Confidential Reo® Report

Con dential Reo® Report

3RD QUARTER 2015

SEI reo® Report 3rd Quarter 2015

Introduction 4

Quarter in Review 4

US focus on diversity and proxy access 4

Hong Kong improves ESG reporting standards 5 Engagement on bonds 5 Contents Viewpoint 6 We opposed JPMorgan’s pay plans again.. and this time so did 39% of shareholders 6

Deutsche Bank finally adopts reforms 9

Stranded Assets – Mitigating investment risk posed by climate change 12 Spain implements key governance reforms 15

Engagement and Milestones Q3 2015 19

Company Engagement and Your Fund 100

Contact Details 109

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Introduction

This report sets out detailed information about how we have engaged with companies on your behalf over the past quarter, and engagement results achieved. It brings together our reo® research over the past quarter in the form of Viewpoints – which includes both public and client confidential pieces – with confidential details of our dialogue with individual companies, as well as outcomes from engagement, recorded as milestones. Where these companies have been prioritised as targets for intensive one-to-one engagement, a summary is also included of our assessment of the key risks facing the company, and our engagement objectives.

In the past quarter, we have engaged with 296 companies covered by your reo® service, and achieved 76 milestones. Please note that milestones identified this quarter will typically result from engagement in previous quarters. Quarter in Review The VW scandal raises many questions for investors, with a US focus on diversity and proxy access key one being whether poor governance standards at the We travelled to Boston to attend the fall conferences of the company were a contributing factor to the systematic, large- International Corporate Governance Network (ICGN) and the scale fraud that now engulfs it. On behalf of reo® clients BMO US Council of Institutional Investors. We had the opportunity to had engaged VW on its governance structure – which seriously participate in a multi-stakeholder discussion regarding disadvantages minority shareholders. We have also engaged engagement priorities in the US market. Proxy access – where with German regulators to encourage them to address a major shareholders are given the right to make director market-wide issue: the lack of independent representation nominations - was one of the top discussion areas at the and poor diversity of many German supervisory boards. As events. Investors have been the one driving progress given was the case with the Olympus scandal in Japan, this may the lack of movement from regulators. The trend of proxy prove a wake-up call to finally modernise Germany’s company access resolutions will likely continue over the next year in law and regulations. the US and we will continue to support them where the Investor attention has also been increasingly focused on proposed thresholds are in line with the Securities and climate change as the Paris negotiations approach. In the past Exchange Commission’s guidelines. Also, investors are paying quarter we joined an investor initiative to engage 75 major particular attention to board responsiveness on this issue and companies on their lobbying activities, calling for greater will continue to hold boards accountable if they try to transparency about their own positions and those of the circumvent the resolutions. industry groups they are a member of. This was combined Another key area of debate was board diversity. US with further one-to-one engagement with a number of companies lag peers in other developed markets and while individual companies with oil & gas, oil sands, utilities and locally there is broad scepticism regarding quotas, there is coal mining operations on their climate strategies. consensus around the need to push for a greater variety of We saw further progress in our work looking at living wages skills and backgrounds on the board. We have been for emerging market workers. Having contacted 150 apparel encouraged by the recent board refreshment that has taken and retail companies, we have already received a number of place within two of our priority engagement companies. responses, which we see as an encouraging sign of Wells Fargo and EMC Corp have appointed directors to their companies’ willingness to engage on this topic; the response boards with a view to increasing diversity and now have are helping us to build an understanding of best practice on some of the most diverse boards among their respective this complex issue. peers. We use these companies as benchmarks in our engagements with other US companies on board composition. Finally, we reached out to 30 major Swedish companies on governance concerns. These companies currently operate a Corporate political contributions and lobbying continues to be bundled director (re-)election model and we urged the a hot topic. As Presidential elections in the country draw implementation of individual director elections. In our view, nearer, the investor focus will grow alongside public scrutiny the bundling undermines the fundamental shareholder right of companies’ practices. Disappointingly however, there to hold board members personally accountable for exercising remains a general agreement in the market that most change, their duties. similar to the case with proxy access explained above, will come from shareholder-driven initiatives given that regulatory reform on this currently remains unlikely.

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Hong Kong improves ESG reporting Elsewhere in the fixed income world, Green Bonds has been standards an area of intensive engagement in our bonds programme. We met supra-sovereign agencies such as the European After introducing a voluntary ESG reporting guide to the city in Investment Bank, the International Bank for 2012, Hong Kong Stock Exchange (HKEx) proposed revising the Reconstruction and Development (World Bank) and the guide. The aim is to bring it in line with international Nordic Investment Bank. Our discussion focused with these standards and to make reporting of some of the ESG bond-only issuers focused on use of proceeds and reporting. disclosures on a “comply-or-explain” basis. Currently, We encouraged better disclosure of the environmental impact according to its data, only about half of the listed companies of these investments. We also engaged a broad range of are reporting on ESG. We made a policy submission where we market participants including investment banks, investors and supported the “comply-or-explain” approach. We believe this other stakeholders in this nascent market to ensure that a will help drive improved ESG reporting in this market and sufficient minimum standard is established. We believe that enable investors to diligently consider both financial and ESG this will be important in a stable and sustainable market. BMO factors in making investment decisions. Global Asset Management also became a member of the Apart from pushing for more ESG disclosure, HKEx also clarifies Green Bond Principles. that the board has overall responsibility for ESG strategy and reporting. In its previous guide the emphasis of the board’s responsibility is largely solely on ESG reporting. We welcome such a move and would expect broader discussions in the boardroom, thereby making directors aware of the ESG issues that could potentially undermine their business models in the long-term. From our experience, companies are warming to discussing ESG issues since the introduction of the guide.

Separately, as part of the Sustainable Stock Exchanges Initiative, we also signed letters calling 62 stock exchanges worldwide to put in place voluntary guidance for issuers on reporting ESG information by the end of 2016. The initiative is in line with the recent release of the SSE Model Reporting Guidance, which functions as a globally consistent resource that exchanges can customise to create their own guidance for companies on reporting ESG information to investors.

Engagement on bonds Engagement with credit rating agencies finally started bearing fruit this quarter. Ever since the global financial crisis in 2008, we have – as a part of our bond engagement programme – been pressing the agencies to explicitly and formally consider ESG risks within its credit rating process. Credit rating agencies had been widely criticised in the aftermaths of the credit crunch on their collective failure to foresee the crisis and assess a broad range of risk factors which were contributing factors to the crisis. Moody’s Corp published its approach to assessing ESG risks in credit ratings and research.

Prior to the publication, we had discussed with the agency on investors’ expectations on rating agencies’ to integrate ESG factors in its assessment. We pressed for a risk materiality- based approach and for clear disclosures on which factors were considered and how they contributed to the final rating. We believe this is a significant step which will enhance the credibility of Moody's credit ratings and will increase transparency on how ESG issues contribute to ratings. It also has the scope to have a significant influence on the broader bond market. We are also scheduled to engage Standard & Poor’s (subsidiary of McGraw Hill Financial) in Q4 on their approach.

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We opposed JPMorgan’s pay plans again.. and this time so did 39% of shareholders

● Widespread investor dissent at the US bank’s executive pay JPMorgan vs peers plans which included $7 million discretionary cash bonus Most US banks have started to link at least a proportion of ● We have engaged the company for many years on the executive remuneration to specific performance metrics and clear establishment of performance indicators and targets. targets. For example, this year Goldman Sachs – another The company has been reluctant and slow to respond. longterm engagement target for us on pay issues – overhauled its pay plans and incorporated specific ● JPMorgan now lags its peers in the US and Europe in its performance metrics under its short-term and long-term approach to executive remuneration. At the same time, it schemes. A third of the company’s annual variable incentives is frequently implicated in regulatory breaches and conduct is subject to a return on equity (ROE) target which has to be related incidents. maintained over three years. Longterm incentives are now The issue of executive pay in the financial sector once again entirely performance based and also incorporate an ROE showed just how contentious it can be at a highly charged performance condition as well as a book value per share JPMorgan Chase annual shareholder meeting in May. There (BVPS) target. This is not what we consider a benchmark for was widespread dissent from investors to the US banking pay practices in the US and it is clear that the bank still has giant’s remuneration proposal. 39% of shareholders, including further improvements to make, but at least for the time us, did not support Chief Executive Jamie Dimon’s pay being, we welcomed these changes as these represent a package. firmer commitment towards concrete goals and an important step in the right direction. We consider JPMorgan’s pay practices to be lagging behind its peers in the US and in Europe: the bank has been reluctant to More broadly, the market-wide shift in the US away from reform and has pushed back investors’ calls to implement almost exclusively discretionary pay plans is reflected in our robust changes to its compensation approach. Despite notable votes on pay at major global banks this year. 2015 has been changes within the company’s industry, the bank’s pay the first time in years that we have been able to support schemes remain largely discretionary and the sizeable awards management on their proposed remuneration schemes at this year have not been supported by the accomplishment of multiple financial institutions. For example, we supported clear and stretching performance targets, which is a key plans at Citigroup and Wells Fargo which have been criticised expectation for us in supporting pay plans across the world. at various times in the past for poor pay practices by investors. The debate around remuneration at US banks has grown since the global financial crisis in 2008 and the introduction of This year, we also saw improved disclosures around how mandatory say-on-pay in the US in 2011. Stakeholders of banks are using pay to foster strong corporate culture and to financial services companies have become acutely reluctant to deter conduct issues. Following years of industry-wide “reward failure” and increasingly aware of the effects of scandals for regulatory breaches and conduct related incidents compensation practices on bank culture, conduct and risk – such as Libor, foreign exchange manipulation, money management, compliance practices, as well as incentivising laundering, sanctions busting, and mis-selling of financial sustainable long-term performance. products – banks are slowly but surely working on overcoming these challenges. The board and senior management are Remuneration in the financial industry has been a tasked to lead in the efforts to bolster corporate values and longstanding engagement issue for us. For more than a culture, with pay for performance criteria and targets decade, we have been pressing global, systemically important reflecting this. Similar change at JPMorgan has come at a banks to establish a clear approach to firm-wide slower pace and has followed record breaking fines. Also, compensation which is aligned with the shareholder although the bank has significantly overhauled policies and experience, accounts for both return and risk, and captures oversight mechanisms, evidence of actual change has been broader qualitative aspects of performance such as conduct less apparent. and regulatory compliance. In recent years, we have voted against proposed pay plans at most major US banks due to the highly discretionary approach which lacked specific performance objectives. After years of little progress, we have finally started seeing broad improvements amongst the US banks this year.

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JPMorgan has argued that it fared through the 2008 banking While we do not object to the use of cash-based awards, we crisis better than its peers and famously did not post a loss believe that these should be clearly linked to well-defined while others around it collapsed. However, since then, the performance conditions to ensure appropriate alignment with company has become increasingly scandal prone and has investors’ interests and to avoid undue risk taking. racked up billions in a wide array of fines and settlements. We Also, we agree that the compensation committee should estimate that this has now crossed the $25 billion mark, retain a certain amount of discretion to be able to adjust pay including $13 billion in 2013 to resolve allegations they misled according to things such as market conditions, regulatory investors about the risks and quality of sub-prime mortgage- charges, legal settlements, exceptional events etc. Such backed securities. exercise of discretion, however, should be thoroughly At JPMorgan, the structure of its CEO’s remuneration has disclosed and not be used as a substitute for clearly laid out become an increasingly heated issue between the company performance targets. The KPIs are intended to inform and its investors. This has been evident in the sharp fall in investors of how the board expects management to perform investors supporting the bank’s pay plan over the past three against the company’s strategic and operational objectives years. In 2013, more than 90% of investors supported the and how awards are commensurate with such performance. proposals; in 2014, 78% and; in 2015, 61%. This raises the question of just how much the company’s board really Engagement action listened to shareholders’ feedback. Not as much as we have hoped for. We have been engaging JPMorgan on this issue since early 2008 – before the financial crisis – when we were one of a There have been some improvements this year to the small minority of global investors pressing the company to company’s disclosures around pay and to the structure of the adopt an advisory vote on remuneration and to enhance pay- plan. However, based on our analysis we conclude that there for-performance. In the past few years, we have been is still significant work to do to bring JPMorgan’s pay plans to consistently raising issues around the excessive reliance on comparable levels of its peers. discretion and the lack of specific performance conditions. The bank responded that such discretionary approach was in line On the positive side: with peers’ practices but we do not believe that this is the ● The company has provided greater clarity as to how the case anymore. Also, the sharp drop in shareholder support for compensation committee has exercised negative discretion JPMorgan’s pay plans within the last year appears to to adjust awards for inappropriate behaviour; corroborate this.

● Recoupment mechanisms to claw back pay for conduct The board’s acknowledgement of the widespread shareholder issues have been enhanced; discontent around executive pay packages following this year’s drop in support at the annual meeting is an ● For the first time, the bank provided forward-looking encouraging sign. We have been consistently urging the board metrics that the board will take into consideration when to recognise the need for greater discussion with us and other determining long-term incentives, including return on investors on this topic and we welcomed the indication of common equity (at approximately 15%), Tier 1 capital ratio their willingness to step up the engagement. However, recent (at approximately 12%), and cost-income ratio inflammatory remarks by Mr Dimon regarding investors’ use (approximately 55%). of proxy advisory services pits the bank further deeper against On the negative side: its investors. “God knows how any of you can place your vote based on ISS or Glass Lewis. If you do that, you are just ● Performance thresholds introduced are still approximate irresponsible. I’m sorry. And you probably aren’t a very good and awards continue to remain largely subject to the investor either. And you do, believe me, I know some of you compensation committee’s discretion. This could be further in here do it because you’re lazy”, Mr Dimon said after the enhanced by disclosing the actual performance targets AGM. This complaint is simply distracting from the important instead of approximations in order to demonstrate that dialogue between JPMorgan and its shareholders. The focus of there is a clear commitment to achieve concrete goals; the engagement should remain on the concerns that long- ● The introduction of an entirely discretionary, non- term owners of the company – including us and our clients – performance linked cash bonus of $7.4 million accounting have been raising for a number of years in relation to the for 40% of Mr Dimon’s total compensation, which we structure of the pay plans. consider excessive; THEY SAID ● The absence of deferral conditions and a clear rationale as to how the quantum of the cash bonus (the highest the CEO “God knows how any of you can place your vote based on ISS or Glass Lewis. If you do that, you are just irresponsible.” has received since the financial crisis) is commensurate with recent performance. Jamie Dimon, JPMorgan Chase & Co CEO, 27 May 2015

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Next steps After the controversies around its pay plan this year, we expect JPMorgan’s board to demonstrate greater responsiveness to this issue. In the past, the bank has been slower than its peers to respond to shareholders’ concerns on governance matters. When the company was pressed for changes around the composition and attributes of its board, it was only after a number of high profile shareholder proposals and after a wearing and long-drawn engagement with shareholders that JPMorgan overhauled its leadership structure. The lead independent director role was strengthened as a counter-balance to Mr Dimon, who is both CEO and Chairman. It also appointed new members to its risk committee following a number of risk oversight failures, including the so-called London Whale trading losses debacle in 2012, which caused some directors to nearly lose support at the annual meeting. In contrast, many other US banks prioritised the refreshment of their boards immediately following the financial crisis.

Going forward, we plan to follow a two-pronged approach in our engagement with the company on pay issues. On one side, we believe that the outcome of this year’s vote on pay should be an important catalyst for change and one that we intend to build on to escalate our engagement. We will continue to seek to discuss our concerns in relation to pay with members of the compensation committee and other directors as relevant. We will also advocate for the introduction of concrete performance targets in line with the company’s strategic and operational objectives and for pay levels commensurate with such performance. On another front, we will push for further board refreshment. In our view, the slow pace of reform at the bank can be largely attributed to inadequate board responsiveness to concerns raised by shareholders and we believe that true and meaningful change will be more effectively achieved through further board refreshment. The addition of truly independent directors with diverse backgrounds, proven track records of successful engagement with investors as well as industry experience and relevant skills will be key to effecting the much needed reforms.

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Deutsche Bank finally adopts reforms

● Deutsche Bank faces a major rebuilding task following a in 2015 for issues including: wide array of conduct-related fines, sluggish results and ● Failing US stress tests on the grounds of serious deficiencies leadership change in risk management; ● Regulators, shareholders and auditors have all criticised the ● Receiving a record $2.5bn fine from the US and UK bank’s slow reform of its culture regulators for benchmark rate (IBOR) rigging. This was ● We have responded to the deteriorating situation by accompanied by severe criticism of the bank’s risk, writing to the bank’s board and we are scheduled to meet compliance and control procedures, as well as its culture, the Chairman later this year conduct and integrity of some of its senior managers; and

● Ernst & Young (EY)’s audit concluded earlier in the year that insufficient efforts were made to investigate and clear up Deutsche Bank, one of Europe’s most prominent banks, is conduct issues at the bank, followed by German banking under the spotlight for the wrong reasons. Even by the regulator BaFin’s letter to Deutsche Bank’s Management standards of the industry, it is struggling with a burden of Board containing severe criticism of the bank’s culture, heavy litigation costs, poor returns to shareholders, and controls and conduct of certain members of the senior management instability. This has placed it firmly under the management. focus of regulators and shareholders who are now calling for a root-and-branch reform of the bank’s leadership and business Importantly, the German regulator’s investigation confirmed practices. Deutsche Bank was not responsive to shareholder that despite management’s assurances in the past, the engagement in the past, but the concerning developments at changes aimed at improving culture, risk management and the company compel us to continue engaging the company on controls at the bank only started in earnest in 2013 and there a reactive basis. was still little evidence of progress in some areas in mid-2014.

We have a long track record of engaging the bank on It is of concern to investors that Deutsche Bank’s Supervisory reforming corporate governance and business ethics. Board had been aware of the findings of EY’s investigation However, 2014 was the first year when we finally saw findings, but took little visible action to address the issues laid Deutsche Bank start to implement meaningful reforms to bare by the audit or even to outline its action plan in the address conduct and culture matters. Specific steps reported annual report to shareholders. Moreover, given how strongly by the bank in 2014 include: the co-CEO and former head of the Investment Bank Anshu Jain was criticised by the regulator for improper management ● Establishing a Supervisory Board-level Integrity Committee and organisation of the business, it is hard to understand why to discuss and consider business conduct-related issues as he was given direct responsibility on the Management Board well as other sustainability matters; for Strategy & Organisational Development in the

● Training new staff on compliance, risk culture and financial Management Board reshuffle of May 2015 (just to be removed crime; from his role two weeks later). It also appears that of the six senior managers named in BaFin’s letter only one was ● Implementing five-year deferrals for variable pay for senior removed prior to the annual general shareholder meeting management and other material risk-takers, and setting up (AGM) in May. stronger clawback mechanisms alongside performance metrics and targets on people and culture; To add to its problems, Deutsche Bank’s “Strategy 2020” presented to the market in April 2015 had a poor reception ● Strengthening of compliance and internal controls, as well from investors, who were unhappy about the lack of clarity as governance and product approval processes. This and detail, as well as uninspiring returns on equity to be included the establishment of the three new controls delivered under the outlined plans. positions: Global Head of Compliance, Global Head of Anti- Money Laundering, and Global Head of Government and This inability and unwillingness of the Supervisory Board to Regulatory Affairs. In addition to reporting into the Group take decisive action in the face of highly concerning findings Management Board, these roles also report into the of the independent audit, criticism from regulators, and Supervisory Board’s Integrity Committee. discontent among investors and other stakeholders about the strategy and the progress of reforms (as manifested in Following our meeting with Deutsche Bank’s representatives Deutsche Schutzvereinigung fuer Wertpapierbesitz’s (DSW) in October 2014, we continued to monitor the bank’s AGM proposal – see below) raises serious concerns about the performance, including its strategy review, governance, and quality of the Supervisory Board and its fitness for purpose in progress in reinforcing risk management, internal controls and the new regulatory and business environment. We note that compliance. Deutsche Bank received many negative headlines even after the disastrous vote at the AGM – where 39% voted

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against discharging the Board – which finally forced the Overall, we believe that the Management Board need to leadership change, the bank retained the services of both co- take stronger action in terms of risk management, CEOs for the forthcoming months and offered no compliance, culture and conduct. We note some positive communication as to the position of the other executives steps in 2014, but are not convinced that the cultural change named in BaFin’s letter. Reportedly, it is the bank’s lack of is truly taking place at the bank. action and its continuing defensive stance, which could be seen as tantamount to denial, which led the German regulator Res. 4 Approve Discharge of Supervisory Board for Fiscal to write a letter to the Management Board, which was 2014: Voted against subsequently made public. As has been the case with its We voted against the discharge of the Supervisory Board. As peers elsewhere, Deutsche Bank’s defensive position vis-à-vis in the case of the discharge of the Management Board, we its regulators suggests a serious lack of judgement and may note that the business conduct issues that resulted in heavy cost its shareholders dearly. fines and provisions in 2014 took place under the watch of some current members of the Supervisory Board. Management under pressure Furthermore, we are not convinced that the Supervisory Board is effective in its oversight function given alarming The combination of the regulatory fines and criticism of the comments from the regulators on the bank’s culture, bank’s senior management, the slow pace of the conduct and systems and controls. culture reforms, the unsatisfactory share price performance, and the failure of the co-CEOs to convince investors with their In addition, we are not satisfied with the way the strategic plan led to the largest vote of no confidence in the Supervisory Board has dealt with variable compensation at Management Board in Deutsche Bank’s history. the bank. We believe that the Board and the Compensation Control Committee should have exercised a much greater In addition to voting against the Management Board, we also restraint in short-term and long-term incentive awards to voted against the discharge of the Supervisory Board, which executives and reduced the overall bonus pool to the received an 8.5% opposition. We also supported the proposal employees in a year when the bank’s performance was by DSW to conduct a special audit into the governance and weak, it had to raise capital through dilutive share issuance, culture of the bank; 14% of shareholders voted for this and it continued to be afflicted with various legal and proposal despite negative recommendations from proxy regulatory proceedings. We believe that in addition to advisors. “affordability” and “competitiveness”, the Supervisory Board The full rationale for our votes against is provided below. As is should give consideration to “”shareholder value creation” our standard practice, we informed the company of our voting when determining the size of the bonus pool and the decisions and rationale. Management Board’s compensation. Finally, we continue to express concerns that Paul Achleitner Deutsche Bank’s AGM, 22 May 2015 serves as Chairman of the Supervisory Board, and the Compensation and Nomination Committees, as well as a Res. 3 Approve Discharge of Management Board for member of the Audit Committee. With this busy workload Fiscal 2014: Voted against we are concerned about the extent to which his service on We voted against the discharge of the Management Board the Supervisory Boards of Daimler AG, Bayer AG and due to heavy fines, settlements and provisions in 2014 Henkel distract him from his focus on the bank’s needs. We resulting from business conduct issues that took place on the believe he should reduce his external commitments. watch of certain current Management Board members. In We also encourage the Supervisory Board to facilitate particular, we note irregularities at the investment bank that greater engagement between its Chairman and minority happened under co-CEO Anshu Jain’s leadership, as well as shareholders outside the formal AGM environment. criminal proceedings against two members of the Management Board, including co-CEO Jurgen Fitschen. In addition to the legacy conduct issues, we question THEY SAID whether the Management Board has fulfilled its “Our challenges are ... evident in the unacceptably high level commitment to change culture at the bank. In particular, we of our costs, our continuing burden of heavy litigation are alarmed by the EY report to BaFin that insufficient efforts charges, a balance sheet that must be more efficient, and the were made to investigate and clear up conduct issues in the poor overall returns to our shareholders” bank. We are also extremely concerned about comments John Cryan, Deutsche Bank CEO, 30 July 2015 from the UK and US regulators that the bank misled its investigators, took too long to produce vital documents and moved far too slowly to fix relevant systems and controls. We note that the bank’s poor response and the level of cooperation had direct consequences for the size of fines imposed on the bank.

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Engagement post-AGM Conclusions and Next Steps Following the leadership changes after the AGM and in view The new CEO John Cryan promised to address the most of unsuccessful previous attempts to engage Deutsche Bank’s pertinent issues in his message to the employees on 1 July Chairman directly, we teamed up with a group of other 2015. These included: minority investors to send a strongly worded letter to Dr ● Reputational damage from serious misconduct and strain Achleitner. on capital resources due to fines; The letter emphasised that, while the appointment of the new ● Relationships with the regulators; CEO was very welcome, investors needed more evidence that the bank was establishing appropriate structures and installing ● Slow, cumbersome and ineffective decision-making; the right people to ensure that it can adapt to a low-growth, ● highly regulated environment while providing adequate Lack of personal accountability and responsibility; returns to shareholders. It advised the Board that shareholders ● Complex and over-diversified business model and poor were unconvinced about the credibility of the culture reform financial performance; or that the matters of litigation costs, legacy conduct issues, the future shape of the investment banking division, and of ● Heavy reliance of the securities and derivatives trading shareholder returns have been addressed appropriately. We businesses on long-term balance sheet usage; also questioned the rationale behind retaining the services of ● Need for incentives to be set up to ensure that the “how” is former co-CEOs for the forthcoming months, and expressed more important that the “how much”. doubts that a meaningful culture and conduct change was possible without replacing members of the senior We welcome Mr Cryan’s conclusions and commitment. The management team, who embodied the old Deutsche Bank meeting with the Supervisory Board Chairman will be the key culture and whose actions were subject to severe criticism by next step in our engagement with Deutsche Bank. We expect the regulator. to learn of the concrete steps proposed by the Board and management to address the challenges outlined by Mr Cryan We encouraged the Board to look into these issues and and the issues raised in our letter. We will also seek a clear provide further credible reassurances to the market relating to understanding of how their implementation will be the culture change project and the long-term sustainability of monitored, progress assessed and outcomes reported to Deutsche Bank’s business model. Finally, we requested to shareholders. meet Dr Achleitner to discuss these and other governance issues. The more sensitive question regards the effectiveness of the Supervisory Board itself. The board’s actions (or the lack Dr Achleitner accepted our meeting request, but suggested thereof) suggest ineffective governance and raise concerns that this should happen after the Management Board releases over the Board’s leadership. While we will aim to raise these more details of the planned execution of Strategy 2020 to constructively in our meeting, the German dual board make the discussion meaningful. However, he defended the governance model makes it difficult for shareholders to raise continuing service of Jurgen Fitschen and Anshu Jain citing the these matters, particularly where The Chairman’s performance presumption of innocence in the case of the former and the is of concern. need to transition client relationships in the case of the latter. While both arguments make perfect sense under normal circumstances, we feel that the continuing presence of senior executives with tainted reputation at the bank sends a wrong message about the bank’s culture both internally and to the outside world.

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Stranded Assets – Mitigating investment risk posed by climate change

2 ● Political movement on climate change, and advances in Analysis has shown that 60-80% of the known reserves of alternative energy technologies, are turning the transition publicly listed companies which extract coal, oil and gas are to a lower-carbon future from theory into reality. This is unburnable and would have to remain in the ground if global presenting a key challenge to fossil fuel businesses, and warming is to be limited to two degrees centigrade. Even if investors in these companies. policy falls short of the two degrees goal, rapid technological changes could lead to the demand for fossil fuels (oil and coal ● A core part of the response is investor engagement which in particular) declining sooner than expected. These forces put aims at pressing investee companies in carbon intensive companies’ long-term projects at risk of not realising their sectors to address the risks to their business strategy and projected value – i.e. fossil fuel assets may become to be transparent to stakeholders. “stranded”. ● Our GSI team has engaged almost 100 companies in 24 The systemic risk this poses to economies and markets has countries, across the oil and gas, mining and utility sectors. been seen as sufficiently serious by the Bank of England to There is a major energy transition taking place, the effects of incorporate it into their core economic research programme which will impact investors and companies globally for the and, more recently, for the G20 nations to request the foreseeable future. Drivers include: international Financial Stability Board to convene an enquiry on the subject. The question increasingly being raised to ● Leaders of the G7 leading industrial nations agreeing in investors is: as the risks become more apparent, could failing June to cut greenhouse gases with the objective of ending to take any account of climate risk be seen as a breach of the use of fossil fuels by the end of this century; fiduciary duty? ● Renewable sources accounting for more than 40% of new global electricity generating capacity1; Responding to the challenge through company engagement ● China, the world’s biggest carbon emitter, committing to peaking its climate warming gas emissions by 2030 and; There are many ways in which investors can be more proactive in their consideration of climate risk, but one of the ● United Nations leading negotiations on a global agreement most widely-used has been engagement, with the aim of on mitigating climate change which could be adopted in challenging investee companies on their climate risk Paris in December. preparedness. The result of all this is that the dominance of fossil fuels – the Over the past two years, we have been at the forefront of engine of global growth since the Industrial Revolution – is raising concerns around potential asset stranding with a wide under threat. This transformation will not happen overnight range of executives and boards within the oil and gas, mining but we consider the evolving dynamics of the energy system and electric utility sectors. We are now seeing that the to be a structural, macroeconomic trend. This will have concepts of stranded assets and a limited carbon budget have implications for the future growth and profitability of begun to resonate within these industries - and increasingly at companies dependent on fossil fuel extraction and use. There board level – in ways that previous discussions on climate will be winners and losers from this change, with companies change did not. that are able to make their business models more robust to a wide range of future energy scenarios more likely to finish in Much of our activity occurred in the context of collaborative the winning camp. investor initiatives, where we took a lead role in the dialogue with many companies. We engaged a total of 95 companies – The ‘stranded assets’ challenge 58 in oil and gas, 15 in mining and 22 utilities, including 46 meetings. In addition to targeting large-cap companies such In recent years, the dialogue between investors and as Exxon, Royal Dutch Shell, BP, Anglo American and companies concerning climate change has focused Glencore, we also reached out to emerging market and mid- increasingly around the socalled concept of “stranded assets”. cap oil and gas companies like Pemex and Husky. This is based on studies which have argued that under certain scenarios where carbon emissions will be restricted, such as for example the establishment of a robust and legally-binding global climate change deal, there will be a limited amount of 1 Frankfurt School and United Nation Environment Programme analysis “Global Trends in carbon that could be emitted in to the atmosphere (also Renewable Energy Investment 2014” 2 Carbon Tracker Initiative’s 2013 analysis “Unburnable carbon 2013: Wasted capital and known as the “carbon budget”). stranded assets”.

