04.3 Risk management 3. Processes for identifying, assessing, and managing associated with not meeting company sustainability climate change. We prioritise them based on the size climate-related risks are integrated into the organisation’s targets, such as corporate emission targets. of our holdings per market or portfolio, and also factor overall risk management Sustainability risk factors that relate to the investment in priorities of our clients. We observe an increasing Risk management along the value chain process are included in portfolio-related risks. The number of requests from clients for engagement, in We consider risk management to be an integral part of general strategy for management of sustainability particular on topics such as climate and energy transition. our business processes throughout the value chain, from risk factors is to follow the management approach This has prompted us to make these topics a priority of client onboarding and portfolio risk management to for the primary underlying risk. our engagement programme in 2021 and beyond. monitoring operational risks. Risks are addressed as part Active stewardship We believe this two-pronged approach will allow us to of an overarching reporting and controlling framework As an active investment manager, we are committed to achieve better balance between ESG risk reductions covering both qualitative and quantitative risks for each driving positive change and believe that constructive in our portfolios and leading clients and companies of our functions along three lines of defence: the first engagement dialogue with investee companies is on an inclusive transition pathway to a sustainable line of defence is where each function is responsible essential. In 2021, we refined our engagement approach future. The approach also improves our ability to set out for designing and implementing adequate controls to rest on two approaches: engagement objectives clearly at the outset. In 2021, we related to its processes. The second line of defence Risk-based approach: our risk-based approach focuses developed a new engagement template to support us provides independent oversight and challenge of the on the material ESG risks that we identify. The focus of day-to-day risk controls and risk-taking by the first line. with this change of approach and improve the efficiency This second line of defence is performed by the Legal engagements is determined by considerations such as of recording engagements. The template was rolled and Compliance function and the Risk Management significant votes against company management at past out via a series of workshops within sustainability and function. The third line of defence provides independent general meetings and sustainability issues that we identify investment teams. assurance across the first and second lines of defence. as below market practice. Engagement activities typically The third line of defence is performed by the Internal relate to an investee company’s strategy, operational or Additionally, our TCFD journey plays an important role Audit function. financial performance, capital management, corporate in our proxy voting activities by establishing clearer governance and ESG risks and impacts. strategy and expectations. Our voting records on In addition to the main risk categories of portfolio risk, climate-related shareholder resolutions, demonstrate operational risk, business risk and reputational risk, Thematic approach: we also lead themed engagement strong support for such resolutions encouraging companies AllianzGI considers sustainability risk as transversal projects. These are either linked to our three strategic to pursue the transition to decarbonisation. risk that may be realised in one or more of the main sustainability themes – climate change, planetary risk categories. Sustainability risk refers to ESG events boundaries and inclusive capitalism – or related to In 2021, a notable change to our guidelines included or conditions which, if they occur, may potentially have governance themes within specific markets or more voting rules on “Say on Climate” resolutions. As this type significant negative impacts on products, profitability broadly. We identify thematic engagement projects of proposal gains traction in some markets, we decided or reputation of AllianzGI. Sustainability risk includes based on topics that we deem to be important for our to update our guidelines to be more transparent and climate change risks for instance and also includes risks portfolio investments, for example energy transition or detailed about our approach. AllianzGI TCFD Report 2021 23