European Transparency Code for Sustainability Funds - Bond Funds Edition for Germany, Austria, Liechtenstein and Luxembourg

Transcription

1 European Transparency Code for Sustainability Funds - Bond Funds 2016 Edition for Germany, Austria, Liechtenstein and Luxembourg

2 European Transparency Code for Sustainability Funds Version 3.0 The European Transparency Code applies to sustainability funds admitted to trading in Europe and covers many asset classes such as equities and bonds. All the information on the European Transparency Code can be found at org and, for Germany, Austria and Switzerland at The Code supplements an accompanying document that assists fund managers when completing the Transparency Code. The Code is based on two underlying motives 1. To make the sustainability approach of sustainable public funds available to investors and other stakeholders in a simple, easy to compare manner. 2. To proactively strengthen initiatives that contribute to the development and promotion of sustainability funds by creating a common framework for best practice in the area of transparency. Guiding principles Signatories to the Code should be open and honest and disclose exact, appropriate and up-to-date information in order to enable stakeholders, the public and in particular investors to understand the ESG strategy of a fund and its implementation. Signatories to the Transparency Code are obligated to comply with the following principles: The order and exact wording of the questions should be observed. Responses should be informative and clearly worded. In principle, the required information (instruments and methods) should be described in as much detail as possible. Funds should provide the data in the currency that they also use for other reporting purposes. Reasons that prevent information from being provided must be explained. The signatories should systematically explain whether and by when they hope to be able to answer the questions that they were not able to answer when completing the Transparency Code. Responses must be updated at least once per year and bear the date of the most recent update. Responses to the Code must be easily accessible on the website of the fund, fund management company or fund manager. In all cases, signatories must state where the information required by the Code can be found. The signatories are responsible for the responses and they should also make this clear. In order to set out these obligations clearly, the signatories must include the following two statements at the beginning of the Code: Statement by Zürcher Kantonalbank Sustainable investments are an essential part of the approach of Zürcher Kantonalbank and the strategic positioning of its brand Swisscanto Invest. We have been offering sustainable investments since 1998 and welcome the European Transparency Code for sustainability funds. This is our seventh declaration on compliance with the Transparency Code. It applies to the period from 1 October 2016 to 30 September Our full statement on the European Transparency Code for sustainability funds is quoted below and will also be published in the annual report of the funds concerned and on our website. Agreement to the European Transparency Code Zürcher Kantonalbank undertakes to ensure transparency. We are convinced that we guarantee the highest possible level of transparency under the existing regulatory conditions and from the perspective of competitiveness. Zürcher Kantonalbank follows all the recommendations of the European Transparency Code for sustainability funds and ensures compliance with these recommendations for all the fund products and services offered under the brand Swisscanto Invest. Date: ESG stands for environmental, social and governance. 2 3

3 Code categories Is the fund management company approach towards ESG criteria aligned with or inspired by its corporate social responsibility approach? Yes, the sustainable investments are embedded in our sustainability strategy. If yes, insert a link to the company's CSR policy. If not, explain why not. Detailed information (sustainability report and sustainability policy brochures) in this regard can be found on the Internet under the following links: 1. General information The fund management company Swisscanto Zürcher Kantonalbank 1a 1b Provide the name of the fund management company managing the fund(s) to which this code applies. Provide general information about the fund management company managing the fund(s) to which this code applies (e.g. name, address, website ) Fund management company Swisscanto Asset International S.A. 19, rue de Bitbourg L-1273 Luxembourg Asset Manager Zürcher Kantonalbank Bahnhofstrasse 9 P.O. Box 8010 Zurich Contact: markus.guentner@swisscanto.com Describe the general approach of the fund management company with regards to how it takes environmental, social and governance (ESG) criteria into consideration. Has the fund management company signed the Principles for Responsible Investment? If so, please add the link to your PRI report or the response to the questionnaire. If not, explain why not. Yes. Reporting is undertaken by Zürcher Kantonalbank. Is the fund manager a signatory or a member of other international and/or national initiatives supporting SRI practices? If so, please name them. Yes Eurosif FNG - Forum Nachhaltige Geldanlagen Swiss Sustainable Finance EFFAS ESG Commission (European Federation of Financial Analysts Societies) Center for Corporate Responsibility and Sustainability (CCRS) Montréal Pledge Detailed information in this regard can be found on the Internet under the following links: Swisscanto Sustainable investments create added value Zürcher Kantonalbank Invest with foresight sustainable investment products for retail customers. (Products tab) 4 5

