Sustainable
Investing
Report 2022

PIMCO SUSTAINABLE INVESTING REPORT 2022

Contents

Introduction

Sustainability at PIMCO

Sustainable Investing at PIMCO

3

Foreword: Manny Roman, CEO of PIMCO

4

About PIMCO

5

Sustainability at PIMCO

7

Engagement

Focus Features

Engagement

Appendix

19

How we engage

21

Engagement in action

24

Focus Features

28

Human rights

29

PIMCO’s sustainability philosophy

8

Human capital

32

Sustainability team and resources

9

Natural capital34

ESG integration

10

Carbon analytics

36

PIMCO’s sustainable investment solutions

13

Appendix

40

PIMCO partnerships

40

Additional resources

41

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Sustainable Investing at PIMCOA LEADING INVESTMENT
SOLUTIONS PROVIDER

SEEKING TO
INFLUENCE CHANGE$502bn AUM

1300+

in Sustainability Strategies1

PROPRIETARYESG FRAMEWORKSPIMCO credit analysts have scored

OVER

engagements2,

3800

HELPING SHAPE
THE MARKET

5 SCORES


across 4 of the 5 relevant 2021 PRI Modules4

corporate issuers with a proprietary ESG score

75%+

Deep analytical capabilities:

assets engaged on ESG topics3 in 2022

frameworks (e.g. covered bonds), expansion ofof PIMCO’s firm-wide market value in corporate

Development of our structured productour ESG scoring coverage of both structured
products and sovereigns, supranationals andNew partnerships:

agencies (SSA)

Member of the Signatory Advisory Committee

28% SHARE OF ESG

labeled bonds in PIMCO ESG labeled funds5

Setting best practices:
Updated and expanded public ESG bondissuance best practice document framework
for corporates, sovereign and municipals

at PRI Advance; this is a new stewardshipinitiative on human rights and social issues
As of 31 December 2022
Additional information and methodology regarding proprietary ESG scores can be found on final page.
1 The figure includes Third party and Allianz AUM with strategies that include (i) minimum standards that refine the investment opportunity set based on client directed exclusions criteria(“exclusionary” portfolios); (ii) a focus on enhancing the sustainable characteristics of the portfolio in comparison to its investment universe (“enhanced” portfolios) or (iii) a focus on achieving a
specific environmental/ social objective in addition to a financial objective (“thematic” portfolios).
2 PIMCO engaged with 1,370 corporate issuers in 2022, referring to all tracked engagements that discussed ESG topics.
3 About 75% of PIMCO’s firm-wide market value of corporate issuers engaged on ESG topics from Jan 1 - Dec 31, 2022. Includes all engagements conducted by ESG and credit analysts. Calculated
as % by par-adjusted AUM as of 31 December 2022. Corporate issuers are credits covered by PIMCO’s corporate analyst team.
4 PRI Assessment Reports are limited to signatories’ of the Principles for Responsible Investment (PRI), and consider a signatory’s responsible investment implementation across its overall
investment process, among other factors. PRI Assessment scores are provided per module or asset class, with no overall organization score given. PIMCO’s scores reflect information and5data reported by PIMCO to PRI in the 2021 reporting cycle (as of December 31, 2020). Please note that publication of the 2021 public transparency reports was delayed due to changes in PRI’s
reporting and assessment process. PRI’s 2021 scoring methodology has changed to reflect the new Reporting Framework. Scores for the 2021 reporting cycle are not comparable to previous
years. Prior to 2021, PRI assessments were awarded scores based on a scale from A+ to E, with A+ being highest score and E being the lowest. PRI Assessments awarded from 2021 onward
are based on a scale of 1-5 Stars. 1 Star being the lowest score, 5 Stars being the highest. PRI Assessments are based on a scale of 1 (lowest)-5 (highest) Stars. For 2021 Methodology and an
overview of the PRI Reporting Framework, please refer to dwtyzx6upklss.cloudfront.net/Uploads/j/l/f/assessmentmethodology2021_302746.pdf. For additional information regarding how PRI
assesses signatory reporting, please refer to www.unpri.org/reporting-and-assessment/how-investors-are-assessed-on-their-reporting/3066.article. PIMCO’s 2021 PRI Transparency Reportis available on PRI’s website at ctp.unpri.org/dataportalv2/transparency and includes PIMCO’s responses to all mandatory indicators, as well as responses to voluntary indicators that PIMCO has
agreed to make public. PIMCO’s PRI Assessment Report is available upon request. The PRI is an investor initiative in partnership with UNEP Finance Initiative and UN Global Compact.
ESG labeled bonds refer to green, social, sustainability or sustainability-linked bonds based on issuer as classified by the issuer, 3rd parties or PIMCO through use of a framework and/or legal
documentation. ESG labeled funds include all PIMCO sponsored funds that follow sustainability strategies and guidelines.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Foreword
Astute readers of this annual report will observe a meaningful change toEngaging with issuers consistently is a key part of our sustainable

the title – “Sustainable Investing”– rather than Environmental, Social andinvesting approach, and fixed income asset management has a unique

Governance (ESG).

role to play. Bondholders, as a source of regular financing, can haveThis is not merely a cosmetic decision – but rather an important
recognition of the rapidly evolving landscape that PIMCO continues toregard as a global megatrend.
Sustainable investing has gone through several evolutionary stages.
What began as a largely equities-oriented negative screening approachfor socially responsible investors, has diffused into a global multi-asset
class investing movement based on the materiality of an increasing
number of environmental, social, and governance risks.
For PIMCO, sustainable investing represents an approach that seeks
to appropriately consider material ESG factors in investment decisionEmmanuel Roman
CEO of PIMCO

making and portfolio construction. This includes an issuer’s impact on theenvironment and society, as well as how environmental and social factors
may impact the issuer more broadly. Our approach involves integrating
ESG across our research process, as well as providing bespokesustainable investment solutions designed to help meet client objectives.

direct conversations with issuers and corporations. We use theseconversations to learn and discuss issuers’ sustainability strategies.
PIMCO is co-chair of the UN Global Compact’s “CFO Coalition for the
Sustainable Development Goals (SDGs)” initiative, and we are helping tolead the market in this area.
We also recognize the importance of staying up-to-date in this rapidlychanging market segment. To ensure we are well-informed, we take partin a number of third-party sponsored sustainability organizations to gain
insight into emerging trends and issues.
In this year’s report, you will find information about our engagement,
and insights about our commitment and investment research process.
The report also features articles on key topical themes: Human Rights,
Human Capital, Natural Capital and Carbon Analytics. We welcome yourfeedback and reflections on our Sustainable Investing Report, and thankyou for your interest in our work.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

About PIMCO
WE BELIEVE THAT ACTIVE
MANAGEMENT IS THERESPONSIBLE WAY TO INVEST
OUR CLIENTS’ ASSETS IN
FIXED INCOME.
PIMCO is one of the world’s premier investment
managers. Launched in 1971 in Newport Beach,
California, PIMCO has worked relentlessly
for over 50 years to help millions of investors
pursue their objectives through shifting
market conditions. Leadership in sustainable
investing is essential to deliver on our clients’financial objectives while sustainable longterm economic growth is essential to maintainhealthy markets.
To this end, we remain firmly committed tothe pursuit of our mission: seeking superior
investment returns, solutions and service to
our clients. In our commitment to clients westrive to integrate ESG factors into our broadresearch process and engage with issuerson sustainability goals, including climatechange and related risks, to help drive longterm investment value for clients seeking
sustainable benefits for the economy, theenvironment and society.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Assets Under Management (AUM)

Focus Features

Engagement

Appendix

PIMCO HIGHLIGHTS7

PIMCO is one of the world’s premier
fixed income investment managers

PIMCO has managed socially
responsible investments since 1989

 Income: 20%
 Credit: 15%
 Core: 12% Long Duration: 10%
 Cash Management: 9%
 Global: 8%
 Alternatives: 5%
 Real Return: 4%

3,390+

Employees aroundthe world

23

50+

Global offices throughout theAmericas, Europe, and Asia

Countries in whichclients are based

 Asset Allocation: 3%
 Emerging Markets: 3%
 Mortgages: 3%
 Municipals: 3%
 Diversified Income: 2%
 Equities: 2%

965+

310+

Global investment
professionals

6

Portfolio managers with an average of
17 years of experience Other: 1%

330+

PIMCO IS RESPONSIBLE FOR MANAGING $1.74 TRILLION6 ENTRUSTED TO US BY:•

Central banks•

Foundations and endowments•

Sovereign wealth funds•

Financial advisors•

Public and private pension funds•

Family offices•

Financial and nonfinancial corporations•

Individual investors

6
7

Investment professionals who have been at PIMCO
for 10 years or more

14

Sector specialty desks

80+

Global credit
analysts

110+

Analytics/asset experts

PIMCO manages $1.74 trillion in assets, including $1.38 trillion in third-party client assets as of 31 December 2022. Assets include $81.8 billion (as of 30 September 2022) in assets managed by PIMCO Prime Real Estate (formerly Allianz Real Estate), an affiliate and wholly-owned subsidiary of PIMCO and PIMCO Europe GmbH that includes PIMCO Prime Real Estate GmbH, PIMCO Prime Real
Estate LLC and their subsidiaries and affiliates. PIMCO Prime Real Estate LLC investment professionals provide investment management and other services as dual personnel through Pacific Investment Management Company LLC. PIMCO Prime Real Estate GmbH operates separately from PIMCO.
As of 31st December 2022. Source: PIMCO.

PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

SUSTAINABILITY AT PIMCO

Focus Features

Appendix

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

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Appendix

PIMCO’s Sustainability Philosophy
STEWARDS OF OUR•PIMCO seeks to deliver superior investment returns, solutions and service to our clients.

CLIENTS’ CAPITAL•For over 50 years, we have worked relentlessly to help millions of investors pursue their objectives – regardless of shifting market conditions.

•

We believe leadership in sustainable investing is essential to help deliver on our clients’ financial objectives.

•

Where applicable, we aim to integrate ESG risks in our investment process for our actively managed assets as a key risk management tool.

•

The consideration of ESG factors may be appropriate when evaluating long-term investment opportunities and risks for certain asset classes across public and private markets.

•

This integration of ESG risks can take place during both the bottom-up analysis of issuers and the top-down analysis of cyclical and secular trends.

•

In addition to integrating ESG risks in our broad investment process, for clients who seek to achieve specific sustainability outcomes alongside financial objectives, we

FIDUCIARY DUTY TOCONSIDER RELEVANT
RISKS IN OURINVESTMENT PROCESSCLIENT-CENTRICAPPROACH TOSUSTAINABILITY

offer a suite of dedicated investment solutions which incorporate the firm’s proprietary ESG optimization criteria.
•

Further, PIMCO recognizes that sustainability solutions are not one-size-fits-all and we are well equipped to partner with clients in their separately managed accounts to
identify and customize sustainability objectives that satisfy their specific needs.

SPECIAL PLATFORM•

TO ENGAGEWITH ISSUERS

As a premier fixed income manager, PIMCO has a large and significant platform with which to engage issuers on sustainability matters; we believe engagement is an
essential tool for pursuing positive change in sustainable investing.

•

Sustainable investing is not only about partnering with issuers that already demonstrate a deeply unified approach to sustainability, but also about engaging with thoseissuers who are continuing to evolve their sustainability practices.

•

This can be a direct way for PIMCO to help influence changes intended to benefit investors, and may also benefit additional stakeholders, including employees, society
and the environment. We aim to have an industry leading engagement program among fixed income asset managers.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Our Sustainability Team and Resources
Aligned with our sustainability philosophy, PIMCO’s Sustainability Team is not a separate business unit. ESG is integrated across all firm functions from credit research and portfolio management toclient-facing, executive office to product strategy, legal and compliance to marketing. This ensures that ESG is fully integrated into our broad research process and value chain.
PIMCO’s Sustainability Team includes more than 50 investment
professionals with specific responsibility for building the sustainability
platform. The team is broadly integrated across the firm with existing

PIMCO SUSTAINABILITY GLOBAL AND INDUSTRY LEADERSHIP*

leaders taking on greater sustainable investing responsibility, including
20+ portfolio managers, and leverages the expertise of our 75+ person

Kimberley Stafford
Sustainability Oversight, MD
Oversees PIMCO’s sustainable
investment efforts

credit analyst team8. Additionally, PIMCO has a global team of ESG
analysts dedicated to ESG research, engagement and integration
across portfolio management groups. We believe it is important toJulie Meggers
Head of Strategy
and Corporate
Sustainability, MD

Grover Burthey
Head of ESG Portfolio
Management, EVP
Leads ESG investment
activity and the ESG
analyst teamhave all of our expert analysts monitor the ESG considerations thatare relevant to their particular sector and universe of securities to9confirm that ESG risk factors and opportunities are integrated into ourinvestment decision-making, rather than being an “add-on” separate
from our financial analysis.
To help set the priorities for our sustainability platform, PIMCO has a

Gavin Power
Chief of Sustainable
Development
and International
Affairs, EVP

Lupin Rahman
Portfolio Manager,
EVP

Del Anderson
Credit Analyst, EVP

Kwame Anochie
Account Manager, EVP

focused Sustainability Leadership Team responsible for leading firmwide ESG integration, enhancing our sustainable investing capabilities
and supporting the development of portfolios that follow sustainabilityrelated investment guidelines and restrictions. The group sets strategic
priorities and evaluates the firm’s participation in certain third-party
sustainability sponsorships on a continuous basis throughout the year. In
2022, we added two rotating spots to the Sustainability Leadership Teamto broaden our perspectives and give additional individuals a chance toprovide input.

8*As of February 2024

Jelle Brons
Portfolio Manager, EVPPIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Our ESG Integrated
Investment Approach
As outlined in PIMCO’s sustainable investment philosophy, we believe the consideration of relevant
ESG factors is part of a robust investment research process. Where material, ESG factors can beimportant considerations when evaluating long-term investment opportunities and risks acrossasset classes in both public and private markets.

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Introduction

Sustainability at PIMCO

Engagement

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Appendix

ESG factors may include but are not limited to: climate change risks, resource efficiency, natural capital, human capital management, human rights,
regulatory risks, and reputational risk at an issuer level, among others. We recognize that ESG factors are increasingly essential inputs when evaluating
global economies, markets, industries and business models – for example, the effect of stranded assets on the energy sector. The materiality of ESG
considerations to investment decisions varies across asset classes, strategies, products and valuations.
Integrating relevant factors into the evaluation process does not mean that ESG related information is the sole or primary consideration for an investment
decision; instead, PIMCO’s portfolio managers and analyst teams consider a variety of factors, including the materiality of those factors, to makeinvestment decisions. By increasing and diversifying the information available to the portfolio management team we are able to provide a more holistic
view of an investment, which we believe will benefit our clients.

TOP-DOWN
Speakers include Nobel prize winners, heads of state, renowned
academics and global central bankers

Themes identified through annual Secular Forum process

Climate change

Geopolitics

Corporate
governance

Inequality

Specialty desks and credit analysts

Environment
Employs resource efficiency,from waste to energy consumption

Cybersecurity

Asset class and sector specific frameworks

SocialEnsures sound product safety and quality
standards to protect end-users
BOTTOM-UP

Source: PIMCO. For illustrative purposes only.

Demographics
trendsGovernance
Maintains management’s capacity to
manage risk over the cycle

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Appendix

ESG Integration in
Private Investments
PIMCO’s Alternative Credit and Private Investment Strategies may consider ESG factors with varying
degrees of relevance when evaluating potential investment opportunities within private markets.
ESG-related considerations present both risks and opportunities. Where applicable, the considerationof ESG factors is intended to optimize risk-adjusted returns. This includes but is not limited to:investment sourcing, due diligence, asset management and monitoring, and disposition decisions.

Onboarding and Due Diligence

Asset Management and Monitoring

Guided by sector-specific ESG factors

PIMCO’s portfolio management teamand key performance indicators (KPIs),

collaborates with sector specialists as

sector specialists integrate material

needed, providing guidance and support in

ESG considerations into the investmentareas of materiality identified during the duedue diligence process across relevant

diligence process. Should an investment betransactions, identifying appropriate financial

approved, portfolio managers will continuerisks/opportunities and associated risk

to track changes in key sector specific ESG

mitigation measures and/or value-creation

metrics, where applicable, in addition toopportunities. PIMCO’s ESG analysts support

engaging with companies as appropriate.

sector specialists as needed, providing

As potential exit options are considered,guidance in areas identified during the due

portfolio management teams will continue

diligence process.

to incorporate an evaluation of relevant risk
factors including ESG.

Source: PIMCO. For illustrative purposes only.

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Engagement

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Appendix

PIMCO’s Sustainable Investment Solutions
For clients who want greater sustainability orientation in their portfolio, PIMCO has a dedicated suite of strategies that can follow
investment guidelines and restrictions utilizing three building blocks of PIMCO’s ESG process.

12
3

Limit sectors and issuers misaligned with ESG factors.

Emphasize issuers with leading ESG practices. These are identified through a proprietary ESG scoring system, which
considers how an issuer currently fares relative to its peers in the industry and the issuer’s ESG momentum. These portfolios
also may invest in issuers with improving sustainability practices.
Constructive engagement with issuers to help influence ESG practices over time. We believe that allocating capital toissuers willing to improve the sustainability of their business practices can generate a greater impact than simply avoiding
issuers with poor ESG metrics and favoring those with strong metrics.

In addition to pursuing attractive returns, these portfolios may seek to actively manage the portfolio’s carbon footprint, actively engage with issuers,
achieve a meaningful green, social, sustainability or sustainability-linked (GSSS) bond9 allocation and/or tilt toward issuers with leading, or improving,
ESG characteristics.

