Committed to people and the planet

Without Sustainable Investment Objective

The aforementioned financial products promote environmental or social characteristics, but do not have sustainable investment as their objective. Likewise, they do not establish a minimum percentage of investments to be allocated to sustainable investments, nor do they assess the weight of such investments in the portfolio, notwithstanding that a portion of the portfolio may habitually be invested in instruments considered sustainable (which is expected, although not formally quantified). In line with the group-wide policy, these vehicles do not take into account the Principal Adverse Impacts (PAIs) in their investment decision-making process, pursuant to Article 4 of the SFDR.

Additionally, as part of the investment selection process, an assessment will be conducted to verify whether the companies considered for investment comply with the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights, including the principles and rights set forth in the eight fundamental conventions referenced in the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work, as well as the International Bill of Human Rights.

Environmental or Social Characteristics

The funds will primarily invest in companies that demonstrate sound sustainability management, assessed through their ESG performance using various indicators. In addition to meeting exclusion criteria based on country of origin or the nature of their business, these companies must also exhibit, to a significant extent, minimum alignment with certain Sustainable Development Goals (SDGs) established by the United Nations General Assembly in 2015. Their contribution will be evaluated in aggregate terms, primarily through the Revenue Alignment metric or a comparable approach that enables a detailed analysis at both company level and portfolio level.

Among the environmental and social characteristics promoted by these products are the elimination of discrimination against women and girls, the recognition of unpaid care and domestic work, the promotion of shared responsibility within the household, ensuring full participation of women in leadership and decision-making processes, and supporting the strengthening of resilience and adaptive capacity to climate-related disasters, among others.

Investment Strategy

The vehicles apply both financial and extra-financial criteria aligned with their sustainability philosophy. Investments must predominantly comply with the fund’s sustainability framework specifically, at least 51% of the portfolio positions must meet such criteria, provided reliable data is available. Cash holdings and assets lacking reliable information are excluded from this percentage and considered neutral. The following criteria are applied within the investment decision-making process:

1. Exclusion Criteria:

As a first fundamental filter, the investment universe excludes any country (as well as companies domiciled therein) subject to sanctions for non-compliance with international regulations (such as EU Sanctions or the United Nations Security Council Consolidated List), or listed by the Financial Action Task Force (FATF) as high-risk jurisdictions with serious deficiencies in anti-money laundering or counter-terrorist financing controls.

Secondly, exclusions are applied to corporate issuers based on revenue thresholds and business activities. As a general rule, issuers will be excluded if more than 20% of their revenue is derived (individually, not cumulatively) from the following sectors:

• - Coal based power generation
  - Thermal coal mining
  – Oil or Gas exploration in the Arctic Ocean
  – Tobacco production
  
• These exclusions have been revised in light of their environmental and social impact, as they are considered to produce significant negative externalities in conflict with the fund’s sustainability objectives. Nevertheless, the exclusion list may be updated in accordance with changes in the regulatory landscape or following a review by the Sustainability Committee.

2. Valuation criteria:

As a valuation methodology, through consultation of publicly available websites of specialized organizations, or based on information from United Nations-affiliated bodies, publicly available information on the company’s or the regulator’s website, or primarily through third-party applications (sustainability-focused data providers), issuers will be assessed on how they align with certain Sustainable Development Goals (SDGs) established in 2015 by the UN General Assembly—preferably using the Revenue Alignment criterion as the primary tool to assess whether and to what extent the companies in the portfolio actively contribute to achieving those goals. Equivalent criteria may also be used when they allow for drawing consistent conclusions. The evaluation of compliance with the sustainability criteria will be conducted on the overall composition of the portfolio, without conducting a prior ESG analysis for each new investment, provided that at least the basic exclusion criteria are met. The portfolio will therefore be considered aligned with the fund’s sustainability philosophy—and thus in compliance with the established sustainability criteria—if it maintains an overall net positive alignment with at least two Sustainable Development Goals (SDGs). SDG 5 (Gender Equality) and SDG 13 (Climate Action) will be prioritized, without prejudice to the consideration of other SDGs depending on the portfolio composition.

