Sustainable, Responsible &/or ESG Policy:

Guided by PIMCO’s industry-leading ESG investing approach, PIMCO’s GIS ESG Income Fund invests in a multi-sector, flexible, and global opportunity set, while seeking to maximize current income. The strategy brings together PIMCO’s expertise which aim to generate attractive consistent income and achieve sustainability goals.

The Fund seeks a strategic allocation to green, social and sustainability-linked bonds, low carbon footprint and issuer engagement. The Fund will seek to emphasize issuers committed to sustainability with strong ESG credentials. The Fund will seek to have no exposure issuers engaged principally in the oil industry, including extraction, production, refining, transportation, or the production, sale of coal and coal-fired generation (green/sustainable bonds of such issuers are permitted). Similarly, we seek to have no exposure to alcoholic beverages, tobacco products or military weapons, the operation of gambling casinos, or in the production or trade of pornographic materials. The Fund will also seek to reduce the carbon footprint, including intensity and emissions of the portfolio’s corporate holdings.

We believe the balance of high yielding and high quality assets, along with the flexibility to invest across the entire fixed income universe should allow the Fund to meet its objectives over multiple market environments. Importantly, the fund seeks to produce attractive risk-adjusted returns while focusing on protecting investor capital against permanent loss, by allocating across higher yielding and higher quality assets in seeking to provide consistent and diversified sources of return.

Additionally, a focus on income can help smooth out return streams during volatile periods and help build total return over the longer term. We continue to emphasize risk management and “bend but don’t break” credit philosophy to withstand market volatility.

Process:

PIMCO ESG Investment Process: The “Three Es”

At the firm level, PIMCO incorporates material ESG factors into the investment research process to better assess issuer risks, as we believe ESG integration is essential to optimizing risk-adjusted returns over the long-term. We apply ESG integration across all of PIMCO’s strategies.

Taking a step beyond this: while material environmental, social, and governance considerations are incorporated into PIMCO’s broad investment processes, for those clients that want greater ESG orientation in their portfolio, our ESG mandates build on our top-down and bottom-up processes and further utilize the three building blocks of PIMCO’s ESG process – exclusions, evaluations, and engagement:

• Exclude: In the case of PIMCO sponsored funds with ESG objectives, we exclude issuers determined by PIMCO to be fundamentally misaligned with sustainability principles, including issuers focused on tobacco manufacturing, the production of controversial weapons, pornographic material and the production or distribution of coal. These core exclusions are supplemented by sovereign exclusions and a dynamic list of issuers excluded, for example, due to business practices determined in PIMCO’s judgment to be misaligned with relevant ESG investment guidelines and restrictions and/or a failure to demonstrate a willingness to improve practices or unresponsiveness to PIMCO’s active engagement efforts. Issuers that do not meet relevant investment guidelines and restrictions are coded into our in-house compliance system, and portfolio managers, account managers, and our compliance teams closely monitor accounts to ensure compliance with applicable requirements.

• Evaluate: As well as seeking to exclude issuers lagging on ESG/sustainability progress, PIMCO portfolios with ESG objectives emphasize issuers with leading ESG practices in portfolio construction. These are identified through a proprietary ESG scoring system, which considers how an issuer currently fares relative to its peers in the industry, and the issuer’s ESG momentum. The result of this is that issuers already incorporating sound ESG practices are more likely to be candidates for our portfolios with ESG objectives.

• Engage: Our final building block is constructive and collaborative engagement with issuers to influence ESG practices over time. We believe that allocating capital toward issuers willing to improve the sustainability of their business practices can generate a greater impact than simply excluding issuers with poor ESG metrics and favoring those with strong metrics. As such, PIMCO portfolios with ESG objectives seek to overweight issuers that demonstrate a clear willingness to move toward better ESG-related practices, consistent with meeting the SDGs.

ESG Exclusions

Please refer to the below for an overview of our exclusions criteria.