9

Green Bonds: are a type of bond whose proceeds are used to finance or re-finance new and existing projects or activities with positive environmental impact. Eligible project categories include: renewable energy, energy efficiency, clean transportation, green
buildings, wastewater management and climate change adaptation.
Social Bonds: are a type of bond whose proceeds are used to finance or re-finance social projects or activities that aim to address or mitigate a specific social issue or seek to achieve positive social outcomes. Social Project categories include providing and/or
promoting: affordable basic infrastructure, access to essential services, affordable housing, employment generation, food security, or socioeconomic advancement and empowerment.
Sustainability Bonds: are a type of bond whose proceeds are used to finance or re-finance a combination of green and social projects or activities. Sustainability bonds with strict accountability of the use of proceeds towards activities that advance the UN
Sustainable Development Goals or SDGs may be labeled as SDG Bonds.
Sustainability-linked Bonds: are bonds which are structurally linked to the issuer’s achievement of certain sustainability goals, such as through a covenant linking the coupon of a bond to specific environmental and/or social goals. Progress, or lack thereof,
toward the aforementioned goals or selected key performance indicators results in a decrease or increase in the instrument’s coupon. In contrast to the green, social and sustainability bonds described above, sustainability-linked bonds do not finance particular
projects but rather finance the general functioning of an issuer that has explicit sustainability targets that are linked to the financing conditions of the bond.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Focus Features

Engagement

PIMCO’S RANGE OFSUSTAINABILITY STRATEGIES

E/S/G

Emerging Markets Local ESG

This chart provides an overview of the wide range

E/S/G

of sustainability strategies PIMCO offers across the
spectrum of fixed income markets.

differently and require a range of tailored solutions

“E”
focus

needs. To date, we have collaborated with clientson numerous tailored solutions to help pursue theirPotential returnto achieve their objectives. We are eager to partner

as well as risk and return profiles, tailored to their

E/S/G

E/S/G

not limited to, portfolios with allocations to leading

E/S/G

sustainability issuers, allocations to ESG labeledbonds and carbon intensity targets.

Global Investment Grade
Credit ESG

Total Return ESG

Low Duration
Opportunities ESG

E/S/G

As markets and investor demands continue to

Low Duration ESG

develop, PIMCO will actively engage with clients totheir goals and objectives.

Climate Bond

E/S/G

Global Bond ESG

financial and sustainability objectives, including, but

implement thoughtful solutions that aim to deliver on

Emerging Markets
Bond ESGESG Income

define their sustainability investment objectives

custom mandates with sustainability objectives,

Diversified
Income ESG

E/S/G

E/S/G

PIMCO acknowledges that clients around the world

with clients to explore the possibility of implementing

Appendix

E/S/G

Enhanced Short Maturity
Active ESG

Potential risk (volatility)

10 As of 31st December 2022. Source: PIMCO. For Illustrative Purposes Only
Strategy availability may be limited to certain investment vehicles; not all investment vehicles may be available to all investors. Please contact your PIMCO representative for more information.

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Appendix

ESG Research
Capabilities
ESG SCORING FRAMEWORKS
Over the past decade, PIMCO has leveraged our
deep research expertise to develop proprietary
ESG scoring frameworks across asset classes. Our
enhanced research process incorporates a detailed
ESG assessment that complements the traditional
ratings assigned by analysts, enabling us to evaluate
corporate, sovereign, securitized and municipal
issuers, as well as green, social, sustainability andsustainability-linked bond issuances where applicable.
PIMCO assesses the ESG profile of issuers with thegoal of separating leading issuers from those lessadvanced in their sustainability journeys. We also
analyze an issuer’s forward-looking trend to determine
how ESG performance is changing over time.
Analysts review ESG performance based on awide variety of inputs which can include regular
engagement with executive management. In
determining the efficacy of ESG practices, PIMCO
uses proprietary methods developed and refined inhouse. Our resulting assessments are often distinct
from those provided by third-party ESG rating
providers. ESG rating methodologies and issuer
scores are updated periodically and made available
to portfolio managers across the firm.

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Appendix

Corporates: Using industry-specific frameworks in order to assign separate scores for “E”, “S”, and “G”, analysts
review their assigned companies ESG performance based on information available in public filings, recent news
and controversies, as well as through regular engagement. These scores are subsequently combined using
a weighted average, applying sector-specific weights across the three pillar scores, resulting in a proprietary
ESG score. Furthermore, in cases where an investment is made in an issuer’s ESG-labeled debt, the issuer’s
ESG score may be subject to a positive adjustment depending on the quality of the relevant ESG labeled bond.
In determining the efficacy of an issuer’s ESG practices, PIMCO will use its own proprietary assessments ofmaterial ESG issues. In the end, PIMCO’s resulting assessments are proprietary and often distinct from those
provided by ESG rating providers.

PEER ASSESSMENT

TREND ANALYSISPIMCO ESG SCOREVALUATION

Leading Practice

Improving

5.0

Cheap

Better Than Peers
In-line With Peers

4.0
StableWeaker Than Peers
Significant Concerns

3.0

Fair

2.0
Deteriorating

1.0

Rich

Source: PIMCO. For illustrative purposes only.

Sovereigns: We have developed a standalone ESG scoring framework that provides both valuable input into
our sovereign risk scenario assessments, and serves as an input for relative value decisions.
Securitized: PIMCO has built robust ESG scoring frameworks across a wide spectrum of securitized assets,
including both agency and non-agency mortgage backed securities, commercial mortgage backed securities,
asset backed securities, and collateralized loan obligations.
Municipals: We consider issuer-level ESG factors across municipal bond issuers to better understand therisks and opportunities inherent in our bond selections. The municipal market is vast and diverse, with issuers
ranging from states and cities to enterprises including higher education institutions, airports, and continuingcare facilities. Analysts use proprietary frameworks to evaluate material ESG risks specific to each municipal
sector, as well as identify ESG leaders within each sector.

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PIMCO’S PROPRIETARY ESG BOND SCORING FRAMEWORKIn addition to asset class-specific ESG scoring frameworks, PIMCO also evaluates ESG-labeled bonds. We map these bonds across a spectrum
based on strategic fit, potential impact, as well as red flags and reporting, to produce PIMCO’s proprietary impact score for green, social,sustainability or sustainability-linked bonds. Scoring begins at the time of issuance and includes continued research coverage in order to improve
the security selection processes. Ongoing monitoring of ESG-labeled bonds gives investors a better understanding and allows comparison of ESG
scores between different issuers and across sectors.

STRATEGIC FITIMPACT ASSESSMENT

RED FLAGS AND REPORTING

Alignment of the issuers’ climate/

Evidence of significant positive

Screening for “red flags” andenvironmental/social strategies withoutcomes compared to “business as

controversies and analysis of reporting

the bond’s objectives andusual“ by the issuer

and process (misalignments to market

use of proceeds
For illustrative purposes only. Source: PIMCO.

standards (e.g. Green Bond Principles))17

PIMCO SUSTAINABLE INVESTING REPORT 2022

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Appendix

HIGH-QUALITY ESG DATA IS THE FOUNDATIONFOR A ROBUST SUSTAINABILITY PLATFORM
Access to high-quality ESG data has historically been one of thebiggest challenges to sustainable investing. While traditional financial
statements are readily available, high-quality ESG data is only now being
reported by the largest companies. Unlike accounting data, ESG data is
typically qualitative and often not comparable across issuers.
In recent years, the quality and quantity of ESG data has improved
rapidly as stakeholders push public companies globally to disclose
more ESG information, which will help improve ESG-related investment

COMET

METRO

ESG BONDSREPORTING

COMPANYENGAGEMENTMETRICS &OVERRIDESESG BONDSREPORTINGClassification of

ESG Ratings andConstruct Issuer

ESG Compliance,

Green Bonds,

Scores, Exclusions,

ESG
SOVEREIGN
MODEL

profiles, ESG

Validate andUse of Proceeds

Carbon Intensity,

Sovereign Indices,

Engagement scores

override ESG relatedand Analyst

Engagement

Model anddata (internal andReviews

decision-making. PIMCO has been investing in the team and the

3rd party)

technology to incorporate ESG data into our investment process formany years. Our dedicated ESG technology team has developed toolsthat centralize ESG data, enabling portfolio managers across the firm tointegrate third-party and proprietary ESG data into our overall investment
process where relevant.

ESG SOVEREIGNRESEARCH

As of 31 December 2022. Source: PIMCO.

Overrides

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Sustainability at PIMCOENGAGEMENTEngagement

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Appendix

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PIMCO SUSTAINABLE INVESTING REPORT 2022

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ENGAGEMENT PHILOSOPHY
As one of the largest bondholders in the world, PIMCO has a significant platform withwhich to engage issuers on factors that may be material to risk and return considerations– including ESG topics. PIMCO constructively engages with issuers to both uncoverinvestment insight, and seeks to influence outcomes which may reduce risks or capitalize
on opportunities. We aim to create value and catalyze positive change by working
with companies still evolving in their sustainability practices, as well as those alreadydemonstrating a deeply unified approach to sustainability. By focusing engagements oncompanies in historically hard to abate sectors, or companies at the beginning of theirsustainability journey, PIMCO can seek to influence changes to benefit investors, which may
also benefit additional stakeholders, including a company’s employees and the environment.
We aim to have an industry leading engagement program among fixed income asset
managers. By investing across diverse asset classes and types of issuers – including
corporates and sovereigns — we believe PIMCO’s engagement practices are ideally
positioned to help influence positive change, rather than through exclusions alone. In
our experience, and given the strength and history of our platform, we have found that acollaborative approach with issuers has the potential to result in tangible outcomes.

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Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

How we engaged in 2022
As a leading fixed income investor, PIMCO engages regularly with issuers beyond the bond issuance cycle tofocus on ESG factors which may be material to risks and opportunities for the company. Our goal is to inform
investment decisions, while pursuing positive change by sharing best practices and recommendations to
support issuers to better mitigate ESG risks over time.
In 2022, we deepened our engagements across four main themes as relevant and material to priority
issuers: Climate change, human rights, human capital and natural capital. The key actions noted
below are particularly important for us to assess an issuer’s long-term resilience against ESG risks:•

Engagement with companies on their climate ambitions, goals and implementationplans, notably on methane and emissions reductions in the real economy•

Thorough due diligence on human rights risks embedded across their value chain•

Effective, transparent and inclusive human capital strategy for talent retention•

Solid understanding of impact and dependency on natural capital

Taking a risk-based approach, effective and timely management of key
ESG issues highlights issuers’ risk management quality and long-termbusiness resilience. We also acknowledge that the engagement
progress may take time to materialize, and aim to monitor andadjust our engagement strategy accordingly over time.

