This disclosure is made for the purposes of Article 8(1) of EU Regulation 2019/2088, known as the Sustainable Finance Disclosure Regulation or SFDR, which requires that certain disclosures be made where (for example) a portfolio promotes environmental and/or social characteristics, provided that the companies in which the investments are made follow good governance practices. It is made 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
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) ratings as defined by our third party ESG data providers.
How are those characteristics met?
- The investment process uses a combination of positive screening, negative screening and exclusion criteria (‘ESG integration’) to define an investment universe for the respective portfolios.
- 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.
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.
3) 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(as assessed by the third party data provider):
4) Companies with a direct or indirect association with manufacturing or distributing Controversial Weapons and Civilian Firearms are excluded. 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 direct and indirect association is identified using third party data provider information.
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. Our determination of whether an investee company follows good governance practices is based upon a rating produced by a third party ESG data provider.
- The data provider considers a range of criteria to assess whether the investee companies follow good governance practices, including with respect to sound management structures, employee relations, remuneration of staff and tax compliance.