Content thumbnail Sustainable Investing – Glossary
AI Content Chat (Beta) logo

Sustainable Investing – Glossary

Value. Shared. Sustainable Investing – Glossary

Content 3 Introduction 4 Market terminology 2 1 AllianzGI concepts AllianzGI Sustainable Investing – Glossary 2

Introduction The market for sustainable investments has seen significant growth over the years which in turn has produced a raft of different terminology, acronyms, processes and standards. Investors can find the lack of standardised language confusing, making it difficult to compare sustainable investment products and strategies across asset management houses. Various international organisations and initiatives are trying to tackle this issue, however in the interim it leaves investors wading through the terminology swamp. This glossary is designed to As a pioneer of sustainable investing solutions, we believe it is important to help our clients position themselves for the opportunities of the new era of sustainable investing. provide clarity on our approach by explaining the most common terms and key concepts that we at Allianz Global Investors use within our communications to you. Authors Dennis Baas Adrien Vannier Jonathan Ho Sustainability Specialists at Allianz Global Investors AllianzGI Sustainable Investing – Glossary 3

Market terminology Glossary AllianzGI Sustainable Investing – Glossary 4

Market terminology A Active ownership Active ownership is defined as taking an active role as a shareowner to promote the long-term success of companies in such a way that society and the ultimate providers of capital also prosper. This often includes active share voting and the engagement with companies, regulators and governments. Article 6, 8 or 9 products In the context of SFDR (SFDR: EU Sustainable Finance Disclosure Regulation), each fund has to be self-classified by asset managers into one of three categories: Article 6, 8 or 9. – Article 6 (only) funds do not integrate any kind of sustainability into the investment process (“non-sustainable” products) – Article 8 funds promote environmental or social characteristics (“light green” products) – Article 9 funds have sustainable investment as its objective (“dark green” products) At Allianz Global Investors, our three ESG product categories help provide transparency on the SFDR characteristics of our products: – ESG risk-focused products are classified as Article 6 (only) funds – Sustainability-focused products aim at meeting the requirements of Article 8 – Impact-focused products generally aim at meeting the requirements of Article 9 Consistent with AllianzGI’s commitment to offering clients a high standard of sustainable investment products, our approach to Article 8 goes beyond the minimum regulatory requirements. B Best-in-class/best-in-universe/best-effort investing Best-in-class : this approach aims to select/weight the best issuers in each sector, in theory without excluding any sectors; Best-in-universe : this approach aims to select/weight the best issuers in the initial universe. Unlike the best-in-class approach, certain sectors may be excluded if their contribution to sustainable development is not sufficient relative to issuers in other sectors represented in the initial universe; AllianzGI Sustainable Investing – Glossary 5

Market terminology Best-effort : this approach seeks to include in the portfolio only issuers that have made the greatest sustainable development effort. Issuers that have made the most progress are not necessarily best-in-universe in ESG. C Carbon footprint Carbon footprint is the sum of greenhouse gas emissions, measured in CO 2 equivalents, for a specified entity, eg, a company, the life cycle or partial life cycle of a product, or a service. A lower carbon footprint can be achieved through the use of renewable energy and efficient use of resources. A carbon footprint of zero is said to be carbon neutral which implies either there are no greenhouse gas emissions, or any carbon causing activities are offset by environmental activities to counter tackle carbon emissions, eg, reforestation activities. Carbon intensity The carbon efficiency of the portfolio, determined by measuring the volume of carbon emissions per dollar of sales generated by portfolio companies (tons CO 2 /USD mn owned revenue). When used in other contexts and other industries, the denominator of this fraction may be other factors, eg, for a company in the property sector, tons CO 2 /square meter of property managed. Climate change risks Climate change risks are risks that result as a consequence of climate change. They are typically broken into two risks: – Transition risks: transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. – Physical risks: physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. These risk factors stem from various weather and climate-related hazards, AllianzGI Sustainable Investing – Glossary 6

