Performance & Impact of Cadmos Engagement Funds

EUROPEAN — EMERGING MARKETS — SWISS

2017-2018 KEY ENGAGEMENT IMPACTS AND PROGRESS FOREWORD

SINCE 2006, CADMOS REPRESENTS: Since 2006, Cadmos has succeeded in simultaneously delivering financial performance and tangible impact. It has done so by engaging with the portfolio companies and helping them to integrate their most material environmental, social and governance (ESG) topics into their corporate strategy. Although many people question whether responsible investing makes sense financially or in terms of impact, this report shows that all the Cadmos Funds have outperformed their benchmarks since 2006 bringing together key stake- and that in 170 cases, companies holders such as multinational 175 12’000 have implemented our progress companies, social enterprises, recommendations. non-governmental organizations INVESTMENTS ITEMS VOTED and civil society. The portfolio managers’ participation in the engagement meetings together with our sustainability experts who together formulate progress recommendations remains Cadmos’ unique selling prop- osition. Through this dialogue, the portfolio managers obtain a deeper insight into the sustainability of each company’s business 800 450 model while creating additional COMPANY ENGAGEMENT social impacts potentially ESG contributing to the 17 UN ASSESSMENTS MEETINGS Sustainable Development Goals (SDG’s).

The first part of this report provides a complete update of the Cadmos Funds’ Buy & Care® strategy. Our engagement goes well beyond simple dialogue with the company’s management. Each year we make clear progress recommendations and provide a thorough analysis of the gaps in 170 the reporting. POSITIVE The second part of this report contains the 2017–2018 IMPACTS impact and performance reports of the three Cadmos equity funds (Europe, Emerging Markets and Swiss). Each report provides detailed information on the fund’s financial, voting, engagement and impact performance. For the first time, we report on the achievements of Cadmos’s newly introduced, innovative social impact engagement strategy. We are probably among the pioneer shareholders to act as a matchmaker between companies and social enterprises or non-gov - ernmental organisations so as to set up additional The last chapter presents the individual integrated In 1996 David de Pury, Guillaume Pictet, Henri Turrettini and Christian Berner joined forces to create their company. de social-impact projects. These projects target systemic performance reports of selected portfolio companies, Pury Pictet Turrettini & Cie S.A. (PPT) provides wealth management services. The ﬁrm has developed advanced skills in challenges and often relate to the seventeen SDGs. They with full details of how Cadmos voted and our assess- asset management for both private and institutional clients and currently manages around CHF 4 billion. are always linked to the company’s core business. The ments and engagement activities. de Pury Pictet Turrettini & Cie has always demonstrated a great capacity for innovation, notably as a pioneer of responsible SDG’s provide a framework that the investment world investment. It is the owner of the Buy and Care® strategy, manager of the Cadmos European Engagement Fund, Cadmos Balanced CHF and Cadmos Peace Investment Fund and advisor to the Cadmos Emerging Markets Engagement Fund and the Cadmos Swiss Engagement Fund. PPT ensures the funds’ consistency, transparency and distribution. It is a signatory to the United Nations-supported Principles for Responsible Investment (PRI). KEY ENGAGEMENT IMPACTS AND PROGRESS FOREWORD

SINCE 2006, CADMOS REPRESENTS: Since 2006, Cadmos has succeeded in simultaneously today regards as a de facto blueprint. But we oppose delivering financial performance and tangible their abusive use for “impact-washing”. It is unfortu- impact. It has done so by engaging with the portfolio nately fashionable today for asset managers to publish companies and helping them to integrate their most precise claims of the tonnes of carbon dioxide saved material environmental, social and governance (ESG) or the millions contributed to a development goal. topics into their corporate strategy. Although many We prefer to direct our efforts to helping realise SDG people question whether responsible investing makes 17, that is, the achievement of the sixteen other ambi- sense financially or in terms of impact, this report tious targets on the 2030 Agenda. This is to be done shows that all the Cadmos Funds have outperformed by promoting global partnerships and, in particular, their benchmarks since 2006 bringing together key stake- and that in 170 cases, companies holders such as multinational 175 12’000 have implemented our progress companies, social enterprises, recommendations. non-governmental organizations INVESTMENTS ITEMS VOTED and civil society. The portfolio managers’ participation in the engagement With this new active owner- meetings together with our ship strategy for social impact, sustainability experts who Cadmos goes one step further, together formulate progress helping European companies recommendations remains set up partnerships with social Cadmos’ unique selling prop- enterprises or non-governmen- osition. Through this dialogue, tal organizations to address the the portfolio managers obtain a challenges posed by the SDGs. deeper insight into the sustaina- This more opportunity- driven bility of each company’s business type of engagement benefits 800 450 model while creating additional from the specialised support COMPANY ENGAGEMENT social impacts potentially of our engagement partners at ESG contributing to the 17 UN KiKLab. Selected partnerships ASSESSMENTS MEETINGS Sustainable Development Goals with innovative social enter- (SDG’s). prises can prove very effective. Companies, innovative small The first part of this report companies and government provides a complete update of agencies can all achieve far better the Cadmos Funds’ Buy & Care® and more tangible results by strategy. Our engagement goes joining forces than they could well beyond simple dialogue separately. with the company’s management. Each year we make clear progress The Cadmos Peace Investment recommendations and provide a Fund launched in January thorough analysis of the gaps in 2018 is also pushing back the 170 the reporting. frontiers of social impact, particularly by target- POSITIVE ing the sixteenth SDG, namely to promote peaceful The second part of this report contains the 2017–2018 and inclusive societies. The PeaceNexus Foundation IMPACTS impact and performance reports of the three Cadmos provides the fund’s portfolio companies with its unique equity funds (Europe, Emerging Markets and Swiss). combination of expertise in business and peacebuild- EacEachh report providesprovides detaileddetailed informationinformation on the fund’sfund’s ing, which is helping to stabilise the fragile countries in ffinancial,inancial, voting,voting, engagemeengagementnt aandnd impimpactact perperformance.formance. which they operate. Companies have reacted very posi- For the first time,time, wewe report report onon thethe achievementsachievements ofof tively to this initiative and are eager to create further CaCadmos’sdmos’s newlynewly introduced,introduced, innovativeinnovative socialsocial impactimpact peacebuilding projects. A dedicated Cadmos report engaengagementgement strstrategy.ategy. We are proprobablybably amamongong the will present the remarkably good preliminary results pioneer shareholders to act as a matchmaker between achieved during this innovative fund’s pilot phase. companies andand social social enterprises enterprises or non-govor non-govern- ermentalnment organizationsal organisati onso sas so to as set to up se additionalt up additio socialnal The last chapter presents the individual integrated In 1996 David de Pury, Guillaume Pictet, Henri Turrettini and Christian Berner joined forces to create their company. de social-impactimpact projects. projects. These Theseprojects projects target targetsystemic systemic chal- performance reports of selected portfolio companies, Pury Pictet Turrettini & Cie S.A. (PPT) provides wealth management services. The ﬁrm has developed advanced skills in chlengesallen gesand an oftend often relate relate to to the the seventeen seventeen SDGs. SDGs. TheyThey with full details of how Cadmos voted and our assess- asset management for both private and institutional clients and currently manages around CHF 4 billion. are always linked to the company’s core business. The ments and engagement activities. de Pury Pictet Turrettini & Cie has always demonstrated a great capacity for innovation, notably as a pioneer of responsible SDG’s provideprovide a frameframeworkwork thatthat the ininvestmentvestment world investment. It is the owner of the Buy and Care® strategy, manager of the Cadmos European Engagement Fund, Cadmos Balanced CHF and Cadmos Peace Investment Fund and advisor to the Cadmos Emerging Markets Engagement Fund and the Cadmos Swiss Engagement Fund. PPT ensures the funds’ consistency, transparency and distribution. It is a signatory to the United Nations-supported Principles for Responsible Investment (PRI).