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Our main engagement objectives are: Coal mining: In the past couple of years, weakening demand and a glut in the supply of thermal coal, used to make ● Risk management: To encourage companies to stress-test electricity, have had a dramatic downward impact on prices and disclose the range of possible future energy scenarios and mine asset valuations. At the same time, they are used for their strategy planning. significantly exposed to risks from policy moves to curb global ● Transparency and Commitment: To provide greater emissions as thermal coal is highly carbon intensive. disclosure on carbon risks embedded in their assets and to Companies in the industry have responded differently to these set clearer targets for mitigating these risks by reducing risks. The largest diversified miners do not see the risks exposure to highcost, high-carbon projects. materialising in a way that would make their coal assets ● Board oversight: To strengthen board expertise on climate become stranded. Their assessment hinges on the change economics and improve oversight to ensure that diversification of their portfolios, the positioning of most of business models are resilient to rapid energy transition their assets at the low end of the cost curve, and that pay- pathways. back periods for most present and future investments in coal are relatively short. We consider these views valid, yet ● Political advocacy: To ensure that lobbying activities are continue to press companies to improve disclosures on their consistent with the company’s stated climate change assumptions. policies and to support publicly policy mechanisms, such as carbon pricing, that are designed to drive an orderly Pure coal players, on the other hand, remain particularly transition toward a lower carbon economy. vulnerable, especially those based in the U.S. as shale oil and gas production increases. Companies based in, or exporting to, Industry response emerging markets are less vulnerable. Similar to the exportoriented diversified miners, they are betting on coal Oil and Gas: The sector has until recently been highly remaining the fuel of choice to continue spurring economic inwardlooking, struggling to face up to the potential speed of growth in these markets in the next two to three decades. change in the energy system. The concept of stranded assets However the change in the energy strategy in China – the is now slowly starting to resonate, with boards and CEOs world’s largest consumer - shows the risks to this assumption. beginning to take notice. Investor pressure has injected momentum into the debate. Highly publicised shareholder Electric utilities: European electricity generating companies resolutions on climate change, namely those at Shell and BP’s face their own challenges. These are in the form of recent annual shareholder meetings which received 98% overcapacity of power supply, increasing penetration of support, have been particularly instrumental. Some companies renewables (now 20% of total power capacity) and an energy are now beginning to take more seriously the need for policy reform which is aiming to accommodate intermittent enhanced risk management frameworks to examine the renewables within the existing power market. economic impact of climate change on their business. THEY SAID Compared to a few years ago, there are also indications that more corporate resources are being dedicated to look into the “Utilities must adapt to this new paradigm or risk being squeezed out.” climate change challenge. By developing a better capability to anticipate these impacts, leading companies should be able to Moody’s divert investments away from assets that face a higher risk of economic stranding. There are some encouraging steps in Utilities have responded to these challenges in a number of terms of public repositioning and instances of reviews to risk ways. Firstly, there has been a consolidation of assets with management assumptions, but it is too early to assess the unprofitable plants being mothballed, closed or sold – GDF impact these will have on companies’ long-term strategies Suez, Centrica and EDP are good examples. A second and investment decisions. Despite a sharp fall in crude prices approach involves moving towards more regulated markets in the past year, we still often encounter “business-as-usual”, e.g. transmission and distribution or in developing countries. sceptical industry attitudes that revolve around bullish The third response is developing energy services and trying to commodity price and demand forecasts. These underpin the get closer to the end client. This is specifically a response to a management rationale for continued investments in high-cost growing number of competitors from outside the sector (e.g. assets which require a high oil price to break even. Tesla, Google, Apple) offering storage, smart grid and smart In how companies present themselves to stakeholders and home solutions which in the medium term can cause a policymakers, a more visible rift has opened up lately structural reduction in demand for electricity. between some of the European and US majors. While the Europeans are becoming increasingly eager to be seen as part of the solution to climate change, the largest US oil companies continue to resist any strengthening of climate policy.

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Conclusion and next steps Engagement vs. Divestment? Amongst leading companies, more time and resources are being dedicated to analyse the implications of the climate The “stranded assets” concept has fuelled a broad debate change challenge. This is, in part, a direct result of investor among investors and spurned a variety of responses ranging engagement. from outright sector exclusion3 to selective divestments of the most carbon intensive companies4. Alongside these However, with a small number of exceptions, analysis is not moves, the debate has also led to a significant increase in yet feeding through into action. Companies in the carbon- engagement activity by investors pressing companies to intensive industries are still falling short of pro-actively develop strategies for transition to a low-carbon economy5. developing a systematic approach to address structural risks which an accelerated shift toward lower carbon energy would Much of the debate on stranded assets risks in the fossil fuel entail. Many of the measures being introduced remain sector has centered on the question to what extent investors relatively short-term fixes – such as dealing with a fall in should engage companies on this issue more actively or take commodity prices - and genuine long-term robust planning to a divestment approach. Selective divestment approaches tackle climate change risk is still rarely forthcoming. appear to be getting more traction with mainstream investors, as reflected in the recent announcements by the Climate change is no longer a risk to investments that can be Norwegian sovereign wealth fund and the French insurer considered purely long-term and arising far away in the Axa, committing to reduce their exposure to coal industry future. Already, coal miners and electric utilities are investments. We would argue that engagement and increasingly facing the urgent need to develop alternative divestment approaches are not exclusive to each other when business models to stay relevant and profitable. As considering a responsible investment approach on climate momentum builds towards a global deal in Paris later this change. year, we will continue to press management and board directors to closely examine the economic impact of climate In pushing companies for greater justification of riskier change on their business. investments within their portfolios – be that in high-cost oil projects, thermal coal, or carbon-intensive utility assets – our engagement aims to achieve disclosure enhancements that ultimately should enable investors to distinguish better between companies’ exposure to, and ability to manage, energy transition risks. Our dialogue thus not only tries to improve company approaches to deal with stranded assets risks, but it also aims at facilitating more informed decisions around how organisations wish to remain invested in the fossil fuel sector in the coming years.

Engagement and divestment therefore, rather than representing two disconnected and opposing strategies, can be considered as complementary approaches. Both aim at addressing the same issue – pushing companies and helping investors to anticipate and prepare for the pace of change ahead and to allocate capital in ways that enable a rapid and orderly transition toward a lower carbon economy.

3 See e.g. http://350.org/ 4 See e.g. the recent decision of the Norwegian Government Pension Fund to not divest outright but opt instead for active ownership and selective exclusion on a case-by-case basis. https://www.regjeringen.no/en/aktuelt/Report-from-the-Expert-Group-on-investments-in- coal-and-petroleum-companies1/id2342780/ 5 For an overview, see reo Viewpoint “Global warming mitigation gaining momentum”, October 2014

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Spain implements key governance reforms

● Spain has undertaken a major reform of its corporate Boards of directors governance practices in the past two years. ■ Rules on directors’ liability are extended to those ● Companies with large foreign shareholder base have led in executives who are ultimately responsible for running the accepting the reforms and have adopted notable company. improvements. ■ Board resolutions can be challenged for up to one year ● We travelled to Madrid to engage companies which have after their approval. Shareholders challenging resolutions been reluctant to embrace the spirit of the new need to prove that together or jointly they own 1% of the Governance Code. share capital. Over the past few years, European markets have seen many ■ initiatives aimed at improving the corporate governance Shareholders and shareholder associations representing practices of listed issuers. By contrast to the pre-global 3% and 1% of the share capital respectively can obtain financial crisis period, recent governance reforms in Europe shareholder identification data. have been driven by governments by means of both ■ Minimum roles are established for the Chairman and a legislation and “soft law” mechanisms (e.g. codes of Coordinating Director (i.e. Senior Independent Director). governance best practice and the “comply or explain” Where the Chairman is an executive, a Coordinating approach). This reflects the widespread view of the Director must be appointed from amongst the importance of good governance and transparency for independent directors. corporate performance, value creation and re-establishing trust in capital markets. ■ Tenure is confirmed as a factor affecting directors’ In Spain, the market as a whole traditionally had weaker independence and a 12-year limit introduced. Board term standards of corporate governance compared to its Western reduced from six to four years, with shorter terms European peers. This has changed in the past two years due to allowed. major policy-level reforms. The 2013 National Reform Plan ■ Minimum requirements of two independent directors and played a key role in driving improvements by seeking to an independent chair introduced for the audit, nomination attain the maximum level of compliance with international and remuneration committees. The committees’ good governance practices. This was implemented in responsibilities are detailed and include establishing December 2014 through the reform of the Spanish Companies board diversity targets and succession planning for the 1 Act (Ley de Sociedades de Capital ), which enshrined in law Chairman and the CEO. Annual board evaluation is also many recommendations of the previous governance code. now mandated by law.

Remuneration

2014 Spanish Companies Act ■ Shareholders must approve a total amount of directors’ remuneration. Main corporate governance-related changes ■ General meetings The directors’ remuneration policy (including details of executive remuneration) requires shareholder approval by ■ Shareholder approval is required for significant a binding vote at least every three years. Any transactions (25% of the value of the assets), including amendment or replacement of that policy must also be acquisitions, alienation or remittance of essential assets to approved by shareholders. Should the company lose an another company. (Related party transactions, however, annual advisory vote on directors’ remuneration report it continue to be approved by the board, and reviewed by will have to seek shareholder approval of its its audit committee, and do not require shareholder remuneration policy for the following fiscal year. approval).

■ The ownership threshold for filing a shareholder proposal In addition, the National Securities Market Commission or for bringing a liability action against directors has been (Comisión Nacional del Mercado de Valores) approved in lowered from 5% to 3%. February this year a new Spanish Corporate Governance Code for listed companies2. The Code adopted a new format based on high-level principles and detailed recommendations on

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how these principles can be implemented. Compliance with Eléctrica, Enagás, Iberdrola. These companies started the Code is voluntary, subject to the “comply or explain” preparation in advance by engaging in dialogue with shareholders, making improvements to their governance principle. The new format was received well by issuers and practices and communicating pro-actively with these to investors as it offers sufficient flexibility for companies to investors prior to their 2015 Annual General Meetings through “explain” how principles are being upheld, and yet allows integrated reports and corporate governance/Sustainable setting out clear best practice standards. Responsible Investing (SRI) roadshows. This pro-active The Code provides detailed recommendations on the approach is largely driven by the dominance of foreign composition and functioning of boards that go beyond the institutional shareholders in the ownership structure of these current market norm. We expect significant changes in the companies and the influence of the Spanish state. This has board composition of many Spanish companies in the next therefore fostered the desire to respond to demands for three to four years as current directors’ terms expire. The Code better governance. We have been engaging these companies recommendations that should lead to improved board on a range of governance and sustainability practices for effectiveness and quality of board oversight include: many years, and we are pleased that our views helped guide their approach to governance enhancements4. ● The board of directors should be composed of between five and 15 members. More specifically at the individual company level, we welcome Red Electrica’s leading role in adopting corporate ● At least 50% of the board should be independent (33% in governance best practice and its decision to split the controlled companies). Chairman/CEO roles and to institute a non-executive chairman. ● At least 30% of directors should be female by 2020. This set a great example in the market, where many issuers remain reluctant to end the long-standing practice of ● External board evaluation at least every three years. concentrating power at the top of the company.

● The audit, nomination and remuneration committees We also commend steps taken by Enagas to split the roles of should be majority independent. the Chairman and CEO (albeit the Chairman’s position remains

● The chairman of the audit committee should have executive), to appoint a Lead Independent Director, to reduce knowledge and experience in accounting, auditing and risk the size of its board, and to enhance independence, management matters. international expertise and diversity of its board.

● The internal audit function should report to the non- Iberdrola took steps to address our concerns about the executive chairman or the chairman of the audit continuing concentration of power at the top by developing a committee. clear succession plan for the Chairman/CEO and key executives, appointing a Lead Independent Director, and Furthermore, the Code seeks to address shareholder rights strengthening the balance of independence on the board. issues that are not covered by law, listing rules or other market guidance. These include non pre-emptive issuances of Encouragingly, there are many mid- and small-cap issuers in shares and anti-takeover mechanisms, where the Code Spain, who are looking for a stable institutional shareholder stipulates that: base and, therefore, are eager to understand institutional investors’ expectations. They are seeking to apply corporate ● Companies should avoid by-law clauses of which the governance principles and standards in the way that enhances underlying purpose is to hinder possible takeover bids, competitiveness and effectiveness of their businesses. Bolsas including imposing restrictions on voting rights or other y Mercados Españoles (BME), Amadeus IT Holdings and obstacles to the takeover of the company by means of Distribuidora Internacional de Alimentación (DIA) are 3 share purchases on the market. among companies in this category that we engaged during our trip to Madrid earlier this year. ● Non-preemptive share issuances should be limited to 20% of share capital. (Note: This is higher than the 10% limit on DIA openly states its commitment to apply international routine non-preemptive issuance authorities promoted by corporate governance best practices and use it to support its BMO Global Asset Management (EMEA) corporate international ambition. The company has focused on ensuring governance guidelines). the appropriate mix of skills, expertise and diversity on its board, led by an independent non-executive Chairwoman, as Adoption of new standards by Spanish well as improvements in the anti-fraud, anti-corruption and issuers data security policies and processes. The degree of adoption of the new corporate governance Amadeus IT Holdings demonstrates advanced governance principles by companies varies significantly. Among the early practices for the Spanish market, including a majority adopters are a number of large cap companies, such as Red independent board, separate Chairman and CEO and annual

1 http://www.mjusticia.gob.es/cs/Satellite/MJusticia/1292427002524?blobhea der=application re-election of directors after the first 3-year term. At the same %2Fpdf&blobheadername1=Content-Disposition&blobheaderv alue1=attachment%3B +filename%3DCorporate_Enterprises_Act_%28Ley_ de_Sociedades_de_Capital%29.PDF time, the company acknowledges the need for greater 2 https://www.cnmv.es/DocPortal/Publicaciones/CodigoGov/Good_Governanceen.pdf

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technology and data security expertise among non-executive retirement-like benefit of 35.5 million euro. The company has directors as well as gender diversity. not provided a compelling rationale and has not produced a cost-benefit analysis. We see this proposal as another sign of BME is a particularly interesting case as, being a stock market the board’s unwillingness to apply good governance operator, it is under pressure to set an example of best standards. We also note that the company is only willing to practice. The company has appointed a prominent Lead offer board-level meetings to its most significant Independent Director (LID), developed a succession plan for shareholders. the Chairman/CEO, and is reviewing its board composition to increase independence, diversity and enhance the mix of Corporate Social Responsibility (CSR) competences and skills; it is also looking to improve the While absent in the previous Code, CSR is featuring structure and disclosure of executive remuneration. prominently in the new one including recommendations that As a part of our engagement, BMO Global Asset Management companies should deploy an appropriate corporate social (EMEA) made specific recommendations to all above responsibility policy as a non-delegable board power, and companies in the areas of board governance, executive report transparently and in sufficient detail on its remuneration, audit and internal controls, disclosure and development, application and results (targets, commitments, reporting, and business conduct. Many Spanish issuers would practices), as well as its evaluation and dissemination. In this benefit significantly from a pro-active investor engagement at context, we note the early adoption by many Spanish issuers this stage as they seek to improve their attractiveness to of integrated reporting standards in a clear attempt to international investors and are more likely to act on investor demonstrate the incorporation of sustainability principles into feedback and recommendations. their strategy and business model.

At the other end of the spectrum are companies that are Integrated reports by early adopters (Iberdrola, Enagás) offer reluctant to go beyond tick-box legal compliance and embrace a good example of companies focusing on sustainability as a the spirit of the reform. Actividades de Construcción y driver of business development. The companies seek to Servicios SA (ACS) and Telefónica are among prominent demonstrate to investors how understanding the economic, Spanish issuers that have resisted implementing higher social and environmental context in which their businesses standards of governance and have been unresponsive to operate enables them to identify relevant and material issues shareholder engagement. We flag these companies as high that can impact mid-long term success of the enterprise and governance risk. embed these into their corporate strategy. They report the financial and non-financial KPIs that investors require to get ACS has numerous governance issues, including a continuing the holistic view of the business, and disclose material risks concentration of power in the hands of a combined Chairman/ and opportunities at a group and divisional levels, including CEO, over-large board, poor balance of independence, long those arising from environmental, social and conduct tenure of directors and insufficient board refreshment, and perspective. Importantly, they also try to quantify and insufficient independence of the main board committees. We demonstrate broader value creation by their businesses (e.g. are also concerned about the lack of a group-wide approach community investments, taxes paid to governments, to mitigation, monitoring and reporting of bribery and compensation to employees and supply chain, reduction in corruption alongside other business ethics risks. The company resource consumption, emissions and waste, etc.) that sends admits that the Spanish governance reform may help forcing a positive message to their numerous stakeholders. We the board to take some action, but this is likely to be an expect that the new Code recommendations will encourage evolutionary rather than revolutionary process. Overall, our more Spanish companies to produce quality integrated view is that the company’s governance practices are unlikely reports. to improve substantially under the current leadership.

Despite its size and position in the Spanish market, Telefonica 2015 Voting record and next steps has been slow to improve its governance practices and In 2015, BMO Global Asset Management (EMEA) voted at appears to be ill prepared for the Spanish governance reform. shareholder meetings of 58 Spanish issuers. We supported The company has multiple governance issues, including 86% of all proposals and voted against 14%. This is an combined Chairman/CEO and non-independent Lead Director; improvement on our 2014 record, when we supported 77% of the large size of the board, a poor balance of independence, proposals and opposed 23%. Remuneration related proposals long tenure of directors and a lack of board refreshment, and (44% against), share issuance and buyback authorities (33% insufficient independence of the main board committees. Our against) and director elections (12% against) remain the most concerns were aggravated by the board’s proposal at the 2015 contentious agenda items. AGM to replace the chairman’s termination benefits with a

3 Under Spanish law voting ceilings will be rendered void once a takeover bidder has Our voting record and engagement experience suggest that, acquired 70% or more of the voting shares, unless the bidder was not subject to or had not adopted equivalent breakthrough measures. despite governance improvements at many Spanish 4 See Red Electrica’s Report on the process of separating the roles of the Chairman of the companies, there are many issues remaining where further Board of Directors and Chief Executive Officer at Red Electrica Corporation SA, June 9th 2015. http://www.ree.es/sites/default/files/03_GOBIERNO_CORPORATIVO/Documentos/Junta% dialogue with issuers is required. As companies adjust their 20General%20Extraordinaria%20de%20Accionistas/English/ Punto1_OrdenDia_InformePWC_ProcesoSeparacionCargos_eng.pdf policies and practices to comply with more onerous

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recommendations of the new Code, we see this as a good opportunity to reach out to Spanish companies to help them understand investor expectations and existing areas of concern and encourage them towards higher standards of corporate governance.

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Engagement and Milestones Q3 2015

Adidas ESG Rating: GREEN Germany Consumer Discretionary Priority Company Objectives: The sportswear maker has high exposure to reputational risks due to the large size of production in low-cost countries and the high visibility of the brand globally. Our engagement focuses on Adidas’ multiple supply chain risks such as violations of labour rights, poor working safety and factory strikes. The company has shown leadership in transparency compared to peers by disclosing a full list of its direct suppliers. In 2015, we are encouraging Adidas to further improve board oversight of these risks. We will urge the implementation of best practice risk management and controls to ensure performance beyond a standard level of compliance, especially in the areas of sub- contractor relations, health & safety and compliance audits. We call on the company to address barriers that prevent workers in the global supply chain from being paid a living wage given it strong reliance on contractors.

Engagement Activity: Engagement Activity Detail: Investor dialogue on living wage We discussed with the German sports brand its approach to addressing concerns around fair compensation in the global supply chain as a part of our engagement project on living wage in Area of Engagement: the apparel sector. We are encouraging companies in the ready-made garment industry to S work with suppliers that pay factory workers a living wage. Several studies show that workers in less developed countries cannot live on current wages paid by factories. This in turn has fuelled social unrest and economic instability which impacts factory productivity and security of Engagement Status: supply for brands and retailers. Adidas is one of the few sports and clothing companies that In Progress - Company Responded has been working on the issue of living wage for several years. Last year, we pressed Adidas on how its high level commitment to the living wage concept is actually being delivered in its supply chain. The company was conducting living wage pilots and announced its intention to develop specific practices in this area in 2015 based on findings from these pilots. The results presented by Adidas in this year’s discussion are disappointing. During our dialogue the organisation mainly discussed the findings from its projects collecting data from factories on wage levels but it fell short of highlighting the promised learnings from past years or of launching a supplier wide program. Moreover, the set-up of its collaboration with partner organisations was changed and consequently at least one pilot-project on wages in the Philippines was stalled. The lead on Adidas’ work on living wage seems to have completely transferred to the Fair Labor Organisation (FLA). Although we consider the work of the FLA on fair compensation to be very useful, we would have liked to see the company’s thinking around the topic to have translated in to policy and actions this year. The FLA announced in its own communications that the first outcomes of the fair compensation project with its member brands are expected for 2017. Over the years the company has demonstrated a high level of knowledge and insights on fair pay in the global supply chain industry. For that reason, we believe that Adidas collected sufficient information to kick-start a more bold approach towards developing concrete steps alongside time-bound targets on how it seeks to establish a fair living wage for workers at its strategic supplier factories. We recognize the importance of industry cooperation and the work with the FLA but, we do not think that these two work streams should exclude each other. Until the company explains how the learnings from the current pilots are leveraged and commits to a strategy with clear target results, we cannot assess the impact of its efforts. We will follow up with the company on this key point in our next meeting.

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Adidas to improve supply chain management of its supply chains textile supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s Area of Engagement: operations, we believe that through the business relationships with its suppliers, Adidas would S be able to drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk Engagement Status: mapping; enhanced relationship with the suppliers and multi-stakeholder initiatives. The In Progress - Company Contacted responses to the letter are to be shared with all co-signatories.

S G Area of Engagement: E Environmental Social Governance

Milestone Rating: High potential impact on investor value Medium impact Lower impact ESG risk rating: Rating of a company’s ESG risk exposure and risk management compared to industry peers. Source: MSCI ESG Research Inc. Top quartile: GREEN Second quartile: YELLOW Third quartile: ORANGE Bottom quartile: RED 19 SEI reo® Report 3rd Quarter 2015

Engagement and Milestones Q3 2015

ALS Ltd ESG Rating: YELLOW Australia Industrials

Milestone: Milestone Detail: Milestone - Committed to a fair voting Committed to conduct all Annual General Meeting (AGM) voting on a poll. This system is fair to system all investors, including those who might not be able to attend the AGM in person, because it ensures that even votes cast electronically, are counted towards the outcome of the meeting. Area of Engagement: We had co-signed a letter with over 20 large international investors urging the company to G adopt a system of voting by poll on all matters from its next Annual General Meeting.

Milestone Rating:

Ambev S.A. ESG Rating: ORANGE Brazil Consumer Staples

Engagement Activity: Engagement Activity Detail: Feedback to company regarding its Ambev solicited feedback from us regarding its sustainability practices. We encouraged the sustainability practices company to 1) improve its disclosure on responsible marketing practices, including how its policies are enforced and the entity responsible for overseeing and reviewing the policies; 2) Area of Engagement: articulate its nutrition strategy, given its business reliance on surgery drinks and obesity E problems in key markets like Brazil and 3) improve its disclosure on supply chain management, including how its responsible sourcing policies are implemented and enforced. Engagement Status: In Progress - Hibernation

Amer Sports OYJ ESG Rating: GREEN Finland Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Company response to living wage The company responded to our recent letter which asked about its approach to wage level letter concerns in the global supply chain. This dialogue is part of our engagement project on living wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. Area of Engagement: This could lead to high employee turnover, reduced productivity, social unrest, and ultimately S affect security of supply. We called on the company to explain how it mitigates these risks. Amer Sports’ ethical policy includes a section on compensation, requiring suppliers to pay workers the legal minimum wage. The disclosure falls short of a discussion on freedom of Engagement Status: association or collective bargaining or any guidance on how suppliers should act in line with In Progress - Company Responded any of these principles. The risk of factory workers’ wages falling below the cost of living is also not addressed. Compared to other companies in this sector the sports retailer provides very limited disclosure. We commended the company for openly admitting that the concept of living wage is currently not being considered and that it would value our feedback for further development in this area. We will contact Amer Sports again to share the findings from our industry comparison and encourage it to incorporate a living wage requirement for worker compensation into their supplier policies.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Anglo American ESG Rating: YELLOW United Kingdom Materials Priority Company Objectives: We have been engaging this diversified mining giant for over 10 years on a wide range of issues, particularly health and safety, environmental management, labour relations, and stakeholder engagement. In 2015, we will check on the company's progress in its approach to labour relations and community development in its platinum operations in South Africa following the difficulties Anglo and the rest of the industry have faced there in the past three years. We will also pay attention to the management of climate change risks, specifically around its coal assets at risk of becoming stranded due to increased climate change regulation and/or shifting fossil fuel demand trends.

Milestone: Milestone Detail: Milestone - Improved management of Implemented several initiatives to address shortcomings in its approach to engaging with employee relations employees and union representatives. These include measures to: incorporate union leaders more meaningfully in dialogue with management on business issues; develop a strategic Area of Engagement: internal communications and engagement plan; increase visibility of leadership on the ground; S and step up engagement efforts on financial literacy and indebtedness. Given the complex, and often challenging, nature of employee and union relations in South Africa, a robust approach to managing them is critical to improving employee satisfaction, facilitate wage Milestone Rating: negotiations and, ultimately, minimise the risks of industrial action. This will in turn help improve productivity and better protect the company's bottom line against price volatility in the precious metals markets. We discussed issues around employee relations when we visited the company in Johannesburg in 2013.

AngloGold Ashanti ESG Rating: RED South Africa Materials

Milestone: Milestone Detail: Milestone - Improved management of Strengthened its approach to safety management by implementing an analytical approach to workplace safety identifying the hazards contributing to significant accidents, as well as the potential threats, controls, outcomes and recovery measures associated with such events. This has led to the Area of Engagement: improvement of safe operating procedures, particularly those related to deep underground S mining operations. Management's increased focus on safety has led to a significant improvements in performance, including reduction of fatal accidents - from 18 in 2012 to six in 2014. Better safety performance is critical to reduce mine stoppages, improve productivity and Milestone Rating: strengthen relations with employees and contractors. Safety has been one of the key areas of our engagement with this company over the years.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Apple Inc. ESG Rating: GREEN United States Information Technology Priority Company Objectives: Since the start of our engagement with Apple in 2006, we have seen continued improvements in the company’s governance structure and management of labour issues in the supply chain. We continue to encourage stronger board oversight of business risks connected to factory production disruptions, retail employee capital management, antitrust allegations and concerns about privacy and data security. Also, we call on the company to bring a stop to its tax avoidance scheme and address barriers to ensure workers in the global supply chain are paid a living wage given its strong reliance on contractors.

Engagement Activity: Engagement Activity Detail: Living wage information request We contacted Apple and requested a discussion on ESG issues. We asked for more information about policies with respect to supply chain management and factory worker payment Area of Engagement: strategies. We highlighted to the company that a commitment to living wage can prevent and S reduce adverse impacts in the supply chain and help to better secure the social license to operate. We added that the effective management of labour-related risks in the supply chain is a significant determinant of commercial success for a corporation and a positive contributor to Engagement Status: financial value. The company's response to investor engagement on ESG issues has been In Progress - Company Responded improving in recent years.

Engagement Activity: Engagement Activity Detail: Response to living wage information We requested the company for a discussion on the way it manages risks related to labour request standards in its supply chain. We pressed the company for more details on its approach to living wages. Eventually the company responded to us by email in which it highlighted some Area of Engagement: details from its annual Supplier Responsibility report. Apple’s social policies prioritise ensuring S fair and safe working conditions, creating greater opportunities for workers, and providing transparency into the operations of their suppliers. The company also requires suppliers to allow workers to freely associate and bargain collectively but it did not provide us with any Engagement Status: detailed information on the payment of workers’ wages. Apple is a member of the Fair Labor In Progress - Company Responded Association (FLA), whose Fair Compensation Work Plan is developing a systematic approach to tackling questions around benchmarks, stakeholder engagement and national wage policy. The company stated that although living wage remains an important topic to them, they have nothing further to discuss with us at this time. We are disappointed with this weak response, especially considering the fact that they admit themselves that living wage issue is complex and that there is little agreement on how to define and promote it.

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Apple to improve supply chain management of its IT supply chains supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s operations, Area of Engagement: we believe that through the business relationships with its suppliers, Apple would be able to S drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk mapping; Engagement Status: enhanced relationship with the suppliers and multi-stakeholder initiatives. The responses to the In Progress - Company Contacted letter are to be shared with all co-signatories.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Astellas Pharmaceutical ESG Rating: GREEN Japan Health Care

Engagement Activity: Engagement Activity Detail: Engagement on access to medicines We discussed this issue with the company in Tokyo in 2014. At the time they explained that approach Astellas was a research-oriented company focused on non-communicable diseases. It said that its strength was in urology, which was not a key disease needing treatment in Africa such as Area of Engagement: malaria, HIV-AIDS and tuberculosis. We considered this to be a weak response and expressed S concerns that it was lagging even the other Japanese companies in its thinking on access to healthcare related issues. We pressed the company to establish a clear access to medicines strategy underpinned by a business-led rationale rather than purely a philanthropic one. We Engagement Status: encouraged the company to appoint an executive or board director to lead and oversee the In Progress - Company Contacted strengthening of access related initiatives. We asked the company to disclose details of any corporate targets - both quantitative and qualitative - to measure and drive success in this area. The company had failed to make any progress in establishing an equitable pricing strategy, which we called for in our meeting in 2014. It was the only company studied in the ATMI that did not either have evidence of a commitment or implementation of equitable pricing strategies. We invited the company to consider our engagement recommendations on improving its access approach and to discuss with us their response. Regarding its commitment to increasing returns for shareholders, Astellas is a progressive company by Japanese standards. However, its approach to managing emerging market risks and opportunities continues to be weak. The company has provided an adequate response to engagement in the past.

Banco Santander ESG Rating: ORANGE Spain Financials

Milestone: Milestone Detail: Milestone - Adopted the Soft Adopted formally the 'Soft Commodities Compact', which commits members of the banking Commodities Compact industry to mobilise resources to help achieve zero net deforestation by 2020. By signing up, the bank has committed to work with its clients involved in the production and trading of soft Area of Engagement: commodities to explore how it can help finance the growth of markets producing palm oil, E timber products, soy and others to achieve zero net deforestation in their supply chains. This move helps the bank to reduce reputational risk and to safeguard its future licence to operate. It also serves to enhance the management of risks and opportunities related to environmental Milestone Rating: issues. We had asked the company to strengthen its approach to addressing ESG risks, included deforestation, in its lending transactions.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Bank of America Corporation ESG Rating: RED United States Financials Priority Company Objectives: We have a history of engaging Bank of America on a wide range of ESG issues including executive remuneration, shale gas financing, and business ethics. In recent years the bank has faced significant fines as a result of its questionable lending practices and those of certain companies it acquired following the subprime mortgage crisis. This includes a $16.7 billion penalty in 2014, the largest civil settlement in US history. In 2015 we will prioritise our engagement on the implementation of stronger internal controls and risk management mechanisms and processes, as well as transformation of business conduct and culture and how these link with remuneration. We will also engage on the bank’s governance practices and its accountability to shareholders following its decision to re-combine the roles of CEO and chairman of the board without shareholder consent.

Engagement Activity: Engagement Activity Detail: Engagement on recombination of CEO/ We engaged the company on our decision to vote against the proposed recombination of the chair roles roles of Chief Executive and Chairman of the board. This is in light of the concerns we have about the bank’s performance and its board practices. We believe that recombining the roles is Area of Engagement: contrary to best governance standards and detrimental to accountability. In addition, in the G case of Bank of America, we also have concerns about the bank's oversight mechanisms. The unilateral move to recombine the roles without prior shareholder consultation is indicative of the board’s disregard for shareholders' interests, particularly given that the decision reverses a Engagement Status: binding shareholder proposal which received majority support in 2009. Moreover, although the In Progress - Company Contacted bank argues that its performance, its governance practices and the composition of its board have changed significantly since the roles were separated, we do not believe that the changes have been substantial enough to merit reverting to a leadership structure that provides less accountability. Bank of America continues to lag peers in performance and risk management. This has been evidenced by the weak returns over the past few years, particularly compared to other major US banks and by its struggles with passing the US regulator’s stress tests. The bank argues that appointing the current CEO as chairman of the board comes as a result of the progress achieved under his tenure, which we believe is inappropriate not only because the chairmanship should not be used as a bargaining token, but also because the progress achieved still falls short of a meaningful turnaround. We will continue to engage with the company on this issue.

