UBS : Credit Suisse Sustainable Investment Framework

Sustainable Investment Framework

July 2022

Contents

Sustainable Investment Framework

How we apply environmental, social and governance (ESG) criteria across our investments.

04	Foreword
06	Executive summary
08	Our approach
	10	Exclusions
	13	Integration
	18	Thematic
	20	Impact
22	The client journey
26	Active ownership
28	Collaborative leadership

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Executive summary

The growing need to combine prosperity with environmental, social and governance (ESG) considerations has already started transforming patterns of consumption, the political and regulatory landscape for businesses and the world of investing.

Businesses across all sectors are seeking to create more sustainable business models that address the risks and leverage the potential of this transformation.

Credit Suisse has a long-standing commitment to sustainable and impact investing. In 2002, we co-founded one of of the leading microfinance asset managers worldwide. At Credit Suisse, we strive to create and facilitate investment products and services that generate environmental and social benefits as well as financial returns for our clients.

Our emphasis on sustainable investing is rooted in the belief that the successful integration

of ESG information in financial research and analysis can reduce investment risks and lead to improved investment outcomes over time. Sustainable investing is simply smart investing.

Our policies and frameworks reflect the central role that ESG considerations play across all stages of the investment process, from exclusionary screens to high conviction impact investments.

Our updated Framework outlines four primary approaches to sustainable investing:

• Exclusion: Approaches that assess whether positions are significantly involved in controversial business fields or incidents.
• Integration: Approaches that assess whether positions integrate environmental, social, and governance factors into their strategy.
• Thematic: Approaches that assess whether positions are aligned with specific United Nations Sustainable Development Goals.
• Impact: Approaches that assess whether positions are explicitly and intentionally contributing towards specific United Nations Sustainable Development Goals.

We believe that each of these approaches adds value in its own right and may be suitable for different types of investors with different types of investment goals.

Our goal in creating the Credit Suisse Sustainable Investment Framework was not to prescribe our values for our clients or the industry. Our aim is to "say what we do and do what we say." This

Our Framework focuses on how we apply ESG criteria and create transparency

for our clients.

is why our Framework does not simply focus on how we apply ESG criteria across our exclusions, integration, thematic and impact investment portfolios, but also on how we create transparency for our clients through classification.

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Our approach

From the exclusion of companies accused of violating international norms, to investing in companies at the cutting edge of technological breakthroughs that could one-day solve humanity's most pressing challenges, sustainable investing means different things to different people.

• Thematic: These strategies are aligned with specific United Nations Sustainable Development Goals. In recent decades, sectors such as education, healthcare and clean energy have grown strongly, and fund managers have set up funds to invest in these companies.

• Impact: These strategies contribute explicitly and intentionally towards specific United Nations Sustainable Development Goals.
  A key element of impact investing for Credit Suisse is investor contribution
  or "additionality". This is the idea that the investment into the company, or the value add the investor can bring to the company, generates more impact than would be the case had they chosen not to invest.

According to the Institute of International Finance, there are over 80 different terms used to describe approaches to sustainable investing.2 Despite this complexity, we see the industry coalescing around four primary approaches:

• Exclusions: The primary purpose of these strategies is to provide clients with investments that do not cause harm or align with their values. This means excluding firms or sectors that produce controversial products such as tobacco, thermal coal, or weapons manufacturing, or excluding companies that violate international norms.

• Integration: These strategies integrate material ESG factors into investment processes for the purpose of delivering superior risk-adjustedreturns. Catalyzed by the launch of the UN Principles for Responsible Investment (UN PRI) in 2006, ESG integration focuses on how risk and opportunity around environmental issues, human rights, corporate governance and other issues can be material to the financial prospects of companies. It is applied most explicitly in active management, where ESG issues become part of the fundamental analysis of a company.

Credit Suisse's Sustainable Investment Framework

Credit Suisse's Sustainable Investment Framework

Conventional

Exclusion

Integration

Thematic

Impact*

Philanthropy

Positions that are…

Targeting competitive financial returns

Considering environmental, social and governance (ESG) risks

Pursuing environmental, social and governance (ESG) opportunities

The primary purpose of these strategies is to provide our clients with investments that do not cause harm or align with their values.

