Global ESG Investment

Active Ownership Report Q2 2021

abrdn.com Introduction

Contents “Our quarterly ESG report provides a summary of our research, company engagement and Introduction 3 voting activities. The report’s objective is Examples of engagement 6 to inform, disclose and create discussion. ESG voting and engagement summary 7 We welcome comments and observations.” Engagement summary Q2 2021 8 Andrew Mason DiscoverIE Group 12 ESG Stewardship Director Tesco 13 Centamin PLC 14 Engagement summary Q2 2021 Kingspan 15 Credit Suisse 16 Area Company Topics discussed The Goldman Sachs Group Inc 17 UK DiscoverIE Group Climate change, Human JB Hunt Transport Services Inc 18 rights and stakeholders, Labour management Adani Green Energy Limited 19 AC Energy 20 Tesco Labour management InPost 21 Centamin Human rights

EU Kingspan Product safety and controls, Community impact

Credit Suisse Oversight, Compliance and Escalation mechanisms

US Goldman Sachs Labour management

JB Hunt Transport Climate change Services Inc

EM Adani Green Energy Climate change, Human rights and stakeholders

AC Energy Climate change

InPost Environment, Labour management and Corporate behaviour

Companies chosen are for illustrative purposes only to demonstrate our ESG Investment process and is not intended to be an indication of performance, investment recommendation or solicitation.

Active Ownership Report 2 Introduction

We continued to see the effects of the global Covid-19 pandemic during the quarter. Our engagement focused on investee companies, where we voted on companies’ remuneration proposals. When considering these proposals, we considered how companies had supported their employees through Covid-19 and what state aid companies had received. In Europe, we also had the option to vote on remuneration proposals for several European companies where this wasn’t previously the standard practice. Over the quarter, we also voted on multiple shareholder proposals that featured climate change, diversity and inclusion proposals.

Andy Mason Stewardship Director, ESG Investments

There has been a continued focus on China and its 1. We consider human rights risks and opportunities approach to human rights. As part of our investment as a core part of our investment process, whilst process, we research and analyse sustainability and other also seeking good outcomes for our clients. risks arising from the labour and supply chain practices of 2. As active investors, fulfilling our human rights all companies, regardless of where they are based. China responsibilities requires ongoing engagement is integral to the supply chains of many companies and it and effort to drive positive change. has been a focus of our engagement for some time now. Companies we engage with are increasingly aware of, and 3. Upholding human rights often relies on responsive to, investors’ concerns. While we have found voluntary agreements and weak regulation. that many companies have policies on supply chain labour This is inadequate. We need stricter regulation practices, disclosure may be lacking. We believe that and better corporate practices. constructive engagement with, and transparent disclosure 4. Human rights challenges are often complex and by, companies is the best way to drive improvements in persistent. Meaningful, lasting change requires a working practices and employee rights. multi-stakeholder approach that includes businesses, As investors, we recognise the impact of human rights investors, governments, civil society and academia. issues on our investments and the role we play in driving We endorse the United Nations’ (UN) ‘Protect, Respect, progress. As well as the argument for social justice, Remedy’ framework. Our focus on human rights gives there is a strong investment case for promoting human us valuable insights into trends, risks and opportunities. rights. Over the quarter, we produced a document These findings help inform our decisions. detailing our approach to human rights and investment. The approach details our four core beliefs that underpin Reference: abrdn.com/en/insights-thinking-aloud/ our human rights investment approach. article-page/esg-human-rights

Active Ownership Report 3 Introduction

We do not view human rights in isolation and the The market is responding to these challenges. challenges presented by climate change continue to Assets under management in all investment strategies affect human rights globally. With COP 26 meetings governed by environmental, social and governance planned for November, we believe it will be the most (ESG) principles grew more last year than in the preceding important climate change event in a generation. Few decade. This is particularly evident in the issuance of debt. countries have made good on the promises they made The green bond market has reached US$1 trillion and the in Paris in 2015. Without more ambitious targets and issuance of other debt securities designed around ESG credible actions to back them up, the world will fail to considerations has been gathering pace. New social bond keep the increase in the global average temperatures to issues totalled US$165 billion in 2020, up from US$18 billion well below 2°C above pre-industrial levels, let alone 1.5°C. in 2019. Sustainability bond issuance hit US$75 billion In this note, we identify why progress towards the Paris in 2020, from US$43 billion a year earlier. These are goals has been insufficient and what needs to change positive steps, but we also wish to raise a cautionary in Glasgow to put things right. We have put forward a note. When markets move this far this quickly, inevitably number of recommendations to restore the credibility some corners end up being cut. of the Paris Agreement including: We see a risk that money will flow into investments 1. Countries upgrade their targets to reduce emissions where ESG credentials don’t stand up to closer scrutiny. so that global emissions are compatible with keeping As an active manager, our approach is to consider both temperatures at least 2°C below pre-industrial levels. the issuances and issuer, and to carry out our own due 2. As many advanced economies as possible commit to diligence beyond the views of ESG labels provided by being carbon net-zero by the 2040 targets. This will second-party opinions from ESG ratings agencies. ease the burden on emerging economies and increase Reference: abrdn.com/en/insights-thinking-aloud/ the likelihood that the Paris objectives can be met. article-page/fixed-income-esg-sustainability-linked-bond 3. Governments back up their targets through binding You can find out more about the topics listed above on legislation, including more onerous carbon pricing. our website, along with a series of podcasts outlining our There is a need for joined up policy across all levels of views on ESG issues. Within this report, we provide details government, and greater research and development of our engagement in areas ranging from how UK-based spending for net-zero targets. food retailers treat their employees to how US-based 4. Signatories implement clear climate disclosure logistic companies can improve approaches to climate frameworks and standards in line with the Task-force change. I hope you find it useful, and I welcome your on Climate related Financial Disclosures. comments and observations. COP 26 in Glasgow perhaps represents the last opportunity for governments to set the world on a Paris-aligned pathway. We will play our part in creating the best outcome possible. “The market is responding to these challenges. Reference: abrdn.com/en/insights-thinking-aloud/ Assets under management in all investment article-page/climate-responsible-investing strategies governed by environmental, social and governance (ESG) principles grew more last year than in the preceding decade.”