1/120 Table of contents Table of contents

THE CADMOS CADMOS EUROPEAN FUNDS’ BUY & CARE® ENGAGEMENT FUND STRATEGY PERFORMANCES SUMMARY...... 22 Foreword...... 1 Financial performance...... 23 Voting...... 23 THE CADMOS FUNDS’ Shareholder engagement and impact...... 23 ® BUY & CARE STRATEGY...... 4 Summary table 2017-2018...... 24 Founding Principles ...... 4 Company analysis and portfolio management. . . . . 6 IMPLEMENTATION OF THE BUY & ® ESG/SDG Integration...... 7 CARE STRATEGY...... 26 Active ownership ...... 8 Step 1) Company analysis...... 27 Proxy voting ...... 9 Step 2) Portfolio management...... 27 Step 3) Active ownership...... 27 ENGAGEMENT PARTNERS...... 10 FINANCIAL PERFORMANCE...... 28 ENGAGEMENT PROCESS...... 11 Portfolio management review...... 29 1- Company publications and data...... 11 Performance since inception ...... 30 2- Selection of material topics...... 12 Performance of the European equity market...... 31 3- Assessment...... 14 3.1- Assessment of social impact and VOTING ...... 32 peacebuilding embeddedness...... 15 Voting review...... 33 4- Assessment report...... 16 Voting impact...... 34 5-Shareholder dialogue...... 16 Distribution of votes ...... 35 5.1- Follow-up on social impact Main oppositions...... 35 and peacebuilding...... 17 Voting trends ...... 35

KEY DIFFERENTIATING SHAREHOLDER ENGAGEMENT CHARACTERISTICS ...... 18 AND IMPACT...... 36 Engagement review ...... 37 TESTIMONIALS...... 19 Selection of key topics...... 38 Assessment...... 40 Preparedness on key topics...... 41 Quality of reporting ...... 41 Sustainability organization...... 41 Sustainability frameworks...... 41 Gaps...... 41 Engagement quality...... 42 Engagement intensity...... 43 Engagement level...... 43 Engagement progress...... 43 Engagement impact...... 44 Danone...... 45 Geberit...... 45 Novo Nordisk...... 45 Swiss Re...... 45

SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP...... 46 Roche...... 46 SGS ...... 46 Nestlé...... 47 Schneider Electric...... 47 Social impact partnerships summary table...... 48

2/120 Table of contents Table of contents

CADMOS CADMOS SWISS EMERGING MARKETS ENGAGEMENT FUND ENGAGEMENT FUND PERFORMANCES SUMMARY...... 78 PERFORMANCES SUMMARY...... 52 Financial performance...... 79 Financial performance...... 53 Voting...... 79 Voting...... 53 Shareholder engagement and impact...... 79 Shareholder engagement and impact...... 53 Summary table 2017-2018...... 80 Summary table 2017-2018...... 54 IMPLEMENTATION OF THE BUY & ® IMPLEMENTATION OF THE BUY & CARE STRATEGY...... 82 ® CARE STRATEGY...... 56 Step 1) Company analysis...... 83 Step 1) Company analysis...... 57 Step 2) Portfolio management...... 83 Step 2) Portfolio management...... 57 Step 3) Active ownership...... 83 Step 3) Active ownership...... 57 FINANCIAL PERFORMANCE...... 84 FINANCIAL PERFORMANCE...... 58 Portfolio management review...... 85 Portfolio management review...... 59 Performance since inception ...... 86 Performance since inception ...... 60 Performance of the Swiss equity market ...... 87 Performance of the emerging markets...... 61 VOTING ...... 88 VOTING ...... 62 Voting review...... 89 Voting review...... 63 Voting impact...... 90 Voting impact ...... 64 Distribution of votes ...... 91 Distribution of votes ...... 65 Main oppositions...... 91 Main oppositions...... 65 Voting trends ...... 91 Voting trends ...... 65 SHAREHOLDER ENGAGEMENT SHAREHOLDER ENGAGEMENT AND IMPACT...... 92 AND IMPACT...... 66 Engagement review ...... 93 Engagement review ...... 67 Selection of key topics...... 94 Selection of key topics...... 68 Assessment...... 96 Assessment...... 70 Preparedness on key topics...... 97 Preparedness on key topics...... 71 Quality of reporting ...... 97 Quality of reporting ...... 71 Sustainability organization...... 97 Sustainability organization...... 71 Sustainability frameworks...... 97 Sustainability frameworks...... 71 Gaps...... 97 Gaps...... 71 Engagement quality...... 98 Engagement quality...... 72 Engagement intensity...... 99 Engagement intensity...... 73 Engagement level...... 99 Engagement level...... 73 Engagement progress...... 99 Engagement progress...... 73 Engagement impact...... 100 Engagement impact...... 74 Givaudan...... 101 OdontoPrev...... 75 Geberit...... 101 Taiwan Semiconductor...... 75 Partners Group...... 101 Swiss Re...... 101

INTEGRATED PERFORMANCE REPORTS Geberit...... 104 Schneider Electric...... 108 Taiwan Semiconductor ...... 113

3/120 The Cadmos Funds’ Buy & Care® strategy The Cadmos Funds’ Buy & Care® Strategy

