1. Summary

The Equity Global Excellence Mandate 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 environmental, social and governance (“ESG”) quality. Principal adverse impact metrics are taken into account in the investment decision-making process for the mandate’s partial sustainable investments.

As part of the investment process, companies are mapped and classified according to specific criteria. The filtering criteria, Julius Baer considers are among others, own scores such as the climate score, the natural capital score, the human capital score, the governance and the global norms score.

The mandate invests in equities of leading global companies with a sound balance sheet and a proven operational track record. The focus is on direct investments, but equity funds or money market funds and/or fund-like products may also be used for diversification.

At least 70% of the portfolio has to be invested in equities. A maximum of 30% may be invested in short term investments (money market). For the mandate 70% of the investments must be made in financial instruments in the above-mentioned Julius Baer ESG Investment Rating Methodology categories “Responsible” or “Sustainable” and a minimum of 10% of the investments must be made in financial instruments categorised as “Sustainable”. Consequently, at least 70% of the mandate’s assets are aligned with its environmental and social characteristics and at least 10% of the mandate’s assets are 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.

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, violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises and exposure to controversial weapons.

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.

With regards to data sources, Julius Baer has created a proprietary ESG Investment Rating Methodology, which is managed by an internal team of ESG 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 Julius Baer 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 or social characteristics of this mandate.

2. No sustainable investment objective

Although the mandate does not have as its objective a sustainable investment, a share of at least 10% 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

The mandate makes investments by applying the Julius Baer ESG Investment Rating Methodology. The Julius Baer ESG Investment Rating Methodology is structured at three levels:

1) The first level is to gather unprocessed ESG data from independent data providers, as well as internal thematic research related to investment themes that are linked to sustainable objectives.
2) Then certain thematic ESG scores (explained below) are calculated out of the unprocessed ESG data and internal thematic research.
3) At the final level, four different ESG categories are derived using a combination of the thematic scores and certain indicators (processed ESG data such as ratings) provided directly by ESG data providers.

The four ESG categories derived from the process are “ESG Risk”, “Traditional”, “Responsible” and “Sustainable”. A minimum 70% of the mandate’s investments must always be invested in financial instruments categorised by Julius Baer as “Responsible” or “Sustainable” and a minimum of 10% of mandate’s investment must always be invested in financial instruments categorised as “Sustainable”. The remaining 20-30% can be invested in financial instruments categorised as “Traditional” or in financial instruments that do not have an ESG category assigned by Julius Baer. ESG Risk-categorised financial instruments are in general not permitted, unless the mandate has been granted an exception by one of the governing bodies linked to ESG or general exceptions (e.g., for diversification purposes or reduction of Tracking Error).

The following Julius Baer ESG scores are calculated at the second level of the process:

  • 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 conventional weapon production/sales 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).

In addition, the mandate will in principle not invest directly (as opposed to investments via investment funds) in companies that meet one of the following exclusion criteria:

  • Companies engaged in one or more of the following: Production and/or distribution of Prohibited War Material as defined by the Swiss War Material Act of December 13, 1996 including chemical/biological weapons, cluster munitions, landmines and of weapons, ammunition and armaments containing enriched uranium.
  • Companies which based on Julius Baer’s assessment violate UN Global Compact principles. Such assessment can be of qualitative and/or quantitative nature and based on multiple internal and external data sources and/or internal research and analysis, if available.

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 invests in equities of leading global companies with a sound balance sheet and a proven operational track record. The focus is on direct investments, but equity funds or money market funds and/or fund-like products may also be used for diversification. At least 70% of the portfolio has to be invested in equities. A maximum of 30% may be invested in short term investments (money market). A reduction of the equity quota below 70% is only permitted in special market conditions with the approval of the relevant governing body.

For the mandate 70% of the investments must be invested in financial instruments in the above-mentioned Julius Baer ESG Investment Rating Methodology categories “Responsible” or “Sustainable” and a minimum of 10% of mandate’s investment must always be invested in financial instruments categorised as “Sustainable”. As such, at least 70% of the mandate’s assets are aligned with its environmental and social characteristics and at least 10% are sustainable investments.

#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 Julius Baer’s ESG Methodology on a strategic as well as 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, which includes the below three indicators:
a) scope 1 greenhouse gas emissions
b) scope 2 greenhouse gas emissions
c) total greenhouse gas emissions (sum of scope 1 and 2)

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

Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises:

Share of investments in investee companies that have been involved in violations of the UN Global Compact principles or OECD Guidelines for Multinational Enterprises

Exposure to controversial weapons1:

Share of investments in investee companies involved in the manufacture or selling 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.

Anti-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 our own proprietary research for various instrument types 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 the internal thematic research is to some extent processed, normalised and estimated. 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.

While Julius Baer is sourcing ESG data from external data providers, there are still limitations with regards to 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 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), monitoring the availability of regulatory required data, and increasing coverage with respect to additional instrument types or asset classes.

9. Limitations to methodologies 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 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 or social characteristics of this mandate. 

12. Designated reference benchmark

No reference benchmark has been designated for the purpose of attaining the environmental or social characteristics promoted by the mandate.

Version  Date Changes
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
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
1 10.03.2021 Version 1: Original Version