(A)SUSTAINABILITY RISKS INTEGRATION POLICY

AND

(B)

27408198.12.BUSINESSPAI SUSTAINABILITY DUE DILIGENCE POLICYINTRODUCTION
PGIM Fixed Income is a global asset manager primarily focused on public fixed income investments.
Our mission is to provide consistent superior risk-adjusted returns and excellent service to our clientsand to generate value for our stakeholders. Our culture is that of a safe and inclusive environment
centred around mutual respect, trust in each other, collegiality, teamwork, meritocracy, intellectualhonesty, transparency, and an unwavering commitment to our clients.
PGIM Fixed Income adheres to certain responsible business codes and has been a signatory of the
Principles for Responsible Investment since February 2015. We believe that environmental, social andgovernance (“ESG”) factors impact the performance of investment portfolios, and we have integrated
them into our investment analysis and decision-making processes across all of our strategies. We
believe that analysing credit-material ESG factors leads to higher risk-adjusted excess returns.
PGIM Fixed Income has been a signatory of the UK Stewardship Code since 2022. We believe that the
12 Principles laid out by the UK Stewardship Code set a high standard for responsible stewardship,
and we seek to disclose the relevant information necessary to maintain our signatory status on anannual basis. To view our latest ESG Annual Report, which we use to disclose our activities in ourapplication to become signatories, please visit https://www.pgim.com/fixed-income/annualreport/2021-esg-annual-report.
PGIM Fixed Income has established an ESG policy committee (the “ESG Policy Committee”) that is
supported by an ESG ratings sub-committee (the “ESG Ratings Sub-Committee”, and together with
the ESG Policy Committee, the “ESG Committee”). The ESG Committee is supported by focused ESG
working groups as required. These ESG working groups are formed and meet as needed and consider
ESG issues from their respective perspectives. The ESG Policy Committee acts as the top governanceand decision-making body for PGIM Fixed Income’s ESG practices and focuses on PGIM Fixed Income’s
overall ESG policies and approach; whereas the ESG Ratings Sub-Committee makes decisions on
matters related to ESG integration in credit analysis, ESG Impact Ratings and other frameworks andtools related to ESG assessments used in our investment process.
In order to help our clients achieve their environmental and social objectives, we have developed
proprietary ESG impact ratings (“ESG Impact Ratings”). ESG Impact Ratings are designed to assess thenegative and positive impacts issuers have on the environment and society. ESG Impact Ratings are
not intended to be a measure of credit materiality, although in some cases an issuer with a poor impact
rating, may also have material ESG credit risks. These ESG Impact Ratings are an added layer of ESG
analysis on top of the ESG risk integration we conduct for investments we make. They are intended
for use in products managed for clients who would like to direct capital to issuers with stronger
environmental, social and/or governance practices or minimize the adverse ESG impacts of theirportfolios.
PGIM Fixed Income’s investment approach and decision-making processes are based on clearlydefined performance objectives, investment guidelines and constraints as agreed with our clients, oras disclosed in any applicable offering documentation.

1
27408198.12.BUSINESSPOLICIES
This combined policy document sets out how PGIM Fixed Income integrates sustainability risks into
its decision-making process and how, for certain clients, PGIM Fixed Income considers the principal
adverse impacts of its investment decisions.
(A)

ESG Investment and Sustainability Risks Integration Policy (the “Sustainability Risks
Integration Policy”)

The EU Sustainable Finance Disclosure Regulation (“SFDR”) requires PGIM Netherlands B.V. to disclose
certain information on the integration of sustainability risks in our investment decision-making
process. PGIM, Inc. (which is domiciled in the United States) and PGIM Limited (which is domiciled in
the United Kingdom), in each case with respect to its PGIM Fixed Income business unit, will provide
such disclosure to the extent required by applicable law or regulation or where agreed to with clientson a case-by-case basis. The Sustainability Risks Integration Policy is the sustainability risk policy foreach of the foregoing entities in respect of its PGIM Fixed Income business unit for the purposes of
SFDR.
(B)

Principal Adverse Impacts Sustainability Due Diligence Policy (the “PAI Sustainability Due
Diligence Policy”)