2. IIF Sustainable Finance Working Group Report: The Case for Simplifying Sustainable Investment Terminology. The Institute of International Finance, Inc, 2019. https://www.iif.com/Publications/ ID/3633/The-Case-for-Simplifying-Sustainable-Investment-Termi- nology

Emphasizing social

and environmental goals

… with the explicit intent to contribute positively

*Certain market definitions of Impact include a concessionary return sub-segment.

Notes:

• The SIF classification does not supersede any regulatory commitment, nor does the SIF classification determine or indicate whether or not an investment solution will be labelled as "sustainable" (or other such term) under any given regulatory regime.
• In reporting sent to Credit Suisse clients synonymous terminology may be used. "Exclusion" is synonymously referred to as "Avoid Harm"; "Integration" as "ESG Aware"; "Thematic" as "Sustainable Thematic" and "Impact" as "Impact Investing."

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Exclusions

For the majority of clients, the goal of integrating ESG factors in the investment decision- making process is not to limit the investment universe, but to expand the scope of information considered.

Yet a growing subset of clients - particularly those that express a strong interest in sustainable investing - wish to align their investments with their values. This means limiting exposure to controversial business activities such as thermal coal or tobacco.

We consider three categories of exclusions: norms-based, business conduct, and values- based exclusions.3 Exposure to controversial business activities can present a material risk to investment portfolios.

Norms-based

Some weapons cause disproportionate harm and remain a threat long after a conflict has been resolved. We categorically exclude firms with business activities in controversial weapons from the investments classified according to the Sustainable Investment Framework.

This includes weapons prohibited according

Evaluating business conduct violation cases

Evaluation criteria

• Severity of the alleged violation(s) and (potential) consequences

ȷ Extent to which the company was responsible for, or contributed to, the alleged violation

• Extent to which the company acted outside the norms of its industry
• Evidence that the company systematically engages in controversial behavior
• Measure taken by the company to remedy the damage, including timely response from management
• Measure taken by the company to prevent future violations
• Extent to which the company's behavior violated national laws or international norms
• Transparency and extent to which company acknowledged the incident

to international treaties, such as the Convention on Cluster Munitions, the Chemical Weapons Convention, the Biological Weapons Convention, and the Treaty on the Non- Proliferation of Nuclear Weapons. We also exclude weapons that cause excessive harm to both military and civilian targets from investments classified according to the Sustainable Investment Framework.

Business conduct

We expect companies to meet their fundamental obligations in line with the UN Global Compact Principles. This includes respecting universal human rights and labor standards, practicing environmental responsibility, and avoiding corruption in all its forms, including extortion and bribery.

We view exclusion as a last resort. Instead,

we aim to have a greater impact by engaging with the companies we invest in to prevent future breaches (see Active ownership on page 26). Companies that are willing and able to take action may be subject to a period of prolonged engagement with Credit Suisse Asset Management, and together with company

3. For third-party funds, Credit Suisse will determine, on

a case-by-case basis, if an exclusion approach and process is followed, which is comparable to the exclusions applicable for Credit Suisse products.

To identify companies in breach of these principles, we rely on the controversy research of market leading ESG data providers, which we combine with in-house expertise. Companies found to (1) systematically violate international norms, (2) where the breaches are particularly severe, or (3) where management is not implementing the necessary reforms, may be excluded from Credit Suisse investment products classified under the Sustainable Investment Framework.

management agree on targets and timelines for improvement. In addition to improving outcomes for people and planet, successful engagement can lead to long-term improvements in company value, creating an additional benefit for our clients.

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Exclusions

Integration

Values-based

Most sustainable investment strategies at Credit Suisse exclude firms that derive a significant portion of their revenue from

the following business activities:4 conventional weapons and firearms, tobacco, adult entertainment and gambling. For thermal coal power generation and mining, a revenue threshold of 20% is applied. Over time, this threshold will be reduced to reflect an ongoing transition to a low carbon economy, thus the revenue threshold for thermal coal power generation and mining will be set at 15% by 2025 and at 5% by 2030. From April 1, 2023, we also apply a restriction on companies active

in arctic oil and gas with a 5% revenue threshold as well as an oil sands restriction with a 10% revenue threshold.

4. Significant portion is defined as >=5% direct and/or >=20% indirect revenue exposure. The exception to this rule is adult entertainment and gambling, where a revenue threshold of 5% is applied even for indirect exposure.

ESG Risks and Opportunities

ESG is a term used to describe a group of risks and opportunities - environmental (E), social (S) and governance (G) - and selected underlying metrics.