PIMCO Exclusions for GIS Funds with Sustainability Objectives:

• Global norms and sovereigns - Excludes sovereigns that rank poorly in transparency and corruption indices including Transparency International and World Bank. Also excludes issuers in violation of UN Global Compact Principles and UN Guiding Principles of Business and Human Rights.
• Weapons - Excludes issuers principally engaged in the manufacture of ‘military equipment’ as defined below:
  • Controversial weapons: The fund excludes companies involved in the production or manufacturing of controversial weapons such as biological weapons, cluster munitions, and landmines.
  • Conventional weapons: The fund excludes companies that manufacture conventional weapons. The exclusion restricts companies that produce weapons systems, components, and support systems and services.
  • Nuclear weapons: Lastly, the fund excludes companies that produce or manufacture delivery platforms, support systems, and other components for nuclear weapons.
• Adult entertainment - Excludes any issuer principally engaged in the production or trade of pornographic materials.
• Alcohol - Excludes any issuer principally engaged in the production of alcoholic beverages.
• Gambling - Excludes any issuer principally engaged in the operation of gambling casinos.
• Fossil fuels - Excludes businesses that are principally engaged in the generation of energy from thermal coal as well as thermal coal mining. We also exclude businesses involved in oil extraction and production and oil sands. We further exclude other businesses involved in oil-related activities. However, ESG Fixed Income Securities (as further described in the section of the Prospectus entitled “ESG Fixed Income Securities”) from issuers involved in fossil fuel related sectors as described above, may be permitted.
• Tobacco - Excludes issuers principally engaged in the manufacture of tobacco.

Please consider the above information as confidential. The above list should not be considered as exhaustive and might be subject to change.

ESG Evaluation

PIMCO has developed proprietary scoring frameworks across assets classes over the past decade. Our enhanced research process incorporates a robust ESG asset assessment that complements the traditional ratings assigned by analysts. We have proprietary ESG scores for corporate issuers, sovereigns, securitized issuers and municipal issuers, in addition to PIMCO’s proprietary green bond scoring framework to evaluate green bond issuances.

Provided below are details on how PIMCO incorporates ESG into different asset types.

• ESG Investing in Corporates

PIMCO’s team of credit research analysts generally assess the ESG profile of the issuers that they cover relative to peers with a goal of separating leading issuers from issuers who are not as advanced on their sustainability journey. Using industry-specific frameworks, analysts review their companies’ ESG performance based on information available in public filings, recent news and controversies, as well as through regular engagement with company management teams to assign separate scores for “E”, “S”, and “G.” In determining the efficacy of an issuer’s ESG practices, PIMCO will use its own proprietary assessments of material ESG issues. In the end, PIMCO’s resulting assessments are proprietary and distinct from those provided by ESG rating providers. To facilitate the integration of ESG risk factors in our analysis and help to monitor ESG related risks, we are continually enhancing our proprietary research with specific ESG related attributes and dedicated scoring. In addition, we have hosted training sessions for our analysts on available scoring methodologies, ESG systems, data and tools.

Scores seek to distinguish between “Leading Practice” issuers and those that raise “Significant Concerns.” They also include a forward-looking ESG trend assessment, which recognizes companies whose ESG performance is significantly improving or deteriorating.

These factors are combined to create a proprietary ESG score in which the relative weighting of the E, S, and G pillars, and the trend assessment, is based on the company’s business profile and differences in industry dynamics. For example, the environmental pillar has the highest weight for issuers in extractive industries (e.g. oil, gas and mining), the social pillar has the highest weight for pharmaceutical issuers, and the governance pillar has the highest weight for financial issuers. As the ESG landscape has evolved over time, the investment team continues to evolve and refine this approach accordingly.

Since 2016, PIMCO credit analysts have scored over 3,500 parent issuers on ESG performance. ESG issues are highlighted in their credit research notes, alongside PIMCO’s internal credit ratings and recommendations for portfolio managers to consider when they are evaluating investments for all PIMCO portfolios, including accounts that do not have ESG objectives or investment guidelines and restrictions related to ESG. ESG scores are updated regularly whenever relevant new information becomes available.

