Sustainable Investing at Credit Suisse Asset Management

(Information valid from March 10, 2021)

Foreword

At Credit Suisse Asset Management (“CSAM”), our objective is to become a leader in sustainability in the financial industry. In September 2019, we announced our plan to integrate environmental, social, and governance factors –ESG factors – into the investment process for all traditional asset classes in Switzerland and EMEA. Following this announcement, we have been making tremendous strides in accelerating our sustainable investing agenda and implementing it across our core asset classes. By the end of 2020, we had a sustainable offering of 112 products. On the proxy voting side, we work with our external partner ISS to increase coverage by defining specific regional proxy voting policies. Additionally, we have strengthened our dedicated ESG team to further support our commitment to sustainability.

Going forward, we have pledged to further develop and promote investment products and services that seek to generate financial returns while delivering ESG benefits. We are convinced that this focus on sustainability not only accords with, but also explicitly assists us in our fiduciary duty to preserve and increase the value of client portfolios. But responsibility toward our clients is not the only thing that drives us to pursue sustainability – we, too, must increasingly face the consequences that our financial investments have on our environment and our society.

Credit Suisse Asset Management Sustainable Investing Policy

We at Credit Suisse Asset Management (“CSAM”) holistically engage in sustainable investing. Sustainable investing refers to the process of considering environmental, social and governance information (ESG factors) when making investment decisions. We ensure that our sustainable product offering meets the high standards of our clients and ourselves through dedicated sustainable investment principles and processes governed by the CSAM Sustainability Investing Policy. The Sustainable Investing Policy applies to all portfolios where ESG considerations are embedded in the investment process or where a sustainable objective is defined. A dedicated ESG team within CSAM governs and maintains the Sustainable Investing Policy.

Holistic means that ESG factors are taken into account at various points throughout the investment process. We employ ESG factors when defining the investment universe, extend our traditional research view to cover sustainability considerations, and reflect ESG factors when selecting and defining the exposure to securities as well as when monitoring the resulting portfolio for its sustainability characteristics. We integrate ESG factors into the investment process by guiding investment teams to identify sustainability related opportunities, manage sustainability risks and consider adverse sustainability impacts. We support sustainability initiatives through proxy voting, active participation in AGMs and engagement. ESG factors are incorporated into specific investment decisions and risk management. Finally, we provide detailed ESG reporting to enhance portfolio transparency for our clients.

The CSAM Sustainable Investing Policy is aligned with the Credit Suisse Sustainable Investment Framework.

CSAM and Credit Suisse actively participate in a number of sustainability networks and initiatives.

Summary of the Sustainable Investing Policy

Portfolios following a sustainable investing strategy integrate ESG factors into the investment decision-making process to create a more sustainable portfolio, to improve the expected risk/return profile, or to target specific sustainable investment objectives. Depending on the overall investment strategy and investment universe, the importance of and focus on individual ESG factors varies.

CSAM considers, quantifies and publishes monthly scores of the following ESG factors on the investment portfolio according to the MSCI ESG Key Issue Hierarchy:

1. Environmental (E):

Climate change factor (including different carbon emission data points)
Environmental opportunities factor (including different data points on renewable energy and technology)
Natural capital factor (including clean water and biodiversity data points)
Pollution and waste factor (including waste management and toxic emission data points)

2. Social (S):

Human capital factor (including health and safety data points)
Product liability factor (including product safety and responsible investment data points)
Stakeholder opposition score, social opportunities factor (including access to health care and communications data points)

3. Governance (G):

Corporate governance factor (including ownership, control and remuneration data points)
Corporate behavior factor (including business ethics and tax transparency data points)

For further information on the MSCI ESG Key Issue Hierarchy and the methodology for the calculation of the individual factors, please refer to: https://www.msci.com/our-solutions/esg-investing/esg-ratings.

The published scores of the ESG factors on the portfolio level are calculated by a weighted aggregation of the available scores of the underlying securities. Aggregated scores for environmental (E), social (S), and governance (G) as well as an overall ESG portfolio score are published for each portfolio.

