Risk Considerations

The sustainability-related disclosures are meant to be revised as necessary from time to time to capture any changes or reviews. The capitalized terms are used in accordance with the definitions and references outlined in Prospectus.

Capital Group Global High Income Opportunities Fund (LUX) (the “Fund”)

LEI: 5493003T9JGEHH5RHV09

The below section “Summary” was prepared in English and is being translated to other official languages of the European Economic Area. In case of any inconsistency(ies) or conflict(s) between the different versions of this section “Summary”, the English language version shall prevail.

Summary

No sustainable investment objective

This Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.

Environmental or social characteristics of the financial products

The Fund promotes the environmental and social characteristics of investing in companies with a Weighted Average Carbon Intensity (WACI) lower than 50% Bloomberg US Corp HY 2% Issuer Capped Total Return, 20% JPM EMBI Global Total Return, 20% JPM GBI-EM Global Diversified Total Return, 10% JPM CEMBI Broad Diversified Total Return indexes, and of excluding investments in issuers based on ESG and norms-based criteria.

Investment strategy

The Fund aims to maintain a Weighted Average Carbon Intensity (WACI) for its investments in corporate issuers that is lower than 50% Bloomberg US Corp HY 2% Issuer Capped Total Return, 20% JPM EMBI Global Total Return, 20% JPM GBI-EM Global Diversified Total Return, 10% JPM CEMBI Broad Diversified Total Return indexes. This will not apply to sovereign issuers. While this Fund is actively managed and without any reference or constraints to a reference index, the Fund is using these indexes to monitor the investment’s carbon emission. The Investment Adviser relies on carbon footprint data from a third-party provider to carry ongoing monitoring of weighted average carbon intensity (WACI) at the fund level, and may reduce or eliminate exposures to certain companies as necessary.

CRMC (the “Investment Adviser”) evaluates and applies ESG and norms-based screening to implement exclusions on corporate and sovereign issuers, with respect to certain sectors such as fossil fuel and weapons (the “Negative Screening Policy”).

The Fund promotes, among other characteristics, environmental and social characteristics, provided that the companies in which investments are made follow good governance practices. Good governance practices are evaluated as part of the Investment Adviser’s eligibility process. When assessing good governance practices, the Investment Adviser will, as a minimum, have regard to matters it sees relevant to the four prescribed pillars of good governance (i.e., sound management structures, employee relations, remuneration of staff and tax compliance). Such practices are assessed through a monitoring process. Where relevant, fundamental analysis of a range of metrics that cover auditing practices, board composition, and executive compensation, among others, is also conducted.

The Fund’s carbon constraint does not apply to the entire portfolio, and will apply only to corporate issuers that have carbon emissions data available (reported or estimated). The Capital Group's Negative Screening Policy will apply to the entire portfolio, with the exception of cash holdings and derivatives.

Proportion of investments

The planned asset allocation is monitored continuously and evaluated on a yearly basis. At least 80% of the Fund's investments are aligned with E/S characteristics. A maximum of 20% of the Fund’s investments including investments non-aligned with the E/S characteristics promoted and/or derivatives are in category “#2 Other”. The Fund does not commit to make any sustainable investments.

Monitoring of environmental or social characteristics

The sustainability indicators used by this Fund to measure the attainment of each of the environmental or social characteristics it promotes are the following:

The WACI is the metric used to report the Fund’s carbon emissions. It helps show the carbon footprint of the portfolio compared to the index, and is based on Scope 1 and 2 emissions:

• Scope 1: direct emissions from the investee company’s facilities;

• Scope 2: indirect emissions linked to the investee company’s energy consumption

The Investment Adviser applies ESG and norms-based exclusions to implement a Negative Screening Policy to the Fund’s investments. The Fund will monitor:

• adherence of corporate issuers to the criteria set forth in the Negative Screening Policy; and

• percentage of sovereign issuers failing the Investment Adviser’s process for assessing sovereigns.

Methodologies

The Fund implements two binding ESG-related criteria: sector- and norms-based screens in the form of exclusions and a carbon footprint target.