4 Has the fund management company established an ESG engagement policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. Yes. The objectives of such engagement activities are to make improved investment decisions and to identify new, sustainability-related topics and to effect changes at the company. Zürcher Kantonalbank s Sustainability Research unit discusses relevant ESG aspects in all one-to-one meetings conducted with companies. The relevant ESG aspects are determined in line with the company's sector and regional exposure. Dialogue with companies that have potential for improvement regarding the environment, society, governance or critical occurrences is intended to influence them to the effect that these aspects are increasingly taken into consideration in business management. An important basis for this dialogue is the best practices as demonstrated by leading companies in terms of sustainability. Further details can be found in category 3c. Has the fund management company established a voting policy? If yes, describe the policy by outlining its objectives and its methodology and/or, if it is public, insert a link to the policy. If not, explain why not. Proxy voting for listed Swiss equities: stimmrechtausuebung/zuercher-kantonalbank1.html Proxy voting for listed international equities: stimmrechtausuebung/zuercher-kantonalbank1.html Votes are cast by and in the name of the fund management, which is the legal owner of the shares. The fund management tracks the exercise of voting rights and prepares relevant reports. Describe how the fund management company or the group contributes to the promotion and the development of SRI. Sustainability is a business principle and is entrenched in relevant regulatory, strategic and operational requirements of Zürcher Kantonalbank. These requirements also apply to the fund management company, Swisscanto Fondsleitung AG. Sustainable equity funds SWC (LU) PF Green Invest Equity A SWC (LU) PF Green Invest Equity B SWC (LU) EF Green Invest Emerging Markets B SWC (LU) EF Green Invest Emerging Markets N SWC (LU) EF Global Climate Invest B SWC (LU) EF Global Water Invest B SWC (LU) EF Global Water Invest N Sustainable asset allocation funds SWC (LU) PF Green Invest Balanced A SWC (LU) PF Green Invest Balanced B SWC (LU) PF Green Invest Balanced (EUR) A SWC (LU) PF Green Invest Balanced (EUR) B SWC (LU) PF Green Invest Yield A SWC (LU) PF Green Invest Yield B SWC (LU) PF Green Invest Yield (EUR) A SWC (LU) PF Green Invest Yield (EUR) B Sustainable bond funds SWC (LU) PF Green Invest Income A (CHF) SWC (LU) PF Green Invest Income B (CHF) SWC (LU) PF Green Invest Income (EUR) A SWC (LU) PF Green Invest Income (EUR) B Further fund-specific information can be found under the following links: Swisscanto Describe/detail the resources allocated by the fund management company (organisation, ESG research internal/external, dedicated portfolio management team, ) and indicate where this information is available. Further information at: 1c Describe/list your SRI products and the specific resources allocated to your SRI activities. Briefly describe the SRI fund range (number, assets under management, strategies,...) Sustainable investment fund volume: CHF 3,513 million (without double counting) 6 7

5 Describe/detail the resources allocated by the fund management company (organisation, ESG research internal/external, dedicated portfolio management team, ) and indicate where this information is available. Internal research: Our sustainability and themes research team Gerhard Wagner Robert Hauser Roland Wöhr Eve Morelli Simone Schärer Head of ESG Senior Analyst Senior Analyst Senior Analyst Senior Analyst Solutions Dr. rer. nat. ETHZ, Physicist, CFA 20 years sustainability expertise Water (ETH/ EAWAG) Climate physics 14 years portfolio management since 2008 Dipl. Natw. ETH, Executive MBA 18 years sustainability research Infrastructure Small & midcaps sustainability MeinIndex Sustainability Topics since 2010, ZKB Sustainability Research since 1997 Dipl. Ing. ETH, CIIA 9 years sustainability research Sustainability/ ESG for large caps MeinIndex Sustainability Regions ESG integration since 2010, ZKB Sustainability Research since 2007 Master in 11 years sustainability research Sustainability/ ESG for large caps MeinIndex Sustainability Regions ESG integration since 2010, ZKB Sustainability Research since 2010 Dipl. Natw. ETH, CIIA 12 years sustainability research Sustainability/ ESG for large caps MeinIndex Sustainability Regions ESG integration since 2010, ZKB Sustainability Research since 2007 Alex Stauffacher Rocchino Contangelo Marion Swoboda Analyst Analyst Senior Analyst Master of Arts, CIIA 4 years Sustainability research Consumergoods trends ESG integration since 2011, ZKB sustainability research since 2011 Bachelor of Science in Banking and Finance, CHP CPEP 16 years sellside analysis Swiss Equities European equities since 2014, ZKB sustainability research since 2015 Lic. oec. publ. 17 years sustainability research Sustainability/ ESG for large caps ESG integration since 2011, ZKB sustainability research since 2011 Our portfolio management team focused on sustainable investment funds Gerhard Wagner Roman Boner Raphael Lüscher Patrik Widmer Reto Niggli Head of ESG Solutions Senior PM ESG Solutions Senior PM ESG Solutions PM ESG Solutions Senior PM Mixed Assets Dr. rer. nat. ETHZ, Physicist, CFA Bachelor HWZ; CFA 20 years sustainability expertise experience 15 years PM Water (ETH/ EAWAG) Climate physics 14 years portfolio management since 2008 ESG-based solutions (global) Themes (water, climate, etc.) since 2013 lic. oec. HSG, CFA Business economist HWZ, Dipl. Swiss Fund Officer FA/IAF 13 years PM 10 years PM experience experience ESG-based solutions (EMMA) Themes (water, climate, etc.) since 2014 ESG-based solutions (global) Themes (water, climate, etc.) since 2012 lic. rer. pol., CIIA 16 years PM experience ESG-based solutions (mixed) Other Swisscanto balanced solutions since

