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Wells Fargo Asset Management

PRI reporting framework 2018

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ESG incorporation in actively managed fixed income

Implementation processes

FI 01. Incorporation strategies applied

01.1. Indicate 1) Which ESG incorporation strategy and/or combination of strategies you apply to your actively managed fixed income investments; and 2) The proportion (+/- 5%) of your total actively managed fixed income investments each strategy applies to.

SSA
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%
Corporate (non-financial)
0 Screening alone
0 Thematic alone
0 Integration alone
100 Screening + integration strategies
0 Thematic + integration strategies
0 Screening + thematic strategies
0 All three strategies combined
0 No incorporation strategies applied
100%

01.2. Describe your reasons for choosing a particular ESG incorporation strategy and how combinations of strategies are used.

WellsCap integrates ESG research into our investment process as philosophically, we believe it contributes to our ability to manage risk more holistically and generate sustainable, long-term returns for our clients. We believe understanding the potential impact arising from ESG issues is an essential step to better understanding investment outcomes in a rapidly changing world.

While WellsCap does not proactively exclude industries or companies as part of the ESG research process, the independent investment teams may be able to incorporate client restrictions, as long as they do not substantially hinder the client from benefitting from the full knowledge and experience of the investment team. Restrictions are subject to approval by each investment team.

01.3. Additional information [Optional].


FI 02. ESG issues and issuer research (Private)


FI 03. Processes to ensure analysis is robust

03.1. Indicate how you ensure that your ESG research process is robust:

specify description

          Our team continuously surveys and evaluates the availability and quality of ESG data sources and research providers.
        

03.2. Describe how your ESG information or analysis is shared among your investment team.

03.3. Additional information. [Optional]


(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

We are able to incorporate most client screening requests, provided that they do not substantially impact the team's ability to effectively deliver its strategy to the client. We carefully review clients' guidelines to ensure that we can invest within the investment style, given the clients' restrictions.

04.3. Additional information. [Optional]


FI 05. Negative screening - overview and rationale

05.1. Indicate why you conduct negative screening.

SSA

SSA

Corporate (financial)

Corporate (fin)

Corporate (non-financial)

Corporate (non-fin)

05.2. Describe your approach to ESG-based negative screening of issuers from your investable universe.

Negative screening is incorporated by client request and is designed to align with specific client needs. We are able to incorporate most client screening requests, provided that they do not substantially impact the team's ability to effectively deliver its strategy to the client. They carefully review clients' guidelines to ensure that they can invest within their style, given the clients' restrictions.

05.3. Additional information. [Optional]


FI 06. Examples of ESG factors in screening process (Private)


FI 07. Screening - ensuring criteria are met

07.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening?

07.2. Additional information. [Optional]

WellsCap Compliance utilizes front-end compliance systems Bloomberg Asset Investment Manager (AIM) to monitor trading activities to prevent violations to client guidelines. Front-end portfolio monitoring systems allow WellsCap to perform compliance checks throughout the trade process: (i) at order entry, (ii) allocation, and (iii) trade completion (including changes caused by market conditions) and provides the ability to generate exception and notification reports.


(C) Implementation: Integration

FI 11. Integration overview

11.1. Describe your approach to integrating ESG into traditional financial analysis.

WellsCap integrates ESG research into our investment process as philosophically, we believe it contributes to our ability to manage risk more holistically and generate sustainable, long-term returns for our clients. In fixed income, ESG information is sourced from both third party ESG research providers as well as by primary proprietary research. We believe vended research compliments the fundamental research conducted by our independent investment teams, serving both as a source of additional research and as a check and balance to their own research. Integration of ESG within traditional financial analysis takes place through two firm-wide platforms:

  • Taxable Fixed Income ESG Centralized Research System: the proprietary GRID system stores and shares research notes gathered by the taxable fixed income centralized research team. Research analysts gather ESG data through a combination of MSCI ESG Research, Bloomberg ESG Research, company financial statements, and company engagement.
     
  • Municipal Fixed Income ESG Centralized Research System: the municipal global credit research team relies exclusively on primary ESG research and engagement. Information is stored in a shared location with municipal investment teams.

