Pareto Global Corporate BondSustainability reportDecember 2018–December 2019

NORD

IC SWAN ECOLABEL

Investment Funds3101 0020

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In Pareto Asset Management we spend ever more time thinking about what we want our investment activity to achieve. We think of this as responsible investing. Inasmuch as our portfolio management has a decidedly long-term perspective, it is only natural that we take environmental, social and governance aspects into account. Such factors do influence long-term value creation and sustainability, and they entail a clear ethical guidance: We shall not make investments which constitute an unacceptable risk of contributing to unethical acts or omissions.

Our view is that acting responsibly is a basic requirement for generating long-term and sustainable value creation. Responsible investments to us means that environmental,

social and corporate governance factors are integrated in the investment process to better manage risks and opportunities.

We believe, our management philosophy is well suited for this purpose. Active management, thorough analyses of a limited number of companies and a long-term perspective form a good starting point for sustainable investments. If you are serious about achieving something by way of your investments, you just can’t invest blindly in a broad-based index.

Sustainable investment, however, is a demanding exercise. It raises a lot of dilemmas and provides no clear answers, and it requires a lot of subjective judgement. It

Sustainable investments

also entails a lot of erring on our part. We make mistakes, we learn from our mistakes, and we have to admit that we still have a lot to learn.

You can find more information about the Pareto Global Corporate Bond fund and its sustainability work at paretoam.com/en/pareto-global-corporate-bond. Additionally, you can access more information about Pareto Asset Management’s sustainability work at paretoam.com/en/about-us.

Historical returns are no guarantee for future returns.

Mathias LundmarkPortfolio Manager

Stefan EricsonHead of Fixed Income and Senior Portfolio Manager

Finn Øystein BerghChief Investment Officer

Kaia GaarudAnalyst

Investment team

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A Nordic Swan Ecolabelled fund represents a sustainability-labelled alternative for savers and professional investors, and an instrument for fund management companies to show that their funds fulfill stringent requirements. Everything that a Nordic Swan Ecolabelled fund must attain – the exclusion of unsustainable companies, the inclusion of more sustainable companies and acting in a transparent manner – is undertaken to encourage companies and capital markets to act more sustainably in the long run.

*The application of the Swan label is conducted by Miljömärkning Sverige AB, which works on behalf of the government, and which does not represent any fund industry interests.

Carrying the Nordic Swan Ecolabel means that: • The fund excludes investments in certain industries

and companies that are particularly problematic from a sustainability point of view.

• The fund discloses all of its holdings on a quarterly basis. In addition, the fund publishes an annual report on the sustainability performance of the fund.

• The fund conducts an extensive ESG (Environmental, Social and Governance) analysis of its potential investments and prioritizes companies that are more sustainable.

• Nordic Ecolabelling encourages active ownership and rewards funds that engage with investee companies.

About the Nordic Swan Ecolabel

Why choose the Nordic Swan Ecolabel? • The Nordic Swan Ecolabel is a very well-known

and highly respected trademark, especially in the Nordic region.

• The Nordic Swan Ecolabel is a simple way of communicating environmental work and commitment to customers.

• The Nordic Swan Ecolabel means that the fulfilment of the criteria has been checked by an external third party. This is a unique feature in the Nordic fund market.

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About Pareto Global Corporate Bond fundIn 2018, Pareto Global Corporate Bond became the first fixed income fund in Norway and Sweden to receive the Nordic Swan Ecolabel. We have hired a dedicated analyst in order to fulfil the strict requirements of the Nordic Swan Ecolabel.

Being a Nordic Swan Ecolabelled fund, Pareto Global Corporate Bond is highly selective when including companies in its investment universe. The investment strategy utilizes “negative selection criteria” where several sectors with more boom and bust characteristics are excluded (energy, commodities and low exposure to real estate and financials). A positive selection process takes over where characteristics like business line, market position, capital structure and transparency provide valuable information about the company.

As a start, we automatically exclude any company included in the Norwegian Government Pension Fund exclusion list. In addition, we further exclude companies based on our own assessment and the Swan Ecolabel requirements.

We continue contributing to the discussion and will revise and enhance our framework when appropriate as international standards develop further.

ESG activities During the period, we have made one change to the holdings in the fund due to a company-specific ESG event. Phone operator Lebara (VIEO) is an example of non-conformity, in particular on governance issues. Initial financial shortcomings and concern on several corporate governance issues led to the holding being sold.

We have not made any changes in the fund’s investment policy that affected the fund’s holdings.

One positive ESG profile we would like to highlight is the small-scale hydro power company Småkraft. As for reporting, the company hired an external party (The Governance Group) to help develop their ESG profile and reporting framework. We were asked to participate in the process to help strengthen their sustainability profile. As a bond holder we highly value transparency and communication with the company, where the additional ESG effort was awarded in our company analysis.

Targeting Performance and Sustainable Development

EXCLUDE INCLUDE DIALOGUE

Restrict investment in issuers fundamentally misaligned with sustainability practices.

Increase investments in companies with good sustainability performance.

Engage with issuers to question ESG-related business practices.

• Fossil fuels• Controversial weapons• Conventional weapons• Tobacco• Pornography• Violating selected international

norms and conventions*

Internal ESG assessment• 100% of the direct holdings in

the portfolio, have undergone internal ESG analysis

• ESG management system is documented and verified by Nordic Ecolabelling

Sample dialogue questions• What steps are taken to limit GHG

production?• Do you consider the social impact

of your supply chain?• Do you have an ethics or

sustainability committee?