FOUNDING PRINCIPLES

“Imagine a world in which the UN Sustainable Development Goals. The portfolio socially responsible and managers’ participation in the engagement meetings The Buy & Care strategy, developed by PPT, has now matured to a point where it eco-friendly practices actually together with our external sustainability experts has may be useful to restate its three founding principles. They have proved boost a company’s bottom been instrumental to understanding how positive or particularly reliable in the long term and through changing line.” This quote from a cover negative social and environmental impacts directly financial and economic cycles. of “Business Week” illustrates influence performance or risk. In the past decade, we how, in recent years, vital have learnt to integrate the impact component into the 1. We do not invest in a stock but in a company. issues such as climate change traditional performance-versus-risk models. Adding the Every effort will be made to visit the companies ® B and human rights have been third impact dimension - 3D Finance - gives the port- and increase our understanding of the sustain- u penetrating the business world folio even more depth and perspective. Cadmos has the ability of their business model. e y r and reshaping its competitive history to prove it, but in today’s changing landscape, a & C landscape. We are just at the integrating impact will become even more important. 2. The main aim is to create added C beginning of a movement that, though bound to experi- We are keeping a close watch on the transition, which value for our investors in the medium & a

Active Ownership Company analysis r ence setbacks, will end up redefining the preconditions may be more rapid than the financial markets expect. and long term. We are proud to have y - Voted by portfolio manager - Quality growth companies e 3 u - Engagement on materiality - Sustained competitive advantage for business success. Being cash-rich and solid, with What is considered “responsible investing” today might advanced active management, particu- ® - Social impact strategies – SDG’s - Integrated valuation model gogoodod grogrowth,wth, will will no nolonger longer be enoug be enoughh to ensu tore suensureccess simply be “professional investing” tomorrow. larly by working with a longer time B andsuccess avoid and disru avoidption disruption.. Fitness, agility, Fitness, transparenc agility, transy, and- horizon. awarenessparency, and of awarenesssocial and ofecological one's social impact and will ecological weigh We have been aware of these global challenges heavilyimpact willin the weigh balance. heavily Moreover, in the balance. in 2025, Moreover, 75 per cent in since 2006 and continue to demonstrate that active 3. We build concentrated portfolios. of2025, the 75 workforce per cent of w theill beworkforce millennials, will 87be millennials,per cent of portfolio management can be reinvented to reconcile Our deep analysis strengthens our whom87 per cent claim of that whom business claim thatsuccess business should success be based should on profitability with responsibility. With the Cadmos convictions and reduces portfolio morebe based than on just more profits. than just profits. Funds’ Buy & Care investment strategy we have set turnover and transaction fees, while new standards in that respect, by going even further also enabling us to deviate from the Portfolio managament Cadmos has always thought it unwise to ignore global with the fundamental research - Active3 - actively benchmarks. - Convictions (about 30-40 companies) - Long term (turnover 25%) awareness and the urgency of the need to tackle the voting our shares and engaging with the companies - Risk Management world’s main challenges, which are now summarised in on social impact. The Buy & Care investment strategy is a cyclical process built around gaining better understanding and progressing. The shareholder engagement for ESG integration B ® that underpins the strategy is applied to all the uy & Care Cadmos Funds. We are convinced that continuous “soft-power” non-indulgent dialogue with the companies Why Cadmos ? creates value. The additional expert engagement for social impact aims at achieving tangible impacts linked to the seventeen SDGs. To that end we join forces with other experts, to promote global partnerships that bring together portfolio companies, social enterprises, non-governmental organizations and usiness Highly profitable leaders who can finance their growth B civil society.” Global Case Only the fittest will design tomorrow’s disruptive models Rationale for Challenges investing in large impact-conscious, transparent companies will thrive listed equities The flagship Cadmos European Engagement Fund has The Cadmos Swiss Engagement Fund has been managed been managed since its inception in 2006 by Christopher since its inception in 2014 by Alexandre Stucki together Performance Our Quast together with Paolo Bozzo from PPT. Christopher with Nathalie Kappeler from ASIM. ASIM was founded in Values 3D Quast has managed European Equities at PPT since 1999, 6002 dna sesucof ylevisulcxe no gniganam ssiwS .seitiuqe Impact outperforming the markets two out of three years. The Cadmos Swiss Engagement Fund has Morningstar’s More depth and Finance perspective in 5-star rating. your portfolio Risk The Cadmos Emerging Markets Engagement Fund has been managed since its inception in 2009 by Wojciech Finally, the Cadmos Peace Investment Fund which has Stanislawski together with Juliette Alves from Comgest. been launched in January 2018, is managed by Christopher Buy and Care® The Comgest has managed the flagship Emerging Markets Quast together with Paolo Bozzo from PPT. A dedicated Active Portfolio Management — Select tomorrow’s winners flagship fund Magellan since 1994 and Wojciech joined impact report will be published for the Cadmos Peace Solution 3 Active the firm in 1999. Investment Fund. Select, vote and Active Ownership — Vote shares responsability engage is mutually beneficial Active Impact — Engage for positive additional impact

4/120 The Cadmos Funds’ Buy & Care® strategy The Cadmos Funds’ Buy & Care® Strategy The Cadmos Funds’ Buy & Care® strategy The Cadmos Funds’ Buy & Care® Strategy