Active Ownership Report 4 “Within this report, we provide details of our engagement in areas ranging from how UK-based food retailers treat their employees to how US-based logistic companies can improve approaches to climate change. ”

Andy Mason ESG Stewardship Director

Active Ownership Report 5 Examples of engagement

Throughout the quarter, we have engaged on a range of issues across multiple geographies. The following section of the report offers further detail on the companies that we have engaged with and the topics discussed.

1 Diversity and Inclusion 5 Labour practices 9 Supply Chain Management The Goldman Sachs Group Inc (USA) Tesco (UK) and GHG Emissions Adani Green Energy Ltd (India) 2 Climate Change 6 Human Rights 10 Climate Change JB Hunt Transport Services Inc (USA) Centamin (UK) AC Energy (Philippines)

3 Business Ethics and Governance 7 Environment, Labour management Kingspan (Ireland) and Corporate behaviour InPost (Poland) 4 Employee engagement process 8 Corporate Governance and Supply Chain Management Credit Suisse (Switzerland) DiscoverIE Group (UK)

3 4 1 5 6 7 8 2

10 9

Source: abrdn, 30 June 2021.

Companies selected for illustrative purposes only to demonstrate abrdn engagement with the companies on ESG issues and not as an investment recommendation or indication of future performance.

Active Ownership Report 6 ESG voting and engagement summary

Engagement statistics: Voting summary Q2 2021 Total During the quarter, we had over 500 company meetings Shareholder meetings at which our 3,997 where ESG topics were discussed. The chart below shows clients' shares were voted the percentage of meetings where ESG topics were Percentage of meetings with at least 58.2% covered. The table opposite offers examples of companies one vote against or abstention we engaged with, and on what specific ESG topics. Number of resolutions voted 48,628

Percentage of resolutions voted with 87.0% % of meetings where topic discussed management recommendations 60

Percentage of resolutions voted against 11.0% 50 management recommendations

Percentage of abstentions 2.0% 40

Corporate governance Corporate behaviour

Human rights & stakeholders Labour management

Environment Climate

Source: abrdn – total number of companies engaged on ESG 652.

Active Ownership Report 7 Engagement summary Q2 2021

Name

AC Energy Corp ● ● ● Addus Homecare Corp ● ● ● ● Ameresco Inc-Cl A ● ● ● ● ● ● ● ● ● Anglo American Plc ● Ansys Inc ● ● ● ● Arcelormittal ● Aristocrat Leisure Ltd ● ● ● ● Astrazeneca Plc ● Autohome Inc-Adr ● ● Aveva Group Plc ● B3 SA-Brasil Bolsa Balcao ● ● ● Bachem Holding AG-Reg B ● ● ● ● ● ● ● ● ● Bawag Group AG ● ● ● ● Bayer AG-Reg ● ● ● Bayerische Motoren Werke AG ● ● ● ● ● ● ● ● Bellway Plc ● ● Beluga Group PJSC ● ● ● ● BK Brasil Operacao E Assesso ● ● ● ● Boohoo Group Plc ● ● ● ● ● ● ● ● ● BP Plc ● ● BRF SA ● ● Centamin Plc ● Centuria Industrial Reit ● ● ● ● China Resources Gas Group LT ● ● Cms Energy Corp ● ● ● Coca-Cola Icecek AS ● ● ● ● ● ● ● ● ● ● Countryside Properties Plc ● CP All PCL ● Credit Suisse Group AG-Reg ● CRH Plc ● ● ● ● Daimler AG-Registered Shares ● ● ● ● ● ● ● ● ● ● ● Davide Campari-Milano NV ● ● ● ● ● ● ● ● ● ● Direct Marketing Mix Inc ● ● ● ● ● ● ● ● ● Discoverie Group Plc ● ● ● ● ● ● ● ● ● ● ● Dunelm Group Plc ● ● ● ● ● ● ● ● ● ● ● ● ● E.on SE ● ●

Corporate Behaviour – Policies & practices Waste Management Board Issues Material Sourcing Accounting & Audit Issues Ecological Impacts Remuneration Labour Practices Ownership & Control Employee Health & Safety Disclosure Issues Employee Engagement, Diversity & Inclusion GHG Emissions Human Rights & Community Relations Air Quality Customer Privacy & Data Security Energy Management Product Quality & Customer Welfare Water & Wastewater Management Supply Chain Management

List of companies above is for illustrative purposes only to demonstrate abrdn engagement with the companies on ESG issues and is not intended to be an indication of performance, investment recommendation or solicitation.

