2. Countries

Countries are excluded in case of serious controversies, death penalty, human rights violations, lack of labour rights, child labour, corruption (according to Transparency International), violation of the Nuclear Non-Proliferation Treaty, high military budget, authoritarian regime (according to Freedom House Ranking), non-ratification of the Biosafety Protocol.

Integration of sustainability risks into the asset selection process
As part of our investment selection process, we consider sustainability risks and their impact on the value of assets. For us, a sustainability risk is an event or situation in the areas of environmental, social or governance (ESG), whose occurrence could actually or potentially have a significant negative impact on the value of our investments. A sustainability risk does not only have a direct impact, but influences the known risk types such as market risk, credit risk and liquidity risk.

Sustainability risks are integrated into our selection process through various procedures. We analyse sustainability factors in a structured manner through our sustainability approach and can thus achieve a reduction in sustainability risks in addition to a positive impact.

In addition to the application of exclusion criteria, we include ESG criteria in the assessment of economic quality via security analyses and selection.

In doing so, we try to achieve measurable positive effects on the United Nations Sustainable Development Goals (SDGs) and to reduce sustainability risks in all funds. For this purpose, we use publicly available information, internal research, as well as data and ESG ratings from established providers. This is how we ensure that a wide range of criteria are taken into account, such as product quality, contribution to the Paris Climate Agreement and fair treatment of employees. The minimum ESG rating of our positions is BBB. We also use the results of the sustainability assessments in our return and risk assessment. This is done both in the analysis of potential investment opportunities and in the ongoing monitoring of existing investments.

Consideration of sustainability risks in the remuneration policy
In our exclusively sustainable funds, we always observe the procedures described above for dealing with sustainability risks. Our sustainable investment approach is also reflected in our company's remuneration policy. We do not offer our employees any incentives that are not in line with the interests of our clients and our sustainable asset selection.

Consideration of adverse impacts at the corporate level

Our funds consider principal adverse impacts on sustainability factors (environmental, social, labour rights, human rights, corruption, bribery and corporate governance) to maintain due diligence. This ensures that the funds' investment objective is not achieved through adverse impacts on other sustainability areas.

The consideration of adverse sustainability impacts is incorporated into the investment process of the funds through various procedures. First of all, exclusion criteria have been defined. This ensures that investments are not made in companies or countries with particularly high adverse sustainability impacts, or that these are removed from the investment universe as a measure in the event of an increase in adverse impacts.

The associated adverse sustainability impacts to be taken into account in an investment decision are determined on a monthly basis. Data from ESG Screen 17, MSCI ESG, CDP and right. based on science are used for this purpose. In order to reduce the adverse sustainability impacts, we will not only sell positions, but also seek an active dialogue with the companies in order to express constructive criticism and support them in aligning their business more sustainably and complying with international standards.

The fund management uses active engagement and proxy voting to improve the ESG quality and SDG impact of the companies. Through constructive dialogue with the management of the companies, the risk of the investment should decrease and the performance opportunities increase. If the engagement is unsuccessful, or if the company's responses are unsatisfactory according to our own assessment, voting rights are used against management in the case of equity investments and/or the position is sold promptly. In some cases, we cooperate with other institutional investors and use platforms such as the United Nations Principles for Responsible Investment (UN PRI).

ESG Portfolio Management GmbH is committed to the German Sustainability Code, is a signatory to the Principles for Responsible Investment (PRI) initiative and the Carbon Disclosure Project (CDP), and aligns its activities with the goals of the Paris Climate Agreement and the Sustainable Development Goals (SDGs).