Status under the EU Sustainable Finance Disclosure Regulation (SFDR) – Emerging Markets Innovation Fund
Janus Henderson Horizon Fund – Emerging Markets Innovation Fund
The Fund is categorised as one which meets the provisions set out in Article 8 of SFDR as a product which promotes environmental and/or social characteristics.
A. Summary
This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.
The Fund promotes climate change mitigation, support for the UNGC principles (which cover matters including human rights, labour, corruption and environmental pollution).
The binding elements of the investment strategy described below are implemented as exclusionary screens within the Investment Manager’s order management system utilising third-party data provider(s) on an ongoing basis.
The good governance practices of investee companies are assessed prior to making an investment and periodically thereafter in accordance with the Sustainability Risk Policy (“Policy”).
The Investment Manager applies screens to exclude direct investment in issuers based on their involvement in certain activities. Issuers are also excluded if they are deemed to have failed to comply with the UNGC Principles (which cover matters including human rights, labour, corruption, and environmental pollution).
The Fund also applies the Firmwide Exclusions Policy, which includes controversial weapons, as detailed under the Prospectus.
JHI has chosen MSCI’s ESG Manager as its primary data source for ESG (Environmental, Social and Governance) research.
Other specialist ESG Data vendors or inhouse research may also be used to complement MSCI data. For positions not covered by the external data provider, proprietary research may be used. The appropriateness of the evidence provided is assessed by an independent body at JHI.
Data coverage is directly driven by the coverage of the underlying ESG Data Provider.
The JHI Sustainability Risk Policy sets out the firmwide ESG Integration Principles, Sustainable Investment Principles and Baseline Exclusions applied to investee companies.
B. No Sustainable Investment Objective
This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.
C. Environmental or social characteristics of the financial product
The Fund promotes climate change mitigation, investment in companies making a positive contribution to the advancement of the UN Sustainable Development Goals, and support for the UNGC Principles (which cover matters including human rights, labour, corruption, and environmental pollution).
The Fund does not use a reference benchmark to attain its environmental or social characteristics.
D. Investment Strategy
This Fund seeks capital growth through investment in emerging equity markets and specifically through exposure to innovative companies. Investors should read this section in conjunction with the Fund’s investment strategy (as set out in the section ‘Funds’ of the Prospectus).
The binding elements of the investment strategy described below are implemented as exclusionary screens which are coded into the compliance module of the Investment Manager’s order management system utilising third-party data provider(s) on an ongoing basis. The exclusionary screens are implemented on both a pre and post trade basis enabling the sub investment advisor to block any proposed transactions in an excluded security and identify any changes to the status of holdings when third-party data is periodically updated.
One binding element is not included as an exclusionary screen within the order management system, this is the “aim to have a lower carbon intensity than MSCI Emerging Markets Index (the “Benchmark”). This commitment is monitored on a monthly basis by comparing the carbon intensity number of the portfolio and its benchmark as calculated by a third-party data provider.
The companies in which investments are made are assessed by the Investment Manager to follow good governance practices.
The good governance practices of investee companies are assessed prior to making an investment and periodically thereafter in accordance with the Sustainability Risk Policy (“Policy”).
The Policy sets minimum standards against which investee companies will be assessed and monitored by the Investment Manager prior to making an investment and on an ongoing basis. Such standards may include, but are not limited to: sound management structures, employee relations, remuneration of staff and tax compliance.
The Policy can be found incorporated within Janus Henderson’s “ESG Investment Policy” in the “About Us – Environmental, Social and Governance (ESG)” section of the website at www.janushenderson.com.
In addition, the Investment Manager is a signatory to the UN Principles for Responsible Investment (UNPRI). As a signatory, the good governance practices of investee companies are also assessed by having regard to the UNPRI principles prior to making an investment and periodically thereafter.
E. Proportion of investments
A minimum of 60% of the investments of the financial product are used to meet the environmental or social characteristics promoted by the financial product. Other assets, which are not used to meet the environmental or social characteristics, may include cash or cash equivalents in addition to instruments held for the purposes of efficient portfolio management e.g. temporary holdings of index derivatives. Data for the environmental and social characteristics is more limited for emerging markets companies. As such, some of the other assets will include companies that do not report on the metrics described above.