Active Ownership Report 8 Engagement summary Q2 2021

Name

Euromoney Instl Investor Plc ● Fibrogen Inc ● Finecobank Spa ● ● ● Fiverr International Ltd ● ● Ford Motor Co ● ● ● ● Fourlis Sa ● ● ● ● ● Gds Holdings Ltd – Adr ● ● ● ● ● ● ● Generac Holdings Inc ● ● ● ● ● ● ● ● General Motors Co ● ● Gentera Sab De CV ● ● ● ● ● ● ● Geopark Ltd ● ● ● ● Globaldata Plc ● ● ● ● ● ● ● Grupo Aeroport Del Sureste-B ● ● Hannover Rueck SE ● Headhunter Group Plc-Adr ● ● ● ● Hunt (Jb) Transprt Svcs Inc ● ● ● ● Iberdrola SA ● ● ● Inchcape Plc ● ● ● ● InPost SA ● ● ● ● ● ● Insulet Corp ● ● ● ● ● ● ● JD Sports Fashion Plc ● ● ● Jet2 Plc ● ● ● ● John Laing Group Plc ● ● Jungheinrich – PRFD ● ● ● ● ● ● ● ● Kadokawa Corp ● ● ● ● Kaiser Aluminum Corp ● Keppel Reit ● Kerry Group Plc-A ● ● Kesko OYJ-B SHS ● ● ● ● Kingspan Group Plc ● ● ● ● ● ● ● ● Knorr-Bremse AG ● ● ● ● Kuala Lumpur Kepong Bhd ● ● ● ● ● ● LCI Industries ● ● Lloyds Banking Group Plc ● Longi Green Energy Technol-A ● ● ● Lukoil PJSC ● ● ● ● ●

Active Ownership Report 9 Engagement summary Q2 2021

Name

Makalot Industrial Co Ltd ● ● ● ● ● ● ● ● ● ● Mani Inc ● ● ● Milbon Co Ltd ● Nec Corp ● ● ● ● ● Nemetschek SE ● ● ● Nextera Energy Inc ● ● Pentamaster Corp Bhd ● ● ● ● Petrobras – Petroleo Bras-PR ● ● ● ● PJT Partners Inc – A ● ● ● Playtech Plc ● ● Prestige International Inc ● Prosus NV ● ● ● ● Rio Tinto Plc ● Sberbank Of Russia Pjsc ● ● ● ● ● ● ● Shree Cement Ltd ● ● ● ● ● ● ● Shriram Transport Finance ● ● ● ● ● Shui On Land Ltd Singapore Airlines Ltd ● ● ● Sirius Real Estate Ltd ● ● SSY Group Ltd ● ● ● ● Stellantis Nv ● ● ● ● Techtronic Industries Co Ltd ● ● ● ● ● ● ● ● ● U.S. Physical Therapy Inc ● ● Ubisoft Entertainment ● ● ● Vale SA ● ● ● ● Volvo AB-B SHS ● ● ● ● ● ● ● ZIGGO BV ● ● ●

Active Ownership Report 10 Engagement summary Q2 2021

Engagement life cycle: We believe it is important that engagement activities lead to improvements in our investments. This includes in the manner in which they manage and mitigate risks. It also informs our investment decisions. We therefore record concerns and issues raised with our investments. We also set time frames within which we expect our investments to address our concerns. To do this, we have defined the following ‘lifecycle’ steps for our concerns. . Identify – we have identified specific concerns or issues that we want to raise with those responsible for the investment. . Acknowledge – those responsible for the investment have acknowledged the concern. . Plan – there is a credible plan to address our concerns. . Execute – the investment is executing the plan to address our concerns. . Close – the investment has successfully executed the plan, thereby addressing our concerns. Using these lifecycle steps, we are able to track how our investments are addressing our concerns and issues. This, in turn, feeds into our overall analysis and investment decision-making.

Active Ownership Report 11 Tzoulianna Leventi Abby Glennie DiscoverIE Group Investment Analyst Deputy Head of Smaller Companies

DiscoverIE Group is an international This is not consistent at a group group that designs, manufactures and level, but the aim is to develop and supplies innovative components for a elevate this globally across the Key driver number of applications that support group. We would encourage this Internal mandate original equipment manufacturers and we would like to track the globally. The company focuses on progress over time. areas like renewable energy transition, Finally, business culture and transportation, electric vehicles, and Key outcome employee satisfaction were the last medical applications. These are areas points of our engagement. In terms Influential in with regulatory and sustainability of culture, DiscoverIE wish to create achieving change growth drivers that are attractive from a commonality across the group both a financial and ESG perspective. and different regions, while We engaged with DiscoverIE as maintaining the disparity and part of our ongoing engagement entrepreneurial focus. process to discuss and learn more Topic(s) Staff turnover is low, which reflects about the company’s ESG initiatives the commitment to maintaining Climate change, Human rights and its agenda. We were pleased an equal and supportive working and stakeholders to see that DiscoverIE is working environment. The company does Labour management to improve its reporting standards not run a centralised employee through its annual report. This will engagement process, depending on provide further transparency, and divisional practices, which could be obtain internationally recognised Engagement Lifecycle Status* an area of improvement. certifications and accreditations. Overview of the business Lastly, employee health and safety In addition, we touched on the and planning are paramount for the executive alignment with the United Nations’ team and they are being closely Sustainability Goals, the materiality monitored. The company promotes assessment process and the working practices that support health Issue identification of the most relevant and safety. Staff negligence is taken Employee engagement process issues/targets. The newly published very seriously and disciplinary actions impact report has helped enhance Supply chain management often follow. the positive ESG profile of the group. This provides further value for the Overall, it has been a very useful company in terms of disclosure and process, where we have focused ESG Impact on Investment Thesis potentially ‘impact’ capital attraction. on different ESG-related issues. As already mentioned, we would Investment thesis to be enhanced Another point of discussion is reducing encourage the adoption of a further if milestones are met emissions. The company is using group-wide supply chain audit 2019 as a carbon emissions base and due diligence process. year, providing ample investments for We would also encourage a the next five-year period to support recurring and consistent employee carbon efficiency and to reduce “The newly published impact report engagement practice. The newly emissions on an ongoing basis. has helped enhance the positive ESG published impact report – which was profile of the group. This provides Despite the fact that the group issued after our engagement further value for the company in is not committing to a net-zero – supports the company’s efforts. terms of disclosure and potentially strategy yet, the above actions are It documents the product offerings/ ‘impact’ capital attraction.” seen as reasonable steps towards customer applications, the benefits a sustainable emissions practice. and the relevant target markets In addition, given the recent global involved. We encourage this as it focus on supply chain due diligence, creates value for the company we discussed the supply chain audit and attracts potentially more Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and process within the group. impact-focused capital. is not intended to be an indication of performance, investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 12 Peter Silver Tesco ESG Analyst