Bank of Kyoto ESG Rating: RED Japan Financials

Milestone: Milestone Detail: Milestone - Appointed independent Appointed independent directors to its board for the first time in its history. The company had non-executive directors resisted the introduction of outsiders on the board. We have been encouraging the company to reform board structure through engagement and voting since co-authoring the landmark Asian Area of Engagement: Corporate Governance Association white paper in 2008 which increased international investors' G concern on Japanese corporate governance practices. We expect the new independent directors to improve oversight of management and bring fresh ideas to the company. Milestone Rating:

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Engagement and Milestones Q3 2015

Barclays ESG Rating: YELLOW United Kingdom Financials Priority Company Objectives: We have maintained regular dialogue with this large UK-headquartered bank in past years. The bank continues to be plagued by revelations of conduct issues and large fines from global authorities. Although it appears to be on the right course in terms of its business strategy, and the board and management are committed to delivering promised improvements in business conduct and culture, it is increasingly evident that the bank is only at the start of its journey of cultural change. Our engagement will continue to focus on how the board and management can deliver cultural change and restore the bank's reputation and the trust of shareholders and other stakeholders. Barclays' approach to remuneration has improved further in 2014, but it faces severe competition for talent in the US and is potentially more vulnerable to further regulatory restrictions on bank pay. We will pay close attention to how the company adjusts its pay structures to conform to the European Banking Authority’s opinion on role-based pay. We will also continue to hold the board to account for ensuring a strong link between pay, performance and shareholder value creation.

Engagement Activity: Engagement Activity Detail: Meeting with the Executive Chairman We met the new Executive Chairman of Barclays following the dismissal of the CEO in July 2015. We understand that the former CEO had lost the confidence of the board and senior Area of Engagement: management primarily over the pace of strategy implementation and the lack of a convincing G business plan for the Investment Bank. The Chairman is confident that the new CEO will be appointed in the next few months. Candidates from different backgrounds and geographies are considered with priority given to the commercial and investment banking experience. In Engagement Status: parallel, search is underway for the Senior Independent Director role and another independent In Progress - Company Responded director with a mobile technology background. While we had concerns over the unexpected leadership change propelling John McFarlane into the Executive Chairman’s role in defiance of corporate governance best practice, we found the explanations of the underlying reasons and the process credible and have been reassured by the progress in identifying the new Chief Executive. There does not appear to be a significant shift in strategy under the new leadership. The main changes amount to the acceleration of strategy implementation, including the disposal of the non-core assets, and a business plan for the Investment Bank, which has buy-in from senior management. The Chairman sees Barclays as the UK’s best corporate bank, but wants to retain options over the Investment Bank, Africa business and Barclaycard, which means bringing back to good health the former two and keeping up the performance of the latter. The bank with continue with the implementation of the Transform programme, but will review objectives and deliverables with a view of making the bank “leaner, faster, more agile and shareholder focused”. The Chairman supports the focus on culture and values, but firmly believes that fair treatment of clients, customers, shareholder and employees should be part of “business-as-usual”, rather than a matter of special attention. We are concerned that there is a risk that this attitude might lead to the disappearance of these messages from the “tone from the top”, which may be detrimental to the bank’s reputation and culture. The focus of the top management is on enforcing personal accountability, which we welcome. We were disappointed that Barclays had not succeeded in implementing a new incentive structure for traders, but given that no other investment bank had done it either, it is encouraging that Barclays have significantly reduced variable pay for its trading function, ranking now at the bottom of the sector in this area. Based on our conversations with a number of banks, we are of the view that only collective regulatory/market action can change pay practices at investment banks. The sector is too competitive and demand for talent is too high for any individual bank to implement changes unilaterally.

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Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Published a cluster Published its policy for cluster munitions and anti-personnel landmines by explicitly stating it munitions policy intends to abstain from financing companies involved in the production or sale of these weapons. Implementation of the policy will serve to protect the company's reputation, as well Area of Engagement: as to continue to offering its services in jurisdictions where the financing of these types of S weapons is prohibited, such as the Netherlands and Luxembourg. We have engaged major financial institutions on their approach to dealing with risks associated with cluster munitions. Milestone Rating:

Barrick Gold Corporation ESG Rating: RED Canada Materials

Engagement Activity: Engagement Activity Detail: Progress on Pascua-Lama project Barrick Gold’s controversial Pascua-Lama project in the highlands along the Argentina-Chile border is one of the world’s largest undeveloped deposits of gold and silver. In late 2013, the Area of Engagement: company announced the temporary suspension of construction activities at the project, E because of cost overruns, falling gold prices, legal and regulatory complications from environmental mismanagement, and local community opposition. At the time of its suspension, the company had already spent $5 billion on the project. We spoke to the Engagement Status: company about recent developments on the ground and expectations on the project being re- In Progress - Company Responded started. We welcomed the review of the community engagement strategy, which led to a Memorandum of Understanding (MoU) being signed with a majority of the indigenous communities that inhabit the area. As part of the MoU, the company committed to make technical and environmental information about the project available to the communities and to provide financial resources required to support analysis of this information. It also committed to reviewing aspects of the project such as the glacier monitoring programme, approach to water management, and respect for ancestral territories. The company confirmed the strategy has allowed for a notable improvement in its relationship with these communities. We encouraged the company extend this engagement approach to those communities, indigenous or not, that decided not to sign the MoU. We also urged the company to continue actively engaging with Chilean environmental regulators, which recently reopened a sanction process against the project because of environmental infractions found during investigations carried out between 2013 and 2015. Pascua-Lama continues to pose significant challenges to Barrick. The company said it is currently developing an optimised project development plan which may involve re- scoping. While this work is underway and the project remains in suspension, Barrick intends to significantly reduce carrying costs in 2016 to less than half of 2015 levels. The company confirmed that, in addition to community acceptance, the project would have to meet a 15% return on invested capital hurdle rate before it would consider a decision to re-start construction.

Milestone: Milestone Detail: Milestone - Published human rights Published a human rights assessment (HRA) report, through which it discloses the findings of assessment report third-party HRAs carried out at a number of the company's high-risk operations. Such a report allows investors to gain a better understanding of key human rights risks the company faces, Area of Engagement: as well as measures it has taken to address those risks. We have actively engaged with the G company for a number of years on its approach to human rights management and reporting.

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S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Bayer ESG Rating: YELLOW Germany Health Care Priority Company Objectives: We have been engaging this German pharmaceutical, crop science and materials company since 2001. The key engagement priority for this sector in recent years has been on responsible marketing and sales practices, in particular following corruption scandals faced by international pharmaceutical companies in China since 2013. In 2015, we will engage the company on its responsible marketing policies and implementation, both in relation to its Chinese operations and more broadly through the group.

Engagement Activity: Engagement Activity Detail: Discussion on responsible marketing We discussed with the German pharmaceutical giant its approach to ensuring responsible and business ethics business practices at the company especially around its sales and marketing operations. The company is particularly exposed to bribery and corruption-related risks due to its extensive Area of Engagement: presence in the emerging markets (EM), which account for 40% of revenue – relatively high S G compared to peers. Bayer has strengthened internal controls and regulatory compliance in the past two years due to the heightened focus on these issues. This has in essence involved working closely with the regional heads, alongside the local sales and compliance Engagement Status: representatives to ensure that their global policies can be appropriately implemented. There In Progress - Company Responded are 36 country groups in total which they are rolling this out to, and they plan to complete this by the end of 2015. Local operations cannot generally deviate from the global policies even if the local laws are weaker. The company has invested resources into training local employees and have internal audits of local units in place to ensure compliance with global policies. We encouraged the company to establish external independent audits especially in high-risk areas and to disclose some of the results of the audit to provide further assurance that its approach is robust. Local compliance units report directly to the global headquarters in Germany and not regional business heads. The global head of compliance is a member of the executive management board-level risk committee. This group reports directly and frequently to the chief executives of the company’s main business units. The company revised its pay approach to sales staff in 2012, which reduced the portion attributed to meeting sales targets and introduced a broader array of performance indicators. These include compliance and business ethics related KPIs. It says that it has seen very little sales staff defections to other companies following the pay revisions. Bayer did not indicate further reform to its pay approach. Bayer has a detailed, cautious and structured approach to ensuring responsible sales practices. They carefully balance the opportunities of developing their emerging market business alongside the risks. The challenge will be on ensuring a robust implementation on their well-articulated policies and programmes across multiple markets. Our future discussions will likely focus on the high-risk countries in which they operate – such as Myanmar.

Engagement Activity: Engagement Activity Detail: Outreach to company on exposure to We engaged Bayer about their 2014 entry into Myanmar to conduct business. We highlighted Myanmar the business risks present in this challenging country, particularly those related to human rights. The country’s human rights situation remains poor even after some noteworthy actions Area of Engagement: by the government toward economic, social and political reform. From limited civil liberties, to S G discrimination, violent ethnic strife and weak land ownership rights, businesses face a complex environment. We, therefore, encouraged the company to set up robust human rights risk management and reporting frameworks to help them fulfil their corporate responsibility to Engagement Status: respect human rights, while guarding and enhancing their investments. Furthermore, we asked In Progress - Company Contacted the company to report on other sustainability policies and procedures with respect to their investments in Myanmar, including on labour rights, local stakeholder engagement, environmental stewardship, and anti-corruption.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

BHP Billiton ESG Rating: GREEN Australia Materials

Milestone: Milestone Detail: Milestone - Published details of Published a report which describes its approach to scenario planning and, in particular, the approach to climate risk management potential portfolio implications of a transition to a 2 degree Celsius world. It also discloses the range of internal carbon prices used to inform decision-making. The publication of this report, Area of Engagement: the first of its kind from a mining company, signals the company's commitment to E transparency and taking part in the climate change global debate. Importantly, it will help investors better understand how the company manages the risks and opportunities from climate change. We have actively engaged the company, one-on-one and with other investors, Milestone Rating: on transparency and disclosure relevant to climate change management.

Milestone: Milestone Detail: Milestone - Improved revenue Released a report outlining its economic contribution and payments to governments. The transparency report discloses payments made to governments during the 2015 financial year on a country- by-country and project-by-project basis. In addition to signalling an ongoing commitment to Area of Engagement: transparency, this move prepares the company for any upcoming regulatory disclosure S requirements across the jurisdictions in which it operates. We had asked the company provide increasing disclosure of tax and royalty payments via one-on-one engagement, as well as through our participation in the Extractives Industry Transparency Initiative. Milestone Rating:

BNP Paribas ESG Rating: ORANGE France Financials Priority Company Objectives: We have engaged this French bank in the past on corporate governance, executive remuneration and business ethics related issues. In 2014, the bank was rocked by a record $9 billion fine for US sanctions violation, which exposed serious deficiencies in internal control, communication and culture within the group. On the positive side, there was a change in leadership with a highly-regarded new chairman stepping in at the end of the year. The bank also announced a number of measures to reinforce its governance and internal controls. Our engagement will focus on steps taken by the bank to improve risk management, internal controls, governance and culture. We will also monitor its implementation of the CRD IV directive.

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Engagement and Milestones Q3 2015

BP ESG Rating: ORANGE United Kingdom Energy Priority Company Objectives: We have intensively engaged the company on health & safety reforms following the 2010 Gulf of Mexico oil spill, which resulted in breaches of United Nations Global Compact principles in relation to the environment and human rights. We have shifted the focus of our engagement towards climate change. BP has divested from many non-core assets over the past years and is less exposed than some peers to high-cost projects but, continues to have an oil-heavy exploration pipeline. This raises questions over management of stranded assets risks. Additionally, we will be monitoring its strategy in the Arctic and its implementation of environmental and safety standards, in particular in high-risk joint-ventures or partnership like with Rosneft in Russia.

Engagement Activity: Engagement Activity Detail: Follow-up meeting with BP executives Following our April meeting, we arranged a more formal discussion with BP's Head of Long- on climate change strategy Term Planning and Head of Technology in order to get an update on the company's progress in addressing the recent shareholder resolution on climate change. The shareholder resolution Area of Engagement: seems to have propelled the topic of stranded assets to the top of the Board agenda. Most E promisingly, there are indications of initiatives underway to test and report on the resilience of the company's strategy vis-à-vis various climate change scenarios. This was a core investor demand and we are pleased that BP has committed to provide more transparency in this area. Engagement Status: We also welcomed the company’s participation in the newly formed European oil industry In Progress - Company Responded group, the Oil and Gas Climate Initiative, which actively lobbies in favour of a robust global carbon price. We had asked for more explicit industry efforts, particularly at CEO level, ahead of the Paris climate negotiations in 2015 to advocate for more effective carbon price regimes. Overall, BP has shown good momentum in addressing the various climate change related demands that were put forward in the shareholder proposal. However, it remains to be seen to what extent the company will be able to address investor concerns, particularly on the more challenging points, such as portfolio climate reliance testing, which, if done properly, may require fossil fuel companies to make difficult strategic choices going forward. To get an update on progress on this issue, we will attend the upcoming inaugural meeting of the Oil and Gas Climate Initiative, which will be attended by CEOs from all participating European oil majors.

British American Tobacco ESG Rating: ORANGE United Kingdom Consumer Staples Priority Company Objectives: Our engagement to date with BAT has focused on responsible marketing practices, claw-back provisions for its long-term share plan and management of water-related risks. BAT has high exposure to risks of production disruption and brand damage relative to peers stemming from poor labour standards in its tobacco supply chain. In light of these continued risks, we will encourage the company to improve training and awareness around poor working conditions and child labour. Additionally, we call on the company to remove any barriers to ensure workers in the global supply chain are being paid a living wage. We will further engage the company on the possibility of developing an innovative and healthy alternative to tobacco products.

Engagement Activity: Engagement Activity Detail: Request for a discussion on labour We requested the company for a discussion on the way it manages risks related to labour standards standards in its supply chain. We pressed the company for more details on its approach to living wages. The company has thus far not responded despite numerous attempts to engage. Area of Engagement: S

Engagement Status: In Progress - Company Contacted

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Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Dialogue on supply chain risks British American Tobacco is highly exposed to supply chain risk stemming from poor working conditions in tobacco farming. Tobacco is sourced from farms and facilities that operate in Area of Engagement: vulnerable communities impacted by rural poverty and food insecurity. The tobacco giant S released its revised human rights policy as part of its code of conduct in 2014, actively committing itself to eliminating child and bonded labour and respect for freedom of association. This complements the Social Responsibility in Tobacco Production (SRTP) Engagement Status: programme that requires all tobacco leaf suppliers to comply with certain labour standards. It In Progress - Company Responded also developed an initiative helping farmers to build sustainable livelihoods by strengthening human capital management, investing in technology and communities, and increasing the efficiency of natural resources usage. Although the its compliance programs include third party auditing of tobacco leaf suppliers, we think the company still performs relatively poorly compared to its peers. We pressed the company to apply its sustainable farming projects more consistently across all leaf suppliers, by including third parties and by targeting vulnerable individual agriculture workers. We encouraged BAT to collect specific data on farm wage levels as a first step for addressing concerns around wages in the supply chain. For employees in its UK facilities the company has a more robust approach. 90% already receive pay above living wage levels as defined by the Living Wage Foundation and the company is considering signing up to the Living Wage campaign. In response to our questions on improving livelihoods in its supply chain, the company emphasized the importance of keeping farms competitive and that one-dimensional programs exclusively focusing on one issue such as living wage might not sufficiently address local problems and ignore supplier cost pressures. Its objective is to identify an approach to sustainable livelihoods that takes the total cost picture relative to productivity into account. While we welcome these initial steps, the overall efforts in this area are difficult to assess as they still lack concrete steps and time-bound targets. We will follow up with the company on these points later in the year.

Calsonic Kansei Japan Consumer Discretionary

Milestone: Milestone Detail: Milestone - Appointed independent Appointed an independent director to its board for the first time in its history. The company had non-executive director resisted the introduction of outsiders on the board. We have been encouraging the company to reform board structure through engagement and voting since co-authoring the landmark Asian Area of Engagement: Corporate Governance Association white paper in 2008 which increased international investors' G concern on Japanese corporate governance practices. We expect the new independent director to improve oversight of management and bring fresh ideas to the company. Milestone Rating:

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Engagement and Milestones Q3 2015

Canadia Tire Corp ESG Rating: GREEN Canada Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Response to living wage letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. Canadian Tire audits its supplier code of conduct, mandating suppliers to provide wages and Engagement Status: benefits that comply with the laws of their country of operation. It does not discuss freedom of In Progress - Company Responded association or collective bargaining or any guidance on how suppliers should act in line with of these principles. Also any potential business risks of workers’ wages falling below the cost of living is not addressed. Compared to other companies in this sector the Canadian retailer provides very limited disclosure on workers’ pay issues. On a more general note it was stated that it has found worker conditions across a broader environment to improve when the bar is raised collectively, not just through isolated efforts. The company illustrates the statement with a reference to the Alliance For Bangladesh Worker Safety, an initiative that addresses building and fire safety, not workers’ wages. The company does not appear to have developed a clear approach to address the issue of living wage levels in its supply chain. We will contact Cantire again to share the findings from our industry comparison and encourage them to incorporate a living wage requirement for worker compensation into their supplier policies.

Carrefour SA ESG Rating: YELLOW France Consumer Staples Priority Company Objectives: We will review company’s executive pay arrangements which were deemed controversial, and determine next steps following the outcome of the 2015 AGM. In addition, given its strong reliance on contractors for the production of especially its non-food goods, we call on the company to remove any barriers to ensure workers in the global supply chain are being paid a living wage.

Engagement Activity: Engagement Activity Detail: Request for discussion on corporate We requested the French retailer for a discussion on corporate governance. We voted against a governance number of different resolutions at the company's annual shareholder meeting. We have ongoing concerns with the company's board independence and executive remuneration, among Area of Engagement: others, which remain unaddressed. G

Engagement Status: In Progress - Company Responded

Engagement Activity: Engagement Activity Detail: Request for discussion on corporate Following a number of requests for a discussion on corporate governance issues with the governance French retailer, we expect to hold a call with the company's Head of Investor Relations and Corporate Legal Counsel at the end of September 2015. We voted against a number of different Area of Engagement: resolutions at the company's annual shareholder meeting. We have on-going concerns with G the company's board independence and executive remuneration, among others, which remain unaddressed. Engagement Status: In Progress - Company Responded

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Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Carrefour to improve supply chain management of its supply chains textile supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s Area of Engagement: operations, we believe that through the business relationships with its suppliers, Carrefour S would be able to drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased Engagement Status: transparency; social risk mapping; enhanced relationship with the suppliers and multi- In Progress - Company Contacted stakeholder initiatives. The responses to the letter are to be shared with all co-signatories.

Casino Guichard Perrachon SA ESG Rating: GREEN France Consumer Staples

Milestone: Milestone Detail: Milestone - Developed a responsible Published a responsible fisheries policy through which it commits to stop selling fish from fisheries policy deep-water fisheries, to support local fisheries across France, and to sell fish endorsed by the Marine Stewardship Council which is a global initiative encouraging sustainable fishing Area of Engagement: practices. Implementation of this policy will help the company address reputational risks from E growing public sensitivity regarding biodiversity, as well as risks of supply chain disruptions and increasing costs from declines in fish populations. We took part in a collaborative engagement effort with global retailers on their approach to managing ESG risks in their fish supply chains. Milestone Rating:

China Petrochemical and Chemical Corp (Sinopec) ESG Rating: RED China Energy Priority Company Objectives: We have been engaging with this Chinese oil and gas company for a number of years, focusing on health and safety, business ethics and environmental management. Given the increased domestic media scrutiny of environmental problems in China, the government has responded by enacting stricter regulations and targets on carbon emissions and fuel standards, which will increase the implementation burden and costs for Sinopec. We will continue to engage Sinopec to adopt industry best practices and be more transparent in performance disclosure.

Engagement Activity: Engagement Activity Detail: Request for discussion on sustainability We requested Sinopec for a discussion on its sustainability practices. We continue to have management major concerns about the company's management of climate change risks, health and safety, community relations and pollution. Despite the fact that these issues have been raised by Area of Engagement: investors repeatedly in recent years, the company has only made slow progress in reforming E these areas. The company has been good in responding to request for meetings in the past and we expect to hold an in-depth conversation in the coming weeks. Engagement Status: In Progress - Company Contacted

Engagement Activity: Engagement Activity Detail: Request for discussion on H&S, We have repeatedly requested Sinopec for a discussion on how they are managing material community management and anti- ESG risks. The company has refused a verbal discussion and only offered to provide a a written corruption reply. Sinopec cited the lack of personnel to handle sustainability enquiries from investors. They say that they are too busy preparing work related to the United Nations Global Compact. We Area of Engagement: asked for better disclosure on: health and safety (H&S) performance, community engagement S and anti-corruption. We also encouraged the company to use independent third parties to audit its H&S management systems and anti-corruption approach. We encouraged disclosure of the audit results. Engagement Status: In Progress - Company Responded

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Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Established energy Established a target of 100% increase in energy efficiency by 2025 as compared to 2014. efficient target According to the company, achieving the target will mean a reduction of carbon emissions by 81 million tons. Sinopec's commitment is important given that the company is the country's Area of Engagement: largest refiner and China is the largest emitter of carbon emissions. We have asked for the E adoption of energy target and carbon emission target over the past years.

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Milestone: Milestone Detail: Milestone - Disclosed details of Disclosed how it manages its fracking activities in China's first commercial shale gas fracking and shale gas activities exploration in western China. The report describes the company's approach to health and safety, emergency response, protection of water quality and environmental protection. While Area of Engagement: we are disappointed that the company did not disclose any quantitative performance data, E publishing its policies and management of its fracking activities will help investors and the public to scrutinise the company's performance in the future. We jointed with other investors calling for better disclosure of Sinopec's fracking activities in 2014. Milestone Rating:

Milestone: Milestone Detail: Milestone - Improved anti-corruption Disclosed the number of confirmed corruption cases and the number of employees disciplined disclosure for corruption in its sustainability report. This type of data should help investors assess the effectiveness of Sinopec's anti-corruption system and send a signal to employees about the Area of Engagement: company's efforts to crack down on corruption. We engaged Sinopec on this particular issue in S 2014.

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Engagement and Milestones Q3 2015

Citigroup Inc. ESG Rating: RED United States Financials Priority Company Objectives: We have a history of engaging Citigroup since 2006. Over the course of our engagement we have covered a number of governance issues, such as the bank’s compensation practices, which led to 55% of shareholders not supporting the vote on executive pay in 2012. We have pressed the bank to better align pay with clearly defined performance targets, and to introduce metrics which capture qualitative factors such as business conduct and cultural transformation. A number of enhancements have been implemented throughout the course of our engagement with the bank on this issue and we will continue to monitor its pay practices. In 2015 we will prioritise our engagement on the bank’s risk assessment and risk management policies and practices. The company has failed the US regulators’ stress tests on two occasions and this continues to adversely impact its capital allocation and dividend plans, which is contrary to shareholders’ interests.

Engagement Activity: Engagement Activity Detail: Discussion with general counsel on We discussed with the US financial institution's Deputy General Counsel and Corporate risk management Secretary on its risk management approach and how this impacts the bank's capital allocation and dividend plans. Following the failure of the regulatory stress tests, the bank significantly Area of Engagement: revamped the process that drives its submissions under the US regulator's Comprehensive G Capital Analysis and Review (CCAR). In addition to investing in more staff to support the process, the bank overhauled its engagement programme with the regulator to better understand its expectations and requirements under the stress tests. These changes led to Engagement Status: better communication with the regulator and to clearer identification of the areas where In Progress - Company Responded Citigroup was not meeting the qualitative requirements of CCAR. When these issues were resolved, it resulted in the approval of the bank's capital allocation and dividend plans. In addition, the bank voluntarily tasked the board's risk committee with the responsibility of not only overseeing the CCAR submission process, but also with its official sign-off. This demonstrates significantly greater accountability compared to the bank's peers and we find this approach commendable. We welcome the progress that Citigroup has achieved in this area and we will continue to monitor this as part of our ongoing engagement with the company.

Compass Group ESG Rating: YELLOW United Kingdom Consumer Discretionary

Milestone: Milestone Detail: Milestone - Established a responsible Published a responsible fisheries policy through which it commits to buy fish that only comes fisheries policy from sustainably-managed marine sources. Implementation of this policy will help the company address reputational risks from growing public sensitivity regarding biodiversity, as Area of Engagement: well as risks of supply chain disruptions and increasing costs from declines in fish populations. E We took part in a collaborative engagement effort with global retailers on their approach to managing ESG risks in their fish supply chains. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Credicorp ESG Rating: ORANGE Peru Financials

Engagement Activity: Engagement Activity Detail: Conversation on board balance and We discussed with the company about the current composition of its board. In particular, we independence expressed our concerns over the board having a majority of directors that have been previous executives of either Credicorp or BCP, the group's largest subsidiary. The company's director Area of Engagement: independence criteria does not include strict restrictions on directors being former executives, G other than that they have not held such positions for the previous three years. We questioned this practice and noted the risks of entrenchment in a board with individuals that may struggle to cut ties with management and that may be overly invested in prior strategic decisions. We, Engagement Status: therefore, strongly encouraged the company review its director independence criteria, and In Progress - Company Responded carry out a selection process to identify potential independent candidates to be elected at the next annual general meeting.

Credit Agricole ESG Rating: YELLOW France Financials

Milestone: Milestone Detail: Milestone - Published policy for coal- Developed and published a policy for the financing of coal-fired power plants. With the policy, fired power plant financing the company commits not to finance any new plants or extension of coal power plants in high- income countries, and gradually introduce new criteria relating to climate risks when financing Area of Engagement: coal-fired power plants in developing countries. These new measures serve to address E increasing credit and reputational risks that might stem from continuing to support the construction and operation of such power plants. Via our participation in the Climate Principles Group, of which Crédit Agricole was a member, we called for the development and Milestone Rating: implementation of policies addressing climate-related risks of financing activities with companies in the power generation industry.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

CVS Health Corp ESG Rating: RED United States Consumer Staples Priority Company Objectives: We have engaged CVS on issues related to data security and customer privacy protection. In addition, the company has been the subject of lawsuits in previous years as a consequence of product safety issues and has also faced allegations of problematic employee management practices. In 2015 we will engage on these issues as well as on the company’s compensation practices which we have not supported at the three previous annual shareholder meetings.

Engagement Activity: Engagement Activity Detail: Call with representatives on data We met to discuss data privacy and cyber-security as well as board composition and privacy, board and pay compensation. On data privacy and cyber-security, we commended the company for the enhanced disclosure provided in the latest CSR report. It was also reassuring to learn that in Area of Engagement: addition to rigorous internal audits, the company uses external third party verification to ensure S G that its information management systems effectively mitigate cyber-risks and potential breaches of privacy. Also importantly, the company complements its investment in technology and advanced security systems with a comprehensive training programme for its workforce. Engagement Status: CVS recognises that the success of such technology is largely dependent on how employees In Progress - Company Responded use it and on their ethical behaviour. We also discussed the potential conflicts of interest under the new corporate structure specifically in relation to the management of customer information and how the longstanding retail business and the more recent pharmaceutical benefits management (PBM) business do not share confidential information. The representatives described how both business are clearly separated by a closely monitored Chinese wall and reiterated that although the PBM business is rather new, the company has extensive experience in this area given that it has operated as a distributor of pharmaceutical products for many years under a strictly regulated environment. On board composition, we questioned whether the current mix of skills is consistent with the new corporate structure. The current board benefits from extensive healthcare and retail experience amongst its members. Nevertheless we noted that further expertise in relation to cyber-security should be considered given that with the new PBM business, CVS is now responsible for a substantial amount of customers' personal and medical records and therefore faces increased risks in this area. Lastly, on remuneration we reiterated our concerns in relation to the structure of the company's long- term incentive plans. Despite a number of recent reforms, only a quarter of equity incentives are linked to specific performance conditions. We encouraged the company to move to a structure under which at least half of equity incentives are performance-based. We also noted our concerns regarding the current bonus cap which is significantly higher than those of the company's peers and has led to unusually large payouts. The company representatives welcomed our feedback and we agreed to continue our discussion as the pay plans evolve.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Daiichi Sankyo Co Ltd ESG Rating: RED Japan Health Care

Engagement Activity: Engagement Activity Detail: Engagement on access to medicines We engaged the Japanese pharmaceutical company on its approach to access to medicines in approach emerging markets. The company was ranked 19th (out of 20 companies) in the 2014 Access to Medicines Index (ATMI). The company, like other Japanese pharmaceutical companies, is a Area of Engagement: laggard in its approach to access to healthcare. Its approach is largely philanthropic and rarely S in line with emerging market business ambitions. We discussed this issue with the company in Tokyo in 2014 and at the time it explained that its Indian generics unit Ranbaxy would form the centre point of its emerging market strategy. Ranbaxy, which was troubled with serious product Engagement Status: safety issues, was sold shortly after to Sun Pharmaceuticals. We now questioned how the In Progress - Company Contacted management was considering developing its emerging markets presence having disposed of Ranbaxy. We pressed the company to establish a clear access to medicines strategy underpinned by a business-led rationale rather than purely a philanthropic one. We encouraged the company to appoint an executive or board director to lead and oversee the strengthening of access related initiatives. We asked the company to disclose details of any corporate targets - both quantitative and qualitative - to measure and drive success in this area. We are concerned at the lack of a tailored code of conduct covering responsible marketing at the company. We urged the company to establish and implement one especially considering the risks of bribery and corruption in the countries where it sells products (such as China). We invited the company to consider our engagement recommendations on improving its access approach and to discuss with us their response. The company has provided an adequate quality of dialogue on sustainability issues in the past and we expect the company to respond to our engagement positively.

Danske Bank A/S ESG Rating: RED Denmark Financials

Milestone: Milestone Detail: Milestone - Developed a cluster Developed a policy prohibiting financial transactions with companies associated with the munitions policy production or sale of cluster munitions, antipersonnel land mines or components thereof. Implementation of the policy will serve to protect the company's reputation, and enable it to Area of Engagement: continue offering its services in jurisdictions where the financing of these types of weapons is S prohibited, such as the Netherlands and Luxembourg. We have previously engaged the bank and other institutions in the industry on their approach to dealing with risks associated with cluster munitions. Milestone Rating:

Deutsche Bank AG ESG Rating: YELLOW Germany Financials

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Deutsche Boerse ESG Rating: GREEN Germany Financials

Engagement Activity: Engagement Activity Detail: Meeting with the Board to discuss We met with the Chairman of the Supervisory Board , the CFO and the Head of Group Strategy remuneration changes to discuss planned changes to executive board remuneration at Deutsche Börse AG. It is still unusual for a German company to proactively engage international investors at this stage of its Area of Engagement: board deliberations and we took this as a positive sign of evolving attitudes and practices in G the German market. We welcomed most of the proposed changes, which will bring the structure of executive pay at the company closer to international good practice. It may set best practice in Germany. The proposed pay structure will comprise: (1) a base salary determined by Engagement Status: reference to a peer group; (2) an annual bonus rewarding performance over the past year, with In Progress - Company Responded subsequent deferral of 50% of the accrued amount in shares; (3) a long-term equity-linked plan (LTIP) which vest after a five-year performance period has elapsed. In response to these proposals firstly, we urged the company to clearly explain how the Supervisory Board may use its discretion to adjust its net income targets under the annual bonus and the LTIP plan. We pressed it to set out how any adjustments would translate into value enhancements for shareholders. Secondly, we urged the company to eliminate the proposed vesting of awards for below median total shareholder return (TSR) performance under this element of the LTIP and to clearly disclose and justify the peer group it uses for TSR comparison. Finally, we encouraged the introduction of a return on capital underpin which will help reassure investors that payouts to executives are aligned with key investor returns. We will review the company’s materials for further information on this topic.

