Credit Suisse Asset Management Sustainable Investing Policy

Credit Suisse Asset Management has defined the following three categories of exclusions:

• Norms-based Exclusions: We exclude companies that fail to comply with international treaties on controversial weapons such as the Convention on Cluster Munitions, the Chemical Weapons Convention, the Biological Weapons Convention, the Treaty on the Non-Proliferation of Nuclear Weapons (NPT) as well as manufacturers of incendiary weapons using white phosphorus. In addition, we exclude companies that are recommended for exclusions by the Swiss Association for Responsible Investments (SVVK-ASIR) with respect to anti-personnel mines, cluster munitions and nuclear weapons (outside of NPT).
• Values-based Exclusions: We exclude companies that derive more than 5% of their revenue from conventional weapons and firearms, tobacco production, gambling, or adult entertainment. We exclude companies that derive more than 20% of their revenue from tobacco distribution or conventional weapons support systems and services. In addition, a revenue limit of 20% applies to investments in coal (coal mining and coal-based electricity generation), a revenue limit of 5% applies in arctic oil and gas as well as a revenue limit of 10% applies in oil sands.
• Business-conduct Exclusions: Companies found to (1) systematically violate international norms, (2) where the breaches are particularly severe, or (3) where management is not open to implementing the necessary reforms, are put on a watchlist, and may be excluded from the firm-wide investment universe. Exclusions are considered as a last resort. Instead, engaging with investee companies is supposed to have a higher impact on preventing future breaches.
  Companies that are able and willing to take action may be subject to a period of engagement in which Credit Suisse aims to agree on targets and timelines for improvement, together with the company.

The ESG Exclusion criteria are aligned with the Credit Suisse Sustainable Investment Framework and may evolve over time. Additional investment restrictions based on sustainability-related labels and standards may apply (see section below).

• Credit Suisse Asset Management applies ESG Exclusions to direct fixed income and listed equity investments in the following manner:
• For actively managed investment funds, Credit Suisse Asset Management applies the Norms-based Exclusions, Values-based Exclusions, and Business-conduct Exclusions.
  For index tracking investment funds, Credit Suisse Asset Management applies the ESG Exclusions described by the provider of the relevant benchmark index in the index methodology. In addition, provided the investment funds remain within the anticipated tracking error as determined in the legal documentation, Credit Suisse Asset Management applies the Norms-based Exclusions, excludes companies involved in the production of thermal coal and/or in the production of electricity from thermal coal (with a revenues threshold of 20%), and applies conduct-based exclusions of SVVK-ASIR.

LuxFLAG ESG Label restrictions

For investment funds that have been awarded the LuxFLAG ESG label, in addition to Credit Suisse Asset Management’s standard ESG exclusions, we exclude the following companies from the investment universe:

• Tobacco, tobacco-related products and supporting services: Companies that derive more than 5% of their annual revenue from production and all companies that derive more than 15% of their annual revenue from sales and distribution are excluded.

The LuxFLAG label is awarded for a limited time and is subject to reassessment by the label provider. Further information about LuxFLAG can be found online at luxflag.org.

Restrictions related to BVI Guidelines for Responsible Investing

For investment funds that follow the Bundesverband Investment and Asset Management’s (BVI’s) standards, Credit Suisse Asset Management excludes the following companies, countries, and sectors from the investment universe in addition to Credit Suisse Asset Management’s standard ESG Exclusions:

• Military hardware: Companies that derive more than 10% of their revenue from manufacturing conventional weapons, components, and support systems and services are excluded.
• Sovereign issuers: Serious violations of democratic and human rights based on the assessment as “not free” according to the Freedom House’s index (freedomhouse.org/countries/freedom-world/scores)
  

ESG Integration in equity investment funds

We integrate ESG Factors into the investment decision-making process to make better informed investment decisions following the steps below:

• Identification of material ESG Factors: First, investment managers use materiality frameworks to identify the ESG Factors that are relevant to the investment strategy. Materiality frameworks are concepts that help identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of companies within an industry. Material factors are further assessed based on the fund’s sector and geographical exposure.
  Second, investment managers prioritize the material factors that are most relevant to the subsequent investment decisions based on the portfolio’s current market exposure. Materiality of ESG Factors and the ESG Factors included in the investment process may change over time.

