ESG RESEARCH

WHAT WE DO
ESG ANNUAL REPORT 2022

WHO WE ARE
ESG AT PGIM FIXED INCOME

RELEASED AUGUST 2023

ESG RESEARCH

WHAT WE DO
ESG ANNUAL REPORT 2022

Prepared by

PGIM Fixed Income ESG Research

RELEASED AUGUST 2023

A WORD FROM OUR LEADERSHIPIn a world seeking sound bites and simple answers, it can be difficult to convey thecomplexities and nuances of ESG investing. But if we had to sum up ESG in 2022, we’d deem
it a year in which increasingly polarised views drove many asset managers to take stock of their
ESG beliefs and some to take drastic action. In the wake of various catalysts—from Russia’s
invasion of Ukraine to fears of a global recession—governments, issuers, institutions andindividuals faced reason to thoughtfully consider their respective ESG motives and values.
From an asset management perspective, many investors have seen their ESG infrastructure
tested and have since evolved their thinking. ESG as an investment construct is multifaceted
and, in many aspects, still developing. So as a firm, we are continuously seeking to improve
our ESG approach and sharpen the tools we offer clients. But to be abundantly clear, PGIM
Fixed Income’s ESG philosophy is unchanged: We seek to provide our clients with the tools
and analysis necessary to make informed choices about how they reflect ESG considerations
through their investment decisions.
Diving deeper into the improvements in our approach to ESG, one of the highlights overthe course of 2022 was the work we did to develop a Temperature Alignment Tool. The toolassesses the alignment of an issuer—and ultimately a portfolio—with various temperature
scenarios. This assessment extends beyond standard metrics by incorporating both forwardand backward-looking data points, and considering not just the existence of targets, but also
their credibility. When this tool is launched and in production, we believe the outputs of thistool will represent a significant advancement in our clients’ ability to measure the climate
impact of their portfolios.
From a resource standpoint, we invested in growing our team of ESG specialists by adding
three ESG research analysts, an ESG product specialist, and a dedicated ESG reporting
analyst. This brings our total dedicated ESG resources to 10 people, alongside our deep baseof more than 120 credit research analysts and economists to conduct ESG analysis at theissuer level as well.
We also took part in the broader ESG conversation via thought leadership pieces,participation in ESG conferences and events, regulatory consultation responses,
involvement in ESG-focused industry groups, as well as interaction with our peers
and the issuers in which we invest. It’s important to provide our opinion on thechallenges faced by ESG investors, and the solutions we think are best placed
to help solve them.
While this serves as a brief preview of PGIM Fixed Income’s ESG
highlights in 2022, the report that follows provides a detailed
account of the work, aiming for transparency and accountability
into our process and approach. We hope it drives thoughtful
conversation and informed investment decisions.

MIKE LILLARD, CFA

JOHN VIBERTHead of PGIM Fixed Income

President of PGIM Fixed Income

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PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CONTENTS

PHILOSOPHY & APPROACH

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ENGAGEMENTENGAGEMENT

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Engagement with...

MAJOR UPDATES 2022

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Clients 35

Data Vendors 56

Issuers 37

Industry 58

Investment Banks 54

Our Employees & Community 59

GOVERNANCE STRUCTURE

9Regulators/Policymakers 55

ESG INTEGRATION & IMPACT15APPENDIX

63

ABOUT PGIM FIXED INCOME1
PGIM Fixed Income is a global asset manager offering active solutions across fixed income markets for institutional clients, affiliatedinsurance companies, mutual funds, and managed accounts, as well as specialised products and customised solutions.
PGIM Fixed Income’s culture is centred around mutual respect, trust in each other, collegiality, teamwork, meritocracy, intellectualhonesty, transparency, and an unwavering commitment to our clients.
Our business model is aligned with our mission to provide consistent, superior risk-adjusted returns and top-quality service to our clientsand to generate superior value for our stakeholders.2
Accordingly, our strategy and objectives are designed with a consistent focus on:
 protecting and evolving the strength of our investment
culture, processes, and philosophy with the goal ofgenerating consistently strong investment performance;
 demonstrating commitment to our clients by being bothproactive and highly responsive; refining our global distribution strategy;
 integrating our business globally; investing in technology and infrastructure to support growth; and focusing on talent and culture.

 building and refining our product mix to meet market needs;
Our philosophy hinges on investing for the long term with fundamental research-driven security selection at the heart of everything we
do. We believe that diversified portfolios, built through the integration of macroeconomic, credit, quantitative and ESG analysis—coupledwith an emphasis on risk management—can achieve consistent excess returns with high information ratios. Risk budgeting is central to
our approach, with allocations made within portfolio-specific risk budget thresholds.
As a global fixed income manager, we have the resources and ability to strategically hire the individuals and develop the infrastructureneeded to support our business objectives.

For the purpose of this report, all information unless otherwise stated is intended to be representative of PGIM Fixed Income as of 31 December 2022. PGIM is theasset management business of Prudential Financial, Inc. (“PFI”) PGIM Fixed Income is one of the asset management businesses with PGIM. Prudential Financial, Inc.
of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of
M&G plc, incorporated in the United Kingdom.
2
There is no guarantee that this objective can be achieved.
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PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECTION 1

PHILOSOPHY& APPROACH

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ESG PHILOSOPHY AND APPROACH
As a fundamental research-driven active fixed income manager, we believe ESG issues can affect the financial performanceof investment portfolios. Therefore, we recognise the importance of integrating environmental, social and governancefactors in our global investment research, decision-making, and portfolio management processes.1 In general, we view
ESG through two separate but interrelated prisms: 1) credit-material ESG factors, and 2) the impact issuers are havingon the environment and society. We consider credit-material ESG factors in our investment process as part of working
towards our ultimate duty—searching for the highest risk-adjusted returns for our clients based on their return objectives.2
Separately, when our clients request that we consider ESG impact as part of their objectives, we offer our clients tools to
help express their views. The core tenets of our ESG philosophy and approach are summarised below.
 We believe ESG factors can impact investment performance, and we therefore integrate financially material ESG
factors into the credit analysis processes used across all of our strategies.
 We believe credit risk cannot be disaggregated into individual components and must be assessed holistically. Our
credit ratings incorporate analysis of credit-material risks and opportunities arising from ESG factors, alongsideother risk factors, to reflect our overall fundamental credit view of the issuer. This is done for all credit strategies that
we manage and is consistent with our fiduciary obligations.
 Separately, we have observed that an issuer’s ESG impact on the environment and society does not always creatematerial credit risks for that issuer, even when those ESG impacts are significant. Our proprietary ESG Impact
Ratings assess our view of the negative and positive impacts of issuers on the environment and society—whether or
not they are immediately credit-material—and determine their eligibility for investment by our ESG strategies. We
offer clients the choice (but not the obligation) to apply this additional “impact” lens to their portfolios.
 We believe our 100+ fundamental research analysts, economists and ESG specialists are well placed to analyse anissuer’s ESG characteristics; therefore, we conduct our own ESG research and risk assessment as part of credit analysis.
We use our ESG Impact Ratings as a tool to help our clients invest in line with their ESG/sustainability preferences.
 We engage with issuers to communicate our views on fundamental and ESG issues. We aim for such engagements
to be constructive and offer issuers insights into our concerns and information on industry best practices, as well
as how their ESG efforts may be perceived in the market and the potential effect this could have on future market
demand for their bonds. We disclose our ESG Impact Ratings to issuers, when requested, as we see that these ratingsand other ESG tools and analysis provide tangible feedback to issuers.
 As a signatory to the Principles of Responsible Investment (PRI) since February 2015, we are committed to
implementing the PRI.
As one of the world’s largest active fixed income managers, we cater to a variety of client needs, and a growing numberof these clients demand a robust approach to ESG and stewardship to enable them to fulfil their ESG obligations
and aspirations. Integrating ESG and stewardship into our investment process and culture is essential to our missionof pursuing consistent, superior risk-adjusted returns and providing excellent service to our clients and value for our
stakeholders. PGIM Fixed Income has been a signatory of the UK Stewardship Code since 2022. We believe the 12
Principles laid out by the UK Stewardship Code set a high standard for responsible stewardship, and we seek to disclose
the relevant information necessary to maintain our signatory status on an annual basis.
We manage assets across a wide range of products and vehicles, and our ESG philosophy remains consistent throughout:
We believe in providing clients with an explicit choice of how to express their policies, views and beliefs through theirinvestments. As such, we believe in providing our clients with a range of solutions including investing in strategies that a)
integrate credit-material ESG factors within our credit research and relative value analysis to achieve the highest risk-returnobjectives, b) evaluate and achieve more positive impacts on the environment and/or society, and/or c) offer customisationto achieve individual risk-return and impact objectives.

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Where consistent with applicable law and regulation.
There is no guarantee that this objective can be achieved.

PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECTION 2

MAJOR UPDATES
2022

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PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

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MAJOR ESG UPDATES 20221
RESEARCH

Temperature Alignment Tool
The ESG Team developed a methodology for assessing our view of the ambition and credibility ofcorporate issuers’ alignment with several key temperature rise levels. We believe incorporating asector-specific and forward-looking approach is superior to one based simply on carbon footprint
metrics. Unfortunately, many implied temperature rise methodologies to date assume an issuer’s
targets are robust, comprehensive and will be met, which we often find to be overly optimistic. Thesemethodologies also involve their own judgements and biases. The PGIM Fixed Income Temperature
Alignment methodology seeks to address these shortcomings by combining both forward- andbackward-looking data, from multiple sources where possible, to look critically at companies’
climate commitments, subject to data availability.2

TECHNOLOGY & RESOURCES

ESG Team
The ESG Team grew from five team members to eight ESG specialists, one ESG product specialist, andone ESG reporting specialist.

ESG Data
We expanded data resources to include:• Clarity AI’s SFDR and EU Taxonomy Product• Institutional Shareholder Services (ISS) Product Screens• Climate Bonds Initiative’s Partners Programme and access to the Green Bonds Database

Engagement Tracking Tool
We also deployed a cloud-based engagement tracking tool to better report, monitor and analyse ESG
engagements across the Firm.

THOUGHT LEADERSHIP

Fixed on ESG
In 2022, PGIM Fixed Income launched its own ESG podcast series called “Fixed on ESG” and releasednine episodes within the year. In the series, PGIM Fixed Income’s rotating lineup of ESG-expert hosts
and guests explore the latest topics and trends of ESG investing. We provide our take on the investment
implications and value opportunities we see in this space and how changes in the market may directly
affect our decision-making.

PRODUCT DEVELOPMENT

Mutual Fund Launch
We launched our third ESG-focused U.S. mutual fund, a Short Duration Multi-Sector-focused strategy.

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The data points across this section represent the status as of 31 December 2022.
This Temperature Alignment Tool is currently under development by the PGIM Fixed Income ESG Ratings
Committee and may be subject to change.

PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECTION 3

GOVERNANCESTRUCTURE

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GOVERNANCE, RESOURCES AND INCENTIVESTO SUPPORT ESG STEWARDSHIPPGIM Fixed Income has established an ESG policy committee (the “ESG Policy Committee”) that is supported by
an ESG ratings sub-committee (the “ESG Ratings Sub-Committee”), and three ESG working groups. The three ESG
working groups consider ESG issues from their respective perspectives: Client Advisory Group, Portfolio Management,
and Technology & Data. The ESG Policy Committee acts as the top governance and decision-making body for PGIM
Fixed Income’s ESG practices and focuses on PGIM Fixed Income’s overall ESG policies and approach, whereas the ESG
Ratings Sub-Committee makes decisions on matters related to ESG integration in credit analysis, ESG Impact Ratingsand other frameworks and tools related to ESG assessments used in our investment process. We believe this structure has
better enabled us to make decisions effectively, facilitate constructive dialogue, maintain effective communications acrossthe organisation, and promote the involvement of all relevant internal stakeholders. For more information about the
responsibilities of the Committees and Working Groups, please refer to Who We Are: ESG at PGIM Fixed Income1.

ESG Policy Committee
 Top governance and decision-making body for PGIM Fixed Income’s ESG practices
 Focuses on PGIM Fixed Income’s overall ESG policies and approach Engagement activities

REPRESENTATION Credit Research Macroeconomic Research Securitised Products Research Municipals Research ESG Research1

http://www.pgim.com/fixed-income/annual-report/esg-background-report

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REPRESENTATION Client Advisory Client Management
 Consultant Relations
 Product Strategy

Portfolio Management
REPRESENTATION

 ESG implementation in credit,
economic, securitised products
research Portfolio Management
 Portfolio Analytics
 Risk Management

Technology & Data
REPRESENTATION Approves ESG-related frameworks

ESG WORKING GROUPS

Decision/approvalof ESG Researchframeworks and ESG
Impact Ratings

Client Advisory

ESG Ratings
Sub-Committee Technology & Systems
 Project Management
 Data Governance Portfolio Analytics

 Marketing Reporting Communications

ESG Policy Committee
Co-Chairs
MIKE LILLARD, CFA

JOHN VIBERTHead of PGIM Fixed Income

President of PGIM Fixed Income

Overarching Responsibility
Serves as the top governance and decision-making body for ESG and climate-related topics. For full list of responsibilities,
please see Who We Are: ESG at PGIM Fixed Income.1

CompositionReasonably small in size to enable healthy debateComprising senior leaders and decision-makers who are able to make decisions, communicate these decisions totheir teams, and oversee implementationCommittee members include:–

Head of PGIM Fixed Income–

Head of Emerging Markets Debt–

President of PGIM Fixed Income–

Chief Business Officer–

Co-Chief Investment Officers–

Global Head of Client Advisory Group–

Head of Credit–

Global Head of Product Strategy and Marketing–

Co-Heads of ESG Research–

Head of EMEA–

Co-Heads of Credit Research–President & CEO, PGIM Japan Average years of experience2 of committee members: 26 years 21% female members

Frequency of Meetings
Quarterly; however, interim meetings may be held as needed

Key Decisions Made by the ESG Policy Committee in 2022
 Set priorities for ESG Ratings Sub-Committee and Working Groups Approved recommended changes to the binding ESG constraints for PGIM-sponsored ESG products
 Reviewed and approved updated ESG policies

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For investment professionals on the ESG Policy Committee it relates to investment experience, and for non-investment professionals it relates to the number of years ofexperience they have had in the industry.

11 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG Ratings Sub-Committee
Chair
RICHARD GREENWOOD, CFA
Head of Credit

Overarching Responsibility
Approve ESG Ratings Frameworks and make decisions on matters related to ESG integration, including climate, in credit
analysis and ESG Impact Ratings

CompositionComprising senior representatives of research teams across Investment Grade, High Yield, Emerging Markets,
Municipals, Securitised Products, Macroeconomic, and ESG from our Newark, New Jersey, London and Tokyo
offices to promote diversity of thought

Average years of investment experience of committee members: 28 years



32% female members

Frequency of Meetings
Monthly

Key Decisions Made by the ESG Ratings Sub-Committee in 2022
 Approved methodology for assessing Good Governance according to SFDR’s definition3
 Challenged ESG Impact Ratings for Russia and Belarus
 Approved analyst guidance for how to consistently assess issuers with low disclosure Approved methodology for PGIM Fixed Income’s Temperature Alignment Tool
ESG integration and investing is evolving rapidly across several dimensions—regulatory, product development, political,
and investment. In order to best serve our clients, we need to evolve quickly yet deliberately. Our attempt to evolve ourgovernance structure at the end of 2021 was a first step towards supporting that objective: it gave us the opportunity toleverage our global senior leaders’ input while allowing us to be more effective and efficient. However, as with anythingelse, we continue to learn and make improvements to our processes so that we can continue to adapt and scale in our
endeavours to maintain the highest quality and integrity within our work. In addition, the PGIM Limited board, our UK
entity, has designated a specific member to oversee ESG responsibilities.

3

Articles 28(b) and 41(b) of the Delegated Regulation requires the website disclosure of “the description of the policy to assess good governance practices of the investee
companies […], including with respect to sound management structures, employee relations, remuneration of staff, and tax compliance”.

12 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Resources
ESG resources extend beyond simply our “ESG Team”. While the ESG Team itself has expanded from five ESG Specialists
in 2021 to eight ESG Specialists in 2022, one ESG Product Manager, and one ESG Reporting Analyst, there are manyother teams within the organisation who provide ESG resources on a day-to-day basis:

ESG Resources
ESG Research Team

Fundamental Research*

6 senior & 2 junior analysts

Corporate Research: 60 senior & 31 junior analysts
Municipals Research: 7 senior analysts
Global Macroeconomic Research: 11 senior analysts
Securitised Products Research: 11 senior & 7 junior analysts

 Key ESG Responsibilities• Develop, maintain, and monitor implementation of ESG
frameworks and policies• Conduct sector-level and thematic ESG research• Each ESG analyst is assigned to specific corporate sectors, andpartners with all credit analysts globally covering that sector• Each ESG analyst assigned to specific country regions, andpartners with the economist covering those countries• Identify, onboard, and oversee development of ESG data,applications, tools, and resources• Participate in ESG-related industry groups and associations• Monitor, comment on, and adapt to new ESG regulations• Lead targeted ESG engagements Key ESG Responsibilities
•
•
•
•
•

Issuer-level ESG risk and impact assessments
GSS Bond and SLB impact assessments
Sector-level and thematic ESG research
Ongoing issuer-level ESG engagements
Participate in ESG-related industry groups and associations

 Key ESG Responsibilities

Client Advisory
Product

Client Management

Reporting• Develop new ESG products• Regularly re-assess product ESG
characteristics• Ensure products adhere to ESG
regulations• Understand shifting market standards
on ESG• Understand/implement client ESG
preferences• Respond to client ESG queries• Communicate client ESG preferencesinternally• Understand shifting market standards
on ESG• Generate standard ESG reporting• Provide client-specific ESG reporting Key ESG Responsibilities

Technology & Data
Technology Solutions

Project Management

Dedicated ESG Apps/Tools

Data Vendors & Partners

4 associates**

2 associates**Engagement Recording App;
Temperature Alignment Tool***

MSCI, Sustainalytics, ISS,
Clarity AI, Bloomberg,
Climate Bonds Initiative• ESG data and resources • Integrate ESG data into existing research platforms • Create dedicated, proprietary ESG tools and applications

Note: As of 31 March 2023.
* Excludes CLO analysts.
** At least one-third or more of the associate’s time is spent on ESG.
*** Under development. Anticipated mid-2023.

When it comes to our investment process though, our research teams have ultimate responsibility for assessing ESG risks
and opportunities, including climate-related issues, and assigning ESG Impact Ratings to each issuer they cover. As theimpact ratings framework evolves, the focus on ESG factors by our analysts and portfolio managers tends to increaseas they establish and maintain ESG Impact Ratings on over 1,000 issuers, validate these ratings across sectors and fixed
13 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

income asset classes, and incorporate these ratings in ESG-focused portfolios. At the end of 2022, our credit research teamcomprised 126 research analysts with an average of 14 years of experience, as well as 10 economists with an average of 18
years of experience, making them well-placed to keep abreast of the latest ESG, regulatory and industry developments forthe issuers they cover.
Whereas ESG specialists develop, maintain and monitor implementation of the ESG frameworks and policies, it is thecredit research analysts and economists that carry out and implement the ESG frameworks when assessing their individual
issuers. ESG specialists also provide thematic research to research teams, monitor regulatory developments, oversee
developments pertaining to ESG data sourced from third-party providers, and play an active role in engaging with issuers
and the ESG industry.
Incentive compensation for investment professionals, including the annual cash bonus, the long-term equity grant, andgrants under our long-term incentive plans, is primarily based on such person’s contribution to our goal of providing
investment performance to clients consistent with portfolio objectives (including ESG objectives), guidelines, risk
parameters, and our compliance, risk management and other policies, as well as market-based data such as compensation
trends and levels of overall compensation for similar positions in the asset management industry. Given our belief thatESG factors can impact financial performance and relative value, we believe our investment professionals’ compensation
inherently includes their ability to appropriately incorporate these views into their credit assessments and portfolio
construction. In addition, an investment professional’s qualitative contributions to the organisation and its commercial
success are considered in determining incentive compensation. For more information about compensation of ourinvestment professionals, please see PGIM, Inc.’s and PGIM Limited’s Form ADV Part 2A with regard to PGIM Fixed
Income (the “PGIM Fixed Income Brochure”)4.

4

http://www.pgimfixedincome.com/pramerica/fi/pdf/adv/PGIM_Fixed_Income_Form_ADV_Part_2A.pdf

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SECTION 4

ESG INTEGRATION& IMPACT

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In general, we view ESG through two separate but interrelated prisms: 1) credit-material ESG factors, and 2) the
impact that issuers are having on the environment and society.

ESG INTEGRATION
Credit-material ESG risks and opportunities are assessed as an integral part of our credit decision and embedded in ourbottom-up investment process. We incorporate ESG risk assessments in our investment decisions by incorporating theminto our credit ratings and considering them through our relative value frameworks, as we believe these risks can befinancially material.
We assign an internal fundamental credit rating to every issuer the firm invests in, across the whole PGIM Fixed Income
investment universe. In our view, credit-material ESG factors are not isolated from an issuer’s overall credit profile, andthe line between ESG risks and other forms of risk is often blurred. So, rather than layering a separate ESG risk rating
on top of our credit assessment, our approach is to embed ESG risks and opportunities into fundamental credit ratings
themselves. We assess whether our investments offer adequate compensation for the fundamental risk profile of thecompany, which includes ESG risks, on a sector-by-sector basis. This is our analysis of how ESG factors impact the issuer
and affect their economic value. These are integrated into credit analysis and feature strongly in relative value discussions
for all mandates.

ESG IN RISK MANAGEMENT
Additionally, PGIM Fixed Income’s senior investment team, comprising the Head of PGIM Fixed Income, President,
Co-Chief Investment Officers, Chief Investment Strategist, heads of the sector teams, and heads of macroeconomic,
credit, securitised products, quantitative analysis and risk management, meets weekly at a “desk heads” meeting to analysemarketwide and systemic risks, including those related to ESG. This may include analysing economic, interest rate, credit
spread, market technical, underlying fundamental themes, social and political instability, and macro-climate-related
impacts in each major fixed income sector. The senior investment team develops a PGIM Fixed Income-wide market
outlook consolidating these views, which may influence the overall risk profile, sector allocation, and duration/yield curve
positioning in our fixed income portfolios, depending on the specific strategy.
Relative value decisions, including sizing and hedging, are made by portfolio management in consultation with credit
research analysts. Credit research analysts are responsible for confirming that relevant ESG risks and opportunities
are reflected in their credit analysis and ratings. ESG factors, including climate-related risks and opportunities, areincorporated in the identification and monitoring of individual credit risks.
ESG constraints are considered when constructing portfolio risk budgets, which are used in our daily risk surveillance.
Guideline constraints for ESG-dedicated accounts and accounts with specific ESG-related restrictions are monitored byour compliance department as part of their daily process.
Additionally, our risk management framework combines monitoring the risk of individual credits and the risk of the overall
portfolio. Market Implied Rating curves that drive our risk analytics are recreated each night based on market spread levels.
These curves are then used to assign CUSIP-specific ratings based on the spread and tenor of each bond. In this framework,
if an individual credit, industry or country trades with a spread premium due to ESG or other factors, it would be assigned
a lower credit rating in our risk system. The lower rating would result in tighter thresholds and/or bigger stress shocks being
applied to those credits. While not a specific ESG filter, if market forces cause names with less favourable ESG characteristics
to trade with wider spreads, they will be assigned lower ratings and higher risk weights in our system.

CLIMATE RISK ASSESSMENTS
We believe that climate-related risks and opportunities are best assessed at the issuer level rather than at the portfolio level
given the weaknesses of climate models. Nonetheless, we consider climate change and the associated policy and regulatory
response to be an important risk factor that should be incorporated into our credit assessment and credit ratings, especiallywhere the issuer’s exposure to climate risk is deemed high. As part of this, analysts consider climate scenarios where risks
could be material. These vary by sector, region, and sometimes issuer to reflect the most likely channel(s) through whichclimate risks may arise.
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We then fit climate risk into the overall credit assessment (e.g. a less carbon-intensive firm with much higher leverage canstill be higher risk overall). Bottom-up analysis can also help identify risks and opportunities arising through less obvious
channels. For example, the mining industry is very carbon intensive. The sector’s reliance on heavy machinery, remote
operations, and the need for extreme heat during the refining processes all act as significant challenges to the sector’s
decarbonisation. Yet the low carbon transition is inextricably linked to the availability of many metals. The International
Energy Agency (IEA) forecasts that total mineral demand would need to triple by 2050 relative to 2020 levels to meetthe demands from clean energy generation, transmission and storage technologies to limit global warming to well below
2 degrees Celsius.1 As a result, while mining companies may face higher costs from carbon pricing measures, we would
expect that the impact of these costs will in many cases be dwarfed by the increase in demand for the transition-critical
metals these companies produce. This is another example of a climate opportunity we typically do not see reflected in topdown models and demonstrates our determination that carefully considered, bottom-up analysis remains the most useful
tool we have for assessing climate risks and opportunities.

TEMPERATURE ALIGNMENT
Clients are increasingly seeking to understand the extent to which their portfolios are aligned with the long-term goal of
the Paris Agreement of limiting global warming to well below 2 degrees Celsius. Leveraging third-party data providers, wehave been able to offer this measurement to clients through the use of “temperature alignment” metrics as part of our suiteof reporting capabilities. Temperature alignment metrics represent a significant step forward in the way clients can estimate
the climate impact of their portfolios by incorporating forward-looking data into their assessments.
Temperature alignment is an estimate of a company’s climate impact measured in degrees Celsius and is derived bycomparing projections of the company’s future cumulative emissions to its budget of emissions modelled under a sciencebased, sector-specific decarbonisation pathway developed by climate and energy systems modellers such as the IEA. By
measuring companies’ commitments against pathways linked to science, temperature alignment offers a more nuanced
view into the targets set by companies. Rather than looking only at the year in which issuers target net zero, temperaturealignment also considers the speed at which issuers progress towards those targets, which is equally crucial, and which mustbe evaluated relative to industry-specific trajectories needed for given temperature rise levels.
However, our analysis of third-party temperature alignment data sources uncovered a number of opportunities to improve
the reliability and accuracy of third-party temperature alignment metrics. This led the ESG Research team to develop
a proprietary Temperature Alignment Tool,2 which brings together multiple data points—both forward-looking andbackward-looking—pulled from multiple data sources to assess issuers’ targets and performance on emissions reductions inan effort to present a more accurate reflection of how a company’s climate actions align with various temperature scenarios.
Limitations of third-party temperaturealignment metrics

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Potential consequence

PGIM Fixed Income’s Temperature
Alignment Tool solution

Decarbonisation targets are assumed to be met

Portfolio’s average temperature alignment
adjusted upwards if companies do not decarbonisein line with stated targets

Incorporate rules to test progress against targets

Limited consideration of factors that influence thecredibility of the issuer’s decarbonisation pledges

Increases risks of supporting companies engaged
in greenwashing

Incorporate a wide range of metrics to help gauge
the credibility of decarbonisation commitments

No indication of uncertainty inherent in thetemperature alignment assessment

No mechanism to identify companies that may
require additional scrutiny

Issuer’s alignment categorisation is complemented
by an indication of its level of uncertainty

Designed for equities—difficult to correct
inaccuracies

Data quality issues cannot be addressed, such as
when an independent opco issuer (e.g. renewable
utility) is inappropriately inheriting the carbon
emissions profile of its holdco parent (e.g. largely
coal-powered utility)

Ability for analyst to use intimate knowledge ofissuers to override results to improve the accuracyof assessments

No consensus on the “best” methodologies andassumptions for several more detailed aspects oftemperature alignment calculations

Reliance on a single vendor can limit end-user
confidence and result in materially different results
for the same issuers than if another vendor were used

Leverage multiple providers—degree of agreement
between providers helps inform our confidence inthe classification

Source: IEA’s The Role of Critical Minerals in Clean Energy Transition (https://www.iea.org/reports/the-role-of-critical-minerals-in-clean-energy-transitions).
This Temperature Alignment Tool is currently under development by the PGIM Fixed Income ESG Ratings Committee and may be subject to change.

