NOVEMBER 2023 Human rights – the weakest link in supply chains? Key takeaways • Worker rights crises in sectors ranging from mining to fashion have highlighted the 昀椀nancial risks of poor human rights practices. • Such controversies, combined with new regulations, are driving greater transparency around human rights throughout supply chains. • Protecting these rights can mitigate 昀椀nancial, legal and reputational risks while also ensuring companies contribute to the UN Sustainable Development Goals (SDGs). • As an investor, we identify worker rights issues and encourage companies to align with important benchmarks such as the UN Guiding Principles on Business and Human Rights. Prompted by a combination of global crises, high- pro昀椀le worker rights violations, and law changes, companies are in the spotlight to ensure workers are protected throughout the supply chain. What are the issues for investors? Nicole Papassavvas Déborah Yomtob Senior Sustainability Senior Stewardship Analyst Analyst ALLIANZGI.COM

HUMAN RIGHTS – THE WEAKEST LINK IN SUPPLY CHAINS? Exhibit 1: Summary of the 30 articles of the Universal Declaration of Human Rights 1 All human beings 2 All are entitled 3 Everyone has the 4 No one shall be 5 No one shall are born free and to their rights and right to life, liberty held in slavery or be subjected to equal in dignity freedoms without and security of servitude torture or and rights discrimination person inhuman cruelty 6 The right to be 7 All are equal 8 The right to be 9 No one shall 10 Everyone is recognised as a before the law, treated fair by be subjected to entitled in full person before entitled to equal the constitution arbitrary arrest, equality in a fair the law protection of the or by the law detention or exile trial and public law hearing 11 Innocent until 12 The right 13 The freedom of 14 The right to seek 15 The right to a proved guilty in to privacy and movement and and enjoy other nationality and a fair, public trial protection against residence countries asylum the freedom to and defence interference from persecution change it 16 When at full 17 The right to own 18 The freedom of 19 The right to 20 The right to age, the right to property and not thought, conscience freedom of opinion freedom of peaceful marriage and to be deprived of and religion and expression assembly and found a family one’s property association 21 The right to 22 The right to 23 The right to 24 The right to rest/ 25 The right to take part in the social security work, equal pay leisure (reasonable social service and government for equal work and work hours/holidays) to a standard of (democracy, voting) social protection with pay living 26 The right to an 27 The right to 28 The rights and 29 Protect rights 30 Any act aimed at education, free to freely join in the freedoms are and freedoms the destruction of elementary and cultural life of the recognised as a duty to the any rights/freedoms fundamental stages community internationally community herein Source: United Nations, 1948 UN Declaration on Human Rights Protecting human rights in the workplace is both an to compliance with speci昀椀c laws. However, the sustained important and complex topic. After World War II, period of globalisation and technical advances of recent commitments to human rights evolved signi昀椀cantly decades has arguably not been mirrored by an equal focus with the United Nations General Assembly adopting on stakeholder protections. The extended scope and reach the Universal Declaration of Human Rights in 1948. A of human rights regulations has been relatively recent, milestone document, it comprises 30 “articles” outlining prompting consumers and corporates to become more the responsibilities of states and companies towards aware of how well aligned (or not) products and services individuals (see Exhibit 1). are with fair rights and conditions for workers. Additionally, there is increased understanding that failure to consider Even earlier, in 1919 after World War I, the International and protect these rights can result in companies facing Labor Organization (ILO) was created which sets minimum reputational, legal and 昀椀nancial risks. standards for decent work covering remuneration, workplace safety and freedom for individual 1 representation among other areas. These standards now Human rights due diligence regulations in the last extend into areas of work related to social media and decade include: arti昀椀cial intelligence, and play a role in emerging issues, 3 eg, mental health concerns for employees whose skills • United Kingdom Modern Slavery Act 2015 4 may be rendered redundant in a just transition.2 The rights • French Duty of Vigilance Law from 2017 • EU guidance on forced labour risks in operations and of workers in global supply chains are also now covered by 5 these ILO standards. supply chains from 2021 • US Tari昀昀 Act of 1930, Section 307, updated version 6 From commitments towards compliance 2023 • German Act on Corporate Due Diligence Obligations 7 in Supply Chains from January 2023 These developments and standards were the start of an evolution from broad commitments around human rights 2