ESG data and analysis, both internal and external, are available to all portfolio managers, traders and research analysts across the firm.

• ESG Investing in Sovereign Debt Markets

PIMCO’s in-depth, bottom-up sovereign risk analysis assesses financial, macroeconomic and ESG variables. ESG criteria have been an integral part of PIMCO’s sovereign ratings analysis since 2011 when we explicitly included variables that measure ESG factors into the PIMCO sovereign ratings model.

More recently, we have developed a standalone ESG scoring framework that both provides valuable input into our sovereign risk scenario assessments and serves as an input for relative value decisions in portfolios with ESG objectives. In addition to the traditional financial metrics used in sovereign credit analysis, we explicitly score the sovereign on each ESG component and compile a combined sovereign ESG score.

• ESG Investing in Structured Products

Agency and Non-Agency MBS

With PIMCO’s access to vast loan-level mortgage data, we developed a proprietary responsible investing scoring model for mortgages, based on a scale from 1 (weakest) to 5 (best), consistent with other PIMCO ESG scoring frameworks used for corporate credits, sovereigns and others.

PIMCO’s philosophy of responsible mortgage investing focuses on four objectives:

• Support homeownership. Homeownership is a key path to savings and wealth building for many across the world. Connecting borrowers with capital markets is an established and efficient way to ease the path to homeownership. Not all mortgages are used for homeownership; some mortgages are used for vacation home purchases or investment properties.
• Increase access for underserved communities. PIMCO believes a focus on underserved communities and lower income borrowers is a way to magnify the social benefit of home lending without sacrificing on loan quality.
• Promote responsible lending. It is critical to focus on ensuring borrowers are not put at added risk of financial distress due to burdensome debt loads.
• Discourage predatory lending. A governance-focused way to encourage good lending practices is to penalize or exclude lenders and servicers who engage in practices that are detrimental to homeowners (and in many cases detrimental to bondholders as well).

The mortgage market is not homogenous; there are agency mortgages and non-agency residential mortgages. We have built analytical frameworks for each part of the market.

For agency mortgage-backed securities (MBS), our ESG research model is based on pool-level characteristics and data we have collected over decades of studying mortgages. For non-government-guaranteed mortgages (non-agency MBS), our quantitative analysis is loan-level-based and again draws on a huge set of data PIMCO’s mortgage team has gathered since before the financial crisis.

Commercial Mortgage Backed Securities

In order to analyze Agency and Non-Agency CMBS, PIMCO developed a framework with a focus on Environmental criteria, specifically on industry standard Silver / Gold / Platinum LEED and Green certifications on properties to differentiate sustainably built structures. From a Social standpoint, analysts have been evaluating the health and safety measures taken post-COVID for the tenants, and from the Governance side, we are looking at the underlying ESG scores of the owners of the building.

Similar to the residential side, green securitizations remain a small part of the market issue by Fannie Mae and Freddie Mac. However, in their annual outlooks, there is an explicit shift to target more green loans, and so we expect Green labeled Agency CMBS to be a growing marketing going forward. We also look to promote underserved communities and affordable lending, such as through low-income multifamily loans issued by Fannie Mae and Freddie Mac.

Asset Backed Securities

Given the heterogeneous nature of ABS, we have developed a framework to make sure we are approaching analysis in the same manner across various ABS subsectors. PIMCO’s proprietary framework focuses on each pillar of E/S/G, leveraging the Social framework constructed for Non-Agency MBS and expanding upon it with the addition of Environmental and Governance criteria.

For the Environmental criteria, our framework emphasizes ABS that are promoting investment in renewable energy production, storage, and utilization. We look to capture the positive impact of electric vehicles, solar panels, power storage, and other green energy focused endeavors. On the Social side, our goal is to improve affordability and home ownership through responsible lending. We look to encourage responsible lending to consumers and small businesses, and identify and limit investment in predatory lending practices. Lastly, for Governance, we aim to avoid those with high risk servicer behavior such as recent servicer headline risk.

