Handelsbanken Latinamerika Impact Tema (A10 NOK)

Summary

No significant harm to the sustainable investment objective

For a company to be defined as a sustainable investment, the investment must not only contribute positively to the attainment of an environmental or social goal, the investment must also not cause significant harm to any other environmental or social objective and the company must follow good governance practices.

To ensure compliance with the do no significant harm principle, the Management Company applies the following principles:

1. Exclusion criteria for companies with activities linked to controversial sectors as well as specific PAI indicators (Principal Adverse Impact), such as fossil fuels and controversial weapons.

2. Exclusion criteria for companies with verified violations of international norms and conventions.

3. Assessment that the investments are not considered to cause significant adverse impacts on sustainability factors (PAI). This is conducted through the Management Company's internal PAI tool.

4. Assessment of what products and services in which the company is otherwise involved in, as well as if these can be considered as significantly obstructing a sustainable development.

In the context of taking into account the PAI indicators, the Management Company conducts engagement work through dialogue and active corporate governance so that the issuing companies manage their sustainable risks and any principal adverse impacts on sustainability factors.

With respect to the Management Company's assessment methodology for sustainable investments, including the assessment of the do no significant harm" principle and the Management Company's PAI tool, read more in the document SFDR - Definitions and description of methodology within sustainability, which is published on our website at www.handelsbankenfonder.se.

Sustainable investment objective of the financial product

The fund is an equity fund with investments in Latin America and mid-America. The objective is to make investments in companies whose economic activities contribute to the attainment of the Sustainable Development Goals in Agenda 2030. Each company is analyzed based on a framework that includes what the company does, for whom, to what extent and the impact from the company. This framework assists in identifying who/what benefits from the company's solutions or activities in which the stakeholders may vary and range from local inhabitants in regions where social challenges remain in the efforts to attain the UN's Sustainable Development Goals, to specific groups that do not have access to basic human needs, as well as climate solutions in general. The analysis includes products and services within sectors such as education, financial services, healthcare, housing, electricity, infrastructure, green energy, water and sanitation, sustainable agriculture and food production. The approach utilized to analyze companies from an impact-perspective is closely linked to generally-accepted frameworks and initiatives within the area of impact investing.

The fund's sustainable investments are made in companies whose economic activities are considered to have a positive impact on the attainment of one or several environmental or social objectives, or alternatively, companies are involved in activities aligned with the EU Taxonomy. The environmental and social objectives are defined based on the Sustainable Development Goals in Agenda 2030.

Sustainable investments contribute primarily through investments in companies that support the Sustainable Development Goals in Agenda 2030 and/or activities aligned with the EU Taxonomy by exceeding a minimum level for the company's revenue in line with the Sustainable Development Goals or the EU Taxonomy or a combination thereof. In addition to company revenue, the capital expenditures or operational expenditures (CAPEX/OPEX) can be used to assess a company's contributions to the objectives. Read more about the Management Company's assessment methodology for the definition of sustainable investments in the document, SFDR - Definitions and description of methodology within sustainability, which is published at www.handelsbankenfonder.se.

Investment strategy

The fund is an actively-managed equity fund. The fund applies the following investment strategy to attain the environmental and social characteristics promoted by the fund:

Sustainability analysis: The fund is managed through a thematic process with focus on companies that contribute to the attainment of the Sustainable Development Goals in Agenda 2030 or alternatively companies that contribute to the transition to a world with low carbon emissions. Companies in the fund can be divided into three categories:

1. Companies that contribute to the attainment of the Sustainable Development Goals in Agenda 2030 through their economic activities, where a minimum of 50% of the revenues make a contribution.

2. Companies that contribute to the attainment of the Sustainable Development Goals in Agenda 2030 through their economic activities, but do not meet the 50% limit. These companies need to have a clear strategy to increase their exposure to eventually reach the 50% limit.

3. Companies that operate in a sustainable manner or that proactively develop the activities toward more sustainable business methodologies.

All of the companies included in the fund are analyzed and evaluated based on the aforementioned categories, as well as have a documented internal and external ESG analysis.

Asset Stewardship: Active engagement is an essential strategy to influence companies in a more sustainable direction. The Management Company and the fund manager manage this through company dialogues, corporate governance work and work within investor networks. Company dialogues are conducted directly between the fund manager and the company, together with other investors or within the scope of investor networks and other collaborations. The dialogues include a broad range of sustainability issues. The Management Company conducts an active and responsible corporate governance through representation in nomination committees and voting at shareholders' meetings. The starting point for our efforts is based on our Policy for shareholder engagement and responsible investment, as well as our guidelines for nomination committee work.