including extreme precipitation, sea level rise, a warming and drying trend, and extreme temperatures. Physical risks may have financial implications for organisations, such as direct damage to assets and indirect impacts from supply chain disruption. Organisations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organisations’ premises, operations, supply chain, transport needs, and employee safety. Corporate governance Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are managed. Effective corporate governance rules provide comfort that there is adequate oversight by the board on the company’s management and protection of shareholder rights. Corporate social responsibility (CSR) Corporate social responsibility (CSR) describes a corporation’s initiatives to assess and take responsibility for the company’s effects on environmental and social wellbeing. It is also often referred to as corporate citizenship, corporate responsibility or corporate sustainability. Most of the largest publicly-traded companies in developed markets have a dedicated CSR team in place. There is increasing distinguishment of whether CSR activities are philanthropic in nature, or are actual changes and improvements in a corporation’s core business activities. D Development finance Development finance is the use of public sector and/or philanthropic resources to facilitate private sector investment in low- and middle-income countries where the commercial or political risks are perceived to be too high to attract purely private capital, and where the investment is expected to have a positive developmental impact on the host country. Market terminology AllianzGI Sustainable Investing – Glossary 7

Market terminology Blended finance is a form of development finance whereby development or philanthropic capital (eg, guarantees, first loss, loans, equity, grants), is used to attract or leverage private capital into developing countries. Such development or philanthropic capital can be concessionary or non-concessionary in nature depending on the market dislocation it is aimed to fix. Divestment Divestment is the opposite of investment. It implies the process of selling an asset. In the context of sustainable investing it is associated with selling assets that are unethical, in breach with a sustainable investing policy or that do not meet a defined ESG threshold. E Engagement Engagement refers to interactions between an investor and a corporate or policy makers to improve corporate practices and disclosure of information at an industry or market level. The objective of engagement is exercising influence over a company’s practices and performance (not limited to ESG issues). ESG Environmental, Social and (Corporate) Governance (ESG) describes extra-financial factors, issues and criteria that are considered in the investment process and may have a material impact on the financial performance of portfolios. Synonym: extra-financial factors. ESG integration Integration of ESG criteria into traditional investment strategies and products with a focus on material ESG risks and opportunities. AllianzGI Sustainable Investing – Glossary 8

Market terminology E ESG rating or score ESG rating or score is an opinion on the strength of a corporate/sovereign issuer on a specific pillar (Environmental, Social or Governance) or the overall strength. Depending on the research provider’s methodology an ESG rating may express different things. Some providers aim to express a forward-looking opinion on material ESG risks and opportunities. The final rating typically informs portfolio managers about the potential material ESG risks they are exposed to by being invested in the underlying issuer. They can also reflect the level of responsibility of the company towards all its stakeholders (environment, employees, suppliers, clients, shareholders, public authorities). Ethical investing The concept of ethical investment varies between individuals because it is often based on a philosophy or certain moral principle which is underlying the investment strategy. It is often related to negative screening such as exclusion of arms, pornography, tobacco and gambling. G Green bonds Green bonds are bonds where the proceeds finance dedicated projects that have measurable environmental benefits, tackling issues such as: renewable energy, energy efficiency, clean buildings, clean transportation, water and waste management. The Green Bond Principles are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond. AllianzGI Sustainable Investing – Glossary 9

Market terminology I Impact investing Impact investing is an investment strategy that seeks to generate positive, measurable environmental and/or social impact alongside a financial return. Impact investing is defined by the core characteristics below: – Intentionality: intent to contribute to material and measurable social and/or environmental benefit is clearly expressed and the investor identifies outcomes that will be pursued – Evidence-based: impact investing needs to use evidence and data where available to drive intelligent investment design, such that there is increased confidence that the investment would contribute to material social and environmental benefits – Measurement and management: impact measurement and management framework in place to enable assessment of the level of expected impact prior to investment, and to support the measurement, management and reporting of impact goals over the life of the investment J Just transition Just transition ensures processes are in place to ensure that those affected by the transition to a carbon-neutral economy are supported in a way that is fair and inclusive. AllianzGI Sustainable Investing – Glossary 10