Collateralized Loan Obligations

For PIMCO’s CLO analysis, our analysts map existing loan-level ESG scoring to CLO collateral to produce CLO trust-level scoring. We supplement loan scoring with sector scoring for unscored CLO holdings. Here, we look to leverage the bottom-up ESG research of PIMCO credit analysts and the bank loan team to evaluate each loan collateralizing the transaction on all three metrics (E/S/G). With this loan-level analysis, PIMCO discourages overly-aggressive management and non-transparent structures when selecting what will be included in a portfolio with ESG objectives. Further, as CLOs are not a static pool of loans, we continue to monitor the underlying loans over time and are working to create pools that have positive ESG scores and stay that way.

• ESG Investing in the U.S. Municipal Bond Market

We consider issuer-level ESG factors across municipal bond issuers to better understand the risks and opportunities inherent in our bond selections. The municipal market is vast and diverse, with issuers ranging from states and cities to enterprises such as higher education institutions, airports, and continuing care facilities. Analysts use proprietary frameworks to evaluate material ESG risks specific to each municipal sector, as well as identify ESG leaders within each sector.

Analysts review municipal issuers’ exposure to ESG factors through information available in public filings, recent news, and third-party data sources. These factors are then combined to create a proprietary ESG score utilizing the relative weighting of the E, S, and G pillars, and the expected trend going forward for that issuer. Issuers who have significant exposure to material ESG risks and lack mitigating factors to combat those risks would typically have lower ESG scores, while issuers who are exposed to fewer risks and are leaders in making progress on ESG issues, such as through greenhouse gas reduction measures, would typically have higher ESG scores.

Environmental risk includes exposure to physical climate risks as well as risks associated with the transition off fossil fuels, such as significant tax base reliance on the fossil fuel industry. Additional environmental risks could include exposure to water stress or environmental compliance concerns for sewer utilities. Typical social risks involve vulnerability of the tax base, which could be due to factors like a declining population or high poverty levels for cities and counties, or low graduation rates for higher education sectors. Governance risks generally include an assessment of how the issuer has managed its long-term liabilities such as debt and pensions, as well as overall management practices.

• ESG Labeled Bond Scoring Framework

ESG labeled bonds, including green, social, and sustainability bonds, need to fit PIMCO’s credit selection and portfolio construction process of top-down drivers (sector and regional selection, expectations on global growth and technical factors), bottom-up drivers (credit strength, business model, covenants etc.) and valuation to qualify for investment. We look to invest in ESG labeled bonds that have attractive valuations that are in line to comparable (by coupon, maturity, seniority etc.) non-ESG bonds issued by the same company, given the strong focus on environmental sustainability objectives. We assess sustainable bond instruments both prior to and after issuance, mapping them across a spectrum based on strategic fit, potential impact, red flags, and reporting, resulting in PIMCO’s impact score for ESG bonds. PIMCO’s ESG labeled bond scores aid the investment process and security selection, allowing for stronger differentiation among sustainable bond issuers and frameworks.

Our proprietary framework assesses Green / Social / Sustainability instruments both prior to and after issuance, mapping them across a spectrum based on strategic fit, potential impact, red flags and reporting, resulting in PIMCO’s proprietary impact score for green, social or SDG bonds.

Engagement

At PIMCO, we believe that collaborating with and allocating capital toward issuers willing to improve the sustainability of their practices can generate a greater impact than simply excluding issuers with poor ESG metrics. Our approach seeks to be more inclusive and active, and we are conscious that change does not always come easily or smoothly. That is why, for us, an active hands-on engagement program is key to driving change.

The objective of engagement at PIMCO is to influence change, improve outcomes and reduce risks for our clients. We believe that bondholder engagement in the research phase is critical to understanding the risk and reward profile of the issuance and ultimately making buy/sell decisions.

