Committed to people and the planet

Without Sustainable Investment Objective

Our funds promote environmental or social characteristics but do not have the objective of sustainable investment. Likewise, they do not set a minimum percentage of their investments to be allocated to sustainable investments, nor do they analyze their weight, without prejudice to the fact that they may regularly maintain a percentage of their investment in investments considered as such.

Independently of this, efforts will be made to ensure that investments aligned with environmental or social characteristics do not cause significant harm to any of the sustainable development goals pursued in their sustainable ideology. For this purpose, both their contribution to the claimed sustainable development goals and some of the selected principal adverse impacts related to these goals will be taken into account.

Information regarding the principal adverse impacts on sustainability factors, although not subject to obligation, will be included in the periodic sustainability reports.

Likewise, the compliance of issuers with the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights will be analyzed, including the principles and rights set out in the eight core conventions referred to in the International Labour Organization's Declaration on Fundamental Principles and Rights at Work and the International Bill of Human Rights. Any controversy in this regard for any position in the portfolio will be communicated to the management bodies in order to make the appropriate decisions.

Environmental or Social Characteristics

The funds will predominantly invest in companies that demonstrate sensible management concerning sustainability, taking into account their performance relative to their peers in environmental, social, or corporate governance aspects. These companies, in addition to meeting exclusions based on their origin and the nature of their business, among others, must show a score above 70 out of 100 points in the application of our sustainability information provider, Clarity AI, in at least two out of ten selected targets, encompassed within seven of the United Nations' Sustainable Development Goals (SDGs) chosen from among the 17 SDGs as representative of the environmental or social characteristics to which they aim to contribute. The potential harm to any of the other analyzed goals will also be assessed based on the measurement of the principal adverse impacts.

Among the environmental or social characteristics promoted by these funds are ensuring full participation of women and guaranteeing equal opportunities, improving production and promoting efficient and respectful consumption, fostering the modernization of infrastructure and clean technologies, reducing income inequality by seeking growth in lower wages, reducing the environmental impact in cities, achieving the efficient use of natural resources, reducing food waste and promoting recycling and reuse of waste, and fostering the elimination of corruption and bribery.

Investment Strategy

The funds follow financial and extra-financial criteria based on their sustainability ideology. Investments must predominantly comply with the fund's sustainability ideology. From an ESG perspective, to determine the values in which to invest, the following criteria are established and will be applied in the decision-making process regarding potential investments:

1. Exclusion Criteria (applicable to at least 70% of the portfolio positions whenever data is available):

First of all, as a primary basic exclusion analysis criterion, any countries (as well as companies from these countries) sanctioned for non-compliance with international regulations (EU Sanctions or United Nations Security Council Consolidated List), or included by the Financial Action Task Force in its list of high-risk jurisdictions (FATF list) as territories with serious deficiencies in anti-money laundering or counter-terrorist financing measures, will be excluded from the investment universe.

Secondly, to complete the analysis of exclusions, which will apply mainly to corporations, exclusions will be based on percentages of revenues, taking into account the very nature of the business from which they originate. In this way, and as a general rule, all issuers whose main source of income comes, in the measures indicated as a percentage of the company's income, from the following areas are excluded from the base:

• Weapons sector (when it involves the manufacture or marketing of controversial weapons), provided that any of the following areas provides more than 5% of the company's revenues:
  – Manufacture or supply of cluster bombs
  – Manufacture or supply of anti-personnel mines.
  – Manufacture or supply of incendiary weapons (i.e. white phosphorus).
  – Manufacture of riot control weapons (i.e. pepper spray).
  – Manufacture of small arms.
  – Manufacture or supply of chemical and biological weapons.
  