FOUNDING PRINCIPLES FOUNDING PRINCIPLES “Imagine a world in which the UN Sustainable Development Goals. The portfolio soci“Imagineally res a worldponsi inble w hic andh managers’the UN Su staparinaticiblpate Deveion lopin tmehe ntengagemen Goals. Thet meetingportfolios The Buy & Care strategy, developed by PPT, has now matured to a point where it ecsocio-fraliendlyly res pponracticessib leac tuall andy tomanagers’gether wi parth tioucirpat externion inal tsustahe engagemeninability expertst meeting hass mayThe Buybe us &eful Care to re strategy,state its thrdevelopedee founding by PPT, princ hasiple nows. The maturedy have pr toove a dpoint where it boecoos-frt iendly a comp practicesany’s boacttualltomy beentoget heinstrumer with noutalr externto understandal sustainabiing howlity expertspositive has or parmayticularly be useful re toliable resta tein itsthe thr lonee gfoun termding and princ throughiples. Thechangy haingve proved line.”boost This a co quotempany’s from bo a coverttom negatibeen instrumeve socialn taland to en unvironmentalderstanding ihowmpac posits directltive ory financialparticularly and re economicliable in tcycles.he long term and through changing ofline.” “Business This quote Week” from illu astrates cover influencenegative socialperformance and en vorironmental risk. In the i mpacpast decade,ts directl wey financial and economic cycles. hoof “Businessw, in recen Week”t years, illustrates vital haveinfluence learnt performance to integrate theor risk. impact In componentthe past decade, into thewe 1. We do not invest in a stock but in a company. issueshow, insuch recen as climatet years, change vital traditionalhave learnt performance-versus-risk to integrate the impact component models. Adding into thethe Every1. We doeffort not will invest be made in a stock to visit but the in companies a company. ® B andissues hu suchman asri ghtclimates have change been thirdtraditional impact performance-versus-risk dimension - 3D Finance models. - gives Adding the port- the andEvery increase effort ourwill understand be made toi visitng of the the companies sustain- u penetand huratmaning the right bussi nhaessve wo beerldn fothirdlio evimpacten mo dimensionre depth and - 3D perspect Financeive. - C givesadmos the ha port-s the abilityand increase of their our business understand model.ing of the sustain- e® B y r u andpenet reshapingrating the itsbu sicompetitiveness world historyfolio ev ento moprovere depth it, but and in today’sperspect changingive. Cadmos landscape, has the ability of their business model. are y & C & laandnd reshapingscape. We itsare competitive just at the integratinghistory to prove impact it, willbut inbecome today’s even changing more important.landscape, 2. The main aim is to create added a C C beginning of a movementla tndhat,sca thpoue.gh We bound are ju tost ex atp erthei- Weintegrating are keeping impact a close will watchbecome on even the transition,more important. which value2. The for mai ounr investors aim is to in create the me di adumded & Ca

Active Ownership Company analysis r beginning of a movement that, though bound to experi- We are keeping a close watch on the transition, which value for our investors in the medium & a ence setbacks, will end up redefining the preconditions may be more rapid than the financial markets expect. and long term. We are proud to have y - Voted by portfolio manager - Quality growth companies e Active Ownership Company analysis r 3 u - Engagement on materiality - Sustained competitive advantage forence business setbacks, success. will end Being up rede cash-richfining the and prec solid,ondit withions Wmayhat be is cmoreonsid rapidered “res thanpon thesi bfinancialle investin marketsg” today expect. might advancedand long activterm.e management,We are proud partic to haveu- y - Voted by portfolio manager - Quality growth companies e ® - Social impact strategies – SDG’s - Integrated valuation model 3 Bu - Engagement on materiality - Sustained competitive advantage goforod business growth, success. will no longer Being be cash-rich enough to and ensu solid,re su cceswiths simplyWhat is becon “professionalsidered “respon investing”sible investin tomorrow.g” today might ladvancedarly by w activorkinge management, with a long particer timeu- ® - Social impact strategies – SDG’s - Integrated valuation model andgood avoid growt dih,sru willpti noon .longer Fitness, be agility, enough t ransparencto ensure suy,cces ands simply be “professional investing” tomorrow. horizon.larly by working with a longer time B awarenessand avoid di ofsru socialption and. Fit ness,ecological agility, impact transparenc will weighy, and We have been aware of these global challenges horizon. heavilyawareness in theof socialbalance. and Moreover, ecological in impact 2025, 75will per weigh cent sinceWe ha 2006ve beeandn continue aware of to thdemonstrateese global chalthat lengeactives 3. We build concentrated portfolios. ofheavily the workforce in the balance. will Moreover,be millenn inials, 2025, 87 per75 per cent cent of psinceortfo 2006lio man andag continueement can to be demonstrate reinvented tothat reconci activele Our3. We d beeuipld an concentratedalysis streng portfolios.thens our whomof the workforceclaim that business will be milsuccesslenn ials,should 87 beper based cent onof profitabilityportfolio man withagement responsibility. can be reinvente With dthe to reconciCadmosle convOur idctionseep an andalysis reduces streng thportfoens ourlio morewhom than claim just that profits. business success should be based on Funds’profitability Buy & with Care responsibility. investment strategy With the we Cadmos have set tuconvrnoictionsver and and tra nreducessaction fees,portfo whillioe more than just profits. newFunds’ standards Buy & Care in that investment respect, by strategy going even we have further set tualsorno enaverb andling tusra ntosactio devniate fees, from whil thee Portfolio managament 3 - Convictions (about 30-40 companies) Cadmos has always thought it unwise to ignore global withnew standards the fundamental in that respect, research by -going Activ evene - activel furthery alsobenchmarks. enabling us to deviate from the Portfolio managament - Long term (turnover 25%) 3 - Convictions (about 30-40 companies) awCadmosareness has and always the urgency thought ofit unwise the nee tod ignoreto tack globalle the votingwith the our fundamental shares and engaging research with- Activ thee companies- actively benchmarks. - Risk Management - Long term (turnover 25%) worawarenessld’s main and cha thllengese urgency, whi chof arethe now need s ummto tacarkilesed th ine onvoting social our impact. shares and engaging with the companies The Buy & Care investment strategy - Risk Management world’s main challenges, which are now summarised in on social impact. isThe a cyclicalBuy & process Care i nvestmebuilt aroundnt strateg gaininy g betteris a cyclical understa processnding built and a proroundgressi gaininng. Theg shbetterareh unoldderstaer engndingagement and for pro ESGgressi inng.tegr Theation ® thatshare undholdererpins eng theagement strate forgy isESG app inliedtegr toa tiallon the Bu B y & Care ® Cthatadmos und erFunpinsds. the We strarea teconvgy isinced app liedthat to co allnt intheuou s uy & Care “soft-power”Cadmos Fun ds.non-indulgent We are conv dialogueinced th withat co thentin companiesuous cre“soft-power”ates value. Thenon-indulgent additional expert dialogue engageme with thent companies for social imp act aicremsates at vaachilue.evi Theng taaddngitioiblen imal expertpacts link engagemeed to thent se forven soteecialn imp SDGsact. To that end we joaimsin fo atrces achi weithving other tang exiblpertse im, ptoacts prom linkoedte gloto thebal pseartnershiventeen psSDGs that. Tobri ngthat tog enethed wer portfoliojoin forces companies, with other exsocialperts enterprises,, to promote non-governmental global partnerships thatorganizations bring togethe andr civilportfolio society.” companies, social enterprises, non-governmental organizations and civil society.”