PGIM Netherlands B.V. has decided not to voluntarily comply with the requirements under Article
4(1)(a) of the SFDR (i.e., to consider the principal adverse impacts of investment decisions onsustainability factors at the entity level). PGIM Netherlands B.V.’s statement that it does not consider
the principal adverse impacts of investment decisions on sustainability factors at the entity level (asrequired under Article 4(1)(b) of the SFDR) is available at: https://www.pgim.com/fixed-income/sfdrinformation.
However, PGIM Netherlands B.V. and PGIM, Inc. and PGIM Limited, in each case with respect to its
PGIM Fixed Income business unit, are electing to voluntarily consider certain principal adverse impacts
of investment decisions on sustainability factors for certain client accounts in line with PGIM Fixed
Income’s proprietary ESG Impact Ratings framework as set out in detail in the PAI Sustainability Due
Diligence Policy. The PAI(s) that PGIM Fixed Income ultimately consider when making investment
decisions will vary depending on the In-scope Product and the underlying assets of the In-scope
Product (as further described in the PAI Sustainability Due Diligence Policy) and such consideration is
not strictly or solely reliant on the EU Framework PAI Indicators (as defined below). However, PGIM
Fixed Income does consider the EU Framework PAI Indicators as part of its ESG investment process
and the PAI Sustainability Due Diligence Policy reflects how and under what circumstances those EU
Framework PAI Indicators are considered.
The PAI Sustainability Due Diligence Policy is the principal adverse impacts due diligence policy foreach of the foregoing entities in respect of its PGIM Fixed Income business unit for the purposes of
SFDR. For the avoidance of doubt, the PAI Sustainability Due Diligence Policy is not a statement
made under Article 4 of SFDR. That statement is available at https://www.pgim.com/fixedincome/sfdr-information.
In addition, the most updated versions of all SFDR-related policies are available from the following
website: https://www.pgim.com/fixed-income/sfdr-information.

-227408198.12.BUSINESSSUSTAINABILITY RISKS INTEGRATION POLICY
December 13, 2023
This document sets out the sustainability risk policy of PGIM Netherlands B.V., PGIM, Inc. and PGIM
Limited, in each case with respect to its PGIM Fixed Income business unit (together, the “Firm”), andsets out information on the integration of sustainability risks in our investment decision-making
process.
1.

Integration of Sustainability Risks

1.1

SFDR requires PGIM Netherlands B.V. to disclose certain information on the integration ofsustainability risks in our investment decision-making process. PGIM, Inc. and PGIM
Limited, in each case with respect to its PGIM Fixed Income business unit, will provide suchdisclosure to the extent required by applicable law or regulation or where agreed to withclients. This Sustainability Risks Integration Policy has been adopted to constitute thesustainability risk policy for each of the foregoing entities in respect of its PGIM Fixed
Income business unit for the purposes of SFDR.

1.2

PGIM Netherlands B.V., PGIM, Inc. and PGIM Limited, in each case with respect to its PGIM
Fixed Income business unit, has each separately adopted and implemented thisSustainability Risks Integration Policy with respect to all accounts managed by them.

1.3

Under SFDR, “sustainability risk” means an environmental, social or governance event orcondition that, if it occurs, could cause an actual or a potential material negative impact on
the value of an investment. This is consistent with the definitions of “ESG risk” that PGIM
Fixed Income uses in our research and investment process for all client portfolios. The
terms “sustainability risk” and “ESG risk” will be used interchangeably in this Sustainability
Risks Integration Policy.

1.4This Sustainability Risks Integration Policy therefore approaches sustainability/ESG risk
from the perspective that certain events or conditions related to ESG factors may cause amaterial negative impact on the financial/economic value of our clients’ investments. Thisis distinct from a policy where we consider the principal adverse impacts (the “ESG
impacts” our investments may have on certain sustainability factors, whether or not they
are credit material (see the PAI Sustainability Due Diligence Policy at Section B)).

2.

ESG Factors in the Investment Process for All Portfolios

2.1

In integrating ESG risks and opportunities into our investment process, we define “ESG risk”
and “ESG opportunity” as an environmental, social or governance event or condition that,
if it occurs, could cause a material negative or positive impact on the financial/economic
value of an investment. Together, we consider such ESG risks and opportunities to be“credit-material ESG factors.” Because we define credit-material ESG factors purely as
those we believe have the potential to materially affect the value of specific investments,
and distinct from the consideration of ESG impacts, those factors are incorporated into ourevaluation of issuers’ credit profiles in the management of all client portfolios.
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Sustainability Risks Integration Policy
27408198.12.BUSINESS2.2

As part of the credit research process, PGIM Fixed Income analysts review information
related to ESG factors, which may be provided by the issuer or obtained from third-party
ESG research providers or alternative data sources (e.g., NGO analyses, governmental andinter-governmental studies, etc.). PGIM Fixed Income analysts may supplement thisinformation through engagement with the issuer.

2.3

To the extent an ESG factor is considered by the analyst to have a material or a potentiallymaterial adverse effect on the financial value of the issuer, our analysts will incorporatesuch risks into their fundamental credit ratings. Fundamental credit ratings are in turn a
key factor in our relative value assessments and are the primary means through which ourportfolio managers will consider material sustainability risks when assessing the overall
relative attractiveness of potential investments. Equally, ESG factors that are considered
to be materially or potentially materially positive for the financial value of an issuer will
also be reflected in our fundamental credit ratings and so considered in relative value
assessments. Although our views are often informed by quantitative metrics, our ultimate
decision on how ESG issues should influence our investment decisions is largely qualitative,
as with other types of risks and opportunities.