HUMAN RIGHTS – THE WEAKEST LINK IN SUPPLY CHAINS? Exhibit 2: The most prevalent types of allegations against human rights Land rights including forced displacement, 6% Right to security of persons including freedom from torture and cruel, The right to a safe, clean, healthy inhuman or degrating treatment, 5% and sustainable environment, 7% Forced labour, 26% Freedom of association and collective bargaining, 8% Child labour, 9% Discrimination, 15% Working hours, 10% Health and safety, 14% Source: World Benchmarking Alliance 2022-CHRB-Insights-Report_FINAL_23.11.22.pdf (worldbenchmarkingalliance.org), p.26 How should worker rights issues in supply chains be • In addition to exclusions, assessing companies’ human addressed by investors? A speci昀椀c approach is required, rights record is a key element and the next step, led by and we view engagement with corporates as a critical our Sustainability Research team. They 昀椀rst screen for tool given the complexity of this topic. Highlighting these human rights controversies within both a company and its complexities, the World Benchmarking Alliance (WBA) supply chain. reports that over half of alleged human rights controversies • Any issues identi昀椀ed by the team trigger a thorough 8 relate to supply chains rather than companies. The WBA analysis and targeted engagement by our Stewardship also con昀椀rms that benchmarking companies on their team. Following the engagement process, if a company worker rights performance is helping to drive change. is 昀氀agged for poor human rights performance, we Further performance improvements will require senior-level may exclude it from selected investment strategies. responsibility for human rights, with resources and expertise Alternatively, we might use our proxy voting rights to allocated for the day-to-day management of human rights vote against the company’s management at the annual within companies’ operations and supply chains. general meeting. This process is illustrated through one recent high-pro昀椀le example in Exhibit 3. Our structured approach What are the main risks for companies? A poor human Did you know? rights performance can expose them to both 昀椀nancial risks The issue of human rights is captured in the Principal and values-based risks – known as dual-materiality. Adverse Impacts (PAI) for Mandatory Adverse • We consider the risks around human rights in our Sustainability Indicators de昀椀ned by the European Union’s Sustainable Finance Disclosure Regulation 9 sustainable investment strategies. As the 昀椀rst part of through two PAIs relating to the UN Global Compact, the this dual-materiality approach we remove stocks from OECD, and the Guidelines for Multinational Enterprises. our investment universe, in line with our exclusion policy, PAI 10 addresses violations, while PAI 11 focuses on for companies that have severely violated international companies with a lack of processes and compliance standards and/or regulations. This includes, but is mechanisms to monitor compliance with each of these not limited to violations against the Principles of the standards. UN Global Compact, the Organisation for Economic Cooperation and Development (OECD), Guidelines for For more details, please see: Allianz Global Investors Multinational Enterprises, and the UN Guiding Principles Principal Adverse Impact Statement for Business and Human Rights. 3

HUMAN RIGHTS – THE WEAKEST LINK IN SUPPLY CHAINS? Exhibit 3: Escalating human rights issues at Starbucks August 2022 February 2023 March 2023 The Sustainability AllianzGI’s request to AllianzGI announced Research team highlights engage with Starbucks publicly that it intends to serious issues regarding did not resolve these issues. support the shareholder Starbucks’ union rights proposal on worker in the US. rights at Starbucks* Source: Allianz Global Investors, March 2023 *Read more on this engagement case Shaping human rights engagement 3. Prevention, mitigation, and remediation measures: these measures should be clearly identi昀椀ed in the risk Our proprietary framework for engaging with companies assessment. on human rights in supply chains draws from the OECD 4. Performance tracking and monitoring: periodic due diligence guidance for responsible business conduct audits of human rights performance using speci昀椀c key and is based on the 昀椀ve pillars of human rights action that performance indicators. we look for in companies: 5. Communication and reporting: a full disclosure on human rights due diligence including results of audits 1. Human rights policy: a clear commitment regarding the and remediation measures implemented. respect of human rights at the company and across the supply chain, with a clear governance structure. For each of these 昀椀ve pillars, we developed relevant 2. Risk assessment: a detailed and quanti昀椀ed risk questions that all companies should be able to apply (see assessment by country, organisation, activity and examples in Exhibit 4). These ensure a framework that product. enables companies to demonstrate the materiality of human rights in their supply chains. Exhibit 4: Sample questions from our human rights engagement framework Prevention, mitigation & Performance tracking & Communication & remediation measures Monitoring Reporting Human Rights Policy Risk Assessment What does the Has the company Has the company Has the company To what extent is the company say publicly identi昀椀ed and integrated human implemented company transparent about its commitment disclosed its actual rights issues in its risk mandatory audits for regarding its human with respect to human and potential human management? In all new suppliers? rights objectives and rights? rights risks by type and suppliers contracts? outcomes? correspondent risk level? Source: Allianz Global Investors, October 2023 Our engagement is focused on sectors that have a high metrics (eg, severity of human rights incidents, number of impact on the rights of workers, and is guided by the supply chain incidents and controversy 昀氀ags) to identify European Directive on Corporate Sustainability Due which of our investments are 昀氀agged for most extreme Diligence (see Exhibit 5). Using this sector analysis, we map controversies. our holdings across all asset classes to a combination of 4

