Financial products Which Promote Environmental and/or Social Characteristics
The Sustainable Finance Disclosure Regulation (‘SFDR’) requires that information provided in pre-contractual disclosures and in periodic reports in respect of a financial product which promotes environmental and/or social characteristics be published on a website. SFDR also requires that certain additional information be disclosed and published on such website.
This disclosure is made for these purposes by Citibank Europe plc, in relation to clients of its Luxembourg branch.
This disclosure relates to the following financial products:
- 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
Summary
No sustainable investment objective
These financial products promote environmental or social characteristics, but they do not have as their investment objective sustainable investment.
Environmental or social characteristics of the financial product
The financial products promote support for the UN Global Compact (UNGC) Principles and seeks to avoid investments in certain activities with the potential to cause harm to human health and wellbeing by applying binding exclusions.
Investment strategy
The following binding Environmental, Social and Corporate Governance (‘ESG’) elements are applied in the investment selection process using data from third-party ESG data providers and/or CIM assessment:
- a positive ESG screen is applied to the investment universe to ensure that investments exhibit favourable ESG ratings (as indicated by our third-party ESG data providers and/or CIM assessment); and
- the following exclusions are applied: (a) companies that are ‘non-compliant’ with UNGC Principles or are regarded as UNGC Violators by our third-party ESG data providers and/or CIM assessment; (b) companies that have greater than 10% revenue (in the company’s prior fiscal year) from certain activities; and (c) companies with a direct or indirect association with manufacturing or distributing Controversial Weapons.
On an ad-hoc basis, CIM may complement the third party data provider’s ESG assessment with its own. Based on our internal fundamental review we may include positions in the financial products that, based on the third-party data, appear to fail any of the above binding elements, where we believe that the third-party data is insufficient, incomplete or inaccurate, and based on our own fundamental analysis, the company is compliant with the binding elements above. We follow a similar process for issuers that are not covered by the third-party data provider. Similarly, we may exclude positions that appear to meet one or more of the criteria above, but where we disagree with the third-party data based on our own fundamental analysis or other data sources.
The good governance practices of investee companies are also considered in the investment due diligence process based upon a third-party ESG data rating. Please see the full website disclosure for further details.
Proportion of investments
The financial products commit to a minimum proportion of 80% of investments to attain the characteristics promoted by the financial products. The remaining portion of the investment of the financial products consists of cash and cash equivalents, including securities issued by money market mutual funds, held for the purposes of efficient portfolio management.
The financial products do not intend to make any sustainable investments and does not take into account the EU Taxonomy and as such 0% of the financial products are Taxonomy aligned. All exposure to investee companies is expected to be direct.
Monitoring of environmental or social characteristics
The financial products’ investment strategies are implemented through an investment process that refreshes the financial products’ ESG scores annually and, on a monthly basis, updates the exclusion data upon which we make our investment decisions. This is complemented by CIM’s own assessment. This ensures the investments used in the financial products are aligned to the binding elements used by this product to promote environmental or social characteristics.
Methodologies
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 for the relevant financial products, to which a positive ESG ratings screen and exclusionary ESG screens are applied based on third-party ESG ratings and data. The ESG ratings are determined by the data provider by having regard to the extent to which a company is exposed to material ESG risks and how well a company is managing its risk exposure. The data points for the exclusionary screens are determined by the third-party data provider by having regarding to the activities of the company. On an ad-hoc basis, CIM may complement the third party date provider's ESG assessment with its own. Please see the full website disclosure for further details.
Data sources and processing
The positive ESG screen and the ESG exclusions are applied using ESG ratings and data provided by Sustainalytics. The relevant data is accessed through the provider’s website or a data feed we receive from the provider monthly, and used in the investment process, where the investment universe is defined and for periodic monitoring (see above).
As we leverage third party data to meet the financial products’ environmental and social characteristics, we do not estimate any data ourselves. We understand that Sustainalytics estimates a small amount of the ESG data we receive because of the lack of available data.
CIM may also utilize other publicly available resources as well as external broker's research and information gathered during meetings with company's management.