2.4

The quality of governance can be an important investment consideration and it isincumbent on our analysts to assess governance structures and practices at the issuers weconsider for investment as part of the credit research process. Our governance analysis isasset class and sector specific and may include (but is not limited to) the following issues:alignment of interests between management, controlling shareholders and other providersof capital; related party transactions; board quality, effectiveness and oversight;
management incentives; audit and accounting issues; quality of risk management; businessethics and conduct issues (e.g., bribery and corruption; anti-competitive practices; andadvertising/sales practices); and supply chain sustainability practices. As part of thegovernance analysis and in connection with requirements applicable only to products wecategorize as Article 8 and Article 9 under SFDR, analysts are also required to assess certain
issuers against four key themes of good governance (sound management structures,
employee relations, remuneration of staff and tax compliance, together, the “SFDR Good
Governance Assessment”)). This assessment is required only for investee companies. For
purposes of “investee companies” we include all corporate issuers as well as all quasisovereigns. While the SFDR Good Governance Assessment may impact the credit analyst’s
views on the governance risks of the investee company, this assessment is intended to be
distinct from the risk assessment.

2.5

The environmental and social factors considered during our research assessment, including
sustainability risks which may cause a material negative impact on the value of potential
investments should those risks occur, will vary depending on the asset class, industry
and/or individual issuer. These could potentially include, but are not limited to, thefollowing:(a)Environmental risks, which may materialize through various channels, including
but not limited, to reputational damage, litigation, policy costs, input costs,
remediation costs, physical damage, operational disruptions, etc. These risks
and potential costs/disruptions may be related to issues such as climate change;pollution of air, water and land; harm to biodiversity, deforestation andecosystem damage; energy inefficiency; generation and poor management of
hazardous and non-hazardous waste; and high-water consumption/withdrawal-4-

Sustainability Risks Integration Policy
27408198.12.BUSINESSneeds, especially in water stressed areas. Climate and other environmental risks
are considered both from a “transition” risk perspective, which focuses on therisk to investments as the world moves towards a more sustainable
environmental and social model, and a “physical” risk perspective, which
considers tangible risks due to physical changes in the natural environment,
including but not limited to, hurricanes, flooding, droughts, heatwaves, soil
degradation, loss of ecosystem services, water shortages.
(b)Social risks, which may also materialize through various channels, including but
not limited to, reputational damage, litigation, policy costs, recalls, labour costs,
operational disruptions, reduced productivity. These risks and potential
costs/disruptions may be related to issues such as poor occupational health andsafety and process safety; poor product safety and quality; privacy and data
security weaknesses; poor labour relations and/or human capital management,
including diversity and inclusion; breaches of employee rights/ labour rights;
human rights violations; child labour/ forced labour; and infringements of rights
of local communities/ indigenous populations.

2.6

An important focus of PGIM Fixed Income’s sovereign research is on macroeconomic
stability and debt sustainability. ESG issues feature in this analysis and, in particular, thesovereign credit ratings process. In addition to a fundamental macroeconomic score that
captures pertinent macroeconomic strengths and vulnerabilities, PGIM Fixed Income’s
sovereign ratings framework is also based upon an assessment of qualitative aspects thatguide policy making. These aspects include institutional strengths and weaknesses, andpotential governance issues, as well as social issues that we believe could affect relevant
macroeconomic variables. Nevertheless, while we carefully consider the risks such ESG
issues may present, we believe such risks should always be considered within a broader
macroeconomic context and the issuer’s overall risk profile.

2.7

Debt investors are a critical stakeholder for corporate and sovereign issuers reliant on debt
financing markets. We see issuer engagement as an important tool in our investment
process insofar as it helps us to gain a more holistic understanding of the issuers, from boththe fundamental credit and ESG impact perspectives. We believe that this, in turn, helps us
achieve better investment and, where applicable, ESG outcomes for our clients andinvestors. As a result, our analysts are encouraged to initiate discussions with issuers
should an ESG issue surface during the research process.

2.8

During these discussions, our analysts probe management on the ESG issues we see asmaterial and assess the issuer’s plans to address them. At times, we point out to issuers
our assessment of credit-material ESG factors as well as the ESG impacts that their policies,
practices or products have on the environment and society, and where applicable, discuss
the implications these ESG impacts may have for their funding costs and future market
demand for any new issue bonds.

2.9

The issues on which we engage from an ESG impact perspective as described above arelargely the same as those factoring into our fundamental credit analyses.