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Introduction

Sustainability at PIMCO

Focus Features

Engagement

Appendix

PIMCO’S ENGAGEMENT EFFORT BY THE NUMBERS11
Engagement refers to any interaction12 with issuers in which PIMCO requested details on their business relating to an ESG topic13 (e.g. climate change/emissions, human capital management, liquidity / leverage targets / balance sheet
management, controversies or potential litigation, management changes, improved disclosure, etc.).
In 2022, PIMCO analysts engaged approximately 1,370 corporate bond issuers14 across a range of industries and regions on ESG topics; more than 650 of these issuers were engaged, including in-depth discussions and specificrecommendations on ESG performance shared by our team. Since 2020, PIMCO has consistently engaged with approximately 80% of our corporate AUM, of which 50% – 60% is covered by in-depth engagement to share our view on
best practices and recommendations for improvement.
PIMCO Engaged Corporate Issuers Across All Major Industries

PIMCO Engaged Globally Across Developed and Emerging Markets
South America

Utilities

Other

11%

12%

Europe Non-EMU/
AfricaRetailEntertainment
TelecomConstruction

2%
2%

9%

Banking

4%Australia

2%

11%

3%

22

3%

Healthcare

3%

Automotive

3%

8% Raw Materials

Pipelines 4%
REITS

7%
4%

Brokerage

15%

48%

North America

Energy

5%

4%
4%
Food

Asia

4%
FinanceCompanies

5%5%Technology

Insurance

Transportation

Source: ESG engagement activities by PIMCO analysts, Jan 1-Dec 31, 2022. Other includes manufacturing, media, industrial services, consumer products,
consumer services, EM sovereigns, developed sovereigns, municipals, mortgages, and other sectors.

19%
Europe (EMU)

Source: ESG engagement activities by PIMCO analysts, Jan 1-Dec 31, 2022

11 Engagement data highlighted in this section refers to activities took place between Jan 1 – Dec 31, 2022 by PIMCO analysts, focusing on corporate holding excluding covered bonds.
12 ESG-related interaction refers to any conversation PIMCO analysts have with issuers including email exchanges, deal or non-deal roadshows, calls or meetings at conferences, bilateral or small group calls or meetings. These interactions do not need to be dedicated to ESG, provided any ESG topics are discussed with the issuers during the interaction.
13 The list of ESG topics are defined in PIMCO’s internal ESG Taxonomy, including topics for Environment (e.g. Greenhouse Gas Emissions, Waste), Social (e.g. Human Capital Management, Human and Labor Rights and Health & Safety) and Governance (e.g. Broad, Management and Ownership, Business Ethics, Conduct & Culture).
14 Refers to ultimate parent entities, which year-on-year figures are subject to changes in PIMCO’s internal entities mapping.

PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

PIMCO Engaged Corporate Issuers Across a Range of ESG Topics
ENVIRONMENT 24%

Air Pollution

Greenhouse Gas Emissions

Waste

Land Use and Biodiversity

Water

Physical Risks and Resilience

ESG BONDS 9%

GOVERNANCE 57%

23
Board, Management and Ownership

Risk Management

Business Ethics, Conduct and Culture

Transparency and Reporting

Delivery on Business and Balance Sheet Strategy

SOCIAL 10%

Community and Stakeholder Relationships

Product Innovation and Wellness

Human and Labor Rights and Health and Safety

Product Safety and Quality

Human Capital Management

Source: ESG engagement activities by PIMCO analysts, Jan 1-Dec 31, 2022

PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Engagement in Action
GOVERNANCE

GOVERNANCE

PACIFIC GAS AND ELECTRIC COMPANY (PG&E)

U.S. BASED REAL ESTATE INVESTMENT TRUST (REIT)

•

•

•

•

Background: Climate resilience is one of the most prominent issues faced by the utility sector.

Background: The company issued a sustainability bond in 2020 with some disclosure practices

Following multiple destructive wildfire seasons since 2018, PG&E suffered significant financial

falling short of market best practices, including second party opinion and indication of impact

losses, reputational damages, and regulatory action. This led to meaningful wider spreads onreporting post issuance. They did not provide any impact report until two years after the

PG&E bonds and exclusion from much of the sustainable investment universe as a result of theissuance. This is misaligned with standard market practice, per International Capital Market

UN Global Compact “Fail” status issued by MSCI.

Association (ICMA) guidance to publish annually, starting one year after issuance.

Engagement: Together with the PG&E sustainability and climate resilience team, PIMCO worked•

Engagement: Given the slightly weaker disclosure at issuance, PIMCO engaged with thewith PG&E on climate adaptation best practice and continued improvements for climate resilience

company to share our expectations on impact reporting and best practices for ESG bonds more

disclosure and actions.

broadly. When they failed to publish any impact reports two years into the three-year maturity,
PIMCO reached out to the company about the timeline for the impact report publication

Progress to date: PG&E has met its climate resilience targets and committed to futureand did not receive any expected timeline for the disclosure. We escalated to the company

multi-year targets, and MSCI removed its ‘Fail’ status on the issuer in 2022. While thethat we would assume the bond program misaligned with ICMA principles in the absence ofprogress aligns with our view on key next steps for improvement, we will continue to monitor

an update, and highlighted the lack of plan to align its overall environmental disclosure withuncertainty in the effectiveness and residual risks in PG&E’s adaptation measures, given

industry standards including Task Force on Climate-Related Financial Disclosures (TCFD),

the multi-year horizon and cyclical nature of climate physical risks. We expect on-going

Carbon Disclosure Project (CDP), Global Reporting Initiative (GRI) or Sustainability Accounting

conversations with the issuer as the company continues to strengthen climate resilience andStandards Board (SASB). PIMCO spoke with the company’s Treasury team several times torebuild its financial strength and reputation.

reinforce our recommendations and potential impacts on ESG assessment for the program.
•

Progress to date: The company published an allocation report and obtained a second-party
opinion for the program, including impact metrics, showing some progress in improving
disclosure. PIMCO plans to continue engaging the issuer on best practices including more
ambitious eligibility criteria and impact metrics.

The examples above are presented for illustrative purposes only, as a general example of PIMCO’s ESG research and engagement capability and is not intended to represent any specific portfolio’s performance or how a portfolio will be invested or allocated at any particular time. PIMCO’s ESG processes may yield different results than other investment managers’ and a company’s ESG rankings
and factors may change over time. All data is as of 31 December 2022, unless otherwise stated.

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Introduction

Sustainability at PIMCOENVIRONMENTEngagement

Focus Features

ENVIRONMENTSTATE-OWNED OIL & GAS COMPANY IN LATIN AMERICAUS OIL & GAS E&P AND MIDSTREAM COMPANIES

•

•

•

Background: PIMCO has engaged the issuer over the years through a collaborative

Background: Methane emissions from oil and gas production contribute significantly toengagement initiative, as well as bilaterally, on topics including methane emissions

global warming, but could be reduced in cost-effective ways, potentially helping to mitigate areduction and climate disclosures.

considerable transition risk. PIMCO has engaged dozens of companies on the need to reduce
methane emissions; according to the International Energy Agency15, around 40% of theseEngagement: As part of the engagement group, we had in-depth discussions with theemissions could be avoided at no net cost16. Reducing emissions could also help operators

company about their role in supporting the country’s energy transition while maintaining

remain competitive against tightening regulatory regimes outside the U.S.

resilience across various climate scenarios. We highlighted the need for greater transparency
in line with TCFD and accelerating reduction of methane emissions through direct•

Appendix•

Engagement: PIMCO has been engaging extensively with 50+ U.S. energy companies on theirmeasurement. In the past two years, the company has made considerable progress in climate

approach to methane emissions abatement. We have discussed setting aggressive targets,disclosure on Scope 3 emissions, scenario analysis methodology and findings, and capital

documenting emissions abatement performance, measurement-based emissions reporting

expenditure (CAPEX) for low-carbon business, etc.

(including direct and indirect emissions along the value chain), and adopting industry-leading
standards for disclosure. Nearly all companies acknowledged the importance and benefits

Progress to date: By joining the Oil and Gas Methane partnership 2.0 (OGMP) in 2023, theof better methane management and are assessing next steps following our discussions.

company is also relatively advanced compared to peers. Building on the progress made to date,Specifically, we have asked each of these companies to consider joining the Oil and Gas

PIMCO will continue to encourage the company to further align its methane effort with best

Methane Partnership 2.0 (OGMP), which we view as a highly credible and comprehensive

practices and address other areas of their climate strategy, including climate physical risks,measurement framework created by an independent third-party to ensure accuratecredible transition plan, just transition, etc.

measurement of methane emissions and reduction progress.
•

Progress to date: Since our engagements EOG Resources, Occidental Petroleum, ConocoPhillips,
Williams, Pioneer Natural Resources, and Cheniere Energy have all joined OGMP 2.0, and havecommitted to achieving the “Gold Standard” of emissions measurement and disclosure.

