Sustainable Asia Bond Fund Disclosure Pursuant to the EU Sustainable Finance Disclosure Regulation

Summary

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

 

The Sub-Fund invests at least 85% of its assets in USD-denominated fixed income and fixed income-related securities of companies domiciled in, traded in and/or with substantial business interests in Asia and/or governments and government-related issuers located in Asia. 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 the issuers, as well as if the investment is an ESG bond at the issue level. The exclusions and negative screens help to provide environmental and social safeguards.

 

These investments may contribute to a sustainable objective through their performance in areas such climate change and natural resource use, labor standards and diversity considerations. The Sub-Fund also considers governance factors, such as board composition and business ethics. The Investment Manager and Sub-Investment Manager (collectively referred to as the “Investment Managers”) also evaluate themes at the aggregate product level. These currently include climate change, supporting an aging population, and promoting good governance.

 

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

  • Greenhouse Gas Emissions Intensity,
  • green building standards,
  • 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 Managers will (i) adhere to an exclusion framework; (ii) screen out securities with the lowest ESG rankings; and (iii) select securities that have higher ESG rankings. 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.

 

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 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 ESG risks as a further enhancement to the materiality assessment.

 

In addition to their in-house team, the Investment Manager uses a range of ESG data providers to systematically screen client portfolios for ESG 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. These include: MSCI, Sustainalytics, Bloomberg, S&P Trucost, MSCI Carbon Delta, CDP, and SPOTT together with the investment Managers’ own analysis of raw industry data (such as publicly available ESG reports, assessment reports or case studies).

 

The Investment Managers also take into consideration standards such as the International Capital Market Association (ICMA) Green Bond Principles, ICMA Social Bond Principles and/or the ICMA Sustainability Bond Guidelines, and the principles of financial materiality as outlined by the Sustainability Accounting Standards Board (SASB).

 

The Investment Managers keep 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 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 Manager will also engage to enact positive change in disclosure, management, and performance related to ESG 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 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 Managers' ESG Engagement Policy.

 

 

No Sustainable Investment Objective

 

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

 

However, as a result of its focus on companies and issuers with strong or improving sustainability attributes, the Sub-Fund will invest in sustainable investments. These investments, the proportion of these investments and, as such, the description of how these investments contribute to a sustainable investment objective, will change over time.

 

However, these investments may contribute to a sustainable objective through their performance in areas such climate change and natural resource use, labor 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 Managers will (i) adhere to an exclusion framework; (ii) screen out securities with the lowest ESG rankings; and (iii) select securities that have higher ESG rankings. The exclusion framework and the ESG ratings are explained in detail in the investment policy of the Sub-Fund. The Investment Managers 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 Managers operate a verification process to help avoid any investments that violate the UN Global Compact.

 

 

Environmental and/or social characteristics of the financial product

 

The environmental and social characteristics promoted by the Sub-Fund are explained in full in the Sub-Fund’s investment policy. 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, labor standards and diversity.

 

The sustainability criteria set out in the investment policy of the Sub-Fund are applied to all investments made by the Sub-Fund. The Investment Manager also evaluates themes at the aggregate product level. These currently include climate change, supporting an aging population, and promoting good governance.

 

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

  • Greenhouse Gas Emissions Intensity,
  • green building standards,
  • 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.

 

Please see the Investment Managers' 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 85% of its assets in USD-denominated fixed income and fixed income-related securities of companies domiciled in, traded in and/or with substantial business interests in Asia and/or governments and government-related issuers located in Asia. The Sub-Fund primarily takes direct holdings in investee companies who demonstrate strong or improving sustainability attributes. The fund evaluates both the environmental and social performance of the issuers, as well as if the investment is an ESG bond at the issue level. The exclusions and negative screens help to 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. These investments, the proportion of these investments and, as such, the description of how these investments contribute to a sustainable investment objective, will change over time.

 

However, these investments may contribute to a sustainable objective through their performance in areas such climate change and natural resource use, labor 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 Managers will (i) adhere to an exclusion framework; (ii) screen out securities with the lowest ESG rankings; and (iii) select securities that have higher ESG rankings. The exclusion framework and the ESG ratings 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 environmental or social characteristics promoted by the Sub-Fund.

 

The remaining proportion of the investments of the Sub-Fund are also subject to the sustainability criteria of the Sub-fund but are differentiated from the 85% portion stated above as they may be in an asset class or location which is not the main focus of the Sub-Fund.

 

The Investment Managers operate 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 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 ESG risks as a further enhancement to the materiality assessment.

 

 

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 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 Managers' Sustainable Investing and Sustainable Risk Statement which can be found on the Investment Managers' website at https://www.manulifeim.com/institutional/global/en/sustainability#policies-and-disclosures

 

 

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 ESG 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. These include: MSCI, Sustainalytics, Bloomberg, S&P Trucost, MSCI Carbon Delta, CDP, and SPOTT together with the Investment Managers' own analysis of raw industry data (such as publicly available ESG reports, assessment reports or case studies).

 

The Investment Managers also take into consideration standards such as the International Capital Market Association (ICMA) Green Bond Principles, ICMA Social Bond Principles and/or the ICMA Sustainability Bond Guidelines, and the principles of financial materiality as outlined by the Sustainability Accounting Standards Board (SASB).

 

The Investment Managers regularly review 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 methodologies and data

 

Available ESG and sustainability data has its limitations and continues to evolve. The Investment Manager keeps under review the sources of data they uses 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 their 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 process. The Investment Manager 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 ESG 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 participates 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 an asset manager.

 

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 Manager may consider an escalation. This could include voting their equity proxies in accordance with their 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 their clients.

 

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

 

 

Designated reference benchmark

 

The Sub-Fund uses the JPMorgan ESG Asia Credit Index TR USD Index as a benchmark for performance comparison purposes only and not as a reference benchmark for SFDR purposes.

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