01 02.4 Sustainable investing categories continued Principle 7 Introduction 02 Sustainable investing 02.1 B uilding our approach to risks under review. Finally, we analyse shareholder issuers are assessed based on a proprietary emerging- sustainable investing rights and anti-takeover measures. For sovereign-bond markets ESG framework that screens out the bottom 02.2 S ustainability research and issuers, we evaluate the systems used to prevent and 10% of countries on the E, S and G pillars. Looking ahead to 2022 data and analytics – our strong fight corruption, the stability of political structures and foundation government capacity to introduce necessary reforms. Climate Engagement with Outcome (CEWO) 02.3 Sustainability risk management The CEWO approach was first established to engage 02.4 S ustainable investing categories Environment: We assess issuers’ direct and indirect with high-emitting companies with regard to greenhouse We plan to significantly evolve our sustainability- environmental impacts and risks and their approach gas (GHG) emissions (Scopes 1 and 2). It enables us to focused product offering in 2022. Our clients want 03 to environmental responsibility, along with their understand the climate pathway of these companies transparency and tangible ESG results, and we Active stewardship development of environmental solutions. Our analysis and to identify credible yet ambitious climate goals that have developed a new KPI-based approach to of sovereigns assesses measures taken to address the company aims to achieve over a specified timeframe. address this demand. Products following the new 04 a comprehensive range of environmental issues. The approach leverages AllianzGI’s strong stewardship approach will aim to outperform a benchmark AllianzGI as a sustainable business A country’s political and legal framework are key based on sustainability KPIs while meeting elements of our assessment. track record. To date, the CEWO approach encompasses their risk/return objectives by following a fund 05 203 company engagements across 48 portfolios which strategy. The KPI-based approach carries three Appendix Social: We review the extent of issuers’ workplace health amount to EUR 51.9 billion in assets under management. unique characteristics: it is based on high-quality and safety, dialogue with employees and relationships Within the CEWO approach, the top 10 absolute GHG ESG data; KPIs are measurable, monitored and with suppliers. We consider general social policy when emitters per CEWO strategy are identified. Engagement reported on; and the approach is committed to its assessing sovereigns with a focus on topics such as letters are sent to these identified companies, allowing sustainability KPI alpha. This alpha describes the healthcare, education, the role played by women in civil our engagement team to collect insights by means of outperformance of the fund on the selected KPI society and the infrastructure available to provide access a questionnaire before providing details of AllianzGI’s compared to its benchmark. While the approach to basic needs. intention regarding the engagement. Companies that brings many unique advantages, it also carries Business behaviour: We assess the relationships fail to engage prompt a review for required divestment the general characteristics of all our sustainability- between issuers and their supply chains, customers by the respective portfolios at the end of the review cycle. focused products by applying our sustainable and communities along with the impact of their In addition to conducting engagement, CEWO portfolios minimum exclusions, stewardship and ESG risk- products and services on society, and their respect apply the same sustainable minimum exclusions as other screened approach. for market regulations and fair business practices. sustainable strategies. The implementation of the CEWO These criteria do not apply to sovereign-bond issuers. approach does not differ across listed asset classes but The general philosophy and process of applying the would not apply to sovereign bonds – only strategies or SRI BIC approach are identical across listed asset non-corporate bonds holdings. classes globally. Still, a more detailed process may As an active asset manager, AllianzGI constantly differ slightly depending on the asset class at hand, aims to improve and evolve its climate engagement. resulting in different portfolio compositions. Multi-asset Expanding data coverage at both company and products, for example, can be split into two categories: sector levels, coupled with strategic initiatives among sustainable advanced (where more than 70% of assets industry bodies, allows us to better scope, articulate need to be sustainable) and sustainable complete and measure a company’s relative climate profile and (where more than 90% of assets need to be sustainable). where and how we engage on the topic. The highest Equity portfolios use AllianzGI’s proprietary ESG ratings decarbonisation change is to be achieved through the to identify outperformers in each industry with regards highest-emitting companies and sectors, and much of to ESG performance. There is a tailored process for our climate engagement centres on these. certain fixed-income products where sovereign-bond