The lower carbon intensity then the Benchmark characteristic is applied at the portfolio level (and not at the level of individual holdings, which may have a higher carbon profile than the portfolio level average or the Benchmark).
F. Monitoring of environmental or social characteristics
The sustainability indicators used to measure the attainment of each of the environmental or social characteristics promoted by this financial product are:
- Carbon – Carbon Intensity Scope 1 & 2 This represents the company's most recently reported or estimated Scope 1 + Scope 2 greenhouse gas emissions normalized by sales, which allows for comparison between companies of different sizes.
- % of the portfolio aligned with the UN Sustainable Development Goals.
The Front Office Controls & Governance team provide ongoing assurance that investment products are managed in line with documented sustainability commitments. Financial Risk review and challenge investment management in light of ESG-related risks, alongside traditional market risk metrics, and embed sustainability risk into the risk profiles. Investment Compliance ensure that ESG-related activities are managed in line with regulatory requirements and expectations, and considered within our compliance framework.
G. Methodologies for environmental or social characteristics
The Investment Manager uses specific screens to help achieve some of the promoted characteristics. For example, to promote support for the UNGC Principles, screens are applied so that the Fund does not invest in issuers that are in breach of the UNGC Principles based on third party data and/or internal research.
The Investment Manager applies screens to exclude issuers if they are deemed to have failed to comply with the UNGC Principles (which cover matters including human rights, labour, corruption, and environmental pollution).
The Fund also applies the Firmwide Exclusions Policy, which includes controversial weapons:
This applies to all the investment decisions made by the Management Company or Investment Manager. The Firmwide Exclusions Policy may be updated from time to time.
Presently, investment is not permitted in entities involved in the current manufacture of, or minority shareholding of 20% or greater in a manufacturer of controversial weapons, namely:
- Cluster munitions;
- Anti-Personnel mines;
- Chemical weapons;
- Biological weapons.
Classification of issuers is primarily based on activity identification fields supplied by our third-party ESG data providers. This classification is subject to an investment research override in cases where sufficient evidence exists that the third-party data field is not accurate or appropriate. In any scenario where a portfolio position is identified as not meeting this exclusion criteria for any reason (legacy holding, transition holding, etc.) the Investment Manager shall be granted 90 days to review or challenge the classification of the issuer if appropriate. After this period, in the event an investment research override is not granted divestment is required immediately under normal market trading circumstances.
The Investment Manager will ensure that at least 20% of the net asset value of the Fund will be aligned with any of the UN Sustainable Development Goals. The Fund will aim to have a lower carbon intensity than its benchmark. For the purposes of the AMF doctrine, the extra-financial analysis or rating as described above is higher than: a. 90% for equities issued by large capitalisation companies whose registered office is located in "developed" countries, debt securities and money market instruments with an investment grade credit rating, sovereign debt issued by developed countries. b. 75% for equities issued by large capitalisations whose registered office is located in "emerging" countries, equities issued by small and medium capitalisations, debt securities and money market instruments with a high yield credit rating and sovereign debt issued by "emerging" countries. The Investment Manager may only invest in companies that would be excluded by the screens described above if the Investment Manager believes, based on its own research and as approved by its ESG Oversight Committee, that the third-party data used to apply the exclusions is insufficient or inaccurate. The Investment Manager may consider that the data is insufficient or inaccurate if, for example, the third-party data provider research is historic, vague, based on out of date sources, or the investment manager has other information to make them doubt the accuracy of the research. If the Investment Manager wishes to challenge the third-party data, then the challenge is presented to a cross-functional ESG Oversight Committee who must sign off on the “override” of the third-party data. If a third party data provider does not provide research on a specific issuer or excluded activity, the Investment Manager may invest if, through its own research, it is satisfied that the issuer is not involved in the excluded activity.
H. Data sources and processing
The Fund has chosen MSCI’s ESG Manager as its primary data source for ESG (Environmental, Social and Governance) research.
Where coverage gaps are identified, specialist ESG Data vendors or inhouse research may be used to complement the ESG research. This ensures consistent data and methodologies are used given an ESG measure per security type and hence can be compared correctly in the portfolio construction process.
JHI has built a centralised proprietary research alignment process; The central research alignment process aligns data at three different levels
- Entity Level,
- Position Level, and
- Fund Level.