Exclusion strategy: The fund applies sustainability criteria in the form of an exclusion strategy. The strategy includes companies with production and distribution of controversial weapons, nuclear weapons, weapons and military equipment, alcohol, tobacco, cannabis, pornography, commercial gambling, fossil fuels, as well as companies with verified violations of international norms and conventions related to human rights, the environment, employee rights or anti-corruption and anti-bribery. The revenue limits applied by the Management Company with regard to production and services are stated in the table for exclusion that is shown in the Appendix for sustainability-related disclosures in the fund's prospectus.

The fund has the option of including so-called transition companies involved in power generation, transmission and distribution of electricity and with some exposure to fossil fuels. Transition companies refer to companies that have been considered by the Management Company's sustainability committee as those that are in the process of transitioning business operations in a manner that is expected to contribute to, rather than counteract, the attainment of one or several of the Sustainable Development Goals. The company's rate of transition is assessed based on the following dimensions: that the companies' activities do not consist primarily of fossil power generation, that the company's current investment rate supports the transition from fossil fuels to renewable energy, as well as that the company's forecasted business development of the activities is in line with a global warming of a maximum of 2?C. The limits in the table referenced in the previous paragraph do not apply to so-called transition companies.

Pursuant to regulations, the fund may only invest in a company that meets good governance practices. The Management Company ensures this through the application of the Exclusion and Inclusion strategies. By excluding companies with verified violations of international norms and conventions linked to, for example, taxes, labor rights, as well as anti-corruption and anti-bribery, the Management Company ensures that the fund's investee companies comply with current practices related to good governance. A company analysis is conducted for each investment decision in which sustainability dimensions as well as financial dimensions are factored into the decision. This analysis includes issues related to the companies' governance, such as relationships with employees, remuneration, sound management structures, as well as compliance with tax regulations. Examples of relevant principles and guidelines include the Global Compact principles 1,3,6 and 10, OECD's Guidelines for Multinational Enterprises as well as conventions such as the UN's Convention against Corruption and ILO's Convention 111, Discrimination in Respect of Employment and Occupation. Read more about the Management Company's methodologies and principles for good governance in the document SFDR - Definitions and description of methodology within sustainability, which is published on our website at www.handelsbankenfonder.se. The Policy for shareholder engagement and responsible investment is also available on this website.

The fund's stated minimum proportion of sustainable investments and application of an exclusion strategy is a binding element for the Management Company in the management of the fund.

Proportion of investments

The fund is an actively-managed equity fund that normally only invests directly in equities. The fund may hold cash for its liquidity management. The stated asset allocation is based on the fund's investment strategy and its objective of making investments in companies whose economic activities support the attainment of the Sustainable Development Goals in Agenda 2030. The fund's sustainable investments will be made in investments with environmental and social objectives. Given that the fund is actively managed and the share of investments towards environmental and social objectives can vary over time, the information related to the minimum proportion of sustainable investments for each objective is intentionally set at a conservative level in light of the rules applicable to the fund's management. However, the planned asset allocation is expected to exceed the stated minimum proportions. This also applies to the information regarding the minimum proportion of sustainable investments at the total level, i.e., the minimum proportion of sustainable investments irrespective of the investments having an environmental objective or a social objective. The result of the actual allocation in the fund will be reported in the fund's annual report.

Monitoring of sustainable investment objective

Methodologies

Data sources and processing

Information on the companies' exposure to excluded activities and incidents that lead to violations of international norms and conventions is obtained from external data providers. The external data providers gather information about the companies' exposure to excluded activities from public presentations made by the companies and/or through direct contact with the companies. Information about violations of international norms and conventions is obtained from ISS ESG. The contributions to the EU Taxonomy are obtained from Sustainalytics and SDG contributions are obtained from ISS ESG. In addition, the Management Company conducts its own analysis with regard to contributions to environmental or social objectives, with the assessment based primarily on data obtained from the companies' annual reports.

The sustainability data for various areas can be estimated if this can be carried out in a reliable manner and when reported data is unavailable. In this case, the purpose of the estimation is to give a conservative estimate. Examples of areas that can be estimated are shown below. Where possible, the share of the reported data will also be provided.

The share of the estimated data at the fund level is continually changing since estimates are made per investment and the fund’s exposure for each investment changes. The information provided below is based on data as of 31 December 2022.

Greenhouse gas emissions:
Estimated data for Scope 1 + 2 was 15.6% and reported data was 84.4%. Estimated data for Scope 3 was 61.8% and reported data was 38.2%.
Contributions to the EU Taxonomy:
Estimated data was 100% and reported data was 0%.
Exposure to the fossil fuels sector:
No information available for the share of estimated or reported data.
Company’s sales from products and services considered to be contributing to a social or environmental objective:
No information available for the share of estimated or reported data.

