PIMCO Europe GmbHINTEGRATION OF SUSTAINABILITY RISKS
Background
This information is provided in accordance with Article 3 of Regulation
2019/2088 of the European Parliament and of the Council of 27 November
2019 on sustainability‐related disclosures in the financial services sector(“SFDR”).
As a premier fixed income manager, PIMCO’s 1 mission is to deliver
superior investment returns, solutions and service to our clients. For
nearly 50 years, we have worked relentlessly to help millions of investors
pursue their objectives – regardless of shifting market conditions.
Leadership in ESG investing is essential to deliver on our clients’ financial
objectives, to maintain our high performance culture by engaging top
talent and to support long-term, sustainable economic growth globally.
This statement details PIMCO’s commitments to: the integration of ESG
factors into our broad research process, sustainable investment solutions
offered to our clients, our engagement with issuers on sustainability
factors and our climate change investment analysis. This statement isdesigned to apply broadly to our firm’s long-term investment process andto our dedicated ESG investment solutions.
ESG INTEGRATIONAt PIMCO, we define ESG Integration as the consistent consideration ofmaterial ESG factors into our investment research process to enhance
our clients’ risk-adjusted returns. Material ESG factors may include but
are not limited to: climate change risks, social inequality, shifting
consumer preferences, regulatory risks, talent management ormisconduct at an issuer, among others. We believe incorporating relevant
ESG factors should be part of a robust investment process.
We recognize that ESG factors are increasingly essential inputs whenevaluating global economies, markets, industries and business models.
Material ESG factors are important considerations when evaluating longterm investment opportunities and risks for all asset classes in both publicand private markets. Our commitment to ESG Integration was one of the1

Unless the context requires, the statements in this document apply to PIMCO Europe GmbH.

main drivers that led PIMCO to become a signatory to the UN Principlesof Responsible Investment (PRI) in September 2011.
Integrating ESG factors into the evaluation process does not mean that
ESG information is the sole or primary consideration for an investment
decision; instead, PIMCO’s portfolio managers and analyst teams
evaluate and weigh a variety of financial and non-financial factors, which
can include ESG considerations, to make investment decisions. The
relevance of ESG considerations to investment decisions varies acrossasset classes and strategies. By increasing and diversifying theinformation assessed by the portfolio management team where relevant
we believe that we are able to generate a more holistic view of aninvestment, which we believe will generate opportunities to enhance
returns for our clients.
ENGAGEMENT PHILOSOPHY
As one of the world’s largest bondholders on behalf of our clients, PIMCO
has a large and important platform with which to engage issuers to drive
meaningful change on sustainability dimensions. Engagement is an
essential tool for delivering impact in ESG investing. We believe that ESG
investing is not only about partnering with issuers that alreadydemonstrate a deeply unified approach to ESG, but also about engaging
with those with less advanced sustainability practices. This can be a direct
way for PIMCO to influence positive changes that may benefit all
stakeholders, including investors, employees, society and theenvironment.
We aim to have an industry leading engagement program among fixedincome asset managers. By investing across a diverse asset class andgroup of issuers – including corporates, municipalities, sovereigns andothers – we believe PIMCO is ideally positioned to drive greater change
than through exclusions or evaluations alone. In our experience we havefound that our collaborative engagement approach has the potential toresult in tangible, positive changes in certain companies given thestrength and history of our platform.
PIMCO’s credit research analysts engage regularly with the issuers thatthey cover, for example in the corporate space discussing topics withcompany management teams related to corporate strategy, leverage, andbalance sheet management, as well as ESG-related topics such as
climate change targets and environmental plans, human capitalmanagement, and board qualifications and composition.