*labour law: ILO, human rights, gross corruption and serious environmental breaches

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Sustainability trendsSustainability trends and driving forces keep strengthening, both as a result of environmental and social changes becoming more evident, and the response evolving from different societal levels – the world community, regions and countries, municipalities and consumers. The political agenda is clear and supported at the highest level through the Paris Agreement and the UN Sustainable Development Goals, Agenda 2030.

Through our company dialogues, we have identified several trends in the area of sustainability:

• Generally, sustainability is gradually becoming an integral part of their business. It seems increasingly important to be able to show that you are a sustainable company, taking responsibility for both the environment and the people in their environment.

• Sustainability is seen as a business opportunity, which can both strengthen the company’s competitiveness and improve profitability.

• The companies’ customers place increasing demands on sustainable products and solutions. As the number of sustainable options for customers increase, businesses are forced to work actively and purposefully with sustainable issues in order to remain competitive.

• New regulations increase the reporting requirements, meaning that the information on sustainability has become more comprehensive and more accessible. We feel, especially with the small and medium-sized companies, that the transparency of their sustainability work has increased significantly.

• More and more companies link their long-term sustainability goals and aspirations to the UN’s 17 global sustainability goals. By selecting some of the 17 sustainability goals, each company can clearly highlight which sustainability issues or areas they have chosen to prioritize in their sustainability work. The companies’ focus areas are often, given their business operations, where they believe they best can contribute to the transition towards a sustainable development and a sustainable society.

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Top 10 holdings

IQVIA, formerly IMS Health and Quintiles, is a global leader in its fields of operation, serving the combined industries of health information technologies and clinical research.

Sustainability efforts include tracking and seeking ways to improve environmental performance, especially greenhouse gas management, energy efficiency, and waste reduction.

Data security and privacy

iqvia.com 3.0%

One of the world’s largest records storage and information management companies. Global business dedicated to storing, protecting and managing information and assets.

Committed to pursuing policies, strategies and procedures through transparent reporting on sustainability and corporate responsibility efforts in accordance with the guidelines of the GRI* and the UN Global Compact.

Data security and privacy

ironmountain.com 2.4%

Sustainable development Sustainability risk Link to website Weight (%)

Updated: 31 December 2019

Company description

UPM leads the forest-based bioindustry into a sustainable, innovation-driven, and exciting future across six business areas.

Supporting the UN Sustainable Development Goals through its responsibility targets for 2030. Consistent work in the area of responsibility has received recognition from third parties.

Changes in operating environment

upm.com 3.3%

A global logistics organization offering the complete range of transport and logistics, focusing on providing personal advice and tailor-made logistics solutions.

SGL has at all times conducted business according to the ILO conventions and UN Human Rights stipulations. Signatory to the UN Global Compact

Environmental impact and economic instability

scangl.com 2.8%

Analytical testing services to pharmaceutical, food, environmental and consumer products industries and governments.

Formal sustainability program that’s shown successful strides towards lowering its environmental impact and increasing its positive impact.

Environmental management, systems and employee safety

eurofins.com 2.5%

*Global Reporting Initiative (GRI)

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A leading provider of monitored security and interactive home and business automation solutions in the United States and Canada.

Zero Harm vision program – an environmental and sustainability program to lower environmental impact by reducing GHG emission, water and waste generation.

Security and privacy sensitivity

adt.com 2.3%

Leading provider of carrier- and cloud-neutral colocation data center services in Europe. Data centers act as content, cloud and connectivity hubs that facilitate storage, sharing and distribution of data.

Regulation in respect of energy consumption and handling of sensitive data.

interxion.com 2.3%

Sustainable development Sustainability risk Link to website Weight (%)

Updated: 31 December 2019

Company description

Leading player in the car interiors market and largest headliner substrates supplier. Inside 1 of every 3 cars worldwide, providing interior equipment for 500 models.

Grupo Antolin and the UN Sustainable Development Goals Fund (SDG) signed an agreement to promote the priorities included in the 2030 Sustainable Development Agenda.

Changing behavior and growing disruption

grupoantolin.com 2.4%

Produces sustainable metal packaging for beverages, food, and household products. Supplies aerospace products to commercial and governmental customers.

Circular economy and resource efficiency.

ball.com 2.4%

Largest life insurance company of Switzerland and one of Europe’s leading life and pensions and financial solutions providers.

Since 2018, Swiss Life systematically integrates ESG factors into its investment decisions. Group-wide goals for operational ecology are defined and implemented.

Indirect holdings swisslife.com 2.4%

Sustainability reporting in accordance with GRI* Standards. Persistent in improving its operational sustainability per-formance s.a. water efficiencies, decreased carbon intensity and optimized waste management.

Energy Strategy Group, an inter-nal function dedicated to develop-ing, implementing and governing the energy strategy. Continually improving energy efficiency and Power Usage Effectiveness con-suming energy from sustainable and low carbon sources.

*Global Reporting Initiative (GRI)

Environment Society Corporate Governance

• Climate changes• Emissions of greenhouse gases• Resource extraction• Waste management and pollution• Deforestation

• Responsible working conditions• Child labour and slavery• Local and indigenous communities• Conflicts• Health and safety

• Corruption• Lobby activities and donations• Board composition and diversity• Tax strategy• Management salary

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