• Companies involved in the manufacture and sale of tobacco (manufacturing, planting or distribution), provided that more than 20% of the company's revenues come from related activities (higher threshold to exclude companies that are mainly engaged in related activities, because a large part of the entertainment or restaurant markets are involved in related activities), (higher threshold to exclude companies that are mainly involved in related activities, such as vending machine ownership, and more radical limits would be too restrictive to the detriment of free asset selection and portfolio diversification, but will be reduced in the future in line with the restrictions that continue to appear and with the decline in tobacco consumption by society, which has been steadily decreasing over the last two decades).
• Corporations whose main area of business comes from adult entertainment or gambling (counting in the first case, which would include the manufacture and distribution of erotic or pornographic products, with a threshold of 5% of revenues, and for gambling with one of 20%, because, as in tobacco-related activities, the tax rate for adult entertainment or gambling is high, The taxation of gambling and betting activities has a high reflection in entertainment or catering industries, such as in the possession of recreational machines or the video game industry, and in the end it is a question of making the financing of those companies whose main source of income comes from controversial activities more expensive).

2. Valuation criteria (applicable to at least 51% of the portfolio's positions whenever data is available):

As a valuation methodology, by consulting public information websites of specialized organizations, through information from agencies under the United Nations, from public information available on the website of the companies themselves or the regulator, but especially, and above all after contracting information providers on sustainability and through their specialized systems (mostly Clarity or Bloomberg), the contribution of investments to several of the Sustainable Development Goals (and specifically to some of their targets or sub-targets) (SDGs/SDGs) established in 2015 by the UN General Assembly will be analyzed as the main criterion for assessing whether and to what extent companies are actively collaborating in the achievement of these goals. This study will always be carried out at the issuer level. Thus, investments to be promoted will be considered those that exceed 70 points out of 100 in the Clarity application in its "UN SDGs" section, based on its own methodology, for at least two of the following individual goals or sub-goals:

5.5. Ensure the full participation of women in leadership and decision-making.
8.4. Improve resource efficiency in production and consumption.
9.4. Improve the sustainability of all infrastructures and industries.
10.1. Reducing income inequalities.
10.3. Ensure equal opportunities and end discrimination.
11.6. Reduce the environmental impact of cities.
12.2. Management and sustainable use of natural resources.
12.3. Reduce global food waste by half.
12.5. Substantially reduce waste generation.
16.5. Contribute to the reduction of corruption and bribery.

For those cases in which the issuer's overall score at the "UN SDGs" level is lower than 25 points, its individual score for each of these areas will be analyzed and the decision-making bodies will be informed in order to assess how to proceed (adding it to the portfolio, discarding its purchase, or divesting it if it is already among the positions in the portfolio).

Likewise, the country of origin of the issuer will be considered as an additional element to be taken into account, given the difference between some regulations and others in terms of sustainability control. For this purpose, we will follow the classification by country made by the University of Cambridge according to their contribution to the Sustainable Development Goals, "The Sustainable Development Report", available at (https://dashboards.sdgindex.org/rankings), promoting investments in companies based in all those countries with a score above 65 out of 100 and avoiding a priori the rest, unless there is a well-argued justification to the contrary by the decision-making bodies and only for a very specific case, in no case as usual practice. For debt from other public issuers, the same methodology will be used (those cases not covered by sustainability providers, such as municipal or regional governments, will be assimilated to the national public debt of the country to which they belong). For supranational issuers, which a priori would not be assessable in this sense, the rating of Luxembourg will be used, as it is the country of reference for most of the supranational issues held in the portfolio.

Finally, to complete the valuation methodology, based on the readings provided by the different data providers for the calculation of the main adverse impacts, the individual impact of the investments in the different areas of relevance chosen will be analyzed, with the aim of assessing whether any of the issuers produces significant damage in any of the selected goals or objectives, in which case the decision makers will be informed in order to evaluate the actions to be taken, for which purpose this information will be contrasted with that collected in the scoring of the different goals underlying the SDGs. In this way, investment will be channeled towards assets that avoid bad sustainability practices. The main adverse impacts that will be taken into account for this valuation will be, at the corporate level, Carbon Footprint, GHG Intensity, UNGC Violations, Gender Pay Gap, Board Gender Diversity, and Exposure to Controversial Weapons, and for government bonds, Country GHG Intensity, and Country Score. In the latter case, since the issuer's provenance is considered by default as a primary check in the methodology, it will be understood as fully compliant even in the case of lack of data from the sustainability provider.