The research alignment and mapping capability is critical to JHI's ESG (Environmental, Social and Governance) methodology, as we recognize a security could inherit the ESG information from the issuing legal entity, however, some ESG risks will be instrument specific.
JHI applies a series of Data Quality rules to ensure the integrity of the data being ingested into the central research alignment solution. JHI data that is not aligned correctly to the definition as provided by the data vendor is not ingested into the central cloud-based data warehouse and exceptions are raised. These exceptions are monitored and remediated by a central support team. Remediation includes challenging the data provider or internal operations supporting internally managed Systems of Records. Where appropriate the Data Owner responsible and accountable for the data is notified through the internal Data Governance process to resolve outstanding exceptions.
JHI receives weekly automated data feeds from external ESG Data vendors, which are ingested into a cloud-based data warehouse. Once the data is ingested and Data Quality checks have been performed the raw data is mapped to JHI’s internal taxonomy structure. This ensures that all ESG data from the data warehouse is made available consistently across all downstream JHI applications supporting the different stages in the investment process.
Some data used to support binding criteria as received from external providers may be estimated data. For positions not covered by the external data provider, proprietary research may be used. This could range from proprietary research alignment against the external data vendor to written confirmation from the issuing entity that it aligns to the binding criteria. The appropriateness of the evidence provided is assessed by an independent body at JHI.
I. Limitations to methodologies and data
Data coverage is directly driven by the coverage of the underlying ESG Data Provider.
JHI’s internal data structure provides sufficient flexibility to incorporate proprietary evidence or adapt evaluations to future requirements.
JHI is aware of data gaps in ESG Research for non-traditional asset classes compared to mainstream asset classes such as equities and debt instruments.
J. Due diligence
The JHI Sustainability Risk Policy sets out the firmwide ESG Integration Principles, Sustainable Investment Principles and Baseline Exclusions applied to investee companies. These exclusions are based on classifications provided by third-party data ESG data providers. This classification is subject to an investment research override in cases where sufficient evidence exists that the third-party field is not accurate or appropriate.
Each Investment desk completes their own due diligence processes ahead of making any investment decisions within their Article 8 funds, using internal and external tools and research. The Front Office Controls & Governance team provide ongoing assurance that investment products are managed in line with documented sustainability commitments. Financial Risk review and challenge investment management in light of ESG-related risks, alongside traditional market risk metrics, and embed sustainability risk into the risk profiles. Investment Compliance ensure that ESG-related activities are managed in line with regulatory requirements and expectations, and considered within our compliance framework.
K. Engagement Policies
In addition to the binding elements, stewardship forms an integral and natural part of Janus Henderson’s long-term, active approach to investment management. Details of JHI’s approach to Engagement can be found in the ‘ESG Investment Policy’ published under the ‘ESG Resource Library’ on the Janus Henderson website.
The Firm supports a number of stewardship codes and broader initiatives around the world and is a signatory to the UK stewardship code.
Janus Henderson has a Proxy Voting Committee, which is responsible for establishing positions on major voting issues and creating guidelines overseeing the voting process. The Committee is comprised of representatives of investments portfolio management, corporate governance, accounting, legal and compliance. Additionally, the Proxy Voting Committee is responsible for monitoring and resolving possible conflicts of interest with respect to proxy voting.
L. Designated Reference Benchmark
The Fund does not use a reference benchmark to attain its environmental or social characteristics.
One binding element is not included as an exclusionary screen within the order management system, this is the “aim to have a lower carbon intensity than MSCI Emerging Markets Index (the “Benchmark”). This commitment is monitored on a monthly basis by comparing the carbon intensity number of the portfolio and its benchmark as calculated by a third-party data provider.
Principal adverse impacts (PAI)
As at 31st March 2023 , PAIs are considered at the product level.1 The table below sets out where PAI is considered through the use of exclusionary screens:
| Adverse Sustainability Indicator | How is PAI considered | |
|---|---|---|
| Social and employee matters | Exposure to Controversial weapons | Exclusionary screen |
| Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) | Exclusionary screen | |
1 This was effective as of 31 October 2022 and periodic reporting will commence from 1 January 2023 for the first reference period from 31 October 2022.
'Where the translated version of this disclosure text differs from the English version, the original English version prevails'