Data sources and processing

Exclusions are primarily identified through a third-party provider, MSCI ESG Business Involvement Screening Research (“MSCI ESG”). Other data points include the MSCI United Nations Global Compact and MSCI Carbon Footprint Metrics.

Limitations to methodologies and data

The methodology and sources relating to the exclusions and the ESG integration approach as a whole have certain limitations. When assessing the ESG characteristics of securities and the selection of such securities, subjective judgement within the investment process might be involved. The carbon footprint is measured by the WACI relative to the relevant index. In the event that reported carbon emissions data is not available for a particular issuer, the third-party provider may provide estimates using their own methodologies. Issuers that do not have any carbon emissions data available (reported or estimated) are excluded from the WACI calculation. Excluded from the WACI determination are cash holdings, derivatives, sovereigns, and securitised products.

Due diligence

Members of Capital Group's compliance, risk management and internal audit staff conduct periodic assessments on the design and operating effectiveness of the firm’s ESG activities and key controls.

Engagement policies

Establishing dialogue with companies is an integral part of the Investment Adviser’s investment management service to clients. This enables Capital Group to engage and generate dialogue on any issues that could affect the investee company’s long-term prospects, including exposures to sustainability issues.

Designated reference benchmark

The Fund has not designated a reference benchmark to meet the environmental and/or social characteristics it promotes.

No sustainable investment objective

This Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.

Environmental or social characteristics of the financial product

The Fund promotes environmental and social characteristics, provided that the companies in which investments are made follow good governance practices.

Carbon constraint: The Fund aims to maintain a Weighted Average Carbon Intensity (WACI) for its investments in corporate issuers that is lower than 50% Bloomberg US Corp HY 2% Issuer Capped Total Return, 20% JPM EMBI Global Total Return, 20% JPM GBI-EM Global Diversified Total Return, 10% JPM CEMBI Broad Diversified Total Return indexes. The WACI is based on GHG emissions (Scope 1 and 2) divided by the revenue of the investee companies. Should the WACI of the Fund not be lower than the aforementioned indexes, the Investment Adviser will consider what action is in the best interest of the Fund, its Shareholders and in line with the relevant Fund investment objective to bring the Fund back above the threshold in a reasonable period of time.
Negative screening policy: In addition, the Investment Adviser evaluates and applies ESG and norms-based exclusions to implement a Negative Screening Policy to the Fund’s investments at the time of purchase. The methodology applied in support of this screening is described in detail under the section “Investment Strategy” of this document.

The Investment Adviser selects investments to the extent they do not trigger a breach of the carbon target and are in line with the Negative Screening Policy.

Investment strategy

The Investment Adviser applies the following investment strategy to attain the environmental and/or social characteristics promoted:

Carbon constraint. The Investment Adviser aims to manage a carbon footprint lower than the Fund’s selected index level. Therefore, it will aim to manage a carbon footprint (WACI) for its investments in corporate issuers that is lower than the Fund’s selected indexes level (50% Bloomberg US Corp HY 2% Issuer Capped Total Return, 20% JPM EMBI Global Total Return, 20% JPM GBI-EM Global Diversified Total Return, 10% JPM CEMBI Broad Diversified Total Return). Should the WACI of the Fund not be lower than the level of the aforementioned indexes, the Investment Adviser will consider what action is in the best interest of the Fund, its Shareholders and in line with the relevant Fund investment objective to bring the Fund back above the threshold in a reasonable period of time. The Investment Adviser carries out ongoing monitoring of WACI at the Fund level, and may reduce or eliminate exposures to certain companies as necessary.
The selected index is representative of the investment universe of the Fund. The Investment Adviser assess the portfolio WACI data on an ongoing basis to help the Fund remain within the target level. This allows the Investment Adviser to measure the carbon footprint and carbon intensity of the portfolio compared to the selected index, and to understand the attribution of the emission results. From an investment perspective, carbon footprint analysis can serve as a tool to engage with the investee company and better understand the investee company’s business. In the event that reported carbon emissions data is not available for a particular issuer, the third-party provider may provide estimates using their own methodologies. Issuers that do not have any carbon emissions data available (reported or estimated) are excluded from the WACI calculation. This will not apply to sovereign issuers. It is not the intention of the Investment Adviser to automatically exclude higher carbon emitters on an individual basis as the carbon intensity is monitored at the total portfolio level rather than at the individual holding level.

