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Global Climate Action Fund disclosure pursuant to the EU Sustainable Finance Disclosure Regulation

Summary

The Sub-Fund has a sustainable investment objective.

The Sub-Fund will invest at least 80% of its net assets in a portfolio of equity and equity-related securities including but not limited to, common stocks and depositary receipts of companies considered to be "Climate Leaders" which are listed on any exchange across the globe (inclusive of the emerging markets) and demonstrate positive contributions to climate change. More information on "Climate Leaders" is provided in the investment strategy disclosed below. The Sub-Fund takes direct holdings in companies who are making positive contributions to climate change. While the Investment Manager and Sub-Investment Manager (collectively referred to as the “Investment Managers”) evaluate the environmental, social and governance performance measures of these companies, greater emphasis is placed on climate-focused characteristics in determining portfolio exposures.

It is intended that these investments will contribute to a sustainable objective through their performance primarily with regards to climate change and natural resource use, but also in areas such as labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics. The Investment Managers also evaluate themes at the aggregate product level. These currently include development of climate solutions and alignment with the Paris Agreement.

The sustainability indicators used by the Investment Managers to measure the attainment of the sustainable investment objective include:

  • Science-Based Targets (SBTs),
  • water intensity,
  • waste intensity.
  • climate solution revenues,
  • carbon intensity,
  • exclusion framework

To ensure that investments within the Sub-Fund do not significantly harm any of the Sub-Fund’s sustainable investment objectives, the Investment Managers will adhere to an exclusion framework where certain companies are removed from the permissible investment universe. This includes limiting or excluding investment in companies, where possible, which are considered by third party data providers to be in violation of the Ten Principles of the United Nations Global Compact or companies with products or within industries that are considered by the Investment Managers to be unsustainable or associated with significant environmental or social risks. The exclusion framework and the climate-related considerations are explained in detail in the investment policy of the Sub-Fund. The Investment Managers also consider principal adverse impacts of sustainability factors in their 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 Managers, as the sustainability criteria described in the investment policy apply to all investments in the Sub-Fund, other than cash and cash equivalents, and derivatives.

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 Managers seek to understand all the relevant factors that could impact the risk and return profile of current and potential investments. The Investment Managers believe that robust sustainability risk integration in investment processes throughout the lifecycle of investments helps the Investment Managers 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 Managers continue 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 Managers’ 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 their in-house team, the Investment Managers use 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 Managers also take 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 Managers keep under review the sources of data used for the implementation of their sustainability policy and will make changes where they consider 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 Managers’ 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 Managers’ business and culture.

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

If in the Investment Managers’ 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 Managers 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 Managers 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 Managers’ ESG Engagement Policy.

Sustainable investment objective

The Sub-Fund has a sustainable investment objective to provide long-term capital growth by investing at least 80% of its net assets in a diversified portfolio of companies making positive contributions to climate change.

It is intended that these investments will contribute to a sustainable objective through their performance primarily with regards to climate change and natural resource use, but also in areas such as labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics. The Investment Managers also evaluate themes at the aggregate product level. These currently include development of climate solutions and alignment with the Paris Agreement.

To ensure that investments within the Sub-Fund do not significantly harm any of the Sub-Fund’s sustainable investment objectives, the Investment Managers will adhere to an exclusion framework where certain companies are removed from the permissible investment universe. This includes limiting or excluding investment in companies, where possible, which are considered by third party data providers to be in violation of the Ten Principles of the United Nations Global Compact or companies with products or within industries that are considered by the Investment Managers to be unsustainable or associated with significant environmental or social risks. The exclusion framework and the climate-related considerations are explained in detail in the investment policy of the Sub-Fund. The Investment Managers also consider 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 Managers operate a verification process to help avoid any investments that violate the UN Global Compact.

Investment strategy for financial products with the objective of sustainable investment

In summary, the Sub-Fund seeks to invest globally in companies who strongly demonstrate particular attributes across areas of climate change mitigation such as: (i) commitment to Science-Based Targets with the Science Based Targets initiative (SBTi); or (ii) lower relative carbon intensity that is within the lowest 35% of their given industry; or (iii) a significant portion of revenues resulting from climate solutions including, but not limited to, renewable energy, energy efficiency or electric vehicles (“Climate Leaders”).

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, and derivatives. The Investment Managers also evaluate themes at the aggregate product level. These currently include development of climate solutions and alignment with the Paris Agreement.

Please see the Investment Managers’ Sustainable Investment and Sustainability Risk Statement for further details on:
(i) how the Investment Managers integrate sustainability into their investment process to ensure that it is applied on a continuous basis; and
(ii) how the Investment Managers assess good governance practices of their investee companies.

