Brochure_Global_Sustainable_Strategy_1

For professional and institutional investors use only. Not for further distribution - June 2023

METHODOLOGY OF IDENTIFICATION
OF “SFDR SUSTAINABLE INVESTMENT” PRODUCTS
SFDR SUSTAINABLE FINANCE DISCLOSURE REGULATIONThe Commission put forward the action plan on financing sustainable growth in March 2018 which aims tostrengthen sustainability disclosure and accounting rule making. The Sustainable Finance Disclosure Regulation(Regulation (EU) 2019/2088) was published in December 2019 and applies from 10 March 2021. It lays down
harmonised transparency rules for financial market participants and financial advisers on how they integrate
environmental, social and good governance factors into their investment decisions and financial advice and on
their overall and product-related sustainability ambition. The regulation brings further accountability, disciplineand efficiency to financial markets
SFDR distinguishes disclosure requirements for:• financial products that claim to have ‘Sustainable Investment’ as their objective (in the case of environmental
objectives these are often referred to as ‘dark green’ financial products). The transparency required for theseproducts is described in the Article 9 of the Disclosure Regulation. The European Comission has intimated thatArticle 9 funds should have 100% exposure to “Sustainable Investments”;• financial products that claim to be promoting social or environmental characteristics (often referred to as‘light green’ financial products). The transparency required for these products is described in the Article 8 ofthe Disclosure Regulation.
The final report of the Regulatory Technical Standards adopted in October 2021 require Article 8 and 9 funds todisclose their percentages of Sustainable Investments, both commited and actual.
The SFRD defines "Sustainable Investments" as an investment 1) having an Environmental or Social Objective,2) doing No Harm, and 3) having Good Governance.

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M E T H O D O LO G Y O F I D E N T I F I C AT I O N O F “ S U STA I N A B L E I N V E ST M E N T ” P R O D U C TS- 2 -BNP PARIBAS ASSET MANAGEMENT SFDR SUSTAINABLE INVESTMENT DEFINITIONDEFINITION OF A SUSTAINABLE INVESTMENT
BNPP AM believes that Sustainable Investment should be a binary qualification applied at a company level.
“Sustainable Investment” should also be understood within the context of the broader legislative framework
regulating sustainable finance. Sustainable Investments and Taxonomy Alignment have a similar purpose:
identifying investments through which a positive contribution may be achieved. However, these two analyticalframeworks widely differ in their nature. The EU Taxonomy alignment is intended to be an objective measureprovided by a company, just as its carbon footprint, its gender pay gap or its debt-to-capital ratio and isbased on clear regulatory standards. On the contrary, Sustainable Investment is a judgment call left foreach market participant to make. Indeed, the recent European Commission answers to the questions fromthe ESAs on the interpretation of Regulation (EU) 2019/2088 (SFDR) mentions that: “The SFDR does not
set out minimum requirements that qualify concepts such as contribution, do no significant harm, or good
governance, i.e. the key parameters of a ‘sustainable investment’. Financial market participants must carryout their own assessment for each investment and disclose their underlying assumptions”.
Finally, the notion of “Sustainable Investments” should be read within the system that is built by SFDR andin particular Article 9. The legislative and regulatory litterature state in several instances that a financial
product having Sustainable Investments as its objective must only invest in “Sustainable Investments” except
for “special-purpose investments” such as cash and hedging derivatives, and with the exception of PAB/
CTB funds which the European Commission answers to the questions from the ESAs on the interpretation ofRegulation (EU) 2019/2088 (SFDR) has indicated may automatically be considered article 9.
IDENTIFICATION OF A SUSTAINABLE INVESTMENTActivities vs practices
The definition of “Sustainable Investments” states that it is an investment in an economic activity for which
we can identify a positive contribution to an environmental or social objective, while not harming any otherobjective and provided that the company has good governance practices. To identify a sustainable investment,
one can consider both the output of the economic activity itself and the way the activities are delivered tobuild a comprehensive perspective on the positive contribution criteria.
The positive contribution of an economic activity to an environmental (E) or social (S) objective can first be
measured through an output analysis: determining whether the product or service delivered by this economic
activity provides a solution to an E or S objective. In addition, the positive contribution of economic activities
to an E or S objective can also be achieved through their operating model or even the company-wide businessand operations alignment with E or S targets.
BNP PARIBAS ASSET MANAGEMENT SUSTAINABLE INVESTMENT METHODOLOGYBNPP AM has integrated five main building blocks into its definition of Sustainable Investments which areconsidered to be core components to qualify a company as sustainable.

