Status under the EU Sustainable Finance Disclosure Regulation (SFDR)

B. No significant harm to the sustainable investment objective

The sustainable investments are subject to the measures described below, which are designed to reduce adverse impacts on sustainability factors and to ensure that sustainable investments made by the Sub-Fund do not cause significant harm to any environmental or social sustainable investment objective.

GHG emissions (Principal Adverse Impact #1): reduces the weighted average GHG emissions of the Sub-Fund by 50 % relative to the parent index, and by 7% per annum

Exposure to companies active in the fossil fuel sector (Principal Adverse Impact #4): excludes issuers with revenues from oil, gas, coal and energy intensive electricity above the thresholds specified in the PAB rules.

Violations of UN Global Compact Principles and OECD Guidelines for Multinational Enterprises (Principal Adverse Impact #10): excludes issuers verified as failing to respect established norms such as the UN Global Compact (UNGC) principles, the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles for Business and Human Rights.

Significant environmental harm: excludes issuers deemed to have significant negative impact on any of UN Sustainable Development Goals 12-15 (Responsible Consumption & Production, Climate Action, Life below Water, Life on Land).

Exposure to controversial weapons (Principal Adverse Impact #14): excludes issuers with alleged or verified involvement in controversial weapons, including chemical weapons, biological weapons, nuclear weapons, depleted uranium, cluster munitions and anti-personnel mines.

Exposure to additional harmful business activities: excludes issuers involved with adult entertainment, alcohol, recreational cannabis, civilian firearms, conventional weapons, gambling, nuclear weapons, thermal coal or tobacco, subject to certain revenue thresholds.

Note that these measures are built into the methodology of the reference benchmark and applied using data provided by ISS ESG. Please refer to the reference benchmark methodology for more information. The Investment Manager takes them into account by a) replicating the reference benchmark as far as possible and practical and b) ensuring that the same constraints are applied to the actual holdings of the Sub-Fund.

This Sub-Fund considers the Principle Adverse Indicators (PAIs), including the 14 mandatory PAIs plus one optional climate related PAI (Investments in companies without carbon emission reduction initiatives). The measures above show how some PAIs are formally considered in the investment process. The remaining PAIs are not incorporated in the index methodology and therefore cannot be considered in the day-to-day investment process. However, the Investment Manager monitors these PAIs on a quarterly basis using MSCI data. It also considers these PAIs in annual reviews with index providers, to assess whether the quality and availability of data is sufficient to incorporate them into the reference benchmark methodology. Disclosures pursuant to Article 11(2) of Regulation (EU) 2019/2088 will be published at www.janushenderson.com(opens in new tab).

 

C. Sustainable investment objective of the financial product

The sustainable investment objective of the Sub-Fund is to reduce carbon emissions in Euro ultrashort investment grade bond allocations in alignment with the Paris Agreement, thereby contributing to the environmental objective of climate mitigation. It achieves this by tracking the performance of the Solactive ISS Paris Aligned Select 0-1 Year Euro Corporate IG Index.

This is a reference benchmark meeting the criteria for an EU Paris-aligned Benchmark (PAB) described in regulation (EU) 2020/1818. It is designed to achieve 50% lower greenhouse gas (GHG) emissions than the Euro ultrashort investment grade bond market and a 7% year-on-year reduction in GHG emissions, while also incorporating a range of ESG exclusions. The methodology for the reference benchmark is available at https://www.solactive.com/indices/.(opens in new tab)

Bonds are selected and weighted so as to deliver a portfolio that 1) reflects the composition of the reference benchmark as far as practicable 2) has weighted average GHG emissions lower than or equal to the reference benchmark and 3) meets the reference benchmark’s sustainability and ESG-related selection criteria.

D. Investment strategy

The Sub-Fund invests in a portfolio of fixed income securities that reflects the composition of the reference benchmark as far as practicable. The Sub-Fund may use optimisation techniques to select securities. However, it is intended that the Sub-Fund will only invest in bonds that allow the portfolio to meet the sustainability and ESG-related criteria described in the reference benchmark methodology (and below as “binding elements”). The Sub-Fund may also hold a small percentage of government or government-related bonds and cash for the purposes of efficient cash management.