Market terminology L Labels Sustainability Labels indicate a product ́s level of sustainability in terms of human, social, economic and environmental aspects. Labeling products as sustainable is an important tool for more sustainable purchasing and investment decisions. Notable labels include: Label Country Key focus Short description Towards Sustainability (Febelfin) Belgium Sustainability - broad Requirements encompass exclusions and minimum performance standards. Most restrictive label in the European market with regards to exclusion criteria. Label ISR France Sustainability - broad Encompasses minimum performance criteria based on sustainability ratings, as well as the outperformance of KPIs in the environmental, social, governance and human rights pillars LuxFlag ESG Label Luxembourg Sustainability - broad Requirements are exclusively based on exclusion criteria Greenfin France Environmental - broad Requirements encompass both exclusion criteria, as well as minimum performance requirements M MiFID II – Sustainability amendment The MiFID II (Markets in Financial Instruments Directive II) EU regulation II is a European Regulation aiming to make European financial markets more efficient and transparent by increasing investor protection. It requires the integration of sustainability factors, risks and preferences into asset managers’ and wealth advisors’ operational requirements when engaging with clients. AllianzGI Sustainable Investing – Glossary 11

MIFID II was amended on 2 August 2021 to include language that defined three sustainability products/preferences as: – Taxonomy-aligned products: a financial instrument for which the client or potential client determines that a minimum proportion shall be invested in environmentally sustainable investments – “Sustainable investments” (as defined under the SFDR ): a financial instrument for which the client or potential client determines that a minimum proportion shall be invested in sustainable investments – Products with sustainability factors as specified by the client: a financial instrument that considers principal adverse impacts on sustainability factors, where qualitative or quantitative elements demonstrating that consideration are determined by the client or potential client N Negative screening Negative screening involves the exclusion of companies or countries from the investment universe on the basis of ESG scores, norms and criteria such as product involvement in controversial activities. It is a form of Sustainable and Responsible Investing (SRI) . Net Zero The term “net zero” derives from a 2013 IPCC report, which discussed the need to eliminate net greenhouse gas (GHG) emissions to stop global warming. The “net” relates to the balance between emissions generated by human activities and those removed either naturally or artificially through carbon-capture technologies. The report paved the way for the Paris Agreement in 2015, with each signatory pledging to meet the targeted equilibrium – “net zero” – by 2050 at the latest. Net Zero Asset Managers initiative The Net Zero Asset Managers initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner. Market terminology AllianzGI Sustainable Investing – Glossary 12

Market terminology Net-zero investing Net-zero investing means implementing a decarbonisation pathway for a portfolio to net zero greenhouse gas emissions by 2050. Net-zero investing approach can include 1. shifting capital from more-carbon-intensive to less-carbon-intensive investments, theoretically influencing companies’ share price, cost of capital and access to capital; 2. engaging with individual issuers directly, whether through shareholder voting or other stewardship activities to spur faster decarbonisation among laggards; and 3. directing investments toward low-carbon technology. Norm-based screening Norm-based screening is a form of negative screening which involves excluding companies (or government-debt) on account of any failure by the issuer to meet internationally accepted ‘norms’ such as the UN Global Compact, Kyoto Protocol, UN Declaration of Human Rights, etc. AllianzGI Sustainable Investing – Glossary 13

P Positive screening Positive screening involves the active inclusion of companies within an investment universe because of the social or environmental benefits of their products and/or processes. It is a form of Sustainable and Responsible Investing (SRI) . Principal adverse impact Impacts of investment decisions that result in negative effects on sustainability factors, eg, environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters (as defined in the SFDR ). Since March 2021, asset managers need to disclose how they take into account Principal Adverse Impacts (PAI) in the investment process. A list of PAI indicators and metrics that are considered to have a negative impact has been defined and includes 14 indicators applicable to corporate issuers, and two applicable to sovereigns and supranationals. At AllianzGI, we have developed measures to consider PAIs in the investment process of our sustainable mutual funds. Proxy voting Proxy voting is where a vote is cast on behalf of a shareholder. By exercising their voting rights during Annual General Meetings (AGMs), investors can push for changes in the conduct and practice of investee companies. Allianz Global Investors’ Proxy Voting policy is available here . Market terminology AllianzGI Sustainable Investing – Glossary 14