6 Our external sustainability research partners Our sustainability analyses and exclusion criteria are based on quantitative and qualitative data provided by the following well-known sustainability research providers: Asset 4: Environmental and social data on companies of the relevant global indices Inrate: CO 2 e emissions, environmental, social, governance data as well as product impact data and ratings on companies of the relevant global indices MSCI Governance Metrics International: Quantitative data on relevant covenants factors on 4,200 companies worldwide RepRisk: Quantitative data points (environmental, social and governance reputation risks for around 15,000 companies globally) Trucost: Quantitative data on greenhouse gas emissions, environmental costs on companies of the relevant global indices Fund name SWC (LU) Portfolio Fund Green Invest Income A (CHF) ISIN: LU SWC (LU) Portfolio Fund Green Invest Income B (CHF) ISIN: LU SWC (LU) Portfolio Fund Green Invest Income (EUR) A ISIN: LU KIID Risk AUM in CHF million Geographic 3 34 World 3 34 World 3 21 World Best-in-class selection Exclusion criteria Standards-based screening ESG integration financial analysis ESG engagement and voting 1d Describe the content, frequency and resources allocated/used by the fund management company to inform investors about the ESG criteria taken into account. SWC (LU) Portfolio Fund Green Invest Income (EUR) B ISIN: LU World Our sustainable investments brochures, relevant websites and the sustainability report published annually inform investors which sustainability approaches and ESG criteria are taken into account. Additional information on implementation is shown in the product presentation. Brochures on sustainable investments Swisscanto: Sustainable investments create added value Zürcher Kantonalbank Sustainable bond funds global Focus: Investments in the transformation processes towards a sustainable economic model with the following key topics: Investments in debtors that make a positive contribution to resource efficiency and social equal opportunity Avoidance of companies/industries which are incompatible with sustainable development (e.g. exclusion of extraction of fossil fuels) Sustainable investments website Swisscanto Quarterly: Portfolio manager news and webcasts for selected funds Product presentations The sustainability funds (bonds) 1e Provide the name of the fund(s) to which this Code applies and its (their) main characteristics. Describe the main characteristics of the fund(s): geographical focus, asset class, SRI strategy used (use the classification provided by Eurosif/EFAMA). Implementation: Broadly diversified across industries, regions and debtor categories 10 11