17 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

In short, our tool seeks to enhance existing temperature alignment data providers’ models and methodologies by applying
a series of credibility and assurance checks to validate the issuers’ commitments and progress. At the same time, it leverages
multiple data sources where available to address cases where an issuer’s categorisation may be highly sensitive to theassumptions used by any one source. The output of PGIM Fixed Income’s Temperature Alignment Tool is geared towards
understanding whether issuers will in fact be contributing to limiting global warming to 1.5 or 2 degrees Celsius ofwarming (versus pre-industrial levels) or whether their net-zero targets are more symbolic in nature.

MV% of Bloomberg Global Aggregate Corporate Index (%)
60
52.8
50
40

37.6

30

27.0

26.8

20

16.8
12.1

10

6.1

7.9

6.3

6.5

0
1.5C
alignedPGIM Fixed Income

2Caligned

2.6C (NDCs)
trajectory

notalignedinsufficientdata

Third-party vendor

Source: PGIM Fixed Income. As of June 2023. This proposed Temperature Alignment Tool is currently under development by the PGIM Fixed Income ESG Committee
and may be subject to change. Benchmark Description: The Bloomberg Global Aggregate Corporate Index is a component of the Global Aggregate Index that includes
the global investment-grade, fixed-rate or step up, taxable securities sold by industrial, utility and financial issuers. The three major components of this index are the U.S.
Aggregate Corporate, the Pan-European Aggregate Corporate, and the Asian-Pacific Aggregate Corporate indices. The index also includes Eurodollar and Euro-Yen corporate
bonds, Canadian corporate securities, and USD investment-grade 144A securities. Securities included in the index must have at least one year until final maturity and be
rated investment-grade (Baa3/ BBB-/BBB-) or better using the middle rating of Moody’s, S&P, and Fitch.

By applying our own credibility checks, we believe the results may produce a much more sobering picture of what
the investment universe actually looks like versus off-the-shelf tools. However, we feel this is a much more realistic
assessment, and less likely to result in significant future “downgrades” or to encourage greenwashing through setting
targets with low credibility.

18 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

2022 ESG INTEGRATIONCASE STUDIESThe examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

19 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

INVESTMENT GRADE

U.S. LIFE INSURANCE COMPANY
Governance Risks

DESCRIPTION
Poor auditing practices and transparency evidenced by theissuer’s recent failure to disclose significant litigation costs
indicated weaknesses in the company’s internal controls.
The issuer’s heightened level of governance risk was also
compounded by its complex and opaque underlying
business mix, causing poor risk visibility. Frequent
management turnover added to our belief that the issuer
lacked the necessary leadership to navigate its uncertain
future and address our concerns.
INVESTMENT GRADE

EUROPEAN FINANCIAL SERVICES
Governance Risks

DESCRIPTION
The issuer was subject to an emergency government
bailout due to its inability to manage operational risks
partially as a consequence of an autocratic management
culture. The issuer struggled to regain credibility despite
undergoing a restructuring process that brought in new
management and drastically reshaped the business.
Regulatory fines and reputational damage resulting fromproduct misselling and poor anti-money laundering
policies caused spreads to widen.

ASSESSMENT
Our analysis led us to conclude the issuer’s aggressiverisk-taking culture and legacy litigation issues are thereasons behind the widened spreads. We felt the bonds
were being overly penalised for historical lapses incorporate governance that have since been adequately
addressed. Therefore, we thought spreads looked
attractive and the market was overpricing these ESG
risks and have been supportive of the name in bothprimary and secondary markets.

Learn more about this issuer on page 26

ASSESSMENT
We believed the market was not adequately pricing in thesegovernance risks and we decided to pass on the deal.
SECURITISED CREDITABS

Regulatory Risks-Predatory Lending

DESCRIPTION
The issuer of this ABS is a specialty finance company
providing used car financing to deep subprime borrowers
who often lack access to other auto financing options.
Recently, the issuer has become subject to a formal
complaint filed by the Consumer Financial Protection
Bureau (CFPB) related to its lending practices. Instead ofusing a variable interest rate to adjust for increased risk, its
business model hinged on incentivising dealers to inflate theprincipal of loans for high-risk borrowers and add ancillary
products, including dealer service contracts, in exchange forcompensation. This scheme did not appear to align with aborrower’s ability to repay the loan, as the issuer generates
profit even in scenarios when loan repayment is significantly
below expectation due to a high loan-to-value (LTV) ratio
and aggressive collection practices.

ASSESSMENT
Since its business model is based on hidden profit
realisation that may be unknown to the borrower, we felt
the issuer was likely to face regulatory action related to
predatory lending practices. As a result of this significant
ESG risk, we ultimately decided not to purchase theissuer’s securitisation.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

20 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

HIGH YIELDAUSTRALIAN METALS &MINING COMPANY
Climate Risk Mitigation

DESCRIPTIONHIGH YIELD

U.S. BUILDING MATERIALS COMPANY
Sustainable Product Opportunities

DESCRIPTION
The issuer is one of the largest North American
distributors of fly ash, a by-product of coal that can beused as a partial substitute for cement in the productionof concrete. Approximately 77% of concrete’s CO2
footprint comes from the production of cement, and fly
ash offers the potential to serve as a substitute for 20% of
cement mix and decrease its water intensity of production.

ASSESSMENT
We felt the issuer’s business model was well positioned
to capitalise on a projected increase in demand forsustainable inputs in cement production like fly ash in
the future. Strong long-term growth potential enabledby the issuer’s pursuit of ESG opportunities encouraged
our participation in the new deal.

Operating in a carbon-intensive industry, this issuer
is susceptible to volatile energy prices and transitional
climate risks, including the implementation of various
emissions regulations in its primary areas of operation.
The company has made credible efforts to mitigate
its exposure to these ESG risks by investing heavily inalternative energy sources, with a focus on developinga hydrogen-powered mining fleet and a solar-backed
solution for one-quarter of the company’s stored energy.

ASSESSMENT
Although these efforts are capital intensive, we felt theywould better position the issuer to outperform peers overthe long run. The deal’s attractive relative value and theissuer’s core focus on reducing its emissions encouraged
our participation in the new deal.
HIGH YIELDGLOBAL METALS & MINING COMPANY
Climate Risks

DESCRIPTION
Serving as a large producer and exporter of metallurgicalcoal, the issuer faced an increased cost of capital relative
to its credit strength primarily due to its environmentally
harmful business model. Metallurgical coal is the primarycontributor of CO2 emissions from the steelmaking
process and is responsible for nearly 5% of global
greenhouse gas emissions.

ASSESSMENT
Learn more about this issuer on page 27

Our analysis supported the notion that the issuer’s
poor environmental profile and significant exposure
to transitional climate risks was adequately priced into
the deal as ESG risks. The issuer’s strong LTM credit
fundamentals amidst elevated prices for metallurgicalcoal, the fact that we see little to no viable alternative tocoal-based steel in the near term, and our view that steel
demand is expected to remain high globally supported ourbelief that the deal was attractive on a relative value basis,
encouraging us to purchase the bonds.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

21 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

LEVERAGED LOANS

U.S. PRIVATE SECURITY CONTRACTOR
Labour Management

DESCRIPTION
The highest standard of employee training and humancapital management were critical for this issuer toeffectively provide security services for its high-riskclients, including banks and airports. Our research
revealed recurring reports of negligence and a systemic
inability to properly oversee the actions of employees
during field operations.

ASSESSMENT
LEVERAGED LOANS

U.S. SPECIALTY RETAILER
Regulatory Risks

DESCRIPTION
The issuer is a rental and leasing services company
focused primarily on home furnishings and appliances.
Our analysis encouraged us to be critical of issuers with
rent-to-own business models due to the high impliedinterest rates associated with renting consumer durable
goods as opposed to outright purchasing them. As aresult of its niche market, the issuer was out of thepurview of the federal agency typically responsible foroverseeing the conduct of rental and leasing servicing
companies, subjecting it to less regulation.

ASSESSMENT
We believe there is a meaningful probability of an increasein future regulatory action, likely at the state level, thatwould negatively impact the issuer’s revenue over the longrun. This ESG risk was not sufficiently priced into theoffering, motivating us to pass on the deal.

Poor treatment of employees along with considerable
health and safety concerns also led to significant
employee turnover, serving as a red flag of the issuer’s
ability to attract and retain talent. We passed on thedeal after our analysis indicated these substantial ESG
risks were not adequately priced into the offering.

LEVERAGED LOANS

U.S. TELECOMMUNICATIONSSERVICES PROVIDER
Regulatory Risks

DESCRIPTIONAs a large provider of real-time event captioning
services and language interpreting, the issuer isregulated by the Federal Communications Commission(FCC). A history of FCC and other regulatory fines
due to misconduct have caused an increase in theissuer’s operating expenses in recent years. Heightened
regulatory scrutiny is likely to further impact the abilityof the company to maintain or increase its current
growth rate.

ASSESSMENT
Despite the issuer’s poor track record, these ESG risks
were not priced into the deal according to our analysis.
Therefore, we passed on the offering.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

22 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SOVEREIGNMIDDLE EAST FRONTIER MARKET
Climate Transition Risk | Security | Corruption

DESCRIPTIONSOVEREIGNSOUTH AMERICAN EMERGING MARKET
Climate Transition

From the risk perspective, our sovereign credit rating
already incorporates any ESG risks that we believe
to be credit-material. Some of the potential risks we
see include climate transition risks given this issuer’s
economy’s dependence on the hydrocarbon sector,
security concerns, as well as governance issues such asheightened corruption risk and weak institutions. On
the other hand, this issuer has some of the strongest
macro scores in our frontier markets’ Fundamental
Macro Scorecard, thanks to low debt ratios, solid
external solvency or liquidity ratios (e.g. debt coming
due or current account balances compared with buffers
such as reserves) and low stock of credit.

ASSESSMENTDESCRIPTION
Droughts are the main mechanism through whichclimate change affects this South American country’s
economy. Consequently, this issuer’s exposure to climatechange will likely increase insofar as climate change
produces more frequent and more severe droughts. Other
tail risks include extreme heat and dramatic ecosystemchanges, which may also further exacerbate issues ofdrought, among other things. At this juncture, this issuer
does not seem to be taking the necessary steps to weather
this type of shock without material disruptions.

ASSESSMENT
In our assessment, climate change has a net negative
impact on the country’s macroeconomic fundamentals,
chiefly via lower capital and trade flows, to the extent
deforestation hinders ESG-conscious investment
and/or impacts international trade partnerships, anddownside risks to the growth outlook and upside risks
to the inflation dynamics, insofar as droughts weigh onthese variables. However, we are of the view that theseheadwinds are unlikely to compromise the country’s
ability to service its external debt liabilities given its
low stock of external debt, manageable external macro
imbalances and a solid reserve position.

Thus, our sovereign credit rating considers the ESG
risks in addition to and within the context of some ofthese positive credit fundamentals. Valuation takes thissovereign credit rating into account, and therefore webelieve we are positioned to be compensated for any
risks we are taking on.
EMERGING MARKET CORPORATE

SOUTH AMERICAN ENERGYCOMPANY
Governance Risks

DESCRIPTIONThis issuer is a state-owned multinational company,
and its government has repeatedly exerted its politicalinfluence to affect fuel prices. The government has
replaced its CEO multiple times and appointed newmembers to the board of directors.

ASSESSMENT
The political interference in the company’s
management team does raise governance concerns andthe continued uncertainty resulted in us reducing our
exposure to this issuer.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

23 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG IMPACT
In addition to assessing credit-material ESG risks and opportunities, where agreed to with clients or as disclosed in offering
documents, we also assess issuers’ impacts on the environment and society, separate from our credit assessment andrepresented through a distinct ESG Impact Rating that we assign.
Essentially, ESG Impact Ratings are an assessment of issuers’ positive impacts and also the reduction of their negative
impacts and their plans to do so. As a result, we track their progress in this regard over time. Our ESG Impact Rating
framework is designed to provide analysts with detailed, granular guidance on the key negative and positive ESG
impacts at a sub-industry level. In many cases, analysts review certain KPIs, including relevant Principal Adverse Impact
Indicators where available, to assess performance on those impacts. However, the relevant impacts are highly varied
depending on the activities issuers in each sub-industry are involved in, and not all impacts can be fully assessed using
only quantitative metrics.
While we review data from external data providers, we combine this data with our in-house research, analysis andengagement capabilities. Using this combined approach to leverage quantitative and qualitative data along with ouranalysts’ expertise allows us to build a more comprehensive and granular view of ESG performance and trajectory thanwould be possible if we were to rely solely on a limited number of data-driven, but scope-limited KPIs.
We believe our ESG Impact Ratings are crucial elements to determine eligibility of issuers in PGIM Fixed Income ESG
strategies and are explicitly used in portfolio construction for those strategies, and others where clients direct us to do so.
However, they are designed only for specific strategies and clients that aim to pursue ESG objectives that extend beyond
what is purely financially material. For information on how ESG Impact Ratings are determined across our asset classes,
please see Who We Are: ESG at PGIM Fixed Income.

24 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

2022 ESG IMPACT
CASE STUDIESThe examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

25 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

INVESTMENT GRADE

EUROPEAN FINANCIAL SERVICESCOMPANYPRIMARY PRODUCTS & SERVICES IMPACT
Sustainable lending
INVESTMENT GRADE

U.S. INDUSTRIALS COMPANY
PRIMARY PRODUCTS & SERVICES IMPACT
Sustainable products (water, waste & energy reduction)

PRIMARY OPERATIONAL IMPACT
GHG emissions

ASSESSMENT
This U.S. manufacturing firm is a leading water technology
company which creates innovative and smart technology
solutions to meet the world’s water, wastewater and energy
needs. In addition to overall positive environmental impact
through its products, this company is a strong performer
across all areas of ESG and has avoided major controversies.
Management is very committed to a strong ESG profileand obtained a credit facility that is linked to the company’ssustainability performance. The company consistently
outlines various ESG initiatives and recently achieved
a 28.3% reduction in GHG intensity compared to its
20% target set in 2014. By 2025, the company targets to
use 100% renewable energy at its major facilities and use
100% process water recycling at its major facilities. The
company’s sustainability report highlights that 10 of its 22
major facilities use 100% renewable energy while two of its
22 major facilities are using 100% process water recycling.
In addition, it has a net-zero commitment by 2050. The
company is not only working to reduce its own impact on
the environment through reducing waste and greenhouse gas
emissions but is also very focused on helping to solve water
challenges around the world. One example is a program
where the company also works with nonprofit organisations
to provide education and protect safe water resources forcommunities around the world, which is clearly linked to thecompany’s overall business model as well.

OUTCOME
Eligible for ESG strategies.

PRIMARY OPERATIONAL IMPACT
Product labelling and selling practices

ASSESSMENT
This European financial services company is one of thelargest business and commercial banks in the United
Kingdom. With Scope 1 and 2 emissions accounting forless than 1% of its total greenhouse gas emissions, theprimary concern for the bank is tackling Scope 3. The
issuer’s strategy to achieve net zero by 2050 consists ofinterim targets to reduce the climate impact of its financing
activities by 50% by 2030 and a pledge of $100 billion
in climate and sustainable funding by the end of 2025.
It sits among one of the largest—and few—financial
services companies with a Science Based Target Initiative(SBTi) validated 1.5C near-term target. Additionally, its
investment banking group has been steadily building out asustainable finance division, serving as the lead bookrunneron some of the largest Green, Social and Sustainability(GSS) Bond deals over the past 12 months.
Although its environmental performance is above average,
one-off incidents involving customer fraud and financial
product suitability indicate the company slightly lags
peers on social factors. Regulatory investigations in recent
years led to judgements against the issuer requiring it to
repay customers for breaches of overdraft regulations. It
also has historically been the subject of several misselling
controversies related to payment protection insurance (PPI),
although we note significant time has elapsed since theseincidents, and we believe future unscrupulous behaviour isunlikely. A combination of credible emissions reductions
targets but poor product labelling and selling practices
derive the issuer’s slightly below industry average ESG
Impact Rating; however, recent governance improvements
have resulted in increased ESG Impact Ratings.

OUTCOME
Eligible for ESG strategies.

Learn more about this issuer on page 20

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

26 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

HIGH YIELDEUROPEAN CHEMICALS COMPANY
PRIMARY PRODUCTS & SERVICES IMPACT
Sustainable products (water treatment & reduction)

PRIMARY OPERATIONAL IMPACT
GHG emissions
HIGH YIELD

U.S. BUILDING MATERIALS COMPANY
PRIMARY PRODUCTS & SERVICES IMPACT
Sustainable products

PRIMARY OPERATIONAL IMPACT
GHG emissions

ASSESSMENT
This materials company is a marketer and distributor of
fly ash and one of the leading producers of sustainablecementitious products in the United States. The
company was formed in connection with a merger
between a leading designer, manufacturer and marketer
of innovative low carbon products that are used as agreen substitute and another company that was theNo. 1 player in the harvest, marketing treatment anddistribution of fly ash.
Many of cement’s applications have limited practicalbuilding material alternatives available. As a result,efforts to reduce its environmental impact and, inparticular, the carbon emissions from its production
process should be heavily rewarded, which is why wefeel this issuer’s ESG Impact Rating of 55, which is theupper end of our Balanced category, is warranted. Fly
ash reduces the water intensity of production, improves
the end-product quality, and diverts waste from landfills.
Fly ash enables concrete supplies to use less cement withrelatively no impact to quality.

ASSESSMENT
This French chemical company is the world’s leading
producer of PAM (polyacrylamide), whose main use is
as a wastewater treatment chemical that works via theprocess of flocculation whereby waste particles bind
to PAM molecules and, in turn, fall to the bottom oftanks, are collected and dried out.
It is hard to argue that making chemicals that are
crucial in cleaning up wastewater is a “bad thing”,
and the company is the primary player of making
said chemicals, chiefly PAM. PAM is widely usedin potable water production and in municipal andindustrial wastewater treatment. It can also be used tochange the viscosity of water, which means it allows
for water usage that is three to six times lower whencleaning out oil wells. Granted, the production of its
products are ultimately born of petrochemicals, andthe precursor to its products is a Class 2B carcinogen.
But by polymerising this precursor (acrylamide) into
PAM, this chemical’s toxicity is eliminated.

OUTCOME

Additionally, this company’s carbon intensity isslightly below average when it comes to CO2 per tonneof volume sold, but bottom quartile (which is good)when it comes to CO2 emissions per euro million ofsales (i.e. 175 metric tonnes versus a sector average of
493 tonnes). In terms of decarbonisation goals, thegroup has finally adopted targets; chiefly it wants to
be carbon neutral by 2050 and to reduce its carbon
intensity by 30% by 2030. Therefore, a combinationof average targets, good/low carbon intensity and high“S” utility leave us rating this issuer a little higher than
the sector average.

Eligible for ESG strategies.

OUTCOME
Eligible for ESG strategies.

Learn more about this issuer on page 21

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

27 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECURITISED CREDIT

ABS

ISSUER IMPACT
Predatory lending concerns
EMERGING MARKETEMERGING MARKET
TRANSPORTATION COMPANY
PRIMARY PRODUCTS & SERVICES IMPACT
Sustainable travel

PRIMARY OPERATIONAL IMPACT
GHG emissions, energy efficiency

ASSESSMENT
This public sector enterprise has one of the world’s
largest rail networks and is the most environmentallyfriendly mass transport system in India given theinherent gains provided in terms of energy efficiency
and resource optimisation. Rail is known to be 12 times
more efficient in freight traffic and three times more
efficient in passenger traffic as compared with roadtransport in India. As such, India’s achievement of its
sustainable development goals hinges on its ability toincrease its share of freight traffic by rail from a current
36% to 45% by 2030. With transport accountingfor 25% of India’s overall energy needs and 14% of
total GHG emissions, increasing rail-based transport
is expected to be a key driver of the targeted 33%
reduction in emissions intensity through 2030. The
target also requires the railways to utilise at least 10% ofenergy requirements from renewable sources.
Despite good progress, the issuer still has room for
improvement in terms of energy use given that despitelarge-scale scrapping of diesel engine and substantial
track electrification, diesel consumption remains
extremely high. While there has been an invitation ofbids to explore potential retrofitting of diesel-powered
units into a hydrogen fuel-based train, this is currently
at an early stage.

IMPACT OF COLLATERALEnergy-efficient properties

ASSESSMENT
The underlying assets of this ABS serve as alternative
forms of financing for energy-efficient home
improvements. Unlike traditional loans that are tied
to borrowers, these loans are tied to an individual
property and repaid as part of the property owner’sannual property taxes. While the environmental
impact of these loans is positive, its senior lien priority
makes it difficult for borrowers to sell or refinancetheir mortgage without being forced to pay off theloan. This has had a significant negative social impact
by trapping many households in difficult-to-navigate
financial circumstances.
Our assessment also revealed the issuer of thisABS has been attempting to take advantage ofgaps in consumer protections and varying degrees
of regulatory oversight of the loan origination
across different states, leading to the exploitationof borrowers primarily in communities with poor
financial literacy. The issuer has been the subject ofnumerous complaints, regulatory fines, and classaction lawsuits in recent years related to misleading
advertising practices. Even when considering theenvironmental benefits of enabling the improvementof residential home energy efficiency, our assessmentof this ABS remains poor. The negative social factors
associated with the flawed structure of the underlying
loans and the harmful underwriting practicesof the issuer significantly outweigh any positiveenvironmental impacts.

OUTCOME
Ineligible for ESG strategies.

OUTCOME
Eligible for ESG strategies.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

28 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SOVEREIGNMIDDLE EAST FRONTIER MARKETDESCRIPTIONSOVEREIGNAFRICAN FRONTIER MARKETDESCRIPTIONThis country performs slightly above the frontiermarket (FM) average on the environmental pillar. Thisis driven by very strong performance on the biodiversity
and habitat theme as well as good performanceon climate and energy. However, the country issignificantly underperforming on the social pillar acrossnearly every theme. For governance, the country scores
lower than the FM average on most of our indicators
which include government effectiveness and regulatory
quality. However, we have applied a qualitative overlay
and given the country a 10-point uplift to reflect thepositive change in the country resulting from the 2021
general election. Since coming into power, the new
government has adopted a more open and transparent
way of governing, the structure of the government ismore collegial and not dependant on the will of thepresident (as in the previous years), and allegations ofcorruption are absent.

This country performs roughly in line with peers forthe environment and social pillar but significantly
underperforms on governance. Within environment,
the country scores above its peers on climate andenergy, air quality and water-related indicators. In
social, the country scores well compared to its frontiermarket peers on certain indicators such as access toadvanced education and income inequality but poorly
on others like inclusiveness and access to informationand communications. For governance, the country
underperforms against peers on every area, and wehave further downgraded the country due to thepolitical instability that remained after the May 2022
elections: the country is still without a government,
and the caretaker administration remains gridlocked.

ASSESSMENT
Eligible for ESG strategies.

ASSESSMENT
Eligible for ESG strategies.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

29 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG LABELLED BONDS
Despite the lower issuance in Green, Social and Sustainability Bonds (GSS Bonds), as well as sustainability-linked
bonds (SLBs), last year, we continue to believe that such “ESG-labelled bonds” have a role in transitioning towards asustainable economy, provided the projects and activities they fund have legitimate and additional positive impacts on theenvironment and society. In order to assess the impact of individual issuances, we have developed proprietary frameworks
for assessing ESG-labelled bonds, which is linked to our ESG Impact Ratings.
Under our GSS Bond framework, we assess both the issuer’s credibility with respect to the bond, and the bond’s
additionality. The credibility assessment starts by evaluating the quality (or not) of the issuer’s overall sustainability
strategy, and then how the GSS bond fits into that strategy. The key consideration for additionality is the degree to which
the bond transforms the issuer, e.g. by meaningfully replacing “brown” assets or activities with “green” (versus funding“green” activities that are essentially business as usual, or that represent relatively minor add-ons to a business that remains
primarily “brown”). This assessment results in an uplift (or a lack thereof ) of a GSS Bond’s ESG Impact Rating versus the
ESG Impact Rating of its issuer. We distinguish between High, Higher, Medium, Low and No Impact GSS Bonds. For
more information on our ESG-labelled bond frameworks, please see Who We Are: ESG at PGIM Fixed Income.

The combinations of determining a Green Bond Impact Rating

—

—

—

—

—

—

—

—

—

—

—

—

Source: PGIM Fixed Income. Provided for illustrative purposes.

We take a more sceptical view of SLBs, which we assess via another, similar framework. The market for SLBs is new andevolving, but, to date, we have found the materiality and/or ambition of targets are often lacking. Further, targets are
typically set at the issuer level (and sometimes already existed), and the bonds usually do not fund any specific projects.
At the same time, the penalties for missing SLB targets are frequently small (especially relative to an issuer’s overall costsof capital) and short-lived. Therefore, it is unclear what material benefit investors receive by investing in an issuer’s SLB
instead of its other bonds. That said, SLBs may increase scrutiny on an issuer’s targets and, if well structured, could offersome downside protection if financially material ESG targets are missed. Therefore, for higher-quality SLBs (e.g. thosewith targets that are highly material and ambitious, and that have strong structural features), we may still apply a modest
uplift based on our SLB framework; however, this is currently limited.
From a credit and relative value perspective, we analyse ESG-labelled bonds as we would analyse any other corporate
investment, and if we believe we are being paid for the credit risk, we would be happy to invest. However, if a company isissuing at too tight of a spread level just because the bond is “ESG-labelled”, we do not see that as an attractive financial
opportunity to invest. We generally would not pay a premium (i.e. tighter spread) to purchase a GSS Bond versus nonGSS Bonds of the same credit, unless superior in some form to the existing issuance, or unless this helps meet clients’specific ESG objectives.

