01 02.4 Sustainable investing categories continued Principle 7 Introduction 02 Sustainable investing 02.1 Building our approach to Impact-focused investing in public markets sustainable investing Shaping pathways for a sustainable future Green bonds 02.2 Sustainability research and data and analytics – our strong Investing in optimal solutions to clean water The channelling of capital flows towards projects foundation with measurable environmental benefits and tangible 02.3 Sustainability risk management positive impacts on energy transition marks a 02.4 Sustainable investing categories fundamental milestone in the transformational process The theme of clean water is closely aligned with and affect the final societal value generated by an of a global economy still largely dependent on finite 03 SDG 6 (Clean Water and Sanitation), a central goal investment. Each company involved in desalination resources, to a sustainable and clean-energy society. Active stewardship with a multitude of interactions with other SDGs, activity requires careful evaluation of its processes, In this context, green bonds are an important vehicle to facilitating the preservation and development of exposures and strategic initiatives – which a mobilise capital markets towards this green transition, 04 natural processes as well as enabling sustainable thematic investment approach can incorporate. as their use of proceeds is explicitly dedicated to projects AllianzGI as a sustainable business development and human wellbeing. with environmental benefits. 05 There were significant developments in 2021, as Our strategy relating to green bonds is to participate Appendix companies already had the technology necessary to in this mobilisation of capital markets towards the address water supply and quality issues. This means transition to a low-carbon society, natural capital the catalyst for growth is mainly capital expenditure preservation and adaptation to climate change. and, to a lesser extent, innovation. Water spending By using the green bond market segment, we favour is on the rise as governments and corporates the reallocation of investments through a lower carbon- have started to realise the need for urgent capital intensive economy, which is an important challenge for expenditure. The passing of the US Infrastructure the fight against climate change. Bill, which represents the largest investment in clean Our investment approach considers the structure of the drinking water in US history, is indicative of this bonds to focus on those aligned with the green bond increased recognition. principles defined by the International Capital Markets Our thematic approach to SDG-aligned investing Association (ICMA). The respect of those principles considers the interconnected nature of the goals (use of proceeds, internal process, management of and focuses on optimal solutions at a company- proceeds and reporting) is a prerequisite for a bond to specific level. For example, investing in desalination be considered a green bond. This evaluation is followed technology can support the achievement of targets by the analysis of the projects financed with the green within SDG 6 (Clean Water and Sanitation). In areas bond proceeds. To be eligible, these projects have to where freshwater resources are insufficient, be part of the list defined internally by AllianzGI based desalination may be the only solution that secures on research from the Climate Bonds Initiative (CBI), access to water. However, investors need to evaluate a world-class organisation that provides a science- the viability of the technology in conjunction with based evaluation of the impacts of many different types SDG 13 (Climate Action), which demands building of projects. The last step of our analysis is focused on the resilience to climate change. Rising sea levels may issuer’s approach regarding its transition to a business threaten water supplies derived from desalination. model aligned with the goal of the Paris Agreement. Such factors can have a direct and conflicting influence on decisions around desalination solutions