S SBTi The Science-Based Targets initiative (SBTi) defines and promotes best practice in science-based target setting. The science-based targets provide a clearly defined pathway for companies and financial institutions to reduce greenhouse gas (GHG) emissions. Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5°C above pre-industrial levels. SDGs The United Nation’s Sustainable Development Goals (SDGs) are 17 goals that were adopted by all United Nations Member States in 2015. The UN SDGs address a range of social needs, including education, health, social protection and job opportunities, while tackling climate change and environmental protection. They serve as a framework to promote prosperity while protecting the planet to achieve a better and more sustainable future for all. Example: SDG 13 is “Climate action”. Allianz Global Investors supports the UN Sustainable Development Goals (SDGs). Market terminology AllianzGI Sustainable Investing – Glossary 15

S SFDR The Sustainable Finance Disclosure Regulation (SFDR) is a European regulation that makes it mandatory for financial companies to communicate extra-financial information on each of their products and to classify them according to the following typology: – Article 6 (only) funds do not integrate any kind of sustainability into the investment process (“non-sustainable” products) – Article 8 funds promote environmental or social characteristics (“light green” products) – Article 9 funds have sustainable investment as its objective (“dark green” products) The SFDR became applicable on 10th March 2021 (Level 1). The SFDR requires a detailed Regulatory Technical Standard (RTS) – Level 2, to be published before market participants have a complete picture of how the legislation is intended to be applied. Level 2 disclosure requirements (which also include Taxonomy -related disclosures) will apply from 1 January 2023. Scopes 1, 2, 3 There are generally three key “scopes” for categorising carbon emissions: Scope 1 : Direct emissions generated on site, for example at company facilities or via company vehicles. Scope 2 : Indirect emissions generated from electricity purchased or used by an organisation Scope 3 : All other emissions that are related to an organisation’s activities, but not under its direct control – for example because they are generated by suppliers, or because they are associated with the use of a company’s products. Social bonds Social bonds are bonds where the proceeds finance projects with positive social outcomes. The Social Bond Principles are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Social Bond market by clarifying the approach for issuance of a Social Bond. SRI Sustainable and responsible investing (SRI), sometimes also referred to as “Socially responsible investing”, typically uses ESG factors to apply negative or positive screens on the investment universe. Market terminology AllianzGI Sustainable Investing – Glossary 16

Market terminology S Stewardship Stewardship is also defined as active ownership. Please see Active ownership for the exact definition. Stewardship code A stewardship code sets out the principles of effective stewardship by investors. It aims to enhance the quality of engagement between investors and companies to help improve long-term risk-adjusted returns to shareholders. Stranded assets Stranded assets are assets which are rendered worthless or are unexpectedly devalued. The devaluation may be caused by a number of issues such as regulatory, economic or market change, technological substitution, price and demand, supply issues or cost structure. In order to limit global warming, a large proportion of existing fossil fuel reserves will be stranded and as such remain in the ground and impaired. Sustainability There is no universally agreed definition on what sustainability means. The most commonly used definition is the one from the Bruntland Report for the World Commission on Environment and Development (1992): “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Sustainability bonds Sustainability bonds are bonds where the proceeds finance a combination of both green and social projects. The Sustainability Bond Guidelines are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Sustainability Bond market by clarifying the approach for issuance of a Sustainability Bond. AllianzGI Sustainable Investing – Glossary 17