Negative screening policy. The Investment Adviser also evaluates and applies ESG and norms-based screening to implement a Negative Screening Policy to the Fund’s investments at the time of purchase.

To support this screening on corporate issuers, the Investment Adviser relies on third party provider(s) who identify an issuer’s participation in or the revenue which they derive from activities that are inconsistent with the ESG and norms-based screens. In this way, third party provider data is used to support the application of ESG and norms-based screening by the Investment Adviser. In the event that exclusions cannot be verified through third-party providers or if the Investment Adviser believes that data and/or assessment is incomplete or inaccurate, the Investment Adviser reserves the right to identify business involvement activities through its own assessment (including by using other third-party data sources). If an eligible corporate issuer held in a Fund subsequently fails a screen, the issuer will not contribute towards the environmental and/or social characteristics of the Fund and will generally be sold within six months from the date of such determination, subject to the best interests of investors in the Fund.

For sovereign issuers, the Investment Adviser conducts an eligibility assessment leveraging its proprietary sovereign ESG framework, which covers a range of ESG indicators to evaluate how well a country manages its ESG risk. To be eligible for investment, sovereigns must score above pre-determined thresholds for their proprietary ESG score on both an absolute and GNI-adjusted basis. The Investment Adviser leverages data from third-party institutions such as the United Nations and the World Bank to calculate ESG scores across the sovereign universe. Sovereign issuers are evaluated on: (1) a gross national income-adjusted basis to better understand how well a country manages ESG risk relative to its wealth and available resources, as well as (2) on an absolute basis. Sovereign issuers that score below pre-defined thresholds in either category are generally not eligible for purchase by the Funds. If the Investment Adviser believes that the third-party data and/or assessment is incomplete or inaccurate, the Investment Adviser reserves the right to identify exclusions for sovereign issuers through its own assessment. The Investment Adviser also periodically reviews sovereign issuers and if a previously eligible sovereign issuer held in the Fund becomes ineligible, the sovereign issuer will not contribute towards the environmental and/or social characteristics of the Fund and the sovereign issuer will generally be sold within six months from the date of such determination, subject to the best interests of investors in the Fund (save that if the Investment Adviser believes that a score is below a pre-defined threshold for a temporary or a transitory reason, the Investment Adviser may, from time to time, exercise its discretion to keep holding or purchase securities issued by the sovereign issuer).

What is the policy to assess good governance practices of the investee companies?

When assessing good governance practices, the Investment Adviser will, as a minimum, have regard to matters it sees relevant to the four prescribed pillars of good governance (i.e., sound management structures, employee relations, remuneration of staff and tax compliance). 

As described above, the Investment Adviser applies a Negative Screening Policy to the Fund. As part of this, the Investment Adviser excludes companies that, based on available third-party data, are viewed to be in violation of the principles of the UNGC, which include Principle 10 (anti-corruption) and Principle 3 (employee relations).

In addition, good governance practices are evaluated as part of the Investment Adviser’s ESG integration process. Such practices are assessed through a monitoring process based on available third-party indicators relating to corporate governance and corporate behavior. Third-party data may be inaccurate, incomplete or outdated. Where the corporate governance and corporate behavior indicators cannot be verified through the third-party provider, the Investment Adviser will aim to make such determination through its own assessment based on information that is reasonably available. Where relevant, fundamental analysis of a range of metrics that cover auditing practices, board composition, and executive compensation, among others, is also conducted. The Investment Adviser also engages in regular dialogue with companies on corporate governance issues and exercises its proxy voting rights for the entities in which the Fund invests.

If a previously eligible company held in a Fund subsequently fails the Investment Adviser’s assessment of good governance practices, the company will generally be sold within six months from the date of such determination, subject to the best interests of investors in the Fund.
Capital Group's ESG Policy Statement provides additional detail on Capital Group’s ESG philosophy, integration, governance, support and processes, including proxy voting procedures and principles, as well as views on specific ESG issues, including ethical conduct, disclosures and corporate governance. Information on Capital Group’s corporate governance principles can be found in its Proxy Voting Procedures and Principles as well as in the ESG Policy Statement.