30 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

IMPACT BY THE NUMBERS
As of 31 December 2022, approximately 53% of the Green, Social andSustainability Bonds as well as sustainability-linked bonds we had assessed
were deemed to be of No or Low incremental impact versus an issuer’s
conventional bonds. Some of the reasons for this appears to be due to:18

No impact

12
High impact

 low credibility of the issuer’s ESG strategy
 eligible projects appear to be geared towards business-as-usual activities
and don’t represent true additionality

Impact of
ESG labelledbonds/loans(%)

 eligible projects do not focus on meaningful change or business model
shifts but are more focused on “greening” tangential activities
 lack of transparency or adequate description that can give investors
comfort as to where proceeds will be allocatedGenerally, we have found that while there aren’t many that we deem to havemeaningfully higher impact versus their conventional counterparts, Green
Bonds have had the most impact within the ESG-labelled bond market;
whereas we are still seeing significant weakness in terms of incremental
impact coming out of Social and SLB issuances.

14

17

Impact of Green
Bonds/Loans
(%)

32

37

7

4
29

Impact of Social
Bonds/Loans
(%)
61

8

38

38

8

Impact of
Sustainability
Bonds/Loans(%)

Impact of
Sustainability-linked
Bonds/Loans (%)

46

63• High impact • Medium impact• Low impact • No impact

Source: PGIM Fixed Income. Assessments conducted as of 31 December 2022.

31 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

34
Medium impact

36

Low impact

IMPACT CASE STUDIESHigh Impact Green Bonds
Proceeds are used to finance a project that is core to transforming an issuer’s businessmodel and operations from brown to green, with green economic activities expected toreplace brown activities.
Many of the High Impact bonds will likely be issued by relatively “brown” issuers considering that they have the mostroom to transform themselves via credible, ambitious plans and need a way to finance the transition. Furthermore, asubstantial uplift to an issuer’s ESG Impact Rating may allow us to buy their Green Bonds in ESG-oriented portfolios,even if we can’t buy their traditional bonds in those portfolios.

HIGH IMPACT EXAMPLE

In 2022 we re-evaluated a Green Bond from a U.S.
utility that had been issued in 2019 and which webought in 2021, moving it from a Medium Impact
assessment to High Impact. This was driven by thecompany’s annual reporting and impact report, which
had shown a substantial amount of additionality tied
directly to the bond’s proceeds.
From a credibility standpoint, we viewed this bondfavourably: while it was issued before the company’s
Sustainable Financing Framework was released,
it is consistent with the new Framework, which isaligned with ICMA’s Green Bond Principles through asecond-party opinion. This is because the proceeds
are to be used for eligible green projects, including thedevelopment, construction, acquisition and operation ofsolar energy projects and utility-scale battery projects,

which are central components of the company’ssustainability strategy to transition away from its highnatural gas generation fleet towards a renewable one.
Additionally, this bond is certified by the Climate Bonds
Initiative and commits the company to annual reportingon the disbursement of the net proceeds. Whenconsidering additionality, we also viewed this issuancefavourably, as investment in the eligible projects could
help fundamentally transform the issuer’s businessstrategy to be more sustainable.
However, it wasn’t until we saw the reporting on theimpacts of the bond that we felt comfortable assigning
this bond a high additionality, and, ultimately, highoverall impact, score.

Medium Impact Green Bonds
Proceeds are used to finance projects that are either non-core to the issuer’s business or
are in addition to core brown activities.

MEDIUM IMPACT EXAMPLE

Even though the share of green activities in an issuer’s mix is growing, they are not always
replacing “brown” activities. For example, when Green Bond proceeds finance new, renewable energy projects that
expand a utility’s capacity but do not meaningfully speed up the retirement of its coal power plants, the issue may fall
into these categories.
We recently evaluated a Green Bond from a U.S.
technology hardware company that we assigned ashaving Medium Impact.
From a credibility standpoint, the company’s Green
Bond was consistent with its sustainability strategy
and the projects were eligible under ICMA’s Green Bond
Principles. However, there was no clear timeline for the
distribution of proceeds, indicating to us that it mighttake a considerable amount of time for the proceeds tobe distributed.

From an additionality perspective, we didn’t feel theeligible projects were transformative for the company
but assessed that the Green Bond may ultimately
help mitigate many of the negative impacts fromthe company’s operation through its focus on green
buildings, pollution and water conservation, among
other eligible projects.
Additionally, the 24-month lookback period was
reasonable, but the issuance could have generated
more incremental impact if it were 12 months or shorter.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

32 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Low Impact Green Bonds
Proceeds are used to finance projects that are unambitious, have low credibility, or a
combination of both characteristics.
Low additionality often occurs when an issuer has a large proportion of green economic
activities in their overall mix already, and are using Green Bonds mainly to finance these existing activities. In this case,there is no meaningful increase in the overall share of green activities or active replacement of brown activities with green
ones. It is worth noting that in this scenario, even though the Green Bond impact is assessed as low with a smaller ESG
Impact Rating uplift, the issuer is likely to have a higher ESG Impact Rating to begin with because it is already involved ina large number of green activities.

LOW IMPACT EXAMPLE

In early 2022 we analysed a Green Bond from a U.S.
food and beverage company that we categorised as
Low Impact.
In terms of credibility, the Green Bond aligned wellwith the company’s overall sustainability strategy,
prioritising its most material impacts—including
recyclable or reusable packaging, decarbonisation,water use and regenerative agriculture. Additionally,
the issuance and corresponding Green Bond Framework
had very clear reporting guidelines to track the useof proceeds and committed to spending most of theproceeds within three years of issuance. However, while

we viewed these characteristics positively, thecompany failed to obtain a second-party opinion for
their Green Bond Framework, which meant we could
not be confident the bond aligned with key verification
guidelines such as ICMA’s Green Bond Principles.
We viewed this bond as having low additionality, driven
mainly by the lack of quantifiable targets for all theeligible project areas. As a result, while we felt theeligible projects were slightly ambitious, the lack ofclarity on specific projects the company hoped to fundwith the proceeds meant we couldn’t confidently assign
any higher additionality to this bond.

No Impact Green Bonds
Proceeds are used to finance projects; however, these projects have low credibility and do
not seem to present any additional impact beyond what the issuer is already investing in.

NO IMPACT EXAMPLE

Assigning zero additional uplift points to a Green Bond simply means that we believe thespecific issuance does not create any meaningful or additional impact versus the issuer’s conventional issuances. This might
be because of low credibility with respect to the issuer and issuance or because the projects intended for the use of proceeds
appear to be “business as usual” with no additionality associated with them.
We recently assessed a Green Bond from a European
asset manager and insurance company as having No
Impact.

sustainability strategy, especially since originationof many of the eligible assets under the Green Bond
Framework is now done by the outside asset manager.

From a credibility standpoint, it is positive that six
out of the seven eligible green assets included in
the Green Bond Framework are compliant with the
EU Taxonomy. However, there is no clear timeline toachieve full compliance and we don’t expect the issuer
to accomplish this anytime soon.

We deemed this issuance to have low additionality
as well because most of the green asset portfolio is
made up of green buildings, but the Framework doesn’t
specify any plans to promote newly built houses using
the issuer’s green mortgage program. Since there
doesn’t appear to be a pathway to increase the issuer’s
overall share of eligible assets through their Green
Bond Framework, we believe this issuance is more of arepackaging of the issuer’s existing assets rather than away to drive incremental impact.

Additionally, the issuer recently sold its asset
management operations to another asset manager, withthe sale agreement stipulating that the outside asset
manager would manage the assets for a 10-year period,
resulting in less stringent oversight over the issuer’s

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

33 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECTION 5ENGAGEMENT

134 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

2

3

4

5

6

ENGAGEMENT
We consider engagement to be a meaningful direct dialogue with an issuer or stakeholder on an ESG topic (e.g., climatechange, biodiversity, human rights, etc.) and believe engagement is a key tool in our investment process.
While the majority of our engagements in 2022 were with individual issuers, we also engaged with other stakeholders,
including our clients, arranging banks, ESG data providers and regulators, and with the industry through our activeroles in organisations, including: PRI’s Securitised Products Advisory Committee, Structured Products Workstream;
European Leveraged Finance Association’s (ELFA) ESG Committee; Structured Finance Association’s (SFA), ESG Steering
Committee, ESG Transaction Level Disclosure Working Co-Chair; and Center for Real Estate Finance Council’s (CREFC)
Sustainability Steering Committee and Transparency Subcommittee, Climate Bond Initiative.
We believe these engagements are not only valuable to us, as they give us insights into how other stakeholders are tackling
and addressing current and emerging ESG challenges; they also offer us an opportunity to educate and share our insights
with the objective of offering high-quality ESG investment options to our clients.

ENGAGEMENT WITH CLIENTSAt PGIM Fixed Income, we strive to provide clients with quality
products and solutions to meet their varied needs and objectives and toprovide clients with transparent reporting that allows them to assess our
performance. Throughout 2022, our Client Advisory Group worked
with clients to align guidelines, risk budgets, and portfolio construction
approaches to their investment beliefs. We communicated portfolio
outcomes and our approach to ESG to our clients through regularmeetings with clients, our reporting outputs, and responses to detailed
due diligence questionnaires that clients ask us to complete. As the ESG
industry continues to evolve, we actively seek input from our clients,
which helps guide enhancements to our internal frameworks and tools,
while also ensuring that we continue to offer the most relevant ESG
products. ESG has no agreed-upon definition, and ESG sensitivities
can be highly nuanced, which is why we believe one-on-one dialogue
with our clients is critical to meeting our clients’ objectives while also
complying with applicable regulatory guidance. Such conversations withclients have informed enhancements in our ESG research and processes
on several occasions.

125Stand-alone
ESG questionnaires
completed for clients53
in 2022• North America• EMEA70• Japan• Asia ex-Japan

35 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

EXAMPLES OF ENGAGEMENTS WITH CLIENTS HELD IN 2022
TOPIC

Credits with ESG Challenges
We engaged in one-on-one dialogue with certain clients to explain our rationales for holding specific credits. At a firm level,
there are certainly credits we own that have observed ESG challenges. Our rationale for owning credits where we observe
credit-material ESG challenges is generally twofold. We see the company or country moving in the right direction to reducethese risks and/or we feel that spreads have sufficiently compensated us for the ESG risks. We believe timely discussions withour clients on the rationale for our views on the current status and trajectory of individual credits are a valuable contribution
to their stewardship efforts.
TOPIC

Implementation of a Green Bond allocation target
In an effort to further integrate ESG into their portfolio’s management, a client advised us that they wished to add aminimum 25% Green Bond allocation to their existing Global Credit portfolio. Our Client Managers and Global Corporates
team engaged with the client in order to gain a good understanding of their objectives and offer options that may help meettheir needs. Our Global Corporates team then worked with the client to develop a project plan that allowed the client toachieve their goal while being mindful of performance and transaction costs. Not only did we reach the 25% target, but wealso bought Green Bonds that we found attractive from a relative value perspective and maintained the portfolio’s desired risk
profile at all times.
TOPIC

Regulatory Reporting
With the EU’s Sustainable Finance Disclosure Regulation (SFDR) Level 2 requirements taking effect from January 2023,
along with mandatory Task Force for Climate-Related Financial Disclosures (TCFD) reporting, compliance with suchrequirements was at the top of our, and several of our European clients’, minds. We proactively engaged with these clients to
help them prepare for their new reporting obligations. Through one-to-one discussions with clients, our Client Managers,
ESG Research and Legal teams sought to understand clients’ reporting requirements, shared best practices, discussed how
our reporting capabilities could help meet clients’ needs, and gained a better understanding of the wider market’s approachto these new reporting obligations. As part of this work, we completed a number of highly detailed questionnaires focusing
on TCFD reporting capabilities and the relative merit of different climate metrics and approaches to reporting on them. Ourclients’ questions in turn led us to look more deeply into our own approach to these climate metrics and add further nuanceto emissions reporting templates.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

36 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT WITH ISSUERS
Debt investors are a critical stakeholder for corporate and sovereignissuers reliant on debt financing markets. We see issuer engagement
as an important tool in our investment process insofar as it helps
us gain a more holistic understanding of the issuers, from both thefundamental and ESG impact perspectives. We also believe that by
discussing our ESG concerns with an issuer, we make them awareof how those concerns factor into our investment decision. This canincrease focus on ESG at the issuer, while at the same time enriching
our investment analysis.

202
188

Total ESGEngagements

163 Corporates | 7 Sovereigns | 32 Securitised Products

Total Issuers
EngagedOur ESG engagement activities are focused on issuers that havecredit-material ESG risks, generate significant adverse impacts on
the environment or society, or lag their peers in ESG practices.
155 Corporates | 7 Sovereigns | 26 Securitised Products
Engagements are influenced by the materiality of ESG factors on
financial and/or operational performance, our proprietary ESG
Impact Rating of the issuer, the quality of an issuer’s ESG disclosures, theexposure to specific ESG factors and events that, in our view, require special
attention, as well as the size of our overall exposure to the issuer. At times,
issuers take the initiative to approach us to request feedback on their ESG
efforts. We aim for these discussions to be constructive for both sides, whichhelps maintain an ongoing dialogue between our analysts and the issuers
they cover. In all cases, our engagements seek to preserve or enhance thevalue of our investments.
Further, given our scale and global coverage, such discussions often provide
useful insights for issuers on how they compare to industry peers and how
markets perceive their ESG initiatives. Our ESG Impact Ratings offer
additional tangibility and context to the conversations, as they allow ouranalysts to show issuers interested in our process how we rank them on ESG
impacts, while also providing the rationale and factors behind the ratings. As
a result, engagement can also positively influence issuer behaviour.
As a manager of primarily fixed income investments, we generally do nothave ownership rights and, therefore, are not actively engaged in proxyvoting. In the rare instance where we are able to vote by proxy at an
Annual General Meeting, PGIM Fixed Income abides by its proxy voting
policy, which includes guidance on environmental and social shareholder
resolutions, seeking to balance the interests of all our clients.

TOP 10ENGAGEMENTTHEMES IN 2022

Note: All data as of 31 December 2022.

1

GHG emissions & climate change

6

Capital management2

ESG strategy

7

Risk management

3

Disclosure & reporting

8

Circular economy

4

Energy use & efficiency

9Social inclusion

5

Corporate governance

10 Green securities

37 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

EUROPE

50

49
ASIA

57

4

NORTH AMERICA

OCEANIA2022 ESGENGAGEMENTS

35

BY REGION

EMERGING
MARKETS

7
OTHER DEVELOPEDMARKETS

2022 ESG ENGAGEMENTSBY CATEGORY AND ASSET CLASS
12

31
31

Sovereigns

Securitised
Products

Environmental

49

7

2

Social10—

2

Governance

16

—

15

15

Environmental and Social

23

—

1

Environmental and Governance

28

—

3

31

Social and Governance

11

—

4

Governance

Environmental, Social and Governance

26

—

5

Note: All data as of 31 December 2022.

38 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

l

24

58

Corporatesia
Soc

E n vir
onm
ent

al

EXAMPLES OF ENGAGEMENTS WITH ISSUERSHELD IN 2022
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

39 PGIM FIXED INCOME | WHAT
2022 ESGWE ANNUAL
DO: ESG REPORTANNUAL REPORT 2022

CORPORATE FIXED INCOME

INVESTMENT GRADE ASIAN FINANCE COMPANYTOPICS
GHG emissions & climate change
Strategy/business model
ESG strategy

OBJECTIVE
When we met with the issuer last year, Management said the company would set a GHG
emissions target within a year. We engaged again to determine what, if any, progress had
been made towards setting emissions reduction targets since our last engagement, and to
get an update on the company’s ESG-related activities.

OUTCOME
In our meeting, we learned that the company set emissions targets and introduced
an action plan related to ESG initiatives in April 2022. Management told us that thecompany aims to achieve domestic net-zero Scope 1 & 2 GHG emissions on a nonconsolidated basis by 2023, and on a consolidated basis by 2025. It also plans to expand
various renewable energy businesses and is currently working on more than 1,600
renewable energy business projects, which is one of the best records in the leasing industry.
Management also shared that the company has set up a Sustainable Development Goals
Promotion Committee, chaired by the president, in order to promote and strengthen
the company’s ESG-related efforts. While these initiatives have not led us to change ourESG Impact Rating for the company, it is positive to see that the company has achieved
its goal of setting emissions targets within a year, and is actively promoting green finance,
including sustainability-linked leases to support its customers’ GHG reduction efforts. We
will continue to engage with a focus on the progress towards the emission reduction targets
and the business expansion strategy centred on renewable energy.

Source: PGIM Fixed Income as of May 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

40 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CORPORATE FIXED INCOME

INVESTMENT GRADE U.S. RETAIL COMPANYTOPICS
Disclosure & reporting
GHG emissions & climate change
Disclosure & reporting
ESG strategy
Disclosure & reporting
Labour management

OBJECTIVEMedia coverage of the company has often focused on issues around labour relations
and claims of anti-competitive behaviour, as well as their GHG emissions. We used an
introductory meeting between representatives of PGIM Fixed Income’s ESG Researchteam and the company’s ESG investor relations to address these issues, as well as to ask for
improvements to their ESG disclosures in order to make them more useful and topical.

OUTCOME
There were few major revelations during this meeting. On labour relations, representatives
cited a daily poll of employees as a way of improving worker satisfaction, and stated that“contractors” were often companies, which are covered by the issuer’s Supplier Code of
Conduct. However, they did not provide information on whether this requires similar
treatment for contractors towards their own employees. Regarding anti-competition
probes, they said the U.S. case had been dismissed and the European verdict wassuspended pending appeal. While there was no commitment to any major overhauls of
their disclosures, the issuer seemed receptive to hearing what we thought would makethem more useful to investors. On emissions, they didn’t offer much more clarity on whatis excluded from their Scope 3 and did not want to discuss their upcoming SBTi target
before it is released. While there was no commitment to any major overhauls of theirdisclosures, they seemed receptive to hearing what we thought would make this more
useful for investors. Following this introductory meeting, future engagements will likely
focus on individual themes, such as labour relations.

Source: PGIM Fixed Income as of April 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

41 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CORPORATE FIXED INCOME

HIGH YIELD MULTINATIONAL CHEMICALS COMPANYTOPICS
Disclosure & reporting
GHG emissions & climate change

OBJECTIVE
Following a public earnings call where we flagged the need for the company to improve its
ESG disclosures, we met with the CFO and investor relations representatives in order toshare PGIM Fixed Income’s approach to assessing issuers on ESG risk and impact; discuss
the company’s current level of ESG disclosures; and reiterate our request that the company
publish funding entity-level ESG data, including Scope 1 and 2 emissions, in order toenable a more accurate ESG assessment of its business activities.

OUTCOMEThe company is attuned to the significant business opportunities linked to the low carbon
transition, but also recognises the need to improve its ESG disclosures. Management
indicated that they aim to increase the scope and granularity of the company’s ESG
disclosures in line with our requests. At the time of engagement, the company’s
ESG Impact Rating was weighed down by its lack of disclosure. It later published a
Sustainability Report, which included silo-by-silo emissions reporting. The increased
disclosure levels led us to upgrade the company’s ESG Impact Rating.

Source: PGIM Fixed Income as of September 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

42 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CORPORATE FIXED INCOME

HIGH YIELD U.S. MIDSTREAM OIL & GAS COMPANYTOPICS
Disclosure & reporting

OBJECTIVE
We met with the issuer to follow up on a previous engagement and press the issue of
ESG disclosure. We had identified the issuer as a company providing only limited ESG
disclosure and informed management that we would like to see more. In our earlier
engagement, we requested their plans and a timetable for increasing ESG data disclosure.
At that time we also informed management that, due to their low disclosure, we give thema lower ESG Impact Rating, which prevents the issuer from being included in a large
portion of our ESG products as they are near a key ESG Impact Rating cut-off.

OUTCOMEManagement noted that they formed an ESG team in 2019 and have been tracking ESG
data including Scope 1 and 2 GHG emissions. They informed us that, although they
originally planned to release some ESG data this year, this was halted as they are waiting
to see if there are any new ESG disclosure requirements from the SEC. While it is logicalto wait for further SEC developments before releasing the ESG data they have collected,
waiting until 2023 to provide it characterises the issuer as an ESG laggard compared topeers who already report ESG data and provide sustainability reports. We will continue
to be conservative in our rating of the issuer until action is taken, and will continue toencourage management to expedite their ESG disclosure process. Once the issuer reports
more ESG data, we will re-evaluate our ESG Impact Rating.

Source: PGIM Fixed Income as of June 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

43 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CORPORATE FIXED INCOME

HIGH YIELD EUROPEAN TELECOMMUNICATIONS COMPANYTOPICS
Disclosure & reporting

OBJECTIVE
The company’s investor relations and reporting quality significantly deteriorated overthe 12 months since it was taken private. We still have a positive view on the company’s
fundamentals and earnings trajectory; however, the bonds sold off in recent days, which
we believe stems from its poor market communications strategy, rather than being driven
by operational performance. The objective of the call was to rectify these issues and get an
update on the company’s strategy.

OUTCOME
The CFO advised us that as a result of feedback from PGIM Fixed Income, it is making
changes to its investor relations strategy. Going forward it will offer Q&A calls withlenders on a one-to-one basis, will run live Q&A on results calls and will reintroduce
quarterly KPI/revenue stats. The company is currently recruiting a new dedicatedinvestor relations person. We provided additional areas where the company could
improve further, including providing an overview on the shareholder strategy, and how
to present certain financial items better. The CFO welcomed our feedback and said thecompany would look into actioning these points. The company is taking the issues weraised seriously, and we are satisfied they are taking necessary steps and appropriately
engaging with lenders. However, we will await delivery on the action points before
increasing the issuer’s ESG Impact Rating back to its previous level (which did notinclude the current Governance handicap). We will also continue to provide feedback on
its investor relations strategy, praising the positive aspects while also offering advice forareas which can be further improved.

Source: PGIM Fixed Income January 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

44 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

EMERGING MARKETS DEBTEMERGING MARKET MINING COMPANYTOPICS
Biodiversity, ecosystems & land use
Disclosure & reporting

OBJECTIVE
We requested a meeting with the issuer in advance of its debut issuance to ask fordisclosure on the environmental impact assessment that had been undertaken as part oftheir licence extension to continue operating at a mine. Our key concern was around theenvironmental impact of their riverine tailings disposal system.

OUTCOMEManagement said the impact assessment and roadmap studies have not been completed
and that the findings from their human health study would be released in 2022.
Management also said that, while they have been cooperating and could provide
details of the consultants that have been engaged to produce studies commissionedby the Ministry of Environment and Forestry, there is no timeline on publishing
the studies’ results. They noted that there are 90 monitoring programs in place totrack environmental impacts but stated that these are not disclosed externally. Given
the length of time the company has been operating this mine and its high level of
disclosure on sustainability in general, it is surprising that so little is disclosed regarding
environmental impact assessments at this site. Given this, we are monitoring the ESG
disclosure at the issuer and will follow up for the results of the environmental andhuman health studies or consider downgrading the ESG Impact Rating.

Source: PGIM Fixed Income as of April 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

45 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

EMERGING MARKETS DEBT

SOUTH AMERICAN FOOD & BEVERAGE COMPANYTOPICS
ESG strategy & disclosure

OBJECTIVE
Following publication of the issuer’s new Sustainability Report, which laid out the first setof hard goals in its ESG Strategy, we met with the CFO and Head of Investor Relations togain more clarity on these new goals and ask for further ESG-related data points.

OUTCOME
This engagement helped us gain a better understanding of the issuer’s new 2030 ESG
goals, which included goals relating to Water Management, Sustainable Packaging,
Energy Management, Supply Chain Consolidation (to limit energy and fuel waste
in production and distribution), Female Employee Participation and Diversity,
Customer Engagement and Well-Being, Sugar/Calorie reduction per serving, andSocial/Community Engagement. In response to our questions, the company shared
the percentage of sales tied to low- and no-sugar beverage volumes, reiterated its
commitment to increasing penetration of reusable bottles, and clarified that its elevated2023 CapEx will be due in large part to investment in a resin recycling plant, reinforcing
the company’s commitment to creating unit economics that encourage circularity. We
believe the additional disclosures substantially enhanced the issuer’s long-term credibility
and show it to be a leader among its peers. As a result, we upgraded its ESG Impact
Rating. We will continue tracking the company’s progress towards their 2030 ESG goals.

Source: PGIM Fixed Income as of October 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

46 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

LEVERAGED FINANCE

CONSUMER CYCLICAL SERVICES COMPANYTOPICS
Labour management

OBJECTIVE
Following the announcement of the issuer’s acquisition of a large Human Resources
service provider for healthcare recruitment and secondment, we engaged with the issuer tounderstand the price their new acquisition charges for temporary healthcare staff and how
this compares to permanent roles in the healthcare sector, so we could assess whether the
prices they charge appear to be predatory and exploit the healthcare sector. We wanted toobtain key data points in order to determine our view, which in turn could affect our ESG
Impact Rating for the issuer.

OUTCOMEWe asked the issuer to provide the average prices the Human Resources service provider
charges for temporary healthcare staff and how these compare to permanent wages in the
sector, and also for the highest differential the company charges between temporary andpermanent healthcare workers. Management provided data confirming that they do not
engage in predatory pricing: on average, a temporary professional’s salary is 6% to 20%
higher compared to similar, fixed healthcare employees. Based on this information, there wasno change to the issuer’s ESG Impact Rating, but we will continue to monitor this topic.

Source: PGIM Fixed Income as of February 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

47 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

LEVERAGED FINANCE

PHARMACEUTICALS COMPANYTOPICS
Health & safety
Business conduct

OBJECTIVE
Between late 2020 and 2021, the United Kingdom’s Financial Conduct Authority issued
several statements relating to their approach to companies with cannabis-related business.
Based on these publications, there is a risk that companies generating revenues fromcannabis-related products could be impacted by the United Kingdom’s Proceeds of Crime
Act unless certain safeguards are put in place. After constructively engaging with theissuer’s Management and Investor Relations on this topic in 2021, we had a follow-up
meeting with their Director of Investor Relations in order to confirm whether the sale oftheir cannabis-related products would be lawful in the United Kingdom.

OUTCOME
During our meeting, the company confirmed that the sale of their products would beconsidered lawful in the United Kingdom. The group is mostly exposed to generic or overthe-counter products, and the markets have been tightly regulated. While their exposure
to cannabis-related products is not material from an earnings perspective, it poses elevatedregulatory risk which requires ongoing monitoring. We rate the issuer in the second
quartile of our ESG Impact Ratings for pharmaceutical companies and will continue tomaintain our rating after this meeting.

Source: PGIM Fixed Income as of March 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

48 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECURITISED CREDIT

U.S. CONSUMER LOAN ABS
TOPICS
Disclosure & reporting
Green securities

OBJECTIVE
After hearing PGIM Fixed Income speak at a Structured Finance Association conference,
the issuer contacted us seeking advice on how best to integrate ESG into their ABS
offerings as they are currently exploring green-labelled issuances. We used this engagement
to introduce our approach to ESG investing, share our list of aspirational ESG disclosure
indicators with the issuer, and describe how we view green-labelled debt from a credibility
and additionality aspect.

