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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.

Please note that these exclusion criteria may evolve over time.

For all portfolios (actively and passively managed), CSAM applies the exclusion of firms that violate norms and values defined according to the recommendation of SVVK-ASIR. Further exclusions for passively managed portfolios are based on the investment universe of the designated ESG index.

For actively managed portfolios, all exclusion categories are applicable. 

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.

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):

  1. 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.
  2. 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.
  3. 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.
 

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;

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 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.