Market terminology S Sustainability factors Environmental, social and employee matters, respect for human rights, anti-corruption and anti-bribery matters (as defined in the SFDR ). Sustainability-linked bonds Sustainability-linked bonds are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability/ESG objectives. With this type of bonds, issuers are committing explicitly to future improvements in sustainability outcomes within a predefined timeline. The proceeds of sustainability-linked bonds are intended to be used for general purposes. The Sustainability-linked Bond Principles are voluntary process guidelines that recommend structuring features, disclosure and reporting. Sustainability Report The Sustainability Report (also called CSR or Corporate Citizenship Report) is usually published by an organisation on an annual basis to inform the public about its internal policies, programs and performance in sustainability area. It is also used as a means to internalise and improve an organisation’s commitment to sustainable development in a way that can be demonstrated to both internal and external stakeholders. Allianz Global Investors’ Sustainability Report is available here . Sustainability risks Environmental, social or governance risk factors that, if they occur, could cause an actual or a potential material negative impact on the value of the investment (as defined in the SFDR ). AllianzGI Sustainable Investing – Glossary 18

Market terminology S Sustainable Investing Sustainable Investing (SI) is the broad framework which emphasizes incorporation of ESG factors into investment decisions, to better manage risk and generate sustainable, long-term returns. SI may embrace various investment strategies such as ethical investing, thematic investing, green investing, sustainable and responsible investing, norms-based investing and ESG integration. In general it sets the stage for richer and broader investment principles in addition to financial performance. Synonym: Responsible Investing. Sustainable investment (SFDR definition) The SFDR Article 2(17) definition of sustainable investment is summarised as follows: economic activities that contribute to environmental or social objectives, do no significant harm to any of these objectives, and follow good governance principles. At AllianzGI, we have developed a proprietary method for measuring sustainable investment . T Taxonomy (EU) The taxonomy is a European regulation that builds a common European classification system for environmentally sustainable activities. The taxonomy tries to answer the question: What can be considered an environmentally sustainable activity? The taxonomy defines six environmental objectives: 1. Climate change mitigation, 2. Climate change adaptation, 3. The sustainable use and protection of water and marine resources, AllianzGI Sustainable Investing – Glossary 19

Market terminology 4. The transition to a circular economy, 5. Pollution prevention and control, and 6. The protection and restoration of biodiversity and ecosystems. To qualify as sustainable and align with the Taxonomy, an activity must make a substantial contribution to one of the six environmental objectives, do no significant harm (DNSH) to the other environmental objectives, and comply with minimum safeguards. Besides the European taxonomy, other regions and jurisdictions have also developed or are in the process of developing taxonomies. TCFD The task force on Climate-Related Financial Disclosures (TCFD) was created in 2015 by the Financial Stability Board (FSB) to develop consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. AllianzGI Sustainable Investing – Glossary 20

AllianzGI concepts Glossary AllianzGI Sustainable Investing – Glossary 21

A Article 8 classified funds Consistent with AllianzGI’s commitment to offering clients a high standard of sustainable investment products, our approach to Article 8 goes beyond the minimum regulatory requirements. Strategies we classify as Article 8 will always have two binding elements: our sustainable minimum exclusion policy plus one of our sustainable investment approaches (eg, SRI best-in-class , KPI-based approach , CEWO , Multi Asset and Sustainability Strategy ). C Climate Engagement with Outcome (CEWO) The Climate Engagement with Outcome (CEWO) approach is part of our Sustainability-focused categor y. CEWO: – applies our sustainable minimum exclusions – focuses on engaging with high emitting companies on a decarbonisation pathway with specific milestones. The engagement is scoped by a review of data on a company’s climate profile, credible but ambitious decarbonisation “outcomes” with timetables are identified and engagement is conducted annually to ensure align to these. AllianzGI concepts AllianzGI Sustainable Investing – Glossary 22