CLIMATE CHANGE PRACTICEPIMCO recognizes that climate change will likely have a profound impact
on the global economy, financial markets and issuers. We have developed
tools and methods that seek to incorporate over time material climate risk
evaluations in our investment research processes.
Details on PIMCO’s broad climate research approach:
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When evaluating climate-related risks and opportunities within
specific sectors and issuers, we typically begin with two broad
categories: 1) transition risks (e.g., tighter regulations on carbonemissions) and 2) physical risks (e.g., how the rising intensity andfrequency of extreme weather events affects critical assets andnatural resources used or relied upon by the issuer);
In ESG portfolio solutions, the insights these tools provide aredesigned to provide material information to portfolio managers tobetter manage and mitigate climate- related credit risks and assessa portfolio’s alignment with the Paris Agreement targets2;
We explore climate change in the context of broader sustainability
risk and are supportive of the SDGs as the reference framework toassess these wide-ranging risks, e.g. biodiversity, water scarcity,
human and labor rights; andWe also seek to engage with issuers on innovative debt issuanceopportunities to advance the Paris Agreement and the SDGs.

In sum, we support the recommendations of the Taskforce on Climaterelated Financial Disclosures (TCFD) and engage with issuers – acrosscorporates, sovereigns and others – to encourage enhanced disclosure
on climate change, biodiversity, and the SDGs, including their efforts toadvance underlying goals, such as those of the Paris Agreement. We willcontinue to devote PIMCO resources to build climate investment solutions
for our clients globally.
REMUNERATIONPIMCO Europe remuneration policy requires that risk and compliance withappropriate and relevant non-financial factors (such as individualcompliance with policies and procedures) are included in employees’
performance objectives. Individual compliance with relevant policies onsustainability risks will therefore be taken into account when considering
2

The Paris Agreement is the global accord to limit the global temperature rise by year 2100 to 1.5C-2.0Cabove pre-industrial levels

an individual’s performance and remuneration (including variableremuneration).
PRINCIPAL ADVERSE IMPACTS OF INVESTMENT DECISIONSPIMCO voluntarily considers the principal adverse impacts of ourinvestment decisions on sustainability factors. PIMCO is required to makea “comply or explain” decision under SFDR, and has decided to comply.
This document summarises our investment research policy in respect of
those decisions, and we will update it from time to time.
This section is divided into four parts:
1. Information about our due diligence policy on the identification andprioritisation of principal adverse sustainability impacts andindicators;
2. A description of the principal adverse sustainability impacts and of
any actions taken or planned;
3. A brief summary of our shareholder engagement approach; and4. A reference to our adherence to responsible business conduct
codes and internationally recognised standards for due diligenceand reporting.
1. Information about the Firm’s PAI Policy
PIMCO has implemented a principal adverse impact policy (“PAI Policy”)
as from 30 June 2021, to set out how we identify and take into
consideration adverse sustainability impacts and indicators, in ourinvestment research processes, and apply these to our sustainable
investment offerings. This section of the document summarises certain
key provisions of the PAI Policy.
The PAI Policy approaches sustainability from the perspective of the harmthat investment positions might do externally to “sustainability factors”,
defined in the SFDR as meaning environmental, social and employee
matters, respect of human rights, and corruption and anti-bribery matters,
and the steps that PIMCO may take to mitigate any such harm.
At the firm level, as part of our ESG Integration, we incorporate consistentconsideration of material ESG factors into our investment research
process to enhance our clients’ risk-adjusted returns. Material ESG
factors may include but are not limited to: climate change risks, social
inequality, shifting consumer preferences, regulatory risks, talentmanagement or misconduct at an issuer, among others.