OUTCOMEWe learned that the issuer has made no ESG disclosures to date and explained that a firststep for the company would be to start disclosing both at the corporate and security level.
We suggested they disclose information including tailpipe emissions and safety ratingsand explained that from an ABS perspective the more granular the data the better. The
issuer seemed genuinely interested in understanding how we view ESG in securitisation
offerings, and what is important from an investor’s point of view. They were confident thatthey could obtain most of the information we suggested. Following our initial engagement
call, the issuer provided us with a list of ESG data they currently track versus that which
they do not. Getting this information was a positive first step and should help them
identify which data disclosures they could prioritise. The issuer offered to begin thinking
about how they could start disclosing this data, which is also a sign that they are taking
this request seriously. Additional disclosures would allow us to conduct a better ESG risk
and ESG impact analysis on the company/ABS level.

Source: PGIM Fixed Income as of June/July 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

49 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SECURITISED CREDIT

AGENCY CMBSTOPICS
Disclosure & reporting
Green securities
Disclosure & reporting
Social securities

OBJECTIVE
Our primary focus for this meeting was to catch up with the issuer to discuss
underwriting, changes to their ESG strategy, and their plans for future Green and Social
labelled issuances.

OUTCOME
During the meeting, we learned that the issuer will be issuing a Green deal within a coupleof months, while a Social deal may only be marketed in Q2 or Q3 of 2022, the reason
being of the stricter standards collateral must fit in to satisfy its inclusion in a Social deal.
We discussed the issuer’s ability to meet the new affordable targets and, on a credit basis,
discussed the changes to subsector composition expected in 2022 and their views on themultifamily market lending environment as a whole. We are comfortable with the workand progress the team has made and continue to view the issuer as a leader in the ESG
space. While there was no impact to our views from this meeting, we are pleased to see theissuer continue to maintain its focus on supporting affordable housing and their belief thatmeeting the caps imposed this year is still possible.

Source: PGIM Fixed Income as of January 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

50 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SOVEREIGNSOCEANIA DEVELOPED MARKETTOPICS
Disclosure & reporting
GHG emissions & climate change
Green securities

OBJECTIVE
We engaged with representatives from the Treasury to learn about the country’s strategy on
climate change.

OUTCOMEThe officials explained the current government’s climate change commitments, policies
and programs. It was positive to see them explain their climate conditions and challenges
in detail. The government also appears to be investigating investor demand for a green
sovereign bond. They shared some of the challenges they believe they would face were they
to issue one, and we told them about the Green Transformation bond (GX bond) which is
to be issued by the Japanese government. They showed interest in its framework. We willneed to follow up on the detailed strategy on their labelled bond if it is issued.

Source: PGIM Fixed Income as of July 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

51 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SOVEREIGNSASIAN EMERGING MARKETTOPICS
GHG emissions & climate change

OBJECTIVE
We engaged with officials from the Ministry of Finance in order to delve more deeply into
the country’s plans for phasing out coal by 2060 in support of their GHG reduction targets.

OUTCOME
The meeting provided us with a good level of detail on their plans to meet their GHG
reduction targets. We learned that their 2060 coal phase-out goal is applied only to thestate-owned electricity distributor, and not to value-adding industry. Moreover, theauthorities viewed all their climate commitments to be conditional on external financing
becoming available to offset the implied costs. They also saw their continued use ofcoal as enabling their reforestation policy and transition to renewables and pointed outthat all new coal-using projects needed carbon offsets in order to be approved. Theirpreferred emissions reduction approach was to combine a cap-and-trade system withcarbon taxes for those exceeding their caps. When it comes to phasing out coal, it isclear the plans are not nearly as ambitious as originally thought, given their limited
application, even taking into account the carbon offset requirement for new projects
using coal. We will continue to monitor news coming out of the country regarding theirtargets and coal production/use.

Source: PGIM Fixed Income as of July 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

52 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SOVEREIGNSAMERICAS DEVELOPED MARKETTOPICS
GHG emissions & climate change
Green securities

OBJECTIVE
We wanted to gain a better understanding of the country’s approach to climate change
and find out whether the government is considering or planning a Green Bond issuance orworking with multilaterals on green financing. We raised questions on these topics during
a one-on-one meeting with the Premier and representatives from the Ministry of Finance.

OUTCOME
While they are not currently considering a Green Bond issuance, we learned thegovernment is hoping to leverage the country’s position in the reinsurance industry inorder to innovate in the climate risk financing/risk/insurance space. The meeting also
highlighted the country’s resilience to hurricanes and storms, particularly compared toregional peers: some of the strict building codes were enacted in the 1960s to ensurebuildings could withstand major hurricanes. They have also taken steps to mitigate
risk from rising sea levels and raised and reinforced critical infrastructure in the lowlying part of the country. It is also incorporating a clean energy sandbox to allow new
and innovative technologies to be connected to the grid, which will be financed by theprivate sector. We were pleased to see the keen attention to ESG issues. While we are
not implementing an ESG uplift at this time, we will track developments with the clean
energy sandbox, in the climate risk financing space, and for other ESG initiatives.

Source: PGIM Fixed Income as of July 2022.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

53 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

3

ENGAGEMENT WITH INVESTMENT BANKSPGIM Fixed Income regularly engages with investment banks to discuss
the labelled bond market, regulatory developments, and overall ESG
market trends, as well as to participate in industry conferences andprovide feedback on specific ESG-labelled issuances and structures. We
believe these engagements allow us to provide banks with meaningful
insight on what matters to large fixed income investors like ourselvesand help raise the industry standard for quality ESG investing, which
ultimately benefits our clients. Additionally, we also benefit from these
discussions as they provide us with different views in terms of thegeneral ESG market and have also at times led us to directly engage
with certain issuers on specific ESG-labelled issuances.

9

Investor questionnaire
responses

Labelled bond issuance/
structure feedback

20
Regulatory
discussion

ESG Engagementswith Investment
Banks by Type
(2022; %)Note: Data as of 31 December 2022.

EXAMPLES OF ENGAGEMENTS WITH
INVESTMENT BANKS HELD IN 2022

20
Conference
participation

48
General ESG
market discussion

TOPIC

Labelled Bond Feedback
In September 2022 a Latin American sovereign issued a Sustainability-Linked Bond (SLB) with a relatively rare two-way
pricing structure that featured both a step-up and step-down mechanism. As this was the first SLB structured in thismanner, there was considerable interest across the fixed income market on whether this type of issuance was attractive to
ESG investors. As a result, PGIM Fixed Income’s ESG Research team set up a series of meetings with investment banks(including both those that were directly involved in arranging this issuance and those that were not) to share our viewson this SLB. Specifically, we discussed how our investment team is pricing the step-down feature, the stringency of the
KPIs, how the step-down influences our assessment of materiality and impact, and whether this structure is applicable tothe corporate bond market. PGIM Fixed Income agreed to comment on specific corporate deal structures as they develop,
since these discussions remain ongoing and will continue as the SLB market further evolves.
TOPIC

Regulatory Discussion
In March 2022 the SEC announced a new proposal for registered companies to disclose their emissions, titled “TheEnhancement and Standardization of Climate-Related Disclosures for Investors”. In response, PGIM Fixed Income
arranged a meeting with the Sustainable Finance team of a large European investment bank with a significant presencein the United States to share perspectives on the proposal. Key discussion topics included the appropriateness of GHG
emissions as well as physical and transition risk disclosures, the inclusion of safe harbour provisions, and the need tostandardise reporting across jurisdictions. These discussions helped inform PGIM Fixed Income on the various market
perspectives around the SEC proposal, which was helpful context as PGIM Fixed Income was actively involved indeveloping PGIM’s response to the SEC proposal, together with the other PGIM affiliates. This engagement was part of
PGIM Fixed Income’s larger strategy to comment on the SEC proposal, as it complemented our active efforts to provide
feedback to the SEC through our work with various industry groups.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

54 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT WITH REGULATORS/POLICYMAKERS
As a large, global asset manager, PGIM Fixed Income is affected by regulation in many jurisdictions, both where thisapplies to investee issuers and to investors themselves. And in recent years, there has been rapid growth in regulationworldwide that is specifically ESG-related. Where proposals for such regulation are particularly relevant to PGIM Fixed
Income, we actively engage with policymakers, either directly or via collaboration with other PGIM businesses at the
PGIM level (and, at times, via its trade association partners as well). This is most often achieved through responses to open
regulatory consultations, such as the SEC’s proposals on climate disclosures and ESG fund disclosures. It may also involve
consultations with standard setters, such as on the ISSB’s proposed sustainability disclosure standards.

EXAMPLES OF ENGAGEMENTS WITHREGULATORS/POLICYMAKERS HELD IN 2022
TOPIC

SEC Climate Disclosure Regulation Consultation
In 2022, the SEC proposed regulations that require detailed, climate-related disclosures for listed companies in the UnitedStates. These rules would have a material effect on a large portion of PGIM Fixed Income’s investee companies, as wellas indirectly on PGIM Fixed Income itself via its parent, Prudential Financial, Inc. As a result, PGIM Fixed Income
partnered with other PGIM businesses to produce a response to the SEC’s consultation on proposed climate disclosurerules. Although this was a collaborative effort, PGIM Fixed Income was heavily involved in reviewing the SEC’s proposals
and provided significant input into the firm’s response. In PGIM’s submission1, we generally supported the SEC’s
proposals, but made several recommendations for improvements.
TOPIC

ESMA ESG Fund Names Proposal
In 2022, ESMA opened a consultation on a proposal for guidelines to national regulators within the European Union
on minimum standards for financial products using ESG-related terms in their names. Although PGIM Fixed Income
generally supports clearer standards, we had many concerns around details of the proposal from a practical perspective.
PGIM and PGIM Fixed Income took part in an open hearing held by ESMA on the proposal, where it attempted toraise several of its concerns. As with the SEC regulation, it then partnered with other PGIM businesses to draft a written
response, again taking on a very active role in this process.
TOPIC

Biodiversity Risks and Impacts
A PGIM Fixed Income representative was invited to speak at a symposium held by OMFIF in Amsterdam titled “Moving
Beyond Climate: Integrating Biodiversity into Financial Markets”. In attendance were various members of both the
public and private sector, as well as academia and civil society. This included several representatives of central banks. The
panel discussion focused on how to better manage biodiversity-related risks and impacts in investment activities. The
PGIM Fixed Income representative advocated for a nuanced, bottom-up approach, which was in contrast to proposals forlargely data-driven, top-down methodologies from several participants. Using our ESG Impact Rating framework as anillustration, the representative explained why biodiversity impacts and risks are separate dimensions requiring independent
evaluations, and highlighted our view that management of biodiversity issues requires case-by-case qualitative assessmentthat is informed by, but not entirely dependent on, quantitative data.
1

PGIM's submission can be viewed here: https://www.sec.gov/comments/s7-10-22/s71022-20132230-302751.pdf

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

55 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT WITH DATA VENDORSPGIM Fixed Income uses third-party providers for ESG data, research, regulatory reporting, and screening services, butdoes not rely on service providers for ESG ratings or engagement activities. PGIM Fixed Income evaluates its ESG service
providers both in the initial due-diligence phase and as part of our ongoing monitoring process. As part of these efforts,
we assess the quality and appropriateness of their services, their coverage and screening parameters, their technical andcustomer support, the methodologies that support their research, regulatory offerings and screening services, as well as
their data delivery capabilities. We also provide regular feedback to our providers on an ad hoc basis and during regularservice review meetings. This proactive engagement with our service providers plays a key role in our continued focus on
improving data coverage and functionality. We can also question and correct, when necessary, any inaccuracies we discoverin the data and research we rely upon for our ESG processes.
In addition to monitoring our existing providers, we are exploring new sources of ESG data and insights in the market
from both our existing providers as well as new providers. This past year, we focused these efforts on climate- andcarbon-related data and analytics, regulatory reporting products, and ESG data for high-yield issuers, bank loans andsecuritised products, for example. We also provide regular feedback to our various vendors on new products and those indevelopment, helping them to more effectively tailor their offerings to meet market needs.
In general, we find that our current ESG data and research needs cannot be fully met by any of the third-party providers,notably due to a lack of coverage for certain fixed income asset classes such as high yield, bank loans, emerging market
corporates, and securitised products. We acknowledge that this is driven in large part by the lack of standardised disclosure
requirements and overall deficit in ESG data disclosure. Therefore, PGIM Fixed Income actively engages with issuers,
banks, trade bodies, and regulators to encourage relevant and consistent ESG disclosures. However, we closely monitor
trends around data disclosure and actively engage with data vendors—both directly and via industry groups such as
the European Leveraged Finance Association and Structured Finance Association—to encourage them to develop newofferings when we see improved disclosure across different markets. We believe disclosure will only improve over time, so
we view engagement with data vendors as an important part of our strategy to continuously improve our ESG capabilities.

EXAMPLES OF ENGAGEMENTS WITHDATA VENDORS HELD IN 2022
TOPIC

Correction of Specific Data Point
A financial services firm PGIM Fixed Income held in various ESG strategies was flagged as having significant ownership in
an aerospace and defence company that is involved in the production of controversial weapons. Due to the exclusion thatprohibits us from holding any investments in issuers that are involved in the production, sale and/or distribution of nuclear orother controversial weapons in our ESG strategies, this flag triggered a sale warning. However, the relevant portfolio manager
and credit analyst believed this classification was an error. This is because the issuers’ ownership in the aerospace and defence
company was through client positions in its ETFs rather than through a direct equity stake at the corporate level. As a result,
we felt the data vendor was incorrectly aggregating the indirect ownership stake up to the parent company, even though theissuer showed no direct equity positions on its balance sheet. In response, PGIM Fixed Income engaged with the data vendor
to confirm our understanding was correct and to advocate for the removal of the controversial weapons flag. When the data
vendor explained that it would not remove the flag, we escalated the problem and engaged directly with the issuer, explaining the situation and recommending they work directly with the data vendor to resolve the agreed-upon error. PGIM Fixed
Income was later informed by the issuer that, after discussing the issue with the data vendor, the error was fixed.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

56 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

EXAMPLES OF ENGAGEMENTS WITH DATA VENDORSHELD IN 2022 (CONTINUED)TOPICGeneral Data Quality and Due Diligence
In order to prepare for the EU’s Sustainable Finance Disclosure Regulation (SFDR), PGIM Fixed Income undertook an
in-depth review of data vendors to assess which vendor was most suitable for our reporting needs. As part of this process,we ran a series of quality assurance checks on the principal adverse impact indicators (PAI Indicators), analysing what
was driving any differences between the data sets across vendors, how their methodologies differed, and whether we felt
comfortable with the data quality. As part of this review, PGIM Fixed Income identified several outliers in the various
data sets, prompting both an internal examination and a series of discussions with the data vendors to identify whether
these outliers were correct or were errors. As a result of this process, we identified and ultimately fixed a number of errors
in the SFDR data sets and were able to engage more directly with the various data vendors on their quality assurance
processes. Additionally, this review played a key role in helping PGIM Fixed Income decide which data vendor to employ for SFDR reporting.
TOPIC

Clarification of Opco vs. Holdco
In early 2022, an Emerging Market utility company that generated 100% of its revenues from renewable energy generation was being flagged by one of PGIM Fixed Income’s data vendors as having exposure to thermal coal. As a result, wewere unable to buy this company’s issuance in our EM ESG strategies. When the relevant portfolio manager on theseaccounts identified this discrepancy, PGIM Fixed Income reached out to the data vendor to understand why this company
was being tagged as having exposure to thermal coal and whether the data vendor would be able to remove the flag. Upon
further investigation, the data vendor informed PGIM Fixed Income that the flag was applied because the parent company of this subsidiary also owned a thermal coal generation plant in a separate subsidiary. Given that the proceeds of thisissuance were being used to fund a pure-play renewable energy company, PGIM Fixed Income advocated that this flag be
removed. These efforts proved successful, as the data vendor’s research team agreed that the thermal coal flag was inappropriate, ultimately removing the flag and allowing us to purchase this issuance in our EM ESG strategies.
TOPIC

Inconsistent Application of Vendor’s Methodology
PGIM Fixed Income’s ESG Research team discovered that one of our data vendors was reporting Total Recordable Injury
Rate (TRIR) inconsistently across companies. After comparing the vendor’s data with the companies’ self-disclosed datacontained in the sustainability reports of two oil and gas issuers, we became aware that the vendor was showing full-time
employee TRIR for one issuer and contractor TRIR for the other, despite both forms of TRIR being disclosed by bothissuers. We engaged with the data vendor to highlight the discrepancy and get more information on its process for pulling
health and safety performance metrics. The vendor acknowledged the error was due to a recent methodology change and amanual error by a data analyst, prompting it to clarify its process for prioritising data scraped from TRIR tables. The data
vendor also fixed the data discrepancy, which is now being pulled correctly across its platform.

The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

57 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT WITH THE INDUSTRYAt PGIM Fixed Income we believe in constructive engagement with policymakers and regulators, as well as industry collaboration
to help establish best-in-class industry standards. To maximise our impact, we are a member of several trade associations andindustry initiatives and are committed to providing feedback to the industry that we believe can positively impact PGIM Fixed
Income, our clients, or our investments. To that end, we are active participants of the following working groups:
Organisation

Working Group

Participation

Structured Finance Disclosure Framework Working Group

Co-Chair

CMBS Working Group

Co-Chair

Auto ABS Working Group

Active Participant

Sustainability Steering Committee

Active Participant

Transparency Subcommittee

Active Participant

European Leveraged Finance Association

ESG Committee

Active Participant

United Nations Principles for Responsible Investment

Securitised Products Advisory Committee

Active Participant

Structured Finance Association

Center for Real Estate Finance Council

As part of these efforts, we very actively participate in a series of calls and working groups that help set the strategic
direction of these organisations, provide feedback to regulators and policymakers, organise stakeholder sessions, andestablish industry standards around data disclosures. This work is considered a key mandate for the ESG Research team.
Other organisations of which PGIM Fixed Income is a member: UN PRI
 Association for Financial Markets in Europe
 Loan Market Association

 Loan Syndications and Trading Association
 Climate Bond Initiative

Other organisations of which PGIM is a member1:


SASB



IIGCC



Council of Institutional Investors

Additionally, for the second year, PGIM Fixed Income is a signatory to the UK Stewardship Code.
1

PGIM Fixed Income has access to these organisations through PGIM’s membership.

EXAMPLES OF INDUSTRY ENGAGEMENTS HELD IN 2022
As part of PGIM Fixed Income’s work with the Structured Finance Association (SFA) ESG Task Force Steering Committee, wewere asked to provide feedback on the new social index released by the U.S. housing government-sponsored entities (GSEs). This
resulted in a series of discussions with a small group of SFA members, where PGIM Fixed Income provided its perspective andhelped craft a letter outlining SFA members’ positions on the social index. Additionally, we participated in a group call organised
by SFA with one of the housing GSEs, which, through our active participation on the call, resulted in a follow-up one-on-one
engagement with the organisation that requested PGIM Fixed Income’s more detailed perspective. The primary focus of these
efforts was on improving transparency on the components underlying the social index and its calculation, as well as confirmingthat the index did not promote housing in areas with high physical climate risk. We believe this social index will play a key role increating market standards around ESG disclosures for both agency and non-agency single-family mortgage securitisations, so wewill continue to work closely with the SFA to provide feedback as these disclosures evolve.
As part of PGIM Fixed Income’s work on the United Nations Principles for Responsible Investing (UN PRI) Securitised
Products Advisory Committee (SPAC), we helped organise and participated in a series of joint workshops with the United
Nations Environment Programme Finance Initiative (UNEP FI) to bring together asset managers and banks to discuss ways
to improve ESG data disclosure in the securitised products market. This included four separate workshops throughout 2022
focused on environmental, social and governance factors for the CMBS, RMBS, ABS and CLO markets. As part of these efforts,
we provided extensive feedback on the discussion topics for these sessions and leveraged our relationships with banks to increase
participation. The findings of these workshops may be used by the UN PRI to publish a public report highlighting a series ofmarket recommendations for improved data disclosure in the securitised product market.
The examples shown herein are provided for illustrative purposes only, solely as an illustration of our ESG research evaluation and engagement capabilities. The examples
are not inclusive of all potential ESG issues and engagements, and are not intended to represent a specific portfolio’s performance or characteristics. PGIM Fixed Income’s
ESG processes may yield different results than other investment managers, including its affiliates. ESG factors and rankings may change over time. The information
should not be construed as investment advice. All data is as of 31 December 2022, unless otherwise noted.

58 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT WITH OUR EMPLOYEES & COMMUNITY
At PGIM Fixed Income, we view our employees as our greatest asset, which is why we value engaging across the businessto better understand how we can continue to attract, develop, retain and promote diverse talent. We believe that diversity
in our workforce is the foundation of the continued success for our business, leads to more impactful and innovative
solutions, and best positions us to deliver outperformance to our clients.
We believe in creating a safe, inclusive environment centred around mutual respect, trust in each other, collegiality,
teamwork, meritocracy, intellectual honesty, transparency, and an unwavering commitment to our clients.
As part of our engagement with our employees, PGIM Fixed Income participates in PGIM’s annual, enterprisewide
employee engagement survey, called The EQ. All employees are encouraged to share their candid feedback about theirexperience working at PGIM Fixed Income. PGIM Fixed Income senior leaders leverage EQ feedback in partnershipwith Human Resources in its efforts to inform changes the organisation can make to drive engagement and improve theemployee experience. For example, the results informed the establishment of a companywide rewards and recognition
platform, as well as a program that amplifies the voices and ideas of rising talent.
Understanding our workforce representation: To enable PGIM Fixed Income to continue to make informed decisions about
our DEI strategy, we require a good understanding of the composition of our workforce and the lived experiences of ouremployees. In 2022, we launched a voluntary and anonymous diversity information sharing campaign in the UK called“Count Me In!” to encourage employees to share their diversity information across a range of diversity dimensions, including
race and ethnicity, sexual orientation, caring responsibilities, socioeconomic background, disability, and faith or religion.

2022 WORKFORCE STATISTICS

Representation of
women and personsof colour in our U.S.
workforce (%)• Women• Persons of colour• Women or persons of colour

Representation of 21 21
women, by role andlevel, across our global1
workforce (%)

34
Investment roles •38

36

Senior level (VP and above)2 •Total •

57

ANNUAL HIRING AND PROMOTION STATISTICS
Women representation (% of total, globally)
44
35 34

37

2017

2018

Hires

2019

49

46

40
29

Ethnically diverse representation (% of total, U.S.)

32

37

2020

35

2021

38 39

2022

38

39

33

34

2017

2018

Promotions

Source: PGIM Fixed Income as of 31 December 2022.
1
Global PGIM Fixed Income staff as of 31 December 2022 (including administrative professionals).
2
Senior level refers to the Vice President level and above.

59 PGIM FIXED INCOME 2022
| WHAT
ESGWE
ANNUAL
DO: ESGREPORT
ANNUAL| REPORT
WH0 WE2022
ARE

30

2019

55

51

49
35

37

2020

2021

31

2022

EXAMPLES OF HOW WE ENGAGE ACROSS OUR WORKFORCE
Diversity, Equity and Inclusion
We engage in a broad range of programs to support our diversity, equity and inclusion efforts across PGIM Fixed Income
with a representative sample of activities detailed below.
Head of Diversity, Equity and Inclusion (DEI): Given the importance of DEI across ourorganisation and the growing scale of work underway to support our efforts, we hired Diane Parker ashead of Diversity, Equity and Inclusion for PGIM Fixed Income in 2022, reporting to President John
Vibert and underscoring the importance of this role and our commitment to engagement at the mostsenior levels. Diane Parker is now responsible for developing and implementing a global DEI strategy
specific to PGIM Fixed Income and its 1,119 employees around the world.1 She partners with seniorleadership to advise the organisation on best-in-class DEI practices and engages with PGIM’s Office of DEI helmed byKathryn Sayko, as well as Prudential’s Inclusive Solutions group led by Lata Reddy, in our efforts to capitalise on thestrategic initiatives and diverse talent sourcing programs which PGIM and Prudential have established to advance equity
and inclusivity.
Education & Awareness: As a part of our DEI efforts, we have an Education, Awareness and Training Workstream
whose mission is to raise awareness within PGIM Fixed Income of racial and social inequities through training andeducation, in our efforts to maintain a diverse and inclusive workplace that reflects our core cultural values of trust,collegiality, teamwork, meritocracy, intellectual honesty, transparency and mutual respect. This workstream is responsible
for the establishment and ongoing organisation of a speaker series, which brings in outside perspectives to help shine alight on additional aspects of diversity, equity and inclusion for employees to consider.
An agent of change in the asset management industry: Through partnerships with external diversity organisations,
we endeavour to make the asset management sector more diverse and inclusive by empowering and developing the next
generation of industry leaders. PGIM Fixed Income has been a member of the Diversity Project UK since 2019, a crosscompany initiative championing a truly diverse and inclusive UK investment and savings industry with the right talent todeliver the best possible financial outcomes for clients, reflect the society we serve, and ultimately build more sustainablebusinesses. Sarah McMullen, head of EMEA, sits on the CEO Advisory Council.
Affinity Groups: Employee-led affinity groups were established to provide a forum for colleagues of different
backgrounds to give consistent, honest and unfiltered feedback to senior leaders. In 2022, the PGIM Fixed Income
affinity groups include:Black Professional Alliances at PGIM Fixed Income (BPA@FI)
PGIM Fixed Income Asian Pacific Islander Community (APIC)PGIM Fixed Income Women Initiatives Network (WIN)PGIM Fixed Income Latinx Community (LATINX) LGBTQ+Ally Community at PGIM Fixed Income

Talent Attraction
In 2022, we hired an Early Talent Program Manager who is dedicated to the hiring, development and retention of earlytalent into our five offered programs: Credit Research, Portfolio Analysis Group, Client Advisory Group, Operations,and Technology. This has allowed us to focus on some key initiatives to help expand the diversity representation of ourcandidate pipeline:
Early Talent Pipeline
 Campus Recruiting Target Schools & Recruiting Sub Council: PGIM Fixed Income deploys a hybrid campus
recruiting model where we actively visit 13 “target” schools in-person throughout the fall and spring semesters. We also
have a list of 30+ “virtual” schools with which we share our opportunities and host separate virtual events.
 The Engagement Sub Council is a group of program Analysts/Associates which organises programming/events for
1

As of 31 December 2022.

60 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

educational and networking purposes for our three offered types of early-talent programs: Sophomore Externship,
Summer Internship, and Three-Year Analyst/Associate Programs
 PGIM Fixed Income Summer Internship Experience: Last summer we welcomed 24 rising seniors for a 10-weeklong internship in our Newark, New Jersey office. Our Interns were spread across five functional areas: Credit Research,
Portfolio Analysis Group, Client Advisory Group, Technology Solutions Group, and Operations. Of the 24 Interns, 16
received return conversion offers and all 16 accepted. We will be welcoming 27 rising senior Interns in 2023.
 Girls Who Invest: In 2022, we hosted Interns through Girls Who Invest (GWI). GWI is a nonprofit organisation
dedicated to increasing the number of women in portfolio management and executive leadership roles in the asset
management industry, with the goal of reaching 30%. In summer 2023 PGIM Fixed Income will host three risingsenior GWI Interns.
 Sponsors for Educational Opportunity (SEO) London Internship program: SEO focuses on preparing talented
students from underserved and underrepresented backgrounds for career success by providing opportunities to gain
insight into different industries and sectors through 12-week internships. PGIM Fixed Income in partnership with
SEO has created opportunities for students to gain insight into the investment industry with a view for permanent
placements following the successful completion of the programme.
Additional Pipeline Initiatives
PGIM Fixed Income Returners programme (London): In the summer of 2022, PGIM Fixed Income partnered with theDiversity Project for the first time to provide six, six-month paid returnship opportunities with a view to offering permanent
placements subject to successful completion of the programme. Aimed at experienced professionals returning from anextended career break, this programme provides a fully supported route back to employment within the investment industry.

