Disclosure - AMX UCITS CCF – STOXX Willis Towers Watson World Climate Transition Index

Summary

Summary - Translated Documents:

The AMX UCITS CCF – STOXX Willis Towers

Watson World Climate Transition Index (the “Sub-Fund”) is categorised as an Article 8 product under the Sustainable Finance Disclosure Regulation (“SFDR”). The Sub-Fund’s investment objective is to deliver a return as close as reasonably possible to the total return of the STOXX Willis Towers Watson World Climate Transition Index (the “Index”), net of unavoidable withholding taxes and the aim is for the Tracking Error to be less than 1% per annum.

Environmental characteristic promoted

The Sub-Fund promotes climate transition through the tracking of the Index. The Index will seek to account for the impact that Climate Transition would have on the relative valuation of the components of the Parent Index. “Climate Transition” means changes in technology, consumer behaviour, policy and regulation aimed at reducing global greenhouse gas emissions and limiting the increase in greenhouse gas concentrations to levels consistent with the United Nations goal to limit the global temperature increase to 1.5C.

Proportion of sustainable investments

The Sub-Fund does not commit to make sustainable investments.

Investment strategy, including due diligence and engagement

Proportion of investments

The Sub-Fund, the minimum proportion of the investments of the Sub-Fund used to meet the environmental and/or social characteristics promoted by the Sub-Fund is 90% of the Sub-Fund’s portfolio.

Monitoring of environmental or social characteristics

Using CVaR, assists with determining climate transition risk that companies face and help identify potential opportunities. CVaR captures positive economic disruption and growth opportunities by tilting towards companies expected to make key contributions to the transition to a low carbon economy; tilts away from companies with high exposure to climate transition risk and who are likely to lose value or underperform as the economy transitions; align capital allocation with climate or low carbon commitments. The Index will exclude companies that violate or are at risk of violating commonly accepted international norms and standards, enshrined in the United Nations Global Compact Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights (UNGPs), and their underlying conventions.

Methodologies

Data sources and processing

Willis Towers Watson’s Climate Transition Analytics (CTA) team are responsible for the underlying analytics, research and models which produce CVaR figures. The CTA team is comprised of 20+ members – with experience across investment and consulting, economics, academia, energy, as well as ratings agencies.

Starting from broad market universes (iSTOXX World A, STOXX Europe 600, STOXX USA 500), securities are evaluated in terms of predefined sustainability characteristics. Companies identified as non-compliant based on Sustainalytics’ Global Standard Screening (GSS) assessment or companies that are involved in controversial weapons, thermal coal and oil sands are removed from the universe. The remaining eligible companies are weighted according to their free-float market capitalization adjusted by the Climate Transition Value at Risk (CTVaR) metric calculated by Willis Towers Watson. CTVaR is a proprietary measure that analyses the impact on projected company cashflows when moving from a ‘business as usual’ scenario – reflecting current policies – to a world where emissions pathways are consistent with the goals of the Paris agreement. In general, the indices tilt away from companies with high exposure to climate transition risk.

The maximum weighting of any stock is limited to 5%, the maximum industry overweight is limited to 5%, the maximum country over- and underweights are restricted to 15%.

Limitations to methodologies and data

In order to overcome any current data limitations, The CTA team are part of Willis Towers Watson’s wider Climate and Resilience Hub comprising of 70 climate specialists. This is the focal point for climate expertise and capabilities, pooling knowledge from across businesses and from our collaborations to deliver climate and resilience solutions in response to a range of regulatory, investor, consumer, employee, and operating pressures.

Designated reference benchmark

The Index is used to attain the environmental and/or social characteristics promoted by the Sub-Fund. This is achieved through the use of CVaR in portfolio construction and to determine the weighting applied to the companies within the Index.

See pages 185 – 188 of the following https://www.stoxx.com/document/Indices/Common/Indexguide/stoxx_index_guide.pdf

No sustainable investment objective

This Sub-Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.

Environmental or social characteristics of the financial product

The Sub-Fund’s investment objective is to deliver a return as close as reasonably possible to the total return of the Index. The Index is constructed based on the Parent Index which is a market capitalisation weighted index composed of large and mid capitalisation companies across developed markets.