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5/120 Company analysis and portfolio management ESG/SDG Integration

Over the years, our approach has evolved steadily, steered by provide solutions. The delicate task of analysing management The seventeen SDGs launched in 2012 have been widely in the engagement meetings. As a result of these dialogues we the Cadmos portfolio managers. We begin by screening the quality is made easier by our visits and discussions, which acknowledged as helpful in raising the necessary 5 to 7 can better evaluate the longevity of a company’s competitive largest investable companies in a predefined universe. We select enhance our ability to evaluate the consistency between a trillion dollars needed per year for their realisation. They advantage. PPT has developed a model –illustrated below –that only profitable, organically growing, sustainable businesses company’s words and its concrete actions. By going beyond the provide a framework that the investment world today regards helps us define the parameters that strengthen or weaken our exposed to attractive end markets or secular trends. Primarily company’s reporting and meeting its management we sharpen as a de facto blueprint. We support the development goals visibility as regards the companies’ long-term profitability. for this reason, the Cadmos Funds do not invest in tobacco our investment convictions. because the structure is well designed and enables us to map Our aim is to estimate more accurately for how many years the companies or arms manufacturers. We do not apply any further their financial impact, as seen below. Moreover, they help company can sustain today’s profitability. The model looks at exclusions except when asked to do so by our clients. This process is here to remind us never to forget the basic finan- us motivate our portfolio companies to progress and create how the company is influenced by the outside world (exposure: cial rules. Before beginning to construct the portfolio, we apply more impact and a sense of purpose for their employees. the outside-in approach) and simultaneously how it influences We look for companies whose profitability and debt level various techniques to check that the companies that interest us But we oppose their abusive use for “impact-washing”. It the outside world (responsiveness: the inside-out approach). should enable them to finance their growth while rewarding are not overpriced. Indeed, the high-quality companies thus is unfortunately fashionable today for asset managers to In this way the model integrates the financial and the SDG their shareholders. This first screening results in a concentrated identified must still present attractive potential for gains in the publish very precise claims of the tonnes of carbon dioxide and ESG parameters for a more finely tuned analysis of the watch-list on which we perform deeper financial and qualitative medium and long term. Our practical experience with applying saved or the millions contributed to a development goal. company’s financial strength and impact positioning. analysis, often accompanied by company visits or external integrated valuation models obliges us to remain modest and In the absence of credible, validated impact- measurement reviews. These steps will lead to a better understanding of conscious that this is a continuous, difficult learning process. methodology that accounts for indirect impacts and avoids The integrated model below is also helpful in analysing the the companies’ long-term growth prospects, the sustainability Nevertheless, our results encourage us to stay on course. double counting, we shall resist such claims and help educate companies’ positioning in relation to the transitions under way of their competitive advantage, their management quality, With time, the markets perceive and reward the uptrend in investors to be wary of them. in energy, nutrition and healthy living. The most difficult task their margins, their balance-sheet quality and their cash- the companies’ Sustainable competitive advantage, and this is is to estimate the pace of these transitions, which concern all flow generation. We are convinced that the most successful reflected in higher profitability and ultimately, financial gains One of the main virtues of the Buy & Care investment strategy sectors. They tend to be overestimated by sustainability-themed Sustainable business models are those that also integrate the in the stock market. is its ability to help companies progress while also improving funds and underestimated by the general market. human-rights challenges, including the related ESG issues, and our own skills through the portfolio managers’ participation

PPT MODEL FOR ANALYSING THE LONGEVITY OF THE COMPETITIVE ADVANTAGE CADMOS’ GENERIC COMPANY ANALYSIS AND PORTFOLIO MANAGEMENT PROCESS Inspired by Michael Porter (2006): “The Link Between Competitive Advantage and Corporate Social Responsibility”

Demand conditions Competitive context Benchmark Markets standards Intellectual property Market screening universe of Regulation Rule of law Screen for companies exposed to attractive end-markets or secular trends companies Middle-class - BOP Regulation

Conpany amalysis Revenues Sustainable of competitive advantage, managenent, Market share growth prospects, profitability and returns. Pricing power Watch-list Product security companies Client loyalty Technology Product mix Valuation Community loyalty DDM and valuation multiples

25-40 companies Portfolio construction Profitability Risk management ROE Industrial support Cost leadership Access to capital Infrastructure Efficiency (energy, etc.) Financial (WACC) Supplier network Research & Development Natural or real (Quality) Political incentives Employee loyalty Human (Education) Governance

Constructing the portfolio involves the rigorous selection of only those companies with the strongest potential for outperformance in the medium and long term. This concentration is desirable in the case of an engagement fund, since it means that the cost Exposure (Outside-In) Impact on the value chain of the shareholder dialogue can be contained. That concentration is combined with a low turnover rate, which increases the Responsiveness (Inside-Out) Impact of the value chain quality of the dialogue. We do not set ourselves a tracking error target, but the ratio is usually rather high. The indices should not influence the investment-decision process but serve solely as a risk-management tool. Moreover, the long-term performance can be significantly increased with the additional support of an excellent selling discipline. Changes in the fundamentals, risks or valuation of the underlyings, together with the quality of the dialogue, will influence the portfolio manager’s view and may lead to decisions to sell.

6/120 Company analysis and portfolio management ESG/SDG Integration Company analysis and portfolio management ESG/SDG Integration

