“The Sub-Fund mainly invests in international standard aligned green bonds issued by China and other emerging market issuers with the aim to promote green financing, bring upon advancement in environmental friendly investments and social awareness in emerging market countries. In that sense, the Sub-Fund intends to finance via its green bond investments in particular the environmental characteristics described by the UN Social Development Goals (“SDGs”), including but not limited to the SDGs relating to Renewable Energy & Energy Efficiency Projects (SDG 7, 12 and 13), Sustainable Water and Waste Treatment Projects (SDG 6) Clean and Mass Transportation (SDG 8, 9, 11 and 13), Green Buildings (SDG 6, 8, 11 and 13) and Waste Management SDG, 12 and 13). The Sub-Fund thereby promotes mainly environmental and also social characteristics within the meaning of Article 8 of SFDR. In pursuing the aforementioned SDGs, the Sub-Fund has chosen to pursue climate change mitigation and the avoidance of greenhouse gas emissions as one of its key indicators for reporting the impact of its investments, but does not pursue climate change mitigation as an exclusive environmental objective.”
Promotion of environmental and social characteristics
“When selecting a potential investment, the Investment Manager primarily considers such investment's contribution towards the SDGs and climate change mitigation as well as the issuer's corporate governance practices and whether such investment significantly harms any other environmental and/or social objective. The Investment Manager's assessment as to whether an investment contributes to the aforementioned SDGs and climate change mitigation will include the consideration of a number of environmental factors. In addition, the Investment Manager will always consider governance factors in relation to the relevant issuers of the respective green bonds as part of its investment decisions for the portfolio as a whole. Such governance factors include sound management structures, executive remuneration, employee relations, remuneration of staff and tax compliance, and reputational issues for companies such as weak labor practices.”
In its evaluation of environmental, social and governance factors the Investment Manager may utilize its internal research, third party research and data providers as further described in Ping An's Green Impact Assessment Framework (“PAGAIF”) as set out below:
Ping An Green Impact Assessment Framework (PAGIAF)
The Investment Manager seeks to provide accurate and timely information to clients, partners and stakeholders about the Sub-Fund's investment activities. We disclose relevant information about the project, environmental and social implications, as well as expected impact. Disclosure of impact regarding the Sub-Fund's investments relies on publicly available information, such as annual impact reports, dedicated newsletters and offcial websites of green bond issuers, if available. We tailor our selected indicators to summarize the impact of eligible projects that have been financed by the green bonds in which the Sub-Fund invests. Examples of measures we use include the total renewable energy capacity built (GW), energy generated per year (GWh) and sewage water treated (M).
In addition, we also track the distribution of green bonds in the Fund's portfolio by sector and geography, according to the issuer's main location. We also track how the proceeds of each green bond are used by location and sector to enrich the impact reporting.
Avoided GHG emissions has been chosen as one of the key indicators for reporting the impact of the Fund's investments. Specifically, we use the following approach:
We adopted the definition used in issuers and second party opinions (SPO) reports, which follow the same definitions of Scope 1, 2 and 3 emissions as defined in the Greenhouse Gas Protocol developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). That is, Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain, including both upstream and downstream emissions GHG emissions from Scope 1 and Scope 2, with a uniform metric of tCO2 equivalent. Scope 3 GHG emissions may be included on a case-by-case basis and only when supported with well-documented data. Whenever applicable, we are conservative when reporting the extent to which an initiative avoids GHG emissions. For example, one green bond has fully allocated its proceeds to six renewable projects and one transport project. However, the issuer has disclosed the avoided GHG emissions for the six renewable projects, but not for the transport project. In this instance, we will still use the disclosed data for the Fund's impact report because it is conservative As the green bonds proceeds are at different stages of deployment and reporting cycles, ex-post actual impact will be used wherever it is available, ex-ante impact at bond level will be applied for newly issued bonds as estimate potential impact. As there are also cases where bond specific impact data are not available during our reporting period, to strike a balance between totality and accuracy reporting, we provided 2 sets of calculation of potential environmental impact at aggregated fund level; 1) first with weighted average of environmental impact reported at bond level only (which likely underestimate the potential impact), 2) another set with weighted average of all bonds, using corporate level impact reported by issuers, prorated by the notional of the green bond as % of the company's working capital for those without bond level reporting data.
The Fund has calculated GHG avoided emissions per $1 million invested per year by calculating by the total GHG avoidance attributed to Fund's subscription (tCO2e per year) divided by the total value of the Fund's Green Bond portfolio. This method prevails in the market and has been focusing on the GHG avoidance impact of the green bond portfolio only. Again 2 set of data at fund level are provided as per no.3 assumptions. Whenever a proration is needed in order to attribute impact to the Fund's investment, it is achieved based on the respective issuance/investment volume. Proration is often needed for the following situations:
The underlying green bond is issued in tranches, while the Fund has only invested in one of them. In this case, we will calculate the proportional impact, since the Issuer may often disclose the impact only at the overall bond program level Proceeds of the underlying green bond is only a fraction of the total financing for the entire green project, whereas impact is disclosed by the issuer at the project level.
Integration of Sustainability Risks as well as promotion of environmental and social characteristics under SFDR
As part of its investment decision making process, in line with Article 6 (1) of regulation (EU) 2019/2088 on sustainability-related disclosure requirements in the financial services sector, as amended (the Sustainable Finance Disclosure Regulation, “SFDR”), the Investment Manager (i) takes any environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the Sub-Fund into account in its investment decision-making process (“Sustainability Risks”) and evaluates them on an ongoing basis and (ii) will in line with Article 8 of SFDR ensure that the promotion of environmental and social characteristics by the Sub-Fund is achieved by financing the above mentioned SDGs.
Integration of Sustainability Risks
The occurrence of Sustainability Risks may lead to a (substantial) decline in the financial profile, liquidity, profitability or reputation of the underlying investments of the Sub-Fund and therefore potentially the Sub-Fund itself. Sustainability Risks may have a significant impact on all known risk types and, as a factor, can contribute to the materiality of these risk types.
The Investment Manager will take into account Sustainability Risks, amongst other risks, during its process of evaluating suitable investments in line with the Sub-Fund's investment policy and will assess any potential material impact any risks and in particular Sustainability Risks may have on the return of the relevant assets the Sub-Fund holds, as well as on the return of the Sub-Fund as a whole. Investors should note that information that the Investment Manager relies on in assessing Sustainability Risks as described above, may be based on company disclosures or third-party information sources that are forward looking statements of intent and not necessarily fact-based or objectively measurable. This lack of uniformity and objective metrics can lead to missed opportunities or miscalculations as to the perceived actual or potential negative impact Sustainability Risks may have on company fundamentals, potentially leading to less attractive investment outcomes.”