However, the Index will seek to account for the impact that Climate Transition would have on the relative valuation of the components of the Parent Index. “Climate Transition” means changes in technology, consumer behaviour, policy and regulation aimed at reducing global greenhouse gas emissions and limiting the increase in greenhouse gas concentrations to levels consistent with the United Nations goal to limit the global temperature increase to 1.5C. Therefore, the Sub-Fund promotes climate transition through the tracking of the Index.

Investment strategy

The investment strategy of the Sub-Fund is principally to track the performance of the Index as close as possible, while seeking to minimise as much as possible the Tracking Error between the Sub-Fund’s performance and that of the Index. The Sub-Fund is managed according to a passive approach and environmental and/or social characteristics are reflected in the construction of, the Index, noting (a) the integration of CVaR (including the assessment of Sector Impact) as a fundamental element of the Index’s construction with the Index overweighting companies with a positive CVaR, and underweighting and/or excluding companies with a negative CVaR; and (b) the Index’s rules and norms based screens, thereby excluding companies from its investment universe that, for example, breach the UN Global Compact, are involved in controversial weapon activities or derive significant revenue from thermal coal and oil sands. Sustainability risk is integrated into the Index construction and therefore, into the investment decision making processes employed in respect of the Sub-Fund. CVaR- the Index Provider, in the construction of the Index, assesses the impact of Climate Transition on the cash flows (and therefore valuations) of businesses, beginning with an assessment of scenarios for how each commercial and industrial sector will evolve from current expectations under a Climate Transition. These scenarios are based on expert analysis, most often from publicly available research developed by international organizations, academic institutions, or other research institutions (“Sector Impact”). The next step is to then apply and translate this Sector Impact to the specific businesses and assets of the companies that comprise the Parent Index in order to ascertain the potential impact on each of the companies’ cash flows, and in turn, their respective valuations. This assessment of each company takes into account the announced investment plans and strategy of the relevant companies. For example, an assessment will be conducted in respect of the ownership, contracts, or taxation of these companies and these elements may affect how much of the potential ‘sector’ change in cash flows impacts a particular company, while the competitiveness of a company’s assets and business may also impact the effect of Climate Transition on the company’s valuation (e.g., a low cost producer may experience only the changes in price and margin, while a high cost producer may become too expensive and need to close a business that no longer has a market). Finally, the expected change in net cash flows of each company needs to take into account the financial position of the company, particularly including financing and leverage. Free cash flows must first service the company’s debt, while the remaining cash flows can feed dividends and reinvestment, and thus comprise the value to equity holders. The result of these assessments represents how much the change in current market expectations to a Climate Transition aligned set of scenarios would t the valuation of each company. This change in valuation is called the Climate Transition Value at Risk (CVaR).

Proportion of investments

The minimum proportion of the investments of the Sub-Fund used to meet the environmental and/or social characteristics promoted by the Sub-Fund is 90% of the Sub-Fund’s portfolio. The remaining portion of the portfolio, mainly consisting of cash or cash equivalents for cash management purposes, will not be aligned with the promoted characteristic.

Monitoring of environmental or social characteristics

The Index Provider, in the construction of the Index, assesses the impact of Climate Transition on the cash flows (and therefore valuations) of businesses, beginning with an assessment of scenarios for how each commercial and industrial sector will evolve from current expectations under a Climate Transition. The Index will also apply a series of rules and norms based screens to arrive at the investable universe by excluding companies. In this regard, the Index will exclude companies that: (a) violate or are at risk of violating commonly accepted international norms and standards, enshrined in the United Nations Global Compact Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights (UNGPs), and their underlying conventions; (b) are involved in controversial weapons activities, being anti-personnel mines, biological and chemical weapons, cluster weapons, depleted uranium and white phosphorus weapons; and (c) derive greater than 25% of revenues from thermal coal extraction (including thermal coal mining and exploration), greater than 50% of revenues from power generation (coal-fired electricity, heat or steam generation/thermal coal electricity production (including utilities that own/operates coal-fired power plants)) and/or more than 25% of revenues from extracting oil sands. Further details regarding exclusions can be found in the Index methodology document available on https://www.stoxx.com/document/Indices/Common/Indexguide/stoxx_index_guide.pdf. The Index will comprise some, but not all, of the companies that form part of the Parent Index and CVaR is the basis for adjusting the weighting of each of these companies within the Index. Certain of the companies forming part of the Parent Index may not form part of the Index where (a) the result of a negative CVaR is such that the weighting to be applied to the relevant company is zero, and/or (b) where any such company is caught by the exclusion criteria detailed above.. CVaR is therefore used in portfolio construction and to determine the weighting applied to the companies within the Index. As a result, CVaR and the weighting impact of CVaR will be used in the context of measuring the attainment of the environmental characteristics being promoted by the Sub-Fund.