Tesco is the UK’s largest food retailer, liable to pay back hundreds of millions with around 3,500 stores and a of pounds in back-pay if the work is workforce of over 200,000 employees. determined to be of equal value. Key driver It also operates a small number of We spoke to Tesco specifically on this Internal mandate stores in Central Europe. Aside from topic, following a report that it may the core business, it is also formed be liable to pay a mammoth £2.5 of Tesco Bank and UK-based food billion bill, after the European Court wholesaler, Booker. Key outcome of Justice ruled that an EU law could The UK food retail sector is particularly be used in an employment tribunal. Escalation concentrated, with the ‘big four’ As we understand it, Tesco has not candidate (Tesco, Sainsbury’s, Morrisons and made provisions for this sum in its Asda) taking over two-thirds of the accounts, given the range of potential total market share. Over recent years, outcomes and timescales. But the they have started to give way to full sum would be around 41% of the discount retailers (Aldi and Lidl), along group’s net profit for financial year Topic(s) with pressure from Ocado’s share of 2021. We understand Tesco continues Labour management the online industry. In order to sustain to argue its case, and that these legal market share, the ‘big four’ have proceedings have been ongoing for looked to differentiate themselves. some time now. * They have done so by highlighting Engagement Lifecycle Status There is also the potential that these their impressive ESG credentials claims could spill over into other Identify across a wide range of areas, with labour-intensive sectors that have the hope of attracting customers lower-paid roles dominated by looking for more sustainable options. women. We should also recognise Issue We have spoken to both Tesco that this could lead to a greater Labour practices and Sainsbury’s about their latest push for outsourcing of warehouse sustainability strategies. Areas of and logistics work, so that parent focus included improving the range companies are one-step removed of healthy food options, investing from any future claims. ESG Impact on Investment Thesis back into their supply chains, reducing As active investors that fully integrate Risk has been factored into food waste, alternative packaging, ESG into our investment process, overall ESG quality score and their people. How food retailers we will continue to engage with look after their employees is a labour-intensive businesses to key part of the success of these encourage them to be pro-active businesses, and recent news reports in providing extended disclosure around equal pay have put the “How food retailers look after on workforce issues, such as pay spotlight firmly on the sector. their employees is a key part of transparency, pay parity, and the success of these businesses, Following a successful ruling of whether collective bargaining and recent news reports around the Supreme Court in March 2021, agreements have been put in place. equal pay have put the spotlight Asda’s shop-floor workforce, firmly on the sector.” who are mostly women, can now compare themselves to the male-dominated warehouse workforce (under the Equal Pay Act 1970 and Equality Act 2010) in their pursuit for equal pay. This is the UK’s largest-ever private sector equal pay claim and could mean other companies in the sector could be Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and is not intended to be an indication of performance, investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 13 Andrew Mason Guy Douthwaite Centamin PLC Stewardship Director, Investment Director ESG Investment

Centamin PLC is a mining company The company advised that it would with a focus on the extraction of gold. consider membership, but we The company’s main mine is a large- appreciate that a mining company Key driver scale modern gold mine in Egypt. of this size does not make up the Internal mandate Our engagement with the company typical membership of the group. formed part of a larger piece of We asked the company how these thematic engagement with mining oversight mechanisms are being companies on approaches to human Key outcome applied in relation to operations, rights and community engagement. specifically in relation to human Escalation We noted that the company’s CEO, rights, the impact on local candidate Martin Horgan, has been in place communities and its supply chain. for just over a year and questioned The company has established a him on what steps had been taken human rights policy that is aligned since his arrival to ensure that with the UN guiding principles on sustainable standards are met. Topic(s) human rights. It has three key areas One of the CEO’s first actions was to of focus. Within its supply chain, Human rights carry out a review of the company’s it has developed a new contract approach to ESG to identify gaps template for suppliers and a and put appropriate measures in detailed code of conduct. * place. The company is formalising Engagement Lifecycle Status its approach to ESG by focusing on The company recognised that Execute governance, management systems as a result of cultural differences, and standards. It is also developing employees may be a reluctant to goals, indicators and targets that raise grievances. Support and training Issue capitalise on opportunities as well are being given to employees to as mitigate risks. encourage the use of grievance Human rights and mechanisms when necessary. community relations As part of this framework, we The company advised that its existing questioned the company on what operations have a limited impact external standards it would apply. on local communities because of its We believe that the application of ESG Impact on Investment Thesis location. However, it has created a certain standards can add rigour detailed community engagement Positive approach being taken to company practices and provide by company, reinforces strategy that it believes will be vital a level of assurance for investors. investment view if it expands into more densely The company advised that it populated areas. The company’s would apply the Responsible Gold view was that community Mining Principles and UN Guiding engagement should be carried Principles on human rights to build out from the start and throughout “We will continue to monitor the frameworks into their management a project’s lifecycle. company. It will be crucial to keep systems. It also advised that the its ESG standards if the business International Finance Corporation This was a very positive meeting expands its operations.” (IFC) Performance Standards offered with the company. Although it the most robust standards for its does not have the equivalent footprint operational standards and would take or level of resource of larger mining guidance from these. We support companies, it is ensuring that ESG these steps. We also asked the standards remain a strategic part company to consider membership of its business and are applied of the International Council on Mining throughout its operations. We will and Metals (ICMM). We advised that continue to monitor the company. the ICMM offers some reassurance It will be crucial to keep its ESG to investors, given the rigorous standards if the business expands Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and assessment required in order to join. its operations. is not intended to be an indication of performance, investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 14 Rosie French Kay Eyre Kingspan ESG Analyst Senior Investment Director