Dick's Sporting Goods Inc ESG Rating: YELLOW United States Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Distribuidora Internacional de Alimentacion SA ESG Rating: YELLOW Spain Consumer Staples

Dixons Carphone PLC ESG Rating: YELLOW United Kingdom Consumer Discretionary

Milestone: Milestone Detail: Milestone - Withdrew mid-term Withdrew its mid-term incentive plan which was designed to award for successful incentive plan for executive directors implementation of the merger between Dixons and Carphone. We believed this was an unnecessary package as managing mergers and acquisitions is an ordinary responsibility of Area of Engagement: executives to create shareholder value and hence should not be separately rewarded. We G voted against the remuneration proposal and sent the company a letter explaining our rationale for objection. Milestone Rating:

DMG Mori Seiki Japan Industrials

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

E.On ESG Rating: GREEN Germany Utilities Priority Company Objectives: We have been engaging the company regarding its business planning processes and possible asset stranding from the energy transition in Germany. As with other utilities in Europe, E.On is facing challenges to its conventional power business model. This is due to lower demand for energy related to the economic crisis and an increased deployment of renewables, which are further eroding the market for conventional producers. In light of these difficulties, E.On’s management announced plans to spin off its conventional power business in 2016 to refocus the company on distribution, renewables and energy services. We will continue to encourage clearer transparency from the company regarding the risk it is facing from further write-downs and costs associated with the energy transition such as nuclear power plant decommissioning in Germany.

Engagement Activity: Engagement Activity Detail: Dialogue on governance structure of We met with the utilities company to discuss the planned split of the company in 2016. E.On new unit announced last year that it will spin-off its conventional power business into a new company called Uniper. It will focus in the future on renewables, transmission & distribution, and energy Area of Engagement: services. We requested additional detail on the governance structure of E.On and how it will E G adapt to the new business model. We had learned there were tensions between senior management and the labour union leadership on the specific details of the split. The final decision of whether to create the new entity will be determined at the 2016 AGM by the Engagement Status: company's shareholders. We encouraged E.On to provide clarity on new management In Progress - Follow-up or chase structures early and to ensure that conflicts of interest are dealt with in a transparent fashion.

Engagement Activity: Engagement Activity Detail: Letter on stranded asset risk We were part of a group engagement effort coordinated by the IIGCC's Corporate Working Group on engaging with European utilities on climate change and stranded asset risk. A letter Area of Engagement: had been sent to E.On's CEO requesting the group to provide further details on a structured E approach of integrating risks stemming from the energy transition (move towards renewables and distributed power) into its strategy. We had encouraged the use and disclosure of energy scenarios for planning as well as a more detailed strategy as to how the company aims to Engagement Status: position itself on the alternative energy market. We commended the company for committing In Progress - Company Contacted itself to the UN CEO Water Mandate, but requested it to set and disclose operational targets for water use and discharge. Finally, we asked that the company put in place processes to ensure that the position of trade associations it is a member of on climate change are consistent with those of E.On.

Eisai Co ESG Rating: GREEN Japan Health Care

Engagement Activity: Engagement Activity Detail: Discussion with CFO on governance We met with the Chief Financial Officer (CFO) of the Japanese pharmaceutical company to and strategy discuss governance and finance. The CFO has been a vocal advocate for corporate governance reform in Japan and has called for improved financial literacy amongst other Japanese Area of Engagement: corporate executives. He believes that the weak understanding of corporate finance explains G why so many Japanese companies' returns are very low. We explained that international investors had hopes that the governance reforms would encourage better returns in the market. We agreed on the need for regulators to demand disclosures - either mandatory or Engagement Status: voluntary - of return on equity and cost of equity. We believed that this would reduce the large In Progress - Company Responded number of companies in Japan which destroy shareholder value and trade at lower than a price-book ratio of one.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion on neglected tropical Following our meeting in Tokyo in June, Eisai provided more details on the specific projects the diseases Japanese pharmaceutical company is involved in through its access to healthcare initiatives. It works closely with the Drugs for Neglected Diseases Initiative (DNDi) in Geneva. The company Area of Engagement: said that it is providing compounds from its vast chemical library to the DNDi in the global fight S against neglected tropical diseases such as Leishmaniasis (also known as Kala Azar) which is caused by sandfly bites and is prevalent in sub-tropical and tropical climates. Considering that this is a disease for which new treatments have not been developed for decades and largely Engagement Status: been ignored by major pharmaceutical companies, Eisai's collaboration with the DNDi to In Progress - Company Responded expand discovery of new treatments for Leishmaniasis is good practice. These activities reflects engagement recommendations we have historically made to the company on improving its sustainability practices.

EMC Corporation ESG Rating: GREEN United States Information Technology Priority Company Objectives: We have been engaging the company in previous years on a number of governance issues such as remuneration, board composition and responsiveness to shareholders’ concerns expressed via certain proposals filed at past AGMs. In 2015 we will continue to monitor the progress EMC Corporation makes towards further strengthening the alignment between pay and performance. Regarding board composition, we will also engage on the company’s responsiveness to past shareholder proposals to appoint an independent chairman to strengthen independent board oversight. The company has also received past shareholder proposals regarding its political donations practices and disclosures and we will engage on this seeking further enhancements.

Engagement Activity: Engagement Activity Detail: Meeting regarding compensation, We travelled to Boston to discuss corporate governance with the company. We focused on board structure and political donations remuneration and board composition as well as its political donations policies and related disclosures. Following weak support for its remuneration proposals at shareholder annual Area of Engagement: meetings over the last couple of years, EMC encouragingly undertook a substantial reform of its S G pay plans. We are pleased that a number of our concerns have been mitigated with the changes that have been implemented. For example, the overall structure of the plan has been simplified and multiple overlapping plans have been largely consolidated. In addition, specific Engagement Status: performance conditions have been introduced for the annual bonus and the long-term equity In Progress - Company Responded incentive plans. However, we noted that it would be beneficial for the long-term plan to include more than a single metric – currently relative total shareholder return – as is the case of the annual bonus, which uses three different metrics. We also encouraged the reassessment of the weights of each of the three metrics in the short-term plan – EPS, revenue and free cash flow – as currently there is a disproportionate concentration on EPS, which we consider volatile and not as relevant to the company’s specific strategic objectives as other metrics. In terms of EMC’s board, we are pleased to see that it has been refreshed in the last year with the addition of three board members with valuable expertise and skills relevant to the business. We also welcomed the additional disclosure regarding the succession planning of the current CEO and the recent strengthening of the lead director role in response to a recent shareholder proposal asking for an independent chair. While we support the current structure, we noted that we would prefer the introduction of an independent chair and that the upcoming succession of the current CEO and chair should be a good opportunity to reassess the leadership structure. Lastly, we commended the progress the company has made in relation to the policies and oversight mechanisms it has in place to govern its political donations and lobbying activities. As a result of this progress the company did not face a shareholder proposal on this topic at the last annual general meeting unlike in previous years. It was a positive discussion and we were invited to participate in the company’s shareholder advisory panel alongside four other shareholders. The panel, which meets semi-annually, serves as the company’s sounding board for its strategic planning of its environmental, social and governance practices.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

European Bank for Reconstruction and Development (EBRD) ESG Rating: GREEN United Kingdom Financials

Engagement Activity: Engagement Activity Detail: Bondholder engagement: Discussion We joined a group of investors to discuss with the European Bank for Reconstruction and on Green Bonds Development (EBRD) its approach to Green Bonds. EBRD is one of the most established issuers in this area and it first issued a Green Bond back in 2010. We discussed our views on better Area of Engagement: standardisation of the market, which the investors agreed would be beneficial. EBRD expressed E concern that creating too stringent standards may reduce the ability for new issuers - especially in the corporate space - to come to market. This would potentially strangle growth in the nascent Green Bonds market. Engagement Status: In Progress - Company Responded

European Investment Bank ESG Rating: GREEN Luxembourg Financials

Engagement Activity: Engagement Activity Detail: Bondholder engagement: Green Bonds We spoke to the European Investment Bank (EIB) about its latest approach to Green Bonds. The issuance and reporting supranational bank had pioneered the Green Bonds market in 2007 and have continued to play an influential, leading role in establishing standards in the market. The bank uses the proceeds Area of Engagement: from the issuances to finance projects which mitigate climate change risks. These include E G renewable energy and energy efficiency measures amongst others. In a recent report, EIB disclosed 56 projects that Green Bonds issued in 2014 had financed. It provided detailed, quantitative data on the positive impact these projects had on the environment. We were Engagement Status: supportive of EIB's moves to establish the best practices in the industry around Green Bonds- In Progress - Company Responded related impact reporting. It was pressing other Green Bond issuers to work towards a harmonised framework for impact reporting on projects to which proceeds have been allocated. We explained our position that - as an investor to these bonds - a robust approach to impact reporting was a critical component in establishing a credible Green Bonds market. We consider EIB's Green Bonds-related impact reporting as the best-in-class benchmark for other issuers to follow. We also discussed our on-going engagement with other market participants where we are seeking to develop a broadly accepted and scalable approach to independent verification and assurance of Green Bonds' quality. The EIB agreed with the need for creating a single, trusted standard in the nascent market to add teeth to the Green Bond Principles. The Principles have been important to defining and developing the market but are high-level and voluntary. We both agreed that Green Bonds could develop into a powerful and efficient mechanism for capital to be moved globally from investors to issuers. This ultimately could accelerate governments in meeting its climate-change related policy goals. To push faster to this goal, we encouraged the EIB to consider expanding the use of proceeds raised in Green Bonds to finance a broader range of climate change mitigating projects. By taking this step, we believe that EIB can promote a wider range of industries to issue Green Bonds. Currently, the market is largely dominated by renewable energy. The bank said that it would consider a wider array of projects and sectors in the future - such as sustainable transport - but this was contingent on establishing a robust standard to measure projects' climate change mitigating impact against. This was a fair and valid point. We welcomed the leading player in Green Bonds for an open and constructive dialogue on taking the market to the next stage of maturity.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Experian Plc ESG Rating: ORANGE United Kingdom Industrials

Engagement Activity: Engagement Activity Detail: Dialogue on remuneration consultation We provided feedback on the company’s remuneration consultation for changing performance targets. Experian proposed to use a profit before tax (PBT) per share target in its future Area of Engagement: remuneration scheme, replacing the aggregate PBT target in its old scheme. Experian reasoned G that a per-share target will ensure that shareholders’ interest be served in capital allocation decisions. However, we are concerned that any buybacks will enhance PBT per share figure without actual improvement in operating performance. In addition, the company’s variable Engagement Status: incentives are underpinned by return on capital employed (ROCE) but it does not set a ROCE In Progress - Hibernation target, which we prefer as a key factor for evaluating investment decisions. Experian assured us that any PBT per share targets are set after the board’s decision on buyback plan, and hence such targets would have already taken into consideration any buybacks. On ROCE targets, the company’s remuneration committee had considered it in the past but decided not to use it because of the complexity of ROCE calculation. The company also studied the ROCE targets used by other firms and observed that these firms mostly use a narrow range of ROCE and hence easily affected by any adjustments. Experian believed a ROCE target would also discourage acquisitions, a strategy that the company is relying on. While we do not object to these arguments, we encouraged by the company’s transparency on considerations around the impact of share buybacks on PBT target setting. We would continue to encourage disclosure of the ROCE underpin.

FamilyMart ESG Rating: RED Japan Consumer Staples

Milestone: Milestone Detail: Milestone - Appointed independent Appointed an independent director to its board for the first time in its history. The company had non-executive director resisted the introduction of outsiders on the board. We have been encouraging the company to reform board structure through repeated voting and engagement - including a meeting in Area of Engagement: Tokyo in 2012 - since co-authoring the landmark Asian Corporate Governance Association white G paper in 2008 which increased international investors' concern on Japanese corporate governance practices. We expect the new independent director to improve oversight of management and bring fresh ideas to the company. Milestone Rating:

FANUC Corp ESG Rating: RED Japan Industrials

Milestone: Milestone Detail: Milestone - Overhauled approach to Overhauled its approach to shareholders by setting up an investor relations department in an shareholders effort to improve communications. Fanuc has been known as one of Japan’s most insular companies, regularly brushing off meeting requests from analysts and investors. We have been Area of Engagement: engaging the company repeatedly in recent years encouraging a more open approach to G dialogue with investors, reforming board structure and improving ESG-related disclosures. This included a trip to its Japan headquarters in 2014. The company followed this announcement by offering to return some cash from its large reserves to shareholders. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Fomento Economico Mexicano ESG Rating: YELLOW Mexico Consumer Staples

Engagement Activity: Engagement Activity Detail: Discussion on board balance and We spoke to the company and expressed our concerns regarding some its corporate independence governance practices, particularly in the area of board balance and composition. We raised questions about the current size of the board, which, with 17 members, is potentially too large Area of Engagement: to operate effectively as a decision-making group. We also encouraged the company consider G appointing new independent directors to refresh the board. Of the five independent directors, three have served for 12 years or more, which we believe could impair their independence as they may become too close with management and overly invested in prior strategic decisions. Engagement Status: The company acknowledged our concerns, yet noted that changes to the current composition In Progress - Company Responded of the board are not likely to happen in the short term. The size of the board reflects the desire of all five controlling families to have representation on the board. As for independence, the company believes that rather than compromising independence, independent directors with a long tenure can gain a deep understanding of the company. Therefore, it highly values their permanence on the board. Despite the discouraging response, we plan to use the vote at the next General Meeting as an opportunity to continue pushing the company to align its practices closer to best practice standards.

Freeport-McMoRan, Inc. ESG Rating: ORANGE United States Materials Priority Company Objectives: We have engaged this copper and gold mining company for over 10 years on a wide range of sustainability and corporate governance issues. Particular areas of focus have been to press for stronger management of environmental, health and safety, and human rights risks. In 2013 and 2014, our engagement focus had a significant shift to corporate governance. This was in reaction to a series of actions by the company that evidenced a poor approach to addressing issues such as executive remuneration, board composition, and the protection of minority shareholders’ rights. In 2015, we will check on progress made after long-overdue changes were finally implemented in 2014. We will also monitor practices and performance in the areas of workplace safety, security forces, and tailings management where the company has had issues causing it to be in breach of United Nations Global Compact principles in relation to the environment and human rights.

Engagement Activity: Engagement Activity Detail: Engagement on corporate governance We wrote to the company to highlight areas for improvement in some of its corporate practices governance practices. With a large proportion of non-executive directors having served on the board for more than 12 years, we raised concerns about the risk of entrenchment. Last year, Area of Engagement: the Nominating Committee took bold steps in refreshing the board by appointing two female G independent directors for the first time. We encouraged the Committee to continue making an inventory of the skills, experience and characteristics company directors should have to ensure better board balance and diversity going forward. With regards to executive remuneration, we Engagement Status: encouraged the board review the approach to long-term share-based incentives. Currently, the In Progress - Company Contacted long-term incentive plan allows for vesting of awards for below-median performance relative to peers and uses a single metric - Total Shareholder Return (TSR) - to determine level of award. We called for awards only vesting when performance is above the median relative to peers, as well as the introduction of operational metrics to complement TSR. This will better align executive remuneration with business performance. In its response, the company confirmed the Remuneration Committee is considering incorporating these and other changes to executive plans.

Milestone: Milestone Detail: Milestone - Continued investment in Invests more than $10 million annually into energy-related research and development, energy efficiency initiatives particularly initiatives to increase energy efficiency. The company also participates in utility demand-side efficiency programmes and supports deployment and use of renewable energy Area of Engagement: standards, such as providing mining-related property for solar power generation. These E measures will help the company curb its energy requirements and, in the process, mitigate impacts from increasing energy prices and/or regulatory developments regarding carbon emissions. As part of our engagement with the company on environmental management Milestone Rating: issues, we had asked it to invest in emissions reduction activities that can lead to cost efficiencies.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Glencore plc ESG Rating: ORANGE Switzerland Materials Priority Company Objectives: We have engaged extensively with this company since its initial public offering in March 2011. Our engagement has covered a wide range of ESG issues, including executive remuneration, board composition, business ethics, environmental management, workplace safety and operations in weak governance zones. While the company has been open to dialogue, it is yet to show significant improvement in its performance across a number of key ESG issues. In 2015, engagement objectives will focus on pressing the company to improve its approach to managing risks in the key areas of health and safety and climate change.

Milestone: Milestone Detail: Milestone - Reviewed its participation Withdrew from a partnership that would develop a vast copper and gold deposit in the in the Tampakan project Philippines. The decision followed a strategic review of the project, which took into account financial, operational and sustainability aspects. Glencore's withdrawal from this expensive Area of Engagement: project will serve to strengthen its balance sheet and financial performance, which have been S affected by the downturn in the mining sector, and to address reputational concerns. We met the company several times to discuss its participation in this controversial project. Although we did not explicitly ask the company to withdraw, we asked it to carefully assess the significant Milestone Rating: social risks linked to it. Tampakan is located in a region that has experienced a long and complex history of conflict associated with traditional customs, clan rivalries, religious and political insurgencies. During its involvement in the project, Glencore faced numerous allegations of involvement in human rights abuses through the use of security forces.

Groupe Auchan SA ESG Rating: YELLOW France Consumer Staples

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Auchan to improve supply chain management of its supply chains textile supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s Area of Engagement: operations, we believe that through the business relationships with its suppliers, Auchan would S be able to drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk Engagement Status: mapping; enhanced relationship with the suppliers and multi-stakeholder initiatives. The In Progress - Company Contacted responses to the letter are to be shared with all co-signatories.

Grupo Mexico SAB de CV ESG Rating: RED Mexico Materials Priority Company Objectives: We have been engaging the world’s sixth largest copper producer by volume since 2008 on health and safety issues, environmental and labour management. In 2014, we spoke with the company regarding one of Mexico’s largest toxic chemical spills, which occurred at one of its mines. We will monitor the company’s remediation work, and engage the company on improving environmental and labour relations management practices across its operations globally. The company's longstading issues and repeated allegations in relation to workforce rights are identified as a breach of the United Nations Global Compact principle regarding labour rights.

Engagement Activity: Engagement Activity Detail: Letter regarding toxic waste and We wrote to the company to request information on progress of remediation work after a large community dialogue spill at the Buenavista Copper Mine last year. The letter also requested additional clarity on how the company was implementing changes to its environmental and social policies and Area of Engagement: procedures. At the time of writing, the company has been unresponsive to our request, E although we hope to manage to arrange a meeting with management soon. This will give us an opportunity to discuss the above issues, as well as the recent protests against the Tia Maria mine in Peru, which led the government to declare a state of emergency. Engagement Status: In Progress - Company Contacted

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Implemented measures Completed clean-up works at the Bacanuchi River, reached by toxic chemicals after a major after toxic chemical spill spill from the tailings dam at one of the company's largest mines in Mexico. The company also invested in improving the tailings management system at the mine including: modifying the Area of Engagement: copper leaching system, installing new pumping systems, building contingency dams, and E strengthening weatherproofing and overflow mechanisms. Furthermore, the company committed to monitor the river over the next five years, review existing social development plans for communities along the river, and create a fund to ensure compliance with the actions Milestone Rating: required under the government's remediation programme. These actions will help the company regain its social license to operate, which was severely compromised by the spill, and avoid mine stoppages resulting from environmental incidents. After the accident last year, we spoke to the company and urged it take meaningful actions to address the consequences from the spill.

H&M Hennes & Mauritz AB ESG Rating: GREEN Sweden Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging H&M to improve supply chain management of its textile supply chains supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s operations, Area of Engagement: we believe that through the business relationships with its suppliers, H&M would be able to S drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk mapping; Engagement Status: enhanced relationship with the suppliers and multi-stakeholder initiatives. The responses to the In Progress - Company Contacted letter are to be shared with all co-signatories.

Hakuhodo DY Holdings ESG Rating: RED Japan Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

HALMA ESG Rating: ORANGE United Kingdom Information Technology

Engagement Activity: Engagement Activity Detail: Dialogue on remuneration consultation We met with this UK company which provides safety products in various industries to discuss its remuneration proposal. The company proposed to replace a relative total shareholder return Area of Engagement: (TSR) target with earning per share (EPS) and return on total invested capital (ROTIC). We are G concerned about the absence of any share price related elements in Halma’s proposed remuneration scheme, as such elements are normally used to ensure manager’s interests are aligned with that of shareholders. However, Halma explained that the company’s unique Engagement Status: products means they do not have many directly comparable peers and a relative TSR would not In Progress - Hibernation reflect fully the company’s performance. The company also reasoned that TSR, which is affected by market sentiment and macro issues, is not an appropriate performance metric given the company’s consistent performance of increasing dividend payments by at least 5% annually in the past 36 years. While we believe that variable incentives should ideally be driven partly by share price performance, we agreed with the company that a TSR element may not properly reward the executive team. We will monitor the company's link between pay and performance in the future, and will encourage the company to include TSR performance should the link between pay and performance becomes weak in the future.

HDFC Bank Limited ESG Rating: YELLOW India Financials

Engagement Activity: Engagement Activity Detail: Follow up to anti-money laundering Following on from our outreach to emerging market banks in 2014 on managing the risks of engagement letter money laundering, economic sanction violations and other financial crimes - we wrote to five major banks again which did not respond to our initial engagement. These were financial Area of Engagement: institutions where our research identified as having particularly weak management systems S G and poor disclosures in tackling these issues. We reiterated our concern about the increased financial penalties, reputational damage and operational impact arising from failure by banks to prevent money laundering and adhere to economic sanctions regimes. To mitigate these risks, Engagement Status: we pressed for financial institutions to take robust steps to develop a strong culture and In Progress - Follow-up or chase implement an effective financial crimes programme. Our recommendations include: strong board leadership and oversight; regularly reviewed policies; robust risk assessment; thorough vetting of staff; establishment of whistleblowing systems; alignment of remuneration with tackling financial crimes; and prompt response following regulatory breaches. We requested the banks for a meeting to discuss these issues. These companies have responded poorly to investor engagement in the past.

Engagement Activity: Engagement Activity Detail: Response to anti-money laundering The Indian bank responded to our recent engagement on managing the risks of money engagement letter laundering and other financial crimes. It said that it was open to discussion on this issue and asked for areas where we were particularly concerned about with HDFC's approach. We asked Area of Engagement: the company to provide us details during the call on: its internal auditing and controls systems, S customer due diligence (know your customer) process, procedures to update policies, who the code of conduct covers, and whether it has a whistleblower policy and programme in place. Our research has shown that it has one of the weakest levels of disclosures and reporting in Engagement Status: this area. In Progress - Company Responded

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Heineken Holding ESG Rating: YELLOW Netherlands Consumer Staples Priority Company Objectives: We have engaged with the company on board independence and executive pay for a number of years. The company has been responsive although we continue to have concerns over these issues, which we will review following the outcome of the 2015 AGM and determine next steps. As part of a wider project on water, we will also assess the company's approach to managing water risks in its production and supply chain.

Engagement Activity: Engagement Activity Detail: Call on board composition and We spoke with Heineken Holdings NV to raise our concern over the lack of any independent remuneration members on the board. Although the controlled ownership structure of the company and the resulting board composition, which is dominated by the founding family, are well understood Area of Engagement: by investors, we advocate a governance structure which provides appropriate representation of G minority investors. We urged the company to consider appointing one new and unquestionably independent board member. Ideally, we would expect that, as a controlled company, Heineken Holdings establishes a board that is at least one third independent. Although there are no Engagement Status: immediate plans for new appointments, the board reviews its composition and the mix of skills In Progress - Company Responded and experience on an annual basis and may, in future, look for a replacement to the board Chairman. He has now served for 21 years. No changes are planned to the company’s remuneration arrangements but it has committed to proactively informing us of any amendments. We encouraged the company to allow investors the opportunity to express their views through a regular vote rather that only in years when certain material amendments are made. We plan to follow up the call by writing to the Chairman with our views.

Engagement Activity: Engagement Activity Detail: Request for discussion on governance We requested a discussion with the company on its corporate governance practices. At the practices company's annual shareholder meeting, we voted against one of the directors standing for re- election due to concerns over the overall level of independence on the board. We are awaiting Area of Engagement: a response with the company to discuss board independence and succession planning. G

Engagement Status: In Progress - Company Responded

Heineken NV ESG Rating: YELLOW Netherlands Consumer Staples

Engagement Activity: Engagement Activity Detail: Call on board composition and We spoke withHeineken NV and urged it to establish an annual vote on remuneration to remuneration investors. We explained that shareholders would benefit from the opportunity to express their views through a regular vote rather than only in years when certain material amendments are Area of Engagement: made. No changes are planned to the company’s remuneration arrangements but it has G committed to proactively informing us of any amendments. In the past we have had concerns over the appropriateness of Heineken NV’s executive pay arrangements. We, therefore, encouraged the company to continue improving the transparency of its contractual Engagement Status: arrangements for executives and to avoid unjustified one-off awards. We also urged the In Progress - Company Responded company to review the composition of its nomination committee which should be at least majority independent in order to provide minority shareholders with the appropriate representation and an opportunity to influence the nomination process. We plan to write to the Chairman with our views.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Hisamitsu Pharmaceutical Co Inc ESG Rating: RED Japan Health Care

Hokkoku Bank Japan Financials

Hokuriku Electric Power ESG Rating: RED Japan Utilities

Milestone: Milestone Detail: Milestone - Appointed external non- Appointed external non-executive directors to its board for the first time in its history. The executive directors company had resisted the introduction of outsiders on the board. We have been encouraging the company to reform board structure through engagement and voting since co-authoring the Area of Engagement: landmark Asian Corporate Governance Association white paper in 2008 which increased G international investors' concern on Japanese corporate governance practices. We expect the new outside directors to improve oversight of management and bring fresh ideas to the company. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Hyundai Motor Company ESG Rating: RED South Korea Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Meeting with independent director to We met with Professor Yi, an independent director of Hyundai Motor and chairman of the discuss corporate governance recently established corporate governance committee, to discuss corporate governance. We used this meeting as opportunity to express minority shareholders’ concern over shareholders’ Area of Engagement: rights and ask the company to protect minority interests. Hyundai Motor’s executive directors G have a strong presence on the board, despite a majority independent directorship. The lack of effective independent oversight is prominently reflected in the board’s recent approval of land purchases at inflated prices that were highly questionable from a shareholder value Engagement Status: perspective. Professor Yi informed us at the company had not foreseen the market reaction as In Progress - Company Responded a result of the land purchases, and the board is seriously considering introducing positive changes to improve governance. Recent improvements include establishment of a corporate governance committee dedicated to protect minority interest and a commitment to pay interim dividends. We asked the company to 1) disclose the terms of reference of the governance committee; 2) explicitly consider minority shareholders in major transactions including mergers and acquisitions, divestitures and related-party transactions; 3) benchmark the company’s governance practices with global peers and 4) disclose voting results after general meetings. If implemented, these changes will substantially improve accountability at board level and will have a positive influence to other Korean companies.

Milestone: Milestone Detail: Milestone - Established board-level Established a fully independent, board-level corporate governance committee to review the corporate governance committee effectiveness of the company’s governance system. We believe this will help the board dedicate time and effort to review and improve its governance without influence of the Area of Engagement: controlling shareholder. We wrote a joint-investor letter to the company asking for G improvement in the company's corporate governance approach last year.

Milestone Rating:

Inditex SA ESG Rating: GREEN Spain Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Inditex to improve supply chain management of its supply chains textile supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s Area of Engagement: operations, we believe that through the business relationships with its suppliers, Inditex would S be able to drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk Engagement Status: mapping; enhanced relationship with the suppliers and multi-stakeholder initiatives. The In Progress - Company Contacted responses to the letter are to be shared with all co-signatories.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Industrial & Commercial Bank of China (ICBC) ESG Rating: RED China Financials

Iyo Bank ESG Rating: RED Japan Financials

Izumi Japan Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

J Sainsbury ESG Rating: GREEN United Kingdom Consumer Staples

Engagement Activity: Engagement Activity Detail: Response to letter on living wage The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. The supermarket chain highlighted that as a founding member of the Ethical Trading Initiative (ETI), Engagement Status: they expect all suppliers to comply with the ETI Base Code. As such the principle of a living In Progress - Company Responded wage and the right to collective bargaining is endorsed in company policy. The code states that wages should always be enough to meet basic needs and provide some discretionary income. Despite this clear definition, the company falls short of explaining of how it monitors suppliers on payroll practices and how many suppliers are confirmed to pay a living wage. Though, it should be noted that Sainsbury’s is already the largest retailer of Fairtrade products in the world. With respect to its methodology, wages are driven by the local context in which the suppliers are operating. Taking a wage ladder approach for each region, it strives to achieve fair wages for workers and provides some case studies where workers’ income has been raised. Unfortunately, a timeline for this strategy was not disclosed. Regular due diligence and audits are undertaken to ensure high standards and the integrity of products is being upheld. Being one of only two corporate members of the ETI’s Tripartite Working Group on Living Wages, it engages extensively with trade unions and NGOs. We commend Sainsbury’s for driving payment of living wage in the global supply chain. The company has been instrumental in developing best practice for the industry through its work with the ETI. Its collaborative approach and work on projects that helped to increase workers’ wages produced evidence that it is possible for brands and retailers to directly influence supplier and industry practices. We will encourage it to commit to a living wage roadmap, informing stakeholders of supplier requirements such as alignment of pay with living wage benchmarks. We will continue to engage the company on the issue.

Jafco Japan Financials

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Jeronimo Martins SGPS SA ESG Rating: YELLOW Portugal Consumer Staples

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Johnson & Johnson ESG Rating: YELLOW United States Health Care Priority Company Objectives: Johnson & Johnson has faced numerous serious product safety controversies in recent years with some of the highest rates of product recalls amongst its peers. In 2015, we will be engaging the company on the robustness of its product quality improvement programmes. In line with our engagement with other companies in the sector we will also engage on its approach to managing business ethics and culture, which in the case of Johnson & Johnson is particularly material following a series of investigations for misleading marketing practices. These have led to billions of dollars in US regulatory fines and legal costs. Additional penalties and related costs look likely in the future. We will also monitor how pay is linked to conduct issues and how it drives appropriate corporate behaviour.

Engagement Activity: Engagement Activity Detail: Discussion on governance and We discussed with this US pharmaceutical giant its approach to corporate governance and remuneration executive remuneration. We have had long-standing concerns at the company's weak approach to compensation and once again had voted against its pay plan at the recent annual Area of Engagement: shareholder meeting. We expressed concern in particular at the structure of the long-term G incentive plan. We argued that: 1) a larger percentage of the equity awards should be tied to performance conditions. At least 50% is a minimum good practice; 2) targets should be disclosed for all of the long term incentive plan's performance metrics; 3) there should be Engagement Status: consideration for non-financial metrics in the pay plan which considers performance against In Progress - Company Responded factors such as product safety, regulatory fines, business ethics and other qualitative factors which are critical in the pharmaceutical industry and; 4), the use of three one-year sales goals in the LTIP is weak practice - as there is a similar sales based target in the short-term annual bonus plan. We said that the plan should be better structured to motivate genuine long-term outperformance compared to peers. The company had in recent years made some improvements to its compensation practices - albeit at a slow pace. Positives had included the introduction of clawback mechanisms which allowed for awards to be retrieved in cases of regulatory and compliance related breaches. We asked the company to provide specific disclosures on whether this clawback policy had in fact been exercised. We expect the company to take on board our recommendations and have some hope that they will be reflected in next year's proposals. There was also a shareholder proposal at the AGM on establishing an independent chairman at the company. Currently, the Chief Executive is also the Chairman - which is a relatively common but undesirable practice in the United States. We believe the roles of Chairman and CEO are substantially different and generally should be separated. Separation of roles is important for securing a proper balance between executives and outside shareholders and for preserving accountability. The proposal received 36.5% votes in favour but the company said that this was not a particular surprise as these resolutions often receive high levels of support. We got no sense at all that the company would implement a change to their current joint chair-CEO arrangement. This was disappointing considering the widespread calls from investors on this issue.