Environment (E)	Social (S)	Governance (G)
ȩ	Biodiversity and land use	ȩ	Human capital	ȩ	Board diversity
ȩ	Water resource management	ȩ	Supply chain labor standards	ȩ	Executive pay
ȩ	Raw material sourcing	ȩ	Health and safety risks	ȩ	Ownership
ȩ	Climate change	ȩ	Privacy and data protection	ȩ	Accounting
ȩ	Pollution & Waste	ȩ	Demographic risks	ȩ	Bribery & Corruption
		ȩ	Stakeholder management	ȩ	Tax transparency
		ȩ	Access to goods and services	ȩ	Competition

While ESG risks and opportunities are sometimes referred to as "non-" or "extra-financial", in reality, they are anything but. Companies that neglect sustainability risks for example may be subject to government fines, lawsuits or other legal and regulatory penalties. Likewise, companies that depend on unpriced natural capital assets such as a stable climate, clean air, or the availability of groundwater (often referred to as externalities), may face shocks to their production processes

• either directly or via their supply chains - when these rising costs are internalized. Poor ESG management can also damage a company's reputation, affecting a company's ability to attract and retain talent, win customers, or gain access to financing.

Conversely, effective ESG management can be an opportunity for companies, and by extension investors. Companies that are able to mitigate the above risks may be more likely to outperform their peers in the long-term. They may for example benefit from an improved reputation, leading to

a more qualified and motivated workforce or better brand loyalty. Likewise, companies that are good stewards of natural capital may realize cost savings through product innovation and resource efficiency. This in turn might make them less susceptible to exogenous shocks and more likely to benefit from long-term sustainability trends.

For investors, the value of ESG integration is well documented in research. A 2015 meta-study by Deutsche Bank and the University of Hamburg examined the entire universe of academic studies published on the subject dating back to the 1970s. Over 60% of studies reviewed in the meta-study found that ESG had a positive effect on corporate financial performance, compared to just 10%

of studies reviewed indicating the opposite.5

Importantly, the studies that point to a positive correlation between ESG factors and financial performance tend to focus on financially material factors - in other words, those ESG factors that are most likely to affect a company's bottom line. Another study by Harvard University found that while investments in material ESG issues can be value enhancing for investors, investing in immaterial ESG issues had little to no impact on returns.6 See Making sense of the numbers on page 16 for more information on how we assess materiality.

1. Deutsche Asset and Wealth Management, 'ESG and Corporate Financial Performance: Mapping the global landscape', December 2015 https://www.dws.com/AssetDownload/ Index?assetGuid=caef8dc7-510d-4dfb-8c3a-cf139335414b
2. Corporate Sustainability: First Evidence on Materiality,
   The Accounting Review 91-6https://publications.aaahq.org/

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Integration

We believe that the integration of material

ESG factors in financial analysis and investment decision making can reduce risks and lead

to improved investment outcomes over time. To capture these opportunities effectively, ESG considerations should be integrated into investment research and analysis.

Unlike exclusionary screening, which reduces the investment universe and is implemented typically before investment analysis takes place, integration expands the scope of information considered.

While we previously considered ESG factors in one form or another in our fundamental analysis, growing environmental and demographic pressures make it clear ESG must be integrated systematically across the investment process in order to be effective. With our Sustainable Investment Framework, we believe we have set out a more intentional and systematic approach to integration.

Integration in active equity and fixed income

For active equity and corporate fixed income strategies, we aim to integrate material ESG factors across the investment process - from research and security valuation through to portfolio construction and monitoring. Sector analysts, portfolio managers and ESG experts work together to identify industry-specific sustainability factors that are expected to be most likely to affect business value in the short- and long-term. A materiality matrix captures the results (see Making sense of the numbers on page 16). As with traditional financial research, we do not rely solely on the input

of third-party data providers. Instead, our ESG experts draw on a plethora of ESG and financial data sources, as well as information gathered from conversations with company management and other industry experts,

to inform their analysis.

Views on materiality may differ depending on the investment horizon and asset class considered. We are training our investment teams to interpret ESG research as it applies to their specific asset class and investment strategy.