Similarly, the issuer’s country of origin will be taken into account as an assessment factor for those investments where further data cannot be obtained (a methodology that will be applied by default to sovereign debt), considering the differences between regulatory frameworks regarding sustainability oversight. For this purpose, reference will be made to the country-level compliance statistics with the Sustainable Development Goals, as reported in the Sustainable Development Report by the SDG Transformation Center, published by Dublin University Press (formerly the SDG Index & Dashboards Sustainable Development Report published by the University of Cambridge), available at https://dashboards.sdgindex.org/rankings. This report offers complementary information to official SDG indicators and encourages investment in jurisdictions that achieve a minimum score of 60 out of 100 in their compliance with the 17 SDGs, while avoiding those that fall below this level. Accordingly, investments in official entities (including municipal or regional bodies) from such jurisdictions will be considered aligned, as will investments in unrated national companies that are nonetheless subject to national regulation. For supranational issuers, which in principle would not be assessable in this context, and where issuer-specific information is not available, Luxembourg’s score may be used as a proxy, given its role as the reference issuing country for the majority of supranational debt globally. Compliance with the SDG-by-country criterion will be reviewed at least annually. If a jurisdiction’s score drops below the 60-point threshold, its continued eligibility will be evaluated and corrective measures will be adopted, which may include full divestment.

For the purpose of calculating the 51% compliance with the valuation criteria for individual positions, any position will be considered aligned if it meets at least one of the following criteria: either it presents a net positive alignment with at least two Sustainable Development Goals (SDGs), according to the Revenue Alignment methodology or an equivalent approach; or, if it shows a neutral or zero net alignment and no misalignment whatsoever, it originates from a country with a score above 60 points in the aforementioned SDG Index, in which case it is deemed subject to sufficiently stringent sustainability standards. Consequently, any position showing a non-zero misalignment with any of the SDGs analyzed will be excluded from being considered aligned.

As part of the policy update aimed at integrating and aligning the policies of the various funds with the one established at the group level, the fund will cease to consider Principal Adverse Impacts (PAIs) in investment decision-making, in accordance with Article 4 of the SFDR, since its sustainability methodology is based on the application of specific exclusion and valuation criteria that ensure ESG alignment of the portfolio. Likewise, the fund will maintain its decision not to pursue investments aligned with the EU Taxonomy, as its ESG approach is based on the integration of ESG factors into investment selection and management, rather than on the criteria of substantial contribution to environmental objectives as defined under Regulation 2020/852.

This methodology will be applied in the same way to both fixed income and equity funds and, similarly, to investments in investment funds. For the latter, look-throughs conducted via external data providers will be used to assess their alignment with the aforementioned SDGs. However, funds classified under Articles 8 and 9 will be considered aligned by default with the sustainability philosophy, without requiring further evaluation, and will count toward the minimum 51% of investments that promote environmental or social characteristics, as these funds will already have been assessed in accordance with the applicable regulatory criteria under SFDR. For private equity, direct lending, or similar funds where publicly available information cannot be used or where it is not feasible to obtain it through external providers, specific questionnaires may be implemented to assess which companies do or do not comply with our sustainability philosophy, in order to evaluate the ESG alignment and associated risks of such funds. For assets without available ESG data, alternative criteria may be applied, such as peer comparisons or inferring compliance based on the country of origin, assuming the asset is subject to its basic sustainability regulations.

Although at least 51% of the fund’s investments must promote environmental or social characteristics, in practice this percentage is expected to be significantly higher, given that the vast majority of the assets in the portfolio already meet high ESG standards established by their countries of issuance. Additionally, the fund’s investments are typically made in large-cap, well-established companies that are subject to very strict regulations and face significant reputational risks. If at any point the portfolio approaches the 51% ESG alignment threshold, the necessary adjustments would be proposed to remain within the compliance margin defined by the established sustainability criteria.