M E T H O D O LO G Y O F I D E N T I F I C AT I O N O F “ S U STA I N A B L E I N V E ST M E N T ” P R O D U C TS- 3 -Figure 1: Our definition of sustainable investment

Company A

Activity BasedINCLUSION

EU Taxonomy
Vendor selected> 20%ORSDG¹
BNPP AM SDG methodology

ORSustainable Bonds
Green, social, sustainable, andselect agency bonds

A > 20% & M < 20%ORBonds reviewed and approved by the SCAND

DNSH³ Screen

EXCLUSION

Operational

ITR² (Net Zero)
BNPP AM methodology

ORE or S best performer
BNPP AM methodology

1.5°C – High Emission Sectors

Pillar score > 10

Governance screen

SFDR DNSH principle4
Controversies < 4 & 5,
ESG < D10, Not in Watchlist

G > -10

not in Oil & Gas sector
5SocialEnvironmental

IF NO

Not sustainable Investment

IF YES

Sustainable Investment

1: Sustainable Developments Goals; 2: Implied Temperature Rise; 3: Do Not Significantly Harm 4: SFDR DNSH principle consists in taking into
account the mandatory PASI and complying with the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business &Human Rights; 5: Entities in the following BICS Level 4 industries: Exploration & Production; Integrated Oils; Midstream - Oil & Gas; Refining& Marketing; Drilling & Drilling Support; Oilfield Services & Equipment; Coal Mining; Gas Utilities

IDENTIFICATION OF A CONTRIBUTION TO AN ENVIRONMENTAL OBJECTIVE OR SOCIAL OBJECTIVE
In practice, an issuer must pass at least one of the following criteria described below in order to be considered
as contributing to an environmental or social objective.
Eu taxonomy alignment
The EU Taxonomy is an obvious first building block as Taxonomy aligned investments is a subset of Sustainable
Investments. It is at the heart of the European Sustainable Regulation and is intended to become the common
language in Europe to classify economic activities as sustainable. So far 2 (climate change mitigation, climatechange adaptation) of the 6 environmental objectives have been properly defined in technical guidelines.
BNPP AM has reviewed the available data providers in the market and ultimately selected Bloomberg as its
preferred vendor since this is in its view the provider offering the highest level of compliance with the requirementsof the regulation.
In order to classify securities as being aligned, a % threshold needs to be set for the minimum % of economic
activities of a company before it is considered aligned. BNPP sets a minimum % revenue threshold of 20%. Thislevel has been chosen for a number of reasons:- Regulators tend to accept 20% as an exposure above which it is considered material- Several sustainability labels, such as the French Label ISR, require an excess of 20% in order to consider
exposures to be material- Lowering the threshold to 10% does not significantly increase the % aligned companies. Issuers tend to besignificantly aligned or very little.
SDG alignment
The UN Sustainable Development Goals build on decades of work by countries and the UN with the objective topromote sustainable development, to improve human lives and protect the environment.
BNPP AM has partnered with Matter, a Danish Fintech to create a revenue-based SDG-alignment model. Under
this, an issuer is considered sustainable if it has more than 20% of its revenues aligned with the SDGs and lessthan 20% of its revenues misaligned with the SDGs.