This methodology will be used in a similar way for both fixed-income and equity funds, and in a similar sense for investments in mutual funds or ETFs, through look throughs carried out by external data providers with which we also seek to assess their objectification of SDGs, country of origin, and main adverse impacts for all those vehicles not categorized as Article 9 by the Sustainable Finance Disclosure Regulation (SFDR), as these will be considered to be aligned with the sustainability ideology, counting within the minimum of 51% of investments that promote environmental or social characteristics.

Proportion of Investments

The aforementioned procedures will generally apply to all the fund's positions as long as data is available, which will not be available in many cases, as is usually the case for derivative instruments (mainly used for hedging), cash positions, or short-term financing in the form of corporate promissory notes, which, normally due to their size, do not allow an adequate valuation to be obtained using this methodology because they do not have the same depth of data as in the case of other listed or larger companies.



In any case, at least 70% of the Fund's assets must be invested in assets that meet the exclusion criteria, and 51% must meet the valuation criteria. In other words, in an overall analysis of the portfolio of at least 51% of the assets, at least two of the ten targets analyzed must exceed 70 points out of 100 in the score shown in the Clarity AI application. The remaining 49% of the fund's assets will include those investments not adjusted to environmental or social or sustainable characteristics of which, in any case, a maximum of 30% will not be subject to the exclusion criteria, being mainly investments in derivatives with the objective of hedging risks or maximizing financial returns, as well as the fund's own liquidity. With respect to liquidity, in the absence of being able to assess its adjustment to the characteristics pursued, it will be understood as neutral for the purposes of calculating the percentages indicated, not being so for positions in derivatives or those representing investments in which their contribution to sustainability cannot be found, thus being computed within the 49% not adjusted to environmental or social characteristics.



The minimum percentage of the fund's investments in transitional and enabling activities is not determined, and is therefore 0%. The minimum proportion of sustainable investments with an environmental objective not adjusted to the EU taxonomy of the fund will also be 0% of its assets as it is not established. The minimum proportion of socially sustainable investments will also be 0% of the assets. The investment of the financial product in activities related to fossil gas or nuclear energy that comply with the EU taxonomy is also not targeted.

Monitoring of Characteristics

The environmental and social characteristics of the funds are integrated into the investment process itself, initially by the exclusions themselves, and then by the issuer-level study of the SDGs targeted. Once the company is considered eligible for investment and the acquisition materializes, the aggregate performance at portfolio level is monitored, and periodically, at least quarterly, the performance of the funds in terms of sustainability is analyzed by the investment committee.

To monitor the evolution of the investments in terms of sustainability, the aggregate performance of the portfolio in relation to the SDGs will be analyzed periodically, so that its score in the 17 SDGs at an aggregate level does not fall below 40 points out of 100 in the Clarity application, and that for at least two of the ten goals indicated, 70 points out of 100 are reached in the "UN SDGs" section based on the methodology of the sustainability provider itself. Regarding the main adverse incidents, a comparison will be made at an individual level of all issuers (look through included) with respect to their peers, duly informing the decision-making bodies of those issuers whose score in any of the headings analyzed falls below the 25th percentile with respect to the universe of similar companies (analysis provided by the Clarity AI provider itself), so that they can take the decisions they deem appropriate.

Methods

To analyze compliance with the environmental or social characteristics, after applying the first filter of excluding criteria, a prior valuation analysis is carried out, and subsequently the evolution of the main adverse incidents and the evolution of the Sustainable Development Goals pursued at an aggregate level will be monitored, which allows monitoring the scope of compliance with the sustainable characteristics promoted. This strategy is continuously implemented in the investment process of the manager's sustainable vehicles. Possible controversies are analyzed with a view to maintaining positions in the portfolio or proposing them for divestment when it is considered that the company is not in line with the fund's sustainability ideology, as well as other actions to be carried out when appropriate (for example, in the case of corporate events).