This framework will provide the basis of a wider PAI process to be utilised
across our wider product and service ranges.
2. Description of the principal adverse impacts and action taken orplannedSFDR requires us to disclose information on the principal adverse impacts
which have been encountered by PIMCO, and a description of the action
which we plan to take in respect of those identified impacts. From 2023,
it is expected that this disclosure will follow a format set out in Regulatory
Technical Standards issued pursuant to SFDR. The exact details of thescope and timing of these quantitative reports are yet to be finalised, but
it is expected that our first report will be issued from 2023 onwards where
we will report on the impact and actions taken during 2022.
With respect to 2021, PIMCO has focused on sourcing appropriate datato allow it to systematically consider PAIs and integrating this into its
systems. The availability of relevant data is improving, allowing forenhanced analysis. However, it is not complete so consideration of PAIs
is done on a reasonable efforts basis.
Certain accounts managed by PIMCO are targeting lower greenhousegas emissions than their benchmarks. Many accounts and funds advised
by PIMCO exclude investment in controversial weapons.
PIMCO must take its investment decisions in accordance with themandates given to it by its clients. In general, these will permit PIMCO toconsider adverse impacts to the extent that they create financial risks fora particular investment. Where PIMCO identifies an adverse impact (orimpacts) which it considers likely to create material risks, PIMCO may takethe following actions:
1. Decline to invest
2. Where it already holds investments in the relevant issuer, sell theinvestments
3. Engage with the issuer with a view to mitigating such risks
We believe that collaborating with and allocating capital toward issuers
willing to improve the sustainability of their practices can generate agreater impact than simply excluding issuers with poor ESG metrics. Our
approach seeks to be more inclusive and active, and we are consciousthat change does not always come easily or smoothly. That is why, for us,
an active hands-on engagement program is key to driving change.
PIMCO global team of 75+ credit analysts engaged 1,585 corporate bondissuers in 2021 across a range of industries and regions. More than 650of those 1,585 issuers were engaged in depth, meaning that PIMCO held
repeated discussions with the issuer on ESG topics and provided specificrecommendations on ESG performance.
PIMCO prioritizes its in-depth engagement efforts on issuers where ourfinancial exposure, influence and thematic exposure are the greatest.
While climate change and ESG bonds continue to be our ongoing primaryengagement targets, we expanded our bilateral and collaborative
engagement to several new themes and initiatives in 2021, which willcontinue to be our thematic focus in the coming years:
 Net Zero: Portfolio Emissions and Alignment with the Paris
Agreement for Banks
PIMCO has been engaging with more than 20 global banks onimplementing their carbon emission strategy and alignment with theParis Agreement. We shared our view and recommendations oncommitting to net zero, setting time-bound expectations in lending
policy in line with the Paris Agreement, timeline and scope of interim
targets, linking targets to compensation, and so on. By partneringwith investors affiliated with the Institutional Investors Group on
Climate Change (IIGCC), we reinforced our expectations on climate
strategy with some of these banks. Several banks have alreadymade progress in line with our expectations on setting orimplementing climate strategy. We expect more announcementsfrom banks on interim progress in 2022.
 Deforestation: Commitment, Traceability and Disclosure on
Forest Risks
Halting and reversing land degradation is crucial to limiting global
warming and mitigating a wide variety of risks, such as biodiversity
loss and human rights violations. While our direct exposure toforest-risk commodities is limited, we engaged more than 20companies, including food manufacturers, retailers, and banks,
about their commitment to eliminating deforestation in their value
chain. We emphasized the importance of supply chain traceability,independent verification and grievance mechanisms to form arobust due diligence process. We found some companies moving
gradually towards physical certification and full traceability ofcommodities while the link between zero deforestation and net-zerocommitment could be further solidified in banks’ climate strategy.
 Nutrition:
Encouraging
Transparency,Accessibility of Healthy Diets

AmbitionandFood companies play a key role in mitigating the long-term
economic and social risks of malnutrition and many have signed theAccess to Nutrition Initiative (ATNI). PIMCO engaged with at leasteight global food and beverages companies. We met with nutritionand sustainability specialists of these companies and discussed
investors’ expectations on their nutrition strategy and disclosure. We
are delighted to see some companies actively investigate ourrecommendations and will continue to engage with them on
progress and challenges.
 Methane Emissions: Engaging Extensively with Energy
Companies to Drive Reduction
Methane is the second-largest cause of global warming. 3 Theenergy sector is the second-largest source of methane emissions
after agriculture. 4 Existing technology could cut methane emissions
in half by 2030, slow global warming by 30%, and avoid a quarter ofa degree Celsius in global warming by 2050. 5 PIMCO has been
engaging extensively with more than 50 energy companies on
reducing methane emissions. We shared our view andrecommendations on measurement-based emissions reporting,best practices in target setting, and adopting industry standards fordisclosure. Various companies acknowledged the importance andbenefits of better methane management and are assessing the next
steps based on our discussions. We have also engaged with the USEPA by endorsing robust regulatory support for methane emissions
abatement.
 National Oil Companies (NOCs): Enhancing Climate Disclosureand Strategy345