Methodologies

Transition risk is defined as the loss or gain in value due to the transition to a net zero economy stemming from changes to policy, regulation, technology, and consumer preferences. It is measured by the expected change in today’s prices as a result of the transition – we call this measurement CTVaR. CTVaR offers a bottom-up granular approach to measuring the effect of changes to the global economy (driven by climate change mitigation) on a company’s valuation; CTVaR focuses on the effect of climate on individual companies by integrating a forward-looking assessment of climate transition risk into the traditional risk/return framework, aligning climate transition risk with investors’ fiduciary duty; This approach looks beyond top-down issues such as the implementation of carbon prices to consider a wide range of underlying climate-related issues that are expected to influence the drivers of company cash flows. The CTA team take a deeper analysis of scenarios and each company’s business model to determine how they are positioned for the transition. In order to understand the impact of some of these scenarios and to calculate the CVaR, they use 30 commodity model and over 450 climate transition controversies that feed into companies at company line; Once the CVaR of each stock is determined, the value is turned into a score that is used to tilt away from each stock’s market cap weight. Stocks with a positive CVaR receive a positive tilt and those with a negative CVaR receive a negative tilt.

Data sources and processing

Starting from broad market universes (iSTOXX World A, STOXX Europe 600, STOXX USA 500), securities are evaluated in terms of predefined sustainability characteristics. Companies identified as non-compliant based on Sustainalytics’ Global Standard Screening (GSS) assessment or companies that are involved in controversial weapons, thermal coal and oil sands are removed from the universe. The remaining eligible companies are weighted according to their free-float market capitalization adjusted by the Climate Transition Value at Risk (CTVaR) metric calculated by Willis Towers Watson. CTVaR is a proprietary measure that analyzes the impact on projected company cashflows when moving from a ‘business as usual’ scenario – reflecting current policies – to a world where emissions pathways are consistent with the goals of the Paris agreement. In general, the indices tilt away from companies with high exposure to climate transition risk.

The maximum weighting of any stock is limited to 5%, the maximum industry overweight is limited to 5%, the maximum country over- and underweights are restricted to 15%.

Limitations to methodologies and data

Due diligence

CVaR focuses on the effect of climate on individual companies by integrating a forward-looking assessment of climate transition risk into the traditional risk/return framework, aligning climate transition risk with investors’ fiduciary duty. This approach looks beyond top-down issues such as the implementation of carbon prices to consider a wide range of underlying climate-related issues that are expected to influence the drivers of company cash flows. The CTA team take a deeper analysis of scenarios and each company’s business model to determine how they are positioned for the transition. In order to understand the impact of some of these scenarios and to calculate the CTVaR, they use 30 commodity model and over 450 climate transition controversies that feed into companies at company line. Once the CVaR of each stock is determined, the value is turned into a score that is used to tilt away from each stock’s market cap weight. Stocks with a positive CVaR receive a positive tilt and those with a negative CVaR receive a negative tilt.

Engagement policies

Hermes Equity Ownership Services Limited (“HEOS”) has been appointed for this Sub-Fund. HEOS has responsibility for engaging with investee companies on climate change and ESG matters with the aim of improving the investee companies’ climate change and ESG performance. The engagement process neither informs investment or divestment decisions nor the construction of the Index, and Hermes EOS will exercise no discretion over Sub-Fund assets. An engagement by Hermes EOS with a company will involve a process of dialogue with that company with the long-term objective of that company improving on its social, ethical and environmental practices in the belief that such factors can have an impact on financial performance. In addition to the engagement service, HEOS will also carry out the proxy voting service for the Sub-Fund. HEOS will be paid out of the assets of the Sub-Fund and any fees payable to HEOS will be charged at normal commercial rates.

Designated reference benchmark