Engagement Activity: Engagement Activity Detail: Discussion on implementation of Johnson & Johnson responded to our engagement on how it had implemented its expanded clawback mechanism recoupment policy (established in 2013 following our engagement) to adjust bonuses or claw back equity where company policies have been significantly violated. The expanded policy Area of Engagement: allows action against senior executives and supervisors in instances of violations of business S G ethics such as where irresponsible sales techniques have been used, products marketed inappropriately or manufacturing standards violated. We had earlier asked the company to provide details or improved disclosures on cases where the policy had been put to real life use Engagement Status: since its implementation two years ago. The company said that it would disclose in cases In Progress - Company Responded where it was material for purposes of the executive compensation disclosures in its proxy statement. We encouraged the company to broaden its transparency to other senior employees (not covered in the executive compensation-related disclosures). This would give stronger confidence that the policy was in fact being used in reality. We are hopeful that the company will implement our recommendations as it has in the past.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

JTEKT Corporation ESG Rating: RED Japan Industrials

Kajima Corp ESG Rating: YELLOW Japan Industrials

Kasikornbank PCL ESG Rating: YELLOW Thailand Financials

Engagement Activity: Engagement Activity Detail: Discussion on board composition We spoke to the company about its practices regarding board composition. We welcomed recent measures implemented by the board to strengthen its effectiveness. These include the Area of Engagement: introduction of term limits for independent directors - not more than three three-year G consecutive terms. Other improvements are those such as the appointment of an independent directors' committee and a lead independent director (LID). We expressed concerns regarding the combination of the roles of Chairman and Chief Executive. We encouraged that these be Engagement Status: separated to ensure that responsibility for management oversight and strategic execution is In Progress - Company Responded not concentrated in one individual. The company argued that the LID figure and the independent directors' committee help secure a proper balance of authority and responsibility between executive management and the board. We recognised the importance of such mechanisms to preserve accountability, yet encouraged the company consider separating the roles going forward.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Keyence Corp ESG Rating: ORANGE Japan Information Technology

Engagement Activity: Engagement Activity Detail: Engagement on dividend payout ratio We expressed our concern at Keyence's dividend proposal at its upcoming annual general shareholder meeting. The high-precision measuring equipment maker has been an Area of Engagement: unacceptably low payer of dividends for many years even by Japanese standards. The proposed G dividend amount will result in a payout ratio of 9.6 percent for the fiscal term. We advised the company that we would be voting against the resolution as the pay out is far too low. We urged the Keyence board to consider utilising the cash efficiently to maximise shareholder Engagement Status: returns. Keyence is highly profitable and cash-rich so, there is scope for the company to return In Progress - Company Contacted more cash to investors. We have been calling the company over many years to increase dividends but Keyence has not responded positively. At the previous shareholder meeting, a third of investors voted against the dividend plan but the company has not responded to the large levels of dissent. The company is a laggard in governance terms and is further falling back its peers. It is failing to keep up to pace with the rapid improvements in the broader Japanese market following the introduction of the Governance Code earlier this year.

Engagement Activity: Engagement Activity Detail: Response to engagement on dividend Keyence responded to our engagement on its dividend payout proposals at its upcoming payout proposals shareholder meeting. The company defended the proposal saying that it was committed to paying a stable and sustainable level of dividends and that it had increased the payout ratio in Area of Engagement: the past year or so. We expressed our concern that the company had provided very little G rationale as to why it needed to conserve cash as much as it does and could not increase its paltry 9.6% payout ratio when it already has approximately $6 billion in cash and near cash items, no interest bearing debt to service, and not conducted share buybacks nor made a Engagement Status: major acquisition since 2009. The company said that it chooses to have the cash on hand In Progress - Company Responded because it wants to retain the freedom to spend for internal research & development alongside other opportunities when it sees fit. It does not provide clear plans for capital expenditure or research & development costs because it does not see the need to offer forward looking spending plans like other companies. We noted that the company's cash position has been growing almost on an annual basis since 2008 during the global financial crisis and argued that this showed that the company was not needing this level of cash to spend it in the way it suggests. We added that investing cashflow had generally been from within its operating cashflow. The company maintained that it wants to retain the cash to spend as they see fit including potentially acquiring other companies. We encouraged them to provide better reasoning for the dividend payout ratio in the company's corporate governance report. We expressed concern that the board did not seem to be taking much notice of the 33% level of votes against the dividend plan at the previous shareholder meeting. Keyence agreed that it could be doing better with communicating with shareholders on this issue but did not make any commitments to improve its approach. This was disappointing but in line with how the company has responded to engagement on governance from investors in the past. Keyence says that we are one of the key international shareholders it discusses governance matters and values our input but we have only seen slow progress at the company.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

KGHM Polska Miedz SA ESG Rating: YELLOW Poland Materials Priority Company Objectives: We engaged the Polish copper mining and producing company on several occasions in 2014. Engagement has had limited response. In 2015 we will follow up on our engagement asks from the previous year relating to water management and sustainability reporting and also review the company’s biodiversity and carbon management policies. The aim will be to encourage KGHM to adopt best practice in both areas underpinned by performance targets. This is a priority area given the company’s recent expansion into North America and Chile. We will build on the limited responses we’ve had with the company to improve our relationship with management and gain better clarity on how the company is addressing its environmental risks.

Engagement Activity: Engagement Activity Detail: Engagement on biodiversity, water and We wrote to KGHM requesting greater clarity on its biodiversity, water and climate policies. The climate policies company has substantially improved its policies and practices in the above areas. The planned building of two new gas fired power stations is expected to reduce the emissions footprint of Area of Engagement: this second largest Polish energy user by c. 40%. The company has also conducted E environmental impact studies and detailed water shed impact assessments, disclosing resettlement activities for species affected by its mines as well as water conservation measures. Although the company's practices have begun to emulate industry best practice, we Engagement Status: encouraged it to set targets in these areas in order to drive performance improvements. We In Progress - Company Contacted are expecting to be able to discuss these issues with operational specialists soon.

KYB Co. Ltd Japan Consumer Discretionary

Limited Brands, Inc. ESG Rating: RED United States Consumer Discretionary Priority Company Objectives: We have engaged the company on the risk management of migrant labour for a number of years. Relative to its peers the company has shown leadership in the management of migrant workers but is now considering to move away from its zero-tolerance standard and adopting a policy to manage potential future exposure. We will check on the progress of this change in policy this year and address the shrinking number of suppliers used and the prohibition of sub-contracting under its trade compliance policy. Furthermore we will expand our engagement to other areas of supply chain management, like the sourcing of cotton, leather and palm oil, where the company exhibits a relatively weak approach compared to peers.

Engagement Activity: Engagement Activity Detail: Failed request for dialogue on living We asked the company for a meeting to discuss its approach to managing labour standards, wage including living wage issues, in its supply chain. Its current disclosure on labour standards and wage practices in the supply chain falls short of showing how the company implements it Area of Engagement: high-level policies in this area. Having approached the company several times by email and S phone, it eventually declined to discuss these issues. We expressed our disappointment to this response, highlighting the fact that most of its industry peers are open to dialogue on this issue. Given our positive previous engagement history with the company, we are continuing to Engagement Status: try and arrange a meeting on this topic. In Progress - Company Responded

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Lloyds Banking Group ESG Rating: ORANGE United Kingdom Financials

Milestone: Milestone Detail: Milestone - Published a cluster Published its policy for cluster munitions and anti-personnel landmines by explicitly stating it munitions policy intends to abstain from financing companies involved in the production or sale of these weapons. Implementation of the policy will serve to protect the company's reputation, as well Area of Engagement: as to continue to offering its services in jurisdictions where the financing of these types of S weapons is prohibited, such as the Netherlands and Luxembourg. We have repeatedly engaged major financial institutions on their approach to dealing with risks associated with cluster munitions. Milestone Rating:

Lululemon Athletica Inc ESG Rating: ORANGE Canada Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

LVMH ESG Rating: YELLOW France Consumer Discretionary Priority Company Objectives: We will review company’s board structure and executive pay arrangements which were deemed controversial, and determine next steps following the outcome of the 2015 AGM. We will also monitor the company’s response to our outreach to French issuers from January 2015 urging board neutrality in the event of takeovers and equitable treatment of minority shareholders.

Engagement Activity: Engagement Activity Detail: Engagement on corporate governance We engaged the company on its approach to corporate governance following our votes against a number of different resolutions at the company's annual shareholder meeting. We have on- Area of Engagement: going concerns with the company's board independence and executive remuneration, among G others, which remain unaddressed. We agreed to discuss these issues in further detail during a call with the company in late September/early October. Engagement Status: In Progress - Company Responded

Engagement Activity: Engagement Activity Detail: Discussion on on-going governance We spoke with the luxury goods company which is majority controlled by the Arnault family. It concerns is headed by Bernard Arnault who is Chairman and CEO. We raised our on-going concerns with the combination of Chairman and CEO roles, the board's overall composition, including a lack of Area of Engagement: independence and regular refreshment, as well as the presence on the board of non-voting G members who can nevertheless actively participate in board meetings. Given the controlled nature of the company these features of the company's governance are not likely to change significantly in the near future despite a relatively high level of negative votes from minority Engagement Status: shareholders. We were also disappointed that there was no appetite to improve disclosure of In Progress - Company Responded performance targeted under variable executive pay arrangements, although the company is aware of a broad-based investor dissatisfaction with current disclosure levels. We will consider the merits of writing to the Chairman/CEO to formally set out our concerns on these topics. The company showed willingness to consider improving disclosure in the following areas: (1) disclosure of related party transactions, especially those with the controlling entity; (2) explicit statements whether shares can be issued or re-purchased during a takeover period; (3) non- pre-emptive capital authority resolutions which do not exceed 10% of the issued share capital and publication of a table setting out historic share issuances or buybacks.

Magnit OJSC ESG Rating: RED Russia Consumer Staples

Engagement Activity: Engagement Activity Detail: Response to living wage letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. The Russian supermarket monitors and evaluates its suppliers according to the standards of the Engagement Status: code of good practice as defined by the Russian Retail Chains Association, of which Magnit is a In Progress - Company Responded member. The code focuses on the relationship between retailers and suppliers and emphasizes the importance of fair practices, efficiency, ethical conduct and high quality products. The disclosure falls short of a discussion on freedom of association or collective bargaining or any guidance on how suppliers should act in line with these principles. Compared to other companies in the region, we appreciate the company for responding to our information request but we do not think that the company is considering the business risk of workers’ wages falling below the cost of living. It was mentioned that the company is developing the sustainability section of its website and that there will be more information to share within a few months. In our view it is not very likely that the company is doing any work on the issue of living wage. We will contact Magnit again to present this as an emerging issue that their clients, the international brand and retailers, increasingly become concerned about. We will share the findings from our industry comparison and encourage it to address the issue of adequate worker compensation more systematically.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Makalot Industrial Co Ltd Taiwan Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Response to living wage letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. Makalot is a strategic supplier to international brands and retailers, making this company Engagement Status: directly responsible for supply chain workers’ pay. The company highlighted that its workers In Progress - Company Responded receive pay above national minimum wage and are provided with benefits. The company writes that it encourages worker participation with labour unions. This is quite for its operations in Indonesia, Vietnam, Cambodia and the Philippines and probably less so for the Chinese market where trade unions are government run. Third-party audits of the company practices are performed by well-known agencies such as Bureau Veritas. Although workers in China reportedly receive the highest wages in the region, regular strikes do occur. Compared to other companies in the region, Makalot provides a reasonable level of disclosure but it does not address how it assesses business risk related to workers’ wages falling below the cost of living. In our view it is not very likely that the company is doing any work on the issue of living wage. We will contact Makalot again to present this as an emerging issue that their clients, the international brand and retailers, increasingly become concerned about. We will share the findings from our industry comparison and encourage it to address the issue of adequate worker compensation more systematically.

McDonald's Corporation ESG Rating: RED United States Consumer Discretionary

Milestone: Milestone Detail: Milestone - Developed strategy Partnered with an influential NGO in the US to develop and implement a strategy aimed at addressing children nutrition issues tackling childhood obesity issues worldwide. Through this partnership, the company has made a series of commitments to offer healthier food choices in kids' menus, engage in responsible Area of Engagement: marketing practices and include nutritional information in its Happy Meal packaging. We had S asked the company to strengthen its strategic management response to children's health concerns given rising regulatory attention to the issue. Milestone Rating:

Metropolitan Bank & Trust Co ESG Rating: YELLOW Philippines Financials

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Microsoft Corporation ESG Rating: GREEN United States Information Technology

Engagement Activity: Engagement Activity Detail: Letter on social issues in textile and IT We co-signed an investor letter urging Microsoft to improve supply chain management of its IT supply chains supply chains, particularly regarding social issues. While poor working conditions and human rights violations are mainly present at the supplier level rather than the company’s operations, Area of Engagement: we believe that through the business relationships with its suppliers, Microsoft would be able S to drive changes. In the letter we asked how sustainability aspects are integrated into purchasing practices and how various initiatives have impacted the sustainability practices of its suppliers. We request specific actions in following areas: increased transparency; social risk Engagement Status: mapping; enhanced relationship with the suppliers and multi-stakeholder initiatives. The In Progress - Company Contacted responses to the letter are to be shared with all co-signatories.

MMC Norilsk Nickel ESG Rating: RED Russia Materials Priority Company Objectives: We have been engaging the Russian natural resource company since 2008 on safety, governance and environmental management. Norilskiy Nickel is an international extractives company, operating mainly in the Russian Arctic, producing nickel, palladium, platinum and a number of bi-products. The company has come under public scrutiny in recent years for allegedly being one of the world’s biggest sulphur dioxide polluters. It is also facing allegations over environmental damages in Russia and abroad, with its recent leak in Finland resulting in an investigation threatening to revoke the company’s environmental licence. Such poor practices have caused the company to breach the United Nations Global Compact principle in relation to environmental matters. We will engage the company on embedding targets regarding its toxic waste emissions and encourage the adoption of best practice standards for environmental stewardship.

Engagement Activity: Engagement Activity Detail: Letter on toxic waste discharge We wrote to the Russian miner and metals smelter on their environmental stewardship practices and the setting of quantitative targets. The company is planning to shut down the Area of Engagement: smelting plant in Norilsk - its main legacy asset, which will naturally reduce sulphur dioxide E emissions. However, there is a noticeable lack of quantitative targets in this area. We also explicitly requested the company to develop a strategy underpinned by quantitative targets relating to its water discharge (over 32 000 km3), most of which is toxic and untreated. Finally, Engagement Status: we enquired about the company's response to climate change which is relevant due to the In Progress - Company Responded high energy intensity of the company's operations and the exposure to physical risks when operating in the Arctic.

Engagement Activity: Engagement Activity Detail: Discussion with company on Following our recent correspondence, we spoke with the Investor Relations team. The company Environmental Stewardship had described plans currently under way to close its Norilsk plant - currently its largest source of sulphur emissions. The metals refinement process would also be altered, in order to remove Area of Engagement: most of the sulphur prior to the smelting stage. These changes should result in an 85% E reduction in emissions by 2020. As the plans affect its main asset group only - the Polar Division - we had requested the company also extend its modernisation efforts to its large Kola Division and other assets. We had also requested the company expand its environmental Engagement Status: certification to cover all of its operations, which currently only covers 30% of their assets. In Progress - Follow-up or chase Norilsk Nikel's operations are very water intensive, and although the company claims to have a water management system and several initiatives in place the goals and timings of this strategy remain unknown. We requested the company provide us with details of its strategy, particularly relating to the large quantities of wastewater it produces, the vast majority of which is discharged as toxic and untreated. Regarding its approach to climate change, the company felt the issue was less relevant as it has already achieved emissions reduction of c. 30% since the early 1990s (in line with Russia's climate targets). However, we recommended the company undertake a study of their energy efficiency investment options using a marginal abatement cost curve (MACC). The company had been receptive to the idea and said it would provide feedback on the MACC methodology document we had sent, as well as provide us with details on its water strategy.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Monsanto Company ESG Rating: RED United States Materials Priority Company Objectives: We have engaged the crop science company on a number of supply chain and corporate governance related concerns in recent years. Following controversies around the use of child labour in India, the company introduced some notable improvements in its supply chain labour practices with respect to audits and reporting. In light of the company’s significant exposure to contractors in developing markets, we will assess how consistently these improvements have been implemented across its supply chain. We will also continue to engage the company on its approach to manage longer-term impacts such as changing regulation for genetically-modified seeds and effects of price variability in the global commodities market. We will also monitor its response to breaching United Nations Global Compact principles in relation to concerns over genetically modified crops.

Engagement Activity: Engagement Activity Detail: Response to letter on employing The company responded with detailed answers to our information request on policies for disabled people in the Netherlands employing disabled people in the Netherlands. This information will be considered together with the responses from 26 more foreign companies. The final analysis will be presented in a Area of Engagement: study on the human resource practices of these companies for the Netherlands. S

Engagement Status: In Progress - Company Responded

Engagement Activity: Engagement Activity Detail: Dialogue on supply chain risks and We engaged the company on its approach to supply chain risk and asked about its approach to living wage address living wage issues in its farming supply chain. Insufficient wage level in this sector may lead to high turnover, reduced productivity and social unrest, possibly affecting security of Area of Engagement: supply for the investee company. We called on the company to explain how it mitigates these S concerns. Monsanto highlighted its human rights policy and that it requires suppliers to pay salaries that meet or exceed the legally required wages, or where no wage law exists, the local industry standard. It considers fair compensation to include pay and benefits that cover Engagement Status: the cost of living and some disposable income. Calculation of base pay, piece rate, potential for In Progress - Company Responded bonus and travel time reimbursements should be agreed on in advance. For seasonal workers housing should be provided, if possible. Also, labour cost based on adult minimum wages are taken out of supplier negotiations. The company has started collecting wage data at suppliers’ facilities to monitor and control payroll practices. Although these are important steps, they still fall short of reviewing the cost of living or require suppliers to align pay with a living wage benchmark. Freedom of association is endorsed in company policy but restricted under law in some countries. Suppliers are expected to facilitate open communication and direct engagement between workers and management. Sometimes legal aid and medical care is provided on site, but the approach seems to lack a universal framework applicable to all suppliers. Regular audits are undertaken to ensure that standards are being upheld and when improvements are inadequate, business with suppliers is discontinued. Collaborative work on fair compensation is undertaken together with Business for Social Responsibility and the US Global Compact Network. We commend Monsanto for recognising concerns with suppliers’ payroll practices but in our opinion it could do a lot more to improve farm contractors’ wage levels. We encourage it to acknowledge the difference between minimum and living wage. There is evidence that a number of pilot projects on supplier level helped to improve working conditions and we pressed them to further roll out a uniform strategy for wages that covers the complete supply chain. To achieve best practice levels, the company would need to develop a living wage roadmap that clearly maps out how suppliers could align pay with a living wage benchmark within a certain timeline. We will continue to engage the company on this issue.

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Engagement and Milestones Q3 2015

Moody's Corp ESG Rating: RED United States Financials

Engagement Activity: Engagement Activity Detail: Discussion on ESG integration into We discussed with the credit rating agency its approach to integrating ESG factors into its credit rating process ratings process. Moody's had reached out to us for our views in this area. We shared with them our experience of integrating ESG analysis into our internal credit rating process. We Area of Engagement: encouraged them to adopt a materiality-based approach. We urged them to disclose clearly E S G what and how ESG factors are being considered and to explain if this impacted the final credit rating. They said that many of these issues were considered implicitly at the industry level but were not always written clearly into the final published credit research. Moody's and other Engagement Status: credit rating agencies had been criticised in the aftermaths of the 2008 global financial crisis on In Progress - Company Responded their collective failure to assess a broad range of risk factors which were contributing factors to the crisis. There had been seemingly little progress in this area since but we are pleased to see that they are finally making public their moves to integrate ESG analysis. They thanked us for our input and we agreed to meet in person in London in the near future.

Engagement Activity: Engagement Activity Detail: Meeting to discuss ESG integration into We met with the US credit rating agency following its establishment of an approach to credit rating process assessing ESG risks in ratings and research. Moody's said that they were prompted to do so as investors were increasingly calling for it to be explicit and transparent about how it assesses Area of Engagement: material ESG issues. As a next step, the agency will be following up this by publishing thematic E S G ESG sector credit research and providing issuer-specific ESG commentary in its credit research. We pressed the agency to revise its sector ratings methodologies to reflect the enhancement in its approach. Moody's has taken an important step forward in finally addressing one of the Engagement Status: major issues for the ratings industry arising from the global financial crisis. We will continue to In Progress - Company Responded provide input into how their approach can be further refined in the future.

Milestone: Milestone Detail: Milestone - Established approach to Established its approach to assessing ESG risks in credit ratings and research. The US credit integrating ESG analysis into credit rating agency has strengthened its ratings and research of issuers by explicitly considering ESG ratings risks with material credit implications. We believe this step will enhance the credibility of Moody's credit ratings and will increase transparency on how ESG issues contribute to ratings. Area of Engagement: It also has the scope to have a significant influence on the broader bond market. We have G been calling for the agencies to establish an approach to integrating ESG factors into its ratings process since the global financial crisis. Milestone Rating:

Mr Price Group Ltd ESG Rating: YELLOW South Africa Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Communication to the company in We wrote to this South African retail company to highlight our votes around various governance relation to our AGM votes issues. Key concerns include that 1) long-tenure independent directors are serving the audit committee; 2) performance criteria are absent when granting share options to executive Area of Engagement: directors and 3) there is no performance disclosure for granting the annual bonus. We voted G against the long-tenure director on the audit committee and the remuneration report, and encouraged the company to address our concerns before the next general meeting. Engagement Status: In Progress - Company Contacted

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Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Disclosed remuneration Provided improved disclosure and explanation in its remuneration report regarding the annual targets bonus scheme. It explained that the targets in the past annual bonuses would be paid only if its EPS growth had achieved between 12% and 24%. The company has not provided more Area of Engagement: disclosure around the extra performance targets in its remuneration report retrospectively. G Disclosing performance targets will help investors better assess the link between pay and performance. We previously asked the company to improve disclosure of its performance targets in its executive pay plan. Milestone Rating:

MTN Group ESG Rating: YELLOW South Africa Telecommunication Services

Milestone: Milestone Detail: Milestone - Improved approach to Developed an anti-bribery and corruption management strategy that includes a group-wide managing bribery and corruption policy; a robust governance set up; and training programmes for employees, including a specific programme for high-risk businesses and regions. Such a strategy will help the Area of Engagement: company manage the risks of bribery and corruption it is exposed to from its operations - S particularly those in countries where corrupt practices in business are prevalent. We have engaged with the company on its business ethics practices since 2011. Milestone Rating:

Newmont Mining Corporation ESG Rating: ORANGE United States Materials Priority Company Objectives: Our engagement with this company in 2015 will address issues related to water management and community relations. After missteps in its approach to engaging local communities at its largest operation in Peru, Newmont must work hard to secure its social license to operate in the region. We will encourage the company to strengthen its local stakeholder engagement strategy, focusing on community and regional government relations. With the Peruvian highlands facing severe water scarcity issues, we will also urge the company to ensure its water management approach appropriately reflect the risks as well as the expectations of the affected communities.

Engagement Activity: Engagement Activity Detail: Discussion on two key mining projects We spoke with the company about recent developments at its controversial Minas Conga in Latin America project in Peru. Violent protests led Newmont to suspend construction work on the $5 billion project in 2011 while it addressed water-related concerns. The company decided to take a Area of Engagement: “water first” approach by constructing reservoirs to replace lakes, and improve local water E S G quality and supply reliability. Coupled with a more robust approach to community engagement and communications, this has led to better relationships with communities in the immediate vicinity of the project and further downstream. However, and despite several engagement Engagement Status: efforts, the regional government actively opposes the project and continues to reject the In Progress - Company Responded viability of its development. Given the uncertainty surrounding the project, the company developed a plan to reduce spending to focus on only the most critical work – protecting people and assets, engaging with communities, and maintaining existing infrastructure – all while maintaining optionality. By year-end 2014, capital spent on the project had decreased by 93% compared to 2012. We welcomed Newmont’s view that it will not proceed with the full development of Conga without social acceptance, solid project economics and potentially a partner to help cover costs and risk. Our conversation also touched on the Merian project in Suriname, where construction recently started. We were glad to learn that the company implements a community engagement and development strategy that was agreed with the indigenous communities that inhabit the area. Ongoing support from these communities is of critical importance given that the ore deposit sits entirely below some of their traditional lands. We expressed concerns over the impacts on locals from the influx of migrants attracted by the project, and encouraged the company closely collaborate with the government and other local actors in monitoring and addressing environmental and social challenges arising from this issue.

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Engagement and Milestones Q3 2015

NHK Spring ESG Rating: ORANGE Japan Consumer Discretionary

Milestone: Milestone Detail: Milestone - Appointed external non- Appointed an external non-executive director to its board for the first time in its history. The executive director company had resisted the introduction of outsiders on the board. We have been encouraging the company to reform board structure through engagement and voting since co-authoring the Area of Engagement: landmark Asian Corporate Governance Association white paper in 2008 which increased G international investors' concern on Japanese corporate governance practices. We expect the new outside director to improve oversight of management and bring fresh ideas to the company. Milestone Rating:

Nike, Inc. ESG Rating: GREEN United States Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Response to living wage letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. The sports brand highlighted its commitment to industry change and its awareness around the Engagement Status: impact of its own practices on suppliers’ practices. Nike was the first company to publicly In Progress - Company Responded disclose the names and locations of all its contract factories. Also, the company developed a factory performance measurement index that elevated labour and environmental standards on an equal level with traditional measures of quality, cost and delivery. The right to collective bargaining and freedom of association is mentioned among the standards in Nike’s code of conduct for suppliers. The brand believes that systematic change is best achieved in partnership with all stakeholders. On pay specifically, it works in cooperation with the Fair Labor Association (FLA) on better wage systems for contractors. It was stated that local wage setting is best done by negotiations between workers, labour representatives, employers and the government. The company falls short of commenting whether it thinks effective negotiations of this kind are currently happening in its supply chain, and how it plans to support such a process. Compared to industry peers we acknowledge that Nike has taken important steps to improve general workers’ rights. By publicly releasing a list of its suppliers they significantly raised the bar for industry peers in terms of supply chain transparency. Also, by taking into account labour and environmental requirements for sourcing, the company has truly merged the procurement and sustainability departments. Although Nike has strong programs to improve working conditions for factory workers, these do not sufficiently seem to cover living wage yet. We will encourage them to further consider the concerns around wage levels. Best practice would include publicly committing to a living wage roadmap, informing stakeholders of supplier requirements such as alignment of pay with living wage benchmarks. We will continue to engage the company on the issue.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Nippo Corporation Japan Industrials

Nisshin Steel Co Ltd Japan Materials

NOK Corp ESG Rating: ORANGE Japan Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Nordea Bank AB ESG Rating: GREEN Sweden Financials

Milestone: Milestone Detail: Milestone - Developed a cluster Developed a policy prohibiting investment in companies associated with the production or sale munitions policy of cluster munitions, antipersonnel land mines or components thereof. Implementation of the policy will serve to protect the company's reputation, and enable it to continue offering its Area of Engagement: services in jurisdictions where the financing of these types of weapons is prohibited, such as S the Netherlands and Luxembourg. We have previously engaged the bank and other institutions in the industry on their approach to dealing with risks associated with cluster munitions. Milestone Rating:

Nordic Investment Bank ESG Rating: YELLOW Finland Financials

Engagement Activity: Engagement Activity Detail: Bondholder engagement: Green Bonds We met with the Nordic Investment Bank to discuss its upcoming Green Bonds issuance and its issuance and reporting approach to impact reporting. The bank had issued a series of Green Bond previously but the latest issuance - estimated to be around 500 million euros - will be likely its largest to date. Area of Engagement: The bank has a strong and well established approach to selecting high quality projects for E G financing through its Green Bonds. They assess the positive impact the projects will have on the environment. The bank finances a wider scope of projects compared to other supranational banks which we supported. They finance renewable energy, energy efficiency initiatives and Engagement Status: transport. Currently, the bank only provides the environmental impact of its Green Bonds In Progress - Company Responded financing at the aggregate level. We pressed the bank for more granular reporting as other supranational issuers are starting to do. The bank said it will consider this recommendation.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Novartis AG ESG Rating: YELLOW Switzerland Health Care Priority Company Objectives: Our engagement to date with this Swiss pharmaceutical company has focused primarily on corporate governance - especially executive remuneration. In 2013, the 78 million dollar severance package offered to the outgoing Chairman Daniel Vasella became an issue of shareholder protest. This year, we will also engage the company on its responsible marketing policies and how it is overcoming a series of marketing controversies which has led to numerous warnings from the US Food and Drug Administration.

Engagement Activity: Engagement Activity Detail: Discussion on responsible business We spoke to the Swiss pharmaceutical company on its approach to responsible sales and practices and compliance marketing practices. Novartis said that its ambition is to become the most respected and trusted healthcare company in the world. In order to achieve this, it had implemented a series Area of Engagement: of reforms since 2014. It admitted that some of this was in reaction to the major corruption S scandal faced by rival GlaxoSmithKline in China in 2013. The company’s reforms focused on the so-called “Step Change” programme which centred on strengthening its ethical standards and revising its code of conduct. The board now actively oversees responsible business issues. Pay Engagement Status: has been reformed and a broader range of performance measures capturing compliance and In Progress - Company Responded ethics related indicators are now assessed. The company has also revised its approach to managing bribery and corruption risks. These include stopping payments to external experts to speak at conferences about the merits of one of its well-established products. Novartis says that this is still common place in the industry. Nevertheless, it assessed that in cases when drugs have been on the shelves for many years there were rarely ever new scientific findings for speakers to discuss at public events. It concluded that these speakers were being paid solely to promote the product. This no longer fitted with the ethical behaviour that the Step Change programme was promoting. Novartis explained that its revised global code of conduct were currently being rolled out to the local country units. It believed that its internal policies were more robust than many country’s laws. We pressed them on the exact approach to which these policies were being rolled out and implemented. The company gave a broad explanation but compared to some of its industry peers which we have engaged, we did not get the sense that Novartis had as rigorous and detailed implementation approach. We pressed the company to give stronger assurance that its compliance and internal controls team at its headquarters has a systematic and thorough approach to working with the local business teams to ensure that the policies are adopted and audits (both internal and external) are conducted to ensure compliance with its rules. On the other hand, the company has industry-leading disclosures around the extent to which compliance-related breaches and whistleblowing are reported, investigated and escalated to disciplinary measures. We praised for the level of detail it provides in its reporting and encouraged them to provide country or region-level reporting. This is due to the fact that some regions – such as Europe or North America – often have a strong social culture of reporting misconduct, but this is not the case in areas such as East Asia where employees are often culturally fearful of disobeying seniors. The company has been open to engagement from shareholders and we expect Novartis to consider accepting our recommendations.

