned Julius Baer governance screen and the Responsible Investment screen, which flags instruments according to internal sustainability categories if they meet the respective criteria, have been developed to effectively assess, measure and monitor companies along a set of sustainability related metrics and factors.

9. Limitations to Methodologies and Data

At present, only one external data vendor is providing ESG data for a specified range of direct investment instruments. Although there is no question about the high-quality of the provided data, this limits the coverage for company and instrument data to the universe of one data provider and for those instrument types. Furthermore, key ESG data, such as ratings, is currently not available for derivatives.

Julius Baer has developed an own ESG rating methodology for relevant collective investments in order to increase ESG ratings availability for those instruments. Our sustainability specialists are monitoring any developments in the field of ESG data metrics and indicators with the objective to continuously include that additional information into our assessment and monitoring processes.

Planned actions to mitigate the limitations are the harmonization of ESG data methodologies and the increase of coverage. We assess the extension of existing licenses with respect to instrument type coverage and additional ESG metrics and by selecting further data providers. This process is currently on-going.

10. Due diligence

Due diligence on underlying assets is carried out by the Responsible Investment Committee.
The committee ensures that the investment decisions incorporate the relevant ESG information. 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 committee that the ratings should be revised. The committee can override and upgrade ratings by majority vote. Each year, the committee conducts a review of the best rated companies.

11. Engagement policies

Julius Baer believes that it is an integral part of the responsibilities of its analysts and portfolio managers to identify and analyze 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. As such, Julius Baer focuses on progressively mainstreaming engagement activities as a normal part of its investment process. The need to engage with management teams on specific ESG issues is identified through a bottom-up company-specific process and/or can be the outcome of discussions within the Responsible Investment Committee. Engagement activities primarily focus on sources of ESG risks that could have a material impact on financial performance and on companies’ controversial activities that can negatively impact their reputation. For Julius Baer’s Multi-Asset Class Mandate – Sustainability Focus Europe, the portfolio managers systematically engage with companies on a number of ESG issues as part of their mainstream meeting with management.