Kingspan is a global producer of high Since the Grenfell inquiry started, performance insulation and building Kingspan’s reputation has been materials, including foam-based at risk. However, our regular Key driver insulation board and panels, industrial engagement with Kingspan’s Internal mandate insulation for pipes, light solutions and management team on the flat-roof membrane technology. matter has given us an in-depth understanding of the case. Kingspan’s leadership in thermal As such, we remain invested. Key outcome insulation provides long-term growth On track to opportunities for the business. There Firstly, we believe that there is meet objectives is a global need to de-carbonise the limited legal and financial risk to built environment, which corresponds the business given the small to roughly 40% of global energy- percentage of K15 product at related carbon emissions. The group Grenfell, the small percentage of K15 has clear targets for carbon neutral sales to the group (less than 1%), and manufacturing and a continued the inappropriate use of its product Topic(s) commitment to net-zero energy. against product specifications Product safety and controls, But it is also focused on increasing and without its knowledge. Community impact energy and carbon savings for Secondly, issues unearthed in relation customers via more thermally to the inquiry have been addressed in efficient products and innovative line with recommendations from an Engagement Lifecycle Status* renewable energy solutions. independent investigation. We believe Execute As part of the Grenfell Tower inquiry, these process updates should place management initially indicated that the business in a stronger position the tower did not have any Kingspan in terms of product safety and products because they were specification in the future. Issue not certified for use in that type Finally, Kingspan treated the Business ethics and Governance of construction. But an internal inquiry as a very high priority, investigation discovered that one taking an incredibly transparent product, Kooltherm K15, had and cooperative approach. been inappropriately sourced and ESG Impact on Investment Thesis Since the incident, the company supplied to the building without has invested €5m in a state of the Increased confidence in long-term Kingspan’s knowledge. investment case and comfort art fire testing facility welcoming that short-term risks from Grenfell K15 was used by a building contractor research partnerships and Tower inquiry are manageable at Grenfell Tower after it ran out of an collaboration from across industry alternative product, despite a lack of and academia. It has also carried specification for this application. out over 2,000 fire tests to national, Even though K15 represented less international and insurance industry than 5% of the project, Kingspan standards, across its full range of “Since the Grenfell inquiry started, voluntarily offered information to insulated panel and board products. Kingspan’s reputation has been the inquiry when it learned that one at risk. However, our regular Based on all the information of its products was involved. engagement with Kingspan’s available, we are comfortable that management team on the Investigations during the inquiry also Kingspan has acted as a responsible matter has given us an in-depth revealed two further issues linked business and that financial risks are understanding of the case. to unclear product literature on limited. In this light, we took weakness As such, we remain invested.” recommended use, and fire-testing in the share price in early 2021 certification having been carried out as an opportunity to increase in the wrong jurisdiction. Subsequent our shareholding. retesting in the UK had not changed the results, but both of these issues Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and highlighted processes that had is not intended to be an indication of performance, missed Kingspan’s usually investment recommendation or solicitation. *Our engagement life cycle operates through high standards. five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 15 Kathleen Dewandeleer Andrew Fraser Credit Suisse Stewardship Manager Head of Research – Financials

