Citi Global Transformation Portfolio

Financial products Which Promote Environmental and/or Social Characteristics

The Sustainable Finance Disclosure Regulation (‘SFDR’) requires that information provided in pre-contractual disclosures and in periodic reports in respect of a financial product which promotes environmental and/or social characteristics be published on a website. SFDR also requires that certain additional information be disclosed and published on such website.

This disclosure is made for these purposes by Citibank Europe plc, in relation to clients of its Luxembourg branch.

This disclosure relates to the following financial products:

Citi Global Transformation Portfolio (Citi GTP)
Tailored Discretionary Portfolios utilizing the investment process from the Citi GTP

No sustainable investment objective

These financial products promote environmental or social characteristics but does not have as their investment objective sustainable investment.

Environmental or social characteristics of the financial products

The financial products promote a positive contribution to the advancement of the United Nations’ (UN) Sustainable Development Goals (SDGs), by investing in companies that have meaningful exposure to one or more sustainability themes selected by us (Citi GTP Themes) aligned to one or more of the UN SDGs. The financial products also promote support for the UN Global Compact (UNGC) Principles (which cover matters including human rights, labour, corruption, and environmental pollution), and seek to avoid investments in certain activities with the potential to cause harm to human health and wellbeing, by applying binding exclusions.

The financial products do not use a reference benchmark to attain the environmental or social characteristics promoted by the financial products.

Investment strategy

Investment strategy used to meet the environmental and social characteristics of the financial products

We seek to only invest in global publicly traded companies with a minimum of 30% revenue, for their last completed fiscal year, attributed to one or more of the Citi GTP Themes. Any companies that do not meet this threshold, but where we have sufficient conviction that they may meet the threshold within three years, can considered for inclusion; companies included based on this criterion can comprise up to 20% of the financial products’ value.
We use negative screening to further define the investment universe:
- We apply a revenue-based exclusion consistent with the UNGC to exclude companies that derive any revenue from the production, sale and/or transfer of antipersonnel landmines or cluster bombs or from the production and/or manufacturing of tobacco.
- We exclude companies that are regarded as UNGC violators.

The policy to assess good governance of the investee companies

The good governance practices of the investee companies are considered in the investment due diligence process. Our determination of whether an investee company follows good governance practices is based upon a rating produced by a third-party ESG data provider.

The data provider considers a range of criteria to assess whether the investee companies follow good governance practices, including with respect to sound management structures, employee relations, remuneration of staff and tax compliance.

Proportion of investments

The financial products commit to a minimum proportion of 80% of investments to attain the characteristics promoted by the financial products, in accordance with the binding elements of the investment strategy. The remaining portion of the investment of the financial products may include cash and cash equivalents, including securities issued by money market mutual funds, held for the purposes of efficient portfolio management.

The financial products do not intend to make any sustainable investments and do not take into account the EU Taxonomy and as such 0% of the financial products are Taxonomy aligned. All exposure to investee companies is expected to be direct.

Monitoring of environmental or social characteristics

The financial products’ investment strategies are implemented through an investment process that annually reassesses revenue exposures of investee companies and the good governance practices of investees companies, and, on a quarterly basis, refreshes the exclusion data upon which we make our investment decisions. This ensures the investments used in these financial products are aligned to the binding elements used by these products to promote environmental or social characteristics.

Methodologies for environmental or social characteristics

These financial products have the following binding elements which determine investment selection:

We seek to only invest in global publicly traded companies with a minimum of 30% revenue, for their last completed fiscal year, attributed to one or more of the Citi GTP themes. This analysis is done for the initiation of new positions and reviewed on an annual basis. Any companies that do not meet this threshold, but where we have sufficient conviction that they may meet the threshold within three years, can considered for inclusion; companies included based on this criterion can comprise up to 20% of the financial product’s value, measured quarterly.
Consistent with the UNGC, the financial products exclude companies that are deemed by our third-party ESG data to be:
1. companies that derive revenue from the production, sale and/or transfer of antipersonnel landmines or cluster bombs.
2. companies that derive revenue from the production and/or manufacturing of tobacco.
This analysis is done for the initiation of new positions and reviewed on a quarterly basis.
The financial products apply a UNGC violator screen to the investable universe. Third party data is used to identify companies flagged as UNGC non-compliant. This analysis is done for the initiation of new positions and reviewed on a quarterly basis. The third-party data provider methodology is subjective and as such should be understood to be their opinion and their own assessment of a company’s compliance with or violation of the UNGC principles. We may include positions in the financial products that, based on the third-party data appear to fail the above UNGC criteria, where we believe, that the third-party data is insufficient, incomplete or inaccurate, but based on our own analysis, the company is compliant with UNGC principles. Additionally, where a rating/data for a particular investment is unavailable from the third-party data provider, we will assess the adherence with UNGC and present the conclusion for internal approval. The exceptions summarised in this paragraph 3) may comprise up to 20% of the financial products’ value, and shall be measured before each exception and on a quarterly basis.

