Pension plan invests its assets only in equity index funds that invest in companies with higher than average scores in Environmental, Social and Governance (ESG) ratings, exclude companies that are involved in business activities associated with negative environmental or social impact. In addition, investments in fossil fuel sector and companies involved in controversial activities are excluded or as a minimum significantly reduced.
By applying exclusion criteria and investing only in companies with strong ESG ratings pension plan investments constitute only the best 25% of broad market universe in terms of ESG performance.
This financial product promotes environmental or social characteristics but does not have as its objective a sustainable investment.
The pension plan promotes following environment or social characteristics:
| Characteristic | Description |
|---|---|
| High overall ESG ratings of investee companies1 | Pension plan invests its assets in investment funds that in turn invest their assets in companies with high scores in broad Environmental, Social and Governance (ESG) ratings |
| Reduced negative environmental or social impact | Pension plan aims to avoid or as a minimum significantly reduce exposure to companies that are involved in business activities associated with negative environmental or social impact. |
| Excluded or significantly reduced investment in fossil fuel sector | Pension plan aims to avoid or as a minimum significantly reduce exposure to businesses active in the fossil fuels sector (extraction, generation & reserves). |
| Excluded or significantly reduced investment in companies involved in controversial activities | Pension plan aims to avoid or as a minimum significantly reduce exposure to businesses involved in controversial activities – tobacco, controversial weapons, civilian firearms, nuclear weapons, conventional weapons, alcohol, adult entertainment, gambling, genetically modified organisms, nuclear power |
What are the binding elements of the investment strategy used to select the investments to attain each of the environmental or social characteristics promoted by this financial product?
Pension plan invests its assets only in the index funds that track indices based on environmental or social characteristics promoted by it.
How is that strategy implemented in the investment process on a continuous basis?
Investment universe of the pension plan is limited to index funds.
What is the committed minimum rate to reduce the scope of the investments considered prior to the application of that investment strategy?
On weighted basis for pension plan, the number of constituents in indices tracked by index funds in which pension plan invests is reduced to less than 25% of parent index universe. This is achieved by applying exclusion criteria and investing only in the companies with higher than average ESG ratings.
What is the policy to assess good governance practices of the investee companies?
Pension plan doesn’t invest directly into companies, as a result no specific policy to assess good governance practices is employed for this pension plan.
On the index level, rating models which focus on material issues for each industry are applied by index administrator. Models employ specialized datasets, company disclosures, and media sources, to profile each company in the index. In general, such model focuses on following key issues in respect of governance – ownership characteristics, board and committee composition, pay figures, accounting metrics, policies and practices, geographic segments, controversies.
What is the asset allocation planned for this financial product?
Pension plan invests close to 100% of its assets in equity index funds that promote ESG characteristics, as such all investments contribute towards environmental or social characteristics promoted by the plan. Pension plan does not commit to make sustainable investments as defined in EU Regulation 2019/2088.
What are the other investments that do not promote environmental or social characteristics, what is their purpose and are there any minimum environmental or social safeguards?
Minimal proportion of pension plan assets will be kept in cash, deposits, or other money market instruments to provide for liquidity needs of the pension plan, i.e. to service inflows (outflows) to (from) pension plan. There are no specific environmental or social safeguards applied to this part of pension plan’s assets, however, the market participant safeguarding this part of pension plan assets should demonstrate ability and intention to operate in socially responsible manner.
How the environmental or social characteristics and the sustainability indicators are monitored throughout the lifecycle of pension plan?
On an quarterly basis monitoring is carried out with the help of external tools made available by the index provider. The process encompasses analysis of the indices tracked by index funds that pension plan invests in versus set environmental or social characteristics and the sustainability indicators. Furthermore, the performance of index funds (that pension plan invests in) is compared to that of respective indices they track.
What are the methodologies to measure the attainment of the social or environmental characteristics promoted by the pension plan using the sustainability indicators?