Founded in 1856, Credit Suisse has a We engaged with the bank to get a long history in banking services. Today better understanding of oversight, it has a global reach with activities in compliance and escalation Key driver 50 countries and a workforce of nearly mechanisms. The losses were seen Internal mandate 49,000 employees, representing over as unacceptable by the bank. An 150 different nations. Its strategy is to independent external inquiry has be a leading wealth manager with been launched to review risks, strong global investment capabilities. controls and systems. To date, Key outcome Between 2015-2018, management the risk management failings have Escalation has restructured the group, reduced resulted in significant management candidate its cost base and positioned its changes with the Head of Investment investment banking operations. Banking, Brian Chin, and Chief Risk The organisational structure is and Compliance officer, Lara Warner, built around three vectors: Swiss stepping down. The heads of Prime Universal Bank, International Wealth Brokerage, John Dabs and Tyan Topic(s) Management and Asia Pacific. Nelson, also stepped down. New All three divisions are supported by leadership of the asset management Oversight, compliance and Escalation mechanisms the investment banking division. unit has been appointed with Ulrich Korner as CEO. A new Chair, Antonio In a year dominated by the pandemic, Horta Osario, has joined the Board. Credit Suisse recorded strong He is highly respected in the industry Engagement Lifecycle Status* operating performance in the wealth and his expertise will be valuable in management and investment bank Respond addressing the issues. He is expected divisions in 2020. Although the strong to launch a full review of the bank’s operational performance continued strategic ambitions by the year end. into the first quarter of 2021, the bank Issue reported a net loss of CHF 252 million Prior to the annual general meeting reflecting a CHF 4.4 billion loss related (AGM) we engaged on the resolutions Significant charge with respect to US hedge fund Archegos and to its exposure to the failed US hedge in the context of the significant losses losses related to Greensill Capital fund, Archegos. Following the Spygate as a result of the collapse of Greensill scandal in 2020 which resulted in a and Archegos. The company has change in CEO, Credit Suisse is now withdrawn the vote on the discharge having to deal with the fallout from the of the board and senior managers so ESG Impact on Investment Thesis Archegos failure as well as problems we discussed the legal implications Weakens in its asset management divisions of this. We agree that withdrawal of caused by the freezing of client assets this resolution was prudent in order to ESG rating lowered by FI from High to Medium in four supply chain finance funds avoid the risk of approval as, while that following the bankruptcy of Greensill. would be unlikely, it would prevent the Both incidents reflect poorly on company from taking legal action. management, revealing high levels We abstained on this item. A resolution of risk embedded in its strategy as will be presented at the 2022 AGM, “We discussed our concerns well as the bank’s inability to at which point we will have visibility regarding board oversight and demonstrate effective control of of the external investigations which voted against the Chair of the these risks. Losses associated are now underway. We discussed Risk Committee, given his with Archegos are likely to be fully our concerns regarding board accountability for risk oversight.” understood in its second-quarter oversight and voted against the report and are estimated at CHF 5 Chair of the Risk Committee given billion. Meanwhile, potential losses his accountability for risk oversight. from Greensill are unlikely to be He consequently stepped down. known for some time, but could be We will continue to engage on the up to CHF 3billion. milestones related to oversight, Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and compliance and escalation is not intended to be an indication of performance, mechanisms. investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 16 Fionna Ross Mike Cronin The Goldman Senior Analyst – Investment Director Sachs Group Inc Responsible Investing

Goldman Sachs is a global investment We met with Goldman Sachs ahead banking, securities and investment of its annual general meeting in management firm that offers order to understand what steps Key driver financial services to a wide client the company is currently taking to Internal mandate base. These include corporations address diversity, equity and inclusion and financial institutions, as well as (DEI) and to receive background governments and individuals. and additional information to help us decide how to vote. During our Key outcome The financial industry as a whole meeting we were impressed by the On track to has a reputation for lacking diversity, steps that the company is taking and meet objectives with the vast majority of employees the plans it has in place to address traditionally being white and male. issues around DEI. For example, the We firmly believe that companies company’s CEO has been very clear that apply positive diversity and that DEI is a personal priority and inclusion standards are better Goldman Sachs has been active in placed to get the most from their Topic(s) taking steps to enhance diversity workforce and meet the needs of within the workforce and build Labour management their customers. In the US, focus on inclusivity within its culture. It has diversity has increased massively done so while recognising that it following the protests and activism still has some way to go. Of note, * that swept the nation last year. This Engagement Lifecycle Status Goldman Sachs also publishes its has put a spotlight on the systemic Plan Employment Information Report racism that has existed unchecked (EEO-1) disclosures which provides for so long in the country. Growing a detailed breakdown of its attention has been directed towards workforce demographics. Issue the lack of diversity, particularly on corporate boards, in addition We recognise the positive work that Diversity and Inclusion to the general workforce of many Goldman Sachs is undertaking in companies. Definitions of diversity this area. After much deliberation, have also broadened beyond however, we decided to vote against ESG Impact on Investment Thesis just gender. management and in line with the resolution. We believed the resolution Vote in favour of diversity, equity This imbalance has not gone and inclusion audit to be not overly prescriptive, and unnoticed by the investor community. that supporting the resolution would During the recent proxy voting help bolster Goldman Sachs’ existing season, a common shareholder efforts around DEI, as well as support proposal appearing on the ballot of the assessment of the success of several large financial institutions “In the US, focus on diversity has its measures. In addition, a was a request that the companies increased massively following racial equity audit would further conduct racial equity audits, ideally the protests and activism that demonstrate to shareholders the using a third party to provide swept the nation last year.” positive steps that the company recommendations on observations is already taking. We continue to of internal policies, external monitor progress made by Goldman communications, and organisational Sachs, and others within its industry, practices as they relate to goals around DEI-related policies and around racial equity. activities. We hope to see these efforts starting to be reflected more in its workforce diversity statistics.

Company is chosen for illustrative purposes only to demonstrate our ESG Investment process and is not intended to be an indication of performance, investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 17 Fionna Ross Jason Kotik JB Hunt Transport Senior Analyst – Senior Investment Director Services Inc Responsible Investing

