Reducing risk, building lasting value

Swiss Life Asset Managers’ approach to responsible investment

Our core investment beliefs ment approach as key to reducing risk and building For over 160 years, Asset Managers has man- lasting value. aged the assets of the Swiss Life Group and its institu- tional and retail clients. We have always taken a long- Formalising our responsibilities term view to ensure life policies and To cement our commitment to responsible investing, we solutions enable people to live with confi dence at every have formalised the way we integrate ESG factors into stage of their lives. As an owner and manager of assets, we our investment and risk management processes. As a understand our responsibility and fi duciary obligations. result, we follow a responsible investment framework, We make all investment decisions in line with regulatory which is aligned to the Principles for Responsible Invest- requirements, and we are committed to value-oriented ment (PRI). and holistic risk management. Swiss Life, as an asset owner, and Swiss Life Asset The value of environmental, social and Managers are both fully committed to the PRI. All sub- governance considerations entities, including Mayfair Capital, Swiss Life Asset The success of Swiss Life Asset Managers is rooted in Managers and Fontavis, are also required to re- our long-term approach to investing, balanced against port to and endorse the PRI. insurance liabilities or third-party client requirements. We believe sustainability is shaping the businesses In this leafl et, we explain how the PRI approach is in- already now and especially in the future. By assessing tegrated across our entire organisation at Swiss Life Environmental, Social and Governance (ESG) criteria Asset Managers and, hence, applicable to all assets alongside fi nancial metrics and risk factors, we generate under management (AUM). Only some asset classes – more sustainable results and increase the quality of our approximately 10% of our AUM – remain out of scope investment portfolios. We are also able to anticipate for ESG implementation, such as mortgages, loans future market developments, which helps us mitigate and full-replicating equity strategies. These asset classes potential threats and seize investment opportunities. have characteristics that make it diffi cult to integrate ESG factors. Swiss Life Asset Managers has always adapted to mar- ket volatility and the challenges of market cycles. As ESG matters are material across industries, we see the systematic integration of sustainability into our invest-

046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 1 02.02.21 16:37 Our responsibility as an asset manager Sustainability is already having a signifi cant impact on We provide solutions designed to help clients reach their economic development and business progress. Therefore, goals and enact their choices by creating sustainable seizing sustainable opportunities and being guided by economic value. Our responsible investment approach is the PRI in our investment decisions and asset manage- deeply embedded in our core processes, notably in con- ment processes is essential for becoming future-proof. trolling risk, portfolio management, investment choices as well as all core supporting functions. Intergenerational responsibility Part of our aim is to give future generations the chance In 2014, The United Nations Conference on Trade and to live a self-determined life – an objective we call our Development (UNCTAD) estimated that $5 to $7 tril- intergenerational responsibility. In order to achieve this, lion investments per year would be needed to achieve we seek to make investment decisions that support the the UN Sustainable Development Goals (SDGs) 1. As a environment, economy, and health and well-being of responsible investor, we see it as our duty to marry the society to protect it for the future. best interests of our clients with our aim to transition towards a more sustainable future. Therefore, we always Active stewardship invest in the most appropriate opportunities for our Part of our ESG concept is to shape industries towards clients and, wherever possible, opportunities to narrow greater sustainability. For example, we can create value the fi nancing gap to the SDGs. in the energy, mobility, food and later living sectors, all of which foster a self-determined life for now and Three pillars to sustainability success future generations. As an asset owner, we work to help the companies and Fiduciary duty projects we invest in and the stakeholder we work with As ESG issues can impact risk as well as the return of to become more sustainable and compliant with global our assets, we view a responsible investment approach initiatives as the UN Global Compact. To this end, we as integral to our fi duciary duty towards our investors, also ask our external asset managers of funds to comply shareholders and clients. with the PRI.