Limitations to methodologies and data
There are general challenges associated with ESG data, that we expect also apply to the data we leverage from our data provider – these include (among others) data gaps, data lags in terms of reporting timelines, divergent methodologies between data providers and data sources for the calculation or estimation of the data and discrepancies between estimated and reported data.
As these are general limitations in the market that are not specific to the financial products or our selected data provider, we consider that we are still able to appropriately meet the characteristics promoted by the financial products. We also maintain an internal vendor review and approval process which involves reviewing the data provider’s approach to data management, data coverage and methodologies.
CIM may complement the third party data provider’s ESG assessment with its own in order to mitigate any data gaps.
Due diligence
Potential investments will only be included in the financial products if they comply with the binding ESG elements summarised above, that are implemented in the investment process as binding screens. Additionally, our ESG-dedicated investment team engages in ongoing internal discussions related to the investments in the financial products.
Engagement policies
Engagement is not directly part of the environmental or social investment strategy promoted by the financial products. We do not have any procedures applicable to sustainability-related controversies in investee companies. However, we engage with investee companies through our proxy voting preferences, which may direct votes to issues aligned to some sustainability matters.
Designated reference benchmark
The financial products have not designated a reference benchmark for the purpose of attaining its environmental or social characteristics.
No sustainable investment objective
This financial product promotes environmental or social characteristics but does not have as its investment objective sustainable investment.
Environmental or social characteristics of the financial product
The financial product promotes support for the UN Global Compact Principles (which cover matters including human rights, labour, corruption, and environmental pollution). The financial product also seeks to avoid investments in certain activities with the potential to cause harm to human health and wellbeing by applying binding exclusions. The financial products do not use a reference benchmark to attain the environmental or social characteristics promoted by the financial products.
Investment strategy
Investment strategy used to meet the environmental and social characteristics of the financial product
The ESG integration has four binding elements which determine investment selection in relation to which the data is sourced from third-party ESG data providers:
- The investment must exhibit favourable Environmental, Social and Governance (“ESG”) ratings as indicated by our third-party ESG data providers and/or CIM assessment.
- The financial products exclude companies that are ‘non-compliant’ with UNGC Principles or are regarded as UNGC Violators by our third-party ESG data providers. This is assessed by determining the extent to which a company causes or contributes or is linked to violations of international norms and standards as defined by the UNGC Principles.
- The investment process also 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, based on third-party data and/or CIM assessment:
- Alcohol
- Adult Entertainment
- Gambling
- Tobacco
- The following Fossil Fuel Categories:
- Thermal Coal Generation
- Shales Gas Production
- Shale Oil Production
- Oil Sands
- Arctic Oil and Gas
- Companies with a direct or indirect association with manufacturing or distributing Controversial Weapons are excluded.
On an ad-hoc basis, CIM may complement the third party data provider’s ESG assessment with its own. Based on our internal fundamental review we may include positions in the financial products that, based on the third-party data, appear to fail any of the above binding elements, where we believe that the third-party data is insufficient, incomplete or inaccurate, and based on our own fundamental analysis, the company is compliant with the binding elements above. We follow a similar process for issuers that are not covered by the third-party data provider. Similarly, we may exclude positions that appear to meet one or more of the criteria above, but where we disagree with the third-party data based on our own fundamental analysis or other data sources.
The policy to assess good governance of the investee companies
The good governance practices of the investee companies are considered in the investment due diligence process. Our determination of whether an investee company follows good governance practices is based upon a rating produced by a third-party ESG data provider and/or CIM ESG assessment.
The assessment of the good governance practices includes but is not limited to the analysis of the management structures, employee relations, remuneration of staff and tax compliance.
Proportion of investments
The financial products commit to a minimum proportion of 80% of investments to attain the characteristics promoted by the financial products, in accordance with the binding elements of the investment strategy. The remaining portion of the investment of the financial products consists of cash and cash equivalents, including securities issued by money market mutual funds, held for the purposes of efficient portfolio management.