JB Hunt Transport Services Inc constrained by the availability – and (JBHT) provides logistics services financial feasibility – of equipment. It and transports a variety of products. is due to this lack of visibility that JBHT Key driver These include department-store has so far avoided setting SBTs. That Internal mandate merchandise, paper and wood said, the company has set a long- products, food and beverages, and term goal to convert at least 25% of its automotive parts. JBHT leads the day cap and straight fleet truck to an industry in converting over-the-road alternative power fuel source by 2035. Key outcome (OTR) shipments to intermodal. On track to Until technology and related meet objectives The trucking industry is carbon infrastructure becomes available, intensive, with related emissions JBHT is taking proactive steps in other attributed as one of the leading areas to address its carbon emissions. contributors to climate change. The company is focused on driving efficiencies in operations including Like others in its industry, JBHT faces route optimisation, governing driving Topic(s) several transitional and physical risks speed, and implementing a “truck related to climate change, ranging Climate change idle reduction” program. JBHT also from rising fuel costs, disruption to plays an active role in the Clean Fleet road networks and an increasing Forum, a network consisting of 14 US number of states pursuing regulations * fleets with the aim of sharing best Engagement Lifecycle Status concerning carbon emissions. We practices between fleets, technology Execute identified the company as a priority providers and fuel suppliers engagement, given its relatively high on adopting advanced, clean carbon footprint and the fact that transportation technologies. it has not committed to setting any Issue science-based carbon reduction Another area that we have been GHG missions targets that are in line with the working with JBHT to improve on Science Based Target Initiative is disclosures. Here, the company Energy management (SBTi). Targets are considered continues to make progress, “science-based” if they are in line publishing its first Sustainable with what the latest climate science Accounting Standards Board (SASB)- ESG Impact on Investment Thesis deems necessary to meeting the aligned Sustainability Report in 2020. goals of the Paris Agreement. Our It has also committed to expand Supports milestones set on climate transitions ongoing engagement with the on reporting in 2021 to include the company has therefore focused on Task Force on Climate-related better understanding how JBHT is Financial Disclosures (TCFD) and addressing its climate-related risks, Global Reporting Initiative (GRI) pushing the company to set SBTs and performance indicators. In addition, “JBHT published its first Climate requesting additional transparency. earlier this year, JBHT published Action Plan, a development that its first Climate Action Plan, a During our most recent engagement, we welcome, having supported it development that we welcome, we spent time discussing JBHT’s by voting for the company to report having supported it by voting for work with original equipment on its climate change initiatives last the company to report on its climate manufacturers (OEMs) and its efforts year’s annual general meeting.” change initiatives at last year’s to stay abreast of technologies. annual general meeting. The company is proactively engaging with OEMs around adoption of We are pleased with the progress technologies such as Zero Emission that JBHT is making with its efforts Vehicles (SEV) and has plans to to better address and disclose purchase multiple Tesla electric Class information around its climate-

8 trucks as soon as they become related risks. We raised our ESG Company is chosen for illustrative purposes only available. To date, however, there rating for the company on the back to demonstrate our ESG Investment process and is not intended to be an indication of performance, have been delays and JBHT remains of our recent engagement. investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 18 Andy Mason Nicole Lim Adani Green Stewardship Director, Investment Analyst, Energy Limited ESG Investment Fixed Income

Adani Green Energy Limited, a along with the management and company under the Adani Group, oversight of such risks. builds, owns, and operates solar In response to our queries, the Key driver power, wind power and hybrid company acknowledged its present Internal mandate power projects across India. reliance on imports of solar modules In our last engagement with the from China, and is aware of the company in 2020, we raised concerns associated risks. When asked about Key outcome on Board size and independence specific processes of supply chain land acquisition issues, as well as management and oversight, the Influential in potential bribery and corruption risks, company indicated that suppliers are achieving change particularly when acquiring land. We largely evaluated on financial and suggested that the company should legal health, as well as product quality. align with the UN Free, Prior and ESG assessments are considered for Informed Consent (FPIC) principles, select critical suppliers. Supplier audits implement the Task-Force on are conducted internally, without a Topic(s) Climate-related Financial Disclosures third party. Given the high level of Climate change (TCFD) recommendations, and exposure to potential ESG risks in obtain third-party assurance for the company’s supply chain, we Human rights and stakeholders ESG data/performance. believe that increased due diligence is necessary and have recommended Since our previous engagement, that the company raises specific Engagement Lifecycle Status* Adani Green Energy Limited questions on issues with suppliers, for has made positive progress on Acknowledge better oversight of its supply chain. governance, increasing its Board size from six to nine. There is presently Despite this, the company has assured 30% independence on the Board. us that there are plans in place to Issue The company also intends to improve move its solar supply chains locally. its corporate governance standards The company is looking to increase Supply chain management to be beyond national standards and manufacturing capacity and believes GHG emissions in-line with international expectations. that the recently announced national We view this as a positive step for import tax on solar modules and cells corporate governance. will support this shift. A 40% customs duty on solar modules which will be ESG Impact on Investment Thesis The company has signed on to be in effect from April 2022. This is part a TCFD supporter, and is seeking Supportive of climate change of the Indian government ’s push to disclosure milestones set in external assurance for ESG data build local capacity in renewables relation to supply chain within their GRI-aligned reporting generation, in line with India’s – all of which we support. While it is commitments to the Paris Agreement. encouraging that the company has We view this as positive and will signed on as a TCFD supporter, it has closely monitor the company’s yet to make disclosures in line with approach to managing this transition “Given the company’s openness TCFD recommendations, we have within its supply chain. to engage and collaborate on ESG encouraged it to do so. issues… we retain a positive view We will continue to engage with We recognise the issues surrounding of its ESG journey and look forward Adani Green Energy Limited in the supply chains of renewable to continually working with it.” relation to the issues above. Given companies, particularly on the the company’s openness to engage procurement of solar modules and collaborate on ESG issues, as well manufactured in China. In light of the as strong improvements made in the international sensitivity of these issues, past year, we retain a positive view of we engaged with Adani Green Energy its ESG journey and look forward to Limited to express our concerns Company is chosen for illustrative purposes only continually working with it. to demonstrate our ESG Investment process and and to get a sense of the company’s is not intended to be an indication of performance, supply chain exposure to ESG risks, investment recommendation or solicitation. *Our engagement life cycle operates through five distinct levels of engagement; identify, acknowledge, plan, execute, close or escalate.