15 As of 31 December 2022. Research conducted in 2020 and the engagements are ongoing to date.
16 Sources: International Energy Agency, “Methane Tracker 2020”: www.iea.org/reports/methane-tracker-2020. Ilissa B. Ocko et al., “Acting rapidly to deploy readily available
methane mitigation measures by sector can immediately slow global warming” (Environmental Research Letters, Institute of Physics, May 2021): iopscience.iop.org/
article/10.1088/1748-9326/abf9c8

The examples above are presented for illustrative purposes only, as a general example of PIMCO’s ESG research and engagement capability and is not intended to represent any specific portfolio’s performance or how a portfolio will be invested or allocated at any particular time. PIMCO’s ESG processes may yield different results than other investment managers’ and a company’s ESG rankings
and factors may change over time. All data is as of 31 December 2022, unless otherwise stated.

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Introduction

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Engagement

Focus Features

Appendix

ENVIRONMENTVOLUMETRIC BUILDING COMPANY•

Background: Volumetric Building Company (VBC) is a vertically integrated modular design,
manufacturing, and construction company. A core part of VBC’s value proposition is thesustainability profile of its business model, however, data regarding the environmental
performance of both its construction and completed assets had not been formallyquantified. Market expectations for sustainability or ESG-themed investments include
quantitative environmental and social data points.

•

Engagement: Working with VBC’s senior leaders, PIMCO discussed and provided guidanceon sustainability priorities that are most immediately material. Our discussions included
undertaking a Life Cycle Assessment by an external consultant, hiring of personnel, andimprovements for climate risk disclosure.

•

Progress to date: A “whole life embodied carbon” (total carbon emission analysis throughout
a built assets lifespan) was conducted in the form of a Life Cycle Assessment on a building
recently constructed by VBC. This project was the best predictor for the company’s productas it used standardized componentry leveraged across most VBC projects. The results
demonstrated significant carbon reductions vs. other construction methods (61% – 65% vs.
U.S. benchmarks from a whole life carbon perspective)17 – a key value proposition for thecompany. The results also confirmed additional opportunities for VBC to reduce the embodied
carbon of their products, which are estimated to provide additional input and transportation
cost savings. VBC is currently undergoing an audit of all facility operations, supply chain
environmental product declarations (EPDs), and alternative building product standards tofurther reduce emissions on future projects.

17 Source: PIMCO internal materials, as of 31 December 2022.
The example above is presented for illustrative purposes only, as a general example of PIMCO’s ESG research and engagement capability and is not intended to represent any
specific portfolio’s performance or how a portfolio will be invested or allocated at any particular time. PIMCO’s ESG processes may yield different results than other investment
managers’ and a company’s ESG rankings and factors may change over time. All data is as of 31 December 2022, unless otherwise stated.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

SOCIALEMERGING MARKET SOVEREIGN

•

•

•

Background: PIMCO regularly engages with the issuer on its coal phase-out and just transition

on ESG topics and has provided detailed feedback on the framework for its inauguralplans which focus on the shift of economies toward sustainable production in terms of social

sustainability bond from its U.S. entity (SANUSA).

equality and justice, in addition to climate mitigation efforts, deforestation, and addressing
market noise on a potentially controversial labor law.

Engagement: PIMCO discussed the structure of the bond with Santander, including theappropriateness of including subprime auto loans. Eligible Projects in its sustainability bond•Appendix

SOCIALSANTANDER USA
Background: PIMCO has a long track record of engagement with Santander entities

Focus Features

Engagement•

Engagement: Our team discussed the government’s plan and challenges for their coal phase-use of proceeds (UoP) also highlighted PIMCO’s best practice guidance for sustainable bondout program and the need for both public and private sector coordination given the legal natureissuance, including the importance of alignment to the UN adopted Sustainable Developmentof new coal contracts. While the government highlighted the collaboration with national oil

Goals (SDGs). In addition, we provided feedback on the impact metrics for Affordable Housing

companies to align their climate strategy with the country’s nationally determined contribution

and Clean Transportation.

to the Paris Agreement, PIMCO encouraged the issuer to consider providing more transparency
on this work and on implementing a joint mechanism on climate mitigation. Regarding

Progress to date: The company issued a sustainability bond in September 2022 with the use

deforestation, we discussed the steps the government is taking to fill some of the policyof proceeds, targeting primarily net new lending for electric vehicles (EVs) and EV infrastructure.

implementation gaps via government taxes and levies, and emissions trading system (ETS). We

The bank pledged to allocate only prime-rate loans to the UoP and will track EV lending acrosscovered their just transition plan and main components, such as power sector emissions peak

Fair Isaac Corporation (FICO) groups. We plan to monitor progress on the use of proceeds andby 2030, sector emissions caps and accelerated deployment of renewables. We also discussed

the funded projects, as well as the company’s impact disclosures and any additional ESG-labelednext steps in advancing a commitment to creating quality jobs and protecting livelihoods andbond issuances.

communities with the help of international cooperation.
•

Progress to date: PIMCO mentioned some concerns on possible environmental deregulationand softening of worker protection measures that stemmed from a recent policy proposal,
despite government intention to strengthen environmental standards and law enforcementwith the proposed legislation. We plan to continue conversations with the issuer as part ofregular country due diligence and engagement efforts on material ESG topics and labeledbonds issuance.

The examples above are presented for illustrative purposes only, as a general example of PIMCO’s ESG research and engagement capability and is not intended to represent any specific portfolio’s performance or how a portfolio will be invested or allocated at any particular time. PIMCO’s ESG processes may yield different results than other investment managers’ and a company’s ESG rankings
and factors may change over time. All data is as of 31 December 2022, unless otherwise stated.

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Introduction

Sustainability at PIMCO

FOCUS
FEATURESEngagement

Focus Features

Appendix

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Sustainability at PIMCO

Engagement

Focus Features

Appendix

Human Rights
All individuals are entitled to basic rights and freedoms

Human rights is an area with significant room forsuch as fair and decent working conditions, freedom

improvement, especially in high-risk sectors20. Issuers

from discrimination and slavery, right to privacy, rightalso tend to focus on specific segment(s) of their value

to health, etc18. As an investor, we share responsibility,

chain or selected topic(s) of human rights, rather thanwhere appropriate, to recognize and address any potential

taking a holistic approach to manage salient risks. In

human rights violations through our investments19.

addition to leveraging external research and data to

From a materiality perspective, an issuer’s resilience

inform our human rights due diligence on issuers, weagainst future business disruptions is dependent on its

believe engagement is a critical way for us to apply

thorough oversight and agile remediation of emerging

context-specific considerations when evaluating effort,

risks and disputes. These disruptions can weaken

progress and constraints for these risks.

financial performance, and create suboptimal workforce
productivity, operation and supply chain disruptions,
reputational damage, and litigation costs.

One of the prominent themes of our human rights
engagement is on responsible sourcing, including but
not limited to responsible minerals, forced labor, working

This is particularly important for human rights issues

conditions, etc. We discussed best practices withthat are often concentrated in the supply chain, where

issuers in high-risk sectors, stressing the importancetimely and credible investigation and action may beof committing to key international principles on human

more challenging than other concerns arising in therights, robust due diligence processes, disclosure on

issuer’s operations. While some high-risk sectors may

the process and findings of a grievance mechanism

be subject to ongoing risk exposure due to the nature of(including both in operation and supply chain), regulartheir business, we see issuers with solid human rights

third-party audits in conjunction with issuer’s own

risk management addressing disputes as they emerge,

investigation on supplier’s performance or controversy,

and helping to mitigate financial implications and impact

clear and time-bound processes to handle supplier’s

on affected parties.

non-compliance to human rights obligations, etc.

18 Universal Declaration of Human Rights: www.un.org/sites/un2.un.org/files/2021/03/udhr.pdf
19 United National Guiding Principles on Business and Human Rights: www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf
20 For example, only one company score >50% in the World Benchmarking Alliance Corporate Human Rights Benchmark (WBA CHRB) 2022 while majority (64%) of the companies in scope are scored 20% or lower.
WBA CHRB covers automotive manufacturing, food and agricultural products and ICT manufacturing as high-risk sectors. www.worldbenchmarkingalliance.org/publication/chrb/rankings/

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Engagement

Focus Features

Appendix

ENGAGING WITH AUTOMOTIVE ISSUERS ON
HUMAN RIGHTS RISKS IN THE SUPPLY CHAIN
Regulatory pressure on supply chain sustainability and human rights
issues continued in 202221. In addition to well-publicized risks associatedwith conflict minerals, forced labor and child labor controversies havebeen plaguing the supply chain in the automotive manufacturing, power
and mining sectors. Risks in relevant industries could be further amplified
by the broad energy transition, as well as the growing demand for electricvehicles which requires greater supply of high-risk minerals such ascobalt, lithium, nickel and mica.
PIMCO deepened engagement with issuers with material ESG issues
in 2022, focusing on topics including human rights risks in raw material
sourcing, increasing traceability and securing stable, conflict free
supplies, and transparency in supplier adherence to human rights
protocols. While we see improvement on commitment and disclosure
among issuers in Europe and North America, there is room for
improvement for Asia Pacific issuers to formalize a robust supply chain
sustainability program with a dedicated focus on human rights, in linewith international standards and best practices.

