Citi Equity ESG Focus Portfolios

Portfolios Which Promote Environmental and/or Social Characteristics

SFDR requires that information provided in a pre-contractual disclosure in respect of a portfolio which promotes environmental and/or social characteristics be published on a website.

This disclosure is made for these purposes by the CIM division of Citibank Europe plc, in relation to clients of its Luxembourg branch.

This disclosure relates to the following portfolios:

  • Citi Global Equity ESG Focus Portfolio
  • Citi US Equity ESG Focus Portfolio
  • Tailored Discretionary Portfolios utilizing the investment processes from the Citi Global Equity ESG Focus Portfolio or Citi US Equity ESG Focus Portfolio

These portfolios promote environmental or social characteristics but do not have a sustainable investment objective. They use a reference benchmark appropriate to the market and segment of investments selected by the portfolio manager, but the benchmarks are not designated for the purpose of attaining the environmental or social characteristics promoted by the portfolios.

What are the environmental and/or social characteristics promoted by the portfolios?

  • They invest in securities that exhibit favourable Environmental, Social and Governance (ESG) characteristics.

How are those characteristics met?

  • The investment process uses a combination of positive screening and exclusion criteria (‘ESG integration’) to define an investment universe for the respective portfolios by primarily using data provided by a third party data provider.
  • The third party data provider uses a combination of data from annual reports, news reports, information from NGOs, as well as individual analyst input to establish ESG scores on the various issuers in our investable universe.
  • The ESG integration has four binding elements which determine investment selection:
  1. The MSCI US Index (Citi US Equity ESG Focus Portfolio) and the MSCI World Index (Citi Global Equity ESG Focus Portfolio) are used to establish a base universe. The universe is then screened so that only those securities with ESG ratings which fall within the third party data provider’s top half scoring securities are included. These form an investable universe. The third party data provider evaluates the company in two dimensions. The first dimension is exposure, reflecting the extent to which a company is exposed to material ESG risks at the overall industry level and the individual company level and the second one, management, reflecting how well a company is managing its exposure.
  2. From this investable universe, companies which are ‘non-compliant’ with UN Global Compact Principles or UN Global Compact Violators are excluded. Non-compliance is assessed by a third party data provider who determines the extent to which a company causes or contributes or is linked to violations of international norms and standards as defined by the UN Global Compact Principles. Specifically, the third party data provider assesses whether a company is violating, or is at risk of violating, one or more of the UN Global Compact principles and related international norms and standards and assigns one of the following three statuses to the company: Non-Compliant, Watchlist or Compliant.
  3. The investment process excludes companies that have greater than 10% revenue in a company’s prior fiscal year from either production or distribution of the following product types
    (as assessed by the third party data provider):
    a. Alcohol
    b. Adult Entertainment
    c. Gambling
    d. Tobacco (producers and retailers)
    e. The following Fossil Fuel Categories:
                     i. Thermal Coal Generation
                     ii. Shales Gas Production
                     iii. Shale Oil Production
                     iv. Oil Sands
4. The investment process also excludes companies with a direct or indirect association with manufacturing or distributing Controversial Weapons and Civilian Firearms as identified by the third party data provider. The data provider deems a company is deemed to be indirectly associated through ownership of a subsidiary that is directly associated with controversial weapons and civilian firearms development or distribution.

The portfolios’ investment strategies are implemented through an investment process that annually refreshes the ESG scores and, on a monthly basis, updates the exclusion data upon which we make our investment decisions. 

What policy do we use to assess the good governance practices of investee companies?

The good governance practices of the investee companies are considered in the investment due diligence process. CIM’s determination of whether an investee company follows good governance practices is based upon a corporate governance rating produced by a third party data provider

  • The third party data provider has a methodology which is used to specifically evaluate the governance structures, practices, and behaviour of companies and their ability to build sustainable, long-term value that can be delivered to shareholders and other stakeholders in a fair and transparent manner.
  • The Corporate Governance Risk framework used by the third party data provider is structured into six key corporate governance issues:
  1. Board/Management Quality & Integrity;
  2. Board Structure;
  3. Ownership & Shareholder Rights;
  4. Remuneration;
  5. Audit & Financial Reporting; and
  6. Stakeholder Governance.

A rating is then applied by the third party data provider after analysing each of these issues.

There may be securities in the portfolio in respect of which the third party data provider does not provide a governance score for the company. Where this is the case, the CIM equity team will use the same scoring methodology as that used by the third party data provider to assess whether the investee company follows good governance practices.