HUMAN RIGHTS – THE WEAKEST LINK IN SUPPLY CHAINS? Exhibit 5: Sector segmentation of targeted high-impact companies for our engagement campaign on human rights in supply chains Construction Materials & Building Product & Aerospace & Defense, 4 Homebuilding, 4 Metals & Mining, 10 Consumer Durables & Apparel, 2 Electrical Equipment, Machinery & Industrial Conglomerates, 4 Trading Companies & Commercial Services & Supplies, 2 Energy, 12 Retailing & Food retailing, 3 Information Food, Beverage & Tobacco, 8 Technology, 1 The 昀椀gures indicate the number of companies engaged on this topic from each industry sector Source: Allianz Global Investors, October 2023 To ensure speci昀椀c, targeted outcomes of engagements, we other investors on engaging companies across Europe and thoroughly analyse companies’ business practices, compare Asia. The overall objective of the initiative is to advance them with industry best practices, and identify speci昀椀c human rights and positive outcomes for people through questions to be discussed with each company. We request investor stewardship. The following three expectations appropriate disclosures and milestones to help monitor have been set by PRI Advance for companies that are in their progress towards meeting our expectations for the focus for these engagements: expected outcomes of our stewardship work. 1. Full implementation of the UN Guiding Principles – the Besides this deep-dive analysis, our engagement campaign guardrail of corporate conduct on human rights. around human rights has two key drivers: benchmarking 2. Alignment of their political engagement with their and sharing best practices. These are critical to a quality responsibility to respect human rights. dialogue with investee companies. In particular, we use 3.Deepening of progress on the most severe human rights the following tools for engagement: the Corporate Human issues, in their operations and across their value chains. 10 Rights Benchmark – part of the World Benchmarking 11 Alliance – and KnowTheChain which supports companies Looking ahead on the issues and risks of forced labour in their supply chains. In summary, the protection of human rights in supply chains Presenting evidence of best practices can encourage other remains a challenge requiring more focus from corporates companies to take speci昀椀c and similar actions to improve –and investors. This is why we launched an engagement their approach to human rights. One example is a German campaign dedicated to this speci昀椀c issue earlier this year. textile and apparel company that publicly discloses a social Although at an early stage, progress has been steady and audit manual for third-party auditors. The manual clearly we have noted some early trends across 昀椀rms: de昀椀nes the scope of audits, audit coverage policies, and protocols for their conduct. This allows the company to show • An increasing number of Chief Human Rights O昀케cers that audits are conducted in line with its standards. We view appointed by companies. this disclosure as advanced because it challenges industry • Human rights risk assessments becoming standard standards, and we recommend that other companies adopt practice, even if disclosures vary. this practice. • An advanced level of supply chain disclosures by European companies compared to other locations. Together we go further We will share further insights on both this engagement The 昀椀nal element of our approach is collaborative campaign, when it is concluded, and to what extent our engagement. To reinforce our engagement approach engagement framework will continue to evolve. 12 on human rights, in 2022, we joined the PRI Advance stewardship initiative for investors to act on human rights Read more about Allianz Group’s commitment to human and social issues. During this year, we worked jointly with rights: Respecting human rights. 5

HUMAN RIGHTS – THE WEAKEST LINK IN SUPPLY CHAINS? 1 International Labor Organization, The bene昀椀ts of International Labour Standards (ilo.org) 2 UN PRI, 2023, Just transition 3 Modern Slavery Act 2015, (legislation.gov.uk) 4 European Trade Union Institute, The French ‘duty of vigilance’ law 2017 5 European Commission, 2021, New EU guidance helps companies to combat forced labour in supply chains 6 Congressional Research Service (congress.gov) 7 Federal Ministry of Labour and Social A昀昀airs, 2023 CSR - Supply Chain Act (csr-in-deutschland.de) 8 World Benchmarking Alliance, 2022 Corporate Human Rights Benchmark 9 Sustainable investment strategies refers to investment funds issued and managed by Allianz Global Investors categorised as: Multi asset sustainability strategy or SDG-aligned strategy 10 Corporate Human Rights Benchmark https://www.worldbenchmarkingalliance.org/corporate-human-rights-benchmark/ 11 Know the Chain https://knowthechain.org/ 12 PRI Advance https://www.unpri.org/investment-tools/stewardship/advance Investing involves risk. 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