Data sources and processing

(a) the data sources used to attain each of the environmental or social characteristics promoted by the financial product

We reference direct company disclosures, and/or Bloomberg/FactSet data to substantiate the percentage revenue exposure attributed to Citi GTP themes.

We incorporate ESG screening criteria using third-party ESG data provided by Sustainalytics.

(b) the measures taken to ensure data quality

In order to ensure we use appropriate data from creditable sources, we have an internal vendor review and approval process where we review the vendors approach to data management, their coverage, and their methodologies before they are approved for use. Our vendor review process also monitors and refreshes relevant information about the data provider on an ongoing basis.

(c) how data are processed

Publicly disclosed company data is used in the investment process to substantiate percent revenue exposure attributable to Citi GTP themes. This data is sourced directly from the companies, or through Bloomberg and/or Factset.

Sustainalytics data is used in the investment process in order to take into account our exclusion criteria and use in determining company adherence to the UNGC. This data provider provides access to their data either through their vendor platform, or through a data feed we receive from the provider on a monthly basis.

(d) the proportion of data that are estimated

The providers may estimate a small amount of the data which is used to assess alignment with the binding exclusions due to data availability constraints.

As data to assess compliance with Citi’s GTP themes will be assessed using publicly disclosed company data, we don't expect it to be estimated.

Limitations to methodologies and data

(a) any limitations to the methodologies, and to the data sources and (b) how such limitations do not affect how the environmental or social characteristics promoted by the financial product are met.

For the purposes of these financial products, there are no limitations to the methodologies because data used by us covers the requirements to meet the financial products’ ESG characteristics.

There are however general challenges associated with ESG data, that we expect also apply to the data we leverage from our data providers and from the market – these include (among others) data gaps, data lags in terms of reporting timelines, divergent methodologies between data providers and data sources for the calculation or estimation of the data and discrepancies between estimated and reported data.

(b) how such limitations do not affect how the environmental or social characteristics promoted by the financial product are met.

As the data challenges noted above are general limitations in the market that are not specific to the financial product or our selected data providers, we consider that we are still able to appropriately meet the characteristics promoted by the financial products. We also maintain an internal vendor review and approval process which involves reviewing the data provider’s approach to data management, data coverage and methodologies.

Due diligence

The ESG-dedicated investment team engages in ongoing internal discussions related to the investments in the financial products.

Engagement policies

Engagement is not directly part of the environmental or social investment strategy promoted by the financial products. We do not have any procedures applicable to sustainability-related controversies in investee companies. However, we engage with investee companies through our proxy voting preferences, which may direct votes to issues aligned to some sustainability matters.

Information provided in periodic reports

The extent to which environmental and/or social characteristics are met for each of the portfolios

In the period running from 10 March 2021 to 31 December 2021 (the “reference period”), the environmental and/or social characteristics promoted by these products were met by adhering to an investment process which used a combination of proprietary research, positive screening, negative screening, and exclusion criteria to define an investment universe for the portfolio.

The investment process had binding elements which determined investment selection based on proprietary research, positive screening, negative screening, and exclusion criteria and data sourced from third party ESG data providers, as set out in the pre-contractual disclosures made for the purposes of Article 8(1) of SFDR, and these binding elements were met as follows:

Only globally publicly traded companies with a minimum of 30% revenue for their last completed fiscal year attributed to one or more of the Citi GTP themes were included.
The following exclusions (as defined by the UN Global Compact) were applied:
1. Companies that derive revenue from the production, sale and/or transfer of antipersonnel landmines or cluster bombs.
2. Companies that derive revenue from the production and/or manufacturing of tobacco.
Companies which were ‘non-compliant’ with UN Global Compact Principles or UN Global Compact Violators were excluded.

In the reference period, there were no breaches and/or exceptions to any of the binding elements set out above. The exclusion data was reviewed quarterly.