E ESG risk assessed All our investment strategies are ESG risk assessed. It means investment teams can monitor ESG risks as part of the investment process, but do not necessarily actively integrate ESG risks and opportunities in their investment decisions. For publicly listed asset classes, we have implemented a tool – our ESG hub – to systematically monitor and assess sustainability risks. It is accessible to all of our portfolio managers and enables them to find reports on the sustainability risk profile of each of their portfolios. The reports include various ESG measures as well as Principal Adverse Impact indicators. For private market asset classes, ESG risks are considered throughout both the investment process and ongoing asset management activities. In many cases, they are also specifically screened along sustainability risks guidelines or using minimum exclusions lists as defined by Allianz’s ESG Risk Framework. ESG risk-focused One of our three product categories. Within this category, we offer products which aim to incorporate material ESG risk considerations into our investment process across asset classes, to seek a better risk/return profile. This category includes our Integrated ESG (IESG) approach . AllianzGI concepts AllianzGI Sustainable Investing – Glossary 23

Exclusions Firm-wide exclusions : AllianzGI has a global exclusion policy that will cover coal and controversial weapons. The global exclusion policy is effective for the Allianz Global Investors Fund (AGIF) sub-funds in early 2022. We also have minimum exclusions for Sustainable strategies . These exclusions apply to our sustainability-focused and impact-focused mutual funds and cover: violators of the United Nations Global Compact, weapons, coal and tobacco. Allianz Global Investors supports the UN Sustainable Development Goals (SDGs). I Impact-focused One of our three product categories. We offer approaches seeking financial returns and measurable sustainable outcomes, in alignment with the SDGs. All products in this category apply minimum exclusions (our sustainable minimum exclusions in the case of public market strategies) and at least one of the following investing approaches: SDG-aligned approach and I mpact Investing . While both approaches have a broadly similar intention, for impact investing the outcomes can be more precisely measured. Allianz Global Investors supports the UN Sustainable Development Goals (SDGs). AllianzGI concepts AllianzGI Sustainable Investing – Glossary 24

Impact investing The Impact Investing approach is part of our Impact-focused categor y. Within our Impact-focused category, what distinguishes the Impact Investing approach from our SDG-aligned approach is that Impact Investing strategies must measure and show evidence of associated positive (net) outcomes – rather than simply relate to a social or environmental theme. We provide an increasingly broad range of impact investments, including green bonds for public markets and a variety of private market investments ranging from renewable infrastructure to development finance . Inclusive capitalism One of the firm’s three sustainability thematic pillars alongside climate change and planetary boundaries . Inclusive capitalism refers to the thematic concept about driving fairness and inclusion regarding access to life essentials, which are core to existence (eg, food, water, energy,...) and livelihood essentials, which are core to human development in our modern world (eg, decent work, education, financial services, digital tools,...). It is highly interlinked with the other two thematic pillars noticeably with the just transition to a net zero world. The objective is to create a more inclusive, fairer and sustainable world at the global, national, business and community levels. Integrated ESG (IESG) The integrated ESG (IESG) approach is part of our ESG risk-focused categor y. The main objectives of our integrated ESG approach are to analyse financially material ESG factors in our investments and develop a forward-looking ESG risk and opportunity assessment that is part of our judgement of the broader investment case. IESG: – applies our firm-wide exclusions – requires investment teams to monitor financially material ESG risks for each portfolio holding: if a (core) portfolio holding exhibits a risky ESG profile, the PM team needs to write a risk-reward trade-off comment before making any further trade – investment teams are expected to engage with poorly rated companies to improve their ESG performance, increase disclosure about ESG metrics or better understand how ESG tail risks could impact the long-term performance of the investment. AllianzGI concepts AllianzGI Sustainable Investing – Glossary 25