The following sections summarize the key principles of the Sustainable Investing Policy:

Principle 1: Safeguarding the fiduciary duty to clients

We are convinced that the focus on sustainability not only accords with, but also explicitly assists CSAM in its fiduciary duty to act in the best interest of our clients. In our view, considering ESG factors offers clients a means to make better-informed decisions. Complementing our responsibility toward our clients, we are committed to mitigatinge the negative effects and fostering the positive consequences that our financial investments have on our environment and our society.

Principle 2: Application of ESG exclusions

CSAM defines the following three categories of exclusions:

1. Norms-based exclusions:
Categorical exclusion of firms that are not compliant with international treaties on controversial weapons, such as the Convention on Cluster Munitions, the Chemical Weapons Convention, the Biological Weapons Convention, and the Treaty on the Non-Proliferation of Nuclear Weapons.

2. Values-based exclusions

Companies that derive more than 5% of their revenue from conventional weapons and firearms, tobacco production, gambling or adult entertainment are excluded.
In addition, a revenue limit of 20% applies to investments in coal (coal mining and coal-based electricity generation). We reserve the right to lower this threshold over time to reflect the transition toward a low-carbon society.
Furthermore, companies that derive more than 20% of their revenue from tobacco distribution and conventional weapons support systems and services are excluded.

3. Business-conduct exclusions:

Companies found to systematically violate international norms, where the breaches are particularly severe, or where management is not open to implementing the necessary reforms, are put on a watchlist and may be excluded from the firm-wide investment universe. This process is governed by dedicated committees that hold the final list of excluded companies and are responsible for ensuring that the list is communicated in a timely manner to investment teams.
Exclusions are considered a last resort. Preferably, we engage with investee companies with the aim of havinge a greater impact to prevent future breaches. Companies that are able and willing to take action may be subject to a period of prolonged engagement in which Credit Suisse, together with company management, agree on targets and timelines for improvement.

Exclusions are monitored with pre- and post-trade checks.

Values-, norms-, and business-conduct-based exclusions are defined in the Credit Suisse Sustainable Investment Framework. Please note that these exclusions may evolve over time.

CSAM excludes firms that violate norms defined according to the recommendation of SVVK-ASIR from all of its actively and passively managed portfolios of listed equity and fixed income securities. Further exclusions for passively managed portfolios are based on the investment universe of the designated ESG index.

CSAM applies norms-, values-, and business-conduct-based exclusions to actively managed sustainable portfolios of listed equity and fixed income securities. In case of norms-based exclusions, apart from the recommendations of SVVK-ASIR, CSAM applies additional exclusions, setting thresholds on revenues from for example production of delivery platforms and components for controversial and/or nuclear weapons.

All of Thematic Equity funds are subject to a defined investment universe in line with their specific theme.

In addition, the Thematic Equity funds are subject to more stringent exclusions.

Specifically, the CSAM Thematic Equity team applies the following categories of exclusions:

Application of norms-based, values-based and business-conduct exclusions
Application of “hard” exclusions (SVVK-ASIR).
More stringent exclusions and thresholds across sectors (specifically for UN Global Compact violations, coal, conventional and unconventional oil and gas extraction, and electricity generation)

Specifically, this means that the following activities are excluded from Thematic Equity funds:

UN Global Compact violations: Companies whose activities clearly infringe the UN Global Compact are excluded. The ten UN Global Compact principles cover human rights, labor, environment, and anti-corruption. These principles are derived, in part from the Universal Declaration of Human Rights, the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, the United Nations Convention Against Corruption and the Organization for Economic Co-operation and Development’s (OECD) Anti-Bribery Convention.
Country exclusions: We do not finance countries (via government debt or indirectly via state-owned companies) that are subject to international sanctions, or that violate basic principles like those stated in the UN Global Compact.
Illegal and controversial weapons: Manufacturers of controversial weapons such as land mines and cluster bombs, as well as manufacturers of nuclear, biological, and chemical weapons, are excluded.
Conventional weapons and firearms: Companies that derive more than 5% of revenue from manufacturing of conventional weapons or firearms are excluded, as are companies that derive more than 10% of revenue from the production of weapons or tailor-made components
Tobacco products: Companies that derive more than 5% of revenue from manufacturing tobacco products are excluded, as arecompanies that derive more than 5% of revenue from the distribution of tobacco products
Coal extraction: Companies that derive more than 5% of revenue from coal extraction are excluded.
Unconventional oil and gas extraction: Companies that derive more than 5% of revenue from unconventional oil and gas extraction (e.g. oil extraction from tar sands and/or oil and gas extraction through hydraulic fracking of shale and/or from arctic drilling) are excluded. Companies with expansion plans for unconventional oil and gas extraction are also excluded.
Conventional oil and gas extraction: Oil and gas extraction companies that derive less than 40% of their revenue from activities related to natural gas extraction or renewable energy sources are excluded.
Electricity generation: Electricity utilities with a carbon intensity that is not aligned with a below-2-degrees scenario (in 2021 max. gCO₂/kWh of 393, in 2022 max. gCO₂/kWh of 374 ). If no carbon intensity data is available, the following applies: Electricity utilities for which more than 10% of power production is based on coal are excluded, electricity utilities for which more than 30% of power production is based on oil and gas are excluded, and electricity utilities for which more than 30% of power production is based on nuclear sources are excluded. Electricity utility companies with expansion plans that would increase their negative environmental impact or that run contrary to a below-2-degrees scenario are excluded. Electricity generation companies that are constructing additional coal- or nuclear-based power production installations are excluded.
Phase-out of unaligned oil and gas extraction and electricity generation: We finance oil and gas and electricity generation companies that are the best of their peer group selectively and to a limited extent. Our portfolios can consist of no more than 5% of conventional oil and gas and electricity generation companies that are not in line with the above requirements for conventional oil and gas extraction or electricity generation.
Gambling: Companies that derive more than 5% of revenue from gambling are excluded.
Adult entertainment: Companies that derive more than 5% of revenue from adult entertainment are excluded.

Principle 3: Application of ESG integration or investing with a sustainability objective

1. ESG integration
CSAM integrates ESG factors at various steps of the investment process by combining financial information with ESG-related information. The ESG integration technique varies by asset class, investment style, and availability of ESG data and tools. The specific measures on ESG Integration are defined per asset class and explained below.

Equity portfolios integrate ESG factors into the investment process to create a more sustainable portfolio and to increase the expected risk-adjusted returns.

ESG factors are integrated into the investment process as follows:

1. Identify material ESG factors
First, the investment manager identifies the material ESG factors of the investment strategy with the support of materiality frameworks. Materiality frameworks are concepts to identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of companies within an industry. For this portfolio materiality is assessed based on sector and geographical exposure.

Second, the investment manager prioritizes the three material factors most relevant to the subsequent investment decisions based on the portfolio’s current market exposure. The investment manager re assesses the prioritization regularly to account for changes in the materiality framework, portfolio exposure, or market conditions. Subsequently, the material ESG factors may change over time.

2. ESG security analysis
Based on the material ESG factors identified, the investment manager performs security, sector, and regional research across the portfolio’s investment universe. The investment manager makes use of ESG ratings from state- of-the-art service providers and combines them with CSAM’s proprietary analysis and information. This may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends. The outcome of the ESG security analysis on individual securities, combined with the traditional research, permits the investment manager to make ESG-adjusted risk/return assessments. This enables the investment manager to compare securities on an ESG-adjusted basis and to evaluate whether to keep certain securities in the portfolio or to sell them during security selection and portfolio implementation. ESG security analysis is updated periodically .

3. Security selection and portfolio implementation
Based on the material ESG factors identifies and the ESG-adjusted security analysis, the investment manager constructs the portfolio in accordance with the portfolio’s investment process and principles. The ESG-adjusted security analysis in combination with portfolio construction considerations is used to determine the appropriate portfolio weights that reflect the ESG-adjusted risk/return profile of the securities analyzed.

ESG integration steps specific to Thematic Equity portfolios

Our Thematic Equity portfolios include the following funds: CS (Lux) Digital Health Equity Fund, CS (Lux) Robotics Equity Fund, CS (Lux) Edutainment Equity Fund, CS (Lux) Security Equity Fund, CS (Lux) Environmental Impact Equity Fund and CS (Lux) Thematic Opportunities Equity Fund

With their pure-play investment approach the Thematic Equity funds focus on specific, narrowly defined themes. Typically, these themes are linked to sustainable development topics such as improving health, education, security and scientific progress. Therefore, the funds could be linked to a specific primary and several secondary UN Sustainable Development Goals (“UN SDGs”).