E. Proportion of investments

The Sub-Fund aims to track a Paris-aligned Benchmark (PAB) and is therefore deemed to be making sustainable investments. The Sub-Fund will allocate a minimum of 90% of assets to a portfolio of bonds that replicates the reference benchmark as far as possible and practical, allowing up to 10% of assets to be used for liquidity or hedging purposes, where necessary

Alignment with the EU Taxonomy is not currently in the criteria for PABs and is not incorporated in the reference benchmark methodology. As a result, to ensure that the fund closely tracks the reference benchmark, the Investment Manager cannot currently commit to a specific minimum percentage alignment with the EU Taxonomy.

The asset allocation is summarised as follows:

 

The Sub-Fund may hold government and government-related bonds and a small Cash Component for the purposes of liquidity and efficient portfolio management. It may also invest in FX forwards for currency hedging purposes. No minimum environmental or social safeguards are applied to these assets.

F. Monitoring of sustainable investment objective

The sustainability indicators used to measure the attainment of each of the environmental or social characteristics promoted by this financial product are:

Greenhouse gas emissions: the Sub-Fund targets weighted average GHG emissions lower than or equal to the reference benchmark. Note that the reference benchmark is designed to reduce weighted average GHG emissions and GHG emissions intensity by 50 % relative to the Euro ultrashort IG bond market, as represented by the Solactive 0-1 Year Euro IG Corporate Index (the “parent index”), and by 7% per annum. The reference benchmark uses Scope 1, 2 and 3 GHG emissions data provided by ISS ESG. Please refer to the reference benchmark methodology more information.

The IM Business Risk team provide ongoing assurance, where required, that we can evidence investment products are being managed in line with documented sustainability commitments where automated controls and/or 3rd party data are not available. Financial Risk review and challenge investment management in light of ESG-related risks, alongside traditional market risk metrics, and embed sustainability risk into the risk profiles. Investment Compliance implement exclusionary screening and monitor this on an ongoing basis in addition to elements of manual oversight where relevant.

G. Methodologies

The Sub-Fund is designed to reflect the composition of the reference benchmark as far as practicable. Its composition therefore reflects the rules governing PABs and the selection criteria specified in the reference benchmark methodology.

These include the following:

• Reduction in GHG emissions. The reference benchmark is designed to reduce weighted average GHG emissions and GHG emissions intensity by 50 % relative to the parent index and by 7% per annum. The Sub-Fund targets weighted average GHG emissions lower than or equal to the reference benchmark. Exclusion of bond issuers in violation of social norms (including the UN Global Compact), causing significant environmental harm or with revenues from oil, gas, coal and energy intensive electricity above certain thresholds
• Exclusion of bond issuers deemed to have significant negative impact on any of UN Sustainable Development Goals 12-15 (Responsible Consumption & Production, Climate Action, Life below Water, Life on Land)
• Exclusion of bond issuers involved with the follow business activities: controversial weapons, tobacco, adult entertainment, alcohol, gambling, recreational cannabis, civilian firearms, weapons, genetic engineering (thresholds, where applicable, are specified in the reference benchmark methodology)

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H. Data sources and processing

The Investment Manager has chosen MSCI as its primary data source for ESG (Environmental, Social and Governance) research.

Where coverage gaps are identified, specialist ESG Data vendors or inhouse research may be used to complement the ESG research. This helps ensure that in an effort to provide consistent data,  methodologies are given an ESG measure per security type, hence enabling them to be compared correctly in the portfolio construction process.

JHI has built a centralised proprietary research alignment process; The central research alignment process aligns data at three different levels:

1. Entity Level,
2. Position Level, and
3. Fund Level.

 

The research alignment and mapping capability is critical to JHI's ESG methodology, as we recognize a security could inherit the ESG information from the issuing legal entity, however, some ESG risks will be instrument specific.

