Risk Managed Passive and Risk Managed Active fund ranges and Prudential Assurance Company (PAC – The Asset Owner) ESG considerations

Prudential Assurance Company (PAC – the Asset Owner) are a signatory to the UN Principles for Responsible Investment as an asset owner. PAC aims to achieve net zero carbon emissions across AUMA (assets under management and administration) by 2050, in line with the Net Zero Asset Owners Alliance. An important aspect of how the Asset Owner manages its investments is the integration of ESG factors into investment decisions, which Prudential Assurance Company (PAC) believe can help better manage risks and generate sustainable, long-term return for customers. The M&G Treasury and Investment Office (T&IO) do this on behalf of PAC through implementing ESG considerations into the Strategic Asset Allocation (SAA) process, integrating ESG factors into manager selection and oversight and considering ESG factors in mandate design.

M&G Treasury & Investment Office (T&IO) look to the asset managers they select to:

1. engage with companies as active owners that help foster a more sustainable economy,
   
   
2. participate in voting on key issues such as Climate,
   
   
3. manage assets in accordance with the T&IO ESG Investment Policy and,
   
   
4. ensure that ESG is integrated into their investment process. T&IO's ongoing Investment Due Diligence on these selected managers ensures that they not only meet a high threshold from an investment perspective but also in terms of these ESG requirements.

Given T&IO's view that the integration of Environmental, Social and Governance (ESG) factors into the investment process can help manage risks and generate better sustainable long-term returns this is as important in the selection and ongoing due diligence process as the traditional aspects of manager selection (e.g. investment team, investment philosophy and investment process).

The process and philosophy behind how T&IO manage money has not changed, only evolved. T&IO are, and always will be, long-term investors and so believe that ESG factors should be considered in addition to and alongside the more traditional financial metrics not only in selecting managers but also in asset allocation. T&IO believe that companies which capture and embed ESG opportunities and risks into their strategy are more likely to be successful. As an Asset Owner, T&IO therefore ensure that ESG considerations are integrated into all of the investment decisions relating to asset allocation, manager selection and oversight and mandate design.

For the WS Prudential Risk Managed Active and WS Prudential Risk Managed Passive Funds, T&IO apply the PAC ESG Investment Policy for the internally managed Funds within these ranges. T&IO incorporate considerations of these priorities via a combination of focused engagement strategies and some exclusions.

For Funds run by external managers, T&IO look to identify suitable investment managers which are able to manage the mandates in line with the PAC ESG Investment Policy. For all existing managers we look to monitor their alignment to the PAC ESG Investment Policy on an ongoing basis; where there are divergences, the T&IO Investment Management Oversight team looks to either engage with managers to encourage alignment with the ESG investment principles over time, or to migrate the assets to a fund that aligns.

We are confident that the current exposures within WS Prudential Risk Managed Active and WS Prudential Risk Managed Passive Funds remain appropriate for our investors however we are prioritising the creation of passive strategies that meet our ESG criteria.