7 1f What is (are) this (these) fund(s) trying to achieve through taking into account ESG criteria? Sustainable development is to ensure that present and future generations can live in a healthy and intact social environment. This concept has now also gained traction in the corporate and financial world. Progressive companies trust that environmental protection can be profitable and that dealing responsibly with social stakeholders and good corporate governance secures the company s future and enhances the corporate value. Please describe the objectives, e.g.: financing a specific sector, reducing risks, support better CSR practices,develop new value creation opportunities. Investments in sustainable companies not only offer potential returns but also the possibility of supporting sustainable development. Investors are increasingly valuing this double benefit as the relevant investment products are gaining a growing market share. In a nutshell: the objective is to identify progressive issuers, generate potential returns and support sustainable development. In addition, this allows avoiding or reducing risks due to price downturns (e.g. for shares such as BP or Tepco) or credit rating problems (e.g. for government bonds such as Greece or Spain). If part of the fund(s) assets is invested in unlisted organisations with high social, community or impact investing relevance, please specify. In terms of debtors, the fund invests in supranational organisations that promote the environment, climate protection and equal opportunity. Example: The multilateral Inter-American Development Bank (IDB) is the largest credit provider in Latin America and the Caribbean. In 2014, inter alia, half of all loans (USD 13.8 billion) were used for projects to alleviate poverty, 33% for climate protection and sustainable energy supply. All the projects financed are reviewed and classified in terms of potential social and ecological impacts. Innovative projects combine poverty alleviation and environmental protection: e.g. in Guyana open waste disposal sites were replaced by a modern waste disposal site. Former informal "waste pickers" are now organised in a cooperative and can now officially collect the waste and sell recyclable materials to recycling companies. 2. Approach to ESG evaluation of companies 2a What fundamental principles underlie the ESG research methodology? Describe the principles, standards or norms on which the ESG analysis is based for each of the environmental, social and governance dimensions. Include brief comments about how stakeholders are consulted, as appropriate. The criteria and indicators of the sustainability analyses are based on international principles, standards and regulations. A summary of the most important is provided below: Environmental Social Governance Biodiversity convention (CBD) incl. Nagoya protocol on access to genetic resources and equitable benefit-sharing Cartagena Protocol on biosafety International Tropical Timber Agreement (ITTA, 1983) Washington global conservation agreement (CITES) Framework Convention on Climate Change (UN- FCCC) incl. Kyoto Protocol GHG Protocol Montréal Protocol on substances that deplete the ozone layer Stockholm Convention on Persistent Organic Pollutants (POP Agreement) REACH European Chemicals Ordinance OECD Guidelines for Multinational Enterprises UN Global Compact ILO core labour standards (including working conditions, child and forced labour) UN human rights conventions (including freedom, social rights, political rights, safety, dignity) Geneva Convention on international humanitarian law UN Convention on prohibited conventional weapons OECD Guidelines for Multinational Enterprises UN Global Compact International Corporate Governance Network (ICGN) OECD Principles of Corporate Governance UN Convention against Corruption International and national criminal law OECD Guidelines for Multinational Enterprises UN Global Compact Stakeholder inclusion Stakeholder groups (stakeholders) in the sustainability analysis are included when determining the requirements of the ESG criteria catalogue as well as when reviewing compliance with the principles. The most important stakeholders are civil society organisations (or NGOs), consumer protection organisations, employees, customers, suppliers and the media. Moreover, sustainability research providers as well as the sustainability research of Zürcher Kantonalbank have regular contact with non-governmental organisations, such as environmental protection associations and trade unions. Zürcher Kantonalbank's Asset Sustainability Advisory Committee, which is composed of members from various disciplines, represents an additional, institutionalised inclusion of stakeholders

8 2b 2c What internal and external resources are used to carry out this research? Describe the general information used to carry out the ESG research: internal analysis, external analysis, ESG rating agencies, other external sources of information. The sustainability research resulted in the development of a proprietary research analysis based on quantitative and qualitative sustainability data and information of the external sustainability rating agencies mentioned, Asset4 (evaluated and raw data on ESG indicator shares, debtors), Inrate (evaluated ESG indicators, ratings shares, debtors), MSCI ESG GovernanceMetrics (raw data, ratings of corporate governance shares), RepRisk (reputation index figures and profile shares, debtors) and Trucost (CO 2 e data, environmental cost, equities profiles). In addition, the following sources of information are used: Publications, studies as well as direct contacts with companies ESG information, data, studies conducted by financial data providers, civil society organisations (NGOs), universities, think tanks such as the Global Footprint Network, ESG research conducted by brokers ESG risks via direct contact or via Internet researchers, information provided by financial data providers, civil society organisations (NGOs), consumer protection organisations, employees or based on court proceedings and penalty payments. Which ESG analysis criteria are used? Indicate what the main criteria for each of the environmental, social and governance dimensions are. Specify if these criteria differ according to sectors, the geographical zones, the type of company, If appropriate, provide an example. The sustainability criteria are defined in collaboration with the external Sustainability Advisory Committee and reviewed for their relevance on an ongoing basis. Overview of sustainability criteria E Environmental S Social G Governance Environmental data CO 2 emissions Water consumption Amount of waste Data quality Environmental management Environmental responsibility Supplier aspects Reputation risks Working conditions Employee diversity Health and safety Stakeholder relationships Human rights Corporate ethics Shareholders rights Remuneration Responsibility of governing bodies Transparency Control systems Reporting Industry leaders The industry leaders are selected in a multi-stage review process. In a quantitative part (ESG) around 50 indicators in the areas of environmental, social and corporate governance are compared. The data points are obtained from specialised providers (such as Asset4, Trucost, MSCI or RepRisk). This is followed by a product and sector analysis which incorporates analysts' technical knowledge, experience as well as industry-specific expertise. Innovative small to mid-cap companies The particular aim here is to focus on the selection of small to mid-cap companies that offer particularly innovative products and services that substantially contribute to solving environmental and social problems. Companies are selected based on topic areas that make the most direct contribution to successfully overcoming climate change and demographic development. Six areas of activity that cover important sustainability topics and demonstrate relevant future potential were defined. The key question here is: does a company have products or a strategy with above average qualities in one of the following core areas: Renewable energies (energy supply): energy production from renewable sources as well as downstream or upstream sectors (solar, wind, geothermal, water, biomass, waste-toenergy). Energy efficiency: increasing energy efficiency in all areas (e.g. industrial products, energy-efficient buildings, smart grid). Resources: in the area of activity of resources, attention is placed on the efficient use of reusable materials and the minimisation of harmful emissions. Mobility: With the growth in mobility, related problems such as pollution, fuel consumption and noise also increase. In this area, the focus is on alternative drive concepts and the promotion of public transport. Water efficiency: water supply and sewerage maintenance, water and waste water treatment, water technology and water services are at the forefront here. Health: affordable and safe healthcare and healthcare institutions Education: companies that enable access to high-quality further education and training at reasonable prices. Sustainability analysis for debtors Zürcher Kantonalbank classifies debtors in four categories. Only those representatives in each category that take their responsibility in the areas of environment, social and governance the most seriously are considered for inclusion in the investment universe. There are specific analyses in order to identify the best debtors in a debtor group from a sustainability point of view: Public and private companies: Assessment is similar to the industry leader process for equities