Over the years, our approach has evolved steadily, steered by provide solutions. The delicate task of analysing management The seventeen SDGs launched in 2012 have been widely in the engagement meetings. As a result of these dialogues we tOverhe Cadm the years,os por ourtfo lioapproach manag ers.has evolvedWe begin steadily, by scree steeredning the by qualiprovidety issolutions. made easier The delicateby our vtaskisits of and analysing discussi managementons, which acknowledgedThe seventeen SasDG helpfuls launc inhed raising in 2012 the have necessary been w5idel to 7y canin the better engagement evaluate meetings. the longevity As a ofresult a company’s of these dialogues competitive we lartheg esCadmt investabos porletfo complio anmanaies ingers. a prede We finedbegin un byiv ersescree. Wening se ltheect qualienhancety is our made ab ileasierity to by eva oluruate vis tihets andconsis discussitency obetns,w whicheen a tracknowledgedillion dollars neaseded helpful per inye arraising for their the necessaryrealisation. 5 Th toey 7 canadv abetterntage. evaluatePPT has dethev ellongevityoped a m odof ela company’s–illustrated competitivebelow –that laronlyges prot invfitaestabblele, organically companies in gro a pwing,redefined sust aiunnabiversele busin. We seesselecst compaenhanceny ’sour wo abrdsil itandy toits evaconlcreteuate acthetion consiss. By tencygoing bbeteywondee nthe a providetrillion dola frameworklars needed that per the ye investmentar for their world reali todaysation. regards They helpsadvant usage. define PPT thehas parametersdeveloped a that mod strengthenel –illustrated or weakenbelow –t ourhat exposedonly pro tofita attractiveble, organically end markets growing, or secular sustai trends.nable busin Primarilyesses company’scompany’s woreportingrds and andits c meeting oncrete ac itsti onmanagements. By going webey sharpenond the asprovide a de factoa framework bluepri nt.that We the support investment the worlddevelo todaypment regards goals visibilihelps usty define as regards the parameters the compan thaties’ strengthen long-term or pr weakenofitabil ourity. forexposed this reason, to attractive the Cadmos end markets Funds or dosecular not investtrends. in Primarily tobacco ourcompany’s investment reporting convictions. and meeting its management we sharpen becauseas a de factothe structure blueprint. is wellWe supportdesigned the and de enablesvelopme usnt to goa mapls Ourvisibili aimty is as to regards estimate t hemore compan accuraies’tely lon forg-term how many prof yearsitabil ity.the coform thispan ireason,es or arms the man Cadmosufactu rersFunds. We do do not not invest apply anyin tobacco further our investment convictions. tbecauseheir financial the structure impac t,is aswell see designedn below. and Mo enablesreover, usth eyto hmapelp companyOur aim is can to es sustaintimate today’s more accura profitability.tely for ho Thew manymodel years looks the at exclusionscompanies orexcept arms when manu factaskedurers to .do We so do by no ourt apply clients. any further This process is here to remind us never to forget the basic finan- ustheir moti financialvate our imp portfact,o liaso seecompn banieselow. to Mo proregressover, anthdey creat helpe hocompanyw the co canmpa sustainny is in today’sfluence dprofitability. by the outsi deThe w ormodelld (exposu looksre at: exclusions except when asked to do so by our clients. cialThis ru ples.rocess Befo is rehere begi tonn reinmignd to uscon nestructver to t heforg portet tfohelio, bas weic finan-apply mous motire impactvate o uran dp ortfa seonliseo compof purpaniesose to for pro thgresseir em anpld ocreatyeese. thohew o theutsi code-imnpa anypp roacis inflh)u enceand sid muby thltanee ououtsislyde howworld it (einfluxposuenceres: We look for companies whose profitability and debt level varicial ruoules.s tec Behnfoiqure besegi tonn checking to th caton thstructe companies the port thatfolio, interest we appl usy moButre we impact oppose an tdheir a se abnseusi ofve purpuse forose “forimp thaceirt-wash emplinog”yees. It. thethe ooutsideutside-i worldn approac (responsiveness:h) and simult anetheou inside-outsly how it approach). influences shWeo ullodok enab forle comp theman toies financ whose etheir prof growitabilithty wh andile rewardindebt levegl arevari notous tecoverpriced.hniques to Indeed, check ththeat thhigh-qualitye companies companies that interest thus us isBu unfortunatelyt we oppose their fashionable abusive usetoday for for “im assetpact -washmanagersing”. toIt Inthe t hisoutside way worldthe m odel(responsiveness: integrates t hethe fi inside-outnancial an dapproach). the SDG theshoirul shd earehonablel dersthem. Th tois financ first screene theirin growg resuthlts whin ai lecon rewardincentratedg identifiedare not overpriced. must still presentIndeed, attractive the high-quality potential companies for gains in thus the publishis unfortunately very precise fashionable claims of todaythe tonnes for asset of carbon managers dioxide to andIn t hisESG w ayparameters the model for in ategrates more finely the fi nancialtuned analysis and the of SD theG wtheatch-ir shliarehost on whildersch. Thweis perf firsormt screen deeinperg resfinanciaults inl anda con qucealitativntratede mediidentifiedum and must long still ter presentm. Our attractivepractical ex potentialperience for wit gainsh appl inying the savedpublish or very the precisemillions claims contribu of theted tonnes to a develop of carbonment dioxide goal. company’sand ESG parameters financial strength for a more and finelyimpact tuned positioning. analysis of the anwatch-alysis,list of onten whi accoch wemp perfaniedorm by dee copmpanyer financia visil andts or qu exalitativternale integratedmedium and valuation long ter m.models Our p obligesractical usex perto remainience w itmodesth applying and Insaved the orabsence the m ofillions credible, contribu validatedted to impact- a develop measurementment goal. company’s financial strength and impact positioning. anrevalieyws.sis, Theseoften accostepsmp willani leaed dby to co a mpanybetter understavisits or nexdintergnal of consciousintegrated thatvaluation this is models a continuous, obliges difficult us to remain learning modest process. and methodologyIn the absence that of credible, accounts validated for indirect impact- impacts measurement and avoids The integrated model below is also helpful in analysing the therev iecompanies’ws. These long-term steps will growth lead to prospects, a better understa the sustainabilitynding of Nconsciousevertheles thats, ourthis isre asu continuous,lts encoura gedifficult us to learningstay on process.course. domethodologyuble counting that, we accounts shall res forist such indirect claims impacts and he andlp educat avoidse cTheomp inanitegrates’ poedsit moionindelg be inlow rela tionis also to thheelp trafulnsi intion analysings under wa thye ofthe their companies’ competitive long-term advantage, growth theirprospects, manageme the sustainabilitynt quality, WNevithert time,heles thes, ourmar reketssu ltspercei encveou raandge reusw toard st theay onup trecoundr sein. investorsdouble cou ton tingbe wary, we sha of llthem. resist such claims and help educate incomp energy,anies’ nutrition positionin andg in healthy relation living. to th eThe tran mostsition difficults under watasky oftheir their marg competitiveins, their baladvantage,ance-sheet their qua managemelity and tnthe irqualit cashy,- theWit companies’h time, the Sustainablemarkets percei competitiveve and re advantage,ward the up andtre thisnd inis investors to be wary of them. isin toenergy, estimate nutrition the pace and of healthy these transitions, living. The mostwhich difficult concern task all fltheirow ge mnargeraintis,o n.th Weeir are bal ance-sconvinhceeetd t qhatuality the anmodst t hesuccessfir cashul- reflectedthe companies’ in higher Sustainable profitability competitive and ultimately, advantage, financial and this gains is One of the main virtues of the Buy & Care investment strategy sectorsis to estimate. They tend the paceto be ofov theseeresti matedtransitions, by sustai whichnabil concernity-themed all Sustainableflow genera businesstion. We modelsare con varein cethosed that that the also mo integratest successf theul inreflected the stock in higher market. profitability and ultimately, financial gains isOne its ofability the m toai nhelp virt companiesues of the B progressuy & Care while inves alsotment improving strategy fundssectors and. They underestimated tend to be overest by theimated general by sustai market.nability-themed huSustainableman-righ tsbusiness challen gmodelses, including are those the rethatlate alsod ESG integrate issues, andthe in the stock market. ouris its own ability skills to helpthrough companies the portfolio progress managers’ while also participation improving funds and underestimated by the general market. human-rights challenges, including the related ESG issues, and our own skills through the portfolio managers’ participation

