Handelsbanken Europa Index Criteria (A1 EUR)

Summary

No sustainable investment objective

This fund promotes environmental and social characteristics but does not have sustainable investments as its objective. In promoting environmental and social characteristics, the fund takes into account the environment and climate, as well as human rights, employee rights and equal opportunity.

An objective of the fund is to reduce the carbon emissions and track an index that consists of a registered EU reference value for alignment with the Paris Agreement (so-called Paris Aligned Benchmark or PAB index") in accordance with the Benchmark Regulation (EU) 2016/1011.

In the promotion of environmental and social characteristics, the fund may also invest in sustainable investments, in accordance with the assessment method applied by the Management Company.

What are the objectives of the sustainable investments that the financial product partially intends to make and how does the sustainable investment contribute to such objectives?

The fund's sustainable investments are made in companies whose economic activities are considered as having a positive impact on the attainment of one or several environmental or social objectives, or alternatively, that the company is involved in activities aligned with the EU Taxonomy. The environmental and social objectives are defined based on the Sustainable Development Goals in Agenda 2030.

Sustainable investments contribute primarily through investments in companies that support the Sustainable Development Goals or activities aligned with the EU Taxonomy by exceeding a minimum level of revenue in the company in line with the Sustainable Development Goals or the EU Taxonomy or a combination thereof. In addition to company revenue, the capital expenditures or operational expenditures (CAPEX/OPEX) can be used to assess a company's contributions to the objectives.

For a company to be defined as a sustainable investment, an investment must not only contribute to the attainment of an environmental or social objective, the investment must also not cause significant harm to any of the environmental or social objectives and the company must follow good governance practices. The control to ensure that the company does not cause significant harm to any of the environmental or social objectives is based on two components: taking into account the principal adverse impacts on sustainability factors (PAI), as well as ensuring that the company does not significantly obstruct any environmental or social objective through its other products and services. The fund applies the following principles to ensure adherence to the "do no significant harm" principle:

1. Exclusion criteria for companies with activities linked to controversial sectors as well as specific PAI indicators (Principal Adverse Impact, see explanation above), such as fossil fuels and controversial weapons. 2. Exclusion criteria for companies with verified violations of international norms and conventions, such as OECD's Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the International Labor Organization's (ILO) Declaration on Fundamental Principles and Rights at Work, and in the international regulations for human rights.

3. Exclusion criteria for companies causing significant harm to one or several environmental objectives linked to climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, prevention and mitigation of environmental pollution, protection and restoration of biodiversity and ecosystems.

4. Assessment of what products and services in which the company is otherwise involved in, as well as if these can be considered as significantly impeding a sustainable development.

5. Assessment of what products and services in which the company or issuer is otherwise involved in, as well as if these can be considered as significantly obstructing a sustainable development.

In the context of taking into account the PAI indicators, the Management Company conducts engagement work through dialogue and active corporate governance so that the companies manage their sustainable risks and any principal adverse impacts on sustainability factors.

With respect to the Management Company's assessment methodology for sustainable investments, including the assessment of the "do no significant harm" principle, read more in SFDR - Definitions and description of methodology within sustainability, which is published on our website at www.handelsbankenfonder.se. A description of the Management Company's PAI tool is also available on this website.

Environmental or social characteristics of the financial product

The fund promotes environmental characteristics through:

The fund is an index fund and its objective is to track the Solactive ISS ESG Screened Paris Aligned Europe Index as closely as possible. The index consists of a registered EU reference value for alignment with the Paris Agreement (so-called Paris Aligned Benchmark or PAB index") in accordance with the Benchmark Regulation (EU) 2016/1011 and aims to reflect the performance of the developed equity markets in Europe with consideration taken to specific sustainability requirements. The sustainability requirements in the index are designed to reduce carbon emissions and other greenhouse gases. The companies in the fund and index are selected and weighted in such a manner that the index portfolio's greenhouse gas emissions are aligned with the long-term global warming targets in the Paris Agreement. Further information about the index tracked by the fund is available at www.solactive.com/indices. Note that the fund's overall objective to reduce the emissions of carbon and other greenhouse gases. However, this does not mean that each company in the index tracked by the fund meets the requirements of contributing to an environmental or social objective in the manner stated in the definition of sustainable investments under SFDR.
Investments in companies whose economic activities are considered to be contributing to an environmental objective under the Sustainable Development Goals in Agenda 2030 and/or activities aligned with the EU Taxonomy.
Exclusion criteria in companies with activities linked to fossil fuels and companies with verified violations of international norms and conventions related to environmental issues.
Considering the principal adverse impacts for sustainable development (see explanation above) linked to the environment and climate.