Talent Retention
Attracting top talent is critical, but it’s also incumbent upon us to retain the best and brightest by providing a productive, inclusive
and meritocratic culture where our employees feel valued. To that end, in addition to working to diversify our talent pipeline, we’ve
made concerted efforts to increase the resources devoted to developing and retaining existing talent. Those efforts include:
Culture Council: A global dedicated group responsible for promoting and supporting the values of PGIM Fixed Income byincorporating existing positive cultural attributes while also advocating for necessary changes.

Revamping promotion criteria and governance: The senior leadership team continued efforts to increase fairness andtransparency in the promotion process. Those efforts involved clearly defining promotion criteria and governancefor each PGIM Fixed Income functional area and communicating those criteria and details of the promotion process
to all employees. Additionally, in 2022, all performance reviews included a new “culture” goal to hold our community
accountable to promoting a culture aligned with our mission across the organisation.

We are also proud to announce that in December 2022, for the third year in a row,
Pensions & Investments has named PGIM a Best Place to Work in Money Management.2
The list is published by Pensions & Investments, who worked with Best Companies
Group, by undertaking a two-step process: Firstly, employers complete a questionnaire
about the firm’s policies, practices, benefits and demographics, which is then confirmed
by Best Companies. The second part, which represents 75% of the total score, includes
an engagement survey with 77 statements to which employees of the company are expected to respond. The engagement
survey revealed that employees feel PGIM is a talent destination for its inclusive and meritocratic culture, where employees
feel empowered to make a high impact from day one. The data is then compiled, verified and finalised by Best Companies,and companies are ranked against others of similar size.
2

Source: Pensions & Investments “Best Places to Work” survey, as of 12 December 2022. Ratings, rankings and awards shown herein may not be indicative of PGIM’s
investment performance, or any future investment performance or sustainability accomplishments. PGIM has sourced these ratings, rankings and awards from third-party
providers. We have not solicited or paid for any of these ratings, rankings and awards. The rating, ranking or award may not be representative of any client’s individual experience. PGIM does not pay a fee to participate in the award survey or distribute the award results. However, PGIM does pay a fee to use the award logo displayed herein.

61 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Social and Community Impact
PGIM Fixed Income’s Social & Community Impact Workstream is focused on partnering with community organisations
that focus on employment, training and mentoring opportunities for youth. This workstream operates in both London
and Newark, New Jersey.
Examples of the initiatives organised by the Social & Community Impact Workstream include: Since 2016, PGIM and PGIM Fixed Income have partnered with Braven, an organisation with substantial Newark
and Rutgers ties that helps first-generation, low-income young adults graduate college with the necessary skills
and networks necessary to obtain a strong employment opportunity. PGIM Fixed Income volunteers helped
Braven students develop their interviewing skills via mock interviews. In 2022, we continued our work with theorganisation and over 40 of our employees conducted mock interviews with students.
 Additionally, in our London office, as part of PGIM Fixed Income European Forum under Corporate Social
Responsibility we teamed up with an external organisation called IntoUniversity3, which provides programs that
support young people from disadvantaged backgrounds to get admissions into universities. We conducted aworkshop/presentation for 13- to 14-year-old students called “Life in the Investment Management Industry”, which
included general knowledge and overview on investment management. The second half of the presentation was aworkshop activity, which focused on financial literacy, credit cards and student loans. They felt that this topic is
important, especially if the students decide to attend university in the future.

3

https://intouniversity.org/

62 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

SUPPLEMENTAL INFORMATIONAPPENDIX

1
63 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

2

3

4

5

6

I. PGIM FIXED INCOME: FACTS & FIGURESPGIM Fixed Income’s business includes a wide breadth of fixed income strategies and products, including traditional
multi-sector and single-sector fixed income strategies for institutional clients, insurance companies and mutual funds, aswell as alternative products including long/short strategies and collateralised loan obligations (CLOs), with an emphasis on
credit-related strategies.
With $770 billion in assets managed globally, we serve 955 global clients with 366 investment professionals across theglobe. PGIM Fixed Income has been recently recognised as a leader in fixed income, receiving industry awards for the fullrange of our global, U.S., European and Asian funds.

PGIM Fixed Income manages $770 billion in assets under management,with expertise across a broad range of sectors1,2
59

2

70
169

AUM
by client type 350($ bil)161

AUM
by region($ bil)251• Third-party institutional• Proprietary• Third-party retail

34 23

37
50
58
520

AUM
by sector($ bil)59
98• North America• Japan• EMEA• Asia ex-Japan

274

135

• Corporates• Emerging Markets Debt
• Governments/Agencies • Bank Loans• Securitised Products • Mortgages• High Yield• Municipals• Money Markets• Other2

PGIM Fixed Income has experienced significant growth in assets under management over the last decade, fromapproximately US$400 billion as of 31 December 2011 to US$770 billion as of 31 December 2022. Through the same
period we have seen significant growth in the number of institutional clients and employees, with 955 institutional
clients and 1,119 employees as of 31 December 2022, compared to 270 institutional clients and 467 employees as of 31
December 2011.

Technology and Infrastructure
We have the resources necessary to maintain a comprehensive, technology-driven infrastructure. We invest significant
resources in technology and information systems for research, portfolio construction and management, trading, portfolio
administration, and compliance. As of 31 December 2022, 83 professionals in our internal quantitative analysis andrisk management, as well as a 109-member applications development team, are focused on developing and maintaining
technology-based quantitative research, risk management, and performance analysis analytics.
Ongoing investment in technology to support our global business objectives is a strategic priority for us. In the last 18
months, we have invested considerably through a multiphased project to update our data architecture and processes
across the firm, with the goal of increasing the accuracy and performance. We also commenced a series of data and cloud
initiatives aimed at improving the speed to deliver data to our investment desks and distribution teams. This series of
initiatives has increased our capacity to ingest, consume, process, distribute and analyse data in our proprietary quantitative
analytics, risk management and research tools, often with greater speed, accuracy, reliability and scalability.
Assets as of 31 December 2022. Please see the Notice section for important disclosures, including risk. Source: PGIM Fixed Income. Assets under management (AUM)
are based on company estimates and are subject to change. PGIM Fixed Income’s AUM includes the following businesses: (i) the PGIM Fixed Income unit within PGIM,
Inc., located in the USA; (ii) the public fixed income unit within PGIM Limited, located in London; (iii) PGIM Netherlands B.V., located in Amsterdam; (iv) locallymanaged assets of PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore. Asset class breakdown based on company estimates and is subject to change.
2
Other includes Japanese equities and Japanese real estate equities.
1

64 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

II. MANAGEMENT OF CONFLICTS OF INTEREST
Like other investment advisers, we are subject to various conflicts of interest in the ordinary course of our business. We
strive to identify potential risks, including conflicts of interest, that are inherent in our business, and we conduct annual
conflict of interest reviews. However, it is not possible to identify every potential conflict that can arise. When actual or
potential conflicts of interest are identified, we seek to address such conflicts through elimination or disclosure of theconflict, or management of the conflict through the adoption of appropriate policies, procedures or other mitigants.
We have adopted various policies and procedures designed to address conflicts of interest. For example, we follow policies
on business ethics, personal securities trading, and information barriers. In addition, we have adopted a code of ethics,
allocation policies and conflicts of interest policies, among others, and have implemented supervisory procedures tomonitor compliance with our policies.

Examples of Conflicts of Interest: Side-by-Side Management
The management of numerous client accounts on a side-by-side basis can create conflicts of interest. Some examples ofside-by-side management and the related conflicts of interest are as follows: Performance fees: We manage accounts with asset-based fees alongside accounts with performance-based fees. This
creates an incentive for us and our investment professionals to favour accounts for which we receive performance fees,and possibly take greater investment risks in those accounts, in order to bolster performance and increase our fees.
 Affiliated accounts: We manage accounts on behalf of our affiliates as well as unaffiliated accounts. We have an
incentive to favour accounts of affiliates over others. Additionally, at times, our affiliates provide initial funding orotherwise invest in vehicles managed by us, for example by providing “seed capital” for a fund or account. Managing“seeded” accounts alongside “non-seeded” accounts creates an incentive to favour the “seeded” accounts to establish a
track record for a new strategy or product. Additionally, our affiliated investment advisers from time to time allocate
their asset allocation clients’ assets to us. We have an incentive to favour accounts used by our affiliates for their asset
allocation clients to receive more assets from our affiliates.
 Larger accounts/higher fee strategies: Larger accounts and clients typically generate more revenue than do smalleraccounts or clients, and certain of our strategies have higher fees than others. As a result, a portfolio manager could
have an incentive when allocating scarce investment opportunities to favour accounts that pay a higher fee or generate
more income for us (or which we believe would generate more revenue in the future).
These are some examples of side-by-side conflicts of interests. Please refer to the PGIM Fixed Income Brochure3 foradditional information.
We have developed policies and procedures reasonably designed to address the conflicts of interest with respect to ourdifferent types of side-by-side management. For example:
 Each quarter, the head of PGIM Fixed Income holds a series of meetings with the senior portfolio manager andteam responsible for the management of each of our investment strategies. At each of these quarterly investment
strategy review meetings, the head of PGIM Fixed Income and the strategy’s portfolio management team review anddiscuss the investment performance and performance attribution for client accounts managed in the strategy. Thesemeetings generally are also attended by one or both of our Co-Chief Investment Officers, the Head of Quantitative
Analysis and Risk Management or their designee and a member of our compliance group, among others.
 In keeping with our fiduciary obligations, our policy with respect to trade aggregation and allocation is to treat all of
our client accounts fairly and equitably over time. Our Trade Management Oversight Committee, which generally
meets quarterly, is responsible for providing oversight with respect to trade aggregation and allocation.
 Our compliance group periodically reviews a sampling of new issue allocations and related documentation toconfirm compliance with our trade aggregation and allocation policy. In addition, our compliance and investment
risk management groups review forensic reports regarding new issue and secondary trade activity on a quarterly
basis. This forensic analysis includes such data as the:– number of new issues allocated in the strategy;3

http://www.pgimfixedincome.com/pramerica/fi/pdf/adv/PGIM_Fixed_Income_Form_ADV_Part_2A.pdf

65 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

– size of new issue allocations to each portfolio in the strategy;– profitability of new issue transactions;– portfolio turnover; and– metrics related to large and block trade activity.
 The results of these analyses are reviewed and discussed at our Trade Management Oversight Committee meetings.
These procedures are designed to detect patterns and anomalies in our side-by-side management and trading so that we
may assess and improve our processes.

Examples of Conflicts of Interest: Affiliated Investments
To avoid conflicts of interest related to affiliated investments, we do not purchase securities issued by our parent company
or our other affiliates for client accounts.

Examples of Conflicts of Interest: Gifts and Entertainment
Our employees may occasionally give or receive gifts, meals or entertainment of moderate value, subject to compliancewith applicable laws and regulations (including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act 2010)
and rules of self-regulatory organisations. We have adopted policies to address the conflicts of interest related to gifts
and entertainment, such as the appearance of having given or received something of value that influenced our businessdecisions or the business decisions of our clients. The policies require the reporting and preclearance of gifts, meals andentertainment given or received which exceed certain thresholds. In addition, our employees are prohibited from soliciting
the receipt of gifts, meals or entertainment. Senior management periodically reviews summaries of gifts and entertainment
activity to detect trends of abuse, conflicts of interest, or possible violations of the policy.

Examples of Conflicts of Interest: Proxy Voting
We accept the authority to vote securities held in our clients’ accounts when our clients wish to provide us with thisauthority. Our policy is to vote proxies in the best economic interest of our clients. We do not receive a significant numberof proxies since we primarily invest client assets in debt instruments. Please see the PGIM Fixed Income Brochure4 for amore detailed description of our proxy voting policy.
Occasionally, a conflict of interest may arise in connection with proxy voting. For example, the issuer of the securities
being voted may also be a client of ours. When we identify an actual or potential material conflict of interest between our
firm and our clients with respect to proxy voting, the matter is presented to senior management who will resolve such issue
in consultation with the compliance and legal departments.

4

http://www.pgimfixedincome.com/pramerica/fi/pdf/adv/PGIM_Fixed_Income_Form_ADV_Part_2A.pdf

66 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

III. TCFD METRICS
GHG emissions (tCO2e attributed)
Corporate GHG emissions(tCO2e attributed)

Corporates as a % of
total portfolio% of corporate subset
missing data

34,573,353

55.39

28.51

43,469

97.12

16.83

445

97.02

20.30

Sample Global High Yield Bond Portfolio

16,220

91.41

38.77

Sample ESG Global High Yield Bond Portfolio

2,679

84.14

36.63

Sample ESG Emerging Markets Corporate Bond Portfolio

1,338

87.90

36.23

Corporate carbon footprint(tCO2e attributed/$M invested)

Corporates as a % of
total portfolio% of corporate subset
missing data

All portfolios*

127

55.39

28.51

Sample Global Corporate Bond Portfolio

71

97.12

16.83

Sample ESG Global Corporate Bond Portfolio

26

97.02

20.30

Sample Global High Yield Bond Portfolio

237

91.41

38.77

Sample ESG Global High Yield Bond Portfolio

49

84.14

36.63

Sample ESG Emerging Markets Corporate Bond Portfolio

97

87.90

36.23

Corporates as a % of
total portfolio% of corporate subset
missing data

All portfolios*
Sample Global Corporate Bond Portfolio
Sample ESG Global Corporate Bond Portfolio

Carbon footprint (tCO2e attributed/$M invested)

Carbon intensity (tCO2e attributed/$M sales attributed)
Corporate carbon intensity(tCO2e attributed/$M sales attributed)
All portfolios*

327

55.39

28.49

Sample Global Corporate Bond Portfolio

224

97.12

16.83

Sample ESG Global Corporate Bond Portfolio

99

97.02

20.30

Sample Global High Yield Bond Portfolio

463

91.41

38.77

Sample ESG Global High Yield Bond Portfolio

99

84.14

36.63

Sample ESG Emerging Markets Corporate Bond Portfolio

252

87.90

36.23

Corporates as a % of
total portfolio% of corporate subset
missing data

Exposure to fossil fuels (% of MV)
Corporate exposure to fossil fuels(% of MV)—revenue based
All portfolios*

19.67

55.39

17.52

Sample Global Corporate Bond Portfolio

16.97

97.12

6.51

Sample ESG Global Corporate Bond Portfolio

13.12

97.02

7.12

Sample Global High Yield Bond Portfolio

14.65

91.41

29.60

Sample ESG Global High Yield Bond Portfolio

8.62

84.14

29.15

Sample ESG Emerging Markets Corporate Bond Portfolio

8.94

87.90

26.20

*Note: All Portfolios refers to all AUM of PGIM Fixed Income. The sample portfolios listed are only a subset of this AUM.
Source: MSCI as of 31 December 2022.

67 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

IV. PRUDENTIAL FINANCIAL, INC. (“PFI”)5
At the enterprise level, PFI, of which PGIM Fixed Income is a part, published its 2022 ESG Report, replacing the company’s
annual Sustainability Report and underscoring PFI’s continued efforts to meet the evolving needs of its customers, employees,
shareholders and communities and to fulfil the company’s purpose of solving the financial challenges of our changing world.
The full report can be found here: https://www.prudentialesg.com/sustainability/default.aspx

The UK Stewardship Code-Related Disclosures
PGIM Fixed Income became a signatory to the UK Stewardship Code in 2022. In support of our application and constantdesire to improve our disclosures, we have included stewardship-related disclosures in our annual ESG report. Please see
below for where you can find relevant information throughout the report.
Stewardship Code Principles

Relevant disclosures in the report

Page

Principle 1: Signatories’ purpose, investment beliefs, strategy, andculture enable stewardship that creates long-term value for clientsand beneficiaries leading to sustainable benefits for the economy,
the environment and society.

•

About PGIM Fixed Income

4•

Appendix I. PGIM Fixed Income Facts & Figures

64•

ESG Philosophy and Approach

6•

Major ESG Updates in 2022

7•

Governance, Resources and Incentives to Support ESG and Stewardship10•

ESG Resources

13•

Who We Are: ESG at PGIM Fixed Income, ESG Resources

79•

Who We Are: ESG at PGIM Fixed Income, ESG Data Vendors & Partnerships

82

Principle 3: Signatories manage conflicts of interest to put thebest interests of clients and beneficiaries first.

•

Appendix II. Management of Conflicts of Interest

65

Principle 4: Signatories identify and respond to marketwide andsystemic risks to promote a well-functioning financial system.

•

ESG in Risk Management

16•

Climate Risk Assessments

16•

Engagement: With Investment Banks

54•

Engagement: With Regulators/Policymakers

55•

Engagement: With the Industry

58

Principle 5: Signatories review their policies, assure theirprocesses and assess the effectiveness of their activities.

•

Governance, Resources and Incentives to Support ESG and Stewardship10

Principle 6: Signatories take account of client and beneficiaryneeds and communicate the activities and outcomes of theirstewardship and investment to them.

•

Appendix I. PGIM Fixed Income Facts & Figures

64•

Engagement: With Issuers

37•

Engagement: With Clients35•

ESG Integration

16•

ESG in Risk Management

16•

Climate Risk

16•

Temperature Alignment

17•Case Studies on ESG Integration

19•

ESG Impact

24•

Case Studies on ESG Impact

25•

Who We Are: ESG at PGIM Fixed Income, ESG Integration

84•

Who We Are: ESG at PGIM Fixed Income, Climate Risk Integration

85•

Who We Are: ESG at PGIM Fixed Income, ESG in Risk Management

87•

Who We Are: ESG at PGIM Fixed Income, ESG Impact

89•

Who We Are: ESG at PGIM Fixed Income, Climate Impact

92•

Who We Are: ESG at PGIM Fixed Income, ESG Impact in Portfolio Construction

95

Principle 2: Signatories’ governance, resources and incentives
support stewardship.

Principle 7: Signatories systematically integrate stewardshipand investment, including material environmental, socialand governance issues, and climate change, to fulfil their
responsibilities.

5

Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance
Company, a subsidiary of M&G plc, incorporated in the United Kingdom.

68 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Principle 8: Signatories monitor and hold to account service
providers.

•Engagement: With Data Vendors

56•

Who We Are: ESG at PGIM Fixed Income, ESG Data Vendors & Partnerships

82

Principle 9: Signatories engage with issuers to maintain orenhance the value of assets.

•

Engagement: With Issuers

37•

Who We Are: ESG at PGIM Fixed Income, Engagement Activities

97

Principle 10: Signatories, where necessary, participate in collaborative engagement to influence issuers.

•

Engagement: With Investment Banks

54•

Engagement: With the Industry

58

Principle 11: Signatories, where necessary, escalate stewardship
activities to influence issuers.

•

Engagement: With Issuers

37•

Who We Are: ESG at PGIM Fixed Income, Engagement Activities

97

Principle 12: Signatories actively exercise their rights andresponsibilities.

•

Engagement: With Issuers

37•

Who We Are: ESG at PGIM Fixed Income, Engagement Activities

97•

Who We Are: ESG at PGIM Fixed Income, Transaction Structures andDocumentation Packages

86•

Who We Are: ESG at PGIM Fixed Income, Impairment Rights

87

Task Force on Climate-Related Financial Disclosures (TCFD) Related Disclosures
TCFD recommendations

Relevant disclosures in the report

Page

Governance•

Governance, Resources and Incentives to Support ESG and Stewardship

10

Strategy•

Climate Risk Assessments

16•

Who We Are: ESG at PGIM Fixed Income, Climate Risk Integration

85•

Governance, Resources and Incentives to Support ESG and Stewardship10•

Temperature Alignment

17•

Climate Risk Assessments

16•

Who We Are: ESG at PGIM Fixed Income, ESG in Risk Management

87•

Who We Are: ESG at PGIM Fixed Income, Climate Risk Integration

85•

Climate Risk Assessments

16•

Appendix III: TCFD Metrics

67•

Who We Are: ESG at PGIM Fixed Income, Climate Risk Integration

85•

Who We Are: ESG at PGIM Fixed Income, ESG Impact in Portfolio Construction

95

Risk management

Metrics and targets

69 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

NOTICE: IMPORTANT INFORMATION
Source(s) of data (unless otherwise noted): PGIM Fixed Income, as of 31 December 2022.
For Professional Investors only. Past performance is not a guarantee or a reliable indicator of future results and an investment could
lose value. All investments involve risk, including the possible loss of capital.
PGIM Fixed Income operates primarily through PGIM, Inc., a registered investment adviser under the U.S. Investment Advisers Act of1940, as amended, and a Prudential Financial, Inc. (“PFI”) company. Registration as a registered investment adviser does not imply acertain level or skill or training. PGIM Fixed Income is headquartered in Newark, New Jersey and also includes the following businesses
globally: (i) the public fixed income unit within PGIM Limited, located in London; (ii) PGIM Netherlands B.V., located in Amsterdam;(iii) PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; (iv) the public fixed income unit within PGIM (Hong Kong) Ltd. locatedin Hong Kong; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore (“PGIM Singapore”). PFIof the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance
Company, a subsidiary of M&G plc, incorporated in the United Kingdom. Prudential, PGIM, their respective logos, and the Rocksymbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.
These materials are for informational or educational purposes only. The information is not intended as investment advice and is not arecommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary. PGIM Fixed
Income as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Investors seeking
information regarding their particular investment needs should contact their own financial professional.
These materials represent the views and opinions of the author(s) regarding the economic conditions, asset classes, securities, issuers or
financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originallydelivered and to such person’s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of
any of the contents hereof, without prior consent of PGIM Fixed Income is prohibited. Certain information contained herein has beenobtained from sources that PGIM Fixed Income believes to be reliable as of the date presented; however, PGIM Fixed Income cannot
guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information
contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice.
PGIM Fixed Income has no obligation to update any or all of such information; nor do we make any express or implied warranties orrepresentations as to the completeness or accuracy.
This material may contain examples of the firm’s internal ESG research program and is not intended to represent any particular product’s
or strategy’s performance or how any particular product or strategy will be invested or allocated at any particular time. PGIM’s ESG
policies and procedures, rankings and factors may change over time, in PGIM Fixed Income’s discretion. ESG investing is qualitative andsubjective by nature; there is no guarantee that the criteria used or judgment exercised by PGIM Fixed Income will reflect the beliefs orvalues of any investor. Information regarding certain ESG practices may be obtained through third-party reporting, which may not be
accurate or complete, and PGIM Fixed Income depends on this information to evaluate a company’s commitment to, or implementationof, ESG practices. ESG norms differ by region. Accounts managed by PGIM Fixed Income may or may not hold instruments issued byany of the issuers that may be discussed herein. Nothing contained herein should be construed as limiting the investments or strategies
that PGIM Fixed Income can pursue when managing a client account. There is no assurance that PGIM Fixed Income’s ESG investing
techniques will be successful.
Any forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as
investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain
inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fee. These materials are
not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment
management services and should not be used as the basis for any investment decision. PGIM Fixed Income and its affiliates may makeinvestment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of
PGIM Fixed Income or its affiliates.
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The valueof most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to
be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rateenvironments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased
price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed
securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government,
government agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated
securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit andliquidity risk than portfolios that do not. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk
due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate
70 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

significantly over short periods of time and may reduce the returns of a portfolio. Commodities contain heightened risk, including
market, political, regulatory and natural conditions, and may not be suitable for all investors. Diversification does not ensure against loss.
In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square,
London, WC2N 5HR.PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom(Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V., anentity authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands and operating on the basis of a European passport.
In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses
available to PGIM Limited including those available under temporary permission arrangements following the exit of the United Kingdom
from the European Union. These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional
clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementationof Directive 2014/65/EU (MiFID II). In Switzerland, information is issued by PGIM Limited, London, through its Representative
Office in Zurich with registered office: Kappelergasse 14, CH-8001 Zurich, Switzerland. PGIM Limited, London, Representative Officein Zurich is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA and these materials are issued topersons who are professional or institutional clients within the meaning of Art.4 para 3 and 4 FinSA in Switzerland. In certain countries in
Asia-Pacific, information is presented by PGIM (Singapore) Pte. Ltd., a regulated entity with the Monetary Authority of Singapore undera Capital Markets Services License to conduct fund management and an exempt financial adviser. In Japan, information is presented
by PGIM Japan Co. Ltd., registered investment adviser with the Japanese Financial Services Agency. In South Korea, information ispresented by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean investors.
In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commissionin Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 of the Securities and Futures Ordinance (Cap.571).
In Australia, this information is presented by PGIM (Australia) Pty Ltd (“PGIM Australia”) for the general information of its “wholesale”
customers (as defined in the Corporations Act 2001). PGIM Australia is a representative of PGIM Limited, which is exempt from therequirement to hold an Australian Financial Services License under the Australian Corporations Act 2001 in respect of financial services.
PGIM Limited is exempt by virtue of its regulation by the FCA (Reg: 193418) under the laws of the United Kingdom and the applicationof ASIC Class Order 03/1099. The laws of the United Kingdom differ from Australian laws. In Canada, pursuant to the international
adviser registration exemption in National Instrument 31-103, PGIM, Inc. is informing you that: (1) PGIM, Inc. is not registered in
Canada and is advising you in reliance upon an exemption from the adviser registration requirement under National Instrument 31-103;(2) PGIM, Inc.’s jurisdiction of residence is New Jersey, U.S.A.; (3) there may be difficulty enforcing legal rights against PGIM, Inc.
because it is resident outside of Canada and all or substantially all of its assets may be situated outside of Canada; and (4) the name andaddress of the agent for service of process of PGIM, Inc. in the applicable Provinces of Canada are as follows: in Québec: Borden Ladner
Gervais LLP, 1000 de La Gauchetière Street West, Suite 900 Montréal, QC H3B 5H4; in British Columbia:
Borden Ladner Gervais LLP, 1200 Waterfront Centre, 200 Burrard Street, Vancouver, BC V7X 1T2; in
Ontario: Borden Ladner Gervais LLP, 22 Adelaide Street West, Suite 3400, Toronto, ON M5H 4E3; inNova Scotia: Cox & Palmer, Q.C., 1100 Purdy’s Wharf Tower One, 1959 Upper Water Street, P.O. Box
2380 -Stn Central RPO, Halifax, NS B3J 3E5; in Alberta: Borden Ladner Gervais LLP, 530 Third
Avenue S.W., Calgary, AB T2P R3.
© 2023 PFI and its related entities. 2023-5653

Visit us at www.PGIMFixedIncome.com
for more information on our investment strategies.