2.10

Feedback from these meetings is used to inform our fundamental credit ratings and ESG
Impact Ratings. The ESG issues raised, as well as management’s response to our comments-5-

Sustainability Risks Integration Policy
27408198.12.BUSINESS

(when applicable), are then noted in our engagement notes and can inform our overall
analysis of the issuer.
2.11

We do not evaluate issuers’ sustainability risks in isolation, but instead integrate them
directly into our fundamental credit ratings, and thus into our relative value assessments.
In addition, there is often not a clear demarcation of what could be an ‘ESG risk’ versus a‘traditional risk’. ESG issues that relate directly to the business model, could be consideredfinancially-material and may be considered ‘business risks’, which is why ESG issues cannot
be evaluated separately from fundamental credit analysis. So, while PGIM Fixed Income’s
portfolio managers are provided with information on sustainability risks and takesustainability risks into account when making an investment decision, sustainability risk
would not by itself prevent PGIM Fixed Income from making any investment. Instead,sustainability risk forms part of our overall assessment of an issuer’s credit risk, and thusof our assessment of its relative value.

2.12

In recognition of the points in 2.11, PGIM Fixed Income does not apply any absolute risk
limits or risk appetite thresholds which relate exclusively to sustainability risk as a separate
category of risk.

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Sustainability Risks Integration Policy
27408198.12.BUSINESSPAI SUSTAINABILITY DUE DILIGENCE POLICY
December 13, 2023
This document sets out the sustainability due diligence policy of PGIM Netherlands B.V., PGIM, Inc. and PGIM Limited, in each case with respect to its PGIM
Fixed Income business unit (together, the “Firm”), regarding the principal adverse impacts of our investment decisions on sustainability factors in respect ofcertain In-scope Products (as defined below).
3.

Introduction

3.1

SFDR requires certain EU entities such as PGIM Netherlands B.V. to make a decision as to whether they will “comply” and, as a consequence,
consider the principal adverse impacts, or “PAI,” of their investment decisions on sustainability factors at an entity level or “explain” why not.
PGIM Netherlands B.V. has decided not to voluntarily comply with the requirements under Article 4(1)(a) of SFDR (i.e., to consider the PAI ofinvestment decisions on sustainability factors at the entity level). PGIM Netherlands B.V.’s statement that it does not consider the PAI ofinvestment decisions on sustainability factors at the entity level (as required under Article 4(1)(b) of SFDR) is available at:https://www.pgim.com/fixed-income/sfdr-information.

3.2

However, PGIM Netherlands B.V., PGIM, Inc. and PGIM Limited, in each case with respect to its PGIM Fixed Income business unit, are electing tovoluntarily consider certain PAI of investment decisions on sustainability factors for certain client accounts, where expressly agreed to with clientson a case-by-case basis in the applicable account or fund documentation (the “In-scope Products”) as set out in detail in the PAI Sustainability Due
Diligence Policy.

3.3

The PAI that PGIM Fixed Income ultimately considers when making investment decisions will vary depending on the In-scope Product and theunderlying assets of the In-scope Product (as further described in this PAI Sustainability Due Diligence Policy) and such consideration is not strictlyor solely reliant on the EU Framework PAI Indicators (as defined below). However, PGIM Fixed Income does consider the EU Framework PAI
Indicators as part of its ESG investment process and this PAI Sustainability Due Diligence Policy reflects how and under what circumstances those
EU Framework PAI Indicators are considered. For the avoidance of doubt, this PAI Sustainability Due Diligence Policy is not a statement madeunder Article 4 of SFDR. That statement is available at https://www.pgim.com/fixed-income/sfdr-information.

7

PAI Sustainability Due Diligence Policy
EU_BUSINESS.28964480.3

3.4“Sustainability factors” are defined in SFDR as meaning environmental, social and employee matters, respect for human rights, and anti-corruption
and anti-bribery matters.

3.5This PAI Sustainability Due Diligence Policy applies in respect of portfolio management services, investment advisory services, and AIF management
services carried on by the Firm for the In-scope Products.

3.6

For reference, the Firm maintains other policies and documentation related to sustainability, including:(a)Sustainability Risks Integration Policy (see Section A); and(b)

PGIM Fixed Income UCITS ESG Policy Statement and Article 10 Transparency Disclosure

4.

Purpose of this PAI Sustainability Due Diligence Policy

4.1

We strive to understand the impacts our investments have on the environment and society. This is generally achieved by assessing investments
against negative and positive ESG impacts relevant to the industry and/or issuer. This ESG impact assessment is distinct from our assessment of
the effects that ESG events could have on the financial/economic value of our clients’ investments.

4.2

The Firm’s investment professionals must apply the due diligence measures specified in this PAI Sustainability Due Diligence Policy whenever they
are making any investment decision for any In-scope Products. This is to enable the Firm to consider and prioritise the PAI of its investment
decisions. In other words, this is to ensure that the Firm understands the impacts our investment decisions have on the environment and society,and to help the Firm ensure we take these into consideration on behalf of and/or as instructed by our clients, as applicable. This PAI Sustainability
Due Diligence Policy approaches sustainability from the perspective of the harm that our investment decisions might do externally to sustainability
factors.