We provide solutions designed to Fiduciary help clients reach their goals Active duty and enact their choices by creating stewardship sustainable economic value. • Taking economic responsibility by • Shaping the environment and achieving risk-adjusted returns society in which we are embedded • Seizing the opportunities / as an active asset owner managing the risks of ESG for • We contribute to the prosperity our investments and well-being of society • Good governance, high transparency • We aim to foster self-determined in our investment decisions and life across society through open communication Intergenerational collaborations and partnerships responsibility

• We serve the present needs for risk-adjusted returns while main- taining natural resources and the environment for future generations • Actively taking measures that reduce the risk of climate change

1 World Investment Report 2014. (2014). United Nations Conference on Trade and Development.

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 2 02.02.21 16:37 Tackling climate change climate change. As such, Swiss Life Asset Managers has A key part of our approach is working towards a more adopted a thermal coal phase-out strategy. To manage environmentally sustainable future. Climate change the risk of stranded assets, we have decided not to un- is one of the greatest challenges faced globally. As such, dertake new bond investments in companies that derive it presents signifi cant risks to assets, as well as oppor- more than 10% of revenues from mining, extraction or tunities. We believe these risks and opportunities will selling of thermal coal. shape investment portfolios and the way assets are managed in the long term, which is why we fully sup- Ethical investment choices port the targets of the Paris Climate Agreement. Swiss Life works to give people confi dence to lead a self-determined life, and we take an ethical standpoint We are taking steps to minimise the impacts of climate on our investments. As such, we will not invest in change and contribute to the global transition to a companies that are signifi cantly involved in producing low-carbon economy. For example, we are seeking ways controversial weapons, including anti-personnel to build the resilience of our clients’ investments to cli- landmines, cluster munitions, chemical, biological mate change risks, in particular for real estate assets and and nuclear weapons. Our blacklist of excluded compa- bond investments. We are also identifying lower-carbon nies is based on external data providers and common and energy effi ciency-related investment opportunities. organisations – as for example SVVK-ASIR – and is going beyond regulatory duties. Minimising carbon emissions Tightening regulation around carbon emissions might lead to specifi c asset classes and sectors becoming stranded. Thermal coal is a notable example of an industry at risk.

Burning thermal coal for power generation not only results in 27% of the global primary energy 1 but also in about 40% of the global energy-related carbon di- oxide emissions 2. It is one of the major contributors to

1 Data and Statistics. 2020. International Energy Agency (IEA). https://www.iea.org/data-and-statistics/charts/global-primary-energy-electricity-generation-fi nal-consumption-and-co2-emissions- by-fuel-2018 2 Coal 2019. (2019). IEA. https://www.iea.org/reports/coal-2019

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 3 02.02.21 16:37 Each asset class has its own challenges, which is why we monitor the performance of all directly held assets to evaluate each of them individually when considering identify any risks relating to ESG, such as climate- ESG factors. On the following pages, we explain how we related risk or corruption. Using this data, our invest- approach each asset class in light of ESG principles. ment managers can decide, challenged by the risk committee, whether to hold, sell or buy the issuer. Securities

Leading with insights ESG factors for fi xed income investments When it comes to risk management, we go beyond clear- Swiss Life Asset Managers has a strong track record cut exclusions to protect our assets. Swiss Life Asset in fi xed income investments. We see climate-related Managers uses a broad range of information to make risks as a key driver for an issuer’s credit default. investment decisions, considering both fi nancial and Hence, we promote green investments and issuers ESG factors. with good ESG performance in order to manage risks related to climate change. We are also currently We use externally sourced ESG research and ratings to investigating the opportunity to enhance our offer- underpin our company analysis and evaluation. The ing in ESG-dedicated products for our third-party insights enable us to keep track of 14,000 corporate and institutional clients. sovereign issuers across the globe, monitor controver- sial issues and uncover company risks. Our portfolio managers and analysts can access the research directly A tailored ESG approach for third-party clients in their systems, while quarterly trainings from our ded- ESG factors are a core part of our service for managing icated ESG specialists ensure investment professionals securities on behalf of third-party clients. Taking a tai- to have the latest expertise on incidents at hand. They lored approach, we can manage investments to meet also use the training sessions as an opportunity to de- clients’ specifi c ESG requirements. Along with our own bate any uncertainties around implementation and ESG ESG positions and beliefs, we can implement client research outcomes. requests for specifi c exclusions and engagement oppor- tunities. ESG factors are also embedded in our risk committees and risk control processes within our business. We

Overview of the ESG integration in the security investment process

Pre-Trade Trade Decision Post-Trade

1. Controversial weapons- 1. ESG data alongside fi nancial 1. Risk monitoring of the based exclusions data in our internal port- ESG performance of all 2. Coal-based exclusions folio management systems directly held assets under 3. Exclusion of companies (e.g. for our credit analysis) management with very bad ESG rating 2. ESG data as part of our 2. Reporting about ESG per- or highly controversial portfolio construction formance of selected funds companies in some of our (e.g. rebalancing of equity 3. Proxy voting on equity equity portfolios portfolios) holdings especially about environmental or social voting items