The illustrative mapping of our Thematic Equity funds to UN SDGs (subject to change) is portrayed below:

For further details on how our Thematic Equity funds that have sustainable investments as an objective integrate the UN SDGs into their investment process, please refer to the respective prospectus available on FundGateway.

Thematic funds that promote environmental or social characteristics in the investment process integrate ESG factors as follows:

1. Identify material ESG factors
First, the investment manager identifies the material ESG factors of the investment strategy with the support of materiality frameworks. Materiality frameworks are concepts to identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of companies within an industry. For this, portfolio materiality is assessed based on sector and geographical exposure.

Second, the investment manager prioritizes the three material factors most relevant to the subsequent investment decisions based on the portfolio’s current market exposure and the targeted UN SDG. The investment manager re assesses the prioritization regularly to account for changes in the materiality framework, portfolio exposure, or market conditions. Subsequently, the material ESG factors may change over time.

2. ESG security analysis
Based on the material ESG factors, the investment manager performs security, sector, and regional research on ESG factors across the fund’s investment universe. The investment manager makes use of ESG ratings from external service providers and combines them with the investment manager’s proprietary analysis and information. This may include ESG related news, ESG ratings and scores, ESG related controversies and ESG trends. The research process makes use of dedicated ESG questionnaires, with potential follow-up engagements. This additional research is typically carried out in case no public ESG data is available.

The ESG ratings are fully integrated in our portfolio management software Aladdin by BlackRock, with over 100 ESG data points accessible to all users. Additionally, the Thematic Equity investment managers have full access to all ESG-related analysis provided by MSCI (e.g. ESG-related company reports), and the CSAM ESG team is available for further support where needed and for access to other ESG data providers such as RepRisk.

The outcome of the ESG security analysis on individual securities, combined with the traditional research, permits the investment manager to make ESG-adjusted risk/return assessments. Those assessments enable the investment manager to compare securities on an ESG-adjusted basis, particularly with respect to their contribution to the sustainably objective. Our internally shared investment notes contain an ESG analysis section.

3. Security selection and portfolio implementation
Based on the material ESG factors identified and ESG-adjusted security analysis, the investment manager constructs the portfolio in accordance with the portfolio’s investment process, principles, and defined themes. The ESG-adjusted security analysis in combination with portfolio construction considerations is used to determine the appropriate portfolio weights that reflect the ESG-adjusted risk/return profile of the securities analyzed.

4. Portfolio monitoring
The investment manager monitors the ESG factors periodically with the portfolio management system to detect significant changes in the ESG factors of underlying securities, and regularly reassesses the portfolio to evaluate an increase or decrease of positions based on among others things the continued assessment of the ESG factors. For our Thematic Equity funds in particular, all banned issuers are coded into our automated trade compliance systems. This ensures that the investment manager will receive a warning when attempting to trade an excluded stock.

5. Targeted engagement
On top of regular engagement and proxy voting carried out by the ESG team through its active ownership activities, the investment manager may engage with companies individually in the event of ESG-related concerns. Active ownership through company engagement and direct dialogue with the investee company’s management teams is performed with the ultimate goal of improving the ESG ratings of an investment and helping the company improve its understanding of ESG issues as well as the impact of its products or services.

For selected companies, the investment manager sends out a questionnaire to cover specific environmental, social and governance issues. Being part of our individual engagement activities, these efforts are summarized and recorded. Please see a summary of our activities with the Edutainment fund over one year in 2019/2020 below:

The Fixed Income portfolios integrate ESG factors into the investment decision-making process to create a more sustainable portfolio and to improve the expected risk/return profile.

ESG factors are integrated into the investment process as follows:

1. Identify material ESG factors
The investment manager identifies the material ESG factors of the investment strategy with the support of materiality frameworks. Materiality frameworks are concepts to identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of companies within an industry. For this portfolio, materiality is assessed for each issuer individually based on sector and geographical exposure. The investment manager regularly reassesses the materiality framework to account for changes in the portfolio exposure or market conditions. Subsequently, the material ESG factors may change over time.