ESG RESEARCH

WHO WE ARE
ESG AT PGIM FIXED INCOME

Prepared by

PGIM Fixed Income ESG Research

RELEASED AUGUST 2023

A WORD FROM OUR CO-HEADS OF ESG RESEARCHAt PGIM Fixed Income, we’re proud of our ESG philosophy and approach, which we’ve
built from the ground up.
We constructed the ESG tools which power our investment process over many years andcontinue to fine tune them. But ultimately, the decision sits with our clients in terms ofwhich tools to leverage and to what extent based on their respective investment goals and
ESG objectives.
While they see the finished product, it’s important that we convey how the component parts
came to be – not the multiple upgrades or rigorous debates – but the foundation for how we
integrate ESG factors into our research, decision making and portfolio management.
The report that follows, Who We Are: ESG at PGIM Fixed Income, details ourfundamental beliefs – ranging across the need for true ESG integration in the investment
process, providing quality solutions and tools to help our clients meet their objectives, andthe importance of a strong governance framework and policies steering our ESG strategy
and approach. It also explains our view that financial ESG risks and ESG impacts, while
related, are distinct. As a result, we need separate tools for each, and believe strongly ingiving clients choice in deciding when and how to apply these.
We value and will continue to participate in timely ESG dialogue, particularly whencurrent events bring ESG factors to the fore, however we intend for this report to serve as apractical reference for those seeking a more thorough understanding of the foundations of
ESG at PGIM Fixed Income.
Should the ESG philosophy and approach detailed here beg the question, “how are thesetools employed?”, What We Do: ESG Annual Report 20221 includes progress made, tangible
applications and examples to help demonstrate how ESG factors were incorporated in theinvestment process across both traditional and ESG strategies over the past year.
We look forward to continuing the conversation.

ARMELLE DE VIENNE

JOHN PLOEG, CFA

Co-Head of ESG Research

Co-Head of ESG Research1

https://www.pgim.com/fixed-income/annual-report/esg-annual-report

73 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

CONTENTS

ESG GOVERNANCE

76

ESG-LABELLED BONDS

93

ESG RESOURCES

79

ESG IMPACT IN PORTFOLIOCONSTRUCTION

95

ESG INTEGRATION84

ENGAGEMENT ACTIVITIES97

APPENDIX

100

Climate Risk Integration 85
ESG in Risk Management 87

ESG IMPACT89

Climate Impact 92

ABOUT PGIM FIXED INCOME1
PGIM Fixed Income is a global asset manager offering active solutions across fixed income markets for institutional clients, affiliatedinsurance companies, mutual funds, and managed accounts, as well as specialised products and customised solutions.
PGIM Fixed Income’s culture is centred around mutual respect, trust in each other, collegiality, teamwork, meritocracy, intellectualhonesty, transparency, and an unwavering commitment to our clients.
Our business model is aligned with our mission to provide consistent, superior risk-adjusted returns and top-quality service to our clientsand to generate superior value for our stakeholders.2
Accordingly, our strategy and objectives are designed with a consistent focus on:
 protecting and evolving the strength of our investment
culture, processes, and philosophy with the goal ofgenerating consistently strong investment performance;
 demonstrating commitment to our clients by being bothproactive and highly responsive; refining our global distribution strategy;
 integrating our business globally; investing in technology and infrastructure to support growth; and focusing on talent and culture.

 building and refining our product mix to meet market needs;
Our philosophy hinges on investing for the long term with fundamental research-driven security selection at the heart of everything
we do. We believe that diversified portfolios, built through the integration of macroeconomic, credit, quantitative, and ESG analysis—
coupled with an emphasis on risk management—can achieve consistent excess returns with high information ratios. Risk budgeting iscentral to our approach, with allocations made within portfolio-specific risk budget thresholds.
As a global fixed income manager, we have the resources and ability to strategically hire the individuals and develop the infrastructureneeded to support our business objectives.

For the purpose of this report, all information unless otherwise stated is intended to be representative of PGIM Fixed Income as of 31 December 2022. PGIM is theasset management business of Prudential Financial, Inc. PGIM Fixed Income is one of the asset management businesses with PGIM. Prudential Financial, Inc. of theUnited States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom, or with Prudential Assurance Company, a subsidiary of M&G plc,
incorporated in the United Kingdom.
2
There is no guarantee that this objective can be achieved.
1

74 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG PHILOSOPHY AND APPROACH
As a fundamental research-driven active fixed income manager, we believe ESG issues can affect the financial performanceof investment portfolios. Therefore, we recognise the importance of integrating environmental, social and governancefactors in our global investment research, decision-making, and portfolio management processes.1 In general, we view
ESG through two separate but interrelated prisms: 1) credit-material ESG factors, and 2) the impact issuers are havingon the environment and society. We consider credit-material ESG factors in our investment process as part of working
towards our ultimate duty—searching for the highest risk-adjusted returns for our clients based on their return objectives.2
Separately, when our clients request that we consider ESG impact as part of their objectives, we offer our clients tools to
help express their views. The core tenets of our ESG philosophy and approach are summarised below.
 We believe ESG factors can impact investment performance, and we therefore integrate financially material ESG
factors into the credit analysis processes used across all of our strategies.
 We believe credit risk cannot be disaggregated into individual components and must be assessed holistically. Our
credit ratings incorporate analysis of credit-material risks and opportunities arising from ESG factors, alongsideother risk factors, to reflect our overall fundamental credit view of the issuer. This is done for all credit strategies that
we manage and is consistent with our fiduciary obligations.
 Separately, we have observed that an issuer’s ESG impact on the environment and society does not always creatematerial credit risks for that issuer, even when those ESG impacts are significant. Our proprietary ESG Impact
Ratings assess negative and positive impacts of issuers on the environment and society—whether or not they are
immediately credit-material—and determine their eligibility for investment by our ESG strategies. We offer clientsthe choice (but not the obligation) to apply this additional “impact” lens to their portfolios.
 We believe our 100+ fundamental research analysts, economists and ESG specialists are well placed to analyse
an issuer’s ESG characteristics; therefore, we conduct our own ESG research and risk assessment as part of credit
analysis. We use our ESG Impact Ratings as a tool to help our clients invest in line with their ESG/sustainability
preferences.
 We engage with issuers to communicate our views on fundamental and ESG issues. We aim for such engagements
to be constructive and offer issuers insights into our concerns and information on industry best practices, as well
as how their ESG efforts may be perceived in the market and the potential effect this could have on future market
demand for their bonds. We disclose our ESG Impact Ratings to issuers, when requested, as we see that these ratingsand other ESG tools and analysis provide tangible feedback to issuers.
 As a signatory to the Principles of Responsible Investment (PRI) since February 2015, we are committed to
implementing the PRI.
As one of the world’s largest active fixed income managers, we cater to a variety of client needs, and a growing numberof these clients demand a robust approach to ESG and stewardship to enable them to fulfil their ESG obligations
and aspirations. Integrating ESG and stewardship into our investment process and culture is essential to our missionof pursuing consistent, superior risk-adjusted returns and providing excellent service to our clients and value for our
stakeholders. PGIM Fixed Income has been a signatory of the UK Stewardship Code since 2022. We believe the 12
Principles laid out by the UK Stewardship Code set a high standard for responsible stewardship, and we seek to disclose
the relevant information necessary to maintain our signatory status on an annual basis.
We manage assets across a wide range of products and vehicles, and our ESG philosophy remains consistent throughout:
We believe in providing clients with an explicit choice of how to express their policies, views and beliefs through theirinvestments. As such, we believe in providing our clients with a range of solutions including investing in strategies that a)
integrate credit-material ESG factors within our credit research and relative value analysis to achieve the highest risk-returnobjectives, b) evaluate and achieve more positive impacts on the environment and/or society, and/or c) offer customisationto achieve individual risk-return and impact objectives.

1
2

Where consistent with applicable law and regulation.
There is no guarantee that this objective can be achieved.

75 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG GOVERNANCE
PGIM Fixed Income has established an ESG policy committee (the “ESG Policy Committee”) that is supported by
an ESG ratings sub-committee (the “ESG Ratings Sub-Committee”), and three ESG working groups. The three ESG
working groups consider ESG issues from their respective perspectives: Client Advisory Group, Portfolio Management,
and Technology & Data. The ESG Policy Committee acts as the top governance and decision-making body for PGIM
Fixed Income’s ESG practices and focuses on PGIM Fixed Income’s overall ESG policies and approach, whereas the ESG
Ratings Sub-Committee makes decisions on matters related to ESG integration in credit analysis, ESG Impact Ratings andother frameworks and tools related to ESG assessments used in our investment process. We believe this structure has better
enabled us to make decisions effectively, facilitate constructive dialogue, maintain effective communications across theorganisation, and promote the involvement of all relevant internal stakeholders.

ESG Policy Committee
 Top governance and decision-making body for PGIM Fixed Income’s ESG practices
 Focuses on PGIM Fixed Income’s overall ESG policies and approach Engagement activities

REPRESENTATION Credit Research Macroeconomic Research Securitised Products Research Municipals Research ESG Research

76 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

REPRESENTATION Client Advisory Client Management
 Consultant Relations
 Product Strategy

Portfolio Management
REPRESENTATION

 ESG implementation in credit,
economic, securitised products
research Portfolio Management
 Portfolio Analytics
 Risk Management

Technology & Data
REPRESENTATION Approves ESG-related frameworks

ESG WORKING GROUPS

Decision/approvalof ESG Researchframeworks and ESG
Impact Ratings

Client Advisory

ESG Ratings
Sub-Committee Technology & Systems
 Project Management
 Data Governance Portfolio Analytics

 Marketing Reporting Communications

ESG Policy Committee
Co-Chairs
MIKE LILLARD, CFA

JOHN VIBERTHead of PGIM Fixed Income

President of PGIM Fixed Income

Purpose Serves as the top governance and decision-making body for ESG and climate related topics
 Steers and guides PGIM Fixed Income’s ESG strategy and approach Makes decisions on material ESG business matters
 Approves ESG-related policies
 Reviews ESG Ratings Frameworks and ESG Ratings Sub-Committee decisions
 Approves ESG-related external submissions and reports
 Sets direction for internal work on emerging ESG topics
 Approves proposals to join new industry bodies or initiatives
 Approves addition/replacement of ESG data, research, and ratings vendors
 Ensures its decisions are communicated throughout the organisation

Operations
 Comprised of senior leaders and decision-makers, able to take decisions, communicate these decisions to theirteams and oversee implementation.
 Approach matters strategically, while delegating in-depth exploration of specific matters and preparation of
proposals/recommendations to ESG Ratings Sub-Committee or Working Groups.
 Establish an effective communication and feedback channel with teams/colleagues affected by the Committee’s
decisions directly or via ESG Ratings Sub-Committee and/or Working Groups.

ESG Ratings Sub-Committee
RICHARD GREENWOOD, CFA
Head of Credit

Purpose Approves ESG Ratings Frameworks
 Makes decisions on matters related to ESG integration in credit analysis and ESG Impact Ratings
 Oversees ESG Impact Ratings assigned by the analysts and reviews any challenges to ratings from Portfolio
Managers, CAG, clients or ESG team
 Oversees development of approach to climate risk and stewardship Provides feedback and recommendations to ESG Policy Committee on matters related to ESG research, ESG
integration into credit and macro-economic analysis, ESG Impact Ratings, and ESG engagements
 Provides guidance and oversight to analysts
 Communicates the Sub-committee’s decisions to respective research teams and serves as a liaison between researchteams and the ESG Policy Committee
77 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Operations
 Comprised of senior representatives of research teams across Investment Grade, High Yield, Emerging Market,
Municipals, Securitised Products, Macroeconomic, and ESG from our Newark, London and Tokyo offices to ensure
diversity of thought

Working Groups
Purpose Support decision-making by ESG Policy Committee by providing inputs and recommendations on ESG-related
topics in the respective areas of expertise. ESG Policy Committee may assign specific tasks to the WGs and request
their proposals/ recommendations on arising matters.
 Bring emerging matters to the attention of the ESG Policy Committee.
 Communicate the Committee’s decisions to their respective teams and serve as a liaison between their teams and the
ESG Policy Committee.

Operations
 Each ESG WG has a designated chair/lead.
 The ESG Research team is represented on each WG.
 The ESG Research team coordinates with the chair of each WG with respect to the dissemination of informationfrom the ESG Policy Committee to the WGs and the communication of inputs from the respective WGs to the
ESG Policy Committee.

Composition
 Client Advisory (CAG) ESG Working Group comprises representatives from across the Client Advisory Groupteams that have exposure to ESG topics.
 Portfolio Management ESG Working Group comprises one to two representatives from all investment desks where
ESG is of relevance for either investment process or products, as well as one to two representatives from PAG and
Risk Management.
 Technology/Data Working Group comprises representatives from key business functions that provide critical data,technology, analytics and client reporting solutions.

ESG Governance at PGIM
This report is generally specific to PGIM Fixed Income. However,
PGIM Fixed Income is one of several distinct “boutique” business
units within the overall asset management business PGIM. In
addition to managing our own ESG capabilities, our Co-Heads of
ESG Research also represent PGIM Fixed Income at the PGIMESG Council. The purpose of this Council is to serve as an active
forum for sharing knowledge and insights, providing inputs into
PGIM and Prudential’s ESG processes, and seeking views andfeedback on ESG-related topics from peers and colleagues across
PGIM businesses.
For more information on the ESG at PGIM, please see PGIM’s
ESG Annual Report1.

1

https://www.pgim.com/2022-esg-investing-report

78 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG RESOURCES1
At PGIM Fixed Income, knowledge and expertise in ESG extend beyond the ESG Research Specialists and are foundwithin various teams across the firm as well. While ESG Specialists are seen as a valuable resource, we recognize the needfor true integration, which is why we believe in placing ESG responsibilities directly within the appropriate team, rather
than in a siloed ‘ESG team’. To support this objective, we look to continuously train teams and individuals across theorganization on ESG themes and our evolving capabilities.

ESG Resources
ESG Research Team

Fundamental Research*

6 senior & 2 junior analysts

Corporate Research: 60 senior & 31 junior analysts
Municipals Research: 7 senior analysts
Global Macroeconomic Research: 11 senior analysts
Securitised Products Research: 11 senior & 7 junior analysts

 Key ESG Responsibilities• Develop, maintain, and monitor implementation of ESG
frameworks and policies• Conduct sector-level and thematic ESG research• Each ESG analyst is assigned to specific corporate sectors, andpartners with all credit analysts globally covering that sector• Each ESG analyst assigned to specific country regions, andpartners with the economist covering those countries• Identify, onboard, and oversee development of ESG data,applications, tools, and resources• Participate in ESG-related industry groups and associations• Monitor, comment on, and adapt to new ESG regulations• Lead targeted ESG engagements Key ESG Responsibilities
•
•
•
•
•

Issuer-level ESG risk and impact assessments
GSS Bond and SLB impact assessments
Sector-level and thematic ESG research
Ongoing issuer-level ESG engagements
Participate in ESG-related industry groups and associations

 Key ESG Responsibilities

Client Advisory
Product

Client Management

Reporting• Develop new ESG products• Regularly re-assess product ESG
characteristics• Ensure products adhere to ESG
regulations• Understand shifting market standards
on ESG• Understand/implement client ESG
preferences• Respond to client ESG queries• Communicate client ESG preferencesinternally• Understand shifting market standards
on ESG• Generate standard ESG reporting• Provide client-specific ESG reporting Key ESG Responsibilities

Technology & Data
Technology Solutions

Project Management

Dedicated ESG Apps/Tools

Data Vendors & Partners

4 associates**

2 associates**Engagement Recording App;
Temperature Alignment Tool***

MSCI, Sustainalytics, ISS,
Clarity AI, Bloomberg,
Climate Bonds Initiative• ESG data and resources • Integrate ESG data into existing research platforms • Create dedicated, proprietary ESG tools and applications

Note: As of 31 March 2023.
* Excludes CLO analysts.
** At least one-third or more of the associate’s time is spent on ESG.
*** Under development. Anticipated mid-2023.

1

Please note that the resources listed in this section are all as of 31 December 2022.

79 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG Research Team:
Resources
Eight ESG Specialists, based in London and Newark, NJ.

Composition
ESG Specialists get coverage over specific asset classes, industries, and sovereign regions to support relevant research analysts.

Responsibilities
 Maintain and enhance the consistent implementation of PGIM Fixed Income’s ESG integration approach,including the processes used to analyse ESG risks and opportunities, as well as the framework for applying its ESG
Impact Ratings;
 Undertake sector, thematic, and supporting issuer-level ESG research across all fixed income asset classes andregions; Partner with credit research analysts, economists, and portfolio managers to identify and incorporate material ESG
factors into their investment analyses and decision making; Engage with issuers on ESG factors, both individually and in partnership with credit research analysts andeconomists;
 Track ESG-related developments from a market, regulatory, and thematic perspective, and formulate strategies for
PGIM Fixed Income to adapt accordingly; Analyse third-party ESG data and research, working with the firm’s technology support group to constantly improveways of accessing and applying this data, and investigating potential new sources of such information;
 Produce ESG-related thought leadership, including hosting “Fixed on ESG” podcast episodes, for use by PGIM
Fixed Income and our clients;
 Engage with clients that have ESG objectives;
 Engage with peers, industry groups and other external ESG organisations; and Participate in the design and launch of new ESG products and strategies.

Credit Research Analysts & Economics Team
Resources
136 research analysts and macroeconomists

Composition
Credit analysts maintain coverage over specific corporate industries across Investment Grade, High Yield, Leveraged
Finance, and Emerging Market sectors. Additionally, we have research analysts within our Structured Product, Municipal,
and Macroeconomist teams based in Newark, NJ; London, UK; Tokyo, Japan; and Singapore.

ESG Responsibilities Conduct fundamental and ESG research for individual issuers as described in the following bullets according to theframeworks and guidance created by the ESG Research Team and approved by the ESG Committee
 Assign PGIM Fixed Income Credit Ratings, which include the consideration of ESG risks and opportunities Assign PGIM Fixed Income ESG Impact Rating to individual issuers
 Conduct Green, Social, Sustainable and Sustainability-Linked Bond Assessments
 Engage with issuers on ESG factors, both individually and in partnership with ESG Specialists
80 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

 Participate in ESG-related industry groups and associations

Portfolio Management
Resources
95 Portfolio Managers

Composition
Our Portfolio Managers cover Investment Grade, High Yield, Emerging Market, Structured Product, Municipal, andMulti-Sector strategies.

ESG Responsibilities
 Understand the ESG research produced by credit analysts and ESG specialists and how it pertains to holdings intheir portfolios
 Manage PGIM Fixed Income ESG Strategies, as well as Separately Managed Accounts with ESG objectives
 Interface with potential and existing clients that have ESG objectives

Portfolio Analysis GroupResources
51 Portfolio Analysts

Composition
Portfolio Analysts sit on the trading desks, working directly with portfolio managers covering various sectors and markets
such as Investment Grade, High Yield, Emerging Market, Structured Product, Municipal, and Multi-Sector strategies.

ESG Responsibilities Conduct portfolio analyses to understand the impacts on portfolio composition and risk return objectives given
clients’ ESG objectives
 Support client requests pertaining to ESG portfolio analyses
 Ensure new ESG initiatives, rules and constraints are clear and communicated to Portfolio Managers while also
working closely with ESG team to ensure appropriate data is available to properly construct and manage ESGrelated constraints, where applicable Support portfolio managers in portfolio positioning based on relevant ESG factors and metrics laid out inclient guidelines
 Help identify any ESG related data (whether third party of internal) issues and flag to proper teams to investigate,
if necessary

Client Advisory GroupResources
177 Client Advisory Group professionals; including one dedicated ESG Product Manager and one ESG Client
Reporting Specialist

Composition
 Institutional & Retail Client Advisors and Managers
 Reporting
81 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

 Product Management

ESG Responsibilities
 Institutional & Retail Client Advisors and Managers– Understand and ensure guidelines meet client’s objectives– Respond to client ESG queries– Communicate client ESG preferences internally– Understand shifting market standards on ESG
 Reporting– Generate standard ESG reporting– Provide client-specific ESG reporting Product Management– Develop new ESG products– Regularly re-assess ESG characteristics of products– Ensure products adhere to ESG regulations– Understand shifting market standards on ESG

Technology & Data
Resources
Six associates attached to ESG1 and responsible for ESG projects, as well as internal ESG tools and externally-sourced ESG
data vendors

Composition Technology Solutions Group Project Management

ESG Responsibilities Technology Solutions–

Support the expansion of ESG infrastructure internally–

Ensure that we have the appropriate systems in place to ingest external vendor data, as well as disseminate ourown internally derived ESG data and ratings to necessary stakeholders–

Develop cloud-based platforms to support internal ESG research, such as our Engagement Reporting
Application and our proprietary Temperature Alignment tool Project Management–

Support management and execution of ESG projects across the business

ESG Data Vendors & Partnerships
PGIM Fixed Income uses third-party providers for ESG data,
research, regulatory reporting, and screening services. We prefer
to conduct engagement ourselves and do not use third-party
providers for stewardship services. While the sourcing of raw datafrom the ESG third-party providers is highly useful to us, we
1“Attached” implies that at least one-third or more of the associate’s time is spent on ESG.

82 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

For more information on how we engage
with our ESG data vendors, please see
our most recent ESG Annual Report.
View the report at: https://www.pgim.com/fixedRead more on page 56
income/annual-report/esg-annual-reportbelieve that engagement and stewardship are extremely nuanced, and we seek to ensure that our feedback is appropriately
communicated to issuers.
PGIM Fixed Income monitors its ESG service providers, which, in addition to significant initial due diligence, also
includes continued assessment of the quality and appropriateness of their services, their coverage and screening parameters,
the quality of data and research received, the robustness of the providers’ research, ratings and screening methodologies,
technical support, data feed capabilities, and the quality of customer service.
We provide regular feedback to our providers through ongoing communication on specific issues, as well regular service
review meetings. We proactively engage with our ESG service providers to help improve data coverage and functionality of
their platforms, as well as to question and correct, when necessary, any inaccuracies we may find in their research.
In addition to monitoring our existing providers, we are actively exploring new sources of ESG data and insights in themarket, with a particular focus on climate and carbon-related data and analytics, which supports our assessment of theexisting providers and their ability to meet our needs.
In general, we find that our current ESG data and research needs cannot be fully met by any of the third-party providers,with certain fixed income asset classes such as high yield, bank loans, emerging market corporates, and securitised products
experiencing particularly insufficient ESG coverage. However, we acknowledge that historically this has been partly due
to the lack of respective disclosures on the issuer side and is not always due to the shortcomings of any particular data
provider. PGIM Fixed Income actively engages with issuers, banks, trade bodies, and regulators to encourage relevant andconsistent ESG disclosures. At the same time, as we see disclosures improve in many markets, we are also very actively
engaging with data vendors – both directly and via industry groups such as the European Leveraged Finance Association –to encourage vendors to capture this new data and expand their coverage beyond the main equity indices.
As of December 2022, PGIM Fixed Income subscribed to the following ESG Data Vendors & Partnerships:
 MSCI Sustainalytics
 ISS
 Clarity AI
 RepRisk
 Bloomberg
 Climate Bonds Initiative
 Moody's ESGView

83 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG INTEGRATION
In order to frame our approach to ESG integration, it’s importantto first characterise our understanding of ESG risks andopportunities. We define “ESG risk” and “ESG opportunity” as
an environmental, social or governance event or condition that,
if it occurs, could cause a material negative or positive impact on
the financial/economic value of an investment.

For examples of ESG integration,please see our most recent
ESG Annual Report.
View the report at: https://www.pgim.com/fixedRead more on page 19
income/annual-report/esg-annual-report

Together, we consider such ESG risks and opportunities to be “credit-material ESG factors.” Because we define creditmaterial ESG factors purely as those we believe have the potential to materially affect the value of specific investments, anddistinct from the consideration of ESG impacts, those factors are incorporated into the credit analysis processes used acrossall of our client portfolios.
As part of the credit research process, PGIM Fixed Income analysts review information related to ESG factors, which
may be provided by the issuer or obtained from third-party ESG research providers or alternative data sources (e.g.,
NGO analyses, governmental and inter-governmental studies, etc.). PGIM Fixed Income analysts may supplement thisinformation through engagement with the issuer. To the extent an ESG factor is considered by the analyst to have amaterial or a potentially material adverse impact on the financial value of the issuer, our analysts will incorporate such risks
into their fundamental credit ratings. Fundamental credit ratings are in turn a key factor in our relative value assessments,and our portfolio managers will consider material ESG risks and opportunities when assessing the overall relative
attractiveness of potential investments. Equally, ESG factors that are considered to be materially positive will also bereflected in our fundamental analysis and considered in relative value assessments. Although our views are often informedby quantitative metrics, our ultimate decision on how ESG issues should influence our investment decisions is largely
qualitative, as with other types of risks and opportunities.
It is important to note that ESG risks can arise for issuers who are not responsible for creating them (e.g. “green” issuers
can still be impacted by more severe hurricanes). At the same time, issuers that generate ESG impacts that harm others
may not bear a proportionate level of risk for those impacts (e.g. the physical risks resulting from high emissions per
capita in a developed country may fall much more on developing countries). Further, to the extent an issuer does face
ESG risks, these may still not be as material as other risks in the context of the issuer’s overall risk profile (e.g., an issuer
with higher climate transition risk, but much lower leverage may have a better overall credit profile than one with lessclimate transition risk but much higher leverage). Further, the spread on a given bond may compensate investors fairly forany excess ESG risk they face. As a result, the integration of credit-material ESG risks and opportunities is not the sameas targeting issuers with the most favourable environmental and social impacts (which we are able to address separately
via our ESG Impact Rating framework to the extent clients direct us to do so), or excluding poor performers. It is theinclusion of pecuniary ESG considerations in credit and relative value analysis.
The quality of governance can be an important investment consideration and it is incumbent on our analysts to assessgovernance structures and practices at the issuers we consider for investment as part of the credit research process. Our
governance analysis is asset class and sector specific and may include the following issues: alignment of interests between
management, controlling shareholders and other providers of capital; related party transactions; board quality, effectivenessand oversight; management incentives; audit and accounting issues; quality of risk management; business ethics andconduct issues (e.g., bribery and corruption; anti-competitive practices; and advertising/sales practices); and supply chain
sustainability practices.
In addition, we have created a dedicated “SFDR1 good governance” framework. The framework gives analysts guidanceon how to evaluate good governance for the purposes of SFDR. It focuses on the four main aspects highlighted in theregulation (sound management structures, employee relations, remuneration of staff, and tax compliance), but also requires
analysts to consider any other governance factors they consider material.
The environmental and social factors considered during our research assessment, including ESG risks which may causea material negative impact on the value of potential investments should those risks occur, will vary depending on the asset
class, the industry and/or individual issuer. These include, but are not limited to, the following:
1

EU Sustainability Finance Disclosure Regulation

84 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

 Environmental risks, which may materialize through various channels, including but not limited, to reputational
damage, litigation, policy costs, input costs, remediation costs, physical damage, operational disruptions, etc. Theserisks and potential costs/disruptions may be related to issues such as climate change; pollution of air, water and land;
harm to biodiversity, deforestation and ecosystem damage; energy inefficiency; generation and poor managementof hazardous and non-hazardous waste; and high-water consumption/withdrawal needs, especially in water stressed
areas. Climate and other environmental risks are considered both from a “transition” risk perspective, which focuseson the risk to investments as the world moves towards a more sustainable environmental and social model, anda “physical” risk perspective, which considers tangible risks due to physical changes in the natural environment,
including but not limited to, hurricanes, flooding, droughts, heatwaves, soil degradation, loss of ecosystem services,
water shortages.
 Social risks, which may also materialize through various channels, including but not limited to, reputational
damage, litigation, policy costs, recalls, labour costs, operational disruptions, and reduced productivity. These risks
and potential costs/disruptions may be related to issues such as poor occupational health and safety and process
safety; poor product safety and quality; privacy and data security weaknesses; poor labour relations and/or humancapital management, including diversity and inclusion; breaches of employee rights/ labour rights; human rights
violations; child labour/ forced labour; and infringements of rights of local communities/ indigenous populations.
An important focus of our sovereign research is on macroeconomic stability and debt sustainability. ESG issues featureprominently in this analysis and, in particular, the sovereign credit ratings process. In addition to a fundamental
macroeconomic score that captures pertinent macroeconomic strengths and vulnerabilities, PGIM Fixed Income’s
sovereign ratings framework is also based upon an assessment of qualitative aspects that guide policy making. These aspects
include institutional strengths and weaknesses, and potential governance issues, as well as social and environmental issues
that we believe could affect relevant macroeconomic variables. Nevertheless, while we carefully consider the risks such ESG
issues may present, we believe such risks should always be considered within a broader macroeconomic context and theissuer’s overall risk profile.
In line with our bottom up, fundamental credit approach, weview issuers’ credit profiles from a holistic perspective, rather than
Further Resources:
separating them into distinct components that must then be
Sustainability Risks Policy
reconciled. Therefore, we do not evaluate issuers’ ESG risks andopportunities in isolation, but instead integrate them directly into
our fundamental credit ratings, and thus into our relative value
Read it on PGIMFixedIncome.com
assessments. So, while our portfolio managers are provided withinformation on ESG risks and opportunities and take ESG factors
into account when making an investment decision, ESG risk would not by itself prevent PGIM Fixed Income frommaking any investment. Instead, ESG risk/opportunity forms part of our overall assessment of an issuer’s credit risk, andthus of our assessment of its relative value. Generally, a higher potential return or credit spread would be required for
issuers with credit-material ESG risks. We do not apply any absolute risk limits or risk appetite thresholds which relate
exclusively to ESG risk as a separate category of risk.
View the policy at: https://cdn.pficdn.com/cms/pgim-fixed-income/sites/default/files/PGIM%20
Fixed%20Income%20Combined%20Sustainability%20Risks%20Integration%20and%20Principle%20
Adverse%20Impacts%20Sustainability%20Due%20Diligence%20Policies_Version%202.pdf

Climate Risk Integration
We consider climate change and associated investment risk to be an important factor that should be incorporated in ourcredit assessment, especially where we deem the issuer’s exposure to climate risk to be high. Consideration of climate risks
and opportunities is part of our approach in integrating credit-material ESG factors into credit analysis and investment
decision-making and is consistent with our fiduciary duty to our clients and investors. The impact that issuers have on
climate change via GHG emissions generated by operations, products or value chain is also a significant consideration
under our ESG Impact Rating framework.
In measuring climate risks, we take account of “physical” risks (for example, the impact of severe climate events leading
to business disruption or losses for its investment positions) as well as “transition” risks, which pertain to the risk toinvestments as the world’s economies decarbonise. In addition, we treat climate risk as both a “standalone” risk, and also a“cross-cutting” risk, which manifests through many other established principal risk types (such as operational risks, credit
risks, litigation risks, reputational risks, etc.).

