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Status under the EU Sustainable Finance Disclosure Regulation (SFDR) - Global Select Fund

Janus Henderson Fund – Global Select Fund

A. Summary

The Fund is categorised as one which meets the disclosure provisions set out in Article 8 of SFDR as a product which promotes environmental and/or social characteristics and invests in companies with good governance practices.

The Fund promotes climate change mitigation and seeks to avoid investments in certain activities with the potential to cause harm to human health and wellbeing by applying binding exclusions. The Fund does not use a reference benchmark to attain its environmental or social characteristics.

This Fund seeks capital growth through global equity markets. The binding elements of the investment strategy described below are implemented as exclusionary screens which are coded into the compliance module of the Investment Manager’s order management system utilising a third-party data provider on an ongoing basis. The exclusionary screens are implemented on both a pre and post trade basis enabling the sub investment advisor to block any proposed transactions in an excluded security and identify any changes to the status of holdings when third-party data is periodically updated.

The Investment Manager uses specific screens to help achieve some of the promoted characteristics. For example-to promote climate change mitigation, screens are applied to avoid investment in certain high carbon activities, and it is expected that this will result in the fund having a lower carbon profile.

The Investment Manager applies screens to exclude direct investment in issuers based on their involvement in certain activities. Specifically, issuers are excluded if they derive more than 10% of their revenue from arctic oil and gas, thermal coal extraction, palm oil, or tobacco production.

The Fund also applies the Firmwide Exclusions Policy, which includes controversial weapons, as detailed below. For the purposes of the AMF doctrine, the extra-financial analysis or rating as described above is higher than:

  1. 90% for equities issued by large capitalisation companies whose registered office is located in "developed "countries, debt securities and money market instruments with an investment grade credit rating, sovereign debt issued by developed countries.
  2. 75% for equities issued by large capitalisations whose registered office is located in "emerging" countries, equities issued by small and medium capitalisations, debt securities and money market instruments with a high yield credit rating and sovereign debt issued by "emerging" countries.

The Investment Manager may only invest in companies that would be excluded by the screens described above if the Investment Manager believes, based on its own research, and as approved by its ESG Oversight Committee, that the third-party data used to apply the exclusions is insufficient or inaccurate.

The Investment Manager may consider that the data is insufficient or inaccurate if, for example, the third-party data provider research is historic, vague, based on out-of-date sources, or the investment manager has other information to make them doubt the accuracy of the research.

If the Investment Manager wishes to challenge the third-party data, then the challenge is presented to a cross functional ESG Oversight Committee who must sign off on the “override” of the third-party data.

If a third-party data provider does not provide research on a specific issuer or excluded activity, the Investment Manager may invest if, through its own research, it is satisfied that the issuer is not involved in the excluded activity.

JHI 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 consistent data and methodologies are used given an ESG measure per security type and hence can be compared correctly in the portfolio construction process.

The JHI ESG Investment Policy, which incorporates JHI’s Sustainability Risk Policy, sets out the firmwide approach to ESG Integration Principles, including JHI’s Responsible Investment Principles for long-term investment success, our approaches to Stewardship and Engagements and Baseline Exclusions applied to investee companies.

B. No Sustainable Investment Objective

This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.

C. Environmental or social characteristics of the financial product

The Fund promotes climate change mitigation and seeks to avoid investments in certain activities with the potential to cause harm to human health and wellbeing by applying binding exclusions. The Fund does not use a reference benchmark to attain its environmental or social characteristics.

D. Investment Strategy

This Fund seeks capital growth through global equity markets.

The binding elements of the investment strategy described below in the Section G are implemented as exclusionary screens which are coded into the compliance module of the Investment Manager’s order management system utilising a third-party data provider on an ongoing basis. The exclusionary screens are implemented on both a pre and post trade basis enabling the sub investment advisor to block any proposed transactions in an excluded security and identify any changes to the status of holdings when third-party data is periodically updated.

E. Proportion of investments

A minimum of 85% of the investments of the financial product are used to meet the environmental or social characteristics promoted by the financial product. Other assets, which are not used to meet the environmental or social characteristics, may include cash or cash equivalents in addition to instruments held for the purposes of efficient portfolio management e.g. temporary holdings of index derivatives.

F. Monitoring of environmental or social characteristics

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

  • Carbon – Carbon Footprint Scope 1&2

    This represents the company's most recently reported or estimated Scope 1 + Scope 2 greenhouse gas emissions normalized by sales, which allows for comparison between companies of different sizes.