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 4 02.02.21 16:37 Real estate privately held real estate portfolio in . We proactively look for effective sustainability measures Sustainability risks and opportunities and implement them across the entire real estate life Real estate is particularly vulnerable to climate-related cycle. Examples include considering climate risks dur ing risk. The sector is responsible for around 30% 1 of global the purchasing process, energy-effi cient renovation and 1 energy consumption and 40% of global CO2 emissions, repair and choosing developments suitable for the handi- so it is increasingly impacted by the transition to a capped and the elderly. We also aim to increase tenants’ low-carbon economy and regulatory requirements. At awareness of the need to use resources effi ciently. the same time, property values are directly affected by extreme weather events, such as fl ooding and droughts, By integrating ESG factors (see graph below) into all which affect entire areas. Environmental sustainability levels of our property , our investors aspects are becoming a strategic issue for professional also benefi t from prop erties that are sustainable and property managers. stable in value.

In addition, climate change risks are driving new Monitoring ESG factors for real estate assets investment opportunities. Sustainable, energy-effi cient To continuously improve our ESG performance, we buildings are becoming the new market standard, have developed indicators and metrics for our entire real while conventional properties will experience devalua- estate portfolio. These include one for greenhouse gas tions leading to so-called brown discounts in the and a target for the amount of ESG measures under- future. Likewise, locations that are currently seen as taken in a portfolio. We also use the Global Real Estate undesirable may become more attractive. Sustainability Benchmark (GRESB) to assess selected portfolios – more then 50% of our real estate AUM – Sustainable property portfolio management against peers and to identify gaps for improvement. Swiss Life Asset Managers has been investing in real estate for over 125 years and is the owner of the largest

Overarching division-wide responsible property investment Principles

INVESTMENT LEVEL DEVELOPMENT LEVEL OPERATIONAL LEVEL Acquisitions and Divestments (Re-)Developments and Refurbishments Operations and Maintenance

Pre-acquisition consideration of ESG criteria Principles are set throughout the entire Optimising capital expenditures, required as as part of the regular due diligence process in development process in order to fully part of the maintenance and repair cycle order to identify the level of risk and amplify understand the ESG risks and opportunities from a regulatory, fi nancial, sustainability risk awareness. of each project. and well-being perspective.

Environmental criteria (e.g.) Environmental criteria (e.g.) Environmental criteria (e.g.) · Consumption of natural resources or quality · We seek to achieve best practice on energy · Business and functional areas develop indicators of buildings and surroundings effi ciency standards sustainability strategies in alignment with · Building level certifi cation and energy · Assessment of the environmental this framework performance risk profi le · Optimise resource consumption and energy effi ciency Social criteria (e.g.) Social criteria (e.g.) · Assessment of tenants’ aspects such as · Analysis of socio-economic impacts of Social criteria (e.g.) health and safety or comfort our project developments · Engagement with tenants, key suppliers or · Location and transportation aspects of · Conduct information meetings where the community in which we operate the building necessary · Alignment of engagement and sustainability strategy

Governance criteria (e.g.) · Promote the awareness of the responsible investment approach and its implementation towards all business partners – from investors, tenants, to suppliers or the community · We want to ensure compliance with applicable regulation and legislation, valuing our business partners and engaging in dialogues

1 2014: Buildings. (2014). Intergovernmental Panel on Climate Change.

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 5 02.02.21 16:37 Infrastructure Sustainable infrastructure opportunities To effectively manage risk in infrastructure investments, As climate change and the fi ght against it is bearing fun- we work to anticipate regulatory changes, reduce run- damental changes to business models and society across ning costs of facilities and ensure projects meet social sectors, the transition towards a low-carbon economy demands. We also bring ESG considerations into our creates also major opportunities for infrastructure as- investment review process, which includes assessing en- sets. Fields such as renewable energy, clean tech and lo- vironmental issues, labour conditions, safety, local job gistics are key focus areas of opportunity for infrastruc- creation and stakeholder needs. ture. We want to seize these opportunities, and we are actively pursuing investments that enhance low-carbon ESG is fi rmly embedded into our decision-making for transition and are committed to not harming biodiver- infrastructure. We use a questionnaire we developed sity. It goes without saying that we will search for invest- internally to inform our due diligence and annual ments that also generate optimal risk-adjusted returns. monitoring of ESG risks of assets. The questionnaire works alongside the external GRESB rating, which we use to analyse a selection of funds.

