1. Summary

The Asset Management – Special Responsible - ESG Mandate promotes environmental and social characteristics by investing a substantial portion of the portfolio in companies with sound environmental (E), social (S) and governance (G) quality but does not have as its objective a sustainable investment. 

As part of the investment process, companies are mapped and classified according to specific criteria. The filtering criteria, Julius Baer considers are among others, own scores such as the climate score, the natural capital score, the human capital score, the governance and the global norms score.

The mandate permits direct holdings as well as investments in funds or similar products such as ETFs. The asset classes considered cover the money markets/liquid funds and equities, as well as potentially bonds.

For the mandate 70% of the investments must be invested in financial instruments in the above-mentioned Julius Baer Sustainable Investment Methodology categories “Responsible” or “Sustainable”. Consequently, at least 70% of the mandate’s assets are aligned with its environmental and social characteristics. There is no obligation for a minimum proportion of sustainable investments in this mandate. 

The other investments consist of financial instruments categorised as “Traditional” as well as investments in instruments that were not evaluated by the Julius Baer Sustainable Investment Methodology as well as investments in money-market/cash instruments. The cash portion is allowed to range from 0-30%.

The following principal adverse impact metrics are currently used as sustainability indicators to measure the attainment of the environmental and social characteristics of the mandate: greenhouse gas emissions, emissions to water, hazardous waste and/or radioactive waste ratio, violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises and exposure to controversial weapons.

Good governance by investee companies is managed via the Julius Baer ESG categories “Responsible” and “Sustainable” given that to fall within the scope of either of these ESG categories, one of the criteria is that investee companies must follow good governance practices according to the view of Julius Baer. In particular, good governance is ensured through the Julius Baer’s proprietary Governance and Human Capital Scores. Please find the link to the Julius Baer Sustainable Investment Framework brochure for further details on the ESG categories. 

With regards to data sources, Julius Baer has created a proprietary Sustainable Investment Methodology, which is managed by an internal team of sustainability specialists. 

In some cases, the data coverage from external data providers does not fully cover all attributes that are needed for the methodology. In such cases, industry averages from the external data providers may be applied. The overall proportion of estimated data is less than 20% of the entire amount of input data that is used to compute any ESG scores or categories.

With regards to due diligence Julius Baer has developed a set of ESG categories based on its proprietary Sustainable Investment Methodology, upon which the investment universe is classified. The Responsible Investment Committee oversees and provides guidance on the applicability of the Julius Baer Sustainable Investment Methodology and related ESG offering. As regards engagement policies, Julius Baer believes that it is an integral part of the responsibilities of its analysts and portfolio managers to identify and analyse critical ESG risks that affect the companies in their coverage/ investment and to discuss these issues as part of their regular meetings with companies’ management teams. 

However, proxy voting does not apply for Julius Baer mandates and at this stage, engagement is not promoted as part of the environmental or social characteristics of this mandate. 

2. No sustainable investment objective

This financial product promotes environmental or social characteristics but does not have as its objective a sustainable investment. 

3. Environmental or social characteristics of the financial product

The mandate promotes environmental and social characteristics by investing a substantial portion of the portfolio in companies with sound environmental (E), social (S) and governance (G) quality. This data from independent data providers, as well as internal thematic research related to investment themes, are used to assess the ESG quality of companies by applying the Julius Baer Sustainable Investment Methodology. 

Further information on the environmental or social characteristics is available in the Periodic Reporting (SFDR).

4. Investment strategy

The mandate makes investments by applying the Julius Baer Sustainable Investment Methodology. The Julius Baer Sustainable Investment Methodology is structured at three levels:

1. The first level is to gather unprocessed ESG data from independent data providers, as well as internal thematic research related to investment themes that are linked to sustainable objectives.
2. Then certain thematic ESG scores (explained below) are calculated out of the unprocessed ESG data and internal thematic research.
3. At the final level, four different ESG categories are derived using a combination of the thematic scores and certain indicators (processed ESG data such as ratings) provided directly by ESG data providers.

The four ESG categories derived from the process are “ESG Risk”, “Traditional”, “Responsible” and “Sustainable”. 

A minimum 70% of the mandate’s net asset value investments must always be invested in financial instruments categorised by Julius Baer as “Responsible” or “Sustainable”. The remaining 30% can be invested in financial instruments categorised as “Traditional” or in financial instruments that don’t have an ESG category assigned by Julius Baer. 

ESG Risk-categorised financial instruments are in general not permitted, unless the mandate has been granted an exception by one of the governing bodies linked to ESG or general exceptions (e.g., for diversification purposes or reduction of Tracking Error).

The following Julius Baer ESG scores are calculated at the second level of the process:

Julius Baer’s Climate Score which addresses the questions of greenhouse gas emissions and a company’s exposure to the shift towards a net-zero world.