4.3

This PAI Sustainability Due Diligence Policy is not concerned with the risks posed from the occurrence of ESG events in terms of the potential
impact on the value of our clients’ investments. In other words, this PAI Sustainability Due Diligence Policy concerns impacts we believe to bematerial or potentially material to the environment and/or society, whether or not they are financially material to the issuer. This consideration is
also not strictly or solely a consideration of the EU Framework PAI Indicators (as defined below) in respect of each In-scope Product. The impact
of sustainability risks on the value of our clients’ investments is covered by the Firm’s Sustainability Risks Integration Policy (see Section (A)).

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PAI Sustainability Due Diligence Policy

5.

PAI of investment decisions not considered at the entity level

5.1

In accordance with SFDR (and its related guidance), firms are permitted to consider the PAI of their investment decisions with respect to certain
financial products even where the firm is not considering the PAI of its investment decisions at the entity level in accordance with Article 4 of
SFDR1.

5.2

Accordingly, the Firm has decided that, while it will consider the PAI of its investment decisions for a number of products, it will not do so for manyother products. As a result, the Firm does not consider the PAI of its investment decisions at the entity level in accordance with Article 4 of
SFDR. Clients may request confirmation from the Firm as to whether their account is an In-scope Product.

5.3

Further, PGIM Fixed Income has been managing client-directed ESG portfolios for a number of years and is committed to providing clients andinvestors with strategies and solutions that help them express their policies, views and beliefs through their investments. Therefore, all clients
invested in single-client products have the option to request that their product be categorised as an In-scope Product for this PAI Sustainability
Due Diligence Policy, provided they accept the restrictions and objectives this entails.

6.

Principal adverse indicators – diligence phases

6.1

To enable the Firm to identify, consider and prioritise the PAI of its investment decisions, the Firm has established a two-stage diligence phase
where PAI are assessed and considered in two stages:

6.2

(a)

The First Diligence Phase is at a macro level where PGIM Fixed Income considers PAI from an industry, activity and asset class basis anddraws up the broad parameters for the ESG Impact Ratings framework (as further described at 6.2).

(b)

The Second Diligence Phase is at a micro level where PGIM Fixed Income only considers the PAI that are relevant to an industry, activity
and asset class in the context of particular investments such that analysts will apply ESG Impact Ratings to investments (as further
described at 6.3).

First Diligence Phase(a)1

The initial stage of the diligence phase is carried out by the ESG Committee together with analysts and involves a broad considerationand identification of the Firm’s most likely PAI in respect of its investment decisions (the “First Diligence Phase”) and it is at this stage
that the ESG Impact Rating framework is developed.

Please see the European Commission’s Q&A in respect of sustainable finance disclosures (published on 25 May 2022).

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PAI Sustainability Due Diligence Policy

(b)

6.3

2

The ESG Impact Rating framework includes guidance on the sustainability issues and principal adverse impacts most likely to be relevant
for issuers in a certain industry, activity or asset class. The First Diligence Phase consists of approving our ESG Impact Rating framework,
as follows:(i)First, the ESG Committee considered a wide range of sustainability issues on an industry, activity and asset class basis,including each of the EU Framework PAI Indicators. The sustainability issues and principal adverse impacts deemed relevantto the particular type of asset class and/or industry and/or individual activity were then identified and built into the ESG
Impact Rating framework such that analysts are guided to consider these across asset classes and sectors (as described
below).

(ii)

Second, the ESG Committee then provided detailed guidance to the analysts on the most likely environmental and social
impacts of issuers and/or issues for 150+ GICS2 sub-industries, as well as sovereigns, and structured products, and frequently
provides further supplemental guidance for specific activities within GICS sub-industries. The ESG Committee also provided
detailed governance guidance covering major governance factors, including relevance for credit risk analysis and ESG Impact
Ratings, as well as specific guidance on the SFDR Good Governance Assessment. Analysts use this guidance to rate issuers
based on the severity of the negative sustainability impacts and the issuers’ efforts to reduce and minimise negative, as wellas enhance positive impacts, as described under section 6.3. Although often informed by quantitative metrics, these ratings
ultimately reflect the qualitative judgement of our credit analysts regarding sustainability impacts. ESG Impact Ratings forcorporate issuers and structured products are not relative to an industry, but rather have specific definitions that apply
equally to issuers across all industries.

Second Diligence Phase(a)

Using the guidance provided by the ESG Committee, the investment analysts seek to assign an ESG rating to an issuer on a 100-point
scale in 5-point increments, with 0 as the lowest and 100 as the highest ESG rating (“ESG Impact Rating”).