Investment Strategy

The investment strategy used to attain the sustainable investment objective of the Sub-Fund is detailed in the investment policy. All elements of that strategy are binding on the Investment Managers 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, and derivatives.

Proportion of investments

As explained in the investment policy of the Sub-Fund, the Sub-Fund will invest at least 80% of its net assets in a portfolio of equity and equity-related securities including but not limited to, common stocks and depositary receipts of companies considered to be "Climate Leaders" which are listed on any exchange across the globe (inclusive of the emerging markets) and demonstrate positive contributions to climate change. The Sub-Fund takes direct holdings in companies who are making positive contributions to climate change. While the Investment Managers evaluate the environmental, social and governance performance measures of these companies, greater emphasis is placed on climate-focused characteristics in determining portfolio exposures.

This is the minimum proportion of the investments of the Sub-Fund used to attain the sustainable investment objective of the Sub-Fund in accordance with the binding elements of the investment strategy.

As a result of its focus on companies considered by the Investment Managers to be "Climate Leaders", the Sub-Fund will invest in sustainable investments.

It is intended that these investments will contribute to a sustainable objective through their performance primarily with regards to climate change and natural resource use, but also in areas such as labour standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics.
To ensure that investments within the Sub-Fund do not significantly harm any of the Sub-Fund’s sustainable investment objectives, the Investment Managers will adhere to an exclusion framework where certain companies are removed from the permissible investment universe. This includes limiting or excluding investment in companies, where possible, which are considered by third party data providers to be in violation of the Ten Principles of the United Nations Global Compact or companies with products or within industries that are considered by the Investment Managers to be unsustainable or associated with significant environmental or social risks. The exclusion framework and the climate-related considerations are explained in detail in the investment policy of the Sub-Fund. The Investment Managers also consider 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 Managers do not use derivatives to attain the sustainable investment objective of the Sub-Fund.

The Sub-Fund may hold the remaining 20% of its net assets in cash and/or cash equivalents and/or equity and equity-related securities of companies that do not satisfy the definition of Climate Leaders but undertake economic activities that contribute to the environmental objective of the Sub-Fund through key resource efficiency requirements which will result in lowering either carbon intensity, water and/or waste intensity.

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

Monitoring of the sustainable investment objective

Sustainable investing is a lens that applies to all stages of the investment process across all asset classes. As responsible investors and stewards of client capital, the Investment Managers seek to understand all the relevant factors that could impact the risk and return profile of current and potential investments. The Investment Managers believe that robust sustainability risk integration in investment processes throughout the lifecycle of investments helps the Investment Managers 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 Managers continue 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 Managers’ 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.

The sustainability indicators used by the Investment Managers to measure the attainment of the sustainable investment objective include:

  • Science-Based Targets (SBTs),
  • water intensity,
  • waste intensity,
  • climate solution revenues,
  • carbon intensity,
  • exclusion framework

Methodologies

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

  • The “Monitoring of the social investment objective” 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 Managers’ Sustainable Investing and Sustainable Risk Statement which can be found on the Investment Managers’ website at https://www.manulifeglobalfund.com/sustainability-policies-and-disclosures.html.

Data sources and processing

In addition to their in-house team, the Investment Managers use 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 Managers also take 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 Managers regularly review the data providers from which they source information, and are in constant dialogue with their 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 Managers keep under review the sources of data they use for the implementation of their sustainability policy and will make changes where they consider 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 Managers’ 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, investment teams assess ESG 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 utilize ESG research, data, and support from the dedicated in-house ESG teams assigned to public and private markets. Investment teams 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 materiality of ESG risks and factors are documented in investment research.

Engagement policies

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

Engagement with investee companies provides an opportunity to gather further information, which feeds into the Investment Managers’ due diligence processes. The Investment Managers will also engage to enact positive change in disclosure, management, and performance related to ESG 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 Managers also participate in collaborative engagements with other firms in the industry. Engaging collaboratively with other investors amplifies the Investment Managers’ impact on the companies, industries, and markets in their collective orbit of influence. For the companies the Investment Managers engage 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 Managers’ fiduciary duty to their clients as asset managers.

If in the Investment Managers’ 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 Managers may consider an escalation. This could include voting equity proxies in accordance with their views, filing or co-filing a shareholder resolution, or divesting.

The Investment Managers may also occasionally engage with regulators where the Investment Managers believe it is appropriate and in the best interests of their clients.

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

Designated reference benchmark

The Sub-Fund uses the MSCI World 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 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 the 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 the 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 Managers expect 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 Managers 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 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 currently 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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