85 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

We seek to identify, understand and manage the impact of climate-related risk on our investments. This is achieved by a
combination of approaches as applicable to different asset classes, including: Incorporating climate risk assessment in fundamental analysis. Our analysts evaluate an issuer’s exposure toclimate related risks by considering their exposure to climate regulations, consumer demands, technological risks/
opportunities, and/or whether their key assets are located in areas exposed to increased physical climate risks. They
also consider the issuer’s management and plans to reduce their climate risk exposures going forward. This is in
keeping with our general focus on fundamental, bottom up analysis, which we feel is core to our ability to add value.
 Focusing on sectors with high direct exposures to the physical and transition risks of climate change, including
those particularly exposed to supplying or consuming fossil fuels (e.g., energy, mining, utilities, transportation),
industrials (e.g. producing or using products like steel, cement and aluminium), as well as the agricultural sector.
Our research involves:– Monitoring regulatory developments and analysing potential impact on issuers– Incorporating the risk of an increase in carbon prices or lower demand for fossil fuels– Identifying sub-industries and issuers with higher mid-term resilience and long-term adaptation capacity– Identifying issuers with a credible strategy for transitioning towards lower-carbon business models– Exploring indirect climate risk vulnerabilities (e.g., physical and transition risks in supply chains) Identifying issuers with lower carbon risk exposures, but similar yields as peers that would potentially be less affected
when the market starts to demand more compensation for greater exposure to carbon risk.
 For issuers with larger carbon risk exposures, requiring what we consider to be sufficient spread premium for therisk of bearing carbon costs or future stranded assets costs (e.g., due to potential regulatory action). We evaluate themagnitude of a spread premium based on an issuer’s current business model, the effectiveness and feasibility of its
future operational goals, and management’s commitment to and delivery against these goals.
– For sovereigns, analysing climate risk exposure and mitigation/adaptation capacity of individual countries toconsider the potential impact of the future repricing of sovereign debt around climate risk.
– For securitised assets, understanding climate risk associated with underlying assets/asset pools, as well as theextent to which investors are exposed to/shielded from physical and/or transition risks through the deal structure.
– Considering the timeframe over which climate risks are likely to materialise, while also recognising that the
expectation of future climate risks may also impact asset valuations well before they have fully unfolded.
– Identifying and monitoring sectors and issuers that we believe are likely to be beneficiaries of and/or contributeto a low-carbon transition.
Additionally, PGIM Fixed Income has publicly supported the Task Force on Climate-Related Financial Disclosures(“TCFD”) recommendations, which are a set of voluntary, climate-related financial risk disclosures. In our engagementswith issuers, we strongly encourage climate related disclosures and reporting aligned with the TCFD principles. PGIM
intends to publish its own TCFD Report, as required by the UK’s Financial Conduct Authority (FCA), in 2024; however,
PGIM Fixed Income has already begun disclosing key TCFD metrics in our ESG Annual Report and other TCFD-related
information in both that report and our most recent UN PRI reporting.

Transaction Structures and Documentation Packages
Understanding the terms and conditions of indentures, contracts, prospectus supplements and related transaction
documents is a central part of our due diligence relating to securitisations.
At the transaction level, our securitisation documentation underwriting begins with the initial offering materials and,depending on the type of transaction, the prospectus, private placement or offering memorandum, and the indenture orequivalent documentation. Amongst other things and depending upon the transaction type, we may focus on: the structural features of the transaction, especially provisions and definitions that may directly or indirectly impact
the cashflow waterfall;

86 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022 the events of default or any intercreditor rights, as well as any redemption rights provided to the sponsor or equity
class;
 any class of amendments that can occur without noteholder consent; amendments that do require noteholder vote including the quorum requirements, the threshold level for approvals,
as well as the mechanical notice process to call a first or second meeting or respond to a written resolution. This isparticularly relevant for European securitisations, which tend to have lower quorum requirements than in the U.S.; the ability of the sponsor to amend the actual governing documents (e.g., the indenture or pooling and servicing
agreement) to conform to the offering materials, or vice versa;
 representations and warranties, if any, provided by the seller/sponsor; and rights and responsibilities of key transaction parties including independent third parties such as the servicer,
administrative agent, and the trustee.
In the new issue context, depending upon the sector and specific investment opportunity, credit analysts may negotiate
transaction terms with issuers and sponsors to improve credit protections and governance on behalf of our clients. We may
also request enhanced reporting packages and actively negotiate transparency provisions if we feel the proposed or existing
reporting is deficient for our surveillance requirements.
Following the closing of a transaction, we endeavour to receive the transaction documents (e.g., the indenture or poolingand servicing agreement) from the arranger, the trustee or from public filings. The ability to receive private documents
depends on the transaction and local market conventions of the trustee.

Impairment Rights
In the consumer ABS and RMBS markets, the credit underwriting of any securitisation begins with analysis of the sponsor.
Before investing in a new sponsor, we conduct due diligence, preferably on site, to understand their business thesis andhow the sponsor underwrites and services their loans. Special attention is paid to servicing practices, particularly late-stage
delinquency management, charge-off policies, modification policies, and collection practices. Our diligence process also
focuses on the sponsor’s compliance, complaint, audit controls, and ESG philosophy. Once onboarded, credit analysts
actively maintain an ongoing dialogue with a sponsor.
In the CLO market, special attention is paid to the rights afforded to the equity tranche holders. In recent years, muchhas been written about the weak covenants in the loan market and efforts by some investors to exploit these deficiencies
at the expense of CLO investors. We try to balance giving equity investors and CLO managers the flexibility to defend
the integrity of the CLO collateral investments, with our need to protect senior debt holders from structural features that
could allow equity investors to prime other securitisation participants.
In the CMBS market, special attention is paid to the rights afforded to the controlling class holder and the special servicer.
Wherever feasible, we attempt to negotiate provisions in the documentation that curtail the ability of controlling classholders to engage in self-dealing (e.g. buying REO from the SPVs) or indulge in amend-and-extend modifications at theexpense of more senior debtholders.

ESG in Risk Management
For Our Investments
The line between ESG risks and other forms of risk is often blurred, and we believe effective credit analysis requires analysisof relevant risks in combination, rather than in isolation. PGIM Fixed Income’s Head of PGIM Fixed Income, President,
Co-Chief Investment Officers, Chief Investment Strategist, portfolio managers, heads of the sector teams, and heads ofmacroeconomic, credit, securitised products, quantitative analysis and risk management, meets weekly at a “desk heads”
meeting to analyse market-wide and systemic risks, including those related to ESG. This may include analysing economic,
interest rate, credit spread, market technical, underlying fundamental themes, pandemic, and macro-climate related
impacts in each major fixed income sector. The senior investment team develops a PGIM Fixed Income-wide market
outlook consolidating these views, which influences the overall risk profile, sector allocation, and duration/yield curve
positioning in our fixed income portfolios, depending on the specific strategy.

87 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Relative value decisions, including sizing and hedging, are made by portfolio management in consultation with credit
research analysts. Credit research analysts are responsible for confirming that relevant ESG risks and opportunities arereflected in their credit analysis and ratings. ESG factors, including climate-related risks & opportunities, are incorporated
in the identification and monitoring of individual credit risks.
ESG constraints are considered when constructing portfolio risk budgets, which are used in our daily risk surveillance.
Guideline constraints for ESG dedicated accounts and accounts with specific ESG-related restrictions are monitored byour compliance group as part of their daily process.
Additionally, our risk management framework combines monitoring the risk of individual credits and the risk of theoverall portfolio. Market Implied Rating curves that drive our risk analytics are recreated each night based on market
spread levels. These curves are then used to assign CUSIP-specific ratings based on the spread and tenor of each bond. In
this framework, if an individual credit, industry, or country trades with a spread premium due to ESG or other factors,
it would be assigned a lower credit rating in our risk system. The lower rating would result in tighter thresholds and/or
bigger stress shocks being applied to those credits. While not a specific ESG filter, if market forces cause names with lessfavourable ESG characteristics to trade with wider spreads, they will be assigned lower ratings and higher risk weights inour system.

88 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG IMPACT
We strive to understand the impacts our investments have on theenvironment and society. This is generally achieved by assessing
investments against negative and positive ESG impacts relevant to
the industry and/or issuer. This ESG impact assessment is distinct
from our assessment of the risk that ESG events could impact thefinancial/economic value of our clients’ investments. Whereas theconsideration of financially material ESG risks and opportunities
is part of our credit analysis in all strategies, the distinct
consideration of ESG impacts is applicable only to portfolios
where clients express a desire to apply this additional lens.

For examples on how we assess
ESG Impact, please see our mostrecent ESG Annual Report.
View the report at: https://www.pgim.com/fixedRead more on page 25
income/annual-report/esg-annual-report

The ESG Committee considers a wide range of sustainability issues and indicators on an industry, activity and asset classbasis, including principal adverse impacts. The sustainability issues and indicators deemed relevant to the particular type of
asset class and/or industry and/or individual activity are then identified and built into the ESG Impact Rating framework
such that analysts will then be required to consider these across asset classes and sectors.
The ESG Committee then provides detailed guidance to the analysts on the most likely environmental and social impactsof issuers and/or issues for 150+ GICS1 sub-industries, sovereigns, and structured products and frequently provides further
supplemental guidance for specific activities within those sub-industries. The ESG Committee also provides detailed
governance guidance covering major governance factors, including relevance for credit risk analysis and ESG Impact Ratings.
Using the guidance provided by the ESG Committee, the investment analysts seek to assign an ESG rating to an issuer on a
100-point scale in 5-point increments, with 0 as the lowest and 100 as the highest ESG rating (“ESG Impact Rating”).

An ESG Impact Rating between 40-100 requires that, with respect to the economic activities, products/services andpractices of an issuer (or financed by an issue), in our view the issuer:
 generates some meaningful, inherently positive impacts for either the environment or society; and has already reduced and/or minimised the associated key negative environmental and/or social impacts or is making
credible efforts to do so.
An ESG Impact Rating below 40 generally means that, with respect to the economic activities, products/services andpractices of an issuer (or financed by an issue), in our view the issuer:
 generates some inherently positive impacts for either the environment or society but has made only limited efforts(if any) to reduce associated key negative environmental and/or social impacts.; or generates significant negative environmental or social impacts and there are no credible efforts to minimise thesenegative impacts; or generates significant negative impacts to the environment and/or society that cannot be outweighed by any otherpotential positive contributions to the environment and/or society.
In assigning an ESG Impact Rating, investment analysts review information which may be provided by the issuer or
obtained from third-party ESG research providers and may also consider information from alternative data sources (e.g.,
NGO analyses, governmental and inter-governmental studies, etc.). This third-party research may, among other things,
1

Global Industry Classification Standard

89 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

be used to screen our investable universe for specified economic activities and controversies (including violations of the
UNGC principles); provide information regarding ongoing litigation; review performance data for a large number ofenvironmental, social and governance key performance indicators; or otherwise analyse various ESG issues and risks. In
certain instances, it may not be possible or practical to obtain or analyse the information needed to assess and rate each
investment and where this is the case our analysts may either make reasonable assumptions in order to rate the particularinvestments based on, for example, information relating to the particular industry of an underlying issuer and/or issue
or, in rare circumstances, may identify the investment as unrated. In the former case, where reasonable assumptions areused, the ESG Committee has instructed analysts to ensure that these assumptions are conservative and err on the side oflowering the ESG Impact Rating.
The ESG impact assessment generally applies to all asset classes.
An assignment of a high ESG Impact Rating is generally based on
the credibility and ambition of an issuer’s strategy to reduce negativeenvironmental and social impacts, and their actual achievements atthe time of our analysis. Accordingly, the extent and quality of efforts
and actual achievements by issuers to reduce their negative impacts is
the key driver of our ESG Impact Ratings, while efforts to enhancetheir positive impacts will serve as an additional differentiator yielding
higher ESG Impact Ratings.

Further Resources:
PAI Sustainability Due Diligence Policy
View the policy at: https://cdn.pficdn.com/cms/pgim-fixed-income/sites/default/files/PGIM%20
Fixed%20Income%20Combined%20Sustainability%20Risks%20Integration%20and%20Principle%20
Adverse%20Impacts%20Sustainability%20Due%20Diligence%20Policies_Version%202.pdf

Read it on PGIMFixedIncome.com

Corporate Credit ESG Impact Ratings are assigned by credit analysts and rely on the guidance provided by the ESG
Committee on the most likely environmental and social impacts of issuers and/or issues for 150+ GICS2 sub-industries.
Analysts use this guidance to rate issuers based on the severity of the negative sustainability impacts and the issuers’
efforts to reduce and minimise negative, as well as enhance positive impacts. Although often informed by quantitative
metrics, these ratings ultimately reflect the qualitative judgement of our credit analysts regarding sustainability impacts.
ESG Impact Ratings for corporate issuers and structured products are not relative to an industry, but rather have specificdefinitions that apply equally to issuers across all industries.
Sovereign ESG Impact Ratings include quantitative data to assess performance across the specific environmental, socialand governance topics and metrics that were approved by the ESG Committee, and then include a qualitative assessment
by economists to determine a final ESG impact rating.
Structured Products receive their own guidance on likely environmental and/or social impacts depending on the specificsub-asset class. In order to assign an ESG Impact Rating to a structured product, guidance will vary by the type of product(e.g. ABS, CMBS, RMBS). Depending on the type of structured product: Some receive their own specific guidance on environmental and/or social impacts that are likely
 Some first assign a rating to the issuer, following the framework provided for corporate bonds, and then adjusted upwards
or downwards after assessing any incremental environmental and/or social impacts from the underlying asset pool
The ESG Impact Rating for currency and derivative contracts referencing a single investment will reflect the ESG
Impact Rating of that investment (e.g., U.S. Treasury future or U.S. interest rate swap would get the same ESG Impact
Rating as the corresponding U.S. Treasury). Similarly, a single name sovereign or corporate credit default swap would get
the same ESG Impact Rating as the corresponding sovereign or corporate issuer that it references. The ESG Impact Rating
assigned to these contracts and swaps must be above the ESG Impact Rating threshold for the relevant product to beconsidered eligible for investment.
For currency and derivative contracts (such as a Euro or High Yield CDX contract) that reference multiple underlying
investments, an ESG Impact Rating is applied to the contract that is based on the weighted average ESG Impact Rating for theunderlying constituents within that contract for which an ESG Impact Rating is available. That ESG Impact Rating assigned tothe contract must be above the ESG Impact Rating threshold for the relevant product to be considered eligible for investment.
In assigning an ESG Impact Rating, the environmental and social topics, characteristics and indicators considered by ourinvestment analysts vary depending on the asset class, industry and/or individual issuer but generally may include, but are
not limited to:
2

Global Industry Classification Standard

90 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ESG Topic

ESG characteristics

Indicators considered

GHG Emissions/energy use

Credible plan to reduce emissions

Greenhouse gas emissions (Scope 1, 2 and/or 3); Carbon Intensity; Consumption of energy
from non-renewable sources; Use of or revenues from renewable energy; Practices that
improve energy efficiency; 1.5C or 2C alignment and/or credible targets in place; Modern
technologies reducing emissions impact; Contribution to climate solutions; Emissions ofF-gases / ozone-depleting substances

Ecosystem/
biodiversity damage

Responsible management of
ecosystems and biodiversity

Actions negatively impacting bio sensitive areas; Deforestation policies; Fertilizer andpesticide usage practices; Fishery management policies; Antibiotic use and practices;
Overall land use policies; Land restoration plans; Remediation activities; Forestry
management programs; Emissions of air pollutants (metric tons); Emissions to water

Waste management(including hazardous
waste)

Responsible management of waste

Generation of and management of non-hazardous waste; % of waste to landfill; plastic
pollution; Business models to transport and incinerate waste; Waste reduction initiatives

Responsible management of
hazardous waste

Generation of and management of hazardous waste (including radioactive waste, whereapplicable); % of hazardous waste relative to overall waste; Hazardous waste disposal
programs; Spills/contamination and related remediation activities; Spill recovery rate

Circular economy initiatives

Waste recycling practices; Waste management processes; Product lifecycle
management; E-waste management programs; Recyclability of products and recycledcontent used in products

Responsible management of water use

Freshwater withdrawals and consumption; Water recycling rate; % of assets in water
stressed areas; Exposure to areas of high-water stress; Water management policies

Water contamination management

Emissions to water; Water contamination reduction program

Human rights

Responsible treatment of vulnerable
workers and populations

Relations with indigenous communities; Assets located in contested/tribal lands; UNGC
violations; Policies to eliminate child/slave labour, including (where material) with respect
to supply chains; Modern slavery or forced labour; Exposure to controversial weapons

Labour management

Strong worker health and safety
management

Occupational health & safety performance, including accident and fatality rates; Policies
and controls to prevent accidents; Presence of worker training programs

Fair wages and working conditions

Total compensation of median compensated employee; Executive compensation; Percent of
employees not earning a living wage; Violations of minimum wage laws; Non-compensation
benefits offered; UNGC violations; Modern slavery or forced labour; discriminatory practices;

Governance to avoid illegal businessactivities

FCPA violations; Bribery/corruption scandals and policies to avoid this; UNGC violations;
Illicit international trade; AML and terrorist financing violations; Litigation and fines

Governance to avoid unethicalbusiness practices

Anticompetitive practices; Unfair trade practices within supply chain; SFDR Good
Governance compliance; Effective tax rate

Safe products and services

Product recalls; Effective content moderation; Product safety record; Data breaches anddata privacy & security practices

Non-discriminatory pricing and sales
practices

Unfair pricing practices; Misleading marketing and sales practices; Financial inclusion/
exclusion; Responsible lending practices

Financing of green projects

Credibility of project or initiative; Additionality of project or initiative

Financing of social projects

Credibility of project or initiative; Additionality of project or initiative

Water consumption/
contamination

Unethical/illegal
business practices

Quality of products
and services

Projects and initiatives

While certain corporate governance considerations (such as, forexample, ownership structures or board effectiveness) are generally
Further Resources:
not considered to directly affect an issuer’s and/or issue’s impacts
Corporate ESG Impact Ratings White Paperon the environment and society, they are an important part of theoverall evaluation of an investment opportunity and in
View the white paper at: https://www.pgim.com/fixed-income/white-paper/
determining the credibility of stated targets and initiatives put
Read it on PGIMFixedIncome.com
corporate-esg-impact-ratings-concept-process-and-implementation
forth by the issuer and thus are considered by the investment
analysts as part of the credit research and the initial evaluation of
an investment. They also can play an important role in assessing the credibility of an issuer’s efforts to reduce its negative
impacts and/or enhance its positive impacts. These potential indirect effects on environmental and social impacts are also
evaluated under our ESG Impact Ratings framework.

91 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

Climate Impact
Climate change and GHG emissions are a significant factor in our ESG impact assessment and ESG Impact Ratings.
Although these ratings do not focus solely on climate, climate considerations play a large role in analysts’ assessments in
GHG emissions intensive sectors where negative climate impacts are material. Where an issuer has significant, negative
climate impacts arising from Scope 1, 2 or 3 emissions and is not taking credible measures to materially reduce that
impact, this would weigh heavily on its ESG Impact Rating. That in turn may lead to the issuer being excluded fromcertain portfolios that include criteria based on our ESG Impact Ratings.
In addition to their ESG Impact Rating criteria, certain of our ESG funds / client accounts have exclusions on some of themost carbon intensive activities such as thermal coal extraction, thermal coal power generation and oil production in the
Arctic and from tar sands, as well as limitations on an issuer’s overall carbon intensity.
Where significant, we also endeavour to raise our concerns over an issuer’s climate impacts via engagement, noting how
those concerns impact our credit assessment and ESG Impact Ratings, as well as how this could limit our demand for its
bonds. Our large size and global coverage of fixed income markets also allow us to provide issuers constructive insights
into how such concerns could affect demand for their debt more generally, as well as how they compare to their peers withregards to climate performance, strategy and disclosure.
We strive to ensure that we have adequate access to resources, including staff, data and analytical tools, to assess,
implement and monitor climate-related risks/opportunities and measures. We also dedicate resources to exploring andtesting new sources of data, including emerging methodologies to calculate climate value at risk, implied temperature rise,and similar metrics.
We actively engage with our clients to understand their views and preferences with regard to climate change. As a stewardof our clients’ assets, we recognise our role in helping any clients with decarbonisation targets to meet such goals at theportfolio level. Accordingly, we are committed to working in partnership with our clients to develop decarbonisation
solutions for their portfolios, while reflecting their bespoke return expectations, risk appetite and timeframes. This may
include, among other things, measuring and reporting on the carbon intensity or footprint of certain portfolios, as well
as setting absolute or relative targets based on such metrics. In addition, we continue to develop tools to measure issuers’
temperature alignment more holistically, which would consider not just current and historical emissions and intensity,
but also targets and forward-looking expectations, as well as the credibility of issuers’ decarbonisation efforts. The tools weare developing will therefore take into account multiple data points, drawn from multiple data sources, and apply further
qualitative assessment where necessary. We believe this will provide a much more accurate assessment of an issuer’s Parisalignment than a simple metric such as carbon intensity can do alone.

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ESG-LABELLED BONDS
Our Approach

For examples on how we assess ESG-labelledbonds under our framework, please see ourmost recent ESG Annual Report.

At PGIM Fixed Income, we take a case-by-case approach forevery ESG-labelled bond that we consider for our portfolios. For
View the report at: https://www.pgim.com/fixedindividual Green, Social & Sustainable (GSS) Bonds, we assess
Read more on page 30
income/annual-report/esg-annual-reportcredibility at the security and issuer level, and additionality interms of the potential incremental positive impact that the bond
can have on the environment and society. For Sustainability-Linked Bonds and Loans (SLB/SLL), we look to assess theambition and materiality of the KPI targets, as well as the strength of the structural features of the instrument.

Green, Social & Sustainable Bonds Framework
We believe that financing projects and measures via ESG-labelled bonds (e.g. GSS Bonds, as well as Sustainability-Linked
Bonds and other, similar instruments) have a growing role in transitioning towards sustainable economy and sustainable
environmental and social ecosystem provided such projects have legitimate positive impacts on the environment andsociety. We are sceptical of many of the ESG-labelled bonds currently being issued, and do not believe they are all ofsimilar quality. As a result, we participate selectively in ESG-labelled bonds.
Additionally, we have developed proprietary frameworks for assessing how impactful individual issuances of these bonds
are, which is linked to our ESG Impact Ratings. Under our proprietary frameworks, we assess both the issuer's credibility
with respect to the GSS Bond, and the potential incremental positive impact the issuance can have for the issuer or its
industry, e.g. by replacing “brown” assets or activities with “green” assets or activities. This assessment results in an uplift(or a lack thereof ) of a GSS Bond’s ESG Impact Rating versus the ESG Impact Rating of its issuer. We distinguish between
High, Higher, Medium, Low and No Impact GSS Bonds. After issuance, GSS Bond ratings are reviewed alongside theissuer's other ratings and may be revised in light of actual activity (e.g., if a GSS Bond has low credibility at issuance, but
the issuer's actual activity post-issuance clearly shows it is acting credibly, or vice versa).
In order to assess the impact of GSS Bonds, we need to understand an issuer’s overall ESG strategy and how the GSS Bondfits into that strategy. A GSS Bond is more credible the more that it is consistent with, or supportive of, an issuer’s ESG
strategy. If the issuer’s overall ESG strategy is unsatisfactory, or the GSS Bond does not appear to meaningfully contributeto that strategy, we would view the issuance more as a marketing exercise with low credibility, and assign it little (or no)
uplift. Conversely, if the issuer is already largely sustainable, then the additionality of the GSS Bond relative to the issuer’s
other bonds would likely be low. Although GSS Bonds in such cases receive little or no uplift, their issuers typically alreadyhave high overall ESG Impact Rating to begin with. In either case, this means that before evaluating the bond, we mustfirst assess the issuer itself – in particular, whether it has established overarching ESG policies and objectives, created an
implementation strategy, and, where appropriate, implemented specific targets that the proceeds from the issuance will
directly support.
This approach allows our ESG strategies to invest in more impactful GSS Bonds of issuers that would otherwise beineligible for inclusion, thus adding to the positive impact of our investments.
From a credit and relative value perspective, we analyse GSS Bonds as we would analyse any other corporate investment,
and if we believe we are being paid for the credit risk, we would be happy to invest. However, if a company is issuing at
too tight of a spread level just because the bond is “ESG-labelled”, and we believe the issuer is greenwashing, we do not seethat as an attractive opportunity to invest. We generally would not pay a premium (i.e., tighter spread) to purchase a GSS
Bond versus non-GSS Bonds of the same credit, unless superior in some form to the existing issuance, or unless this helps
meet clients’ specific ESG objectives.