• ESG security analysis: Based on the identified material ESG Factors, investment managers perform security research across the investment fund’s investment universe. Investment managers make use of ESG ratings from third-party service providers and may combine them with Credit Suisse Asset Management’s proprietary analyses and information. These may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends.
  The ESG data are fully integrated in our portfolio management software, Aladdin by BlackRock. Additionally, investment managers have full access to ESG-related analyses provided by third-party ESG data providers. The Credit Suisse Asset Management’s Sustainable Investing team may offer additional support, where needed, and advise on access to other ESG data providers. The outcome of the ESG analysis of individual securities, combined with financial research, allows investment managers to make ESG-adjusted risk/return assessments. This enables investment managers to compare securities on an ESG-adjusted basis and to evaluate whether to keep certain securities in the portfolio or to sell them during the security selection and portfolio implementation stage. The ESG security analysis is updated periodically.
• Security selection and portfolio implementation: Based on the identified material ESG Factors and the ESG-adjusted security analysis, investment managers construct a portfolio in accordance with the investment fund’s investment process and principles. The ESG-adjusted security analysis, combined with portfolio construction considerations, is used to determine appropriate portfolio weights that reflect the ESG-adjusted risk/return profile of the analyzed securities.
  The research process might make use of dedicated ESG questionnaires and potential follow-up meetings with investee companies when data supplied by our ESG data providers are incomplete.
• Portfolio monitoring: Investment managers monitor ESG Factors periodically to detect significant changes in the ESG Factors of the underlying securities. They regularly reassess the portfolio, taking into consideration financial and ESG metrics, and consequently decide whether to increase or decrease positions in the portfolio.
• Structured engagement: Apart from regular engagement with investee companies and proxy voting carried out by the Active Ownership team, investment managers may engage with companies directly, for example in the event of serious ESG-related concerns.
  

ESG Integration in fixed income investment funds

Our fixed income funds integrate ESG Factors into the investment decision-making process to make better informed investment decisions.

ESG Factors are integrated into the investment process in four main steps:

• Identification of material ESG Factors: Investment managers use materiality frameworks to identify the ESG Factors that are relevant to the given fixed income investment strategy. Materiality frameworks are concepts that help identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of potential investee companies within an industry. Materiality of ESG Factors and the ESG Factors included in the investment process may change over time.
• ESG security analysis: Based on the identified material ESG Factors, investment managers perform security research on ESG Factors across the investment fund’s universe. Investment managers make use of ESG ratings from third-party service providers and may combine them with Credit Suisse Asset Management’s proprietary analyses and information. These may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends.
  To integrate ESG Factors into the security analysis, investment managers calculate an ESG-adjusted credit view for the issuers in the fixed income investment fund’s universe. The ESG-adjusted credit view is based on the traditional credit rating of an issuer combined with this issuer’s ESG rating. Investment managers apply a proprietary methodology to systematically combine the issuer’s traditional credit rating with its ESG rating to derive an ESG-adjusted credit rating. The ESG-adjusted credit rating results in a fundamental view on each issuer, which enables investment managers to compare securities on an ESG-adjusted basis and to evaluate whether to keep certain securities in the portfolio or to sell them during the security selection and portfolio implementation stage. ESG-adjusted credit ratings are updated as soon as an update of the underlying traditional credit rating or ESG rating becomes available.
• Security selection and portfolio implementation: The ESG-adjusted credit ratings are used by investment managers in the bottom-up security selection process. Securities whose financial return compensates for the inherent financial and sustainability-related risks may remain eligible for investing. The position weights are derived from over- or underweighting as well as excluding securities based on the ESG-adjusted credit ratings. In this step, investment managers combine ESG-adjusted credit ratings with established tools of traditional investing strategies to make better informed investment decisions.
• Portfolio monitoring: Investment managers monitor ESG Factors daily to detect significant changes in the ESG Factors of underlying securities and regularly reassess the portfolio to decide whether to increase or decrease positions in the portfolio.

