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Sustainable Asia Equity Fund disclosure pursuant to the EU Sustainable Finance Disclosure Regulation

Summary

The Sub-Fund promotes both environmental and social characteristics and intends to invest partially in sustainable investments.

The Sub-Fund invests at least 80% of its net assets in a portfolio of equity and equity related securities of companies incorporated and/or located, listed on stock markets or with significant business interests in Asia including Australia and New Zealand. The Sub-Fund primarily takes direct holdings in investee companies who demonstrate strong or improving sustainability attributes, across areas such as climate change, natural resource use, labour standards and diversity. The Sub-Fund evaluates both the environmental and social performance of these companies through a process of ESG integration, an exclusion framework, applying ESG rankings and active stewardship. The Sub-Fund will tend to invest more heavily in those with the strongest relative performance. Exclusions and negative screens help provide environmental and social safeguards.

These investments may contribute to a sustainable objective through their performance in areas such as climate change and natural resource use, labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics. The Investment Manager also evaluates themes at the aggregate product level.

The sustainability indicators used by the Investment Manager to measure the attainment of the environmental or social characteristics include:

  • carbon emissions,
  • water consumption, and
  • gender diversity

To ensure that the investments within the Sub-Fund do not significantly harm any of the sustainable investment objectives, the Investment Manager will, using the exclusion framework and ESG rankings: (i) screen out securities in the two lowest ranking categories; (ii) select securities that have strong or improving sustainability attributes; and (iii) construct a portfolio with ESG rankings that are better than the ESG rankings of the investment universe after applying (i) above. The exclusion framework and the ESG ratings are explained in detail in the investment policy of the Sub-Fund. The Investment Manager also considers principal adverse impacts of sustainability factors in its decision making process and will make detailed disclosure of those impacts in compliance with the required timing under SFDR.

All elements of the sustainability strategy are binding on the Investment Manager, as the sustainability criteria described in the investment policy apply to all investments in the Sub-Fund, other than cash and cash equivalents.
Sustainable investing is a lens that applies to all stages of the investment process across all asset classes. As a responsible investor and steward of client capital, the Investment Manager seeks to understand all the relevant factors that could impact the risk and return profile of current and potential investments. The Investment Manager believes that robust sustainability risk integration in investment processes throughout the lifecycle of investments helps the Investment Manager to deliver attractive risk-adjusted returns over the long term.

Once an investment is made, and to ensure that investments continue to meet the Sub-Fund’s sustainability criteria, the Investment Manager continues to monitor all material factors that could impact an investment, including sustainability risks and factors. Relevant risks or concerns are addressed as part of the Investment Manager’s ongoing investment process where relevant. The ESG team may also conduct, on a periodic basis, reviews of individual portfolios, and engage with the investment team about potential sustainability risks as a further enhancement to the materiality assessment.

In addition to its in-house team, the Investment Manager uses a range of ESG data providers to systematically screen client portfolios for sustainability risks, identify priority companies for engagement and to inform company analysis including the provision of ESG rankings, as described in the Sub-Fund’s investment policy.

The Investment Manager also takes into consideration and/or reference a number of industry principles and standards including but not limited to the principles of financial materiality as outlined by the Sustainability Accounting Standards Board (SASB).

The Investment Manager keeps under review the sources of data it uses for the implementation of its sustainability policy and will make changes where it considers this is necessary. In case data gaps pose challenges to making an informed decision and to ensure alignment of the Sub-Fund with its sustainable investing policy, the Investment Manager’s responsible investment specialists, together with the fund analysts and fund managers jointly decide mitigation options. Such options can include a direct dialogue with the company, a dedicated engagement plan or a decision against holding the company.

Responsible stewardship is an integral component of the Investment Manager’s business and culture.

Engagement with investee companies provides an opportunity to gather further information, which feeds into the Investment Manager’s due diligence process. The Investment Manager will also engage to enact positive change in disclosure, management, and performance related to sustainability risks or factors.