Information on Capital Group’s corporate governance principles can be also found in its Proxy Voting Procedures and Principles, available on:
https://www.capitalgroup.com/content/dam/cgc/tenants/europe/documents/responsible-investing/global_proxy_voting_guidelines(en).pdf.
The ESG Policy Statement provides additional detail on Capital Group’s views on specific ESG issues, including ethical conduct, disclosures and corporate governance, available on:
http://www.capitalgroup.com/content/dam/cgc/tenants/eacg/esg/files/esg-policy-statement(en).pdf

Proportion of investments

At least 80% of the Fund's investments are in category “#1 Aligned with E/S characteristics” and so are used to attain the environmental or social characteristics promoted by the Fund (being subject to the Investment Adviser’s binding Negative Screening Policy and carbon constraint). A maximum of 20% of the Fund’s investments including investments non-aligned with the E/S characteristics promoted, securitised debt and/or derivatives are in category “#2 Other”. The Fund does not commit to make any sustainable investments. Cash and/or cash equivalents are excluded from the asset allocation above.
Cash and cash-equivalents may be held for liquidity purposes to support the Fund’s overall investment objective.

Monitoring of environmental or social characteristics

The sustainability indicators used by this Fund to measure the attainment of each of the environmental or social characteristics it promotes are the following:
The WACI is the metric used to report the Fund’s carbon emissions. It helps show the carbon footprint of the portfolio compared to the index, and is based on Scope 1 and 2 emissions:

• Scope 1: direct emissions from the investee company’s facilities;

• Scope 2: indirect emissions linked to the investee company’s energy consumption.

The Investment Adviser applies ESG and norms-based exclusions to implement a Negative Screening Policy to the Fund’s investments. The Fund will monitor:

• percentage of corporate issuers failing a screen under the Negative Screening Policy; and
• percentage of sovereign issuers failing the Investment Adviser’s process for assessing sovereigns.

The Fund applies investment restrictions rules on a pre-trade basis in portfolio management systems to prohibit investment in companies or issuers based on the exclusion criteria. The portfolio also undergoes regular/systematic post-trade compliance checks. The methodology applied in support of this screening is described in detail under the section “Investment Strategy” of this document.

In the event that exclusions cannot be verified through the third-party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.

The Investment Adviser can select investments to the extent they do not trigger a breach of the carbon target and are in line with the Negative Screening Policy.
Please refer to Capital Group's ESG Negative Screening Policy for further details.

An additional objective of the Fund is to ensure that the carbon footprint is lower than the securities included in the respective indices. This will not apply to sovereign issuers. The selected indexes are representative of the investment universe of the Fund. The Investment Adviser uses WACI as a metric to measure the Fund’s carbon footprint. In calculating the Fund’s WACI, the Investment Adviser relies on a third-party data provider. In the event that reported carbon emissions data is not available for a particular issuer, the third-party provider may provide estimates using their own methodologies. Issuers that do not have any carbon emissions data available (reported or estimated) are excluded from the WACI calculation. The Investment Adviser assesses the portfolio WACI on an ongoing basis to help the Fund remain within the target level. It is not the intention of the Investment Adviser to automatically exclude higher carbon emitters on an individual basis.

If the portfolio was in danger of breaching the target, holdings would be adjusted to increase the margin between the portfolio carbon footprint and target level; exposure to selected higher emitters would be reduced with increased exposure to lower emitters, while ensuring the Fund’s investment objective is maintained. It is not the intention of the Investment Adviser to automatically exclude higher carbon emitters on an individual basis. Compliance checks are in place to facilitate this and mitigate the risk of any breach, for example as the result of market movement. Carbon footprint reports use MSCI Carbon Footprint Metrics data.

Methodologies

The Fund implements two binding ESG-related criteria: sector- and norms-based screens in the form of exclusions and a weighted carbon footprint target.
The SFDR classification is related to the European Union’s regulation and is not equivalent to approval or recognition as an ESG Fund by regulators in Asia Pacific.