PPT MODEL FOR ANALYSING THE LONGEVITY OF THE COMPETITIVE ADVANTAGE CADMOS’ GENERIC COMPANY ANALYSIS AND PORTFOLIO MANAGEMENT PROCESS PPT MODEL FORInspired ANA by MichaelLY PorterSIN (2006):G THE“The Link LON Between GECompetitiveVIT AdvantageY OF and THE Corporate COM Social Responsibility”PETITIVE ADVANTAGE CADMOS’ GENERIC COMPANY ANALYSIS AND PORTFOLIO MANAGEMENT PROCESS Inspired by Michael Porter (2006): “The Link Between Competitive Advantage and Corporate Social Responsibility” Demand conditions Competitive context Benchmark Markets standards Intellectual property Market screening Demand conditions Competitive context universe of Regulation Rule of law Screen for companies exposed to attractive end-markets or secular trends Benchmark Markets standards Intellectual property Market screening companies Middle-class - BOP Regulation universe of Regulation Rule of law Screen for companies exposed to attractive end-markets or secular trends companies Middle-class - BOP Regulation

Conpany amalysis Revenues Sustainable of competitive advantage, managenent, Market share Conpany amalysis Revenues growth prospects, profitability and returns. Pricing power Sustainable of competitive advantage, managenent, Market share Product security growth prospects, profitability and returns. Watch-list Pricing power Client loyalty companies Product security Watch-list Technology Client loyalty companies Product mix Technology Valuation Community loyalty DDM and valuation multiples Product mix Valuation Community loyalty DDM and valuation multiples 25-40 companies 25-40 Portfolio construction companies Profitability Risk management ROE Portfolio construction Profitability Cost leadership Risk management Industrial support ROE Access to capital Efficiency (energy, etc.) InfrastructureIndustrial support Cost leadership AccessFinancial (WACC)to capital Supplier network Research & Development Natural or real (Quality) Infrastructure Efficiency (energy, etc.) Financial (WACC) Political incentives Employee loyalty Human (Education) Supplier network Research & Development Natural or real (Quality) Governance Political incentives Employee loyalty Human (Education) Governance

Constructing the portfolio involves the rigorous selection of only those companies with the strongest potential for outperformance inCo thenst ructimediumng the and portfol longio term. invo lvThises the concentration rigorous selec istion desirable of only in tho these cocasem paofn anies engagementwith the stro ngestfund, psinceotential it means for ou tthatperf othermanc coste Exposure (Outside-In) Impact on the value chain ofin thethe mediumsharehol dander dlongialog term.ue can This be coconcentrationntained. That is co desirablencentrat inion the is casecombi ofne and engagementwith a low t urfund,nov ersince rate, it whimeansch inthatcreases the cost the ResponsivenessExposure (Outside-In) (Inside-Out) Impact Impact on the of value the valuechain chain qualityof the sharehol of the dialogue.der dialo Wegue do can not be setco nourselvestained. That a tracking concen errortration target, is co butmbi nethed ratiowith isa usuallylow tur novratherer rate,high. whi Thech indices increases should the Responsiveness (Inside-Out) Impact of the value chain notquality influence of the the dialogue. investment-decision We do not set process ourselves but a servetracking solely error as a target, risk-management but the ratio tool. is usually Moreover, rather the high. long-term The indices performance should cannot influencebe significantly the investment-decision increased with the process additional but servesupport solely of an as excellenta risk-management selling discipline. tool. Moreover, Changes the in thelong-term fundamentals, performance risks orcan valuation be significantly of the underlyings, increased with together the additional with the support quality of thean excellentdialogue, selling will influence discipline. the Changes portfolio in manager’s the fundamentals, view and risksmay leador valuation to decisions of the to underlyings,sell. together with the quality of the dialogue, will influence the portfolio manager’s view and may De Pury Pictet Turrettinni lead to decisions to sell. supports the SDG’

7/120 Active ownership Proxy voting

The true Cadmos innovation is found in the third step: active ownership. The Cadmos Funds pursue an Voting provides our portfolio managers with valu- active-ownership strategy based on frequent company visits, exercising our voting rights and engaging with able information about the quality of a company’s VOTING GUIDELINES all the portfolio companies. The engagement process serves many purposes: for the company, it promotes change governance. It is also a necessary first step before and progress and spurs it on to enhance those positive impacts; and for our portfolio managers –and hence our engaging with the management. Few professionals STRUCTURE OF THE BOARD OF DIRECTORS investors –it leads to better insight into how convincingly the company is addressing its material sustainability topics. would deny that the skills, independence and availa- 1. Election of individual board members 2. Functioning and independence of the various com- bility of a board of directors are critical to a company’s mittees Cadmos’ engagement process has three objectives. future. The effects of a capital increase, for example, 3. Separation of CEO function and chairman of the will be felt immediately. For PPT, exercising the right board of directors to vote is first and foremost a financial responsibility. 4. Granting of the discharge 1- Do no harm engagement 2- Engagement for ESG 3- Engagement for social impact Integration The Cadmos portfolio managers define their voting TRANSPARENCY AND COHERENCE OF THE As a responsible shareholder, we Finally, the dialogue is geared to positions by studying the analyses of AGMs and the REMUNERATION STRUCTURE 5. Appropriate structure of the remuneration system encourage most of the companies Engagement for ESG integration achieving progress and additional voting recommendations supplied by various proxy for the executive committee in our fund to give greater consid- is the Cadmos Funds’ overarching tangible social impacts. We are advisory firms. They have the right and even the duty 6. Appropriate structure of the remuneration system eration to the tangible financial goal and their common denomi- probably the first shareholder to to deviate from the proxy’s recommendations, should for the board members risks of inaction, negligence or nator. All our dialogues and act as a matchmaker between the they find that these do not take full account of the even unlawful behaviour. This is engagement meetings are designed companies and the social enterprises companies’ business models and particularities or STRUCTURE AND OWNERSHIP OF SHARE an enduring concern that we bring to motivate companies to increase or non-governmental organizations do not correspond to their respective internal voting CAPITAL up in all our meetings with the the integration of the key material so as to set up additional social im- guidelines, which are available on request. For the 7. Approval of accounts and allocation of proﬁts/dividends companies. environmental, social and govern- pact projects. These projects target European, Swiss and the Peace Investment Fund, the 8. Appropriate capital structure ance topics into their strategy and systemic challenges and often relate selected proxy advisor is Glass Lewis. This independent 9. Appointment of the auditors communication. We view this true to the seventeen SDGs. They are agency is a leading provider of governance assessment integration of ESG factors into the always linked to the company’s and voting advice and covers more than 23,000 compa- SHAREHOLDERS’ RIGHTS heart of a company’s strategy and core business. We prefer to direct nies in more than a hundred countries. It can supply 10. Amendments to articles of association, equal treat- daily operations as the next major our efforts to helping realise SDG consistent assessments throughout all the countries ment of shareholders and anti-takeover measures objective. To reach it, our engage- 17, that is, the achievement of the represented in the Fund. For the Cadmos Emerging ment goes well beyond simple sixteen other ambitious targets Markets Engagement Fund, Comgest works with dialogue with the company’s on the 2030 Agenda. This is to be Institutional Shareholder Services (ISS) and benefits management. Each year we make done by promoting global partner- from the latter’s global reach: ISS has nineteen offices clear progress recommendations ships and, in particular, bringing worldwide and an experienced research team fluent and provide a thorough analysis together key stakeholders such as in twenty-five languages. For reporting purposes, we of the gaps in the reporting. The multinational companies, social apply the format of PPT’s voting guidelines, dividing companies are often aware of their enterprises, non-governmental the items under discussion at an AGM into four topics: challenges or ready to consent to organizations and civil society. the structure of the board of directors; the transparency certain adjustments, particularly Our engagement for social impact and coherence of the remuneration structure; structure as these are proposed by a loyal aims to strengthen the company’s and ownership of share capital; and shareholders’ rights. investor and come with expert sustainable competitive advantage, advice. or, where relevant, its “bottom of the pyramid” strategy as well as its peacebuilding strategy in fragile countries. As we explain in the individual Cadmos Fund reports, companies have been very keen to receive additional deep analysis and progress recommendations from our social impact experts.