If in the Investment Manager’s opinion issues of concern remain unaddressed by a company’s leadership after a process of engagement conducted over a reasonable period of time, then the Investment Manager may consider an escalation. This could include voting its equity proxies in accordance with its views, filing or co-filing a shareholder resolution, or divesting.

The Investment Manager may also occasionally engage with regulators where it believes it is appropriate and in the best interests of its clients.

For additional detail, please see the Investment Manager’s ESG Engagement Policy.

No sustainable investment objective

The Sub-Fund promotes environmental or social characteristics, but does not currently have as its objective sustainable investment as defined by SFDR. The Sub-Fund does intend to invest at least partially in sustainable investments.

However, the sustainable investments invested in are as a result of the Sub-Fund's focus on companies and issuers with strong or improving sustainability attributes, the Sub-Fund will invest in sustainable investments.

However, the sustainable investments may contribute to a sustainable objective through their performance in areas such as climate change and natural resource use, labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics.

To ensure that the investments within the Sub-Fund do not significantly harm any of the sustainable investment objectives, the Investment Manager will, using the exclusion framework and ESG rankings: (i) screen out securities in the two lowest ranking categories; (ii) select securities that have strong or improving sustainability attributes; and (iii) construct a portfolio with ESG rankings that are better than the ESG rankings of the investment universe after applying (i) above. The exclusion framework and the ESG ratings are explained in detail in the investment policy of the Sub-Fund. The Investment Manager also considers principal adverse impacts of sustainability factors in its decision making process and will make detailed disclosure of those impacts in compliance with the required timing under SFDR.

The Investment Manager operates a verification process to help avoid any investments that violate the UN Global Compact.

Environmental and/or social characteristics of the financial product

In summary, the Sub-Fund seeks to invest in issuers who demonstrate strong or improving sustainability attributes across areas such as: climate change, natural resource use, labour standards and diversity. The environmental and social characteristics promoted by the Sub-Fund are explained in full in the Sub-Fund’s investment policy.

The sustainability criteria set out in the investment policy of the Sub-Fund are binding and applied to all investments made by the Sub-Fund on a continuous basis with the exception of cash and cash equivalents. The Investment Manager also evaluates themes at the aggregate product level.

The sustainability indicators used by the Investment Manager to measure the attainment of the environmental or social characteristics include:

  • carbon emissions,
  • water consumption, and
  • gender diversity

Investment Strategy

The investment strategy used to attain the environmental or social characteristics promoted by the Sub-Fund is detailed in the investment policy. All elements of that strategy are binding on the Investment Manager as the sustainability criteria described in the investment policy apply to all investments in the Sub-Fund with the exception of cash and cash equivalents.

Please see the Investment Manager's Sustainable Investment and Sustainability Risk Statement for further details on:

(i) how the Investment Manager integrates sustainability into their investment process to ensure that it is applied on a continuous basis; and

(ii) how the Investment Manager assesses good governance practices of their investee companies.

Proportion of investments

As explained in the investment policy of the Sub-Fund, the Sub-Fund invests at least 80% of its net assets in a portfolio of equity and equity related securities of companies incorporated and/or located, listed on stock markets or with significant business interests in Asia including Australia and New Zealand. The Sub-Fund primarily takes direct holdings in investee companies who demonstrate strong or improving sustainability attributes. The Sub-Fund evaluates both the environmental and social performance of these companies and will tend to invest more heavily in those with the strongest relative performance. In addition, the Investment Manager will employ an exclusion framework and negative screens to help provide environmental and social safeguards.

This is the minimum proportion of the investments of the Sub-Fund used to attain the environmental or social characteristics promoted by the Sub-Fund in accordance with the binding elements of the investment strategy.

As a result of its focus on companies and issuers with strong or improving sustainability attributes, the Sub-Fund will invest in sustainable investments.

However, these investments may contribute to a sustainable objective through their performance in areas such as climate change and natural resource use, labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics.