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 6 02.02.21 16:37 Engage to foster sustainability • Active governance: We actively promote ESG-related matters where Swiss Life Asset Managers holds a seat Engagement with various stakeholders of our invest- on the board of an asset or is a signifi cant shareholder ment portfolio is critical to approach responsible (e.g. infrastructure assets). investment as part of our fi duciary duty. At Swiss Life • Community and third-party dialogue: Building lasting Asset Managers, we believe encouraging an active and value is core in real estate asset management, not only trans parent dialogue with our invested companies, for asset owners but also for the social environment. tenants and co-investors is a powerful tool for reducing Therefore, we engage with the communities and neigh- risk while fostering the readiness to a more sustainable bours of specifi c projects to identify opportunities future. Active stewardship – one of the three core pillars to enhance the socio-economic benefi ts of our assets. in our ESG concept – leads this objective by promoting • Collaborative enhancement: The responsible invest- engagement in line with economic development. ment industry needs to collaborate and share actions in order to improve. We are looking for ways to share We nurture engagement on various levels, including: our insights and experience with domestic and inter- national associations. • Assessing votes: As a key process of our proxy voting activity, we review all environmental and social-related votes. Our Responsible Investment Management Team assesses the votes and makes a recommendation to the voting entity.

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046_304_Swisslife_AM_ESG_Approach_Leaflet21_210x297_EN 7 02.02.21 16:37 Building our ESG expertise make decisions on questions around ESG integration into the investment or risk management process. They Our ESG specialists and the ESG Board also decide how to progress with investments that other A future-proof business model necessitates the imple- committees and processes have raised as controversial. mentation of sustainability criteria – ESG – in all core business processes. Therefore, ESG specialists at Swiss Our Executive Committee, headed by the Swiss Life Life Asset Managers develop and implement our ap- Group CIO, discusses overarching ESG issues, such as proach to responsible investment. These specialists are green investment strategies and controversy analysis of on one hand dedicated ESG managers and on the other the securities portfolio. hand representatives from each asset class and relevant functions. Together they form the ESG Board, chaired Promoting our responsible investment approach in by the Head of ESG. the fundament We want to see ESG factors incorporated into the day- Swiss Life Asset Managers’ ESG Board creates our to-day processes of all our teams, from portfolio to responsible investment approach, guides how the ap- fund, and risk to sales management. By putting ESG proach is implemented and makes decisions on ESG experts in charge in all areas of our business, we plan to matters. It also encourages teams across the asset classes bridge the gap between business and ESG expertise. to exchange insights on ESG topics. It is the advisor to Our ESG ambassadors pursue this role. the Executive Committee in terms of ESG and reports directly to the Group CIO. As part of their annual personal targets, ESG ambassa- dors take responsibility for applying and developing our Embedding ESG in decision-making committees approach to responsible investment in their area The members of the ESG Board also chair the corre- of business. An attractive events programme through sponding asset class or business unit-specifi c ESG the year helps to build an ESG community that shares committees, which meet monthly to deal with specifi c insights and encourages progression. matters. During the committee meetings, our experts

Direct reporting line Functional reporting line Fully dedicated to ESG Group CEO

Local CEOs Group CIO Group CFO Group Communications & Strategic Marketing

Head of ESG Group Sustainability Swiss Life Asset Managers

Responsible Investment Real Assets Real Assets ESG Committee Management

Proprietary Risk Management PAM ESG Committee Asset Management (PAM)

Third-Party Legal & Compliance Asset Management (TPAM) TPAM ESG Committee

Communications

Subject Matter Experts ESG Board

ESG ambassadors Across all teams and functions of the whole organisation of Swiss Life Asset Managers

For more information about responsible investing at Swiss Life Asset Managers, please visit www.swisslife-am.com/responsible-investment

Swiss Life Asset Managers, General-Guisan-Quai 40, 8022 , Switzerland Phone: +41 43 284 77 09, www.swisslife-am.com 1.2021

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