ESG Integration in multi asset investment funds

We integrate ESG Factors into the investment decision-making process to make better informed investment decisions. ESG integration depends on the underlying investment group/asset class. For equity and fixed income investments, the following approaches are available:

• Identification of material ESG Factors: Investment managers use materiality frameworks to identify the ESG Factors that are relevant to the given multi asset investment strategy. Materiality frameworks are concepts that help identify sustainability-related issues and opportunities that are likely to affect the financial condition or operating performance of potential investee companies within an industry. Materiality of ESG Factors and the ESG Factors included in the investment process may change over time.
• ESG security analysis:For direct investments based on the identified material ESG Factors and/or for fund investments based on the fund classification, the investment managers perform research on ESG Factors across the investment fund’s investment universe. Investment managers make use of ESG ratings from third-party service providers. These may include ESG-related news, ESG ratings and scores, ESG-related controversies, and ESG trends.
• Security selection and portfolio implementation: The ESG-integrated security selection and portfolio construction approach depends on the underlying investment group/market segment:
  • Direct investments in equities and fixed income
    • For direct investments in fixed income, Credit Suisse Asset Management selects sustainable securities (e.g. green/social/sustainable bonds) or evaluates securities with respect to their ESG Factors by using an ESG-adjusted credit view.
    • For direct investments in equities, Credit Suisse Asset Management applies ESG integration by limiting the investment universe to that of an ESG equity index where feasible or evaluates securities with respect to their ESG Factors.
  • Investments in target funds
    • For investments in index tracking target funds, Credit Suisse Asset Management aims to select ESG indices (full replication or optimized sampling) to attain the ESG integration characteristics of the index.
    • For investments in actively managed equity or fixed income target funds, Credit Suisse Asset Management aims to select target funds that demonstrate the “ESG Integration,” “Sustainable Thematic,” or “Impact Investing” approach according to the proprietary classification system described in the Credit Suisse Sustainable Investment Framework.
  • For other asset classes and for specific investment approaches, ESG Factors are included on availability.
• Portfolio monitoring: Investment managers monitor ESG Factors periodically to detect significant changes to the ESG Factors of underlying securities and regularly reassess the portfolio to decide whether to increase or decrease positions in the portfolio.

ESG Integration in real estate investment funds

Direct real estate

ESG considerations are integrated across the real estate value chain from the planning and development of property construction projects or the acquisition of existing properties to operational management and renovations or demolitions. To ensure the integration of ESG considerations across the investment life cycle, the Global Real Estate unit of Credit Suisse Asset Management applies a three-pronged investment approach:

• Building certification: Green building certification systems are a set of rating systems and tools that are used to assess a building or construction project’s performance from a sustainability and environmental perspective. Buildings that have been assessed and are deemed to meet a certain level of performance and quality receive a certificate proving this achievement. Credit Suisse Asset Management uses the following green building certification systems: LEED, BREEAM, NABERS, greenproperty, DGNB (resp. SGNI), SNBS, and Minergie.
• Building optimization: The building optimization program aims to reduce CO2 emissions and improve the energy efficiency of buildings through selected short- and long-term building optimization measures applied across the real estate life cycle.
• ESG benchmarking: The annual ESG performance assessment based on the Global Real Estate Sustainability Benchmark (GRESB) provides a comprehensive, independent ESG evaluation of our properties and real estate investment funds. To meet Credit Suisse Asset Management’s ESG standards, Credit Suisse Asset Management’s real estate investment funds are subject to the real estate ESG assessment based on an ESG due diligence questionnaire and must meet the requirements imposed by the benchmark. As a result, Credit Suisse Asset Management Global Real Estate’s funds and foundations are categorized as “ESG Integration” or “Impact Investing".

In addition to ESG integration, some of our real estate investment funds invest with a sustainability objective.

Indirect real estate

Credit Suisse Asset Management assesses investments in real estate investment structures and real estate companies (”Real Estate Target Investment”) taking into account qualitative and quantitative ESG factors of the respective real estate target investment and/or its investment manager.