2. ESG security analysis
Based on the material ESG factors identified, the investment manager performs security, sector, and regional research on ESG factors across the portfolio’s investment universe. The investment manager makes use of ESG ratings from state-of-the-art service providers and combines them with CSAM’s proprietary analysis and information. This may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends. To integrate ESG factors into the security analysis, the investment manager calculates an ESG-adjusted credit view for all issuers in the fixed-income portfolio universe. The ESG-adjusted credit view is based on the traditional issuer-level credit rating combined with an issuer-level ESG rating. The investment manager applies a proprietary methodology to systematically combine the traditional issuer credit rating with the issuer ESG rating in order to derive an ESG-adjusted credit rating. The ESG-adjusted credit rating results in a fundamental view on each issuer and allows the investment manager to compare securities on an ESG-adjusted basis and to evaluate whether to keep certain securities in the portfolio or to sell those during security selection and portfolio implementation. ESG-adjusted credit ratings are updated as soon as an update on the underlying traditional credit rating or ESG rating becomes available.

3. Security selection and portfolio implementation
The ESG-adjusted credit ratings are used by the investment manager in the bottom-up security selection process. Securities whose financial return compensates for the inherent financial- and sustainability-related risks may remain eligible for investing. The position weights are derived from over- or underweighting as well as excluding securities based on the ESG-adjusted credit ratings. In this step, the investment manager combines ESG-adjusted credit ratings with established tools and optimization techniques of traditional investing strategies to optimize the return.

4. Portfolio monitoring
The investment manager monitors the ESG factors daily with the portfolio management system to detect significant changes in the ESG factors of underlying securities and regularly reassesses the portfolio to evaluate an increase or decrease of positions.

The Multi Asset portfolios integrate ESG factors into the investment decision process to create a more sustainable portfolio and to increase the expected risk-adjusted returns.

ESG integration depends on the underlying investment group/asset class. For equity and fixed-income investments, the following approaches are available:

1. Define the material ESG factors framework
The investment manager defines a framework that enables investments to be compared across a blended investment universe. For direct investments, the concept is based on overall ESG scores that take into account the relevant material ESG factors for each industry sector. The material ESG factors may change over time.
Investments in funds are reviewed in a due diligence process and classified into the following groups: Traditional – no ESG coverage, ESG Exclusions, ESG Integrated, ESG Focus, ESG Active Impact.

2. ESG security analysis
For direct investments based on the material ESG factors identified and/or for fund investments based on the fund classification, the investment manager performs research on ESG factors across the portfolio’s investment universe. The investment manager makes use of ESG ratings from state-of-the-art service providers. This may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends.

3. Security selection and portfolio implementation
The ESG-integrated security selection and portfolio construction approach depends on the underlying investment group/market segment and is a combination of blended investments:

Direct investment in equities and fixed income: For equity and fixed-income investments that are invested in an active manner, the portfolio ensures ESG integration by either limiting the eligible investment universe by an ESG index, selecting sustainable securities (green/social/sustainable bonds, for example), or evaluating securities with respect to their ESG factors. For equity and fixed-income investments that pursue a passive direct investment approach, an ESG index is replicated (full replication or optimized sampling) in order to attain the ESG integration characteristics of the index.
Investments in funds: For investments in equity or fixed-income funds, the portfolio aims to have a significant portion of its assets invested in target funds that demonstrate an ESG Integrated, ESG Focus, or ESG Active Impact investment approach.
For other asset classes and for specific investment approaches, ESG factors are included upon availability.

4. Portfolio Monitoring
The investment manager monitors the ESG factors periodically with the portfolio management system to detect significant changes in the ESG factors of underlying securities and regularly reassesses the portfolio to evaluate an increase or decrease of positions.

Due to the nature of their investments, passively managed portfolios replicate an ESG benchmark index as closely as possible. The ESG characteristics of the portfolio and its ESG integration approach are therefore derived from the ESG index that is replicated. The investment manager assesses the ESG methodology of the index and ensures that the selected index meets the minimum requirements of the CSAM Sustainable Investing Policy. The construction methodology of the index defines the ESG integration component used to attain the ESG characteristics. The investment manager – supported by the CSAM ESG team – can integrate additional ESG considerations if a portfolio is constructed using partial replication or deviation from the index is allowed.