Engagement Activity: Engagement Activity Detail: Feedback on corporate responsibility We were invited to provide feedback to the Swiss pharmaceutical company's latest annual reporting report. Overall we welcomed the quality of the company's approach to integrated reporting, and the report provides a good detail of narrative information and numerous quantitative key Area of Engagement: performance indicators (KPIs) capturing business ethics. To further improve the report we S encouraged: granular detail on the internal control and compliance structure globally; forward- looking quantitative targets, where appropriate, for the ethics and people KPIs; and other indicators which can capture the success of the management and board in establishing a Engagement Status: culture of integrity at Novartis and demonstrating ethical leadership. The company provides a In Progress - Company Responded high level of transparency and disclosures. We believe that implementation of the recommendations will allow it to match best practices in this area amongst global pharmaceutical firms.

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Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion on access to medicines We joined a group investor discussion with the Swiss pharmaceutical company on its approach approach to access to medicines in the emerging markets. The company was ranked 4th (out of 20 companies) in the latest Access to Medicines Index and has a robust approach in this area. Area of Engagement: Novartis recently announced a further set improvements to providing medicines in low-income S countries. The company says that it is one of its key strategic commercial and corporate social responsibility goal to reach more patients and offer new treatments. This means that the company has to pioneer new business approaches and healthcare delivery models. Novartis Engagement Status: established an Access to Medicines committee in the past year which is chaired by the CEO and In Progress - Company Responded oversees its efforts in this space. In its analysis, it sees the world's richest 2.5 billion people as customers for its for-profit business. The poorer 3 billion people will be reached by the company through a mixture of low profit, zero profit or philanthropic initiatives. Novartis says that while traditional approach to access to medicines have focused on communicable diseases such as tuberculosis, HIV AIDS and malaria, there is a growing threat to the population from non-communicable diseases such as cancer, diabetes and hypertension. It says that these symptoms also disproportionately affect patients in lower-income countries where pharmaceutical provision is lower. As a result of this analysis, Novartis has launched its "Novartis Access" initiative which will offer a portfolio of 15 drugs to governments and non- governmental organizations (NGO) at $1 per treatment, per month. The plan is to roll this project to 30 countries in the coming years. We asked what the company was doing to develop capabilities and to transfer technologies to local medical facilities and manufacturing. The company says that capacity building is crucial to lasting success and that it has partnered with a number of NGOs to do so. It has also established a small team to manage these challenges globally. Novartis said that these initiatives has to be commercially sustainable if it can be considered a true success. Novartis has taken an innovative and leading approach to access to medicines. It is well thought out but the challenge will be in successfully implementing it. We will be following this aspect in the coming years.

Milestone: Milestone Detail: Milestone - Launched new access to Launched a new approach to access to medicines in lower income countries. The company will medicine approach offer a portfolio of 15 Novartis products to governments and non-governmental organizations for $1 per treatment, per month. It will be rolled out to 30 countries in the coming years. This is Area of Engagement: a significant and innovative approach to providing medicines in the developing world. It is also S closely tied in with the company's commercial goals in the emerging markets. We have been engaging the company on improving its access to medicines approach for a number of years. Milestone Rating:

NRW.Bank Germany Financials

Engagement Activity: Engagement Activity Detail: Bondholder engagement: Discussion We discussed with the German state-owned development bank its approach to Green Bonds. on Green Bonds reporting The bank has issued 750 million euros of Green Bonds in total over 2013 and 2014. The funds raised are used to finance environmentally friendly projects in North Rhine-Westphalia state. Area of Engagement: The bank disclosed that approximately 75% of funds were allocated to energy efficiency- E related projects and the rest to water-related initiatives. We welcomed the bank's active involvement in this nascent market. We encouraged the company to track, monitor and report the environmental impact these funded projects are having. The company said that some of Engagement Status: this information will be available in a new report published in July. We reviewed the report and In Progress - Company Responded saw that the 2014 issued bonds saved 800,000 tonnes of carbon dioxide over four years. We welcomed this information as this nature of reporting is critical to the long-term success and credibility of the Green Bonds market.

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Engagement and Milestones Q3 2015

Olympus Corp ESG Rating: RED Japan Health Care

Milestone: Milestone Detail: Milestone - Improved board Improved board composition by replacing two directors from major Japanese commercial banks composition - one of which was the Chairman. These directors had been appointed following the 2011 Olympus false accounting scandal which nearly resulted in the collapse of the imaging Area of Engagement: company. We had engaged the company repeatedly on this issue - including numerous G meetings with the company in Tokyo - and voted against the election of these candidates. We were concerned that the appointment of former executives of main banks raised fears that commercial bank interests will be prioritized over minority shareholder interests. These reforms Milestone Rating: should ensure that the company's board are able to take decisions in the best interests of shareholders.

Pegatron Corp ESG Rating: ORANGE Taiwan Information Technology Priority Company Objectives: We have been engaging with this manufacturer and supplier of consumer electronic products on labour standards since 2014. The company, a major supplier to Apple, has been the subject of media allegations of poor labour management. Weak labour standards may lead to worker protests, which cause operational disruptions and reputational damages, and could ultimately threaten its relationships with its customers. While the company has had some policies and management systems in place, we will engage with Pegatron to deal with emerging issues such as migrant and student labour, and adopt industry best practices. In doing so, we will make use of the knowledge we have built through our engagement with Hon Hai, a competitor of Pegatron that has faced similar problems and has made progress in putting in place improvements.

Engagement Activity: Engagement Activity Detail: Request for discussion on labour We requested Pegatron for a discussion on its ESG practices. We continue to have major standards concerns about labour standards, especially around child and forced labour. Despite the fact that these issues have been raised by investors repeatedly in recent years, the company has Area of Engagement: only made slow progress in reforming these areas. The company has been good in responding E to request for meetings in the past and we expect to hold an in-depth conversation in the coming weeks. Engagement Status: In Progress - Company Contacted

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion on labour standards We discussed with the Taiwanese electronics manufacturer on its approach to labour standards. After facing allegations of violating workers’ rights by a non-profit organisation in 2013, Area of Engagement: Pegatron was under the spotlight again last year. The company was accused of labour abuses S in a 30-min television programme by the BBC. We asked the company for clarification on its response to the controversies and urged the company to improve its labour standards. Controversies surrounding Pegatron focus on excessive overtime, long working hours without a Engagement Status: break and poor living conditions at its dormitory. From our previous engagements with In Progress - Hibernation Pegatron, the company does not lack policies. What is lacking is implementation. The company denied some of the allegations raised by the BBC, such as exhaustion caused by long working shifts. Workers were filmed taking naps at the production line. Pegatron explained that it is common for workers to nap after a quick lunch. We understand that it is a Chinese culture for workers to take naps during lunch, but we could not verify whether these naps are result of exhaustion. On compliance with rules on working hours and prevention of excessive overtimes, the company explained that they have strict control. It did however admit to the sheer difficulty to achieve full compliance. This was due to the cyclical nature of demand in the electronics industry and migrant workers’ desire to earn more by working longer. Pegatron shared with us some of the initiatives it has put in place to prevent excessive working hours, such as a real-time system where workers could not sign on to work if they are detected to work over 60 hours a week, and a security system where workers are banned from entering the factories if they are found to have work consecutive in the past six days. To improve labour standards in the electronics supply chain, we believe performance disclosure is important so that various stakeholders can monitor progress and scrutinise any non-compliance. Compared to two years ago, Pegatron has been progressively improving its disclosure on both policies and performance. For example, the company has disclosed employee turnover ratio at one of its Taiwanese factories, which we regarded as an important milestone. Reporting turnover ratio remains rare in Asia. Employee turnover is an important indicator of employee satisfaction and it reflects how employees feel they are being treated. We asked Pegatron to extend the reporting coverage to the entire group. We also offered Pegatron our expectations of disclosure should the company wants to consult investors before publishing its next sustainability report. Overall, we sensed that Pegatron is committed to improving labour standards. The company realised that good sustainability management has started to become its competitive advantage. In the past two years, Western customers has increasingly favoured suppliers who has not had severe controversies. Pegatron is responsive to our engagements and we will continue to ask the company to improve its labour standards in the future.

Milestone: Milestone Detail: Milestone - Disclosed policies on child Pegatron developed and disclosed its policies of prohibition of child labour and forced labour in labour and forced labour its 2014 sustainability report. We previously highlighted the risk of mismanagement of these labour issues to the company and encouraged Pegatron to be more transparent about its Area of Engagement: dealing with these issues. Failure to prevent child labour and forced labour continues to pose a S serious business risk in this industry and can result in damaged reputation, loss of customers and legal liabilities. Disclosure of these policies is a positive step towards greater accountability and enhances transparency vis-à-vis other stakeholders and investors. Milestone Rating:

Milestone: Milestone Detail: Milestone - Disclosed annual The company disclosed annual employee turnover rates at some of its production sites in its employee turnover rate sustainability report. This will help investors better assess the effectiveness of its various employee engagement programmes. This is a significant disclosure, which we have been Area of Engagement: pressing the company to make, given concerns regarding the high turnover of staff which can S lead to higher overall costs related to labour. The company is also the first to disclose such data in the Chinese manufacturing industry. This sets an important benchmark for other major manufacturing companies such as Hon Hai and Yue Yuen to follow. We met with the company Milestone Rating: last year to ask for reporting retention rate in its regular disclosure.

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Milestone: Milestone Detail: Milestone - Disclosed statistics of its The company disclosed breakdown of employees' concerns through its employee hotline in its employee assistance programme sustainability report. This data will help investors better access the workers' needs and determine whether the company has done enough to ensure a high level of employee morale. Area of Engagement: This disclosure is significant given concerns about high turnover of staff at Pegratron which can S lead to higher overall labour costs. We previously asked the company to review its employee communication channels to ensure employees' needs are effectively addressed. Milestone Rating:

PepsiCo Inc ESG Rating: GREEN United States Consumer Staples Priority Company Objectives: Building on a long history of engagement with the company, we will be focusing on its approach to sustainable sourcing, water and community impacts, as well as access to nutrition. In response to controversies in its Indian operations, the company has introduced enhanced water management and community consultation practices over the past years and we will be probing the scope and impact of these commitments. Palm oil sourcing and the roll-out of a sustainable farming initiative represent further areas where PepsiCo has been in moving in the right direction, but where progress and outcomes remain unclear. Finally, we will be following up on the company’s approach to strengthen its access to nutrition strategy.

Engagement Activity: Engagement Activity Detail: Investor dialogue on water risks in PepsiCo defined water as an essential commodity for the business and demonstrates strong agricultural supply chains leadership in its approach to water footprint analysis, water stewardship activities for its manufacturing locations and corporate reporting through the CDP Water framework. The Area of Engagement: company uses external mapping tools for initial screening and prioritization of local water E conditions and an in-house tool for water stress assessment at more than 300 of its facilities worldwide. The company achieved its 2012 target for reducing water use intensity by 20% and we asked for the setting of a new target and an update of its total water reduction goal. Engagement Status: Through various partnerships the company is also aiming to achieve objectives such as a In Progress - Company Responded positive water balance for its manufacturing sites. However, the focus of PepsiCo’s water management strategy is somewhat obscured by the multiple geographical locations of its operations and numerous collaborative projects. We asked for more clarity on purpose, materiality and impacts of the company’s partnerships. In relation to its supply chain, the company had launched the Sustainable Farming Initiative (SFI), a program that supports suppliers in a wide range of areas to reduce water usage, replace synthetic fertilizer usage and improve farm yields. Pepsico’s focus on water stress seems to shift slowly from its operations towards its supply chain. The company acknowledges that development of sustainable agriculture practices is key and we pressed them to scale up these efforts and start requiring all suppliers to contribute to footprinting, stress-testing and stewardship activities. Currently the water mapping tools only cover sixty percent of its supply chain in high risk water regions. Although the company shows leadership in some areas, it needs to develop a more comprehensive approach for driving water management practices in its wider supply chain. Our engagement will continue to focus on encouraging the company to track and disclose key water metrics; and start mapping the impacts of water scarcity to the business, especially for agriculture crops that are essential to its food products.

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Petroleo Brasileiro S.A. (Petrobras) ESG Rating: ORANGE Brazil Energy Priority Company Objectives: Unrelenting political interference at this majority state-owned Brazilian oil & gas giant has had a major impact in business performance, which has ultimately resulted in significant shareholder value destruction. We have actively engaged the company on this and other governance concerns over the past five years. In 2015 we will continue leading a group of international investors in promoting good governance practices, and calling for less interference from the government on issues such as domestic fuel price setting. We will also address issues related to executive succession after the resignation of the CEO and other top executives in February 2015 as a result of the corruption scandal the company has been involved in. In light of the latter, we will also press the company to improve its approach to managing bribery and corruption risks, not least given that this is flagged as a breach of the United Nations Global Compact principle on anti-corruption.

Engagement Activity: Engagement Activity Detail: Call to discuss progress on compliance BMO and a small number of investors spoke with the company to discuss changes it has been management implementing following the Lava-Jato corruption scandal. The changes mainly address governance failures that had allowed corrupt practices to flourish and, importantly, had a Area of Engagement: material negative impact on the company’s operational and financial performance. Changes S G include the creation of a governance, risk and compliance department reporting directly to the CEO that oversees the implementation and management of internal controls, as well as group- wide programmes on corruption prevention and conduct and integrity. In addition to a Engagement Status: revamped code of conduct and enhanced whistleblower mechanisms, the integrity programme In Progress - Company Responded calls for stronger due diligence in supplier selection and appointment and the incorporation of anti-corruption clauses in contractual provisions with business partners. In terms of board composition, the government made a bold move by replacing political figures with business leaders and members of academia as its representatives to the board. A number of committees were set up, including a strategic committee (board level), an investments multidisciplinary committee (directors and members of management team), and a special committee chaired by the chief of governance, risk and compliance officer. The latter, staffed by external experts on legal issues and compliance, will coordinate and oversee an independent investigation into the corruption scandal led by two international law firms. We highly value the measures the company has taken as they signal a commitment to improve its corporate governance practices. The success of their implementation will to a large extent hinge on the government’s willingness to decrease its interference in how the company is run. The company’s resistance to set up and disclose a fuel pricing policy, which remains opaque and has been extremely detrimental to its performance and to minority shareholders, is not very encouraging. We will monitor progress going forward, and maintain a regular dialogue with management and board members.

Milestone: Milestone Detail: Milestone - Strengthened board The Brazilian government replaced long-standing, politically-linked directors with business oversight leaders and members of the academia to serve as its representatives on the board of directors. Removal of board members serving political interests has been one of the main asks during Area of Engagement: our intensive engagement with Petrobras on governance reforms over the past years. This G move is critical for decreasing the level of political interference in the company that has hurt performance and had a significant impact on shareholder value. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Pfizer Inc ESG Rating: RED United States Health Care Priority Company Objectives: In 2015 we plan to intensify our engagement with Pfizer on business ethics and responsible marketing. The company has a number of bribery allegations outstanding, and has significant Chinese operations. We would like to see the company demonstrate that it has considered at Board level the issues raised following the GSK corruption case, and that it has taken measures to enhance the strength of its compliance and internal controls in its international operations. In 2015, we will also engage the company on its relatively weak approach to access to medicines in less-developed markets.

Engagement Activity: Engagement Activity Detail: Engagement on executive We engaged the US pharmaceutical giant on executive remuneration following the annual remuneration following annual shareholder meeting. We had supported management on most of the resolutions but once shareholder meeting again, voted against the pay plan. Our rationale was that while we acknowledged the steps taken by Pfizer to reform its approach to executive remuneration and recognised the company Area of Engagement: moving the long-term incentive plan to a higher proportion of performance-related pay, there S G continued to be weaknesses in the compensation arrangements. We continued to urge the company to establish and disclose stretching and rigorous targets for the new LTIP which encourage genuine outperformance of peers. Despite the improvements proposed for the Engagement Status: future pay plan (starting 2015 assessment year), we still have concerns about the structure of In Progress - Company Contacted the current pay plan. The Performance Share Awards allow for 50% payout for bottom quartile performance versus peers. This type of practice significantly undermines the company’s pay- for-performance approach and blunts the impact of long-term variable pay. We had reservations about the financial targets set for the annual bonus. The goals softened for the second year in succession. We also pressed for the company to disclose how non-financial metrics such as business ethics, regulatory fines and breaches, responsible sales and marketing practices, and product safety impacts the final pay outcome for the named executive directors. The company has slowly made progress on its remuneration approach and are open to feedback from investors. As a result, we remain hopeful that many of these long standing concerns will finally be addressed ahead of the 2016 AGM.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion on responsible marketing We spoke to the US pharmaceutical company about its approach to responsible marketing, and compliance business ethics, internal controls and compliance. Pfizer said that the core approach it takes on these issues was largely established as a result of the 2009 settlement with the Department of Area of Engagement: Justice for off-label promotional practices. This resulted in a $2.3 billion fine and a corporate S integrity agreement. The company also said that this approach was strengthened following a two-year deferred prosecution agreement in 2012 to resolve violations of the Foreign Corrupt Practices Act. It said that all these reforms were maintained even once all these agreements Engagement Status: had concluded. Pfizer’s board and senior management are comprehensively involved in In Progress - Company Responded providing leadership and oversight on practices ensuring good business ethics in the company. They have numerous board and management-level committees, as well as regional sub- committees. The company has zero-tolerance to breaches of policies and code of conduct. They say that they have created a system whereby accountability for these issues is global and is led by headquarters. Compliance unit have standardised its approach in managing these risks globally with single procedures. Where the local law or regulation is weaker than Pfizer’s internal policies, they adopt the company approach. They also have embedded compliance teams within local operations and sales teams to monitor. Compliance and internal controls regularly report on emerging issues and serious breaches to the board. Pfizer regularly reviews its approach at the product-specific level and assesses whether the control systems are sufficient. These look at issues such as patient support and product marketing. They employ an independent law firm to ensure and audit that their policies and management systems are being correctly applied across the business. Their approach also now covers a dedicated team looking at the compliance-related due diligence in mergers and acquisitions. This was put in place following some difficulties after the Wyeth acquisition in 2009. Overall, these components suggest one of the stronger risk management approaches we have seen from major pharmaceutical companies. Pfizer’s disclosures on the implementation of various compliance and control mechanisms is weak compared to other pharmaceutical companies. It has a whistleblower system but does not provide information on the number of cases, nature of reports, and disciplinary action. We also asked the company to disclose data on geographic breakdown of usage of the system. This would provide assurance that employees in emerging markets, especially in countries where it is culturally difficult to denounce senior staff, are responding to training from headquarters. We also asked the company to explain how it incentivises its sales staff. Other pharmaceutical companies are completely or partially dropping traditional sales targets and replacing them with compliance, regulation and customer satisfaction related KPIs. Pfizer has still not reformed its pay approach as thoroughly as some of its peers, something we find concerning. We believe these details are weaknesses which undermine Pfizer’s robust overall approach to managing these risks.

PGE SA ESG Rating: RED Poland Utilities

Engagement Activity: Engagement Activity Detail: Discussion on PGE's recent write-off We spoke with the Polish utility regarding the recent write-off of c. 30% of the value of their generation assets. The decision had been announced along with their half-yearly results and Area of Engagement: had been based on an audit which found that deteriorating market conditions warranted an E impairment. The main factors affecting the decisions were renewables crowding out conventional power producers, a fall in coal prices resulting in a drop in electricity prices and increasing costs of CO2 and environmental compliance. The company is now reassessing its Engagement Status: medium-term strategy and the Chair of the Supervisory Board had been replaced. As these In Progress - Company Responded were topics which we had raised with the company previously, we had encouraged a more long-term approach to strategy design and requested a meeting be arranged with the executive team to assess steps taken. This engagement is part of a group effort by the IIGCC Corporate Working Group to engage with European utilities on stranded asset risk.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Pharmerica Corp ESG Rating: YELLOW United States Health Care

Engagement Activity: Engagement Activity Detail: Code of conduct and environmental We wrote to the company following the settlement of a lawsuit with the US Drug Enforcement strategy implementation Agency (DEA) (May 2015) where the company had been accused of dispensing Schedule II narcotics to customers without valid prescriptions from a physician. Reports ceased in 2009 and Area of Engagement: the company has since updated its procedures relating to the dispensing of controlled E substances, however as part of the settlement PharMerica will now enter into a three-year Memorandum of Agreement with the DEA and a five-year Corporate Integrity Agreement with the Office of the Inspector General. We encouraged the company to disclose the details on Engagement Status: further measures it is planning to take due to this review. We had also requested the company Closed - No further engagement to create and disclose an environmental policy covering medical waste disposal and energy required management, which is currently absent.

Premier Oil Plc ESG Rating: GREEN United Kingdom Energy

Engagement Activity: Engagement Activity Detail: Discussion on stranded assets We met both the CEO and CFO of Premier Oil to discuss the recent developments in the oil market and the impact these have had on the company's profitability. With the oil price's sharp Area of Engagement: fall over the past year, a number of projects have now become unprofitable and the company's E debt leverage ratio has increased and cash flows significantly hit. The company has actively sought to move away from high-cost licences (e.g. Brazil) and sell several of its low-cost projects (e.g. in Pakistan). This would provide much needed capital. However, it would also Engagement Status: possibly put further pressure on the profitability of its remaining portfolio should the oil price Closed - No further engagement stay lower for longer. The UK oil company has concluded discussions with its creditors, which required have resulted in an additional lending facility at the cost of not being able to issue dividends or conduct share buy-backs until the leverage ratio falls below x3 (currently x4.5). We encouraged a thorough review of the company's medium-term strategy in the context of weak oil demand, which might be further exacerbated by climate change and emissions regulation as well as technology changes in transport.

PT Astra International ESG Rating: GREEN Indonesia Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Discussion on environmental We shared with the company recommendations to improve some of its ESG practices, management and shareholder rights particularly around environmental management and shareholder rights. On the former, we commended the company for announcing a moratorium on forest clearance whereby it is Area of Engagement: committed to ensure that there will be no clearance of any natural forest either by itself or any E G of its contractors across all its operations in Indonesia. We acknowledged the active role Astra plays as a member of the Indonesian Palm Oil Producer Association, yet encouraged it to consider joining the Roundtable on Sustainable Palm Oil (RSPO). We believe the multi- Engagement Status: stakeholder nature of the RSPO would benefit the company in its approach to managing the In Progress - Company Responded environmental and social impacts of oil palm cultivation. On the issue of shareholder rights, we encouraged the board to submit directors, commissioners and their remuneration separately for shareholder approval rather than bundling them under a single item. We noted this practice gives shareholders an all-or-nothing choice, skewing power toward the board and away from shareholders.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Reckitt Benckiser Group PLC ESG Rating: YELLOW United Kingdom Consumer Staples Priority Company Objectives: We will review company’s executive pay and succession planning arrangements which were deemed controversial, and determine next steps following the outcome of the 2015 AGM.

Engagement Activity: Engagement Activity Detail: Request discussion on corporate We requested the company for a discussion on its governance practices. At the its annual governance shareholder meeting, we voted against the remuneration report because of salary increases. The company already had existing high salary levels compared to peers and provided poor Area of Engagement: justification of the level of 2014 bonus awards. We voted against the approval of the long-term G incentive plan (LTIP) given the high level of its grants and the large proportion of awards which could vest for threshold performance. We did not believe that it was appropriate to base vesting on performance against just one target. We also voted against members of the Engagement Status: remuneration committee because we had not seen significant improvement in the company's In Progress - Company Contacted practices or sufficient steps to address our concerns. We are awaiting a call with the company to discuss these issues. We will urge the company to review the outlined shortcoming and also to consider extending the LTIP's vesting period to a minimum of five years or introducing an additional holding or deferral period.

Repsol S.A. ESG Rating: GREEN Spain Energy

Milestone: Milestone Detail: Milestone - Advocated for global Joined a group of European energy majors that advocates for the development of global carbon pricing mechanisms to introduce carbon pricing. This CEO-level initiative promotes carbon pricing as effective instrument to facilitate an accelerated transition from carbon-intensive coal to gas in Area of Engagement: power generation. As part of our engagement on the stranded assets theme we have asked E the company in various meetings to provide a stronger industry voice in support of carbon pricing ahead of the climate negotiations in Paris this year. Milestone Rating:

Rotork ESG Rating: GREEN United Kingdom Industrials

Engagement Activity: Engagement Activity Detail: Letter to the Chairman on governance We sent a follow-up letter to the Chairman to encourage the board to provide investors with practices more evidence that the Rotork’s organisational structure, corporate culture, business systems and controls are sufficiently robust to support the successful transition to a larger and more Area of Engagement: geographically diverse business. We recommended that the return on capital and economic G value added metrics are included among performance criteria under the short and long-term incentive schemes for the senior management. Finally, we stated our expectation that the Chairman should work closely with and support the management team in making the Engagement Status: successful transition to a larger and more complex business. In Progress - Company Responded

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Royal Bank of Canada ESG Rating: YELLOW Canada Financials

Royal Bank of Scotland Group ESG Rating: ORANGE United Kingdom Financials

Milestone: Milestone Detail: Milestone - Developed shale gas Expanded its environmental and social risk policy for financing the oil & gas sector to include sector financing policy shale gas. This enhances the bank's overall risk management practices, reducing default risk, and increasing profitability. We have engaged RBS on managing the impacts of its financing Area of Engagement: activities repeatedly in recent years. E

Milestone Rating:

Royal Dutch Shell ESG Rating: YELLOW United Kingdom Energy Priority Company Objectives: Shell has made progress in simplifying its portfolio in the context of the weak oil price environment, but it maintains a comparatively large exposure to technologically challenging projects in the Arctic and difficult environments such as in Nigeria. We will continue to focus on the stranded assets theme where the company has signalled positive commitments to test business resilience against long-term climate change and energy transition trends. We will probe how this strategy aligns with decisions to continue frontier exploration in the Arctic. We will also press for clarity on steps to reduce further its exposure to high-risk operations like onshore Nigeria where the company has been in breach of United Nations Global Compact principles for the environment.

Engagement Activity: Engagement Activity Detail: Follow-up meeting on climate We met Shell together with a small group of investors to discuss its approach to climate shareholder resolution change risks. We focused in particular on the company's next steps for addressing investor demands set out in the recent shareholder resolution on climate change. Overall, the company Area of Engagement: has been quite responsive to our engagement on this issue and the reaction, including at CEO E and Board-level appeared positive. Yet, in this follow-up meeting to Shell's recent investor, the company indicated that it had already addressed the main substance of the shareholder requests put forward in the resolution. This was not a sentiment shared by attending investors. Engagement Status: We reiterated that in particular on the most challenging aspects of the resolution, which asks In Progress - Company Contacted Shell to test the resilience of its strategy against various long-term climate change scenarios, we would like to see much clearer disclosure mapping out risks and opportunities. While Shell’s reporting in this area is better than with most other oil companies, it still falls short of highlighting the difficult strategic choices that a 2-degree global warming scenario would confront the company with. We agreed to further meetings in the autumn to discuss next steps in Shell’s preparation for its 2016 disclosure cycle.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Withdraws from Arctic Shell announced it will abandon its Arctic offshore drilling program in Alaska for the offshore operations foreseeable future. Although Shell cited economic and regulatory considerations as key decision factors, the company had for some time been under intensive investor and Area of Engagement: stakeholder pressure over its Arctic strategy. We had asked Shell to review its plans for Arctic E exploration since 2011 and had pushed in particular for greater assurances over operational and environmental risks. More recently, we also highlighted the risks such projects pose for the company’s portfolio in the context of our engagement on stranded assets. Given Shell’s Milestone Rating: leadership in Arctic offshore exploration, this decision should also send a strong signal to other oil and gas companies to review their plans in the Arctic.

Milestone: Milestone Detail: Milestone - Leaves controversial US Announced the company is leaving the American Legislative Exchange Council (ALEC). This is a lobbying group conservative policy group that has drawn criticism for its position on climate change. We consider this a positive decision that removes its association with a lobbying group whose Area of Engagement: position runs counter to Shell's stated support for more stringent climate change policies. As E part of our engagement on stranded assets, we have asked Shell repeatedly to review its involvement in the public policy debate, including any memberships which are could harm its reputation, and to show more leadership in promoting regulation that advances a transition to Milestone Rating: a lower carbon economy.

RWE AG ESG Rating: ORANGE Germany Utilities Priority Company Objectives: In 2014, we focused our engagement with RWE on its business planning processes and possible asset stranding from the energy transition in Germany (Energiewende). As with other utilities in Europe, RWE is facing challenges to its conventional power business model. This is due to lower demand for energy related to the economic crisis and an increased deployment of renewables, which are further eroding the market for conventional producers. We will continue to encourage clearer transparency from the company regarding the risk it is facing from further write-downs and costs associated with the energy transition such as nuclear power plant decommissioning in Germany.

Engagement Activity: Engagement Activity Detail: Letter on low-carbon transition We wrote to the Chairman and the Chief Executive of the German utility to engage on its strategy approach to climate change related risks. Both Moody's and Standard & Poor's downgraded RWE this year due to further deterioration of the electricity market and weak performance of Area of Engagement: the utility's conventional power business. Amidst the difficult environment for the European E utility industry, the company has mapped out the sources of its challenges and is trying to address these through investments in grids and renewables. They are also providing enhanced retail offering. We questioned how the how management is planning to maintain current risk Engagement Status: profile (and credit rating) while experimenting with new business models. We requested a In Progress - Company Contacted meeting for further clarification on how the company aims to address several competing priorities. These include experimenting with new business models while reducing overall business risk, deploying energy saving technology, increasing electricity sales, cutting costs, and investing in growth opportunities. RWE needs to ensure the workforce has the appropriate skill-sets as the company transitions along with the German Energiewende (energy transition).

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Ryanair ESG Rating: ORANGE Ireland Industrials Priority Company Objectives: Ryanair's low-cost business model has led the company to make controversial decisions about how it employs and manages staff. These include its practice of registering staff in countries with low standards of labour protection and union rights, and its extensive use of contractors rather than permanent staff. We see the company’s recent efforts on improving the passenger experience as a sign that it may become more open to considering the downsides of a strategy based purely on cost minimisation. Our engagement will continue to focus on encouraging the company to track and disclose key human capital metrics; and to consider the risks to its business associated with its approach to managing staff, including high turnover and reputational impacts.

Engagement Activity: Engagement Activity Detail: Discussion on labour standards We discussed with Ryanair the company’s business model and its focus on low-cost labour. This includes practices such as registering staff in countries with low standards of labour protection Area of Engagement: and union rights, as well as the extensive use of contractors rather than permanent staff. The S airline argues that it is excluded from withholding tax, social insurance and pension obligations outside of Ireland because it does not have a taxable presence in other European member countries. It also stated that it sees no risks connected to this business strategy as it is Engagement Status: managing its labour contracts in accordance with applicable European employment and social In Progress - Company Responded security laws. We expressed our concern that the law has not always been clear on these matters and questioned whether Ryanair might be pushing too hard on minimising tax-related payments. Ryanair is facing multiple allegations of violating individual European member states’ labour laws. Over the past year, Ryanair lost an appeal against a ruling that it breached French labour laws. In Copenhagen, the company was ordered to sign a collaborative agreement with unions. Moreover, newly launched European regulation requires companies to pay employees according to the labour laws of their home country, not the country that they work in. We pressed the company for more information from on how it is managing changing regulation and the potential impact on labour costs for the airline. The company was not able to answer any questions on staff turnover rates, sick leave and employee satisfaction surveys. We were promised to receive more information about this in due course. We especially highlighted our concern about potential safety risks linked to pilots’ contracts. When employing a high proportion of contractors on zero-hour contracts, there might be incentives to come into work while being ill, potentially bringing passengers and cabin crew into danger. Ryanair rejected this concern and reiterated that the company is being governed by the independent Irish Aviation Authority. It claimed it has all the required policies and guidelines in place. Until we see more disclosures and evidence, we will continue to be concerned about how the company manages its employee relations and the company still refuses to negotiate with trade unions. We see Ryanair’s "Always Getting Better" plan to improve the passenger experience as a signal that it may become more open to considering the downsides of a strategy based purely on cost minimisation. The company admits that its recent efforts have lowered the stress of travelling among customers and staff. We will continue to focus on encouraging the company to track and disclose key human capital metrics; and to consider the regulatory risks to its business associated with its approach to managing staff. The company is now more open to dialogue with investors on these issues than in the past which we are encouraged by.