Credit Suisse Asset Management collects and monitors relevant data through a proprietary ESG questionnaire, which is used as a decision-making parameter. The questionnaire needs to be completed by the respective Real Estate Target Investment’s investment manager and is updated on an annual basis. This ESG questionnaire allows Credit Suisse Asset Management to score the ESG component of the Real Estate Target Investment. It covers a variety of ESG criteria such as:

• public commitment to ESG leadership standards and/or principles
• specified ESG objectives
• measurement and disclosure of ESG/sustainability performance indicators such as, for instance, CO₂ emissions or water and energy usage
• CO₂ reduction path defined and disclosed
• participation in the Global Real Estate Sustainability Benchmark (GRESB)

In addition, Credit Suisse Asset Management seeks to promote the importance of responsible investing and ESG on a qualitative basis by discussing the importance of environmental aspects with the managers of existing and prospective investment structures while assessing good governance practices.

Being a shareholder and partial owner of a company comes with certain rights and duties. It presents an important opportunity to support positive change. To us, active ownership means exercising these rights and fulfilling our fiduciary duties on behalf of our clients. The two main elements of active ownership – engagement and proxy voting – constitute important tools in the pursuit of our environmental, social, and governance related goals.

Through our investment funds, we hold shares in many companies in Switzerland, Europe, and across the globe. As investors, we have the opportunity to engage with investee companies aiming to protect and enhance the value of our client’s investments, communicate our goals and expectations, and exert our voting power at annual shareholder meetings. Engagement activities are derived from a materiality analysis performed by Credit Suisse Asset Management across its investment funds.

While not an exhaustive list, factors that may be taken into consideration for active ownership include:

• business strategy and its execution
• risk management
• environmental and social concerns (e.g. carbon emissions, reduction and neutrality strategy, biodiversity considerations, food loss and waste efforts)
• corporate governance issues such as board composition (e.g. election of non-independent directors), and the structuring of the remuneration for the board of directors as
• well as the executive management board
• compliance, culture, and ethics
• performance and capital structure

Credit Suisse Asset Management exercises voting rights for investee companies (equities) for which Credit Suisse Asset Management manages more than 0.09% of the market value of the company in regulated markets of:

• Switzerland
• EU member states (except Finland, Sweden and Denmark)
• United Kingdom
• North America: USA, Canada
• Asia & Pacific: Japan, Australia, New Zealand, Singapore, Hong Kong, China, Taiwan
• Africa: South Africa

Furthermore, please find below our disclosures:

• CS Transparency Statement (PDF EN)
  The Transparency Statement explains how Credit Suisse Asset Management (Switzerland) Ltd. complies with the transparency requirements in Art. 3i of SRD II.
• CS Engagement Policy Statement (PDF EN)
  Information on implementation of the Credit Suisse Engagement Policy Statement for funds in scope of SRD II is disclosed in the Proxy Voting Dashboard (see link below). This includes a general description of voting behavior and the votes cast in general meetings.
• UBS 2023 Stewardship Annual Report (PDF EN)
  Following the acquisition of Credit Suisse by UBS in June 2023, the active ownership report of Credit Suisse Asset Management (CSAM) is disclosed as part of the UBS 2023 Stewardship Annual Report. During the 2023 reporting period, CSAM conducted engagement activities and voting independently. In 2023, CSAM introduced an outcomes-based approach to engagement objectives setting and further expanded its proxy voting coverage into small-cap issuers across our existing covered markets where we believe the biggest impact of positive change can be achieved given the size and influence of our holdings. Case studies can be found in the report.
• Proxy Voting Dashboard
• Proxy Voting Guidelines (PDF EN)
  The Proxy Voting Guidelines provide insight into our voting principles.
  

For EU-domiciled investment funds, Credit Suisse Asset Management assesses whether the investments follow good governance practices according to the SFDR, which includes the evaluation of employee relations, sound management structure, tax compliance, and remuneration topics.