The fund promotes social characteristics through:

Exclusion criteria for companies with activities linked to controversial weapons, nuclear weapons, weapons and military equipment, alcohol, tobacco, cannabis, pornography and commercial gambling, as well as by excluding companies with verified violations of international norms and conventions related to human rights, employee rights or anti-corruption and anti-bribery.
Considering PAI indicators linked to human rights, employee rights or anti-corruption and anti-bribery.

Refer to www.handelsbankenfonder.se for more detailed information about the Management Company's strategies regarding exclusion.

Investment strategy

The fund is an index fund that is managed with the purpose of generating returns over time that correspond as closely as possible to the returns of the index. The index tracked by the fund includes sustainability requirements that exclude companies from the index that do not fulfil the exclusion criteria of the fund and the index. What applies in this regard is indicated below. All of the requirements in the regulations regarding Paris Aligned Benchmarks are mandatory for the Management Company in the fund's asset management.

The fund applies the following investment strategy to attain the environmental and social characteristics promoted by the fund:

Objective to reduce carbon emissions: The fund is managed in accordance with an index that is a registered EU reference value for alignment with the Paris Agreement (so-called Paris Aligned Benchmark or PAB index") pursuant to the Benchmark Regulation (EU) 2016/1011. The fund and the composition of the index are designed to reduce carbon emissions and other greenhouse gases. The companies in the fund and the index are selected and weighted in such a manner that the index portfolio's greenhouse gas emissions are aligned with the long-term global warming targets in the Paris Agreement. This means the following:

The index shall have a greenhouse gas intensity, measured as emissions of greenhouse gases in accordance with Scope 1, 2 and 3, that is a minimum of 55% lower than the greenhouse gas intensity for the reference portfolio as well as show a minimum annual reduction of 7% in the greenhouse gas intensity.
The total exposure to the sectors referred to as "high climate impact sectors" in sections A-H and section L in Appendix I of Regulation (EC) No. 1893/2006 of the European Parliament and of the Council shall at a minimum correspond to the total exposure in the reference portfolio for these sectors. The requirement is imposed to ensure that the index gives a realistic view of the real economy, including those sectors that should actively reduce greenhouse gas emissions in order to attain the objectives in the Paris Agreement.
Within the scope of the index methodology, companies are also promoted if companies contribute positively to the attainment of the environmental goals in Agenda 2030 through their products and services.

Asset Stewardship: Active engagement is an essential strategy to influence companies in a more sustainable direction. The Management Company and the fund manager manage this through company dialogues, voting, nomination committee and work within investor networks. Company dialogues are conducted directly between the fund manager and the company, together with other investors or within the scope of investor networks and other collaborations. The dialogues include a broad range of sustainability issues. The Management Company conducts an active and responsible corporate governance through representation in nomination committees and voting at shareholders' meetings. The starting point for our efforts is based on our Policy for shareholder engagement and responsible investment, as well as our guidelines for nomination committee work.

Exclusion strategy: The fund and its index apply sustainability criteria in the form of an exclusion strategy. The strategy includes companies with production and distribution of controversial weapons, nuclear weapons, weapons and military equipment, alcohol, tobacco, cannabis, pornography, commercial gambling, fossil fuels, as well as companies with verified violations of international norms and conventions related to human rights, the environment, employee rights or anti-corruption and anti-bribery. The limits applied by the Management Company with regard to revenues from production and services are stated in the table for exclusion that is shown in the Appendix for sustainability-related disclosures in the fund's prospectus.

The fund and its index have the option of investing in transition companies. Transition companies refer to companies involved in power generation that are considered to be transitioning their activities in a manner that is expected to contribute to, rather than jeopardize, the attainment of the Paris Agreement. Exceptions are made in the index methodology from the 5% criteria related to "fossil fuels - power generation" if all of the following criteria are met:

The company has defined and published goals in accordance with the requirements in the Science Based Targets Initiative for transitioning its activities in line with the Paris Agreement.
The company has a maximum of 50% turnover from fossil fuels.
The company has a maximum of 10% turnover from coal power.
The company has a minimum of 10% turnover from renewable energy.