Promoted social or environmental characteristics are mapped to (adverse) sustainability indicators and further measured by index funds’ (where pension plan invests in) index methodology parameters and factors on an aggregated pension plan level:
| Social or environmental characteristic promoted by pension plan | Adverse sustainability indicator* | Index factor or methodology parameter |
|---|---|---|
| High overall ESG ratings of investee companies | Reduced investable universe to increase overall ESG ratings of investee companies | |
| Reduced negative environmental or social impact | 2. Carbon footprint |
Carbon Intensity (t CO2e/$M EVIC) Wtd Avg Carbon Intensity (t CO2e/$M Sales) |
| 10. Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises | UN Global Compact Violations % (*) Social Violations (% of Constituents) |
|
| 12. Unadjusted gender pay gap | Gender Pay Gap | |
| 13. Board gender diversity | Female: Male Board Diversity Ratio Board Diversity |
|
| [additional social] 3. Number of days lost to injuries, accidents, fatalities, or illness | Total Recordable Injury Rate | |
| [additional social] 10. Lack of due diligence (human rights) | Lack of Due Diligence Policy (ILO) % | |
| [additional social] 14. Number of identified cases of severe human rights issues and incidents | Social Violations (% of Constituents) | |
| Excluded or significantly reduced investment in fossil fuel sector | 4. Exposure to companies active in the fossil fuel sector | Fossil Fuel Reserves % Environmental impact-based exclusions: Extraction & Production -Thermal Coal Mining -Unconventional Oil & Gas Extraction -Conventional Oil & Gas Extraction Power Generation -Thermal Coal-based -Oil & Gas-based Power Generation Fossil Fuel Reserves Ownership -Fossil Fuel Reserves for Energy Application |
| Excluded or significantly reduced investment in companies involved in controversial activities | 14. Exposure to controversial weapon
s (anti-personnel mines, cluster munitions, chemical weapons and biological weapons) |
Controversial Weapons % Values-based Exclusions: 1. Tobacco 2. Controversial Weapons 3. Civilian Firearms 4. Nuclear Weapons 5. Conventional Weapons 6. Alcohol 7. Adult Entertainment 8. Gambling 9. Genetically Modified Organisms 10. Nuclear Power |
What data sources are used to evaluate attainment each of the environmental or social characteristics promoted by the financial product?
Primarily data is obtained from indexes administrators webpages, including but not limited to index methodologies descriptions, index profile tools and others. Additional data is sourced from index fund sponsors’ webpages, including but not limited to fund fact sheets, prospectuses and other.
What measures are taken to ensure data quality?
Data is retrieved from well-known major global financial institutions. We ensure that data is up to date and referencing correct product – index or index fund. Where available analytical information is compared across and sourced from multiple sources.
How data is processed?
Data is gathered on the instrument level and aggregated on pension plan level.
What is the proportion of the data that is estimated?
If index administrator’s coverage of constituents is not 100% (in most cases it is 100% or very close to 100%) the remainder is not estimated, the part not covered is not meaningful.
Are there any limitations to the methodologies referred to in point (g), and the data sources referred to in point (h)?
Methodology described above focuses on analyzing index level data rather that investment product (index fund) level data. On data sources the limitation is limited number of data providers for specific index or index fund.
How such limitations do not affect the attainment of the environmental or social characteristics promoted by the financial product?
Index funds track indices closely, physically replicating the holdings to achieve performance of the index. The limited number of data providers are the largest well-known financial institutions in the world, they provide deep analytical insight and tools on their products.
What are the actions taken to address such limitations?
The tracking quality of index funds is evaluated on a regular basis. Where available analytical information is compared across and sourced from multiple sources.
What kind of due diligence activities are carried out on the underlying assets of the financial product, including the internal and external controls on that due diligence?
Pension plan invests its assets only in index funds sponsored by well-known global financial institutions, these index funds track indexes administered by major global index administrators. Qualitative and quantitative analysis is carried out on the sourced data.
What engagement policies are implemented where engagement is part of the environmental or social investment strategy, including any management procedures applicable to sustainability-related controversies in investee companies?
Pension plan invests its assets only in index funds and has no direct investments in investee companies, therefore no engagement policies are utilized.
Is a specific index designated as a reference benchmark to determine whether this financial product is aligned with the environmental or social characteristics that it promotes?
Yes. Following custom weighted composition of 2 indices is designated as a reference benchmark:
75 % – MSCI WORLD SRI Filtered PAB Index;
25 % – MSCI EM SRI Filtered PAB Index.*
Both indices constituting benchmark are based on the same methodology but cover different regions of global financial markets.
Benchmark is constructed from indexes that promote same environmental and social characteristics as pension plan. We review environmental and social characteristics of benchmark on a regular basis.
In addition indices in the benchmark are reviewed and rebalanced on a regular basis by index administrator.
Where the methodology used for the calculation of the designated index can be found?
Methodology of reference benchmarks can be found on the following website: MSCI SRI Filtered PAB Indexes