Integration in passive investment strategies The extent to which ESG considerations are taken into account in passive investment strategies, and the methodology applied, depends on the index tracked. ESG indices either exclude companies based on their involvement in controversial business activities (values-basedexclusions approach) or select companies that outperform on ESG issues relative to their peers (best-in-classapproach). A small but growing number of indices re-weighconstituents based on ESG factors, which allows more flexibility in terms of control of other factors such as industry, region or size exposure.7 Finally, rules-basedportfolio construction combines ESG indicators or scores with financial risk factors, in order to shape passive portfolios in line with specific investment objectives.

We also apply a systematic approach to select, design and classify sustainable passive strategies. This means careful due diligence of the policies and strategies for the underlying indices and the approach for integrating ESG data in the construction rules.

Assessment of third-party fund managers Credit Suisse aims to offer the most suitable investment solution to clients, whether internally or externally managed. As with the majority of passive investment strategies, we do not directly control the investment process of third-partyfund managers. Instead, a separate ESG questionnaire incorporates ESG questions together with the traditional due diligence process conducted for new funds on our advisory shelf. ESG criteria are therefore considered alongside more traditional metrics including performance track record, fund strategy, and investment team to form a more holistic view of a manager's capabilities. Fund

Integration in sustainable real estate The ESG strategy of the Credit Suisse real estate offering consists of a targeted reduction of climate-damagingCO2 emissions and other pollutants. This includes a focus on renewable energy and energy efficiency, as well as improvements in waste and water efficiency ESG considerations are integrated across the entire value chain, from the planning and development of property construction projects or the acquisition of existing properties, to operational management and renovations

or demolitions. Stakeholder engagement and the integration of ESG factors into risk management contribute to a comprehensive ESG strategy.

Our proprietary methodology and sustainability label, the Greenproperty Quality Seal, evaluates the sustainability aspects of real estate investments. Further market standards and sustainability labels and certificates (e.g. LEED, BREEAM, etc.) also help to assess the sustainability quality of a property. The building optimization program aims to reduce CO2 emissions and to improve the energy efficiency of buildings with selected short- and long-term building optimization measures applied across the real estate life cycle. To evaluate the ESG performance of properties and real estate portfolios, we participate annually in ESG benchmarks such as the Global Real Estate Sustainability Benchmark (GRESB).

As with traditional financial research, we do not rely solely on the input

of third-party data providers.

analysts are responsible for interpreting the results, which are transparently communicated to clients as part of the fund classification system for private banking clients (see The client journey on page 22).

7. A practical guide to ESG integration for equity investing. United Nations Principles for Responsible Investing, 2016. https://www.unpri.org/listed-equity/esg-integration-in-passive-and-enhanced-passive-strategies/15.article

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Integration

Making sense of the numbers: ESG data and Credit Suisse Materiality Framework A common concern among investment practitioners new to the ESG space is that different ESG data providers may rate the same company very differently.

ESG scores are subjective. The underlying data on which these scores are based on is not. Metrics such as a company's operational carbon footprint or the number of women on the Board are often publicly available and not subject to debate. Where ESG data providers differ is in how they interpret these numbers.

We take into account numerous data sources to inform our view. One provider may have exceptional data on corporate governance, but lack comprehensive coverage of human rights risks; our in-house experts may have additional information about a company that data providers missed, or be more intimately familiar with

the products and services a company offers. The goal at this stage in the research process is to be as accurate and comprehensive as possible in coverage. This means taking into account multiple data providers and hundreds of different data metrics.

Yet all of this data is meaningless in the absence of a Framework to make sense of it. This is where the concept of materiality comes in. Credit Suisse's integrated strategies focus on factors that we believe are financially material to a company - those most likely to affect the bottom line. This depends, to a significant

Example materiality matrix for energy industry

Pillar	Key ESG topic	Materiality	Horizon of business impact
E	Climate Change	Very high	Both short and long-term
			Both short and long-term
E	Pollution and Waste	High
S	Human Capital	Medium	Long-term
S	Community	Low	Long-term
G	Business Ethics	Medium	Long-term
G	Corporate Governance*	High	Both short and long-term

*Corporate Governance is considered highly material for all industries

Exposure to ESG opportunity themes: Sustainable Energy

extent, on the industry; data security and anti-competitive practices may have a significant impact on the long-term value of a company operating in the IT space for example, while forced labor risks or biodiversity concerns may be more relevant for a company operating in the seafood industry.