Our analysts and portfolio managers spend a significant amount of time meeting with senior management at the companies we invest in on behalf of our clients. In addition to discussing financial matters, we also focus on strategic issues that often relate to ESG risks and responsible business management practices. ESG engagement efforts include asking detailed questions to find out how the risk management framework and business strategy address the operational risks from climate change. Our engagement process is driven by three guiding principles:

• Think like a treasurer: We seek to identify issuers which can benefit from engagement, then develop a set of core engagement objectives tailored to each issuer.
• Engage like a partner: We do not take an activist investor approach, believing that successful bondholder engagement is based on collaboration, productive dialogue and mutual agreement on objectives.
• Hold to account as a lender: Our engagement process measures progress against a pre-defined benchmark, which is customized by issuer. At the outset of the process, we determine appropriate remedies if underperformance is material and are willing to divest if necessary.

We aim to have a premier engagement program within fixed income. By investing in corporates and sovereigns willing to improve their ESG practices, we believe we can drive greater change than through exclusions alone. Our goal is not just to find the best opportunities in the market, but to create them for investors by engaging with issuers. Of course, PIMCO does not represent that our engagement was the sole factor driving the positive changes made by these companies, but we do believe that our engagement and our sizable active holdings may have influence on the scope or timing of the commitments made by issuers as well as the disclosures that those issuers will report to investors.

In practice, issuers can have a variety of topics to address, as outlined below:

• Driving positive impacts by improving ESG performance: We look to improve issuers’ overall sustainability, engaging on areas such as COVID-19 resilience and responsibility and supply chain management, as well as climate strategy and target setting.
• Expanding ESG bond universe: We seek to engage with issuers to encourage new ESG bonds, recently such as Social COVID-19 bond issuance and Sustainability-linked bond issuance, utilizing our best practice guidance for sustainable bond issuance.
• Improving data quality and disclosure: We work closely with issuers to improve the ESG-related data and increase their ESG disclosures.

PIMCO’s ESG analyst team leads our engagement efforts, in coordination with the broader credit research team. Members of the ESG analyst team include Grover Burthey, Head of ESG Portfolio Management and the ESG analyst team, Samuel Mary, ESG integration analyst and climate specialist, Kaboo Leung, ESG engagement analyst, and Meredith Block, ESG research analyst. Our goal is to holistically integrate engagement activity into the ongoing discussions led by our credit research and portfolio management teams while broadening the scope of questions beyond credit-specific considerations to include ESG concerns as well.

In this fashion, engagement at PIMCO is designed to leverage the full scale of our global team of credit analysts and build upon our firm’s decades of experience working collaboratively with issuers to encourage business practices which are favorable to our investment objectives.

Portfolio Construction

Portfolio managers at PIMCO use the ESG assessments of our credit analysts and multiple proprietary ESG tools as additional inputs into their portfolio investment decisions. The combination of ESG considerations with financial valuations and credit fundamentals results in our decision to invest, add/reduce or even divest from a company.

External Research

At PIMCO we regularly evaluate ESG data providers which may add additional input into our in-house analysis conducted by our credit, sovereign and mortgage analyst teams. The firm relies primarily on internal research for decision-making; however, PIMCO also screens substantial amounts of external data sets. PIMCO currently utilizes MSCI as the primary external data provider but we also use Reprisk, TruCost, Bloomberg, CDP, SBTi, TPI, risQ, Maplecroft, Haver, and Freedom House, among other sources. All of the ESG data flows directly into our proprietary IT systems, enabling credit analysts to use this information efficiently.

Resources, Affiliations & Corporate Strategies:

PIMCO’s ESG team is not a separate business unit, but integrated across all functions of the firm from portfolio management to client-facing, executive office to product strategy, compliance to marketing. This ensures that ESG is integrated into PIMCO’s broad research process and includes staff at every point along the value chain. We believe it is important to have all of our expert analysts monitor the ESG risks that are relevant to their particular sector and universe of securities. This ensures that ESG risk factors and opportunities are integrated into our investment decision-making, as opposed to being an “add-on” separate from our financial analysis.