9 Governments, cantons and federal states: Assessment using a quantitative and qualitative analysis with extensive indicators in various topics concerning the environment and society. For instance, in terms of the environment, CO 2 emissions, the number of threatened animal species or the ratification of international treaties (of governments) are assessed. At the social level, aspects such as political rights, corruption, equal opportunity or distribution of income are assessed. Cities: ecological and social aspects relevant to the cities and which they can influence (e.g. traffic, education, integration) are assessed. Supranational corporations: the actual financing purpose as well as the environmental and social guidelines that the companies align themselves to are assessed Overview of the investment process Overview of areas and indicators for the sustainability analysis of countries Exclusion criteria The exclusion criteria relate to corporate activities which directly exacerbate the world's major problems and risks from an ecological or social perspective. These activities are not in line with our belief in sustainable development. The data required are gathered by external research partners and validated by our internal sustainability research team. The zero percent rule applies to the turnover. 2d What is your ESG analysis and evaluation methodology (how the investment universe is built, rating system, )? Describe the ESG evaluation/rating system and how it is built by explaining how the various ESG criteria are articulated. If appropriate, provide an example. Zürcher Kantonalbank's in-house sustainability research has been in existence since 1996 and has an experienced team comprising seven sustainability analysts from various disciplines. Companies throughout the world are analysed for their sustainability performance (ESG and industry evaluation) with specially developed, multi-stage review and rating procedures. These sustainability analyses consist of a positive analysis as well as an exclusion criteria filter and are an integral part of the investment process for our sustainable investment products. We identify companies making a positive contribution to the environment and society in comparison to their competitors with the positive analysis which includes an impact analysis. With the exclusion criteria, we identify companies or industries whose activities are not in line with our understanding of sustainable development. Issue Acceleration of climate change Risk to the environment and biodiversity of flora and fauna Exclusion criteria for strict sustainability approach Extraction of fossil fuels (oil, coal, natural gas) Operation of fossil-fuel power stations 2 Manufacture of automobiles and aircraft Airlines Manufacture of persistent organic pollutants (POPs: Persistent Organic Pollutants according to the Stockholm Convention) Manufacture of all relevant substances depleting the ozone layer Unsustainable forestry (without FSC certification or equivalent certificate) Fisheries without the MSC label Release of genetically engineered plants (green genetic engineering) Risk to society Energy (operation of nuclear power plants, nuclear reprocessing plants and permanent atomic waste disposal sites, manufacture of nuclear reactors) Manufacture of weapons, military vehicles, aircraft and ships Production of tobacco and smokers' accessories 2 Exceptions are: highly efficient fossil fuel power plants, primarily with power plants powered with renewable energies, power generation from waste and recycling and landfill and sewage gas 16 17