The methodology to assess and ensure good governance of investments includes the following:

• Business-conduct Exclusions (only for actively managed investment funds): Companies that have been found to systematically violate international norms, particularly with regard to breaches of the Ten Principles of the United Nations Global Compact Principles (UNGC) may be excluded from the investment universe. Please refer to section 1.4 for further information.
• Proxy voting & engagement: in markets and for investments where Credit Suisse Asset Management exercises its voting rights, Credit Suisse Asset Management votes on governance topics such as the independence of the board of directors, remuneration and board incentive systems, in line with its fiduciary duty. Credit Suisse Asset Management may discuss with investee companies shortcomings and what improvements Credit Suisse Asset Management expects, based on the Credit Suisse Asset Management proxy voting framework. Please refer to section 1.6 Principle 4: Application of Active Ownership for further information.
• Governance topics may furthermore be part of ESG Integration through their inclusion in an ESG rating and the Governance Pillar score.

For investments in real estate assets, good governance cannot be assessed on the real estate asset level itself. However, during the acquisition, holding, and disposal of the asset,Credit Suisse Asset Management engages with external counterparties and/or service providers. Credit Suisse Asset Management has controls and processes in place to ensure those external counterparties and/or service providers (such as operating partners and developers) exceeding a certain order volume are subject to proper due diligence review for good governance purposes. Good Governance practice relate to companies and may not be assessed for investments in securities issued by sovereigns or supranational entities.

According to Art. 2(17) of the SFDR, Sustainable Investments are investments in companies that follow good governance practices, and whose activities contribute to an environmental or social objective without causing significant harm to any other environmental or social objectives.

For EU-domiciled investment funds, Credit Suisse Asset Management assesses the proportion of SFDR Sustainable Investments and reports on them in the annual report, unless stated otherwise in the product legal documentation.

Credit Suisse has defined a quantitative methodology to identify investments which qualify as SFDR Sustainable Investments. This methodology is systematically applied to all investment funds. In addition, Credit Suisse may classify investments as SFDR Sustainable Investments based on a qualitative case-by-case assessment.

Quantitative methodology for equity and fixed income investments

SFDR Sustainable Investments need to meet each of the following three requirements.

1. Contribution to environmental or social objective

To meet the condition to contribute to an environmental or social objective, CS will either consider:

• Investments that generate at least 50% of their revenues from products and services that contribute to an environmental objective (e.g. key resource efficiency indicators on the use of energy, renewable energy, raw materials, water, and land, etc.) or a social objective (e.g., major disease treatment, tackling inequality or fostering social cohesion, social integration, and labor relations), or
• Investments that have an approved commitment to science-based emission targets and an average reduction in carbon emissions intensity of 7% over the last three years, or
• Investments in securities whose proceeds pursue a predefined environmental or social objective (e.g. green bonds).

2. No significant harm

SFDR Sustainable Investments cannot significantly harm any environmental or social objectives – i.e. they must follow the Do Not Significant Harm (DNSH) principle. To assess if the DNSH requirement is met, Credit Suisse makes use of PAI indicators and further indicators from our ESG Exclusion framework. Credit Suisse has defined a set of criteria and thresholds to determine if an investment meets the DNSH requirement (e.g., investments with exposure to controversial weapons or those deriving more than 20% of revenues from coal mining and coal-based electricity generation do not meet the DNSH requirement). Note that the consideration of PAI as described in section 2.2 may differ from the usage of PAI for the purpose of DNSH. For example, post-trade tools such as proxy voting may be used to consider PAI in the context of section 2.2 but may not be relevant to the question if an investment currently causes significant harm.

3. Good governance practice

SFDR Sustainable Investments are in companies that exhibit good governance practice. In contrast to good governance described in section 2.3, the assessment based on the SFDR Sustainable Investment definition focuses on the current situation irrespective of the potential measures a company may take in the future to ensure improvements in its governance. The result of the assessment is either yes or no. Credit Suisse relies on investee company’s overall ESG performance (measured by the Sustainability Indicator “ESG rating”) and its governance performance (measured by the Sustainability Indicator “Governance Pillar Score”) to assess good governance. These measures provide a holistic view of the investee company’s ability to manage resources, including human capital, to ensure operational integrity based on strong management practices and to comply with applicable norms, including tax laws.