https://www.iea.org/reports/methane-emissions-from-oil-and-gas
https://www.iea.org/reports/methane-emissions-from-oil-and-gas

https://iopscience.iop.org/article/10.1088/1748-9326/abf9c8/pdf

NOCs are responsible for approximately half of global oil
production, 6 yet often lag International Oil Companies (IOCs)
regarding sustainability performance. NOCs also tend to be morechallenging for investors to engage given their state-owned nature.
Leveraging our unique position as a major investor in sovereign debt,
PIMCO has been engaging with NOCs and sovereign counterparts
to discuss how their climate strategies, methane emissions
reduction and measurement, health & safety, biodiversity,
disclosure and transparency at both the company and national level.
PIMCO also participates in collaborative engagement with NOCs toamplify our suggestions in parallel. In 2021, we have seen some
NOCs making progress in climate commitments, transparency on
climate risks, transition strategy and investment, with increasing
openness for dialogues with investors.

3. Summary of shareholder engagement policies
PIMCO has implemented a shareholder engagement policy, for thepurposes of SRD II. Our engagement policy sets out how we integrateshareholder engagement in our investment strategy.
Where we manage accounts which include shares with a listing on an EEA
market or on a comparable market outside the EEA, the level ofshareholder engagement will depend on a number of factors. While wemay, in certain limited circumstances, actively engage with management
on strategy, financial and non-financial performance and risk, capital
structure, corporate governance or other issues, typically the level of ourshareholder engagement is limited to the responsible exercise of voting
rights in accordance with PIMCO’s Global Proxy Voting Policy.
SEPARATELY MANAGED ACCOUNTSPIMCO offers separately managed accounts (“SMAs”) which may be“financial products” for the purposes of Article 2(12) of SFDR. Portfolios
managed under SMAs are tailored to meet each client’s unique guidelines
and objectives and may be capable of qualifying as a financial productreferred to in Articles 8 or 9 of SFDR.

6

https://www.iea.org/reports/the-oil-and-gas-industry-in-energy-transitions

Investment Objective; Promotion of Environmental or Social
Characteristics
The content of each SMA (including investment objectives and guidelines
agreed with the client) is confidential to each client. However PIMCO may
agree a range of approaches to promoting environmental or social
characteristics or incorporating these as an investment objective. Thesemay include investing by reference to ratings provided by external vendors
or targeting particular characteristics more specifically.
Investment Strategy
Investment strategy will be agreed on a case by case basis. However,
PIMCO is a signatory of the United Nations Principles for Responsible
Investment (PRI) since 2011 and integrates relevant Environmental,
Social and Governance (ESG) factors into its firm-wide investment
research process to enhance clients’ risk-adjusted returns. Material ESG
factors may include but are not limited to: climate change risks, social
inequality, shifting consumer preferences, regulatory risks, talentmanagement or misconduct at an issuer, among others.
Where appropriate and/or where agreed with the client, PIMCO applies
our proprietary ESG Exclusions and Evaluation processes. Companies
with business practices that are misaligned with sustainability principles –both by their governing terms and in practice – are excluded from theSMA. Companies are also evaluated on their ESG credentials and thosewith best-in-class ESG practices are favored, as the portfolio seeks topromote positive environmental and social characteristics. Critically, theteam engages collaboratively with companies, encouraging them toimprove their ESG practices and influence long term change.
Methodologies and Data Sources
PIMCO relies primarily on internal research for decision-making; however,
PIMCO also screens substantial amounts of external research. The
research and analysis provided by external data providers is one of manyfactors in PIMCO's ESG analysis of issuers, the outcome of which is a
proprietary ESG assessment and score which may differ significantly fromthat of other providers.