M E T H O D O LO G Y O F I D E N T I F I C AT I O N O F “ S U STA I N A B L E I N V E ST M E N T ” P R O D U C TS- 4 -Sustainable bonds and agencies conventional bonds
Green, Social, and Sustainability use of proceeds bonds can qualify as Sustainable Investments since the proceeds
are used for specific activities, assets, or projects that can contribute positively towards Environmental and/or Social objectives. BNPP AM only considers a specific Green, Social or Sustainability use of proceeds bondto be a Sustainable Investment if it passes the internal proprietary thematic bond assessment and receivesa recommendation of either “Neutral” or “Positive”. At present of the exclusionary screens mentioned in ourSustainable Investment definition, only the decile 10 exclusion is applied to labelled bonds.
In addition, Agencies with Environmental and/or Social mandates issuing conventional bonds can be qualified as
Sustainable Investments by the Sustainability Center. None of the “agencies” included in the Sustainable Investment
list have any Green, Social and Sustainability use of proceeds bonds with a “Negative” recommendation basedon BNPP AM’s proprietary thematic bond assessment.
Implied temperature rise (ITR)
The fifth pillar focuses on the alignment of issuers with the objective of maintaining the global temperature risebelow 1.5°C. The alignment of portfolios with this objective is becoming a key priority for asset owners, distributors
and asset managers alike. Companies in high GHG emission sectors (Materials, Energy, Industrials and Utilities
in the MSCI GICS) that are transitioning their business models to align with net zero (ITR <1,5%) are considered
to be contributing to an environmental objective and therefore part of the Sustainable Investments definition.
E or S best performer
In order to complement the limited EU Taxonomy scope as explained above but also to account for issuer’s
sustainable practices, a sixth pillar is defined around Environmental and Social sustainability best performers.
The E or S best performer assessment is based on the BNPP AM ESG scoring methodology, available here. Themethodology scores companies and assess them against a peer group comprising companies in comparable
sectors and geographical regions. Companies with a contribution score above 10 on the Environmental or Social
pillar qualify as best performer.
Fundamental analysis
We have also developed a Fundamental Analysis process to complement our current EU Taxonomy and SDG
datasets which allows portfolio managers to request the Sustainability Center to qualify additional issuers as
Sustainable Investments not otherwise captured by our data models. In order to qualify via this channel, evidence
must be provided that these issuers have sustainable activities above the 20% materiality threshold discussed
above and must respect the Sustainable Investment DNSH and good governance requirements1.
DNSH CHECK AND GOOD GOVERNANCE2
Once issuers have been identified as a Sustainable Investment, the regulation requires an assessment thatthe issuer does not significantly harm (DNSH) any other environmental or social objectives and follows goodgovernance practices. Therefore, the following exclusion filters have been added. Issuers should:
1. not significantly harm any other environmental or social objective: BNPP AM excludes issuers with significant
controversies, in decile 10 of our ESG scoring model, on our RBC Watchlist or involved in the oil & gas sector.
We also consider SFDR PASI’s at entity-level.
2. follow good governance practices: BNPP AM uses its proprietary ESG scoring methodology which is split out
into an Environmental, Social and Governance score. Issuers with a Governance score below -10, are removed
and are not considered as “Sustainable Investment”.

1. It should also be noted that ESG analysts have the ability to override these negative screens in certain circumstances based on further
qualitative review.
2. It should be noted that for some issuers, the lack of data did not allow us to assess the DNSH or governance screen and these issuers were
not blocked to qualify as Sustainable Investment.

M E T H O D O LO G Y O F I D E N T I F I C AT I O N O F “ S U STA I N A B L E I N V E ST M E N T ” P R O D U C TS
- 5 -SCOPE
The output of “Sustainable Investments” analysis is applicable at issuer-level.
In scope

Out of scopeIssuers- Private companies (listed and non-listed)- Private assets (debt and equity)- Sovereign-linked companies- Agencies or other quasi-sovereign
entities- Sovereigns are not considered in
the scope of Sustainable Investment
definition at this stage. This position
might be revisited after clarifications
from EU authorities or evolutions ofstandard market practices.

Assets- Green, Social and Sustainability Bonds:
these instruments do not inherit theextra-financial characteristics of theirissuer and are instead evaluatedindividually against our proprietary
criteria for use-of-proceeds labeledbonds.

- Cash: out of scope of the Sustainable
Investments definition.
- Derivatives: out of scope of the Sustainable
Investments definition except in thespecific case of synthetic replication- Synthetic replication and formula funds
relying on derivatives such as TRS (TotalReturn Swap) to get exposed to theinvestment strategy: the SustainableInvestments methodology applies tosuch derivatives underlying portfolio.

FORWARD LOOKING PERSPECTIVE
We are actively working to expand our methodology to new asset classes (e.g. private Fund-of-Funds).

DISCLAIMER
The investments in the funds are subject to market fluctuations and the risks inherent in investments in securities.
The value of investments and the income they generate may go down as well as up and it is possible that investors
will not recover their initial outlay, the funds described being at risk of capital loss. For a Complete description
and definition of risks, please consult the last available prospectus and KIID of the funds
About SFDR categorisations:•••“Article 6” products either integrate environmental, social and governance (ESG) risk considerations into theinvestment decision-making process, or explain why sustainability risk is not relevant, but do not meet theadditional criteria of Article 8 or Article 9 strategies.
“Article 8” products promote social and/or environmental characteristics. These may invest in sustainable
investments, but do not have sustainable investing as a core objective.
“Article 9” products have a sustainable investment objective.

ESG: Environmental, Social and Governance.

DEFINITIONSISR: L’investissement Socialement Responsable
ESG: Environmental, Social and Governance.
PASI: Principal Adverse Impact indicators
SFDR: Sustainable Finance Disclosure Regulation

June 2023 - Design: BNPP AM Creative Services - P2209098

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