ESG considerations are integrated across the real estate value chain, from the planning and development of property construction projects or the acquisition of existing properties to operational management and renovations or demolitions. To ensure the integration of ESG considerations across the investment life cycle, the real estate team applies a three-pronged investment approach:

1. Building certification
The CSAM proprietary methodology and sustainability label, the greenproperty in-house quality seal (www.greenproperty.ch), evaluates the sustainability of real estate investments. Additional market standards and sustainability labels and certificates (e.g. LEED, BREEAM) are used to assess the quality of a property with respect to its sustainability characteristics.

2. Building optimization
The building optimization program aims to reduce CO₂ emissions and to improve the energy efficiency of buildings with selected short- and long-term building optimization measures applied across the real estate life cycle.

3. ESG benchmarking
The annual ESG performance assessment based on the Global Real Estate Sustainability Benchmark (GRESB) provides a comprehensive, independent ESG evaluation for our properties and real estate portfolios. Real estate investment products from Credit Suisse Asset Management are ESG-compliant if they receive at least three out of a maximum of five stars in the annual real estate ESG benchmarking.

2. Investing with a sustainability objective

CSAM implements investment strategies that allocate capital to companies that offer solutions to society’s challenges and pursue a sustainable investment objective. The sustainable investment objective is achieved through a dedicated investment process focusing on investments in themes and sectors whose economic activities address specific ESG challenges. Typically, this means investing in companies or strategies that address one or more of the United Nations Sustainable Development Goals.

For passively managed strategies, this means replicating an index with a sustainable objective.

Principle 4: Application of active ownership

CSAM ensures that investee companies follow good governance practices engaging with companies and by exercising voting rights.

Discover more about active ownership.

Further information can be found in the Active Ownership Report, the engagement policy and the proxy voting dashboard.

Principle 5: Reporting and transparency

Product-level sustainability information is provided monthly through a dedicated ESG section in the monthly Fund Factsheets, which report on the sustainability criteria as illustrated below. Fund Factsheets are available on FundGateway.

The example above illustrates the ESG section of an ESG equity fund. Other asset classes may publish different content.

In addition to the monthly product-level Fund Factsheets, selected Thematic Equity funds publish an impact and engagement report. Please find an example for our Credit Suisse (Lux) Edutainment Fund.

Special topics

Treatment of derivatives and short positions

Derivatives may be used as technical portfolio management tools, for hedging purposes, or as an additional source of return. The use of derivatives must not be at odds with the responsible nature of the ESG strategy of a given product. The types of derivatives permitted are generally governed by the fund prospectus. The underlying assets are evaluated similarly to a direct investment into such assets according to the following rules for single-stock futures and single name credit default swaps (CDS):

Short positions in single stocks, single-stock options, and buying protection in single-name CDS are not allowed in companies that are excluded for norms-based business activity violations according to the Credit Suisse Sustainable Investment Framework.
Short positions in single stocks, single-stock options, and buying protection in single-name CDS are allowed in companies excluded for values-based business activity violation according to the Credit Suisse Sustainable Investment Framework.
Regarding (2) above, curve trades on companies excluded for values-based business activity violations according to the Credit Suisse Sustainable Investment Framework are allowed only if the notional value of the credit short position equals the notional value of the credit long position.

No ESG data coverage limit per product

A maximum of 20% of a sustainable investment portfolio may be invested in securities of entities for which no ESG-related information is available. This applies in particular to asset classes for which ESG factors are insufficiently defined at present or which are not yet covered by external data providers (e.g. hedge funds). We expect this limit to be lowered over time as the availability of ESG investment concepts and ESG research coverage, external or internal, improves. Non-covered parts of a sustainable investment portfolio are shown in the ESG section of the Fund Factsheets.

To ensure that parts of our Thematic Equity funds that are not covered by ESG-related information are fully compliant with the Credit Suisse Sustainable Investment Framework, we may use additional analysis, including additional data providers, our proprietary questionnaires and pre- and post-trade compliance checks.