The investment committee, in its periodic review, will be responsible for ensuring that the assets in which the fund invests follow, for the most part, its sustainability philosophy.

Sources and data processing

The data sources used to achieve the promoted characteristics are mainly the following:

• United Nations Security Council Consolidated List (https://www.un.org/securitycouncil/content/un-sc-consolidated-list).
• Lista GAFI (https://www.tesoro.es/sites/default/files/publicaciones/lista_gafi_jurisdicciones_de_ riesgo_y_monitoreadas._octubre2022.pdf).
• UE Sanctions List (https://data.europa.eu/data/datasets/consolidated-list-of-persons-groups-andentities-subject-to-eu-financial-sanctions?locale=en).
• Bloomberg (PIAs).
• Morningstar (ODS/PIAs).
• Clarity (ODS/PIAs).
• UN Global Compact (https://www.unglobalcompact.org/what-is-gc/participants) (ODS).
• Cambridge University (https://dashboards.sdgindex.org/rankings) (ODS por país).
• 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 found for both the methods and the data sources themselves is the lack of updating and inclusion of some of the data analyzed, as well as the inconsistency between the different providers. For example, at the PIA level (information extracted mainly from Bloomberg and Clarity), we found that a large part of the positions analyzed do not have all the data on the main adverse events, which forces us to discard for the time being for their study those PIAs that due to their scarcity of data could be considered unrepresentative, thus partially limiting the methodology. However, it is expected that in the future, when the scope of sustainable regulations will be extended to have a greater impact at the corporate level, the volume of data will be larger and therefore may be better reflected in this type of analysis.

Another limitation that we could find is that in certain financial instruments (derivatives, structured, cash), we find even less data than in the rest of the assets, not being able to obtain any type of data in some cases.

An additional limitation would be the periodicity of data updating, usually established as annual, which limits the capacity to adapt to changes in the short term, although the inclusion of different sources, using several indicators whose updating frequency does not necessarily coincide, makes it possible to mitigate these limitations by reducing their impact.

Due Diligence

Our methodology is under continuous review, trying to adapt as best as possible to current regulations and to optimize the use and exploitation of data sources, as well as in continuous search and evaluation of alternatives to obtain more information in this area. Likewise, periodic due diligence reviews are carried out in order to evaluate the correctness of the data extracted from third party tools as well as their comparison with other providers in order to try to communicate any inconsistency detected or to find inconsistencies in our analysis.

The established sustainable criteria are reviewed periodically, trying to verify that, while promoting their compliance, they are kept in line with the rest of the stakeholders' objectives (such as profitability and risk). Likewise, it is periodically reviewed (by the investment committee) that the sustainability ideology is complied with, integrating all the extra-financial information in the investment decision-making process for the vehicles managed with sustainable characteristics, as well as that the positions in the portfolio comply with the established requirements.

Engagement Policies

We will endeavor, either through the exercise of voting rights at general shareholders' meetings, or through collaborative engagement actions, when the type of assets and the percentage of ownership allow it (a holding of more than 1% of the capital is targeted for any company as the level from which involvement will be mandatory), take the pertinent actions aligned with the sustainable characteristics of the vehicles, as well as in potential corporate events or litigation that may occur in terms of sustainability in the investee companies, maintaining in all cases the alignment with the search for maximization of returns for the clients involved. Thus, as far as possible and according to our capacity of influence, we will try to maintain an active participation, which promotes, through dialogue with the corporate issuers themselves, or those alternatives that allow us to maintain contact with them or a power to contribute to decision-making, the alignment of the corporate policies of the underlying company with the sustainability preferences established in the sustainability ideology.

In this way, when analyzing the decisions to be made, the potential impact of the choice to be promoted will be assessed, both at a financial, risk and suitability level, but the potential risks and opportunities in terms of sustainability will also be taken into account.

Designated Reference Index

No benchmark is established to measure the alignment of the portfolio with the sustainable characteristics it promotes.