(b)

In assigning an ESG Impact Rating, investment analysts review information which may be provided by the issuer or obtained from thirdparty ESG research providers and may also consider information from alternative data sources (e.g. NGO analyses, governmental andinter-governmental studies, etc.). This third-party research may, among other things, be used to screen our investable universe for
specified economic activities and controversies (including violations of the United Nations Global Compact (UNGC) principles); provide
information regarding ongoing litigation; review performance data for a large number of environmental, social and governance key
performance indicators; or otherwise analyse various ESG issues and risks. In certain instances, it may not be possible or practical to

Global Industry Classification Standard- 10 -PAI Sustainability Due Diligence Policy

obtain or analyse the information needed to assess and rate each investment and where this is the case our analysts may either makereasonable assumptions in order to rate the particular investments based on, for example, information relating to the particularindustry of an underlying issuer or, in rare circumstances, may identify the investment as unrated. In the former case, where reasonableassumptions are used, the ESG Committee has instructed analysts to ensure that these assumptions are conservative and err on theside of lowering the ESG Impact Rating.
(c)An assignment of a high ESG Impact Rating is generally based on the credibility and ambition of an issuer’s strategy to reduce negativeenvironmental and social impacts, and their actual achievements at the time of our analysis. Accordingly, the extent and quality ofefforts and actual achievements by issuers to reduce their negative impacts is the key driver of our ESG Impact Ratings, while efforts toenhance their positive impacts will serve as an additional differentiator yielding higher ESG Impact Ratings.

(d)Sovereign ESG Impact Ratings include quantitative data to assess performance across the specific environmental, social and governancetopics and metrics that were approved by the ESG Committee, and then include a qualitative assessment by economists to determine
a final ESG impact rating. The methodology to derive a final ESG Impact Rating was approved by the ESG Committee.

(e)Structured Products receive their own guidance on likely environmental and/or social impacts depending on the specific sub-asset class.
In order to assign an ESG Impact Rating to a structured product, guidance will vary by the type of product (e.g. ABS, CMBS, RMBS).
Depending on the type of structured product:(i)Some receive their own specific guidance on environmental and/or social impacts that are likely.

(ii)

Some first assign a rating to the issuer, following the framework provided for corporate bonds, and then adjusted upwards
or downwards after assessing any incremental environmental and/or social impacts from the underlying asset pool.

(f)

The ESG Impact Rating for currency and derivative contracts referencing a single investment will reflect the ESG Impact Rating of thatinvestment (e.g., U.S. Treasury future or U.S. interest rate swap would get the same ESG Impact Rating as the corresponding U.S.
Treasury). Similarly, a single name sovereign or corporate credit default swap would get the same ESG Impact Rating as thecorresponding sovereign or corporate issuer that it references. The ESG Impact Rating assigned to these contracts and swaps must be
above the ESG Impact Rating threshold for the relevant product to be considered eligible for investment.

(g)

For currency and derivative contracts (such as a Euro or High Yield CDX contract) that reference multiple underlying investments, an
ESG Impact Rating is applied to the contract that is based on the weighted average ESG Impact Rating for the underlying constituents
within that contract for which an ESG Impact Rating is available. That ESG Impact Rating assigned to the contract must be above the
ESG Impact Rating threshold for the relevant product to be considered eligible for investment.
- 11 -PAI Sustainability Due Diligence Policy(h)The analysts apply the ESG Impact Ratings in line with the following criteria:
(i)

(i)

An ESG Impact Rating between 40-100 requires that, with respect to the economic activities, products/services andpractices of an issuer (or financed by an issue), in our view the issuer:(A)

generates some meaningful, inherently positive impacts for either the environment or society; and(B)

has already reduced and/or minimised the associated key negative environmental and/or social impacts or ismaking credible efforts to do so.

(ii)

An ESG Impact Rating between 20-35 generally means that, with respect to the economic activities, products/services andpractices of an issuer (or financed by an issue), in our view the issuer generates some inherently positive impacts for either
the environment or society but has made only limited efforts (if any) to reduce associated key negative environmental
and/or social impacts.

(iii)

An ESG Impact Rating below 20 generally means that, with respect to the economic activities, products/services andpractices of an issuer (or financed by an issuer), in our view the issuer:(A)

generates significant negative environmental or social impacts and there are no credible efforts to minimise
these negative impacts; or(B)generates significant negative impacts to the environment and/or society that cannot be outweighed by anyother potential positive contributions to the environment and/or society.

When assigning ESG Impact Ratings, analysts are asked to consider the mandatory and certain additional PAI indicators set out under
the regulatory technical standards developed by the European supervisory authorities (the “EU Framework PAI Indicators”) where they
believe these to be relevant. However, this will vary depending on the industry, the relevance to a specific issuer, and the availabilityof data. Analysts will also take into account other indicators that they believe are relevant, or may choose to use a different indicatoror piece of information addressing the same issue as an EU Framework PAI Indicator. In addition, our experience has been that one ora handful of metrics alone do not often accurately portray an issuer’s performance on key environmental and social themes. This data
must be interpreted and put into context, alongside all other information available to an analyst. Therefore, analysts will apply
qualitative assessment in assigning a final ESG Impact Rating rather than letting it be purely data driven.