Engagement Activity: Engagement Activity Detail: Follow up on labour standards We followed-up with Ryanair on a number of outstanding questions and issues following the discussion earlier discussion. We pressed the company to reveal more information around employee turnover, absence and satisfaction. We agreed to hold another meeting with the company to Area of Engagement: discuss these issues in further detail with the relevant expert at the airline. S

Engagement Status: In Progress - Company Responded

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Investor dialogue on employee We travelled to the Ryanair headquarters in Dublin, Ireland for a one-on-one meeting with the relations CEO, Michael O’Leary, and colleagues including the Head of HR to discuss the sustainability of its business model. The company is one of Europe’s most profitable airlines but its approach to Area of Engagement: employee relations attracts regular criticism. In our discussion we expressed our concern about S controversies relating to the budget carrier’s industrial relations, the company’s capacity to mitigate reputational and regulatory risks and its ability to recruit and retain staff.

O’Leary dismissed the view that Ryanair is “shopping” for the most favourable regulatory tax Engagement Status: regime. He states that it is logical for the airline use Irish employment contracts because In Progress - Company Responded Ryanair is an Irish company. Likewise, he stated, the company follows the tax laws of the home country, a common industry practice. On social contributions, 2012 changes in European law clarified grey areas that had led to labour disputes: new Ryanair recruits pay their social taxes in the country where they start and end their working day, and will no longer pay social taxes in Ireland. O’Leary emphasised that the company is in full compliance with European laws and its business model is capable of paying higher taxes when required. The company’s refusal to negotiate with trade unions has been a long-standing source of conflict, which was recently highlighted by Ryanair’s decision to pull out of Denmark after a court ruling allowing industrial actions against the company. O’Leary explains that the company is conducting internal negotiations with all staff and that he does not see the point of trade unions getting involved. His view is that the trade unions are protecting an outdated industry model that is driving the traditional carriers into bankruptcy. We pointed out that a collective bargaining involving trade union representatives is seen as best practice because it allows for employees to negotiate on equal terms with company management. O’Leary contested the idea that Ryanair’s cheap fares come at the expense of pilots’ and cabin crew’s salaries. The airline offers market competitive pay, stable rosters and return to home-base every evening. Employees receive sick leave and none of the permanent or contracted staff are employed on zero-hour contracts. Turnover rates are below 10% for pilots, and below 20% for cabin crew, which may suggest some employee satisfaction. The waiting list of over 5000 people proves that Ryanair is an attractive employer, according to the CEO. The information the company provided addressed to a certain extent our concerns. But the dismissive attitude of top management towards aspects of best practice in labour management, in particular union recognition, lead us to the view that a future deterioration in labour relations remains a key risk factor for the company. This is particularly significant given its future expansion plans and need to recruit and retain more pilots and cabin crews in the near future. For that reason we will continue to encourage the company to improve policies and to be more transparent in tracking and disclosing key human capital metrics so that investors can monitor progress.

Samsung Electronics ESG Rating: GREEN South Korea Information Technology Priority Company Objectives: We will continue our multi-year engagement with this company, focusing in 2015 on corporate governance and management of supply chain labour standards. Its circular shareholding structure allows the family to command control over the company with relatively small stakes, creating opportunities for abuse of minority shareholder rights. The popularity of its smartphone has also attracted media scrutiny over management of its suppliers, particularly on labour standards and living wages, areas where Samsung has faced controversies in the past.

Engagement Activity: Engagement Activity Detail: Request for discussion on governance We requested Samsung for a discussion on its corporate governance practices. We continue to have major concerns about protection of minority interests and shareholder rights. Despite the Area of Engagement: fact that these issues have been raised by investors repeatedly in recent years, the company G has only made slow progress in reforming these areas. The company has been good in responding to request for meetings in the past and we expect to hold an in-depth conversation in the coming weeks. Engagement Status: In Progress - Company Contacted

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion on supply chain We discussed with Samsung Electronics its approach to sustainability management within its management supply chain. Companies in the electronics industry have often been involved in controversies such as child and forced labour, excessive overtime and environmental pollution. Samsung has Area of Engagement: faced allegations of such nature including one where its suppliers was accused of hiring child S G labour last year. We raised our concerns to Samsung about child labour in the supply chain in the past, and encouraged the company to monitor its suppliers to ensure there is no child labour. Samsung’s procurement strategy used to only focus on cost, but the company took a Engagement Status: change of approach in 2013 to foster a responsible supply chain. ESG criteria were introduced in In Progress - Hibernation its procurement system and the supplier compliance team is now working closely with the procurement team to ensure that the goal of a responsible supply chain is being met. The company discloses results of its third-party audit on its suppliers in its sustainability report. While policing suppliers is important, Samsung opined that incentives have to be created for suppliers to voluntarily pursue their own responsibilities. We welcome Samsung’s commitment, effort and transparency in its supply chain management. Nonetheless, the company only covers its direct suppliers (Tier 1) but has not conducted any evaluations or audits on its Tier 2 suppliers. We urged Samsung to start reviewing these suppliers and determine appropriate actions to address ESG issues in its entire supply chain. Samsung's practices to manage risks in these areas have improved in recent years but they still remain short of industry best practices. The company's openness to engagement from international investors have also improved and we remain hopeful that Samsung will implement some of our recommendations.

Milestone: Milestone Detail: Milestone - Improved ESG Strengthened weaknesses in the management of ESG issues in its supply chain, particularly in management of its supply chain the areas of child labour and excessive overtime. The results are disclosed in its latest 2015 sustainability report. Samsung needs to demonstrate a robust supply chain management Area of Engagement: system due to its prominent brand, high volume of outsourced production, and the number of S controversies related to child labour in its supply chain in the past. Disclosing areas of weaknesses and corrective actions is a step in the right direction. These moves reflects our discussions with Samsung on providing more transparency in the management of its supply Milestone Rating: chain.

Shimamura Co Ltd ESG Rating: RED Japan Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Shinhan Financial ESG Rating: GREEN South Korea Financials

Shire Plc ESG Rating: YELLOW United Kingdom Health Care Priority Company Objectives: Our engagement in the past with the Anglo-Irish pharmaceutical company has focused on its approach to bribery and corruption, and corporate governance. As with other large pharmaceutical companies, the most material ESG risk in terms of financial impact through regulatory fines is their exposure to breaches in responsible marketing practices. In 2015, we will engage companies in the sector on their responsible marketing policies and implementation.

Engagement Activity: Engagement Activity Detail: Request for discussion on responsible We requested the company for a discussion on its approach to responsible marketing and sales and marketing approach managing the risks, in particular, of bribery and corruption. The company responded to say that it was open to discussion with investors on this issue and that it would introduce to us the Area of Engagement: relevant expert at the company. The meeting has been arranged for October. S

Engagement Status: In Progress - Company Responded

Societe Generale SA ESG Rating: YELLOW France Financials

Milestone: Milestone Detail: Milestone - Developed shale gas Developed and published an environmental and social risk policy for financing the shale gas sector financing policy industry. This enhances the bank's overall risk management practices, reducing default risk, and increasing profitability. We have engaged Societe Generale on managing the impacts of its Area of Engagement: financing activities since 2010. E

Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

SoftBank Group Corp ESG Rating: YELLOW Japan Telecommunication Services Priority Company Objectives: We will be intensifying its engagement with the Japanese telecoms company which acquired a 80% stake in US-based Sprint Nextel in 2013. The company is faced with higher risks related to labour unrest compared to its businesses in Japan, and it has minimal policies in this area. Also, like many Japanese companies its approach to corporate governance is relatively weak by international standards and there is concern about the excessive influence on the board of its founder/CEO Masayoshi Son.

Engagement Activity: Engagement Activity Detail: Discussion with CEO on Sprint overhaul We held a joint-investor call with Masayoshi Son who is the Chief Executive of SoftBank and plans Chairman of Sprint Corp. The Japanese company is the 80% owner of the US mobile operator. Mr Son admitted that he had underestimated the challenge of reviving the fortunes of Sprint Area of Engagement: and had for a while lost confidence in the acquisition. Sprint's share price has nearly halved in S G the past year. From a governance perspective, he explained that as Chairman he would be more actively involved in the day-to-day running at the company than before. He said that he had established a new management team led by CEO Marcelo Claure and a turnaround plan Engagement Status: centred on the so-called "Next-Generation Network". Mr Son provided some new technical In Progress - Company Responded details on the plan which would result in a network that he claimed was significantly better than its rivals Verizon and AT&T. We were sceptical of how Mr Son would achieve the building out of an expensive new high-tech network in the US without raising new equity or debt. The company already has a high debt load and is junk-rated. We question the extent to which other board directors could have resisted Mr Son’s plans for this large capital expenditure. We are concerned that Mr Son is a dominant figure on the Sprint board – as he has previously been on the Softbank board. Mr Son was bullish in turning around Sprint as he had with SoftBank's Japanese mobile business a decade ago. We continue to have concerns at Sprint, especially in the company's ability to manage labour disputes and data privacy related concerns as operating expenses are cut back to fund the capital expenditure. We will look to engage both SoftBank and Sprint on its management of these issues going forward.

Sojitz Corporation ESG Rating: ORANGE Japan Industrials

Engagement Activity: Engagement Activity Detail: Discussion on corporate governance We met with the Japanese trading company to discuss its approach to corporate governance. The company recently introduced two independent directors. We encouraged the company to Area of Engagement: establish one-third independence on the board and we explained that this would be our basic G expectation of board composition in Japan in the 2017 annual shareholder meeting season. It has disclosed a corporate goal of 8% return on equity (ROE) and 25% dividend pay out ratio. We commended the company for establishing shareholder returns focused goals which are still Engagement Status: rare in Japan. We asked what the rationale was for the ROE target and the company responded In Progress - Company Responded that it was because that was what others were targeting. This was a disappointing answer. We pressed the board and the management to consider what returns would be appropriate to investors for the risks of the wide array of business they are involved in as well as to calculate and disclose the cost of equity for the business. The company asked us to provide feedback on the content of its newly published corporate governance report.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Sonae SGPC Portugal Industrials

Sprint Corp ESG Rating: YELLOW United States Telecommunication Services Priority Company Objectives: We have been engaging with the company on matters related to data privacy. These relate in particular to the limited disclosure it provides on demands for information from regulatory agencies and the impact on customer rights. We will continue to engage around the disclosure of a transparency report in 2015 to ensure that it provides detailed information on specific requests for data and how the company deals with these while it safeguards customers’ privacy rights. We will also raise this issue in our engagement with Sprint's Japanese majority shareowner, Softbank.

Engagement Activity: Engagement Activity Detail: Requests for engagement We have been seeking an opportunity to engage with the company on its approach to customer data privacy management and cyber-security. During our last conversation with the Area of Engagement: company we had agreed to discuss the company's first transparency report which has now S G been published. We will once again look to engage with the company around the upcoming AGM and will also discuss our concerns around pay and ongoing performance issues. Engagement Status: In Progress - Company Contacted

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Engagement Activity: Engagement Activity Detail: Discussion with Chairman on business We held a joint-investor call with Masayoshi Son who is the Chairman of Sprint Corp. He is also turnaround plans the Chief Executive of SoftBank, the Japanese company which is the 80% owner of the US mobile operator. Mr Son admitted that he had underestimated the challenge of reviving the Area of Engagement: fortunes of Sprint and had for a while lost confidence in the acquisition. Sprint's share price has S G nearly halved in the past year. From a governance perspective, he explained that as Chairman he would be more actively involved in the day-to-day running at the company than before. He said that he had established a new management team led by CEO Marcelo Claure and a Engagement Status: turnaround plan centred on the so-called "Next-Generation Network". Mr Son provided some In Progress - Company Responded new technical details on the plan which would result in a network that he claimed was significantly better than its rivals Verizon and AT&T. We were sceptical of how Mr Son would achieve the building out of an expensive new high-tech network in the US without raising new equity or debt. The company already has a high debt load and is junk-rated. We question the extent to which other board directors could have resisted Mr Son’s plans for this large capital expenditure. We are concerned that Mr Son is a dominant figure on the Sprint board – as he has previously been on the Softbank board. Mr Son was bullish in turning around Sprint as he had with SoftBank's Japanese mobile business a decade ago. We continue to have concerns at Sprint, especially in the company's ability to manage labour disputes and data privacy related concerns as operating expenses are cut back to fund the capital expenditure. We will look to engage both SoftBank and Sprint on its management of these issues going forward. This conversation was particularly useful as Sprint has not responded to our recent requests for engagement. We continue to seek an opportunity to discuss our concerns around performance issues, longstanding problematic pay practices and the company's approach to customer data privacy management.

Engagement Activity: Engagement Activity Detail: Communication regarding voting We wrote to the company to communicate our voting decisions at the company's 2015 decisions shareholder meeting. We did not support the proposed executive pay schemes and the re- election of members of the compensation committee due to ongoing concerns about a Area of Engagement: disconnect between pay and performance. Notably this year, performance expectations were S G lowered by the compensation committee (the goal posts were moved). This resulted in payouts for underperformance which is weak practice. Engagement Status: In Progress - Company Contacted

Standard Chartered Plc ESG Rating: GREEN United Kingdom Financials

Engagement Activity: Engagement Activity Detail: Engagement on bank's involvement in We met the bank to discuss its involvement in the Carmichael coal mine project in Queensland, Carmichael coal mine project Australia and the reputational risk arising from its involvement. The company provided helpful insights into its role on the project, as well as due diligence and monitoring processes and Area of Engagement: compliance with internal policies that was called into question by some NGOs. Importantly, E S G Standard Chartered insisted they had not provided any financing of the Carmichael project and confirmed that it had decided to pull out of the project completely due to the climate change and reputational risk concerns. We encouraged the bank to make a public statement to this Engagement Status: effect. We also welcomed the ongoing review of the bank’s position on energy sector In Progress - Company Responded financing.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Sumitomo Realty & Development Co. Ltd ESG Rating: RED Japan Financials

Swedbank AB ESG Rating: GREEN Sweden Financials

Taiwan Semiconductor Manufacturing Company (TSMC) ESG Rating: GREEN Taiwan Information Technology

Milestone: Milestone Detail: Milestone - Joined the Electronic Signed up to the Electronic Industry Citizenship Coalition (EICC) which is the industry standard Industry Citizenship Coalition (EICC) for managing sustainability issues. These capture issues including those related to labour practices in the electronics supply chain. Implementation of the EICC code of conduct will help Area of Engagement: mitigate supply chain risk over time and, in the process, capitalise on business opportunities S linked to stronger sustainable supply chain management practices. We have pressed the company to improve its approach in this area going back to 2010. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Takeda Pharmaceutical ESG Rating: ORANGE Japan Health Care

Engagement Activity: Engagement Activity Detail: Discussion on responsible marketing We asked the Japanese pharmaceutical company to provide more information how it is practices mitigating the risk of bribery and corruption at its China-based operations. The business ethics practices of pharmaceutical companies have come under increased scrutiny by the Chinese Area of Engagement: government since 2013 following revelations of issues at GlaxoSmithKline. We encouraged the S company to ensure it has a robust system in place to both identify and prevent instances of bribery and corrupt practices. Takeda said that in response to what has happened in China it has made significant changes to the incentive schemes for sales representatives in the past Engagement Status: year. The new scheme now captures meeting compliance-related goals alongside standard In Progress - Company Responded sales-target related performance indicators. We highlighted the importance of a strong and clear commitment at the leadership level that signals zero tolerance for corrupt practice; clear definitions on what constitutes bribery; transparent policies and consequences; strong bribery monitoring systems; remuneration incentives; and a robust whistleblowing system. China and other emerging markets currently account for a small proportion of its revenue and profits but the company is expecting medium-term growth rates of 10% per year. These markets are the key component of the management's growth strategy. The company is strengthening its internal controls and remuneration approach in emerging markets which is essential for managing the risks of rapid business growth in these regions but it still falls short of best practice amongst global peers.

Milestone: Milestone Detail: Milestone - Reformed sales and Introduced reforms to China-based employees’ sales and marketing practices aimed at marketing practices enhancing compliance and business ethics. In 2015, a new compensation scheme was rolled out, introducing new qualitative metrics including meeting compliance-related goals. We had Area of Engagement: asked the company to look at improving its pay practices which would reduce the risks of S bribery and corruption in its emerging market operations including multiple meetings in trips to Tokyo since 2011. Milestone Rating:

Teck Resources Limited ESG Rating: GREEN Canada Materials

Engagement Activity: Engagement Activity Detail: Update on sustainability management During a meeting with management, we raised some questions about the company’s and performance investments in oil sands projects in Alberta, Canada. We particularly focused on high upfront capex associated with the Frontier project, which at an estimated cost of over $20 billion, is Area of Engagement: one of the most expensive oil sands mining projects contemplated to date. Teck recently E announced that it was delaying development of Frontier by five years to 2026. This move is fresh evidence of a broader pull-back under way in Alberta as policymakers hint at a potential tightening of climate regulations, and as oil prices show no sign of recovering to triple-digit Engagement Status: territory – a threshold most analysts say is needed to justify new developments such as In Progress - Company Responded Frontier. With these risks increasing the likelihood of higher-cost fossil fuel assets becoming stranded, we questioned the company’s continued participation in such costly projects. Teck argues that oil will remain a critical component of the future energy mix and that technological advances will help bring down the costs of mining oil sands. We welcomed the company’s approach to managing carbon risks – it explained that it incorporates a carbon price into its capital and risk decision processes, including performing sensitivity analyses to understand what its exposure and risks are under different carbon pricing and regulatory scenarios. We will closely monitor this issue going forward, and engage as greater clarity emerges on the future economics of oil sands projects.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Improved climate change Improved climate change risk management by disclosing the strategy it pursues to manage the risk management climate related risks its businesses are exposed to. In its annual report, the company explains how carbon pricing is integrated at multiple levels of decision making, ranging from annual Area of Engagement: operating budgets developed at the site level to corporate decision making for large capital E investments. It also reports on the estimated costs of compliance for different carbon regulatory and demand scenarios. The company's significant investments in oil sands call for a robust approach to managing climate change risks, particularly the risk of those assets Milestone Rating: becoming stranded. During previous engagement with the company, we had encouraged it incorporate climate change risks in its risk management and strategic planning processes.

Tencent Holdings ESG Rating: ORANGE Hong Kong Information Technology

Engagement Activity: Engagement Activity Detail: Dialogue on corporate governance We contacted the company to highlight concerns in regard to the balance and independence of practices its board. Currently, the majority of independent directors have served for 12 or more years, which can jeopardise independence as they may become close with management and overly Area of Engagement: invested in prior strategic decisions. We appreciate the importance the company assigns to the G knowledge and experience these individuals have gained over time and their contributions to board discussions, yet we noted the risks linked to prolonged directorships. We, therefore, encouraged the nomination committee step up efforts to refresh the board and thus ensure Engagement Status: independent directors do not become entrenched and new candidates are recruited in a timely In Progress - Company Responded and effective manner. We also queried about the combination of the roles of chairman and CEO and how the company manages succession planning. While there seems to be no appetite at the moment to separate the roles or develop a robust succession strategy, the company assured us these issues are being discussed and will be monitored going forward.

Tesco Plc ESG Rating: YELLOW United Kingdom Consumer Staples

Engagement Activity: Engagement Activity Detail: Response to engagement letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. The supermarket chain highlighted that as a founding member of the Ethical Trading Initiative (ETI), Engagement Status: they expect all suppliers to comply with the ETI Base Code. As such the principle of a living In Progress - Company Responded wage and the right to collective bargaining is endorsed in company policy. The code states that wages should always be enough to meet basic needs and provide some discretionary income. Though, it seems to fall short of a living wage commitment by stating that it works to ensure that suppliers pay the country's legal minimum wage at the very least. The supermarket chain has a large in-house ethical trade team, including 40 labour standards experts, who work directly with suppliers to improve practice through the Benefits for Business and Workers (BBW) program. Analysis of suppliers’ wage records is performed through third-party audits. Also, it is a member of the multi-stakeholder group Action, Collaboration, Transformation (ACT) and lobbies national governments on higher minimum wage to achieve equal improvements for all workers. We commend Tesco for its work on wages in the global supply chain. The company has contributed to best practice through its membership with the ETI. The zero- tolerance approach to businesses that pay workers below the minimum wage shows a strong stance on driving compliance with its code of conduct. We will encourage it to further consider the concerns around wage levels. Best practice would include publicly committing to a living wage roadmap, informing stakeholders of supplier requirements such as alignment of pay with living wage benchmarks. We will continue to engage the company on the issue.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Teva Pharmaceutical Industries Ltd ESG Rating: RED Israel Health Care Priority Company Objectives: We will engage the Israeli generic pharmaceutical maker on managing risks of bribery & corruption. As with other large pharmaceutical companies, the most material ESG risk in terms of financial impact through regulatory fines is their exposure to breaches in responsible marketing practices. The company has said that it has likely violated the Foreign Corrupt Practices Act in its emerging market operations. This is expected to lead to major fines. In 2015, we will engage the company on its responsible marketing policies and implementation.

Engagement Activity: Engagement Activity Detail: Discussion on governance We expressed our concerns regarding the Israeli generic pharmaceutical company's compensation proposals ahead of its annual general shareholder meeting. We explained that Area of Engagement: we did not support the equity compensation plans because incentive awards to executives S G should be clearly disclosed and include robust and stretching performance targets. We explained that these should be structured in a transparent manner to reward strong performance and drive shareholder value over a sufficiently long period of time. We recognised Engagement Status: that while the current equity compensation plan has some performance criteria, we urged the In Progress - Company Contacted company to: disclose the specific performance targets (for both annual bonus and longer term awards), explain why those KPIs and targets are appropriate to the business, and detail what proportion of total award satisfying each KPI target results in. We also encouraged the company to consider broader performance issues such as regulatory fines, compliance failings, and culture and ethics in the overall assessment of variable compensation. This was particularly relevant in the context of the company admitting in early 2015 that it found some business practices and transactions which could violate the U.S. Foreign Corrupt Practices Act. These possible violations were in Russia and other countries in Europe and Latin America. We also expressed concern at Teva's plans to award variable remuneration and equity incentives to all board directors. These forms of compensation should not be granted to non-executive directors as this may compromise their independence and ability to hold management accountable. Teva has been poor at responding to engagement in the past and implementing recommendations from investors. We remain concerned at what extent Teva's corporate governance is structured in the interests of minority shareholders and to oversee a wide range of compliance-related risks faced by the company. We will continue to monitor its progress in these areas.

The Gap Inc. ESG Rating: YELLOW United States Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Response to letter on living wage The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Most workers do not earn enough to meet their basic needs which S may lead to high turnover, reduced productivity and social unrest, possibly affecting security of supply. We called on the company to explain how it mitigates these global supply chain risks. The clothing retailer highlighted its recently strengthened collaboration between suppliers and Engagement Status: sustainability departments resulting in improved selection and management of its supply In Progress - Company Responded chain. Gap’s vendor policies require suppliers to comply with any applicable law on minimum wages and provide for benefits but if prevailing (if higher) local industry practices exist, these should be met. It also discusses the requirement to respect the right to free association and collective bargaining. Disclosure falls short of any guidance on how suppliers exactly should act in line with any of these principles. Field team specialists monitor factories’ progress on implementation. The company partners with the ILO and other stakeholders to support training and capability building programs such as Workplace Coordination Committees and Better Work. In our view Gap is taking some first steps in improving factory working conditions but we think the company could do a lot more. We will encourage them to consider its dependence on global supply chains and the need for brands and retailers to acknowledge the difference between minimum and living wage and drive better pay for workers. Until the company publicly commits to a living wage roadmap that clearly expects suppliers to align pay with a living wage benchmark within a certain timeline making it possible to assess the impact of the company’s efforts. We will continue to engage the company on this issue.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

The Kroger Co ESG Rating: ORANGE United States Consumer Staples Priority Company Objectives: We have lead the investor dialogue with US grocery chain The Kroger as part of the UNPRI coordinated initiative on employee relations. We will continue to encourage the company to improve its practices on employee turnover, employee engagement and training, an area where Kroger shows relatively low levels of transparency compared to peers. We will also extend our engagement to environmental risks focusing on the management of water risks in Kroger’s agricultural supply chains.

Engagement Activity: Engagement Activity Detail: Scheduling call on water risks Call on water risks scheduled for 24 August with Suzanne Lindsay-Walker, Director of Sustainability Area of Engagement: E

Engagement Status: In Progress - Company Responded

Engagement Activity: Engagement Activity Detail: Scheduling call on employee relations Call on employee relations scheduled for 15 September with Tim Massa, Group Vice-President of Human Resources and Labor Relations Area of Engagement: S G

Engagement Status: In Progress - Company Responded

Engagement Activity: Engagement Activity Detail: Meeting on water risks in agriculture As one of the lead-investors for the UNPRI working group on water risks in agricultural supply chains, we engaged The Kroger Co on its water stewardship practices. Water scarcity can pose Area of Engagement: significant supply chain risks for retailers affecting the irrigation of crops and food products sold E in its stores. Notably water is missing from the food retailer’s list of self-defined high-impact commodities, such as sustainable seafood, palm oil, dairy and flowers. The company commented that water savings and conservation is internally discussed, but when stress- Engagement Status: testing the top-ten product commodities, water was not acknowledged as one of the highest In Progress - Company Responded business risks. For individual regions, water scarcity may be an issue (e.g. California) but for other regions such as Latin America (e.g. produce from Columbia) social issues have priority over water management concerns. The company mentioned that it is considering reporting to the CDP Water framework soon, which suggests that the development of a more comprehensive plan to report and manage water risks is underway. We highlighted our expectations regarding food retailers, which include a pro-active risk management approach for water, covering water footprinting, stress-testing and stewardship. Currently, the company needs to develop a comprehensive approach for its water management practices, for both its own and supply chain operations. Our engagement will continue to focus on encouraging the company to track and disclose key water metrics; and start mapping the indirect impacts of water scarcity to the business, especially for agriculture crops that are essential to food products it sells.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Toppan Forms Japan Industrials

Toshiba Corp ESG Rating: ORANGE Japan Information Technology

Engagement Activity: Engagement Activity Detail: Engagement on response to We engaged the Japanese electronics conglomerate following the full revelation of the accounting irregularities scandal accounting irregularities at the company. The company had inflated earnings by at least $1.2 billion going back more than six years. The company President and his two predecessors Area of Engagement: resigned following an independent investigation of its accounts. The report showed that top S G executives set unrealistic profit targets in the aftermath of the global financial crisis and systematically led to flawed accounting. We expressed our disappointment at the incident which has led to the company share price falling by a fifth. We pressed for granular details in Engagement Status: disclosures of the internal reforms which will be implemented in the aftermath of the In Progress - Company Contacted investigation to ensure that these failings do not occur again. We also urged a review of the current board members - especially those on the audit committee - who failed to adequately oversee the accuracy of the accounts and did not arguably meet their fiduciary responsibility to investors. This is the biggest corporate scandal in Japan since the Olympus accounting incident. Our expectation is for a comprehensive overhaul of the poor company culture and weak management systems which led to these accounting irregularities at Toshiba.

Engagement Activity: Engagement Activity Detail: Engagement on governance reforms We engaged the company ahead of its special general shareholder meeting. The meeting had and voting at special meeting been convened due to the accounting irregularities scandal at the company which led to correction of at least $1.2 billion of pre-tax earnings over a six year period. Shares have fallen Area of Engagement: by 40% since the start of the scandal. We informed the company that we will be voting against S G the election of three internal executive director nominees. While we welcomed the broad range of corporate governance reforms the company has made in the aftermaths of the accounting scandal, we expressed our disappointment that Toshiba had not chosen to make a Engagement Status: clean break from its past. We hold Toshiba's management directly accountable for the In Progress - Company Contacted accounting irregularities. An independent third-party committee had identified that accounting irregularities were partly led by top executives and that there was a corporate culture where employees could not oppose their supervisors. Board nominee President Masashi Muromachi was a representative executive officer when the accounting irregularities took place. We did not consider that the company's explanation as to why continuity needs to be maintained in management to be convincing. We urged the company to ensure a complete and thorough change in the corporate culture, a change that is crucial in order to break away from the past. The overall nomination process raises suspicion that the decision was reached for reasons other than the best interests of shareholders. We encouraged the company to reach out to its global shareholder base to better communicate why these board nominations have been made and why it is appropriate. We continue to remain concerned that the reforms at Toshiba will not be sufficient in ensuring that the underlying causes of the scandal – namely business culture and ethics - can be meaningfully transformed at the company.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Total ESG Rating: GREEN France Energy Priority Company Objectives: Total’s extensive portfolio remains exposed to a multitude of operational and country risks. We will continue to focus on the stranded assets theme asking for a review of investment plans in high-cost and carbon intensive projects, and for stronger alignment with a long- term climate change strategy. Safety management remains a key topic where the company has shown a poor track record relative to its peers over the past years. We will also monitor developments in high-risk countries, such as Western Sahara and Nigeria, where business ethics and human rights concerns pose long-term challenges for the company.

Engagement Activity: Engagement Activity Detail: Collaborative engagement on stranded We joined a small group of investors to discuss Total’s approach to stranded asset risk assets stemming from efforts to address climate change. Total has recently led the industry by actively calling for a strong carbon price, shifting its reserves portfolio towards lower-carbon Area of Engagement: gas assets and investing heavily in solar, where it has become the second largest solar power E producer globally. The company states that its lobbying policy is clear and transparent and reflects its belief that carbon emissions will need to be constrained to achieve a 2C degree global warming. We requested additional clarification on how the company integrates climate Engagement Status: risks in its capital expenditure plans. Total uses an internal price of carbon (of EUR 25 per tonne In Progress - Company Responded CO2). The company stated that this has influenced investment decisions without specifying effected projects. We requested that it extend its analysis of potential impacts of a carbon price to include the effect such a price would have on oil demand, rather than simply calculating potential carbon costs for its operational footprint. We also pointed out that under the current weak oil price environment many of the company’s new projects could become uneconomic, a situation that potential incoming climate regulations would only exacerbate. The company explained that it stress-tests the financial viability of its assets under a wide variety of scenarios, including transport electrification, decentralised energy and a dramatic expansion of renewables and that it integrates findings in its risk analysis processes. We highlighted that it would be useful to understand the assumptions used in these tests and how they influence investment decisions at management and board level. We expect to get further clarity on this issue in an upcoming meeting.

Toyoda Gosei Co Ltd ESG Rating: YELLOW Japan Consumer Discretionary

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

UBS AG Switzerland Financials Priority Company Objectives: We have engaged the Swiss bank on a number of business ethics and internal controls related concerns in recent years. These include helping wealthy clients evade taxes with cross-border transactions, manipulating the Libor rate, and rigging foreign exchange markets. These have resulted in large penalties from global authorities and a number of investigations are still underway. The company has responded by overhauling its management, board, pay structure, compliance, and business strategy; however, we remain unconvinced that its problems are genuinely behind it. Our main objective in 2015 is to ensure remuneration structures are better aligned with shareholder interests and used effectively to facilitate changes in culture and business conduct, and to monitor the company’s implementation of the promised reforms.