21 In addition to the current legislation related to Modern Slavery in California, U.K. , Australia, France and Netherlands, there
are pending legislations in EU on Human Rights and Environmental Due Diligence, Human Rights Due Diligence Law inFrance, Germany and Denmark, etc.

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Appendix

31
PRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI) ADVANCE: PIMCO’S COLLABORATIVE ENGAGEMENT ON HUMAN RIGHTS
In 2022, PIMCO joined the advisory committee and engagement
groups of Advance, a new stewardship initiative launched by the PRI.
Active participation in this initiative helps us highlight the relevanceKey engagement priorities of the Advance initiative includes:•

Business and Human Rights (UNGPs) – a universal framework ofof human rights risks to issuers. It may also enable us to amplify our

corporate conduct on human rights

human rights risk management where our influence over issuers may
be less than ideal. Our goal is to deepen engagement efforts under
the social pillar, and to some extent governance, and balance those

Implementation of the United Nations Guiding Principles on•

Alignment of corporate political engagement with their
responsibility to respect human rights

efforts alongside climate and the environment.
•

Increased progress on the most severe human rights issues within
their operations and externally across their value chains22

22 www.unpri.org/investment-tools/stewardship/advance/engagement-approach

While Advance currently prioritizes the mining and renewable resources
sectors, PIMCO can leverage expertise gleaned from thousands ofprevious corporate engagements. Importantly, we may apply thatexpertise to upcoming engagements in other sectors that also face
human rights-related risks.

PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Human Capital
A resilient and productive workforce can indicate a long-term

intimidation. Inattention to “quality of job” issues including hardsustainable growth strategy. Companies with robust recruitment

labor parameters, shift scheduling protocols, and structures thatand retention programs may help improve our confidence to makeenable a negative or dangerous work culture, may also impact thelonger-term investments. Further, workforce mismanagement can

extent to which workers organize or even strike.

negatively affect our view of a company’s growth projections.

Alternatively, a management team that prioritizes their workforce

As a fiduciary, PIMCO can engage with a company’s humanamong stakeholders, may see less attrition in a tight labor market,

capital management capacities to gain insight into their ability

increases to productivity and a positive view from the market thatto attract and retain their workforce. In our ESG assessments

short-midterm risks are appropriately managed.

of a company, we may consider factors related to cost andcomposition, talent attraction, retention, and promotion. We also
consider quality of work factors that may impact both employee
turnover and legal liabilities.

Talent attraction and retention policies vary in materiality
by both sector and corporate strategy. Interest in humancapital management has grown in the last few years. There
has been a rise in shareholder resolutions regarding civil

Mismanagement of human capital risk can have material

rights and racial equity audits, and in proposals asking for

implications. Research shows that high employee turnover cangreater transparency24. Companies are now conducting thesecreate substantial expense23. Recruiting and onboarding new hires

assessments and publishing their Employment Information

can be quite costly and time-intensive. When experts depart a firm

Report (EEO-1) disclosures on their websites, thanks in part tofor one of its competitors, it can detract from both productivity

investor engagement25. We focus our engagement and analysis

and employee morale. For businesses that rely on a large and/on a company’s approach to hiring, training and development.

or specialized workforce, labor shortfalls from mass employee

We target the disclosure of data that could signal the efficacy

turnover events (including layoffs and M&A activity) may increaseof policy implementation. Depending on the country in which a

cost overruns from productivity shortfalls.

company operates, various diversity, equity, and inclusion themes

In addition to competitive wages and benefits, there may be otherreasons employees leave, such as insufficient occupational healthand safety controls, or a culture of harassment, retaliation and
23 BofA Equity & Quant Research “Follow the numbers, not the naysayers”, September 19, 2022
24 www.conference-board.org/topics/shareholder-voting/trends-2022-brief-2-human-capital-management-social-proposals)
25 www.gibsondunn.com/evolving-human-capital-disclosures/can feature prominently in an analysis. We particularly focus
on how these efforts pertain to liabilities, headline risks, talentretention, and pay equity.

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Appendix

ENGAGING ON WORKFORCE CONSIDERATIONS IN THE U.S.
While COVID and its aftermath have presented some idiosyncratic labor issues in the U.S., there are both chronic and acute challenges that havelong faced the country’s workforce and employers. In our U.S. engagements, we have prioritized companies with large hourly employee bases, andopportunities to foster inclusion and diversity. Sector priorities have included consumer discretionary sub-sectors (such as retail and restaurant
franchises), consumer staples sub-sectors (food and personal products producers), and IT subsectors (e-commerce and telecommunications).
Our engagements with financial services and healthcare sectors have included a focus on various diversity and inclusion themes. These themes not only
affect the workforce, but also the development of and access to products and services. Engagements center on the extent to which certain products andservices, hiring practices, and/or workforce policies and processes are in place to mitigate the risk of liabilities related to discrimination.

IMPROVING “QUALITY OF WORK” ISSUES MAY STRENGTHEN TALENT MANAGEMENT PROGRAMS AND
MITIGATE COLLECTIVE BARGAINING RISKS
Labor shortages in the U.S. can be exacerbated by a shortage of people willing to work difficult or dangerous jobs for relatively low pay and minimal
benefits26. The confluence of inflation out-pacing incremental wage increases (often from an already low base), longer required hours, inconsistent
shift scheduling practices, and potentially difficult conditions, has placed additional pressure on the workforce. Unsurprisingly, 2021 and 2022 had aspike in employee unionization efforts across sectors27.
Given the prevalence of these dynamics, our discussions have centered on the ways in which companies have responded to demands from theirworkforce. While PIMCO believes it is the responsibility of management and workers to determine which collective bargaining arrangements work
best for their company, it remains illegal for employers to interfere with, or retaliate against, employees seeking to organize28.
While some companies have adopted policies that guard against retaliation and allow for freedom of association, recent anti-union efforts have
conversely resulted in shareholder resolutions alleging breaches of company policy.
As a result of numerous headlines alleging these claims in 2022, our approach to engagement is to broaden the talent retention discussion to include
supplemental or “quality of work” benefits that employers may consider. The goal of these engagements is to help improve a company’s relationship with
its stakeholders and encourage thoughtful approaches that may mitigate the risk of negative headlines, high employee turnover, and work stoppages.

26 www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm
27 www.epi.org/publication/unionization-2022/
28 www.nlrb.gov/about-nlrb/rights-we-protect/the-law/interfering-with-employee-rights-section-7-8a1#:~:text=It%20is%20unlawful%20for%20an,they%20forget%20about%20the%20union.

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Appendix

Natural Capital
NATURE IS EXPANDING IN PROMINENCE FOR SUSTAINABILITY FOCUSED INVESTORSNatural Capital – such as air, water resources, soils, raw materials, wildlife, biodiversity and the oceans – is entrenched acrossalmost all aspects of the economy. Companies, consumers, and governments alike all make use of and interact with nature.
Similar to negative trends for climate change, Natural Capital is at risk of depletion over the long run. Given the close link between
nature and economic stability, investors and the international agenda have increased efforts to assess, mitigate and/or adapt tonature-related risks.
For the past several years, PIMCO has deepened its research and engagement with corporate issuers on natural capital as partof our ESG Assessment and Environmental Risk Framework. For example, in 2021, PIMCO engaged with banks on deforestationand land degradation as part of their climate-oriented commitments. In addition, recent updates to our sectorial ESG investment
strategy took into account more detailed data on topics including soft commodities29 supply chain analysis of traceability andcertification commitments, circular economy30 practices, and policies toward water use.

29 Soft commodities generally refers to commodities that are grown, rather than extracted such as metals and fossil fuels, and include coffee, palm oil, wheat, soy, etc. Palm oil, soy and beef are soft commodities that are grown or produced in the tropics on a large scale and are therefore major drivers of deforestation and forest degradation’ (Source: United Nations Environment Programme).
30 The circular economy tackles climate change and other global challenges like biodiversity loss, waste, and pollution, by decoupling economic activity from the consumption of finite resources. The circular economy is based on three principles, driven by design: eliminate waste and pollution, circulate products and materials (at their highest value), and regenerate nature (source: Ellen
MacArthur Foundation).

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PIMCO SUSTAINABLE INVESTING REPORT 2022

IntroductionMore recently, PIMCO has formalized its Natural Capital Framework,•

following developments. These include:•

COP15’s Kunming-Montreal Global Biodiversity Framework•

Guidance established by the Taskforce on Nature-related Financial
Disclosures (TNFD)•

Targets related to Natural Capital set by Science Based Targets
Network’s (SBTN)

The framework builds on proprietary tools and resources to help further
integrate these issues into our investment process. This is supported
by nature-related assessments to identify risks and opportunities•

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Risks: Heavy reliance on natural capital, typically not reported in

Our score is comprised of both impacts and dependencies on

corporate financial statements, can adversely affect businesses if

nature. For impacts, we score sectors under the five direct drivers

depleted, resulting in physical risks; businesses with high impacts toof biodiversity loss identified by the Intergovernmental Science-natural capital might face stricter regulation causing transition risks.