Julius Baer’s Natural Capital Score which addresses the topic of biodiversity, air pollution and other pollution, and allows the identification of companies with a significant exposure to, and impact on, environmental issues beyond climate.

Julius Baer’s Human Capital Score which assesses companies based upon the social element of ESG i.e., employee conditions (e.g., pay or secondary benefits), workplace policies in relation to diversity, inclusion and the prevention of harassment.

Julius Baer’s Global Norms Score which measures if a company is involved in the production and/or sale of conventional weapons and how it complies with global norms standards.

Julius Baer’s Governance Score which addresses the question of a company’s business behaviour (i.e., in terms of policies, organisation structures, ethics, code of conduct, or transparency and reliability of accounting, including tax compliance).

In addition, the mandate will in principle not invest directly (as opposed to investments via investment funds) in companies which, at the time of proposed investment fall into one of the following exclusion criteria:

a) Companies engaged in one or more of the following: Production and/or distribution of Prohibited War Material as defined by the Swiss War Material Act of December 13, 1996 including chemical/biological weapons, cluster munitions, landmines and of weapons, ammunition and armaments containing enriched uranium.

b) Companies which based on Julius Baer’s assessment violate UN Global Compact principles. Such assessment can be of qualitative and/or quantitative nature and based on multiple internal and external data sources and/or internal research and analysis, if available.

Good governance by investee companies is managed via the Julius Baer ESG categories “Responsible” and “Sustainable” given that to fall within the scope of either of these ESG categories, one of the criteria is that investee companies must follow good governance practices according to the view of Julius Baer. In particular, good governance is ensured through the Julius Baer’s proprietary Governance and Human Capital Scores. Please find the link to the Julius Baer Sustainable Investment Framework brochure for further details on the ESG categories. 

5. Proportion of investments

The mandate permits direct holdings as well as investments in funds or similar products such as ETFs. The asset classes considered cover the money markets/liquid funds and equities, as well as potentially bonds.

Only portfolio companies that meet the selection criteria of the mandate are included in the investment universe. These include the criteria from the above-mentioned exclusions and application of the filter criteria. As such, at least 70% of the mandate’s assets are aligned with its environmental and social characteristics. There is no obligation for a minimum proportion of sustainable investments in this mandate. The other investments consist of financial instruments categorised as “Traditional” as well as investments in instruments that were not evaluated by the Julius Baer Sustainable Investment Methodology and investments in money markets-/liquid funds. The share of liquid funds may be 0-30%.

#1 Aligned with E/S characteristics includes the investments of the financial product used to attain the environmental or social characteristics promoted by the financial product. 

#2 Other includes the remaining investments of the financial product which are neither aligned with the environmental or social characteristics, nor are qualified as sustainable investments. 

6. Monitoring of environmental or social characteristics

The environmental and social characteristics as well as the sustainability indicators are monitored by the Julius Baer Portfolio Management Team. Our Investment Controlling monitor alignment with the investment guidelines on an ongoing basis. 

The monitoring of Julius Baer’s own Sustainable Investment Methodology for financial instruments is the responsibility of the Responsible Investment Committee, which reports to the Executive Board of the Julius Baer Group as a whole. Additionally, the Julius Baer Responsible Investment Committee also oversees key decisions including deciding about key single instrument methodological considerations, criteria that assign collective investments and discretionary mandates into a specific sustainable investment category as well as how ESG risks and opportunities are integrated into the offering and investment process. 

A dedicated framework ensures the functionality and further development of the Julius Baer’s Sustainable Methodology at the strategic as well as the operational level. Please find the link to the Julius Baer Sustainable Investment Framework brochure, explaining the Julius Baer Sustainable Investment Methodology in detail, including how the environmental and social indicators as well as sustainability indicators are considered and monitored as part of the methodology.

7. Methodologies 

The following principal adverse impact metrics are currently used as sustainability indicators to measure the attainment of the environmental and social characteristics of the mandate:

Greenhouse gas emissions, which includes the three indicators:

a) scope 1 greenhouse gas emissions
b) scope 2 greenhouse gas emissions
c) total greenhouse gas emissions (sum of scope 1 and 2)

The above indicators are calculated as tonnes emitted for the amount invested.

Emissions to water:
Tonnes of emissions to water generated by investee companies, per million invested

Ratio of hazardous and/or radioactive waste:
Tonnes of hazardous waste, per million invested

Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises:
Share of investments in investee companies that have been involved in violations of the UNGC principles of OECD Guidelines for Multinational Enterprises

Exposure to controversial weapons¹:
Share of investments in investee companies involved in the manufacture or selling of controversial weapons

Please note that based on the on-going developments in the area of ESG data, Julius Baer reserves the right to expand, amend or replace the above-mentioned indicators and/or metrics.