Engagement Activity: Engagement Activity Detail: Discussion on AGM vote and We met UBS to discuss the issues behind our opposition to the bank’s remuneration proposals. remuneration The bank agreed that more in-depth explanation of the remuneration committee’s decisions in relation to executive bonus would be appropriate, and it will look into providing more Area of Engagement: information on how provisions and charges for business conduct issues impact variable pay at G responsible business units. To our disappointment, the company confirmed that its share-based variable remuneration is short-term by nature with long deferrals of annual bonus payments to reduce risk-taking incentives. This explains the unchallenging performance targets that Engagement Status: determine the release of deferred amounts. We argued that forward-looking long-term targets In Progress - Company Responded are preferable for investors and urged the bank to review its remuneration structure, but we did not sense much appetite for change. On the other hand, we were reassured that all performance assessments have strong behaviour component in them. We were particularly pleased that, for key risk takers, 360 reviews are undertaken that require assessments from risk and control functions, and that promotions have been rejected for those viewed as not adhering to the bank’s culture. The bank defended the Chairman’s pay, particularly by comparison with other Swiss companies, but agreed that high non-executive fees in Switzerland could pose concern for directors’ independence and explained the measures taken to reduce this risk. Overall, the bank insisted that remuneration levels have come down by 30%-40% since pre-crisis level, but acknowledges that high quantum of remuneration continues to present reputational risk. Regrettably, similarly to other banks, UBS are not willing to act on their own and prefer to wait for industry-wide reform.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Vale S.A. ESG Rating: ORANGE Brazil Materials Priority Company Objectives: The company’s governance practices lag those of its peers as well as standards in the Brazilian market. Past engagement efforts have proven unsuccessful, yet recent governance related events involving large Brazilian corporations provide momentum for us to approach the company again. We will, therefore, press for improvements in corporate governance practices, including on board independence, shareholder rights and remuneration disclosure. We will also address concerns that Vale's Brazil-centric biodiversity management strategy is underestimating potential impacts at its global operations in ecologically sensitive areas.

Engagement Activity: Engagement Activity Detail: Dialogue on community relations We reached out to the company to discuss progress achieved in the year since a large toxic effluent spill, and resulting community protests, forced it to stop operations at its controversial Area of Engagement: Goro nickel mine and refinery in New Caledonia for almost two months. Local authorities set E heightened safety standards as a condition of nickel production operations resuming. Conditions also included a full audit of safety management and the establishment of a multi- party surveillance committee. The company explained that it has met all of these Engagement Status: requirements, and that there have not been any environmental incidents at the site in the past In Progress - Company Responded year. As it sought to mend relations with local communities, the company embarked on a community consultation aimed at obtaining support for its strategy to implement the conditions set by the authorities. In addition, it has been providing information on environmental performance to community representatives on a monthly basis. Vale also set up a dedicated sustainability department to improve the implementation of the sustainable development pact it signed with local communities in the authorities in 2008, particularly around the identification, execution and oversight of projects with tangible environmental and social benefits. The stoppage last year cost the company $20 million in damages to industrial facilities and contributed to it missing nickel production estimates, affecting the company’s plan to sell as much as 30 percent of its nickel unit in an initial public offering. While we welcomed the progress made so far, we remarked on the importance of having effective systems to manage environmental and social risks to secure its social license to operate and protect shareholder value. As such, we encouraged the company to continue investing in strengthening its environmental management systems and enabling communities to participate fully in planning and decision-making on how the project moves forward.

Vedanta Resources ESG Rating: RED United Kingdom Materials

Engagement Activity: Engagement Activity Detail: Discussion about climate change We joined other investors in meeting company management, including the CEO, to discuss how management Vedanta is addressing the exposure of its businesses to climate change risks. The company has engaged in a number of initiatives to reduce its carbon footprint, including investing in energy Area of Engagement: efficiency and renewable energy. However, its overall approach to managing climate risks lags E S G that of its peers, evidenced by highly carbon-intensive operations (i.e. aluminium smelting and thermal energy generation), growing trend in emissions, and the absence of quantitative emissions reduction targets. The company explained that climate change-related issues have Engagement Status: been deemed a lower priority to its stakeholders over the years, reflecting to a large extent In Progress - Company Responded prevalent issues in India around lack of access to reliable and cheap energy across most of the country. We welcome Vedanta focusing its sustainability efforts in addressing significant gaps in areas like governance, health & safety and community engagement, where good progress has been made over the last couple of years. While there is still need and room for improvement in these areas, we encouraged the company pay increased attention to managing its carbon footprint and other climate change-related risks going forward. It may face a more stringent regulatory environment as public concerns over air pollution and the physical impacts of climate change become more salient.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Milestone: Milestone Detail: Milestone - Published tax transparency Published its first voluntary tax transparency report. The report shows the contributions report Vedanta makes to the public finances of the countries in which it operates. Through the Extractive Industries Transparency Initiative we have consistently encouraged companies in the Area of Engagement: sector, including Vedanta, to disclose taxes and other payments they make to governments. S This serves to increase accountability of both governments and companies and, in the process, protect companies' license to operate. Milestone Rating:

Volkswagen AG ESG Rating: RED Germany Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Engagement on emissions test scandal We wrote to the German auto manufacturer after the company had cancelled a planned meeting with its sustainability team due to the evolving emissions test rigging scandal. We Area of Engagement: requested to reschedule the meeting once the company is able to discuss the steps it is taking E S G to address this issue. In particular, we encouraged Volkswagen to present a reform of its oversight processes, including on board, executive and operational levels, in order to regain investor trust in the company's management and disclosed information. We also pressed for Engagement Status: clarification why the company felt obliged to tamper with emissions tests in the first place and In Progress - Company Contacted how its vehicle fleet is positioned vis-à-vis evolving emissions regulations. In addition to getting greater clarity on this issue from Volkswagen’s operational experts, we are also in the process of reaching out to the company’s Board to express concerns about a number of governance issues, in particular its recent decision to use a court procedure to appoint the current Chief Financial Officer as the new Board Chairman. We will be pressing Volkswagen to overhaul its corporate governance, including the composition of its Board, with a view to strengthening board oversight and business ethics culture within the company.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Wells Fargo & Company ESG Rating: RED United States Financials Priority Company Objectives: We have been engaging with US retail and commercial bank Wells Fargo for a number of years. The key priority for this company is the composition of its board including four non-executive directors who have served for more than 15 years amongst other long serving members. It also has a weak approach to pay with executives receiving generous pay-outs even in years of weaker than industry average performance. Our main objective in 2015 is to press the bank to make stronger links between remuneration and performance at and below board level, as well as encouraging it to refresh the board. Its approach to managing environmental and social risks in its financing activities lags other major US banks, and we plan to engage the company on this issue.

Engagement Activity: Engagement Activity Detail: Engagement with new Chief We engaged with the chief administrative officer, the corporate secretary and the director of Administrative Officer corporate sustainability to discuss board composition, pay and sustainability risk management. We were pleased with the progress achieved on all topics since our last conversation. The Area of Engagement: board has undertaken some refreshment recently and two directors have been appointed. We G are encouraged by the skillsets and expertise that each new director brings to the board as one of them has extensive cybersecurity experience and the other a successful career in financial services and financial regulation. We are also encouraged with the board’s approach to Engagement Status: succession planning and how it actively looks at its composition and attributes, ensuring that it In Progress - Company Responded preserves its diversity and appropriate mix of skills. We agreed to continue engaging on this topic, particularly in relation to four long-serving directors. On remuneration, we commended the progress on disclosure given that the bank now provides greater clarity around how pay is structured and how discretion is exercised. We did, however, press for further structural reform and encouraged the compensation committee to introduce additional performance metrics for the short and long-term incentive plans, as currently these use a single metric each. We also noted that the performance horizon under the long-term incentive plan should be extended from the current three years. Regarding sustainability, the bank has made substantial progress in its disclosures. In this year’s sustainability report the bank clearly outlines how environmental and social risks are assessed. The report describes how Wells Fargo works with its clients and various internal teams, including deal teams, risk managers and in-house sustainability experts to assess investment and lending risks. The new disclosures also provide a clearer picture on how sustainability is embedded in the company’s overall operations and strategy and how it will continue to play an increasing role going forward, including the bank’s commitment to further grow its investments in various sustainability initiatives. Overall it was a very positive engagement and we are pleased that our previous concerns in the different areas have been significantly mitigated. We agreed to continue our dialogue to follow the progress the bank makes around board composition, pay and sustainability.

Milestone: Milestone Detail: Milestone - Enhanced ESG risk Enhanced significantly its disclosure of social and environmental risk management. This has management involved collaboration between the bank’s deal teams, their risk managers and their social and environmental specialists. The improved disclosure covers the bank’s approach to specific Area of Engagement: sectors, including unconventional oil & gas production; power & utilities; coal & metal mining; E agriculture, forestry & fisheries. We have been engaging with the bank on this topic for two years and participated in its sustainability stakeholder advisory panel. Milestone Rating:

Milestone: Milestone Detail: Milestone - Refreshed Board with Undertook some long-awaited board director refreshment by appointing two new directors. relevant expertise They have strong backgrounds that strengthen its overall structure. One director has extensive expertise in cybersecurity, a key risk to financial services companies. The other director has vast Area of Engagement: knowledge of public policy and financial regulation, which is also of key importance to banks. G We have been engaging with the bank on the composition of the board over the past five years and have repeatedly expressed our concern on this issue through our vote at the annual meetings. Milestone Rating:

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Wesfarmers ESG Rating: ORANGE United Kingdom Consumer Staples

Engagement Activity: Engagement Activity Detail: Response to living wage letter The company responded to our recent letter which asked about its approach to wage level concerns in the global supply chain. This dialogue is part of our engagement project on living Area of Engagement: wage in the apparel sector. Workers often do not earn enough to meet the basic cost of living. S This could lead to high employee turnover, reduced productivity, social unrest, and ultimately affect security of supply. We called on the company to explain how it mitigates these risks. The company acknowledges that the payment of a living wage is an issue, particularly in relation to Engagement Status: the apparel industry, although it does not specifically refer to living wage in its policy. In In Progress - Company Contacted recognition of the right to freedom of association, company representatives have meetings with unions and labour-rights groups in countries where living wage is an issue. A number of the brands are conducting pilot programs involving a range of stakeholders in relation to living wage. Together with the Benefits for Business and Workers program (BBW) in Bangladesh, one of its brands, Target, achieved higher hourly pay rates as a result of workers receiving further training or promotions. Another brand, Kmart, is currently scoping a project to examine potential approaches to living wage. The Group, however, falls short of making any meaningful commitments to higher pay for workers. Compared to industry peers, we commend Wesfarmers for acknowledging problems with apparel factory workers receiving insufficient wages and for conducting a number of pilot projects. We will encourage them to adopt best practice which would include publicly committing to a living wage roadmap, informing stakeholders of supplier requirements such as alignment of pay with living wage benchmarks. We will continue to engage the company on the issue.

Woolworths Holdings Ltd ESG Rating: GREEN South Africa Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Dialogue on corporate governance We met with this South African retailer to discuss corporate governance. We highlighted to the company the perceived conflicts of interest between the finance director and the auditor, given Area of Engagement: the former was the lead audit partner of the company in 2012. While the company explained a G number of safeguards against such conflict, such as regular rotation of audit partner, we were not satisfied that the auditor is truly independent and encouraged the company’s board to review and consider changing its auditor if necessary. We also encouraged the company to be Engagement Status: more transparent over performance targets in its remuneration report and include return In Progress - Company Responded metrics in its remuneration structure.

WPP Group Plc ESG Rating: GREEN United Kingdom Consumer Discretionary

Engagement Activity: Engagement Activity Detail: Letter to new chairman regarding Along with a number of major global investors, we wrote to the recently appointed chairman succession planning of WPP seeking to engage with him on succession planning, with focus on the CEO. The company's disclosures around succession planning are suboptimal and this is of particular Area of Engagement: concern given the key-man dependency on and influence of the CEO. We are also seeking to G get a better understanding of the board's overall approach to succession planning. It is unclear what role and influence the CEO plays on the nomination and appointment of new directors. From our previous experience engaging with the company on remuneration, we believe that it Engagement Status: is key to have transparent procedures with clearly defined responsibilities with regards to how In Progress - Company Contacted the composition of the board is shaped through the succession of its members.

S G Area of Engagement: E Environmental Social Governance

Engagement and Milestones Q3 2015

Yamato Kogyo Co. Japan Materials

Yue Yuen Industrial Holdings ESG Rating: RED China Consumer Discretionary Priority Company Objectives: Being involved in the largest Chinese workers strikes in recent history, we will urge the company to enhance employee benefits such as social security contribution, overtime compensation and housing benefit. We will also encourage the company to address barriers that prevent workers in the supply chain from being paid a living wage. Given Yue Yuen’s thin profit margins, the company’s major clients such as Nike, Adidas and Puma have an important role to play and we will actively engage them on the issue. Finally, we will also examine the company's approach to responsible procurement of raw materials with negative environmental impact such as cotton and leather and eliminate the use of hazardous chemicals.

Engagement Activity: Engagement Activity Detail: Investor dialogue on living wage We spoke to the Chinese footwear supplier on its approach to living wage. Workers in the global supply chain often do not earn enough to meet the basic cost of living. This leads to Area of Engagement: high employee turnover, reduced productivity and social unrest which eventually impacts S productivity and the company’s security of supply. Yue Yuen is a strategic footwear supplier to international brands and retailers such as Adidas, Nike and the Chinese brand Li-Ning. As a strategic supplier, this company is directly responsible for the workers’ pay levels. We Engagement Status: commended the footwear manufacturer for its membership of the Fair Labor Association (FLA), In Progress - Company Responded which compared to industry peers, is a noteworthy achievement. Although all production facilities are in compliance with the FLA, differences continue to persist in terms of social practices at a factory level. Brands and retailers have different supplier requirements and some put more emphasis on labour standards than others. It was their impression that, in comparison to a few years ago, the issue of workers’ wage levels has become less urgent. Driven by national governments, minimum wage levels have increased all over Asia. Workers show more concern now about social security contribution, overtime compensation and housing benefits. The company did not highlight how it came to this conclusion and whether it carries out employee satisfaction surveys. It was not clear whether any of the brands which they work with are requesting higher levels of pay. We highlighted to the company that we see living wage as a growing concern among international retailers and brands that will go beyond compliance with the FLA. Therefore we would like to better understand Yue Yuen’s thinking around this risk. The company offered to forward our questions to its sustainability department. We will follow up with the company later in the year.

S G Area of Engagement: E Environmental Social Governance

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Adidas Germany ✔✔ ✔ G Advanced Semiconductor Engineering (ASE) Taiwan ✔ D AEON Corp Japan ✔ G Ahold Netherlands ✔ G Akzo Nobel Netherlands ✔ EB Alfa Laval AB Sweden ✔ D Alimentation Couche-Tard Inc Canada ✔ G Almacenes Exito Brazil ✔ G ALS Ltd Australia ✔ ✔ D Alstom France ✔ EB Amazon.com Inc. United States ✔✔ G Ambev S.A. Brazil ✔ ✔ EB M Amer Sports OYJ Finland ✔ ✔ G Anglo American United Kingdom ✔✔✔✔ EB G H AngloGold Ashanti South Africa ✔ ✔ G Anta Sports Products Ltd China ✔ G Antofagasta United Kingdom ✔ EB AO Smith Corp United States ✔ EGH AP Moeller-Maersk Denmark ✔ EB APERAM SA Luxembourg ✔ EB Apple Inc. United States ✔✔ ✔ G ArcelorMittal Luxembourg ✔ EB Assa Abloy Sweden ✔ D Associated British Foods United Kingdom ✔✔ G Astellas Pharmaceutical Japan ✔ ✔ M Axfood Sweden ✔ G Banco Santander Spain ✔ ✔ E Bank Mandiri Persero Indonesia ✔ D Bank of America Corporation United States ✔✔ ✔ D Bank of Kyoto Japan ✔ ✔ D Barclays United Kingdom ✔✔✔✔ EF D Barrick Gold Corporation Canada ✔✔✔ EF H BASF SE Germany ✔ EB Bayer Germany ✔✔ ✔ EBF H Belle International Holdings Hong Kong ✔ G BG Group United Kingdom ✔✔ EB BHP Billiton Australia ✔✔✔ EB DH Billerud AB Sweden ✔ D BMW Germany ✔ EB

100 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance BNP Paribas France ✔✔✔ E Boliden AB Sweden ✔ D BP United Kingdom ✔✔ ✔ EB British American Tobacco United Kingdom ✔✔ ✔ FG Burberry Group plc United Kingdom ✔ G Calsonic Kansei Japan ✔ ✔ D Canadia Tire Corp Canada ✔ ✔ G Carrefour SA France ✔✔ ✔ GD Casey's General Stores Inc United States ✔ G Casino Guichard Perrachon SA France ✔✔✔ EG Caterpillar Inc. United States ✔ F Cencosud SA Chile ✔ G Centrica Plc United Kingdom ✔ EB CEZ (Ceske Energeticke Zavody) Czech Republic ✔ EB Chevron Corporation United States ✔✔ F China Petrochemical and Chemical Corp (Sinopec) China ✔✔✔✔ EB G Christian Dior France ✔ G Cia Brasileira de Distribuicao (GPA) Brazil ✔ G Cie Financiere Richemont SA Switzerland ✔ G Citigroup Inc. United States ✔✔ ✔ D Coach Inc. United States ✔ G Colruyt SA Belgium ✔ G Compagnie de Saint-Gobain France ✔ EB Compass Group United Kingdom ✔ ✔ E Costco Wholesale Corporation United States ✔ G CP ALL PCL Thailand ✔ G Credicorp Peru ✔✔ ✔ D Credit Agricole France ✔ ✔ E CRH Ireland ✔ EB CVS Health Corp United States ✔✔ ✔ BD Daiichi Sankyo Co Ltd Japan ✔ ✔ M Daimler Germany ✔ EB Danske Bank A/S Denmark ✔ ✔ F Delhaize Group Belgium ✔ G Deutsche Bank AG Germany ✔ ✔ E Deutsche Boerse Germany ✔ ✔ D Deutsche Post AG Germany ✔ EB Dick's Sporting Goods Inc United States ✔ ✔ G Distribuidora Internacional de Alimentacion SA Spain ✔ ✔ G

101 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Dixons Carphone PLC United Kingdom ✔ ✔ D DMG Mori Seiki Japan ✔ ✔ D Dollar General Corporation United States ✔ G Dollar Tree inc. United States ✔ G Dollarama Inc Canada ✔ G Don Quijote Japan ✔ G Dow Chemical Company United States ✔ EB DuPont de Nemours and Company United States ✔ EB E-Mart Co Ltd South Korea ✔ G E.On Germany ✔✔ ✔ EB D EDF France ✔ EB Eisai Co Japan ✔ ✔ M D Electrolux Sweden ✔ D EMC Corporation United States ✔✔ ✔ BD Empire Co Ltd Canada ✔ G Endesa Spain ✔ EB Enel SpA Italy ✔ EB Energias de Portugal (EDP) Portugal ✔ EB Eni SpA Italy ✔✔ EB Ericsson Sweden ✔ D Esprit Holdings Limited Hong Kong ✔ G Eurocash SA Poland ✔ G European Bank for Reconstruction and Development (EBRD) United Kingdom ✔ ✔ E European Investment Bank Luxembourg ✔ ✔ EH Experian Plc United Kingdom ✔ ✔ D Falabella Chile ✔ G Family Dollar Stores Inc. United States ✔ G FamilyMart Japan ✔ ✔ D FANUC Corp Japan ✔ ✔ D Fast Retailing Co Ltd Japan ✔ G Fastighets AB Balder Sweden ✔ D Fiat Chrysler Automobiles NV United Kingdom ✔ EB Fomento Economico Mexicano Mexico ✔ ✔ D Foot Locker Inc. United States ✔ G Fortum Finland ✔ EB Foschini South Africa ✔ G Fossil Inc United States ✔ G Freeport-McMoRan, Inc. United States ✔✔✔✔ ED Gas Natural United Kingdom ✔ EB

102 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance GDF Suez France ✔ EB George Weston Limited Canada ✔ G Gerry Weber International Germany ✔ G Gildan Activewear Inc Canada ✔ G Givaudan SA Switzerland ✔ EB Glencore plc Switzerland ✔✔✔✔ EBF Greggs United Kingdom ✔ G Groupe Auchan SA France ✔ ✔ G Grupo Mexico SAB de CV Mexico ✔✔✔✔ EFM H&M Hennes & Mauritz AB Sweden ✔ ✔ GD Haier Electronics Group Co Ltd Hong Kong ✔ EGDH Hakuhodo DY Holdings Japan ✔ ✔ D HALMA United Kingdom ✔ ✔ D Hanesbrands Inc United States ✔ G Harvey Norman Holdings Ltd Australia ✔ G Hasbro Inc. United States ✔ G HDFC Bank Limited India ✔ ✔ BH Heidelbergcement AG Germany ✔ EB Heineken Holding Netherlands ✔✔ ✔ D Heineken NV Netherlands ✔ ✔ D Henry Schein Inc. United States ✔ M Hermes International France ✔ G Hisamitsu Pharmaceutical Co Inc Japan ✔ ✔ D Hokkoku Bank Japan ✔ ✔ D Hokuriku Electric Power Japan ✔ ✔ D Hon Hai Precision Industries Taiwan ✔✔ EB G Honeywell International United States ✔ EB Hugo Boss AG Germany ✔ G Husqvarna AB Sweden ✔ D Hyundai Motor Company South Korea ✔✔✔ D Iberdrola SA Spain ✔ EB ICA Gruppen AB Sweden ✔ GD Inditex SA Spain ✔ ✔ G Indocement Tunggal Prakarsa Indonesia ✔ D Industrial & Commercial Bank of China (ICBC) China ✔ ✔ BH Industrivarden AB Sweden ✔ D Ingles Markets Inc United States ✔ G International Finance Corporation United States ✔ E Intrum Justitia AB Sweden ✔ D

103 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Investor AB Sweden ✔ D Iyo Bank Japan ✔ ✔ D Izumi Japan ✔ ✔ D J Sainsbury United Kingdom ✔ ✔ G Jafco Japan ✔ ✔ D Jardine Cycle & Carriage Ltd Singapore ✔ G JD.com Inc China ✔ G Jeronimo Martins SGPS SA Portugal ✔ ✔ G Johnson & Johnson United States ✔✔ ✔ BD JTEKT Corporation Japan ✔ ✔ D K&S AG Germany ✔ EB Kajima Corp Japan ✔ ✔ D Kasikornbank PCL Thailand ✔ ✔ BDH Kasumi Co Ltd Japan ✔ G KAZ Minerals Plc Kazakhstan ✔ EB Kering France ✔ G Keyence Corp Japan ✔ ✔ D KGHM Polska Miedz SA Poland ✔✔ ✔ E Kinnevik Investment AB Sweden ✔ D Kohl's Corporation United States ✔ G Kuehne & Nagel International Ltd Switzerland ✔ EB KYB Co. Ltd Japan ✔ ✔ D Lafarge France ✔ EB LafargeHolcim Ltd Switzerland ✔ EB Li & Fung Ltd Hong Kong ✔ G Limited Brands, Inc. United States ✔✔ ✔ G Linde Group Germany ✔ EB Lloyds Banking Group United Kingdom ✔ ✔ EF Loblaw Companies Ltd. Canada ✔ G Localiza Rent a Car Brazil ✔ D Lojas Renner Brazil ✔ G Lululemon Athletica Inc Canada ✔ ✔ G Luxottica Group SpA Italy ✔ G LVMH France ✔✔ ✔ GD Macy's Inc. United States ✔ G Magnit OJSC Russia ✔ ✔ G Majestic Wine United Kingdom ✔ G Makalot Industrial Co Ltd Taiwan ✔ ✔ G Marks & Spencer United Kingdom ✔ G

104 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Matahari Department Store TB Indonesia ✔ G Matahari Putra Prima TBK PT Indonesia ✔ G Mattel, Inc. United States ✔ G McDonald's Corporation United States ✔ ✔ M Merida Industry Co Ltd Taiwan ✔ G Metro Inc Canada ✔ G Metropolitan Bank & Trust Co Philippines ✔ ✔ BDH Michael Kors Holdings Ltd Japan ✔ G Microsoft Corporation United States ✔ ✔ G Ministop Co Ltd Japan ✔ G MMC Norilsk Nickel Russia ✔✔ ✔ E M Monsanto Company United States ✔✔ ✔ G Moody's Corp United States ✔✔✔ EBFGM DH Mr Price Group Ltd South Africa ✔✔✔ GD MTN Group South Africa ✔ ✔ B National Grid United Kingdom ✔ EB Newmont Mining Corporation United States ✔✔ ✔ EF H Next plc United Kingdom ✔ G NHK Spring Japan ✔ ✔ D Nike, Inc. United States ✔ ✔ G Nippo Corporation Japan ✔ ✔ D Nisshin Steel Co Ltd Japan ✔ ✔ D NOK Corp Japan ✔ ✔ D Nordea Bank AB Sweden ✔✔✔ FD Nordic Investment Bank Finland ✔ ✔ EH Nordstrom Inc. United States ✔ G Norsk Hydro Norway ✔ EB Novartis AG Switzerland ✔✔✔✔ B M NRW.Bank Germany ✔ ✔ E Olympus Corp Japan ✔ ✔ D OMV AG Japan ✔ EB Pandora A/S Denmark ✔ G PEAB AB Sweden ✔ D Pegatron Corp Taiwan ✔✔✔✔ EB G PepsiCo Inc United States ✔✔ ✔ E Petroleo Brasileiro S.A. (Petrobras) Brazil ✔✔✔✔ BD Pfizer Inc United States ✔✔ ✔ B M D PGE SA Poland ✔ ✔ E Pharmerica Corp United States ✔ ✔ E M

105 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Polaris Industries Inc United States ✔ G Pool Corporation United States ✔ G Powszechny Zaklad Ubezpieczen SA (PZU) Poland ✔ DH Prada SpA Italy ✔ G Premier Oil Plc United Kingdom ✔ ✔ ED President Chain Store Corp Taiwan ✔ G Procter & Gamble Company United States ✔✔ EB PT Astra International Indonesia ✔ ✔ ED PVH Corp United States ✔ G Rallye SA France ✔ G Ralph Lauren Corp United States ✔ G Randgold Resources Ltd United Kingdom ✔ EB Reckitt Benckiser Group PLC United Kingdom ✔✔ ✔ D Renault SA France ✔ EB Repsol S.A. Spain ✔✔✔ EB Rio Tinto Australia ✔ EB Ross Stores, Inc. United States ✔ G Rotork United Kingdom ✔ ✔ D Royal Bank of Canada Canada ✔ ✔ F Royal Bank of Scotland Group United Kingdom ✔ ✔ E Royal Dutch Shell United Kingdom ✔✔✔✔ EB RWE AG Germany ✔✔ ✔ EB Ryanair Ireland ✔✔ ✔ EB G Samsonite International SA Hong Kong ✔ G Samsung Electronics South Korea ✔✔✔✔ GDH Sanofi France ✔ EB Securitas AB Sweden ✔ D Sheng Siong Group Ltd Singapore ✔ G Shimamura Co Ltd Japan ✔✔✔ GD Shinhan Financial South Korea ✔ ✔ BH Shire Plc United Kingdom ✔✔ ✔ B M Siemens AG Germany ✔✔ EB Skandinaviska Enskilda Banken (SEB) Sweden ✔ D Skanska SE Sweden ✔ D SKF AB Sweden ✔ D Snam SpA Italy ✔ EB Societe Generale SA France ✔ ✔ E SoftBank Group Corp Japan ✔✔ ✔ BD Sojitz Corporation Japan ✔ ✔ D

106 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Solvay Belgium ✔ EB Sonae SGPC Portugal ✔ ✔ G Sports Direct International United Kingdom ✔ G Spouts Farmers Market Inc United States ✔ G Sprint Corp United States ✔✔ ✔ BF D SSE Plc United Kingdom ✔ EB Standard Chartered Plc United Kingdom ✔✔✔ EF H Statoil Norway ✔ EB Sumitomo Realty & Development Co. Ltd Japan ✔ ✔ D Suncor Energy Inc Canada ✔ EH Supervalu Inc United States ✔ G Svenska Cellulosa AB Sweden ✔ EB D Svenska Handelsbanken AB Sweden ✔ D Swatch Group AG Switzerland ✔ G Swedbank AB Sweden ✔✔✔ FD Swedish Match Sweden ✔ D Syngenta AG Switzerland ✔ EB Taiwan Semiconductor Manufacturing Company (TSMC) Taiwan ✔ ✔ G Takeda Pharmaceutical Japan ✔✔✔ B Target Corporation United States ✔ G Tata Steel India ✔ EB Teck Resources Limited Canada ✔✔✔ E TELE2 Sweden ✔ D Teliasonera AB Sweden ✔ D Tencent Holdings Hong Kong ✔ ✔ D Tesco Plc United Kingdom ✔ ✔ G Teva Pharmaceutical Industries Ltd Israel ✔✔ ✔ BD The Gap Inc. United States ✔ ✔ G The Kroger Co United States ✔✔ ✔ EGH The North West Co Inc Canada ✔ G The TJX Companies Inc. United States ✔ G Thyssen Krupp AG Germany ✔ EB Toppan Forms Japan ✔ ✔ D Toshiba Corp Japan ✔ ✔ BD Total France ✔✔ ✔ EB G D Toyoda Gosei Co Ltd Japan ✔ ✔ D Trelleborg AB Sweden ✔ D Tullow Oil United Kingdom ✔ EB UBS AG Switzerland ✔✔ ✔ D

107 SEI reo® Report 3rd Quarter 2015

Company Engagement and Your Fund

E BFGMDH

Priority Company Engagement Name Country Milestone In this report Business Ethics Human Rights Environmental Standards Labour Standards Public Health Corporate Governance Social and Social and Environmental Governance Under Armour, Inc. United States ✔ G Unilever Plc Netherlands ✔ FH Universal Robina Corp Philippines ✔ EGM DH Urban Outfitters United States ✔ G V.F. Corporation United States ✔ G Vale S.A. Brazil ✔✔ ✔ EF D Vedanta Resources United Kingdom ✔✔✔ EBFG DH Veolia Environnement France ✔ EB Vodacom Group Ltd South Africa ✔ D Volkswagen AG Germany ✔ ✔ EB D Volvo AB Sweden ✔ D Weis Markets Inc United States ✔ G Wells Fargo & Company United States ✔✔✔✔ EDH Wesfarmers United Kingdom ✔ ✔ G WH Smith United Kingdom ✔ G Whole Foods Market Inc. United States ✔ G WM Morrison Supermarkets United Kingdom ✔ G Woolworths Holdings Ltd South Africa ✔ ✔ GD Woolworths Limited Australia ✔ G WPP Group Plc United Kingdom ✔ ✔ D X 5 Retail Group NV Netherlands ✔ G Yamato Kogyo Co. Japan ✔ ✔ D Yara International Norway ✔ EB Yue Yuen Industrial Holdings China ✔✔ ✔ G

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The information, opinions estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time. The report reﬂects voting instructions given, not votes cast and the information has been provided by an external supplier. BMO Global Asset Management may from time to time deal in investments that may be mentioned herein on behalf of their clients. © 2015 BMO Global Asset Management. All rights reserved. BMO Global Asset Management is a trading name of F&C Management Limited, which is authorised and regulated by the Financial Conduct Authority.