Policy Platform on Biodiversity and Ecosystem Services (IPBES).
For dependencies, we follow ENCORE’s (the UN’s Exploring Natural

Opportunities: Increased data availability across supply chains

Capital Opportunities, Risks and Exposure tool), looking at ecosystemprovides more visibility per geography/location; differentiation
across issuers’ sustainability strategies; and better risk assessment.
The table below illustrates our proprietary Natural Capital scoring
methodology which examines sectors in the Bloomberg Global
Aggregate Credit Index.

services and grouping them by the four functions they provide. To
complement the sectorial analysis, we incorporate company-level
data and engagement to differentiate across leaders, improvers, andlaggards. Ultimately, the goal is to leverage this framework and scoreas part our ESG assessments, and to inform our investment process.

from impacts (such as externalities or damages to natural capital) to
dependencies (such as heavy reliance on natural capital).
Bloomberg Global Aggregate Credit Index
Impacts
PIMCO Sectors

Land/Water/Sea
Use Change

Resource
Exploitation

Climate Change

Dependencies
Pollution

Invasives and
Other

Score

Direct Physical
Input

Enables Production Mitigates Direct
Process
Impacts

NatCapProtection from
Disruption

Score

Score

Banking
Utilities
Food
Automotive
Total
As of 31 December, 2022. Source: ENCORE, Science Based Targets Network, PIMCO.
Green indicates minimal impact and dependency, while red implies a high potential impact and dependency.
The underlying data builds on a SBTN materiality tool, which relies on the ENCORE database for direct impact of operations, and on EXIOBASE to derive upstream impact ratings. For dependencies, we incorporate the ENCORE dependency ratings. The sectorial scores do not include downstream ratings. The overall impacts and dependencies scores at sector level are based on the average of theirrespective thematic pillars scores. The natural capital score is then based on both impacts and dependencies scores. The portfolio level score is a weighted average of the company scores.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Carbon Analytics
We expect two climate-related themes to gain momentum: 1) the recognition that there is no real-economy decarbonization
without attribution (i.e., the importance of identifying the drivers for changes in portfolio carbon footprint over time);and 2) the growing focus on Green Capex and Forward-Looking Climate Performance.
PIMCO is committed to providing the best advice and solutions for clients on a range of sustainability
issues, including climate change. We are keenly aware of the market and societal trends that arereshaping what it means to manage a global sustainable business in the 21st century – andbelieve strongly in science-based evidence and scenarios. With this in mind, PIMCO
has developed a framework31 for interested investors seeking to target long-term
decarbonization in their portfolios.
This framework is supported by carbon-emission data covering corporate
issuers. One overarching challenge has been the lack of data or standard
to quantify whether portfolio decarbonization is linked to actual
greenhouse gas emission reductions in the real economy.
This is important, especially against a backdrop ofheightened scrutiny over the implementation of climate
commitments, and mounting questions about
whether these commitments actually lead topositive environmental outcomes.
31 The insights piece summarizes our four-pillar framework
to help investors target long-term objectives to reduce
portfolio exposure to greenhouse gases, including
challenges and considerations.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Focus Features

Engagement

Appendix

In response to concerns about the reliability of data, PIMCO has developed a proprietary carbon attribution tool. The tool measures and reports the contribution of different factors to carbon emissions across different corporate
issuers in a portfolio. We then measure the emission data against a broad benchmark and across time periods.
For example, the slight decrease in the carbon footprint32 of the Bloomberg Global Aggregate Credit Index between December 2020 and December 2022 (shown in the chart below) was mainly driven by changes in its exposure
to certain issuers, while the greenhouse gas emissions reductions of issuers only marginally contributed to the change evaluated over this period33. This tool can help make more informed decisions regarding the most effective
levers to decarbonize a portfolio’s emissions while encouraging actual emissions reduction from issuers.

Bloomberg Global Aggregate Credit Index - Carbon Footprint Change (Dec 2020 - Dec 2022)

Carbon Footprint - tCO2e/$M invested(Scope 1 and Scope 2)

 Increase Decrease Total

25.2

94.9

Carbon Footprint
Dec 2020

37

-7.3

7.3

-18.4

New Issuer
Addition

Increased
Exposure

Divestment

Decreased
Exposure

-8.0

-0.3

Evic

Market
Value

2.4

1.8

92.2

Coverage andDisclosure

Portfolio
EffectCarbon Footprint
Dec 2022-5.5

GHG
Emissions

Source: PIMCO, MSCI. As of 31 December 2022.

Source: PIMCO, MSCI. As of 31 December 2022.
32 Absolute corporate greenhouse gas emissions attributed to the portfolio or benchmark divided by the market value, expressed as tCO2e/$M invested (Scope 1 and Scope 2). Scope 1 refer to direct emissions from owned or controlled sources. Scope 2 refers to indirect emissions from the generation of purchased energy.
33 The factors displayed on this chart include: increased or decreased exposure (changes in the weights to existing positions), new issuer addition or divestment (changes in the universe or positions held in the portfolio), changes to issuer’s enterprise value including cash (EVIC), the market value of the portfolio, greenhouse gases (GHG) emissions and data coverage. Portfolio effect refers to theresidual part of the decomposition due to data limitations and the interaction between factors.

PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

GREEN CAPEX AND FORWARD-LOOKING
CLIMATE PERFORMANCEThe energy shock that unfolded over the course of 2022 led to a policy response, especiallyfiscal, that should help accelerate the energy transition and result in a growth in issuers’
capital expenses for environmentally sustainable projects.
Two prominent policy drivers are the U.S. Inflation Reduction Act (IRA) and EU Green
Deal Industrial Plan (GDIP). These two laws are expected to drive investments across thevalue chain into low-carbon technologies, including renewable energy, electric vehicles,
and technological advancements in hydrogen production – or green hydrogen. In parallel,
certain jurisdictions have continued to develop frameworks and initiatives to support green
bonds and increase reporting requirements concerning climate factors. These include theexposure to “climate solutions” via revenues, capital expenditures or operating expenditures,notably the EU taxonomy for sustainable activities34. Greater disclosure from issuers canhelp inform our forward looking analysis of an issuer’s exposure to carbon risks, generalincrease in the climate performance of the issuers most committed to transition, andlikely continued growth in green bond issuance due to the inherent alignment between the
instrument and these objectives.

34 The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

CLIMATE REPORTING CAPABILITIESFor a more detailed update on our approach to climate risks, net zero, and disclosure based on therecommendations of the Task Force on Climate-related Financial Disclosures (TCFD), please see PIMCO’s
ESG Investing Report 2021. We have continued to refine and expand our carbon measurement, datareporting and portfolio optimization capabilities based on guidance from ESG-focused financial institutions,such as the Partnership for Carbon Accounting Financials (PCAF), and the Science-Based Target initiative(SBTi). Our reporting tools cover an ever-broader range of perspectives (e.g. financed emissions, portfolioalignment, climate solutions, or the exposure to both transition and physical risks), assets classes (e.g. weupdated the methodology for sovereign debt) and instrument types (e.g. green and sustainability bonds).
This allows our clients to understand key climate and carbon metrics in their portfolios.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Appendix
PIMCO PARTNERSHIPS
As a leading global investment manager, we partner with a number of key industry groups, including those listed below, to help drive a coordinated global approach.
Industry Affiliations

Overview

Access to Nutrition Initiative (ATNI)
Signatory•

Collaborating with investors, academics, non-profits, and foundations across the globe, ATNI establishes partnerships with organizations committed to solving the world’s nutrition challenge,
specifically working with food and beverage companies to improve their business practices.

Bank of England Climate Financial Risk
Forum (CFRF)
Member•Aims to build capacity and share best practice across industry and financial regulators to advance the sector’s responses to the financial risks from climate change•

Brings together senior representatives from across the financial sector, including banks, insurers, and asset managers and includes observers from trade bodies to represent a broader range offirms to ensure the outputs of the CFRF are communicated to their members.

Carbon Disclosure Project (CDP)
Signatory•

Backed by approximately 680 investors totaling over $130 trillion in assets, CDP runs the disclosure system for stakeholders across the globe to manage the environmental impact of greenhousegas emissions.

Climate Bonds Initiative (CBI)Partner•

A leading organization focused on fixed income and climate change solutions, CBI has been instrumental in supporting more robust data and standards to propel the green bond market, andremains heavily involved in shaping new green bond-related regulations.

FSB’s Task Force for Climate Related Financial
Disclosures (TCFD)
Supporter•

TCFD has created a set of voluntary recommendations for better climate-related financial disclosures.

•Its goal is to help firms understand what investors demand from disclosures in order to measure and respond to climate risks, and encourage firms to align their disclosures with investors’ needs.

Global Investors for Sustainable Development
Alliance (GISD)
Member•PIMCO is one of only 30 members of the UN Secretary-General’s GISD Alliance, which focuses on accelerating investment into sustainable development. In partnership with investors,
governments, and multilateral institutions, GISD will drive investment towards achieving the UN’s Sustainable Development Goals.

International Capital Markets Association(ICMA) Principles
Executive Committee Member•

ICMA promotes the development of appropriate, broadly accepted guidelines, rules, recommendations, and standard documentation to maintain and enhance the framework of cross-borderissuing, trading, and investing in debt securities.

•

The executive committee is responsible for the management and administration, which includes addressing all matters relating to the ICMA’s Principles: the Green Bond Principles (GBP), Social
Bond Principles (SBP), and Sustainability Bond Guidelines (SBG).

Investor Group on Climate Change (IGCC)
Member•Collaboration of Australian and New Zealand investors focused on the impact of climate change on investments.

•

Represents investors with total funds under management of over $3 trillion in Australia and New Zealand and $30 trillion around the world. IGCC members cover over 7.5 million people in Australia
and New Zealand.

