Our ESG approach ESG investment criteria
The Credit Suisse Sustainable Investing Framework is used to differentiate and distinguish investment strategies in our offerings that qualify as being ESG-compliant. The framework defines the following range of criteria and provides tools to measure, manage and improve the ESG performance of our sustainability offerings.
Exclusion criteria (equity and fixed income)
Our approach to sustainable investing begins with clearly defined exclusion criteria. Sectors and companies that are proven to have a detrimental impact on society or the environment are excluded from our investment universe. Manufacturers of controversial weapons such as land mines and cluster bombs, as well as manufacturers of nuclear, biological and chemical weapons, are excluded from all our products (passive and active).
In our sustainable strategies, companies that derive more than 5% of their revenue from conventional weapons and firearms, tobacco production, gambling or adult entertainment are also excluded. In addition, a revenue limit of 20% applies to investments in coal (coal mining and coal-based electricity generation). We reserve the right to lower this threshold over time to reflect the transition toward a low-carbon society. Furthermore, companies that derive more than 20% of their revenue from tobacco distribution and conventional weapons support systems and services are excluded.
In addition, we use various data sources to scrutinize all companies involved in very severe controversies. Exclusion decisions are taken by an independent committee based on the severity of the incident and after corporate responses to allegations have been considered.
ESG integration (equity and fixed income)
In our sustainable investment strategies, we actively integrate sustainability insights into our investment decisions in combination with our fundamental analysis and portfolio construction. We are convinced that material ESG indicators can provide supplementary information with regard to the opportunities and risks involved in an investment decision. We therefore strive to give a greater weight to ESG criteria that are likely to exert a positive impact on risk-adjusted investment returns over the long run (such as a company’s innovativeness).
Our systematic approach to integrating ESG criteria into investment processes varies depending on the asset class and the intended characteristics of the specific investment strategy. We use a range of external ESG research providers and rating agencies in combination with our in-house sustainability and financial analysis to formulate ESG-integrated investment decisions that meet financial as well as sustainability objectives.
Real estate investment products from Credit Suisse Asset Management are ESG-compliant if they receive at least three out of a maximum of five stars in the annual real estate ESG benchmarking conducted by GRESB (Global Real Estate Sustainability Benchmark). Furthermore, sustainable real estate funds must take part in the following three core ESG initiatives established by Global Real Estate: (1) building certifications, (2) building optimizations, and (3) ESG performance measurement by GRESB.
Treatment of derivatives
Derivatives may be used as technical portfolio management tools, for hedging purposes or as an additional source of return. Nevertheless, the use of derivatives must not be at odds with the responsible character of the ESG strategy of a given product. The types of derivatives permitted according to the fund prospectus are allowed, with the following exceptions for single stock futures and single name credit default swaps (CDS):
- Short positions in single stock futures, single stock options and buying protection in single name CDS are not allowed on companies excluded for norms-based violating business activities according to the Credit Suisse Sustainable Investing Framework.
- Short positions in single stock futures, single stock options and buying protection in single name CDS are allowed on companies excluded for values-based violating business activities according to the Credit Suisse Sustainable Investing Framework.
- Regarding (2) above, curve trades on companies excluded for values-based violating business activities according to the Credit Suisse Sustainable Investing Framework are allowed only if the notional value of the credit short position equals the notional value of the credit long position.
Active ownership (voting and engagement)
Influence is exerted on a company’s business operations (active ownership) by actively exercising voting rights at annual general shareholder meetings (proxy voting) based on our voting policy. In addition, we maintain an ongoing, open dialogue with companies that are particularly exposed to controversial business areas or practices in order to contribute to the transition toward a more sustainable economy. We are convinced that active engagement and voting exert a positive influence on the quality of the firms in our investment portfolios and therefore reduce sustainability-related business risks as well.
Reporting and transparency
Information such as ESG rating distributions and exposure to companies involved in controversial business activities are disclosed in special ESG fact sheets at the portfolio level. The fact sheets transparently show the extent to which the investments in a portfolio conform with the sustainability criteria set by Credit Suisse.
No coverage limit
A maximum of 20% of a sustainable investment portfolio may be invested in securities of entities for which no ESG-related information is available. This particularly applies to asset classes (such as hedge funds and commodities) for which ESG criteria are insufficiently defined at present or which are not yet covered by external data providers. We expect this limit to be lowered over time as the availability of ESG investment concepts and ESG research coverage, external or internal, improves. In any case, non-covered parts of a sustainable investment portfolio are transparently disclosed in the ESG reporting on the portfolio.