Active Ownership Report 19 Kate McGrath Tai Li-Yian AC Energy ESG Analyst – Fixed Income Investment Manager Fixed Income

AC Energy is the energy platform of We expanded the conversation Ayala Corp, a leading conglomerate to discuss broader sustainability in the Philippines. It owns and operates reporting and governance. We Key driver thermal and renewable assets across were encouraged by AC Energy’s Internal mandate Philippines, Indonesia and Vietnam. progress on Task-Force on Climate- related Financial Disclosures As part of our thematic ESG research, (TCFD) reporting. It is one of the few water has emerged as a key topic corporates adopting TCFD in the Key outcome for Asian utilities in particular. Asia is Philippines. It is also seeking to set On track to home to half of the world’s population longer-term ESG targets and metrics meet objectives but has the least fresh water per as part of its TCFD efforts. On ESG person of any other continent, governance, AC Energy has recently excluding Antarctica. Changes to established a Sustainability Council. rainfall patterns, a shrinking snowpack Moreover, it expressed how it is and increased periods of drought are seeking to improve Board oversight set to increase Asian water stress. Topic(s) of ESG risk and opportunities because Such changes are significant for Asian at present ESG just sits with the audit Climate change utilities because power production and risk committees. is a major driver of water stress. This is due to the large water needs We welcomed the fact that AC * of power plant cooling technology. Energy has created a Sustainability Engagement Lifecycle Status Council, however we suggested Plan As AC Energy is one of our holdings that the company sets up a Board- in AIIB Asian ESG Enhanced Credit level committee to meet TCFD Managed Portfolio, we were keen requirements. This would display best to engage with the company to Issue practice for the sector and further understand how it was managing distinguish AC Energy as a leader in GHG emissions water risk. the region. During the engagement, Energy transition AC Energy has ambitious targets company representatives were to divest from coal and to have a receptive of this idea and welcomed predominantly renewables portfolio our recommendations to drive better by 2030. This will significantly reduce sustainability governance. To follow ESG Impact on Investment Thesis its water requirements. The company up on this we collaborated separately Supports climate transition goals also outlined that the majority of its with the Chairman to encourage water consumption is due to one the establishment of a Board-level water-intensive thermal coal plant. sustainability committee. However much of this plant’s water This was a positive meeting and we withdrawal supplies are seawater “This was a positive meeting and will continue to collaborate with AC and recycled wastewater, which do we will continue to collaborate with Energy to drive best practices. not reduce potable water supplies. AC Energy to drive best practices.” Overall, we were impressed by AC Energy’s water disclosures and encouraged it to continue to drive efficiencies and monitor biodiversity impacts.

Active Ownership Report 20 Fraser Harle Matt Williams InPost Investment Analyst Senior Investment Director

InPost provides a vertically integrated Our view is that further integration delivery service for e-commerce, of EVs would help to drive further providing out-of-home delivery to incremental gains. Key driver around 11,750 of its Automated InPost have not yet disclosed a Internal mandate Parcel Machines (APM). The company full greenhouse gases inventory, operates predominantly in Poland a topic we view as a milestone of but has expanded across Iberia, engagement with the company. Italy, France and the UK organically Key outcome This is scheduled for release in and through the acquisition of On track to 2022, alongside the disclosure of Mondial Relay. meet objectives carbon emission reduction targets. We invested at the initial public The Independent Chair of the offering (IPO) stage, and we met with Audit Committee is overseeing the the company this quarter following target-setting. This provides us with the disclosure of its first sustainability comfort of the importance Inpost is report. Given Inpost’s recent debut ascribing to progress in this area. Topic(s) onto public markets, there are gaps in During our engagement we Environment, labour management disclosure and commitments in terms discussed the company’s approach and Corporate behaviour of target-setting. This is a situation to workplace practices of the delivery we commonly find with companies model. InPost has a mix of permanent who have not had a long period as a and contracted delivery drivers, Engagement Lifecycle Status* public company. When it occurs, we with contracted drivers paid on a try to usea collaborative relationship Execute per parcel basis. The Mondial Relay to guide our holdings towards setting acquisition brought a much larger targets and closing disclosure gaps. proportion of permanent employees InPost have a target to move 50% of its to the company, a model which Issue fleet to electric vehicles (EVs) by 2024 InPost will begin to replicate across Ecological impacts, Health & Safety in partner cities. In the mix of its overall its wider footprint. We raised with the and Practices & Policies fleet, however, we feel this could be a company that it needs to share more larger proportion. We raised this with on its approach to labour practices, InPost, especially in the context of namely by disclosing relevant policies. ESG Impact on Investment Thesis upcoming price parity of these EVs. This is the second milestone we have We learned from its internal modelling identified for our engagement. Strengthens thatthe most material change Inpost InPost is at the beginning of can make with respect to its carbon communicating to the market on emissions will be improved density ESG, alongside transitioning from of its APM network and delivery being a privately owned company. patterns. This will be delivered through “InPost is at the beginning of Our engagement was the beginning improved planning and closer communicating to the market of a constructive dialogue, sharing proximity of sorting hubs. on ESG, alongside transitioning the clear milestones we have set for from being a privately owned One aspect of the APM model that we the company. We will continue to company. Our engagement view positively is the relative carbon track and raise progress against was the beginning of a emissions versus traditional ‘to door’ our milestones with InPost, and feel constructive dialogue, sharing delivery. A study undertaken by the actions and direction of the the clear milestones we have InPost, in collaboration with Warsaw company bode positively. set for the company.” University, found that their APM model helps to reduce CO2 emission by two-thirds in comparison to ‘to door’ deliveries.

Active Ownership Report 21 Important information

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