German insurer’s asset management arm Allianz Global Investors (AllianzGI) has reinforced its standard for categorizing its sustainable funds with a methodology that builds on, and even goes beyond, the Sustainable Finance Disclosure Regulation (SFDR) and its respective category of Article 8 funds.
“Investors are rightly seeing the European Union’s SFDR Article 8 as a minimum commitment for sustainable funds,” says Matt Christensen, the company’s global head of sustainable and impact investing. “However, a minimum is not good enough. We do not accept this as true to label, so we introduced the principle of two binding elements for our sustainable funds range.”
The first binding element, the company’s sustainable minimum exclusion policy, enforces exclusions criteria for portfolio construction related to weapons, coal, international norms and standards, and tobacco, which would already suffice for the Article 8 category.
The second binding element that needs to be incorporated into a fund’s investment process aims to more meaningfully connect sustainability to the product strategy, and that can be socially responsible investing best-in-class, UN Sustainable Development Goal alignment, impact strategies or a new key performance indicator (KPI) approach.
This new KPI approach, the company points out, considers and addresses environmental and social challenges within the portfolio construction process by defining sustainability as a KPI objective that must be met at portfolio level.
With this approach, the company targets measurable, monitored and reported indicators to track environmental, social and governance (ESG) results that are significant enough to drive sustainability in the investment process of a portfolio.
The approach was made possible, the company says, by the launch, earlier this year, of its sustainability data platform – Sustainability Insights Engine – a web-based user interface using state-of-the-art technology to mainstream access to ESG data.
The first KPI launched is on carbon reduction, and it is based on greenhouse gas (GHG) intensity – carbon dioxide equivalent (Scopes 1 and 2) compared with revenues. The targets are either a minimum lower portfolio GHG intensity versus benchmark, or a minimum 5% year-over-year portfolio GHG intensity reduction.
The company plans to further evolve the list of available KPIs and extend them to other products. Also, it aims to drive engagement with companies towards sustainability aspects.
“Our engagements focus on evaluating company performance on governance and sustainability, setting expectations on KPI-based targets to encourage sustainability outcomes, and sharing global best practice within the industry to guide on transition,” shares Chris Liu, the company’s Hong Kong-based stewardship analyst. “We have observed a notable increase in responses to our engagement requests and improved ESG disclosure in the Asian market in 2022.”