ESG Integration

Pella integrates Environmental, Social, and Governance (ESG) factors into both stock selection and portfolio construction. We combine MSCI ESG research with internal analysis to assess ESG risks and opportunities. At the stock level, we avoid companies with weak ESG outcomes and target a portfolio where at least 70% is invested in companies rated BBB or higher by MSCI, with a minimum of 30% rated A or above. We also monitor the Fund’s ESG performance relative to the benchmark and aim to deliver superior environmental, social, and governance outcomes.

Exclusion Screens

Pella applies exclusion screens to avoid investing in companies involved in activities that are inconsistent with its ethical and sustainability objectives. These exclusions are grounded in clearly defined thresholds and industry norms, ensuring alignment with international standards and community expectations.

Norms-Based Screens

Pella applies norms-based screening to exclude companies that breach internationally recognised standards of responsible business conduct, including the UN Global Compact and OECD Guidelines for Multinational Enterprises. These screens are integrated into Pella’s investment process and are used to identify and monitor controversies, ensuring the portfolio avoids exposure to companies involved in serious environmental, social, or governance violations.

Investment Stewardship (including Proxy Voting)

Pella integrates Investment Stewardship—engagement, proxy voting, and advocacy—into all investment decisions to promote long-term value and responsible corporate behaviour. Pella engages with all portfolio companies, votes on 100% of shareholder resolutions, and has policies to vote in ways that align with positive ESG outcomes. All votes are publicly disclosed, with explanations provided for ESG-related or controversial decisions, ensuring transparency and accountability.

Sustainability Themed

Pella targets Sustainability-Themed funds by constructing portfolios with lower carbon intensity than the broader market and investing in companies heavily involved in activities aligned with the United Nations Sustainable Development Goals (SDGs), where those companies also meet our financial requirements. Pella aims for portfolio carbon intensity to be at least 30% below the Benchmark, measured using Scope 1 and 2 emissions relative to revenue and enterprise value, as calculated by MSCI.

Pella has identified six sustainability themes—Cleaner Energy, Conservation & Resource Efficiency, Improved Health, Safety, Inclusiveness, and Economic Participation—which are dynamic and may expand as new opportunities emerge. Pella measures each company’s revenue exposure to these themes using defined bands (0%, 0–20%, 20–50%, 50–75%, and 75–100%) and aggregates these to assess the portfolios’ overall exposures to sustainability-linked revenue.

Sustainability Disclosure

Pella Funds Management is committed to clear, accurate, and consistent communication of its sustainability-related investment strategies and practices. Below we outline key definitions, methodologies, and data sources that underpin our responsible investing approach.

Key Sustainability-Related Terms

Carbon Intensity

Pella measures total Scope 1 and Scope 2 carbon emissions relative to company size, using two ratios:

1. Carbon emissions / net revenue
2. Carbon emissions / enterprise value

• Scope 1 emissions are direct emissions from operations controlled or owned by the company.
• Scope 2 emissions are indirect emissions from purchased energy (e.g., electricity, steam, heating, or cooling).

Sustainability
Defined as: “Activities that can continue over the long term because they do not come at a material cost to current or future generations.”

Responsible Investing
Defined as: “Investing with equal emphasis on four pillars: the Investment Process, Returns, Risk, and Sustainability.”

Sustainability Strategies

Pella implements six sustainability-related strategies:

1. ESG Integration
   Incorporating ESG risks and opportunities into investment decisions using a systematic research process and credible data sources.
2. Negative / Exclusion Screening
   Excluding companies engaged in activities deemed incompatible with Pella’s values. A detailed exclusion list and revenue thresholds are available on the Responsible Investing page.
3. Norms-Based Screening
   Excluding companies that severely breach international norms (e.g., UN Global Compact principles). Breaches are assessed by Pella on a case-by-case basis with documented rationale.
4. Sustainability-Themed Investing
   Targeting investment portfolios with carbon intensities at least 30% lower than the MSCI ACWI benchmark, based on MSCI methodologies.
5. Stewardship
   Voting in 100% of shareholder meetings and engaging with investee companies to improve ESG performance through formal and informal dialogue.
6. Positive Impact
   Investing in companies where at least 20% of net revenue is derived from activities that positively impact people, society, or the planet. Pella recognises six positive impact themes:
   • Cleaner Energy
   • Conservation
   • Improved Health
   • Safety
   • Inclusiveness
   • Economic Participation

Implementation Methodology

• ESG Integration, Negative Screening, and Norms-Based Screening are applied at the outset of the investment process and monitored throughout the holding period.
• Sustainability-Themed targets require carbon intensity (relative to both revenue and enterprise value) to be ≥30% lower than the Benchmark.
• At least 10% of each fund must be invested in Positive Impact companies.
• Positive Impact investments must have an MSCI ESG rating of B or BB or higher.

Use of Sustainability-Related Metrics and Data

Pella relies primarily on MSCI for ESG ratings, carbon intensity, and aggregate scores for both fund and benchmark. In some cases, Pella supplements its analysis with:

• Refinitiv ESG research
• ISS Corporate Governance for proxy voting
• Pella’s proprietary ESG research, which uses:
  • Company reports and earnings calls
  • Media and regulatory disclosures
  • Direct company engagement

If MSCI does not rate a company under review, Pella conducts internal ESG analysis and encourages MSCI to initiate coverage. Individual unrated positions are capped at 3%, and at least 70% of portfolio holdings must have an MSCI ESG rating of BBB or higher.

Environmental, Social, and Governance (ESG) Issues Considered

Environmental

• Climate change: fossil fuels, uranium/nuclear, carbon footprint
• Natural capital: renewable energy, deforestation, biodiversity, water
• Pollution & waste: recycling, packaging, treatment

Social

• Labour: health & safety, modern slavery, workplace standards
• Product: safety, privacy/data security
• Human rights: equity, housing, civil liberties
• Community impact: animal cruelty, junk food, weapons, alcohol

Governance

• Structure: board independence, remuneration, entrenchment
• Oversight: compliance, accountability
• Ethics: corruption, transparency, tax conduct

Sustainability Targets

Pella targets superior sustainability performance relative to the MSCI ACWI Benchmark through:

• ESG Integration: Higher aggregate ESG scores than the Benchmark
• Negative Screening: Exclusion of 11 revenue activities considered harmful
• Norms-Based Screening: Exclusion of companies with severe behavioural breaches (e.g., slavery, child labour, genocide)
• Sustainability-Themed: Carbon intensity ≥30% lower than the Benchmark
• Stewardship: Voting in all shareholder resolutions; ESG issues assessed on a case-by-case basis
• Positive Impact: Minimum 10% allocation to qualifying companies

Monitoring and Reporting

Pella measures performance against its sustainability targets daily, with monthly and quarterly reporting. A detailed annual review is included in the Annual Responsible Investing Report.

More Information

For further detail on Pella’s sustainability approach, visit the Responsible Investing section of this website.

You may also request the following resources:

• Responsible Investment Manual (upon request)
• Annual Responsible Investing Report (publicly available)