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(j)In assigning an ESG Impact Rating, the environmental and social topics, characteristics and indicators considered by the Firm’s
investment analysts vary depending on the asset class, industry and/or individual issuer but generally may include, but are not limited
to, those described in the Annex A.

(k)

While corporate governance considerations (such as, for example, ownership structures or board effectiveness) are generally notconsidered to directly affect an issuer’s impacts on the environment and society, they are an important part of the overall evaluationof an investment opportunity and in determining the credibility of stated targets and initiatives put forth by the issuer and thus are
considered by the investment analysts as part of the credit research and the initial evaluation of an investment.

(l)Additionally, SFDR requires that where a product is classified as an Article 8 or an Article 9 product, all of its investments that areinvestee companies have good governance. For purposes of “investee companies” we include all corporate issuers as well as all quasisovereigns. In order to assess whether investee companies meet good governance standards for the purposes of SFDR, PGIM Fixed
Income has created a dedicated SFDR Good Governance Framework, under which investee companies are evaluated across four key
themes: (i) management structures, (ii) employee relations, (iii) remuneration, and (iv) tax compliance. Analysts assess issuers’
compliance with each of these four themes by referencing a set of minimum standards and guidelines developed by PGIM FI’s ESG
Research Team and assigning a ‘Pass’, ‘Warning’ or ‘Fail’ flag to each theme. For the purposes of SFDR, an issuer is deemed to havegood governance where all of the following are true: (i) the issuer does not ‘Fail’ any of the four themes, (ii) the issuer receives fewer
than three ‘Warnings’ across any three of the four themes, and (iii) an analyst does not believe the issuer suffers from another significant
governance concern that does not fall under one of the four themes. In some cases, clients invested in separately managed accounts
may prefer to rely on their own methodology to determine compliance with the SFDR Good Governance criteria, we may choose toaccept and apply the approach of their choosing. The due diligence assessment described in this Section 6 generally applies to all asset
classes and then feeds into the investment phase, as outlined at section 7 of this PAI Sustainability Due Diligence Policy, below.

(m)

While we believe that our ESG Impact Ratings appropriately consider PAIs, and apply them within our own PGIM-sponsored funds, wereserve the right to apply a different process for clients in separately managed portfolios if requested by the client.

7.

Investment Phase

7.1

When making investment decisions, the Firm uses its ESG Impact Ratings (as described in Section 6 above) as its primary indicator in assessing the
PAI of its investment decisions rather than the EU Framework PAI Indicators (although, depending on the investment, the EU Framework PAI
Indicators might form part of that consideration).

7.2

In order to consider, manage, prioritise and mitigate the “principal adverse impacts” of our investment decisions, we have set thresholds thatinvestments by In-scope Products must not exceed. These are based on our ESG Impact Ratings, as well as additional metrics or data points relating- 13 -PAI Sustainability Due Diligence Policy

to specific activities or concerns. In setting these thresholds, the Firm has taken into account its intent to prioritise the PAI which generally moststrongly conflict with the applicable ESG priorities and objectives of its products. In addition, through our ESG Impact Ratings we will consider
whether an investment also has any off-setting positive impacts (e.g., where an issuer has demonstrated clear efforts to reduce and minimise theadverse impacts, as well as enhance positive impacts) and this analysis then feeds into certain of our permitted tolerance thresholds (see Section
7.4 below).
7.3

While we believe that our ESG Impact Ratings appropriately consider the PAI indicators and apply them within our own PGIM-sponsored funds,
we reserve the right to apply a different process for clients in separately managed portfolios if such clients request this.

7.4

The “adverse impact” thresholds that are generally applied to In-scope Products include, but are not limited to:(a)Investments that have an ESG Impact Rating below a specified level which will vary by investment strategy and may vary based on client
preference (provided that most products permit a limited proportion of the portfolio – typically 5% - to be unrated, primarily forlogistical reasons relating to the timing on new issuances).

(b)

Investments in corporate issuers that violate the UNGC, a principles-based framework for businesses, stating ten principles in the areasof human rights, labour, the environment and anti-corruption.

(c)

Investments in corporate issuers that are involved in the production, sales and/or distribution nuclear or other controversial weapons(including landmines, cluster weapons, depleted uranium, white phosphorus and biological/chemical weapons).

(d)

Investments in corporate issuers that are tobacco manufacturers deriving at least 5% of revenues from such activities.

(e)

Investments in corporate issuers exceeding certain revenue thresholds from thermal coal generation or thermal coal extraction.

