IESE Business School - Barcelona
PA-10: Sustainable Investment

The IESE Endowment does not invest directly in equities but through external investment managers. These managers have their own ESG and responsible investing policy where some of them have adopted the PRI (Principles for Responsible Investment), some are aligned to the SDG framework, some are Article 8 according to the Sustainable Finance Disclosure Regulation, some have developed their own ESG frameworks and most of them have integrated their ESG policy into the investment processes. All of these managers have been selected after an ESG due diligence and are reviewed periodically. Although IESE doesn’t have an internal rating system, we use the MSCI ESG score and the MSCI carbon transition score to evaluate them on an annual basis.

 Some examples of funds under each category are:

 1. Sustainable Industries:

At least two of the private funds we invest in, invest directly in sustainable industries such as Renewable Energy and Environmental & Clean Tech. These holdings account for $219k including companies like Vinci Group, Yunnan Energy and Shuanghuan Driveline.

 2. Business selected for exemplary sustainability performance:

As part of our ESG DD we have selected funds investing in public holdings rated as AAA or AA by MSCI ESG ratings, which are considered as industry leaders. These holdings represent 27.6% of the total public holdings market value of the endowment ($38,331,000 * 27.6% = $10,580,000)

 3. Sustainable investment funds:

The IESE Endowment invests in GMO Climate Change Fund which seeks to generate high total return by investing primarily in equities of companies GMO believes are positioned to benefit, directly or indirectly, from efforts to curb or mitigate the long-term effects of global climate change, to address the environmental challenges presented by global climate change, or to improve the efficiency of resource consumption. The Fund’s benchmark is the MSCI All Country World Index. The Fund is classified as Article 8 under the European Sustainable Finance Disclosure Regulation.

Ethical Investment Policy: ESG and Responsible Investing The IESE Endowment has an entirely social character, in that all the returns are destined to projects and scholarships, and thus favor academic and social development. In order to better fulfill its social purpose, the Endowment seeks to maximize the return on its financial investments. This is achieved not only through adherence to the ethical and institutional values of the institutions, but also in such a way that is consistent with its Responsible Investment Policy, which is part of IESE’s Investment Policy, summarized below. IESE is aware that Environmental, Social and Governance (ESG) risks stem from factors as varied as environmental issues, human rights, discriminatory practices, child labor, bribery, corruption, etc. They also understand the ethical implications of some investment decisions, related not only to investment practices but also to the main activity of some companies and their impact on society. In cases of direct investment, the Investment Committee avoids investing in companies whose mission or practices are misaligned with IESE values, such as companies promoting abortion practices, euthanasia, controversial weapons, or committing serious or systematic human rights violations, such as murder, torture, deprivation of liberty, corruption, forced labor and the worst forms of child labor, etc. In very few cases the endowment investments are made by direct participation in the share capital of companies, or through debt issued by companies, while the great majority of investments are channeled through collective investment vehicles. For this reason, in the selection of external managers, efforts are made by the Investment Committee to comply with the most appropriate criteria in these matters (ESG), and the manager’s own policy and capabilities in ESG and on responsible investment. Thus, the Responsible Investment Policy includes an exhaustive list of sample questions to use in the screening of managers. As a management school, IESE should provide the business world, and society in general, with practical solutions to the most pressing problems of the moment, including those related to the energy transition and other aspects of ESG. In this sense, faced with the alternative of divestment or engagement (getting involved in the search for solutions), IESE prefers to commit to the search for solutions that solve problems in a practical way, in line with justice and social inclusion. In this sense, IESE expects external managers to engage with companies through a sensible and transparent use of the right to vote granted by the ownership of shares (active ownership), and to open an informal dialogue with their directors in order to promote ethical conduct and better management of ESG risks and opportunities. IESE is a member of the United Nations Global Compact, and signatory to the Principles for Responsible Management Education.

Prior to selecting a manager, an ESG due diligence is carried out. Periodically, the fundamental aspects of its investment policy and the structure of the organization, the company selection process, active ownership, and ESG reporting is revised. The questionnaire that is carried out with each manager is detailed below: ESG Capabilities Assessment Sample Questions The ESG capabilities of current and potential managers will be assessed, directly or through consultants, by introducing some of the following questions in the RFI's and RFP's, and in the interviewing process. 1. Investment policy and firm structure o Does your investment policy refer to your integration practices? If so, please enclose. o Which person/team/committee is responsible for implementing a responsible investment program and who is responsible for ESG analysis? o Does your organization have a dedicated ESG team? If so, then please describe: • how the investment team works with the ESG team; • the ESG team’s responsibilities and how its work is used by the other teams; • how the ESG team interacts with the investments team and how often; • where the ESG team is located relative to the investment managers. If not, please describe: • if mainstream analysts/managers have been trained on ESG issues, and how; • what ESG research mainstream analysts/ managers conduct. 2. Investment process o What are some specific examples of how ESG factors are incorporated into your investment analysis and decision-making process (e.g. asset allocation, definition of investible universe, portfolio construction, fundamental or sector analysis, stock selection)? o What ESG data, research, resources, tools and practices do you use to integrate ESG factors into your investment process, valuations and decisions? o What weighting do ESG factors have on the decision-making process and decisions? o How often do you review the ESG risk exposure of the portfolio and how often do you review your past ESG research and investible universe? o How do you attend to both financial and ESG criteria during stock analysis and portfolio construction? 3. Active ownership o How do your active ownership practices impact investment decisions? o What are some specific examples of how information acquired from voting and engagement activities translates into investment decisions?

The IESE endowment does not have direct positions in the capital of companies, but invests only through collective investment vehicles. In the annual meetings with the managers, the issue comes up, and IESE's will is expressed so that in the exercise of the rights of the shareholders, they vote in accordance with IESE's responsible investment policy.

Attendance at annual events of the investment sector: - Commonfund.org - Intentional Endowments.org