To help set the priorities for the firm’s ESG Platform, PIMCO has a focused ESG Leadership Team in place that is responsible for leading firm-wide ESG integration, enhancing our ESG capabilities and supporting the development of portfolios with ESG objectives. The group sets objectives and evaluates strategic initiatives on a continuous basis throughout the year. The ESG Leadership team is comprised of: Ryan Korinke, Managing Director; Tina Adatia, Executive Vice President; Kwame Anochie, Executive Vice President; Grover Burthey, Executive Vice President; Gavin Power, Executive Vice President; Lupin Rahman, Executive Vice President, and Del Anderson, Senior Vice President. The team meets bi-weekly with presentations and regular updates among the team leaders. In addition, the group regularly invites external speakers to present their expertise in this field.

PIMCO’s ESG analyst team, which consists of more than 10 dedicated analysts, leads our engagement efforts, in coordination with the broader credit research team, which consists of more than 80 analysts. Members of the ESG analyst team include Grover Burthey, Head of ESG Portfolio Management and the ESG analyst team, Samuel Mary, ESG integration analyst and climate specialist, Kaboo Leung, ESG engagement analyst, and Meredith Block, ESG research analyst. Our goal is to holistically integrate engagement activity into the ongoing discussions led by our credit research and portfolio management teams while broadening the scope of questions beyond credit-specific considerations to include ESG concerns as well.

ESG Affiliations

As a leading global asset manager, PIMCO frequently receives requests to sign up to different initiatives that support various causes and guidelines including ESG efforts. Our ESG team vets and reviews each potential opportunity to ensure it aligns with our ESG philosophy and approach. We are highly involved with ESG and other sustainability efforts globally, helping to define global sustainability standards, and encourage greater disclosure from issuers. Below is a list of our industry leadership with global affiliations and initiatives:

• PRI Sovereign Working Group (SWG)
• PRI SDG Advisory Committee
• PRI Fixed Income Advisory Committee
• PRI Sub-Sovereign Debt Advisory Committee
• UN Global Compact
• UN Global Compact SDG Finance Lab
• UNGC CFO Taskforce
• Carbon Disclosure Project (CDP)
• Sustainability Accounting Standards Board – Investor Advisory Group (IAG)
• Climate Action 100+
• FSB’s Task Force on Climate-Related Financial Disclosures (TCFD)
• Institutional Investors Group on Climate Change (IIGCC)
• Global Investors for Sustainable Development Alliance (GISD)
• International Capital Market Association (ICMA)
• Transition Pathway Initiative (TPI)
• Climate Bonds Initiative (CBI)
• FAIRR
• One Planet Asset Management Initiative
• Investor Group on Climate Change (IGCC)
• Bank of England Climate Financial Risk Forum (CFRF)
• Access to Nutrition Initiative
• The Investor Agenda - Global Investor Statement to Governments on the Climate Crisis
• Sustainable Markets Initiative (SMI)
• Sustainable Bond Network (NASDAQ)
• Milken Public Finance Advisory Council

Dialshifter

This fund is helping to ‘shift the dial from brown to green’ by…

… excluding industries and issuers misaligned with sustainability principles; emphasizing issuers with “best-in-class” environmental, social, and governance (ESG) practices through a proprietary ESG scoring system; allocating meaningfully to green, social, and sustainability bonds; actively managing the portfolio’s carbon emissions and carbon intensity profile; and engaging proactively and collaboratively with corporate issuers to influence environmental, social, and governance (ESG) practices.

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

… being deeply committed to sustainable investing and playing a leading role in the development of industry frameworks such as the IIGCC’s Net Zero Investment Framework. Many of our clients are supporters of or signatories to the Net Zero Asset Owners Alliance. PIMCO will partner together with these clients to help deliver on their ambitions. In fact, PIMCO manages significant assets on behalf of 34 of the 71 asset owners who have committed to transition their portfolios to net zero GHG emissions by 2050. Through our partnership with these forward thinking investors, we have developed capabilities to help clients decarbonize their portfolios and remain committed to providing the best advice and solutions for clients on a range of sustainability and ESG issues, including climate change.

SDR Labelling: Not eligible to use label