10 Positive analysis (ESG and product) sustainability leaders The sustainability analysis for large-cap companies is based on the industry leaders approach. In a quantitative part (ESG) around 50 indicators in the areas of environmental, social and corporate governance are compared. The data points are obtained from specialised providers (Asset4, Inrate, Trucost, MSCI or RepRisk) and calculated for the ESG score. Analysis of innovative small and mid-cap companies Small and mid-cap companies that make a significant contribution to a more sustainable society with innovative products or services (e.g. manufacturers of solar cells) are selected. Reviewing the exclusion criteria is the first step. The products or services are then reviewed for their contribution to sustainable development. This is followed by a product and industry analysis which incorporates our in-house sustainability analysts' technical knowledge, experience as well as industry-specific expertise (gives the industry result). For the detailed product and industry analysis, all the relevant publications as well as sustainability reports and annual reports are consulted in a first step. Any information that is still required can be obtained by communicating directly with the companies (e.g. by ). Studies and databases from our ESG data providers (Asset4, GMI, Trucost and RepRisk) as well as other specialised research providers are used as further sources of information. The RepRisk media research that is carried out for all companies also provides valuable information on each company. The information obtained is supplemented by contacting non-governmental organisations (NGOs) such as environmental protection associations. The best sustainability rankings are evident after all the companies in an industry and region have been analysed. Finally, in-depth media research for the sustainable and potentially sustainable companies is carried out. A media database that covers more than 14,000 sources and allows very specific queries is used for this purpose. The overall result comprises the total of the ESG result and the industry evaluation. This overall result is converted to a 9-level rating system from AAA to C. The sustainability rating is updated regularly, at least once every two years. Sustainability analysis for debtors The overall result for debtors, converted to a nine-level sustainability rating, is based on the quantitative and qualitative sustainability criteria determined for Zürcher Kantonalbank's four categories. Structure of the sustainable investment universe In the sustainable investment universe of shares, after the review of the exclusion criteria per industry and region, the best companies whose total sustainability ratings are between AAA and BBB are selected as industry leaders. All the small and mid-cap companies with bonds that meet the strict selection requirements of making a contribution to sustainable development and that do not violate any exclusion criteria are included. Only those representatives in each category that take their responsibility in the areas of environment, social and governance the most seriously are considered for inclusion in the investment universe for debtors. Example evaluation methodology for the media industry 2e How frequently is the ESG evaluation reviewed? 100% overall result 50% ESG analysis 10% E Environmental 50% 25% Environmental impact 25% Transparency data, measures Please briefly explain the methodology update process and who is involved. If appropriate, explain if the methodology has changed in the past 12 months and the nature of the key changes. 50% B Industry evaluation 30% S Social 60% G Governance 20% Reputation risks 40% Reputation risks 40% Working conditions 7% Diversity 7% Health 7% Stakeholder relationships 80% Corporate governance 20% Reporting (transparency) 100% The sustainability criteria are defined in collaboration with the external Sustainability Advisory Committee and reviewed for their relevance on an ongoing basis. For the other interested parties, the information can be found on the Internet. Further detailed information at: (Details regarding sustainability research) 40% Ethics & business behaviour 50% Ethics guidelines 50% Court cases 40% Quality of content 33% Editorial quality & independence 33% Integrity of content 33% Private sphere and new technologies 18 19

11 3. The fund management process 3b How do you take ESG criteria into account into the portfolio construction? 3a How do you take into account ESG criteria when defining the universe of eligible investments? If appropriate, describe the eligibility threshold and the resulting level of selectivity. As described in section 2d, the selection process for the sustainable investment universe (NAU) comprises a combination of a best-in-class approach, based on the overall ESG result for companies at the industry level, as well as by excluding undesirable activities and, for debtors, in comparison to the respective category (see the graphic "Overview of the investment process", page 14). Companies and debtors that have the best sustainability ratings are included in the sustainable investment universe. If a company or debtor is part of the sustainable investment universe, analysts evaluate the information in this regard on an ongoing basis. Detailed research is undertaken and the company is placed on a watchlist if incidents that may substantially influence the existing sustainability rating occur. The watchlist procedure includes, inter alia, contacting the relevant company and clarifying the matter. After completing an analysis of the violation, a company or debtor may be excluded from the sustainable investment universe. This will be the case if the company is no longer one of the leading companies in the industry due to a significant reduction in the ESG and industry/product analysis overall result. The sustainable investment universe is modified accordingly and stored in the information system. The sustainable investment universe is binding for the Portfolio Managers. Compliance is constantly monitored by the in-house controllers. Selection process industries with the greatest impact in terms of exclusion criteria Due to the "climate change acceleration" exclusion criterion, practically the entire energy sector is excluded. Suppliers with primarily fossil fuel power plants are excluded around 78% of companies or 87% of the market capitalisation of the MSCI Welt and 43% or 44% of the MSCI Emerging Markets (the figures also include nuclear energy providers). In the raw materials and consumables industry, around 44% of companies or 51% of the market capitalisation of the MSCI Welt and 51% or 55% of the MSCI Emerging Markets are excluded. In the automobile and components industry, automobile manufacturers are excluded (MSCI Welt: around 50% of securities or 71% of capitalisation, MSCI EM: around 69% of securities or 73% of capitalisation) Describe how you link ESG selection with the financial analysis or with portfolio management. More precisely, describe how the results of the analysis of each of the dimensions (E, S and G) are integrated into the investment/divestment process. If applicable, state where you provide information on divestments occurred in the past year on the basis of ESG criteria. If appropriate, explain how potential ESG weightings are defined and describe your treatment of companies that are not subjected to an ESG analysis. Portfolio managers may only invest in companies from the sustainable investment universe. When selecting stock and structuring portfolios for the sustainable investment funds, the portfolio managers responsible consider the ESG and industry results with the assistance of the internal sustainability research. Consideration of positive ESG criteria in the financial and credit analysis The absolute and relative results of the ESG analysis criteria form the basis for evaluating the ESG opportunities and are considered in the fundamental, financial and credit analysis. In the selection of securities, the ESG opportunities, i.e. the active contributions that companies and debtors make to the core topics of renewable energies, energy and resource efficiency, water, education and health are key. The focus is on companies or debtors with leading technologies, products or services with high entry barriers. For instance, for countries the focus is on the contribution to sustainable development. Consideration of ESG risks in the financial and credit analysis and portfolio construction Continuous monitoring of companies' and debtors' ESG risks allows the ESG risks to be considered at all times in the selection of securities and portfolio construction. If, for instance, a potentially serious violation of environmental guidelines or anti-corruption guidelines by a company is determined, the company will be placed on the watchlist immediately by the responsible sustainability analyst. This will be stored in the information system for portfolio managers and serves as a warning. If a company is on the watchlist and being monitored, the company may not be invested in and any existing positions may not be increased. After completing an analysis of the violation, a company may be removed from the sustainable investment universe. This results in divestment by an appropriate deadline. Portfolio managers may only invest in companies from the sustainable investment universe (that were identified by means of an industry leader, innovator or borrower analysis)