For an example our questionnaires see the illustration below:

ESG data and research

We use a range of external ESG research providers and rating agencies in combination with our in-house sustainability and financial analysis. Specifically, we derive our external ESG research primarily from MSCI, RepRisk and ISS. Our core ESG data is fully integrated in our portfolio management software Aladdin by BlackRock.

Portfolio monitoring

Credit Suisse Asset Management conducts pre-trade and post-trade compliance checks daily. In the event that certain violations of our exclusion criteria are revealed, we conduct an appropriate escalation process. All violations are archived and CSAM Senior Management is informed monthly with respect to all violations. Data sources for our daily monitoring activities are our portfolio management platform Aladdin by BlackRock (position data) and MSCI ESG (business exposure data) as well as individual third-party sources such as eValueserve.

Regulatory disclosures

Transparency of sustainability risk policies

Pursuant to EU Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (the “SFDR”) Article 3, financial market participants shall publish on their websites information about their policies on the integration of sustainability risks in their investment decision‐making process.

Sustainability risks is defined as an environmental, social, or governance event or condition that, if it occurs, could have a material negative impact on the value of the investment. The materiality of sustainability risks is determined by the likelihood, magnitude, and time horizon of the risk materializing. CSAM believes that the integration of material environmental, social, and governance (ESG) factors in financial analysis and investment decision-making is pivotal and can reduce risks and lead to improved investment outcomes over time. Sustainability-related issues are an integral part of our risk-review process, and we continuously capture these risks and integrate sustainability factors in our investment research, analysis, investment process and risk management.
CSAM has established a Sustainable Investing Policy that defines how ESG factors are integrated into the investment process in order to identify sustainability-related opportunities and to reduce sustainability risks.
Sustainability risks can be understood as a sub-category of traditional risk types (e.g. credit, market, liquidity, operational, and strategy risk) and are identified and managed in the context of risk-management processes. Since sustainability risks differ between asset classes and investment styles, they are defined at the portfolio level. CSAM identifies sustainability risks by considering the sector, industry, and company exposure of the portfolio either in absolute terms or relative to the benchmark. Proprietary analysis may be supported by specific frameworks that define industry-specific ESG factors thet arematerial to a company.

Transparency of adverse sustainability impacts at the entity level

SFDR Article 4, requires financial market participants to publish and maintain on their websites a statement on due diligence policies with respect to principal adverse impacts of investment decisions on sustainability factors.

The legal entities mentioned below in the “Applicability” section consider principal adverse sustainability impacts within the investment decision process.

Furthermore, financial market participants shall include in the information provided

information about their policies on the identification and prioritization of principal adverse sustainability impacts and indicators

Sectors, and companies that are proven to have a detrimental impact on society or the environment are excluded from the investment universe for all portfolios as part of the regular due diligence process. Manufacturers of controversial weapons such as land mines and cluster bombs, as well as manufacturers of nuclear, biological and chemical weapons, are excluded. (norms-based exclusions)
For portfolios that follow a sustainable investment strategy, techniques to identify and prioritize principal adverse sustainability impacts and indicators are described in the CSAM Sustainable Investing Policy, which defines – among other things– clear criteria for excluding of companies that have a detrimental impact on society or the environment. These exclusion criteria are considered by the investment teams during the investment decision-making process and are monitored independently. In addition, CSAM identifies for its portfolios the ESG factors that may have adverse sustainability impacts by conducting proprietary analysis and making use of specific frameworks that define industry-specific ESG factors.

a description of the principal adverse sustainability impacts and of any actions in relation thereto taken or, where relevant, planned

Currently, the extent to which principal adverse sustainability impact indicators as defined by the Regulatory Technical Standards (RTS Level 2) can be taken into consideration in investment decisions by a financial market participant is not yet definitively determined. This is due to the fact that data availability on those indicators is limited and investee companies may not yet be in a position to provide all of the expected relevant ESG information. In their role as financial market participants in accordance with SFDR, the legal entities listed below in the “Applicability” section, put great efforts into considering adverse sustainability impacts in their investment decisions and advisory processes once the final implementation standards are applicable. By June 30, 2022, they will include in the reporting the details of the assessment of principal adverse sustainability impacts for the reference period from June 30, 2021 to December 31, 2021, as well as the engagement policies related to the reduction of impacts during the aforementioned reference period.

brief summaries of engagement policies in accordance with Article 3g of Directive 2007/36/EC, where applicable

In accordance with Article 3g of Directive (EC) 2007/36 of the European Parliament and of the Council (Shareholder Rights Directive II – SRD II), CSAM aims to actively bring about positive change in the companies in which we are invested by adopting active ownership practices. CSAM applies the Credit Suisse Engagement Policy to investments in shares of companies domiciled in the European Economic Area (EEA) and listed on a recognized trading venue in the EEA. For more information, please refer to the Credit Suisse Engagement Policy statement.