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The overall impact assessment allows us to decide whether a given bond’s ESG Impact Rating deserves a numeric upliftcompared to the issuer’s ESG Impact Rating and, if so, to what extent.

The Combinations of Determining a Green Bond Impact Rating

—

—

—

—

—

—

—

—

—

—

—

—

Source: PGIM Fixed Income. Provided for illustrative purposes.

Sustainability-Linked Instruments Framework
Similar to assessing GSS bonds, the objective for assessing an SLB/SLL is to assign an uplift to the instrument versus
our PGIM Fixed Income ESG Impact Rating of the issuer. Uplifts are assigned to high quality SLBs/SLLs in recognitionof the financial incentives they provide, the increase in credibility they offer, and the additional reporting/verification
requirements they impose. However, we assign SLB/SLL uplifts only if we believe that the Key Performance Indicators(KPIs) and Sustainability Performance Targets (SPTs) are material and ambitious. Unlike for GSS bonds, there are no
restrictions on how the proceeds can be used, and they are typically issued as general obligation bonds; thus, there is rarely
any additionality stemming from the use of proceeds. Additionally, SPTs are generally set at the issuer-level, not for any
specific projects. Therefore, the assessment is done on both the issuer and the KPIs/ SPTs that are put forth. With respect
to assessing the KPIs/SPTs, we assess the materiality and ambition of the KPI(s) to the issuer, as well as their measurability
and transparency. Additionally, we assess the structural features of the instrument and whether the target dates areappropriate given the term lengths, as well as whether the step-up structure provides sufficient financial incentive relative
to the issuer’s overall costs of capital. High quality SLBs/SLLs will receive an additional numeric uplift to the ESG Impact
Rating of the issuer, whereas low-quality instruments will simply
default to the issuer rating given that we determine no added
Further Resources:
positive impact of the instrument. But, since SPTs are set at theGreen Bank Bonds Blog
firm level, we will consider them like any other target, which
could result in an upgrade to the issuer level ESG Impact Rating
View the report at: https://www.pgim.com/fixedif they are credible and ambitious. As a result, the potential uplift
Read it on PGIMFixedIncome.com
income/blog/green-bank-bonds-abuse-proceeds
for an SLB/SLL itself is more limited.

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ESG IMPACT IN PORTFOLIO CONSTRUCTION
ESG Impact Ratings
Our portfolio construction for all our mandates, whether ESG or not, emphasises bottom-up credit selection within a risk
budgeting construct that emphasizes diversification across countries, industries, and individual issuers. As a signatory to
the UNPRI since 2015, we have committed to integrating ESG risk factors in our credit analysis for over seven years.
For any of the PGIM Fixed Income-labelled portfolios that have explicit ESG impact objectives (“ESG portfolios”),
issuers with significant negative impacts on the environment/society and exhibiting limited efforts to reduce those impacts(i.e., low ESG Impact Rated issuers/issues) are not considered for selection. In addition, our ESG portfolios generally
target a higher average ESG Impact Rating than their benchmarks. While adhering to these ESG constraints, our strategy
for these portfolios is to seek to achieve their alpha targets while operating within their risk budgets using the same
fundamental and relative value assessments that we use across all portfolios.
Given the incremental restrictions on ESG portfolios, alpha targets for ESG portfolios are typically set below those of
traditional portfolios as implied by classical portfolio theory, however there are market environments where we believe
ESG portfolios will outperform.

Approach to Exclusions and Restricted Lists
In an effort to give clients options in their approach to ESG investing, one of the tools we offer and implement across a
range of portfolios involves negative screens and exclusions which are built according to specific, client-determined criteria.
For certain clients, we use specialist third-party screening providers to implement such exclusionary screens. For otherclients, we exclude investments contained in detailed “restricted lists” provided by the client. In addition to exclusions
and constraints in our separate account mandates, we employ similar constraints across certain commingled products that
we manage. Where such constraints exist, they are disclosed in the fund’s offering materials. In most cases, this includes
limits on UNGC violators, tobacco production, manufacturing of controversial weapons, and thermal coal extraction andgeneration, among other limitations. Our ESG-labelled products also include limits on Arctic oil and gas, oil sands, andoverall carbon intensity. As the ESG industry evolves, we seek to stay at the forefront of developments. This includes having
annual conversations with clients and consultants to ensure that the exclusions and thresholds that we have set for ourcommingled strategies are still appropriate. We finalize any amendments to the exclusions at the ESG Policy Committee.

Examples of Exclusion Guidelines for ESG Strategies1
Ineligible ESG Investments
 Issuers that violate UN Global Compact (“UNGC”)
Principles;

Further Resources: PGIM Fixed Income
UCITS ESG Policy Statement
View the policy statement at: https://www.pgim.com/ucits/
Read it on PGIMFixedIncome.com
getpidoc?file=04F93357DA794BD194828F52BEDC0EA7

 Issuers that are involved in the production of nuclear orother controversial weapons (including landmines, cluster
weapons and biological/chemical weapons);
 Issuers that are conventional weapon manufacturers deriving at least 10% of revenues from such activities;
 Issuers that are tobacco manufacturers deriving at least 5% of revenues from such activities;
 Issuers deriving at least 20% of revenues from thermal coal generation2;
 Issuers deriving at least 10% of revenues from thermal coal extraction2;
 Issuers deriving at least 10% of revenues from Arctic oil and gas exploration2;
 Issuers deriving at least 10% of revenues from oil sands extraction2;
 Issuers deriving at least 50% of revenues from gambling activities;
1
2

ESG exclusions vary by product. This list is non exhaustive and does not pertain to all ESG strategies.
Exemptions granted for certain Green Bonds assessed as being of high quality.

95 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

 Scope 1 & 2 emissions intensity criteria– No investments in Issuers having an emission intensity of above 3,000 tons CO2 per million USD sales2;– The relevant portfolio must have a weighted average emissions intensity that is 33% lower than that of theapplicable benchmark
 Proprietary ESG Impact Score criteria– No investments in issuers that have an ESG Impact Rating below 40;– The relevant portfolio must have an average ESG Impact Score that is higher than the average score of theapplicable benchmark
Third-party screening agents are used to screen for determining the ineligible ESG investments in our ESG-focused
portfolios. The list of ineligible ESG investments is provided to PGIM Fixed Income by the screening agents, andinformation with respect to such lists is updated and provided to PGIM Fixed Income monthly.

2

Exemptions granted for certain Green Bonds assessed as being of high quality.

96 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

ENGAGEMENT ACTIVITIESEngaging with Issuers
As an active, bottom-up, fixed income asset manager, PGIM
Fixed Income views ESG engagement as an important tool in ourinvestment process. Through constructive and ongoing dialogue
with issuers, we believe that ESG engagements can enable us toachieve better investment and, where applicable, ESG outcomesfor our clients.

Please see our most recent ESG Annual
Report for examples of engagements.
View the report at: https://www.pgim.com/fixedRead more on page 34
income/annual-report/esg-annual-report

For further resources, you can also checkout our ESG Engagement Policy.
View the policy at: https://cdn.pficdn.com/cms1/pgim-fixed-income/sites/default/files/PGIM%20Fixed%20Income%20ESG%20
Engagement%20Policy_2023.pdf

ESG Engagement Policy

Focus
Our ESG engagement efforts are rooted in our fiduciary duty towards our clients. As such, our ESG engagements focus on
issuers where we believe that an engagement will be additive to our investment process. The objective of our engagements
will be specific to each issuer and focused on issues that are material to the issuer from an ESG credit risk/opportunities
and/or ESG impact perspective.
A core tenet of our engagement philosophy is that we should not pursue engagements that are likely to harm the valueof our clients’ positions in the issuer. While we cannot know with certainty what the effect of an engagement will be inadvance, we prioritise engagements and objectives that our analysts believe (based on their knowledge of the issuer and its
industry) will preserve or improve the value of our positions in the issuer and avoid those that they believe will conflictwith this intention.
Our engagements are focussed on issuers of debt and include listed and unlisted companies as well as securitised products,
municipals, and sovereigns.

Prioritisation
As one of the world’s largest fixed income managers, investing in several thousand issuers across most industries and asset
classes, our engagements with issuers are prioritised on the basis of factors such as the materiality of the ESG topic(s) on
the issuer, our relative value view of the issuer, and how receptive we view the issuer to be to engagement.
Additionally, we may consider other factors that aid in our prioritisation, such as specific themes, controversies, specific
events including change to regulation, M&A, or other issues that may arise.

Approach
Our approach to engagement is rooted in constructive dialogue with our issuers, collaboration internally between
fundamental research analysts, economists and ESG specialists, and quality engagements over quantity.
Given that our engagement activities are directly linked to our investment research and decisions, our strong preference isfor one-on-one direct engagements as this allows us to represent our own viewpoint and enables us to speak candidly whenhighlighting our ESG concerns to company management, policymakers, arranging banks, sponsors, NGOs or any otherstakeholder. We do not employ third parties to conduct engagements.
We believe constructive dialogue should be informative and meaningful for both parties. This means that while dialogue
will often entail our analysts probing management on the relevant, material ESG issues and assessing the issuer's plansto address them, we also believe in sharing information such as pointing out to issuers our assessment of credit material
ESG risks as well as the impacts that their policies, practices or products have on the environment and society. Where
applicable, we discuss the implications these considerations may have for their funding costs and future market demand forany new issuance of bonds.
To enable this constructive ESG dialogue, we encourage close collaboration between our team of fundamental researchanalysts, economists and ESG specialists throughout the engagement process. Such collaboration allows for knowledge sharing
between teams and enables us to think holistically of the ESG objectives and risk-return implications of an engagement.
Given that we see ESG engagements as a part of our investment process, we see great value in this collaboration across teams.
97 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

As we believe that engagements should be highly relevant to our investment process and also provide valuable insights to theissuers we engage with, our approach to engagements emphasizes quality over quantity. This means that our focus is on fewer
but more substantive engagements, where the objective is centred on one or two in-depth questions or recommendations.
Through in-depth and nuanced discussions on our ESG concerns, we may make issuers aware of how our concerns factor
into our investment decision, gain a better understanding of what the issuer is doing to address our concerns, and discuss
industry best practices. Such dialogues are likely to enrich our investment analysis while at the same time provide useful
insights to issuers into how they compare to industry peers and how markets perceive their ESG initiatives. Our ESG
Impact Ratings offer additional tangibility and context to the conversations, as they allow our analysts to show issuers how
we rate them on ESG impacts, while also providing the rationale and factors behind the ratings.
We believe that by asking informed questions, raising our concerns and sharing industry best practice, we can positively
influence issuer ESG practices over the long term. While we find that it is usually difficult to attribute changes made by
an issuer to a single investor or engagement, we believe that issuers hearing the same concerns from multiple investors on
the same ESG points can lead to change and contribute to long-term value creation. As a result, we believe that it is our
responsibility to contribute to such dialogue, even if we may not be able to claim full credit for the outcomes.
Once a meaningful engagement has taken place, an assessment of the engagement is recorded internally. These recordings
facilitate monitoring of our ESG-related interactions with issuers, provide helpful insights to our investment process andare used to inform clients of our ESG engagement efforts. We then track the issuer’s progress on the ESG issues we raise
and reflect this in our ESG Impact Ratings and fundamental credit ratings (where ESG risks are integrated), both of whichmust be updated at least annually, or more frequently as events warrant.

Escalation
When an issuer is not addressing its most material ESG concerns, regardless of whether we determine this throughengagement or our research, we believe that the most effective method of escalation is to reduce our holdings of the issuer’s
debt with the expectation that this will, over time, impact the issuer’s cost of capital.
Given that we generally do not have equity ownership rights, we are not able to use proxy voting, which is one of the
primary escalation mechanisms available to equity holders. As a leading fixed income asset manager, we do, however, still
have effective mechanisms available to us. Unlike equity, debt matures, requiring issuers to raise new debt regularly. As aresult, our decision to invest in an issuer can affect its cost of capital in a way an equity investor cannot. Our divestment in
the secondary market may also contribute to widening an issuer’s market spreads, which in turn can also impact the future
cost of capital, when the issuer comes back to market with a new issue. Further, even if we do not currently hold an issuer,
our views, as one of the largest global active fixed income managers, can be impactful if the issuer intends to issue future
debt. On the back of these considerations, we see our decision to buy, divest or not invest as our most effective instrumentof escalation, especially if it is done in combination with direct feedback to the issuer regarding our investment decision.
The primary example of this is with respect to our ESG Impact Ratings. Investments in our ESG strategies are informed
and guided by our ESG Impact Ratings. Our research analysts assign issuers under their coverage an ESG Impact Rating,which assesses the issuer’s impact on the environment and society. Should our analysts conclude that the issuer isn’t
adequately addressing its most material impacts or making progress the way it was expected to, the analyst would generally
downgrade the ESG Impact Rating. These downgrades are meaningful because, depending on the resulting ESG Impact
Rating, it can trigger us to reduce or even exit the position in our ESG strategies. It should be noted, though, that even if
we divest an issuer, we may continue to engage with them as they continue to issue new debt.

Engagement with Policymakers and Regulators
As a large, global asset manager, PGIM Fixed Income is affected by regulation in many jurisdictions, both where thisapplies to issuers and investors. And in recent years, there has been rapid growth in regulation worldwide that is specifically
ESG-related. Where proposals for such regulation are particularly relevant to PGIM Fixed Income, we actively engage with
policymakers, either directly or via collaboration with other PGIM businesses at the PGIM level (and, at times, via ourtrade association partners). This is mostly achieved through responses to open regulatory consultations, such as the SEC’s
proposals on climate disclosures and ESG fund disclosures. It may also involve consultations with standard setters, suchas on the ISSB’s proposed sustainability disclosure standards. We also engage with policymakers on proposals that may
98 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

negatively impact our investments to make sure they understand the implications of their actions on both the economy
and our investors.

Engagement Tracker
As data becomes increasingly available and clients want to be kept abreast of our ESG activities, we are taking specificsteps to enhance our technology infrastructure to be able to monitor, measure and leverage the engagement-related
information we produce. In 2021, one such step included the development of a cloud-based platform that could better
record our engagement activities and allow us to store, analyse, report and act on the interactions in a more efficientmanner. This system is integral to supporting our engagement efforts, especially as we look to emphasise and increase
these efforts in the future.

Approach to Industry Engagement
We believe in constructive engagement with policymakers and regulators. We are a member of a number of tradeassociations and industry initiatives and are committed to providing feedback to policy consultations or technical input into
regulatory process that materially impact us or our investments. We also proactively engage financial regulators on ESGrelated topics. The selected list of our current memberships and collaborative initiatives related to ESG topics is below:
 Principles for Responsible Investment
 PRI Securitised Products Advisory Committee
 PRI Structured Products Workstream
 Task Force on Climate-Related Financial Disclosures (Formal Supporter) European Leveraged Finance Association - ESG Committee
 Investment Company Institute UK Investment Association (Stewardship in Fixed Income Working Group) The Conference Board (Corporate Governance and Stewardship Council)
 Structured Finance Association (SFA) ESG Steering Committee Commercial Real Estate Finance Council (CREFC) Sustainability SteerCo, and the Transparency Sub-committee
 Association for Financial Markets in Europe
 Loan Market Association
Additionally, as a members of the PGIM ESG Council, PGIM Fixed Income, together with the other PGIM affiliates,
will also respond to certain regulatory consultations where we believe we have valuable insights and feedback to share.
We participate in these consultations with a view to ensure that the interests of our clients are best represented in thedevelopment of new ESG and sustainability related regulations.
Also through memberships held by PGIM, PGIM Fixed Income has access to the resources within the following initiatives:
 Institutional Investor Group on Climate Change (IIGCC)
 Ceres, Investor Network
 Council of Institutional Investors (CII) IFRS (International Financial Reporting Standards) Sustainability AllianceIn addition, PGIM licenses and applies the SASB Standards Disclosure Topics, Accounting Metrics, SICS and Engagement
Guide Questions in its work. Through its membership in PGIM’s ESG Council, PGIM Fixed Income is able to benefit
from these resources as well.

99 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

APPENDIX: PGIM FIXED INCOME BY THE NUMBERS
PGIM Fixed Income’s business includes a wide breadth of fixed income strategies and products, including traditional
multi-sector and single-sector fixed income strategies for institutional clients, insurance companies and mutual funds, aswell as alternative products including long/short strategies and collateralised loan obligations (CLOs), with an emphasis on
credit-related strategies.
With $770 billion in assets managed globally, we serve 955 global clients with 366 investment professionals across theglobe. PGIM Fixed Income has been recently recognised as a leader in fixed income, receiving industry awards for the fullrange of our global, U.S., European, and Asian funds.

PGIM Fixed Income manages $770 billion in assets under management,with expertise across a broad range of sectors1,2
59

2

70
169

AUM
by client type 350($ bil)161

AUM
by region($ bil)251• Third-party institutional• Proprietary• Third-party retail

34 23

37
50

AUM
by sector

59($ bil)

58
520

98

• North America• Japan• EMEA• Asia ex-Japan

274

135

• Corporates• Emerging Markets Debt
• Governments/Agencies • Bank Loans• Securitised Products • Mortgages• High Yield• Municipals• Money Markets• Other2

PGIM Fixed Income has experienced significant growth in assets under management over the last decade, from approximately
US$400 billion as of 31 December 2011 to US$770 billion as of 31 December 2022. Through the same period we have seen
significant growth in the number of institutional clients and employees, with 955 institutional clients and 1,119 employees asof 31 December 2022, compared to 270 institutional clients and 467 employees as of 31 December 2011.

Assets as of 31 December 2022. Please see the Notice section for important disclosures, including risk. Source: PGIM Fixed Income. Assets under management (AUM)
are based on company estimates and are subject to change. PGIM Fixed Income’s AUM includes the following businesses: (i) the PGIM Fixed Income unit within PGIM,
Inc., located in the USA; (ii) the public fixed income unit within PGIM Limited, located in London; (iii) PGIM Netherlands B.V., located in Amsterdam; (iv) locallymanaged assets of PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore. Asset class breakdown based on company estimates and is subject to change.
2
Other includes Japanese equities and Japanese real estate equities.
1

100 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

NOTICE: IMPORTANT INFORMATION
Source(s) of data (unless otherwise noted): PGIM Fixed Income, as of 31 December 2022.
For Professional Investors only. Past performance is not a guarantee or a reliable indicator of future results and an investment could
lose value. All investments involve risk, including the possible loss of capital.
PGIM Fixed Income operates primarily through PGIM, Inc., a registered investment adviser under the U.S. Investment Advisers Act of1940, as amended, and a Prudential Financial, Inc. (“PFI”) company. Registration as a registered investment adviser does not imply acertain level or skill or training. PGIM Fixed Income is headquartered in Newark, New Jersey and also includes the following businesses
globally: (i) the public fixed income unit within PGIM Limited, located in London; (ii) PGIM Netherlands B.V., located in Amsterdam;(iii) PGIM Japan Co., Ltd. (“PGIM Japan”), located in Tokyo; (iv) the public fixed income unit within PGIM (Hong Kong) Ltd. locatedin Hong Kong; and (v) the public fixed income unit within PGIM (Singapore) Pte. Ltd., located in Singapore (“PGIM Singapore”). PFIof the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance
Company, a subsidiary of M&G plc, incorporated in the United Kingdom. Prudential, PGIM, their respective logos, and the Rocksymbol are service marks of PFI and its related entities, registered in many jurisdictions worldwide.
These materials are for informational or educational purposes only. The information is not intended as investment advice and is not arecommendation about managing or investing assets. In providing these materials, PGIM is not acting as your fiduciary. PGIM Fixed
Income as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Investors seeking
information regarding their particular investment needs should contact their own financial professional.
These materials represent the views and opinions of the author(s) regarding the economic conditions, asset classes, securities, issuers or
financial instruments referenced herein. Distribution of this information to any person other than the person to whom it was originallydelivered and to such person’s advisers is unauthorized, and any reproduction of these materials, in whole or in part, or the divulgence of
any of the contents hereof, without prior consent of PGIM Fixed Income is prohibited. Certain information contained herein has beenobtained from sources that PGIM Fixed Income believes to be reliable as of the date presented; however, PGIM Fixed Income cannot
guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information
contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice.
PGIM Fixed Income has no obligation to update any or all of such information; nor do we make any express or implied warranties orrepresentations as to the completeness or accuracy.
This material may contain examples of the firm’s internal ESG research program and is not intended to represent any particular product’s
or strategy’s performance or how any particular product or strategy will be invested or allocated at any particular time. PGIM’s ESG
policies and procedures, rankings and factors may change over time, in PGIM Fixed Income’s discretion. ESG investing is qualitative andsubjective by nature; there is no guarantee that the criteria used or judgment exercised by PGIM Fixed Income will reflect the beliefs orvalues of any investor. Information regarding certain ESG practices may be obtained through third-party reporting, which may not be
accurate or complete, and PGIM Fixed Income depends on this information to evaluate a company’s commitment to, or implementationof, ESG practices. ESG norms differ by region. Accounts managed by PGIM Fixed Income may or may not hold instruments issued byany of the issuers that may be discussed herein. Nothing contained herein should be construed as limiting the investments or strategies
that PGIM Fixed Income can pursue when managing a client account. There is no assurance that PGIM Fixed Income’s ESG investing
techniques will be successful.
Any forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as
investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain
inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fee. These materials are
not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment
management services and should not be used as the basis for any investment decision. PGIM Fixed Income and its affiliates may makeinvestment decisions that are inconsistent with the recommendations or views expressed herein, including for proprietary accounts of
PGIM Fixed Income or its affiliates.
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The valueof most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to
be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rateenvironments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased
price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed
securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government,
government agency or private guarantor, there is no assurance that the guarantor will meet its obligations. High yield, lower-rated
securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit andliquidity risk than portfolios that do not. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk
due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Currency rates may fluctuate
101 PGIM FIXED INCOME | WHAT WE DO: ESG ANNUAL REPORT 2022

significantly over short periods of time and may reduce the returns of a portfolio. Commodities contain heightened risk, including
market, political, regulatory and natural conditions, and may not be suitable for all investors. Diversification does not ensure against loss.
In the United Kingdom, information is issued by PGIM Limited with registered office: Grand Buildings, 1-3 Strand, Trafalgar Square,
London, WC2N 5HR.PGIM Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) of the United Kingdom(Firm Reference Number 193418). In the European Economic Area (“EEA”), information is issued by PGIM Netherlands B.V., anentity authorised by the Autoriteit Financiële Markten (“AFM”) in the Netherlands and operating on the basis of a European passport.
In certain EEA countries, information is, where permitted, presented by PGIM Limited in reliance of provisions, exemptions or licenses
available to PGIM Limited including those available under temporary permission arrangements following the exit of the United Kingdom
from the European Union. These materials are issued by PGIM Limited and/or PGIM Netherlands B.V. to persons who are professional
clients as defined under the rules of the FCA and/or to persons who are professional clients as defined in the relevant local implementationof Directive 2014/65/EU (MiFID II). In Switzerland, information is issued by PGIM Limited, London, through its Representative
Office in Zurich with registered office: Kappelergasse 14, CH-8001 Zurich, Switzerland. PGIM Limited, London, Representative Officein Zurich is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA and these materials are issued topersons who are professional or institutional clients within the meaning of Art.4 para 3 and 4 FinSA in Switzerland. In certain countries in
Asia-Pacific, information is presented by PGIM (Singapore) Pte. Ltd., a regulated entity with the Monetary Authority of Singapore undera Capital Markets Services License to conduct fund management and an exempt financial adviser. In Japan, information is presented
by PGIM Japan Co. Ltd., registered investment adviser with the Japanese Financial Services Agency. In South Korea, information ispresented by PGIM, Inc., which is licensed to provide discretionary investment management services directly to South Korean investors.
In Hong Kong, information is provided by PGIM (Hong Kong) Limited, a regulated entity with the Securities & Futures Commissionin Hong Kong to professional investors as defined in Section 1 of Part 1 of Schedule 1 of the Securities and Futures Ordinance (Cap.571).
In Australia, this information is presented by PGIM (Australia) Pty Ltd (“PGIM Australia”) for the general information of its “wholesale”
customers (as defined in the Corporations Act 2001). PGIM Australia is a representative of PGIM Limited, which is exempt from therequirement to hold an Australian Financial Services License under the Australian Corporations Act 2001 in respect of financial services.
PGIM Limited is exempt by virtue of its regulation by the FCA (Reg: 193418) under the laws of the United Kingdom and the applicationof ASIC Class Order 03/1099. The laws of the United Kingdom differ from Australian laws. In Canada, pursuant to the international
adviser registration exemption in National Instrument 31-103, PGIM, Inc. is informing you that: (1) PGIM, Inc. is not registered in
Canada and is advising you in reliance upon an exemption from the adviser registration requirement under National Instrument 31-103;(2) PGIM, Inc.’s jurisdiction of residence is New Jersey, U.S.A.; (3) there may be difficulty enforcing legal rights against PGIM, Inc.
because it is resident outside of Canada and all or substantially all of its assets may be situated outside of Canada; and (4) the name andaddress of the agent for service of process of PGIM, Inc. in the applicable Provinces of Canada are as follows: in Québec: Borden Ladner
Gervais LLP, 1000 de La Gauchetière Street West, Suite 900 Montréal, QC H3B 5H4; in British Columbia:
Borden Ladner Gervais LLP, 1200 Waterfront Centre, 200 Burrard Street, Vancouver, BC V7X 1T2; in
Ontario: Borden Ladner Gervais LLP, 22 Adelaide Street West, Suite 3400, Toronto, ON M5H 4E3; inNova Scotia: Cox & Palmer, Q.C., 1100 Purdy’s Wharf Tower One, 1959 Upper Water Street, P.O. Box
2380 -Stn Central RPO, Halifax, NS B3J 3E5; in Alberta: Borden Ladner Gervais LLP, 530 Third
Avenue S.W., Calgary, AB T2P R3.
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