However, exceptions are never made with regard to the minimum criteria in the regulation for Paris Aligned Benchmarks (refer to Articles 2-12 in the Delegated Regulation (EU) 2020/1818/EU to the Benchmark Regulation). The limits in the table referenced in the previous paragraph do not apply to so-called transition companies.

Pursuant to regulations, the fund may only invest in a company that meets good corporate governance practices. The Management Company ensures this through the application of the Exclusion and Inclusion strategies.

By excluding companies with verified violations of international norms and conventions linked to, for example, taxes, labor rights, as well as anti-corruption and anti-bribery, the Management Company ensures that the fund's investee companies comply with current practices related to good corporate governance.

A company analysis is conducted for each investment decision in which sustainability dimensions as well as financial dimensions are factored into the decision. This analysis includes issues related to the companies' governance, such as relationships with employees, remuneration, management and management structures, as well as compliance with tax regulations. Examples of relevant principles and guidelines include the Global Compact principles 1,3,6 and 10, OECD's Guidelines for Multinational Enterprises as well as conventions such as the UN's Convention against Corruption and ILO's Convention 111, Discrimination in Respect of Employment and Occupation. Read more about the Management Company's definition of principles for good governance in the document, SFDR - Definitions and description of methodology within sustainability, which is available at www.handelsbankenfonder.se.

The fund's commitment regarding some minimum share of sustainable investments, a reduction in carbon emissions and other greenhouse gases and the applied exclusion strategy are mandatory for the Management Company in the asset management of the fund.

Proportion of investments

Monitoring of environmental or social characteristics

The Management Company's risk control function monitors the environmental/social characteristics promoted by the fund on a daily basis to ensure compliance. This occurs through the control of the minimum proportions stated in the Appendix for sustainability-related disclosures in the fund's prospectus regarding the share aligned to environmental or social characteristics as well as the minimum proportion of sustainable investments, for example. The Management Company's risk control function also follows up to ensure that the fund abides by its rules for the exclusion of companies. The control relates to sectors we exclude and those we consider risk impede a sustainable development. The Management Company's risk control function also follows up to ensure that the investee companies are not in violation of international norms and conventions. For additional information, refer to the Methodologies" section below.

The following sustainability indicators are used to assess the environmental/social characteristics of the fund:

Greenhouse gas intensity/Carbon footprint pursuant to the regulations for Paris Aligned Benchmarks: The fund and its index shall reduce its greenhouse gas intensity, measured as emissions in Scope 1, 2 and 3 relative to EVIC, by a minimum of 7% annually to attain the objective of reducing the emissions of carbon and other greenhouse gases. The fund and its index shall also show a greenhouse gas intensity that is at least 55% lower than the greenhouse gas intensity of the reference portfolio. These emission reductions shall be attained with the requirement that the total exposure to the sectors referred to as "high climate impact sectors" in sections A-H and section L in Appendix I of Regulation (EC) No. 1893/2006 (5) of the European Parliament and of the Council shall at a minimum correspond to the total exposure in the reference portfolio for these sectors. The requirement is imposed to ensure that the index gives a realistic view of the real economy, including those sectors that should actively reduce greenhouse gas emissions in order to attain the objectives in the Paris Agreement.
Sustainable investments: Share of the fund's investments that are invested in companies considered to be contributing to an environmental or social objective pursuant to the Sustainable Development Goals in Agenda 2030 and/or the EU Taxonomy, at the same time as they do not significantly harm any other environmental or social objective and that the companies follow good governance practices. Follow up is conducted by the Management Company's risk control function.
UN Global Compact (UNGC) principles and Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises: Share of investments in companies that have been involved in violations of the UNGC principles or OECD Guidelines for Multinational Enterprises.

The fund is an index fund that is managed with the overall purpose of generating returns over time that correspond as closely as possible to the returns of the index. Given that the companies included in the index are a result of the index methodology and are not the active choice of the fund, the stated minimum share of sustainable investments is set at a low level and is subject to ongoing monitoring. The circumstances over which the fund does not have control can result in the need to make adjustments to the minimum share of sustainable investments.