12 Divestments in the last 12 months: Investments in the sustainable funds are continuously screened by the Sustainability Research department with regard to possible weak points relating to sustainability and discussed with the relevant portfolio managers at weekly meetings. This resulted in divestments based on ESG risks being avoided during the reporting period. Changes to the holding companies, however, were made due to our focus on the contribution to sustainable development. For instance, investments were made in the German specialist machine construction company, GEA Group AG, due to the contribution to conserving resources in the milk industry. In a countermove, Trimble Navigation was removed. 3f Does (do) the fund(s) use derivative instruments? See table 3e. If yes describe, (i) their nature Exchange-traded derivatives in indices and equities. 3c 3d 3e Does (do) the fund(s) have a specific ESG engagement policy? Not relevant to bond funds. Does (do) the fund(s) have a specific voting policy integrating ESG criteria? Not relevant to bond funds. Does (do) the fund(s) engage in securities lending activities? For certain sustainable investment funds, securities lending and derivative transactions are permitted, however, they are subject to strict guidelines. (ii) the objective(s) To ensure that the investment strategy is implemented as cost effectively as possible and to structure risk/earning considerations as best as possible. (iii) the potential limits in terms of exposure The use of derivatives should never result in internal investment guidelines being contravened. (iv) if appropriate, their impact on the SRI quality of the fund In our view, the use of derivatives has no significant effect on sustainability. Fund name Securities lending Limit for the use of derivatives in % of fund assets SWC (LU) Portfolio Fund Green Invest Income A /B No 100%* SWC (LU) Portfolio Fund Green Invest Income (EUR) A /B No 100%* * 100% is possible. The use of derivatives is, however, mostly limited to around 10% 3g Is a share of the fund(s) invested in unlisted entities pursuing strong social goals? No. (i) is a policy to recall the securities in place in order to exercise the voting rights? Certain sustainability funds are explicitly excluded from securities lending whilst others participate in securities lending. The securities can be redeemed at any time by Zürcher Kantonalbank's trading department. (ii) does the counterparty selection process integrate ESG criteria? No

13 4. Controls and ESG reporting 4a What internal/external control procedures are in place to ensure the compliance of the portfolio with the ESG rules defined in section 3 of this Code? Monitoring of the sustainable investment universe This is first ensured during the selection process for the sustainable investment universe. When selecting the permissible investment universe, the Sustainability Research department verifies whether the qualifying companies and debtors meet the requirements. For instance, a company in the food production sector which tends to have an adverse, indirect effect on the environment will score relatively low in the industry analysis and the company will not be included. The sustainable investment universe is also regularly monitored for critical occurrences. If a new occurrence is identified, the company is placed on the watchlist. Our research partner then contacts the company s management to assess the crisis management and measures taken. If, following the assessment, the overall result has dropped so far that the selection criteria are no longer met, the company is excluded from the investment universe. The sustainable investment universe is binding for the Portfolio Managers. The Sustainability Research department and Swisscanto s in-house controllers regularly check that the Portfolio Managers strictly comply with the ESG requirements in their investment decision-making. State who is carrying out the controls, their frequency and within which timeframe the fund(s) have to comply should a breach be detected. 4b Please list all public media and documents used to inform investors about the SRI approach of the fund, and include URLs. Securities prospectus Sales prospectus Annual reports nachhaltige.html Semi-annual reports Addendums Facts and Figures Key Investor Information Document (KIID) Product information sheet for equities aktien.html If a company is excluded from the investment universe due to controversies, the fund management is obliged to remove the securities from the portfolio within a reasonable period, while safeguarding investors interests. The internal Controlling department continuously checks that these requirements are complied with and reports any restriction violations directly to those responsible. The external Sustainability Advisory Committee is informed of any relevant changes to the investment universe on a quarterly basis and has the option of commenting on these. The Committee is also partly involved in clarifications and in-depth discussions about individual companies. In addition, the Committee can request to view the current portfolio. Fund fact sheets Dedicated SRI web page(s) at company/fund level (if applicable) Swisscanto Sustainable investments create added value Zürcher Kantonalbank Invest with foresight sustainable investment products for retail customers. (Products tab) Engagement/voting policy/approaches (if applicable) stimmrechtausuebung/zuercher-kantonalbank1.html 24 25