At CSAM, we exert influence on companies’ business operations through proxy voting, i.e. the fiduciary exercise of our voting rights at general shareholder meetings, and through active engagement, i.e. maintaining a permanent dialogue with companies and boards on sustainability-related topics. For CSAM and our clients, we believe that active ownership increases the value of the companies in which we invest over the long term, and ultimately improves the risk/return profile of our portfolios. Moreover, by accelerating the transition to a more sustainable economy, active ownership can create tangible benefits for people and the planet.

a reference to their adherence to responsible business conduct codes and internationally recognized standards for due diligence and reporting and, where relevant, the degree of their alignment with the objectives of the Paris Agreement

At CSAM, we have recognized the role we play in addressing environmental, social and governance challenges. We strive to facilitate investment products and services that produce environmental and social benefits in line with the United Nations’ Sustainable Development Goals (SDGs) while seeking to generate financial returns for our clients. CSAM believes that the most effective way to foster sustainable long-term change is through collective action. With this in mind, CSAM supports industry initiatives and engages with stakeholders and policy makers on key sustainability topics by actively participating in a number of sustainability networks and initiatives worldwide.

CSAM and Credit Suisse actively participate in a number of sustainability networks and initiatives.

Transparency of remuneration policies in relation to the integration of sustainability risks

According to SFDR Article 5, financial market participants shall include in their remuneration policies information on how those policies are consistent with the integration of sustainability risks, and shall publish that information on their websites.
Credit Suisse has a Group wide compensation policy that is compliant with the requirements of SFDR.

Transparency of the promotion of environmental or social characteristics and of sustainable investments on websites

According to SFDR Article 10, financial market participants shall publish and maintain on their websites the following information for each financial product which either promotes environmental or social characteristics or has sustainable investments as its objective

a description of the environmental or social characteristics or the sustainable investment objective;

For investment funds following a sustainable investing strategy, this information is available in the ESG section of the fund fact sheet on FundGateway.
For ESG real estate funds, the information is available in section "Sustainability-related disclosures" on FundGateway.

information on the methodologies used to assess, measure and monitor the environmental or social characteristics or the impact of the sustainable investments selected for the financial product, including its data sources, screening criteria for the underlying assets and the relevant sustainability indicators used to measure the environmental or social characteristics or the overall sustainable impact of the financial product;

the information referred to in Articles 8 and 9;

For investment funds following a sustainable investing strategy, this information is available in the ESG section of the fund fact sheet on FundGateway.
For ESG real estate funds the information is available in section "Sustainability-related disclosures" on FundGateway.

the information referred to in Article 11.

This information will be available after January 1, 2022

Review of disclosures

SFDR Article 12 requires financial market participants to ensure that any information published in accordance with Article 3, 5 or 10 is kept up to date. Where a financial market participant amends such information, a clear explanation of such an amendment shall be published on the same website.

The following table explains the amendments on disclosures related to SFDR Articles 3 and 5.

Table of revisions

Date	Article	Explanation of amendments
10.03.2021	All	Disclosures according to SFDR Level 1 requirements

Applicability

The Credit Suisse Asset Management Sustainable Investing Policy applies to the legal entities listed below:

Credit Suisse Asset Management (Switzerland) Ltd.
Credit Suisse Fund Management S.A.
Credit Suisse (Italy) S.p.A. – in respect to Asset Management
Credit Suisse (Hong Kong) Ltd.– in respect to Asset Management
Credit Suisse (Singapore) Ltd. – in respect to Asset Management
Credit Suisse Investment Partners (Switzerland) Ltd.

More information at credit-suisse.com/am/esg.