Please find the link to the Julius Baer Sustainable Investment Framework brochure, explaining the Julius Baer Sustainable Investment Methodology in detail, including how the sustainability indicators are considered as part of the methodology.

¹ anti-personnel mines, cluster munitions, chemical weapons and biological weapons

8. Data sources and processing

With regards to data sources, Julius Baer has created a proprietary Sustainable Investment Methodology, which is managed by an internal team of sustainability specialists and overseen by the Responsible Investment Committee, structured in two panels: the Strategic Panel, that defines the strategic guidelines and the Operational Panel, ultimately responsible for reviewing and validating outcomes of the methodology on an issuer or investment fund level. This methodology is based on a combination of data from external ESG data providers, and Julius Baer’s own research for various instrument classes and asset classes. The outcome is a set of thematic scores and ESG categories, which are used by portfolio managers and investment advisors when selecting investments. In certain cases, the Operational Panel of the Responsible Investment Committee can approve overrides to thematic scores and ESG categories, ensuring the correct implementation of the methodology on day-to-day operations.

In some cases, the data coverage from external data providers does not fully cover all attributes that are needed for the methodology. In such cases, industry averages from the external data providers may be applied. Additionally, internal thematic research is used to assess the sustainable transition element of companies associated with sustainability-related themes.

The data that is sourced from external providers is not based on any estimates made by Julius Baer. However, in certain cases if the data quality does not reach a sufficient level, it may be ignored or not considered for certain industries. Information based on the internal thematic research is to some extent processed, normalised and estimated. The overall proportion of estimated data is less than 20% of the entire amount of input data that used to calculate any ESG scores or categories.

While Julius Baer draws on ESG data from external data providers, there are still limitations regarding data coverage. There are certain data points that Julius Baer cannot source due to outstanding regulations or guidelines.

Additionally, the Julius Baer Sustainable Investment Methodology will be continuously developed to include new regulatory requirements or adjustments to existing regulations, as well as to cover additional instrument types or asset classes. Please find the link to the Julius Baer Sustainable Investment Framework brochure, explaining the Julius Baer Sustainable Investment Methodology in detail.

Planned actions to mitigate limitations include the continuous review of data quality from external providers to improve coverage and quality through various checks and controls, at least four times per year when the quantitative model is updated as well as on an ad hoc basis (e.g., ad hoc analysis), monitoring the availability of regulatory required data, and increasing coverage with respect to additional instrument types or asset classes.

9. Limitations to methodologies and data 

Key limitations to Julius Baer methodologies may include a lack of data coverage and/or quality. Furthermore, key ESG data, such as ratings, is currently not available for all asset classes.

Planned actions to mitigate the limitations include the harmonisation of ESG data methodologies and the increase of coverage by continuously developing the Julius Baer Sustainable Investment Methodology. The Julius Baer sustainability specialists are monitoring any developments in the field of ESG data metrics with the objective to continuously include that additional information into the assessment and monitoring process. Please find the link to the Julius Baer Sustainable Investment Framework brochure, explaining the Julius Baer Sustainable Investment Methodology in detail. 

10. Due diligence

With regards to due diligence, Julius Baer has developed a set of ESG categories based on its proprietary Sustainable Investment Methodology, upon which the investment universe is defined. Please find the link to the Julius Baer Sustainable Investment Framework brochure for further details on the ESG categories as well as Sustainable Investment Methodology. The Responsible Investment Committee oversees and provides guidance on the applicability of the Julius Baer Sustainable Investment Methodology and related ESG offering. It actively engages with Julius Baer’s analysts and portfolio managers to limit investment risks without compromising their independence. Companies with low ESG scores and public controversies are discussed in-depth among experts to assess risks. Analysts and portfolio managers are required to consult the Responsible Investment Committee if they disagree with poor ratings supplied by data providers. They must then collect the relevant arguments and convince the Responsible Investment Committee that the ratings should be revised. The Responsible Investment Committee can approve overrides to thematic scores and ESG categories by majority vote. Each year, the Responsible Investment Committee conducts a review of the approved and applied overrides. 

11. Engagement policies

Julius Baer believes that it is an integral part of the responsibilities of its analysts and portfolio managers to identify and analyse critical ESG risks that affect the companies in their coverage and to discuss these issues as part of their regular meetings with companies’ management teams. 

Proxy voting does not apply for Julius Baer mandates and at this stage, engagement is not promoted as part of the environmental or social characteristics of this mandate. 

12. Designated reference benchmark

No reference benchmark has been designated for the purpose of attaining the environmental or social characteristics promoted by the mandate.