14 Link to web page of ESG analysis provider(s) (if applicable) Asset4: Inrate: MSCI ESG Governancemetrics: RepRisk: Trucost: Detailed list of holdings of the fund(s), no more than 6 months old. Semi-annual and annual reports CSR policy of the company Swisscanto Zürcher Kantonalbank Other (please list): Webcasts, Portfolio Manager reports, other publications: html 5. Additional information If applicable, specify the amount of donations and the percentage of management fees that the fund gave to charities in the last year. None

15 Definitions of key terms used in the Code The EUROSIF classification of ESG strategies Exclusions This approach excludes certain investments or investment classes such as companies, industries or countries from the investment universe. Comments: This approach excludes companies, industries or countries from the admissible investment universe if they violate specific criteria. Widely adopted criteria are weapons (production and trade), nuclear power, pornography, tobacco and animal testing. Exclusions are applied to the fund or mandate level. However, they are also increasingly applied to the entire product area and all assets of the asset manager or asset owner. This approach is also described as a value-based exclusion as the exclusion criteria are typically determined by the asset manager or owner. Engagement and the exercise of voting rights on sustainability topics This approach describes engagement activities and active shareholdings regarding the exercise of voting rights and engagement in ESG topics. This is a long-term process the objective of which is to influence behaviour and achieve more transparency. Comments: Engagement and exercising voting rights on the topic of governance is necessary but not sufficient to be part of this strategy. European Transparency Code for Sustainability Funds I Guidance Manual I Page 14 Best-in-Class In business strategy according to which the best companies within an industry, category or class are selected or weighted, based on ESG criteria, i.e. those that, on an industry comparison, set the highest standards in terms of ecology, social and ethics. Comments: This approach is based on the selection or weighting of the best performing companies or assets based on an ESG analysis within a particular investment universe. This approach includes bestin-class, best-in-universe and best effort. Integration Comprises the explicit inclusion of social, ethical and ecological risks as well as corporate governance risks in the traditional financial analysis. Comments: Besides financial factors, ESG factors are explicitly taken into account here in the mainstream analysis of investments. The integration process focuses on the potential (positive or negative influence of ESG topics on companies' financial data that, in turn, affect the investment decision. Sustainable thematic funds Comprises screenings of investments for their conformity with certain international standards or regulations 3. Exclusions and international standards may merge into each other which makes it necessary to ensure a reliable assessment in order to be able to determine the correct classification. The limit is often seen when fund managers expressly refer to external standards such as the UN Global Compact or the OECD guidelines for multinational companies. Another difference is that standards-based screenings include an analysis according to which companies are assessed according to certain ESG-related minimum standards in comparison with their peers. Standards-based screening Comprises screenings of investments for their conformity with certain international standards or regulations. Exclusions and international standards may merge into each other which makes it necessary to ensure a reliable assessment in order to be able to determine the correct classification. The limit is often seen when fund managers expressly refer to external standards such as the UN Global Compact or the OECD guidelines for multinational companies. Another difference is that standards-based screenings include an analysis according to which companies are assessed according to certain ESG-related minimum standards in comparison with their peers. Election and voting behaviour Behaviour of fund management which uses their voting right as an investor to influence corporate policy. Exclusion (exclusion of securities) Prohibition of investments in certain companies or industries due to a single or multiple ESG criteria not being met in accordance with a sustainable investment policy also described as negative criteria (e.g. tobacco industry or animal testing). Divestment Securities that are sold from the fund's securities portfolio. Engagement A long-term process of dialogue involving companies and investors which seeks to positively influence company behaviour with regard to considering social, ethical and ecological criteria. This also includes the exercise of voting rights at AGMs, shareholder resolutions and questions at the AGM, collaborative initiatives, direct contact with companies and decision makers, discussions with other organisations and policy makers from business and politics. ESG Environmental, Social and Governance Fund Special assets for collective investment schemes including sub-funds. Fund management The entity responsible for overall management of the fund. 3 International, ESG-based regulations as developed by the OECD, UN and their agencies (including Global Compact, ILO, UNICEF, UNHRC)