Quantitative methodology for direct real estate investments

SFDR Sustainable Investments need to meet each of the following three requirements

1. Contribution to environmental or social objective

To meet the requirement of contributing to an environmental or social objective, Credit Suisse will either consider:

• Investments that have at least a LEED rating “gold” or BREEAM rating “very good” or DGNB (resp. SGNI) “Gold” or higher, or
• Investments that have an Energy Star rating of 75 or higher.

2. No significant harm

SFDR Sustainable Investments may not significantly harm any environmental or social objectives (DNSH). To assess if the DNSH requirement is met, Credit Suisse makes use of the PAI Indicators related to real estate regarding the exposure to fossil fuels through real estate assets and energy-inefficient real estate assets.

3. Good governance practice

While Good Governance for real estate assets cannot be assessed on the real estate asset level itself, Credit Suisse Asset Management engages with external counterparties and/or service providers during the acquisition, holding, and disposal of the asset. Credit Suisse Asset Management has controls and processes in place to ensure that those external counterparties and/or service providers (such as operating partners and developers) that exceed a certain order volume are subject to proper due diligence review for good governance purposes.

Limitations of quantitative methodology

There are diverging definitions and methodologies used in the industry to define SFDR Sustainable Investments. The extension of the EU Taxonomy is expected to bring further clarity and consensus on this topic. For green bonds, DNSH is assessed on individual project level and not on the issuer entity level. Good Governance practices may not be assessed for investments in securities issued by sovereigns or supranational entities. For investments in third-party investment funds, Credit Suisse Asset Management may use the latest publicly reported percentage of SFDR Sustainable Investments of such a third-party investment fund if available. These reported percentages are calculated using the methodology of the third-party investment fund manager and may differ from the methodology explained above.

The methodology to identify SFDR Sustainable Investments makes use of ESG data that may not be reliable or in certain cases not available from underlying investments. To address shortcomings of this quantitative methodology, a qualitative case-by-case assessment to classify an investment as SFDR Sustainable Investment may be applied. The rationale supporting a case-by-case assessment needs to be verified and approved by a central Credit Suisse Group committee.

For EU-domiciled investment funds, Credit Suisse Asset Management calculates the alignment of the investment funds with the EU Taxonomy and reports it in its annual reports, unless stated otherwise in the product legal documentation.

The EU Taxonomy (Regulation EU 2020/852) specifies how economic activities may contribute to the following six environmental objectives. These are:

• Climate change mitigation
• Climate change adaptation
• Sustainable use and protection of water and marine resources
• Transition to a circular economy
• Pollution prevention and control
• Protection and restoration of biodiversity and ecosystems

The EU Taxonomy also states that an economic activity must not do significant harm to any other environmental objective and how minimum safeguards are met.

The EU Taxonomy has to date defined technical screening criteria used to assess the alignment of a subset of environmental objectives (e.g. climate change mitigation and climate change adaptation) with the EU Taxonomy. The technical screening criteria covering the remaining environmental objectives and an EU Taxonomy for social objectives is expected in the future.

Calculation methodology

In line with regulatory guidance, Credit Suisse Asset Management does not use estimated data to disclose alignment of investments with the EU Taxonomy that is required to be reported under the Corporate Sustainability Reporting Directive (CSRD) or Non-Financial Reporting Directive (NFRD). For investments that are not required to report under those directives, estimated data may be used. Three indicators: turnover, capital expenditures, and operating expenses are used when reporting on the alignment of the investments with the EU Taxonomy. Capital expenditures and operating expenses might be used for specific investment funds where such indicators allow a better view on the investment fund’s position toward the EU Taxonomy (i.e. real estate funds).

Data and limitations

Credit Suisse Asset Management relies on reported data collected by external data providers and may use the estimation models of such data providers. The availability of reported data on alignment with the EU Taxonomy from investments is limited. Currently, most companies are not reporting their alignment with the EU Taxonomy. The estimation models of external data providers may have limitations when it comes to reflecting the detailed regulatory definition stated in the EU Taxonomy and its Technical Screening Criteria.