ISSB Investor Advisory Group (IIAG)Founding Member•

Under the umbrella of the Value Reporting Framework, IIAG comprises asset owners and managers who recognize the need for consistent, comparable, and reliable disclosure of ESG information.
The group participates in the ongoing standards development process and encourages companies to participate in the development process.

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PIMCO SUSTAINABLE INVESTING REPORT 2022

Introduction

Sustainability at PIMCO

Engagement

Focus Features

Appendix

Industry Affiliations

Overview

Institutional Investors Group on Climate
Change (IIGCC)
Member•

IIGC is a leading investor coalition on climate change, with more than 350 members across 23 countries, and over €50 trillion in assets.

•

The group drives investor collaboration on climate change and takes action for a prosperous, low carbon future.

One Planet Asset Management (OPAM)
Initiative
Member•Initiative created following the 2015 Paris Agreement in order to mitigate the effects of climate change.

•

Aims to help Sovereign Wealth Funds foster a shared understanding of key principles, methodologies, and indicators related to climate change; identify climate-related risks and opportunities intheir investments; and enhance their decision-making frameworks to better inform their priorities as investors and financial market participants.

The Partnership for Carbon Accounting
Financials (PCAF)
Signatory•

PCAF is a global partnership of financial institutions working together to enable transparency and accountability by developing an open-source Global GHG Accounting and Reporting Standard forthe financial industry.

•

This harmonized accounting approach provides financial institutions with the starting point required to set science-based targets and align their portfolio with the Paris Climate Agreement.

Principles for Responsible Investment (PRI)
Signatory•

The UN-supported Principles for Responsible Investment (PRI) is the world’s largest investor initiative focusing on integrating ESG factors into the investment processes.

•

PIMCO is an active signatory of the PRI and engages in several work streams, including:
Chair of the PRI Sustainable Development Goals Advisory Committee (SDG)
Member of the Advance Initiative’s Advisory Committee, engaging companies to strengthen commitment, due diligence and remediation of human rights issues.

UN Global Compact (UNGC)
Member•This is a principles-based framework for businesses aimed at advancing sustainable and responsible policies and practices.

•

PIMCO supports the Ten Principles of the UN Global Compact with respect to human rights, labor, environment, and anti-corruption – and is committed to incorporating these principles into ourstrategy, culture, and day-to-day operations.

•

PIMCO co-chairs the UN Global Compact’s CFO Coalition, which is an effort to create a movement of chief financial officers to address SDG investment and financing.

As of 31 December 2022.

ADDITIONALRESOURCESRELATED DOCUMENTSEDUCATION•

Sustainable Investment Policy Statement••

Guidance for Sustainable Bond Issuance – Corporate•

Guidance for Sustainable Bond Issuance – Sovereign

Understanding Green, Social and Sustainability Bonds

41

The information contained herein is as of December 31, 2022 unless otherwise noted.
This report contains examples of the firm’s internal ESG engagement and research capabilities. The data contained within the report may be stale and should not be relied upon as investment
advice or a recommendation of any particular security, strategy or investment product. In selecting case studies, PIMCO considers multiple factors, including, but not limited to, whether theexample illustrates the particular investment strategy being featured and processes applied by PIMCO to making investment decisions. Information contained herein has been obtained fromsources believed to be reliable, but not guaranteed.
Environmental (“E”) factors can include matters such as climate change, pollution, waste, and how an issuer protects and/or conserves natural resources. Social (“S”) factors can include how anissuer manages its relationships with individuals, such as its employees, stakeholders, customers and its community. Governance (“G”) factors can include how an issuer operates, such as its
leadership, pay and incentive structures, internal controls, and the rights of equity and debt holders.
PIMCO is committed to the integration of Environmental, Social and Governance (“ESG”) factors into our broad research process and engaging with issuers on sustainability factors and our climatechange investment analysis. At PIMCO, we define ESG integration as the consistent consideration of material ESG factors into our investment research process, which may include, but are notlimited to, climate change risks, diversity, inclusion and social equality, regulatory risks, human capital management, and others. Further information is available in PIMCO’s Sustainable Investment
Policy Statement.
With respect to comingled funds with sustainability objectives (“ESG-dedicated funds”), we have built on PIMCO’s over 50-year core investment processes and utilize three guiding principles:
Exclude, Evaluate and Engage. In this way, PIMCO’s ESG-dedicated funds seek to deliver attractive returns while also seeking to achieve positive ESG outcomes through its investments. Please
see each ESG-dedicated fund’s prospectus for more detailed information related to its investment objectives, investment strategies and approach to ESG.
All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of mostbonds 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 rate environments 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. 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. Mortgage and asset-backed securities may be sensitive to changes
in interest rates, subject to early repayment risk, and their value may fluctuate in response to the markets perception of issuer creditworthiness; while generally supported by some form ofgovernment or private guarantee there is no assurance that private guarantors will meet their 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 and liquidity risk than portfolios that do not. Equities may decline in value due to both real and perceived general market,
economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed whenmost advantageous. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss. Management risk is the risk that the investment techniques
and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager
in connection with managing the strategy.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by PIMCO or any judgment exercised by PIMCO will reflect the opinions of any particularinvestor, and the factors utilized by PIMCO may differ from the factors that any particular investor considers relevant in evaluating an issuer’s ESG practices. In evaluating an issuer, PIMCO isdependent upon information and data obtained through voluntary or third-party reporting that may be incomplete, inaccurate or unavailable, or present conflicting information and data withrespect to an issuer, which in each case could cause PIMCO to incorrectly assess an issuer’s business practices with respect to its ESG practices. Socially responsible norms differ by region, andan issuer’s ESG practices or PIMCO’s assessment of an issuer’s ESG practices may change over time. There is no standardized industry definition or certification for certain ESG categories, forexample “green bonds”; as such, the inclusion of securities in these statistics involves PIMCO’s subjectivity and discretion. There is no assurance that the ESG investing strategy or techniques
employed will be successful. Past performance is not a guarantee or reliable indicator of future results.
PIMCO’s credit research analysts assess the Environmental, Social, and Governance (“ESG”) profile of corporate, municipal, and sovereign issuers relative to peer issuers with a goal of separating
leaders from laggards. Using industry-specific ESG frameworks, analysts review issuers’ ESG performance based on information available in public filings, recent ESG news and controversies,
as well as through engagement with company management teams. Analysts assign three separate numerical scores from 1 to 5 (with 5 being the highest) to their environmental, social andgovernance-based business practices. The score in each category is related to an issuer’s rank relative to industry peers, and the relative weights of the E, S, and G scores in the composite scorevary based on industries, as each industry is assigned a different factor weight. For example, the environmental category has the greatest weight for issuers in extractive industries (e.g., oil, gas,and mining), the social category has the greatest weight for pharmaceutical issuers, and the governance category has the greatest weight for financial issuers. Analysts also include a forwardlooking ESG trend assessment, which recognizes companies whose ESG performance is significantly improving or deteriorating. These factors are combined to create a proprietary composite
ESG issuer score.
PIMCO’s credit research analysts also assess green, social, sustainability, and sustainability-linked bonds (collectively “ESG bonds”) at an issuance level, including prior to and after issuance.
Utilizing PIMCO’s proprietary ESG Bond Framework assessment, credit analysts evaluate such instruments starting with the strategic fit, assessing the alignment of the issuers’ ESG-related
strategies with the bond’s objectives and use of proceeds, key performance indicators (KPIs), and the evidence of significant positive impact of the activities compared to “business as usual”. We
continuously screen for “red flags” and controversies through this process and also assess the degree of reporting by the issuer to analyze misalignment with key market standards, such as theGreen Bond Principles. These factors result in a proprietary ESG bond score ranging from 1 to 5 (with 5 being the highest). PIMCO does not score all ESG bonds. Unassessed ESG bonds receivea default score of 3. ESG bonds holdings in PIMCO portfolios are then assigned a score that combines the issuer’s ESG score and the ESG bond score. Specifically, an ESG bond holding receives
the ESG issuer score plus an adjustment ranging from 0 up to 1.0 point, depending on the type of ESG bond (use of proceeds or sustainability-linked) and the quality of the ESG bond according

3494913

to PIMCO’s proprietary assessment. Holdings of securitized ESG bond issuances (asset-backed securities, collateralized loan obligations, collateralized mortgage obligations, collateralized debt
obligations, and mortgage pass through securities) receive the ESG issuer score and are not adjusted.
We use MSCI and other third-party ratings for reference but make our own assessment based on our own, independent analysis of the industry and relevant ESG factors. PIMCO’s resulting
assessments are proprietary and distinct from those provided by ESG rating providers. Inclusion of a proprietary PIMCO ESG rating creates a conflict of interest because PIMCO and its affiliates
benefit when PIMCO assigns a particular security a high score, or assigns a benchmark index or security a low score.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work
under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook
and strategies are subject to change without notice. Investors should consult their investment professional prior to making an investment decision.
The issuers referenced are examples of issuers PIMCO considers to be well known and that may fall into the stated sectors. References to specific issuers are not intended and should not beinterpreted as recommendations to purchase, sell or hold securities of those issuers. PIMCO products and strategies may or may not include the securities of the issuers referenced and, if suchsecurities are included, no representation is being made that such securities will continue to be included.
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contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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