JHI applies a series of Data Quality rules to ensure the integrity of the data being ingested into the central research alignment solution. JHI data that is not aligned correctly to the definition as provided by the data vendor is not ingested into the central cloud-based data warehouse and exceptions are raised. Remediation includes challenging the data provider or internal operations supporting internally managed Systems of Records. Where appropriate the Data Owner responsible and accountable for the data is notified through the internal Data Governance process to resolve outstanding exceptions.

JHI receives weekly automated data feeds from external ESG Data vendors, which are ingested into a cloud-based data warehouse.

Some data used to support binding criteria as received from external providers may be estimated data. For positions not covered by the external data provider, proprietary research may be used. This could range from proprietary research alignment against the external data vendor to written confirmation from the issuing entity that it aligns to the binding criteria. The appropriateness of the evidence provided is assessed by an independent body at JHI.

I. Limitations to methodologies and data

Data coverage is directly driven by the coverage of the underlying ESG Data Provider.

The promotion of the social and environmental characteristics is not wholly dependent on third party data, or any methodology limitations thereof and is typically also informed by proprietary research, engagement with investee companies where there might be relevant data gaps.

JHI’s internal data structure provides sufficient flexibility to incorporate proprietary research or adapt evaluations to future requirements.

JHI is aware of data gaps in ESG Research for non-traditional asset classes compared to mainstream asset classes such as equities and debt instruments.

J. Due diligence

The JHI Responsible Investment Policy sets out the firmwide approach to ESG Integration, including JHI's Responsible Investment Principles for long-term investment success, our approaches to Stewardship and Engagement and Firmwide Exclusions applied to investee companies. These exclusions are based on classifications provided by third-party data ESG data providers. This classification is subject to an investment research override in cases where sufficient evidence exists that the third-party field is not accurate or appropriate.

Each investment desk completes their own due diligence processes ahead of making any investment decisions within their Article 9 funds, using internal and external tools and research.

The IM Business Risk team provide ongoing assurance where required, that we can evidence Investment products are being managed in line with documented sustainability commitments where automated controls and/or 3rd party data are not available. Financial Risk review and challenge investment management in light of ESG-related risks, alongside traditional market risk metrics, and embed sustainability risk into the risk profiles. Investment Compliance ensure that ESG-related activities are managed in line with regulatory requirements and expectations and considered within our compliance framework.

K. Engagement policies

In addition to the binding elements of the investment strategy described above, stewardship forms an integral and natural part of Janus Henderson’s long-term, active approach to investment management. In general, Janus Henderson prefers an engagement-focused approach to a firm-level exclusion or divestment policy, in sectors where we have identified financially material sustainability risks. We believe this approach is best to seek to maximise risk-adjusted returns for our clients and for driving positive change at our portfolio companies. Further details on our Engagement Policy can be found in the ‘Responsible Investment Policy(opens in new tab)’ published under the 'ESG Resource Library’ at https://www.janushenderson.com/corporate/who-we-are/brighter-future-project/responsibility/esg-resources/(opens in new tab).

The Firm supports a number of stewardship codes and broader initiatives around the world and is a signatory to the UK Stewardship Code.

Janus Henderson has a Proxy Voting Committee, which is responsible for establishing positions on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives from Asset Servicing, Compliance, Operational Risk, Responsible Investment and Governance, and equity portfolio management. Internal legal counsel serves as a consultant to the Committee and is a non-voting member. Additionally, the Proxy Voting Committee is responsible for monitoring and resolving conflicts of interest with respect to proxy voting.

L. Attainment of the sustainable investment objective

The Sub-Fund is designed to reflect the composition of the reference benchmark as far as practicable. Its composition therefore reflects the rules governing PABs and the selection criteria specified in the reference benchmark methodology.

The Sub-Fund targets weighted average GHG emissions lower than or equal to the reference benchmark.

Reference benchmark

The Fund does not use a reference benchmark to attain its environmental or social characteristics.