  • ESG Exclusionary screens – see Section G below for details on the exclusions.
  • Data Sources and processing – as further described under Section H.

G. Methodologies for environmental or social characteristics

The Investment Manager uses specific screens to help achieve some of the promoted characteristics. For example, to promote climate change mitigation, screens are applied to avoid investment in certain high carbon activities, and it is expected that this will result in the fund having a lower carbon profile. The Investment Manager applies screens to exclude direct investment in issuers based on their involvement in certain activities. Specifically, issuers are excluded if they derive more than 10% of their revenue from arctic oil and gas, thermal coal extraction, palm oil, or tobacco production.

The Fund also applies the Firmwide Exclusions Policy (the “Firmwide Exclusions Policy”), which includes controversial weapons:

This applies to all the investment decisions made by the Management Company or Investment Manager. The Firmwide Exclusions Policy may be updated from time to time.

Presently, investment is not permitted in entities involved in the current manufacture of, or minority shareholding of 20% or greater in a manufacturer of controversial weapons, namely:

  • Cluster munitions;
  • Anti-Personnel mines;
  • Chemical weapons;
  • Biological weapons.

Classification of issuers is primarily based on activity identification fields supplied by our third-party ESG data providers. This classification is subject to an investment research override in cases where sufficient evidence exists that the third-party data field is not accurate or appropriate. In any scenario where a portfolio position is identified as not meeting this exclusion criteria for any reason (legacy holding, transition holding, etc.) the Investment Manager shall be granted 90 days to review or challenge the classification of the issuer if appropriate. After this period, in the event an investment research override is not granted divestment is required immediately under normal market trading circumstances.

The Investment Manager may only invest in companies that would be excluded by the screens described above if the Investment Manager believes, based on its own research, and as approved by its ESG Oversight Committee, that the third-party data used to apply the exclusions is insufficient or inaccurate.

The Investment Manager may consider that the data is insufficient or inaccurate if, for example, the third-party data provider research is historic, vague, based on out-of-date sources, or the investment manager has other information to make them doubt the accuracy of the research.

If the Investment Manager wishes to challenge the third-party data, then the challenge is presented to a cross functional ESG Oversight Committee who must sign off on the “override” of the third-party data. If a third-party data provider does not provide research on a specific issuer or excluded activity, the Investment Manager may invest if, through its own research, it is satisfied that the issuer is not involved in the excluded activity.

H. Data sources and processing

The Fund has chosen MSCI’s 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 consistent data and methodologies are used given an ESG measure per security type and hence can 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. These exceptions are monitored and remediated by a central support team. 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.

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 Investment Policy, which incorporates JHI’s Sustainability Risk Policy, sets out the firmwide ESG Integration, including JHI’s Responsible Investment Principles for long-term investment success, our approaches to Stewardship and Engagement and Baseline 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 8 funds, using internal and external tools and research. The Front Office Controls & Governance team provide ongoing assurance that alignment with documented sustainability commitments where automated controls and / or 3rd party data are not available can be evidenced. 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. Details of JHI’s approach to Engagement can be found in the ‘ESG Investment Policy’ published under the ‘ESG Resource Library’ on the Janus Henderson website.

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 of investments portfolio management, corporate governance, accounting, legal and compliance. Additionally, the Proxy Voting Committee is responsible for monitoring and resolving possible conflicts of interest with respect to proxy voting.

L. Designated Reference Benchmark

No index has been designated as a reference benchmark to meet the environmental or social characteristics promoted by this Article 8 Financial Product.

M. Principal adverse impacts (PAI)

PAIs are considered at the product level.1 The table below sets out where PAI is considered through the use of exclusionary screens:

Adverse Sustainability Indicator Metric How is PAI considered
Greenhouse gas emissions GHG emissions Scope 1 GHG emissions Exclusionary screen
Scope 2 GHG emissions Exclusionary screen
Carbon footprint Carbon footprint Exclusionary screen
GHG Intensity of investee companies HG intensity of investee companies Exclusionary screen
Exposure to companies active in the fossil fuel sector Share of investments in companies active in the fossil fuel sector Exclusionary screen
Social and employee matters Share of investments in investee companies involved in the manufacture or selling of controversial weapons Exposure to controversial weapons (anti-personnel mines, cluster munitions, chemical weapons and biological weapons) Exclusionary screen


1
This was effective as of 1 June 2022 and periodic reporting will commence from 1 January 2023 for the first reference period from 1 June 2022.

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