Although the remaining 49% is not required to comply with these criteria, the overall composition of the portfolio will be continuously reviewed in order to detect potential exposures to highly controversial sectors or issuers, which would be reported to the sustainability committee. The fund will also periodically monitor the ESG risks of the portfolio, seeking to avoid significant exposures to sectors or activities that could pose a material sustainability risk to the portfolio.

Proportion of Investments

The aforementioned procedures will generally apply to all fund positions, provided that data is available. In many cases, such data will not be available, as is often the case for derivative instruments (mainly used for hedging), cash positions, or short-term instruments such as commercial paper, for which it is not possible to obtain a reliable assessment using this methodology due to the lack of data depth compared to larger or publicly listed companies. Since many of these instruments cannot be assessed from an ESG perspective, they will be excluded from the calculation of the 51% minimum threshold, which will apply only to assets for which data is available.



In any case, at least 51% of the fund’s assets must be invested in assets that meet the aforementioned exclusion and valuation criteria. There will be no predetermined allocation target for each of the SDGs assessed under the valuation criteria. The percentage of exclusion and valuation criteria that complies with the sustainability philosophy may not necessarily coincide. The remaining 49% of the fund’s assets will include investments that are not aligned with environmental or social characteristics nor classified as sustainable, consisting mainly of investments in derivatives for the purpose of risk hedging or financial return maximization, as well as the fund’s own liquidity.



The minimum percentage of the funds’ investments in transitional and enabling activities is not determined and is therefore 0%. The minimum proportion of sustainable investments with an environmental objective not aligned with the EU Taxonomy will also be 0% of the fund’s assets, as no such target has been established. Similarly, the minimum proportion of socially sustainable investments will also be 0%.

Monitoring of Characteristics

The environmental and social characteristics of the funds will be integrated into the investment process, initially through the application of basic exclusions and subsequently through the aggregate-level analysis of alignment with the SDGs. Once a company is deemed eligible for investment and the acquisition is executed, its performance will be monitored at the aggregate portfolio level. Periodically, and at least annually, the fund’s progress in terms of sustainability will be reviewed by the Sustainability Committee.

To monitor the evolution of investments in terms of sustainability, continuous analysis will be carried out on the aggregate performance of the portfolios in relation to revenue alignment (or an equivalent criterion) with respect to the aforementioned SDGs, aiming to ensure that the portfolios remain aligned with these objectives over time. If at any point the aggregate alignment of the portfolios approaches levels that could breach the promoted sustainability philosophy, or fall below the threshold of positions complying with the exclusion or valuation criteria, this situation will be reported to the decision-making bodies so that appropriate measures can be taken, with the objective of maintaining ongoing compliance with the sustainability standards promoted by the funds. Periodic portfolio alignment controls will be carried out as necessary to quickly detect any risk of misalignment.

Methods

To assess compliance with the environmental or social characteristics, the exclusion criteria filter will be applied first. Subsequently, and on a periodic basis, an analysis will be conducted on the evolution of portfolio alignment with the pursued Sustainable Development Goals at an aggregate level, thereby monitoring the overall progress in fulfilling the promoted environmental or social characteristics. This strategy will be continuously implemented throughout the investment process of vehicles aligned with environmental or social characteristics. At least annually, any potential changes in the territorial assessment of positions will also be reviewed, with the aim of maintaining portfolio holdings or proposing divestment when a jurisdiction is deemed to no longer align with the funds’ sustainability philosophy. The continued holding or divestment of positions will also be assessed in cases where it is interpreted that they may have undergone substantial changes in this regard or may do so due to extraordinary events (for example, certain corporate actions).

The Sustainability Committee will be responsible for ensuring that the assets in which the funds invest predominantly adhere to their sustainability philosophy.