The financial products do not intend to make any sustainable investments and does not take into account the EU Taxonomy and as such 0% of the financial products are Taxonomy aligned. All exposure to investee companies is expected to be direct.
Monitoring of environmental or social characteristics
The financial products’ 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. This is complemented by CIM assessment. This ensures the investments used in these financial products are aligned to the binding elements used by this product to promote environmental or social characteristics.
Methodologies
The ESG integration has four binding elements which determine investment selection:
- The investment must exhibit favourable Environmental, Social and Governance (“ESG”) ratings as defined by our third-party ESG data providers.
- The financial product excludes companies that are ‘non-compliant’ with UNGC Principles or are regarded as UNGC Violators by our third-party ESG data providers. This is assessed by determining the extent to which a company causes or contributes or is linked to violations of international norms and standards as defined by the UNGC Principles.
- 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, based on third-party data and/or CIM assessment:
- Alcohol
- Adult Entertainment
- Gambling
- Tobacco
- The following Fossil Fuel Categories:
- Thermal Coal Generation
- Shales Gas Production
- Shale Oil Production
- Oil Sands
- Arctic Oil and Gas
- Companies with a direct or indirect association with manufacturing or distributing Controversial Weapons are excluded.
On an ad-hoc basis, CIM may complement the third party data provider’s ESG assessment with its own. Based on our internal fundamental review we may include positions in the financial products that, based on the third-party data, appear to fail any of the above binding elements, where we believe that the third-party data is insufficient, incomplete or inaccurate, and based on our own fundamental analysis, the company is compliant with the binding elements above. We follow a similar process for issuers that are not covered by the third-party data provider. Similarly, we may exclude positions that appear to meet one or more of the criteria above, but where we disagree with the third-party data based on our own fundamental analysis or other data sources.
These binding characteristics are monitored and refreshed annually (ESG scores) and monthly (exclusion data). This ensures the investments used in these financial products are aligned to the binding elements used by this product to promote environmental or social characteristics.
Data sources and processing
(a) the data sources used to attain each of the environmental or social characteristics promoted by the financial product
We incorporate ESG screening criteria using third-party ESG data provided by Sustainalytics and/or CIM assessment. Our exclusion criteria to remove companies that are associated with higher-risk sustainability practices also relies on data provided by Sustainalytics.
(b) the measures taken to ensure data quality
In order to ensure we use appropriate data from creditable sources, we have an internal vendor review and approval process where we review the vendors approach to data management, their coverage, and their methodologies before they are approved for use. Our vendor review process also monitors and refreshes relevant information about the data provider on an ongoing basis.
(c) how data are processed
The data provider provides access to their data including their ESG research and ESG ratings, either through the provider’s website, or through a data feed we receive from the provider on a monthly basis.
Sustainalytics data and/or CIM assessment is used in the investment process to define the investment universe and in order to take into account our exclusion criteria and remove companies that are associated with higher-risk sustainability practices.
(d) the proportion of data that are estimated
The provider estimates a small amount of the data which is used to assess alignment with the ESG characteristics because of the lack of available data.
Limitations to methodologies and data
(a) any limitations to the methodologies, and to the data sources and (b) how such limitations do not affect how the environmental or social characteristics promoted by the financial product are met.
For the purposes of these financial products, there are no limitations to the methodologies because data used by us covers the requirements to meet the financial product’s ESG characteristics.
Due diligence
The ESG-dedicated investment team engages in ongoing internal discussions related to the investments in the financial products.
Engagement policies
Engagement is not directly part of the environmental or social investment strategy promoted by the financial products. We do not have any procedures applicable to sustainability-related controversies in investee companies. However, we engage with investee companies through our proxy voting preferences, which may direct votes to issues aligned to some sustainability matters.
Description of environmental and/or social characteristics provided in periodic reports
This disclosure is made for the purposes of Article 11(1)(a) of EU Regulation 2019/2088 of SFDR, which requires certain disclosures be made where a portfolio promotes environmental and/or social characteristics.
Reference period
From 1 January 2022 to 31 December 2022
This page was last updated on 22nd January 2024.