K KPI-based approach The Key Performance Indicators-based approach has recently been rolled out with the first KPI being Greenhouse Gas (GHG) intensity. The main advantage of the KPI-based approach is the ability to quantify the sustainability feature of a portfolio and being able to report outcomes on a regular basis. The KPI-based approach allows to choose between two objectives: – To outperform a reference investment universe or benchmark on at least one environmental or social KPI, or – to achieve an ongoing year-on-year improvement on a chosen environmental or social KPI. M Multi Asset Sustainability Strategy Portfolios managed according to our Multi Asset Sustainability Strategy invest in accordance with one of the following investment approaches: – the SRI best-in-class approach, which focuses on issuers with positive environmental and social characteristics – the Climate Engagement with Outcome (CEWO) approach, which aims to engage with companies on the climate transition pathway towards a CO 2 net-zero future – the SDG-aligned approach, which invests in companies with solutions that contribute to positive environmental and societal change in alignment with the UN’s Sustainable Development Goals – or in green bonds financing environmentally friendly projects and having a positive environmental impact AllianzGI concepts AllianzGI Sustainable Investing – Glossary 26

P Planetary boundaries One of the three themes that we focus on, along with climate change and inclusive capitalism. The planetary boundary concept aims to define the environmental limits within which humanity can safely operate (beyond climate change). It covers a variety of environmental limits dealing with biodiversity and resource use (eg, water use, land management). Principal adverse impact (PAI) As a company we consider PAI as part of our Stewardship activities and our commitment to the Net Zero Asset Manager Initiative. We consider PAI in the investment process of our sustainable mutual funds by applying our sustainable minimum exclusion list and a second sustainability feature (depending on the sustainability category of the product, eg, an SRI best-in-class selection). S SDG-aligned The SDG-aligned approach is part of our Impact-focused categor y. AllianzGI concepts AllianzGI Sustainable Investing – Glossary 27

SDG-aligned: – applies our sustainable minimum exclusions – focuses on investing for positive outcomes. We invest in companies that are providing solutions to address the world’s challenges and are helping to meet the environmental and social targets set out in the UN Sustainable Development Goals. SRI best-in-class The SRI best-in-class approach is part of our S ustainability-focused categor y. SRI best-in-class: – applies our sustainable minimum exclusions – aims to build sustainable portfolios from a focused investment universe based on ESG criteria. We take into account financially material and non-material ESG risk-factors as part of our company analysis. We build portfolios with a view on superior ESG quality and apply our sustainable minimum exclusions. At the core of our approach is a proprietary analysis and rating methodology that seeks to identify the best and worst practices within each sector, combining these elements with a qualitative assessment carried out by our in-house Sustainability Research & Stewardship analysts. Sustainability-focused One of our three product categories. Within this product category, we offer investment approaches seeking financial returns and sustainability objectives/values. All products in this category apply our minimum exclusions for sustainable strategies and at least one of the following investing approaches: SRI best-in-class , KPI-based approach and Climate Engagement with Outcome (CEWO) . AllianzGI concepts AllianzGI Sustainable Investing – Glossary 28

AllianzGI concepts Sustainable investment (SFDR) We have developed a proprietary method for measuring sustainable investment (as defined in the SFDR ). For this, we assess the positive contribution of a company to environmental or social objectives (using the SDGs or the EU Taxonomy objectives as reference frameworks). We base this assessment on specific business activities. For the assessment we combine qualitative and quantitative elements using external data providers but also our own research. Moreover, we consider certain types of securities, which have been issued to finance specific projects contributing to environmental or social objectives (for instance Green Bonds). Once we have identified a positive contribution to an environmental or social objective, we assess the investee company in order to avoid overall violations – the so called “do no significant harm test”. For this we use the principal adverse impact indicators (PAI) . Furthermore, we ensure that the company complies with good corporate governance standards. Only when these three criteria are fulfilled, do we count the positive contribution into our sustainable investment share of the fund. This ensures that investors can expect a detailed analysis and a robust methodology. AllianzGI Sustainable Investing – Glossary 29

This glossary is not intended to be a recommendation to invest in any security or strategy. Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Environmental, Social and Governance (ESG) strategies consider factors beyond traditional financial information to select securities or eliminate exposure which could result in relative investment performance deviating from other strategies or broad market benchmarks. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted. This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication’s sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws. This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK). © Allianz Global Investors 2023 | January | ADM 2648425 | PCP For further information please contact the Sustainable Investment Office . Allianz Global Investors