7.5

Notwithstanding the foregoing, a client may elect to impose its own specific thresholds in lieu of or in addition to the thresholds described in
Section 7.4 above, as may be agreed on a case-by-case basis between the client and the Firm in the investment management agreement, or if
applicable, as provided in the fund offering document, for the product.

7.6

Except for restrictions based on the Firm’s ESG Impact Ratings or its other proprietary assessment frameworks, the Firm may rely on third party
screens to determine if an investment is in breach of the thresholds described in Section 7.4 above or others that may be imposed by a client.

7.7

In respect of In-scope Products we will generally not make investments that breach the above thresholds described in Section 7.4 or others that
may be imposed by a client, as applicable. In the event that an issuer that previously did not breach any of the applicable thresholds described in
Section 7.4 at the time of purchase, but subsequently does breach one or more thresholds due to intervening events, we will use reasonable- 14 -PAI Sustainability Due Diligence Policy

efforts to sell such investments within 90 business days of becoming aware of the breach (or such other amount of time as may be expressly
agreed in applicable account or fund documentation). In addition to not making investments in these issuers, we may take the additional mitigating
action of engaging with management of issuers to understand what actions they are taking to improve their business from a sustainability
perspective.
8.

PAI Reporting
Where requested, PGIM Fixed Income will provide PAI reports with respect to In-scope Products and that reporting can be prepared against the
EU Framework PAI Indicators only.

9.

Disclosure of this PAI Sustainability Due Diligence Policy

9.1

As described above, PGIM Netherlands B.V. is required to publish a statement that it does not consider the PAI of investment decisions onsustainability factors at the entity level (as required under Article 4(1)(b) of the SFDR) and this statement is available at:https://www.pgim.com/fixed-income/sfdr-information. For the avoidance of doubt, this PAI Sustainability Due Diligence Policy is not astatement made under Article 4 of SFDR.

9.2

The Firm may also disclose a separate summary of this PAI Sustainability Due Diligence Policy in pre-contractual disclosures of in-scope products.

9.3

For any financial product which is not an In-scope Product, we may also include an explanation that the relevant financial product does not consider
the principal adverse impacts on sustainability factors, and the reasons for that approach.

9.4

For these purposes, “pre-contractual disclosures” means the prospectus or offering document for a fund, and the investment managementagreement or other terms and conditions for a portfolio management service.

10.

Governance and senior management responsibility

10.1

The Firm’s ESG Policy Committee is ultimately responsible for the Firm’s policies and procedures in respect of sustainability.

10.2

The Firm’s ESG Policy Committee has approved this PAI Sustainability Due Diligence Policy.

- 15 -PAI Sustainability Due Diligence Policy

ANNEX A
Non-Exhaustive List of ESG Topics, Characteristics and Indicators

ESG Topic

ESG Characteristics

Indicators Potentially Considered*

GHG Emissions / Energy
Use

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

Ecosystem/Biodiversity
DamageResponsible management of
ecosystems and biodiversity

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

Responsible management of
waste

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

Responsible management of
hazardous waste

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

Circular economy initiatives

Waste recycling practices; Waste management processes; Product lifecycle management; Ewaste management programs; Recyclability of products and recycled content used in
products

Waste Management(incl. hazardous waste)- 16 -PAI Sustainability Due Diligence Policy

ESG Topic

Water
Consumption/Contamination

Human Rights

ESG Characteristics

Indicators Potentially Considered*Responsible management ofwater use

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

Water contamination
management

Emissions to water; Water contamination reduction program

Responsible treatment ofvulnerable workers andpopulations

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

Strong worker health and safety
management

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

Fair wages and working
conditions

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

Governance to avoid illegal
business activities

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

Governance to avoid unethicalbusiness practices

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

Safe products and services

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

Non-discriminatory pricing andsales practices

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

Labour Management

Unethical/Illegal
Business Practices

Quality of Products andServices- 17 -PAI Sustainability Due Diligence Policy

ESG TopicESG Characteristics

Indicators Potentially Considered*Financing of green projects

Credibility of project or initiative; Additionality of project or initiative

Financing of social projects

Credibility of project or initiative; Additionality of project or initiative

Projects and initiatives*Not every topic, characteristic and/or indicator listed is always assessed as the assessment only considers material impacts, which can vary by asset class,industry and the issuer’s specific activities. The list is not exhaustive and actual analysis may include other indicators and/or topics not listed here.
Consideration of indicators is usually a qualitative assessment informed by those indicators, rather than via a quantitative framework. In some cases, theindicators may be considered indirectly (e.g. via consideration of policies likely to affect performance on the indicator). For the avoidance of doubt, analysts
are not required to directly score each indicator listed.
Note: indicators may also be relevant within supply chains.

- 18 -PAI Sustainability Due Diligence Policy