To ensure that the investments within the Sub-Fund do not significantly harm any of the sustainable investment objective, the Investment Manager will, using the exclusion framework and ESG rankings: (i) screen out securities in the two lowest ranking categories; (ii) select securities that have strong or improving sustainability attributes; and (iii) construct a portfolio with ESG rankings that are better than the ESG rankings of the investment universe after applying (i) above. The exclusion framework and the ESG ratings are explained in detail in the investment policy of the Sub-Fund. The Investment Manager also considers principal adverse impacts of sustainability factors in its decision making process and will make detailed disclosure of those impacts in compliance with the required timing under SFDR.

The Investment Manager does not use derivatives to attain the environmental or social characteristics promoted by the Sub-Fund.

The remaining proportion of the investments of the Sub-Fund, other than cash and cash equivalents are also subject to the sustainability criteria of the Sub-Fund but are differentiated from the 80% portion stated above as they may be in a location which is not the main focus of the Sub-Fund.

The Investment Manager operates a verification process to help avoid any investments that violate the UN Global Compact.

Monitoring of environmental or social characteristics

Sustainable investing is a lens that applies to all stages of the investment process across all asset classes. As a responsible investor and steward of client capital, the Investment Manager seeks to understand all the relevant factors that could impact the risk and return profile of current and potential investments. The Investment Manager believes that robust sustainability risk integration in investment processes throughout the lifecycle of investments helps the Investment Manager to deliver attractive risk-adjusted returns over the long term.

Once an investment is made, and to ensure that investments continue to meet the Sub-Fund’s sustainability criteria, the Investment Manager continues to monitor all material factors that could impact an investment, including sustainability risks and factors. Relevant risks or concerns are addressed as part of the Investment Manager’s ongoing investment process where relevant. The ESG team may also conduct, on a periodic basis, reviews of individual portfolios, and engage with the investment team about potential sustainability risks as a further enhancement to the materiality assessment.

Methodologies

The Investment Manager’s overall investment process includes, at each step, the methodologies by which the Investment Manager measures how successful it is in achieving social or environmental characteristics promoted by the Sub-Fund. This is described in more detail in:

• The “Monitoring of environmental or social characteristics” section above; and
• The “Due diligence” and “Engagement policies” sections below.

Further detailed information on the overall sustainability integration process and methodologies is set out in the Investment Manager’s Sustainable Investing and Sustainable Risk Statement which can be found on the Investment Manager’s website at https://www.manulifeglobalfund.com/sustainability-policies-and-disclosures.html.

Data sources and processing

In addition to its in-house team, the Investment Manager uses a range of ESG data providers to systematically screen client portfolios for sustainability risks, identify priority companies for engagement and to inform company analysis including the provision of ESG rankings, as described in the Sub-Fund’s investment policy.

The Investment Manager also takes into consideration and/or reference a number of industry principles and standards including but not limited to the principles of financial materiality as outlined by the Sustainability Accounting Standards Board (SASB).

The Investment Manager regularly reviews the data providers from which it sources information, and is in constant dialogue with its investee companies to improve transparency, disclosure, and data provision.

Responsible investment specialists and fund managers have either access to data platforms of the named providers, or to internal data tools and platforms which aggregate the data of selected external providers. The analysts incorporate the information in their research and analysis.

Limitations to methodology of data

Available ESG and sustainability data has its limitations and continues to evolve. The Investment Manager keeps under review the sources of data it uses for the implementation of its sustainability policy and will make changes where it considers this is necessary. In case data gaps pose challenges to making an informed decision and to ensure alignment of the Sub-Fund with its sustainable investing policy, the Investment Manager’s responsible investment specialists, together with the fund analysts and fund managers jointly decide mitigation options. Such options can include a direct dialogue with the company, a dedicated engagement plan or a decision against holding the company.

Due diligence

As part of the due diligence process, the investment team assess sustainability risks and factors material to an investment, and incorporate these issues into fundamental analysis, which then may influence their valuations, portfolio construction decisions, and transaction underwriting, where relevant. To inform their assessment framework, teams may utilise ESG research, data, and support from the dedicated in-house ESG teams assigned to public and private markets. The investment team may also consider the responses of investee company management teams to inquiries focused on their ability and willingness to manage ESG issues. Conclusions about the sustainability risks and factors are documented in investment research.