Credit Suisse considers different sources as

a proxy for understanding industry-specific risks and opportunities. These sources might include: the overall sentiment on the industry contribution to the problems and stakeholder scrutiny on the issue as a proxy of the reputational risks that the industry may face; how ESG topics relate to macro trends such as demographic trends, product demand scenarios, or shifts in consumer preferences (e.g. increasing preference for green vehicles reducing demand for fossil fuels); and related regulatory or technological developments that may impact a business.

It is also important to consider the opportunity: Credit Suisse experts identify which products and services could offer solutions to sustainable development challenges, representing a source of differentiation and growth for a company (e.g., energy storage solutions for utilities). Opportunities may also arise from process- related innovations and/or effective management of material issues (for example, supply chain best practices, efficient use of resources and/or strong employee health and safety track record may help a company reduce costs and foster growth).

Finally, Credit Suisse assesses with which magnitude, likelihood and timeframe those risk and opportunity factors may materialize- and what this might mean in terms of margins, risk profile or growth. Based on those considerations, each material ESG topics is categorized in a qualitative scale (from low to very high materiality).

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Thematic

While integration strategies focus on how material ESG factors can be leveraged to achieve superior risk-adjusted returns, thematic and impact strategies focus on investments that address specific sustainability challenges, while still targeting market-rate or higher returns. Examples include investments in renewable energy, sustainable agriculture, or gender and diversity leaders.

Investing in the UN Sustainable Development Goals (SDG)

In 2015, the global community, represented by all 193 member states of the United Nations, agreed on a set of 17 goals to "end poverty, protect the planet and ensure prosperity for all by 2030". Collectively, these goals, and their 169 underlying targets, are referred to as the United Nations Sustainable Development Goals (SDGs).

Mobilizing private capital at scale will be essential for achieving the 2030 Agenda for Sustainable Development. According to the UN, the world is facing a USD 2.5 trillion annual funding gap in developing countries alone.8 For investors such as Credit Suisse, the SDGs serve not only as a call to action, but also as a useful framework for articulating how our portfolios contribute towards solving global challenges.

Our thematic and impact solutions seek to mobilize capital for the SDGs. For our thematic solutions, we call this SDG "alignment", since the impact our investments can have in public markets is difficult to trace. For impact investment solutions, we seek to prove a direct, causal link between a company's reported impact and our decision to invest in that company.

8. Links in the chain of sustainable finance: Accelerating private investments for the SDGs, including climate action. Brookings Institute, 2016.

Thematic

Thematic strategies at Credit Suisse focus on investments in themes and sectors with economic activities that address specific sustainability challenges. Typically, this means investing in companies or strategies that address one or more of the United Nations Sustainable Development Goals (SDGs). In addition to steering the economy in a more sustainable direction, we believe that addressing global sustainability challenges presents a clear economic opportunity with

the potential to generate alpha for the long term.

Similar to our integrated products, our in-house thematic funds follow a robust and systematic process, beginning with a strong focus on fundamental analysis. As with traditional financial analysis, the construction of the thematic universe is based on a company's fair and intrinsic value. In addition to traditional financial indicators, analysts identify companies with a high potential for outperformance based on long-term sustainability trends. Where practicable, we aim to invest in "pure-play companies" that derive at least 50% of their revenues from a specific theme.

Similar to our integrated products, our in-house thematic funds follow a robust and systematic process.

Exceptions to this rule may be made however if:

1. The theme relates to how a company is governed, and not its products or services (for example, a fund that invests in gender and diversity leaders).
2. Companies that are in the process of transition, and where investing early in this transition has the greatest potential to generate alpha (examples might include
   a company that derives 30% of its revenue from a sustainable technology, but has made a strategic commitment to grow this business line).
3. The universe of applicable companies is too small to build a portfolio of high conviction stocks, but we expect to see more growth in the future.

In addition to the above, we seek to exclude companies in our thematic universe when their behavior may be considered harmful to human beings and the environment. Examples might include companies engaged in the forced- displacement of communities, exceptionally unjust labor practices, etc. At a minimum, all in-house managed thematic funds must follow guidelines for norms-,values-, and business- conduct based exclusions.

For externally-managed thematic funds, we seek to ensure, through a thorough due diligence and fund selection process, that the above criteria are met in full. Where external managers do not meet our rigorous quality standards, these funds will not be recommended as thematic investments under the Sustainable Investment Framework (see The client journey on page 22).

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