The exclusionary screens are implemented pre-trade and the carbon target is managed and monitored at the aggregate portfolio level. The methodology applied in support of this screening is described in detail under the section “Investment Strategy” of this document.

Data sources and processing

Data sources

The Investment Adviser uses a combination of internal research and third-party data providers to gather ESG-related data.
Third-party providers are used to calculate the carbon footprint of the Fund and for identifying corporate issuers' involvement in activities inconsistent with ESG and norms-based screens. In the event that exclusions cannot be verified through third-party data or if the Investment Adviser believes that third-party data and/or assessment is incomplete or inaccurate, the Investment Adviser reserves the right to identify business involvement activities through its own assessment (including by using other third-party data sources).

Exclusions for sovereign issuers are identified through the Investment Adviser’s proprietary research. The Investment Adviser leverages data from third-party institutions such as the United Nations and the World Bank to calculate ESG scores across the sovereign universe. Sovereign issuers are evaluated on: (1) a gross national income-adjusted basis to better understand how well a country manages ESG risk relative to its wealth and available resources, as well as (2) on an absolute basis. If the Investment Advisor believes that the third-party data and/or assessment is incomplete or inaccurate, the Investment Adviser reserves the right to identify exclusions for sovereign issuers through its own assessment.

Data quality and processing

Capital Group periodically reviews the performance quality of provider organizations and conducts ongoing monitoring and due diligence activities commensurate with the significance of the services provided.

Data are regularly updated in Capital Group’s internal platforms and made available to relevant teams. When issues are identified in third-party data, they are reported back to the provider(s). The Investment Adviser also applies systematic data quality checks to catch discrepancies and validate with the provider when issues arise.

Proportion of data that is estimated

Limitations to methodologies and data

The methodology and sources relating to the exclusions and the ESG integration approach as a whole have certain limitations. The Fund applies investment restrictions rules on a pre-trade basis in portfolio management systems to prohibit investment in companies or issuers based on the exclusion criteria. The portfolio also undergoes regular/systematic post-trade compliance checks. In the event that exclusions cannot be verified through the third-party provider(s), the Investment Adviser will aim to identify business involvement activities through its own assessment.
When assessing the ESG characteristics of securities and the selection of such securities, subjective judgement within the investment process might be involved.

The carbon footprint is measured by the WACI score relative to the relevant index. The WACI is calculated based on securities for which data is reported or estimated. Excluded from the WACI determination are cash holdings, derivatives, sovereigns and securitised products.

Due diligence

Members of Capital Group's compliance, risk management and internal audit staff conduct periodic assessments on the design and operating effectiveness of the firm’s ESG activities and key controls. This includes compliance with internal processes and procedures as well as with the regulatory landscape in the jurisdictions in which the company operates. Capital Group meets regularly with the third-party data providers to review the quality of the services provided.

Pre-trade and post-trade checks are also in place as further explained in section “Monitoring of environmental or social characteristics” above.

Engagement policies

Establishing dialogue with companies is an integral part of the Investment Adviser’s investment management service to clients. Capital Group’s investment teams meet on a regular basis with company management, including executive and non-executive directors, chairs and finance directors. This enables the company to engage and generate dialogue on any issues that could affect the company’s long-term prospects, including exposures to sustainability issues.

Where Capital Group's investment teams identify an issue material to the long-term value of a company or they are concerned about relative ESG performance, Capital Group's investment professionals and governance teams will engage with management. The understanding of these issues, as well as management’s response and the steps they take to minimise any associated risks, forms an important part of Capital Group's assessment of management quality, which itself is a key factor in the stock selection decisions.

Designated reference benchmark

The Fund has not designated a reference benchmark to meet the environmental and/or social characteristics it promotes.

Where can more product-specific information be found?

More product-specific information can be found in the pre-contractual template:
https://docs.publifund.com/1_PROSP/LU1577354035/en_LU
More product-specific information can be found in the periodic reports:
https://docs.publifund.com/4_AR/LU1577354035/en_LU