Sources and data processing

The data sources that may be used to achieve the promoted characteristics may primarily include the following:

• United Nations Security Council Consolidated List (https://www.un.org/securitycouncil/sanctions/information).
• List GAFI (https://www.tesoro.es/sites/default/files/publicaciones/Lista%20GAFI%20Jurisdicciones%20de%20riesgo%20y%20monitoreadas.%20Octubre%202024.pdf).
• UE Sanctions List (https://www.sanctionsmap.eu/#/main?search=%7B%22value%22:%22%22,%22searchType%22:%7B%7D%7D).
• Bloomberg
• Moody's
• Clarity
• UN Global Compact (https://www.unglobalcompact.org/what-is-gc/participants) (ODS).
• Cambridge/Dublin Universities (https://dashboards.sdgindex.org/rankings) (ODS by country).
• Sustainability reports and annual reports of the different issuers.

All the sources used have been duly analyzed and are considered globally recognized, maintaining an appropriate quality for this purpose.

Limitations of Methods and Data

The main limitation we encounter, both in the methodologies and the data sources themselves, is the lack of updates or the absence of certain data points, as well as inconsistencies across different providers. For example, there have been cases where globally recognized companies are reported as being in violation of the UN Global Compact principles or the OECD Guidelines for Multinational Enterprises by some data providers, while others do not report such violations. In such cases, a detailed analysis will be carried out to clarify the situation. Another limitation we may face is that for certain financial instruments (derivatives, structured products, cash), even fewer data are available compared to other assets, with some cases providing no information at all. These will not be considered aligned with environmental or social characteristics, but neither will they count toward the minimum 51% aligned with ESG characteristics, and will instead be considered neutral.

An additional limitation is the frequency with which data is updated, which is typically on an annual basis. This limits the ability to respond to short-term changes, and has led us to establish our own annual review cycle, aligning with the data update frequency followed by most data providers.

Due Diligence

This methodology is subject to continuous review in an effort to ensure it remains appropriately aligned with current regulations and to optimize the use and effectiveness of data sources. It also involves the ongoing search for and assessment of alternative options to improve the reliability of analyses conducted in this area. In addition, periodic due diligence reviews are carried out to evaluate the accuracy of the data extracted from third party tools and to compare such data across different providers, with the aim of identifying and addressing any inconsistencies or discrepancies detected in our analysis.

The established sustainability criteria are reviewed periodically to ensure that, while promoting their fulfillment, they remain aligned with the other objectives of stakeholders (such as return and risk). Likewise, the Sustainability Committee periodically reviews compliance with the sustainability philosophy, ensuring that all extra financial information is integrated into the investment decision-making process for the managed vehicles that promote environmental or social characteristics, and that the various portfolios comply on an aggregate basis with the established requirements.

Engagement Policies

Efforts will be made, whether through the exercise of voting rights at general shareholders' meetings or through engagement or collaborative stewardship actions, when the type of asset and the ownership percentage allow for it (specifically, when holding more than 1% of a company’s capital), to take appropriate actions aligned with the environmental or social characteristics of the vehicles, as well as in relation to potential corporate events or litigation related to sustainability involving investee companies, while always maintaining alignment with the objective of maximizing returns for clients. Accordingly, to the extent possible and based on our capacity to influence, we will seek to maintain an active role that promotes, through direct dialogue with corporate issuers or via alternative mechanisms that provide a means of engagement or participation in decision-making, the alignment of the underlying company’s corporate policies with the sustainability preferences outlined in the sustainability philosophy. For those assets in which the holding does not meet the established threshold, and where it is considered that our capacity to significantly influence decision-making is limited, decision-making at the company's shareholders' meeting will, by default, be delegated, without prejudice to the possibility that in certain extraordinary situations, a specific alternative action may be taken, always aligned with the environmental or social characteristics promoted.

In this regard, when analyzing decisions to be made, consideration will be given to the potential impact of the proposed action financially, in terms of risk and suitability as well as to potential sustainability related risks and opportunities.

Designated Reference Index

No reference index is designated to measure the alignment of the portfolios with the environmental or social characteristics they promote.