ESG Integration Framework for an overview). See section 03.6.2 for a detailed overview of the information system and communicated to asset managers. scoring process. 03.6.2.3 Operationalizing the ESG scoring process The ESG Scoring Approach is governed through the Allianz ESG When analyzing current investments in a given portfolio and Functional Rule for Investments (EFRI). The initial implementation when selecting new investments, an asset manager must take the of the Scoring Approach was piloted on the portfolios of Allianz investment’s ESG score and applicable threshold into account. Life Germany (Allianz Lebensversicherungs-AG) and Allianz Health Germany (Allianz Private Krankenversicherungs-AG) and by the end This means that investments in issuers below the threshold are to 1 of 2017 the process was rolled out to all in-scope Allianz proprietary be avoided. This applies to existing investments, reinvestments and portfolios globally. new investments. Should an asset manager hold investments below the threshold, a comply-or-explain clause becomes effective. Asset 03.6.2 Scoring process managers must justify these investments and properly document in biannual ESG review meetings with AIM supported by Global 03.6.2.1 ESG data integration Sustainability. Quantitative ESG data from MSCI is integrated into Allianz’s Examples for valid justifications include regulatory requirements, investment management information systems. From there, all market availability or proprietary research findings. investment management staff, as well as the respective portfolio 03.6.2.4 Systematic engagement management and analyst teams at AllianzGI and PIMCO have access to the MSCI data. Further qualitative and quantitative ESG Further, Allianz subjects issuers below the threshold in its portfolio to research and data is accessible through the MSCI ESG Manager a systematic, goal-oriented and time-limited engagement process. tool. Such engagements are conducted on a case-by-case basis either 03.6.2.2 Setting the ESG threshold by AIM and/or the respective asset manager(s). Details on the engagement approach are described in section 03.7.1. Companies with a low ESG performance are generally linked to high 03.6.2.5 ESG-specific asset manager reviews ESG and reputational risks. In order to identify companies with a low ESG performance, the scoring process uses an ESG threshold. The ESG integration (including the ESG scoring approach) is part of threshold is set in the following way: the regular asset manager review and ESG-specific asset manager 2 review meetings. Implementation of the scoring requirements is a All corporate issuers in the MSCI ESG Rating universe are grouped measured KPI, relevant to the financial compensation of the asset by region (Europe, North America, Asia-Pacific and Emerging management firms (see also section 03.10.2). Markets). For sovereign issuers no regional categorization is done. The threshold is set at the bottom 10 percent in ESG performance for each issuer group. In other words, the 10th percentile score is set as the threshold for a given regional group. Allianz flags all issuers below the respective threshold. The ESG threshold is reassessed based on ESG data every three years. Thresholds are incorporated into the investment management 1 For example, assets owned by Allianz Austria are excluded from the Group ESG Scoring Approach, as this OE has developed their own ESG scoring approach. 29 2 All issuers rated by MSCI ESG Research.