Additionally, an ESG Alerts System is in place to provide ESG-related news items that may have a large impact on specific issuers or industries, and is disseminated to investment teams by the Portfolio Risk Management and Analytics (PRMA) team via email.

11.2. Describe how your ESG integration approach is adapted to each of the different types of fixed income you invest in.

SSA

Within the municipal fixed income market our research process evaluates ESG issues with a particular focus on governance, which may include cash and cash flow management as well as borrowing and leverage. Our investment process evaluates liabilities to look at bonded debt exclusively but also to factor in non-bond liabilities such as pensions. Varying discount rates can be integrated. As an example, when evaluating state GOs this complete liability profile can be vital in establishing relative value across various issuers to recognize if the leverage is appropriately being compensated in current bond yields. Due to the limited coverage of this asset class by third party research providers, ESG issues are considered as part of the fundamental research process, through proprietary sector-specific ESG materiality frameworks.

Corporate (financial)

Within corporate (financial) fixed income, third-party vended ESG research and primary research is distributed to investment teams through the Taxable Fixed Income ESG Centralized Research System: the proprietary GRID system stores and shares research notes gathered by the taxable fixed income centralized research team. Research analysts gather ESG data through a combination of MSCI ESG Research, Bloomberg ESG Research, company financial statements, and company engagement.

Corporate (non-financial)

Within corporate (non-financial) fixed income, third-party vended ESG research and primary research is distributed to investment teams through the Taxable Fixed Income ESG Centralized Research System: the proprietary GRID system stores and shares research notes gathered by the taxable fixed income centralized research team. Research analysts gather ESG data through a combination of MSCI ESG Research, Bloomberg ESG Research, company financial statements, and company engagement.

11.3. Additional information [OPTIONAL]


FI 12. Integration - ESG information in investment processes

12.1. Indicate how ESG information is typically used as part of your investment process.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
ESG analysis is integrated into fundamental analysis
ESG analysis is integrated into security weighting decisions
ESG analysis is integrated into portfolio construction decisions
ESG analysis is a standard part of internal credit ratings or assessment
ESG analysis for issuers is a standard agenda item at investment committee meetings
ESG analysis is regularly featured in internal research notes or similar
ESG analysis is a standard feature of ongoing portfolio monitoring
ESG analysis features in all internal issuer summaries or similar documents
Other, specify

12.2. Additional information [OPTIONAL]


FI 13. Integration - E,S and G issues reviewed

13.1. Indicate the extent to which ESG issues are reviewed in your integration process.

Environment
Social
Governance
SSA

Environmental

Social

Governance

Corporate (financial)

Environmental

Social

Governance

Corporate (non-financial)

Environmental

Social

Governance

13.2. Please provide more detail on how you review E, S and G factors in your integration process.

SSA

Within the municipal fixed income market our research process evaluates ESG issues with a particular focus on governance, which may include cash and cash flow management as well as borrowing and leverage. Our investment process evaluates liabilities to look at bonded debt exclusively but also to factor in non-bond liabilities such as pensions. Varying discount rates can be integrated. As an example, when evaluating state GOs this complete liability profile can be vital in establishing relative value across various issuers to recognize if the leverage is appropriately being compensated in current bond yields. Due to the limited coverage of this asset class by third party research providers, ESG issues are considered as part of the fundamental research process, through proprietary sector-specific ESG materiality frameworks.

Corporate (financial)

Within corporate (financial) fixed income, third-party vended ESG research and primary research is distributed to investment teams through the Taxable Fixed Income ESG Centralized Research System: the proprietary GRID system stores and shares research notes gathered by the taxable fixed income centralized research team. Research analysts gather ESG data through a combination of MSCI ESG Research, Bloomberg ESG Research, company financial statements, and company engagement.

Corporate (non-financial)

Within corporate (non-financial) fixed income, third-party vended ESG research and primary research is distributed to investment teams through the Taxable Fixed Income ESG Centralized Research System: the proprietary GRID system stores and shares research notes gathered by the taxable fixed income centralized research team. Research analysts gather ESG data through a combination of MSCI ESG Research, Bloomberg ESG Research, company financial statements, and company engagement.

13.3. Additional information.[OPTIONAL]


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