Methodologies

Data sources and processing

Information about the companies' exposure to excluded activities and incidents resulting in violations of international norms and conventions is obtained for funds that track sustainability-adapted indexes of index providers from external data providers in accordance with the index methodology for each fund. Corresponding information is also obtained directly from the Management Company. The external data providers gather information about the companies' exposure to excluded activities from public presentations made by the companies and/or through direct contact with the companies. The contributions to the EU Taxonomy are obtained from Sustainalytics and SDG contributions are obtained from ISS ESG. In addition, the Management Company conducts its own analysis with regard to contributions to environmental or social objectives, with the assessment based primarily on data obtained from the companies' annual reports.

Information about violations of international norms and conventions is obtained from ISS ESG. All of the fund's exclusion requirements are built into the fund's index methodology for funds that track a sustainability-oriented index. The Management Company's risk control function monitors these funds on a daily basis to ensure that these funds invest in line with the index. Data points can be estimated if this can be carried out in a reliable manner and when reported data is unavailable. In this case, the purpose is to give a conservative estimate. Examples of the data points that can be estimated are listed below:

Companies' taxonomy alignment
Exposure to the fossil fuels sector
Greenhouse gas emissions, primarily Scope 3
Share of the company's sales of products &, services considered to be positively contributing to a social or environmental objective

The Management Company will be reporting the share of estimated data in the beginning of 2023, based on information as of 31 December 2022.

The Management Company conducts ongoing discussions with the external data providers to ensure high-quality data. Specific analyses are completed when there is contradictory information. In questionable situations, the company concerned is contacted to have the opportunity to provide their view on the situation. However, no exceptions are made for the index funds that track a sustainability-oriented index with regard to the assessment of the index that is conducted by the service provider. The Management Company analyzes and controls the data to capture any deficiencies and/or inaccurate information. Data received from external sources is used primarily in its raw form provided that the data is reliable. For example, the management of data conducted for aggregations and transformations, such as the calculation of the carbon footprint based on the separate data points for emissions and company value, respectively.

Limitations to methodologies and data

Information about the companies' exposure to excluded activities is limited to the information made available from companies themselves. Consequently, it is not always possible to ensure the exact exposure to these activities. The limitations are most prominent for companies with a smaller portion of the business involved in the excluded activities, such as a grocery store that also sells alcohol. This is an acceptable limitation since the principal impact of the fund's strategy is attained by the exclusion of companies with significant exposure to the excluded activities.

There are also limitations linked to the use of estimated data to enable the assessment of positive and adverse impacts since an estimate may not necessarily be consistent with reality. The use of estimated data can still be beneficial, provided that it is calculated conservatively and only when it can be conducted reliably. It may then be possible to identify a company with unwanted exposure to fossil fuels, even though the company may not have reported the exposure themselves. There are also limitations due to the fact that a significant amount of data is reported with a lag in the annual reports of companies. This is managed by making use of the most recently available information. Some limitations linked to data accessibility and data quality are inevitable but are reduced where possible through conservative assessment processes and continuous further development to increase coverage and ensure data quality.

Due diligence

Engagement policies

As a significant investor, the Management Company has a responsibility and an opportunity to engage with companies to act responsibly and conduct their business activities in a sustainable manner, in addition to promoting the development of the sustainability efforts in the asset management industry. The Management Company engages through company dialogues, corporate governance work and investor networks. Our engagement efforts are based on Handelsbanken's core values, our commitments, as well as the international norms and conventions supported by the Management Company. The company dialogues include overall strategic sustainability issues, as well as specific dimensions of a company's risks, opportunities and impact linked to sustainable development.

Through our corporate governance work, we influence companies by participating in nomination committees and voting at shareholders' meetings. Networks and collaborations with other shareholders and stakeholders contribute to collective learning, development and making an impact in the engagement work. The engagement work is conducted on behalf of the index funds and other passively-managed funds through company dialogues as well as corporate governance work and investor networks.

Additional information about the principles and methodologies applied by the Management Company in its engagement work and in its corporate governance, as well as how the work is structured within the Management Company is available in the Management Company's Policy for shareholder engagement and responsible investment at www.handelsbankenfonder.se.

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