The Management Company conducts ongoing discussions with the external data providers to ensure high-quality data. Specific analyses are completed when there is contradictory information. In questionable situations, the company concerned is contacted to have the opportunity to provide their view on the situation.

The Management Company analyzes and controls the data to capture any deficiencies and/or inaccurate information. Data received from external sources is used primarily in its raw form provided that the data is reliable. For example, the management of data conducted for aggregations and transformations, such as the calculation of the carbon footprint based on the separate data points for emissions and company value, respectively.

Limitations to methodologies and data

Information about the companies' exposure to excluded activities is limited to the information made available from companies themselves. Consequently, it is not always possible to ensure the exact exposure to these activities. The limitations are most prominent for companies with a smaller portion of the business involved in the excluded activities, such as a grocery store that also sells alcohol. This is an acceptable limitation since the principal impact of the fund's strategy is attained by the exclusion of companies with significant exposure to the excluded activities.

There are also limitations linked to the use of estimated data to enable the assessment of positive and adverse impacts since an estimate may not necessarily be consistent with reality. The use of estimated data can still be beneficial, provided that it is calculated conservatively and only when it can be conducted reliably. It may then be possible to identify a company with unwanted exposure to fossil fuels, even though the company may not have reported the exposure themselves. There are also limitations due to the fact that a significant amount of data is reported with a lag in the annual reports of companies. This is managed by making use of the most recently available information. Some limitations linked to data accessibility and data quality are inevitable but are reduced to the greatest extent possible through conservative assessment processes and continuous further development to enhance the information for screening and ensure the data quality.

Due diligence

The Management Company regularly takes into account the principal adverse impacts for sustainable development in the management of all of its investment decisions. The Management Company's website, www.handelsbankenfonder.se, provides a description of the Management Company's due diligence routines for identifying and prioritizing principal adverse impacts and general information about the indicators used for sustainable development. The website also provides a description of the principal adverse impacts for sustainable development within the Management Company's business activities and a report of the actions taken in relation to these. The description also includes information about how the Management Company engages companies on behalf of the funds through dialogue and active corporate governance.

A control is conducted for all the investments made in the fund upon investment and on an ongoing basis to ensure that a company can be categorized as a sustainable investment, pursuant to the assessment methodology applied by the Management Company, together with a control against the Management Company's exclusion criteria to ensure that there are no companies involved in activities considered by the Management Company to be inconsistent with a sustainable development. This applies to activities regarding the production and distribution of controversial weapons, nuclear weapons, weapons and military equipment, alcohol, tobacco, cannabis, pornography, commercial gambling, fossil fuels, as well as companies that violate international norms and conventions related to human rights, the environment, employee rights or anti-corruption and anti-bribery. Any deviations are managed through exclusion.

In addition to the exclusion strategy, indicators are used within the areas of greenhouse gas emissions, energy efficiency, biodiversity, water, waste, social and employee rights issues, human rights, the environment, anti-corruption and anti-bribery to identify and prioritize the principal adverse impacts. The Management Company addresses adverse impacts through engagement dialogues and active corporate governance and uses both internally-developed analyses as well as external analyses as the basis for decisions on how the Management Company should vote at shareholders' meetings. For the fund company's funds, the risk department also conducts daily assessments of the funds' underlying assets to monitor whether these are in line with the sustainability requirements set for each fund. For more information, see "Due diligence routines" at handelsbankenfonder.se.

Engagement policies

As a significant investor, the Management Company has a responsibility and an opportunity to engage with companies to act responsibly and conduct their business activities in a sustainable manner, in addition to promoting the development of the sustainability efforts in the asset management industry. The Management Company engages through company dialogues, corporate governance work and investor networks. Our engagement efforts are based on Handelsbanken's core values, our commitments, as well as the international norms and conventions supported by the Management Company. The company dialogues include overall strategic sustainability issues, as well as specific dimensions of a company's risks, opportunities and impact linked to sustainable development.

Through our corporate governance work, we influence companies by participating in nomination committees and voting at shareholders' meetings. Networks and collaborations with other shareholders and stakeholders contribute to collective learning, development and making an impact in the engagement work. The engagement work is conducted on behalf of the index funds and other passively-managed funds through company dialogues as well as corporate governance work and investor networks.

Additional information about the principles and methodologies applied by the Management Company in its engagement work and in its corporate governance, as well as how the work is structured within the Management Company is available in the Management Company's Policy for shareholder engagement and responsible investment at www.handelsbankenfonder.se.