Engagement policies

Responsible stewardship is an integral component of the Investment Manager’s business and culture.

Engagement with investee companies provides an opportunity to gather further information, which feeds into the Investment Manager’s due diligence process. The Investment Manager will also engage to enact positive change in disclosure, management, and performance related to sustainability risks or factors.

The Sub-Fund’s investment team will meet with company management as part of their fundamental research process. These meetings provide analysts and portfolio managers with insights into management quality, business drivers, and the strategies of the companies in which they invest. In addition, these meetings allow the investment team to assess companies’ risk, including exposure to sustainability factors and the companies’ management of that exposure to protect shareholder value. Where appropriate, specialist ESG analysts may also participate in company meetings alongside Manulife investment analysts and portfolio managers.

The Investment Manager also participates in collaborative engagements with other firms in the industry. Engaging collaboratively with other investors amplifies the Investment Manager’s impact on the companies, industries, and markets in their collective orbit of influence. For the companies the Investment Manager engages with, collaborative efforts reduce the noise of numerous points of view, helping focus on goal setting and real outcomes. Collaboration is always in alignment with the Investment Manager’s fiduciary duty to its clients as an asset manager.

If in the Investment Manager’s opinion issues of concern remain unaddressed by a company’s leadership after a process of engagement conducted over a reasonable period of time, then the Investment Manager may consider an escalation. This could include voting its equity proxies in accordance with its views, filing or co-filing a shareholder resolution, or divesting.

The Investment Manager may also occasionally engage with regulators where the Investment Manager believes it is appropriate and in the best interests of its clients.

For additional detail, please see the Investment Manager’s ESG Engagement Policy.

Designated reference benchmark

The Sub-Fund uses the MSCI AC Asia ex Japan NR USD Index as a benchmark for performance comparison purposes only and not as a reference benchmark for SFDR purposes.

EU Taxonomy Disclosure

The Sub-Fund invests at least partially in sustainable investments as defined by Article 2(17) of SFDR. Of these sustainable investments, it is expected that a proportion will be aligned with the EU Taxonomy (as defined below). This means that those investments take into account the EU criteria for environmentally sustainable economic activities and contribute to either the climate adaptation and/or climate mitigation objectives set out in Article 9 of Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (the “EU Taxonomy”).

The “do no significant harm” principle set out in SFDR will apply only to those investments underlying the Sub-Fund that are aligned with the EU Taxonomy. The investments underlying the remainder of the Sub-Fund do not take into account the EU criteria for environmentally sustainable economic activities.
As at the date of this disclosure, the SFDR Level 2 disclosure rules prescribing the EU Taxonomy aligned information to be provided to investors, including the methodology for calculating the proportion of investments which are EU Taxonomy aligned, have not yet been adopted by the European Commission.

When all relevant regulations are in force, the Investment Manager expects to be able to disclose that the Sub-Fund does have some EU Taxonomy alignment. However, as at the date of this disclosure, the Investment Manager cannot provide sufficiently accurate data to state that the investments are EU Taxonomy aligned.

In addition, accurate data to allow for EU Taxonomy alignment information to be provided to investors is dependent on the disclosure of such data by the companies in which we are invested, also in accordance with the EU Taxonomy. It is likely that such data will only be available from 1 January 2023.

Further details of the Sub-Fund’s investment in environmentally sustainable economic activities will be disclosed in line with the timing requirements of the SFDR Level 2 disclosure rules which are expected to come into force on 1 January 2023.

While the disclosure requirements under SFDR and the EU Taxonomy remain uncertain, these do not impact the way in which the Sub-Fund is managed. The Sub-Fund continues to comply with the sustainability criteria set out in the investment policy and the “Environmental and/or Social Characteristics” section of the Sub-Fund as stated in the Prospectus of Manulife Global Fund.
 

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