8/120 Active ownership Proxy voting

9/120 Engagement partners Engagement process

Several external partners are instrumental in implementing our sincesince ththee Cadmos FFunds’unds’ inceinceptionption in 202006.06. PPT and BHBHPP The table below provides an overview of the Cadmos engagement process. For all companies within the Cadmos European engagement strategy: BHP – Brugger and Partners in Zurich; collaboratedcollaborated closelyclosely on developingdeveloping the assessmentassessment andand engage-engage- Engagement Fund, we have added a social impact partnership module designed to create more tangible social impact through KiKLab, a joint venture between KOIS in Brussels and Kite mentment proprocess,cess. Thiswhich las trepresents represents many many yearsyears ofof combinedcombined partnerships with innovative social entrepreneurs or other key stakeholders. For the Cadmos Peace Investment Fund, we have Global Advisors in London; and the PeaceNexus Foundation, engagement expertise and is designed to generate faster, more added a special “SDG 16” peacebuilding module, designed to stimulate the companies that are active in fragile countries to based in Prangins, Switzerland. These companies also work material ESG integration and impact for the companies. contribute to those areas’ stabilization with additional peacebuilding initiatives. with specialised partners, such as RepRisk, Covalence, Sattva and NexusVesting. BHP’s analysts conduct the company assessments, and its senior consultants organise, coordinate and lead the engagement BHP – Brugger and Partners modelled the assessment and meetings. The senior consultants all have extensive expertise engagement approach and have headed the engagement team in advising companies on sustainability issues.

SENIOR CONSULTANTS – ENGAGEMENT TEAM

KATHRIN BRUGGER PASCAL LÜTHI TOBIAS FEHR-BOSSHARD MBA / Sustainability Management Lic. phil. in Int. Relations & Media M.A. in International Affairs Consultant, BHP University of Zurich University of St. Gall, 12 years of CSR experience CAS in Crisis Communication M.Sc. in Intl. Management , CEMS Consultant, BHP. Consultant, BHP 13 years of CSR experience 5 Years of CSR experience

ANALYSTS – ENGAGEMENT TEAM

MARIANA BRANCO MARTIN DOLINSKÝ JANKA RUŽICKÁ BA, Economics, MA, International Ph.D., M.A. International M.A. Marketing and Communication, Cooperation University of Porto Management, TU Graz and TU Wien and Comenius University Consultant, World Bank, Washington DC University of Bratislava in Bratislava CEO, EKOrast 6 years of experience Consultant, EKOrast 15 years of CSR experience 8 years of CSR experience

VANESSA SEGER (Engagement coordinator) SILVIA ZAMBOROVA BSc UZH in Geography, Environmental Master’s degree in Economics, Sciences and Management & Economics University of Bratislava - COMPANY PUBLICATIONS AND DATA 1 year of CSR experience Banker, Slovak Development Bank 15 years of experience The first step consists of collecting each company’s sustainability data. BHP’s analysts study all the company disclosures, as well as media publications and specific databases (CDP, PRI, Bloomberg, SASB etc.). For media controversies and stories, they use the RepRisk database. For our social impact engagement, KiKLab is advising the Moreover, in January 2018, Cadmos launched the Peace Investment companies on setting up partnerships with social enterprises Fund in collaboration with the PeaceNexus Foundation. Through or NGOs to create additional social impact. Companies, social its unique expertise and guidance, the foundation enables the enterprises and government agencies can achieve far more portfolio companies with the greatest financial and peacebuilding together than separately in terms of systemic, tangible results. potential to contribute more effectively.

SPECIALIED SOCIAL IMPACT PARTNERS

KOIS Firm specialized in impact investing Charles-Antoine Janssen (Managing Director) & François de Borchgrave (Managing Director) Strong expertise in bridging business and social projects

KITE GLOBAL ADVISORS Unique capacity to build fruitful collaborations and though leadership in sustainability Sophie Lambin (Managing Director) & Larry Yu (Managing Director) Based in London, Boston and New York with extensive network of experts & corporate contacts

PEACENEXUS FOUNDATION Recognize pioneer in connecting businesses and peacebuilding Developed the peacebuilding Business Criteria (PBBC Methodology) Network of expertise to analyse and engage companies to improve their contribution to peacebuilding

10/120 Engagement partners Engagement process

since the Cadmos Funds’ inception in 2006. PPT and BHP The table below provides an overview of the Cadmos engagement process. For all companies within the Cadmos European collaborated closely on developing the assessment and engage- Engagement Fund, we have added a social impact partnership module designed to create more tangible social impact through ment process. This last represents many years of combined partnerships with innovative social entrepreneurs or other key stakeholders. For the Cadmos Peace Investment Fund, we have engagement expertise and is designed to generate faster, more added a special “SDG 16” peacebuilding module, designed to stimulate the companies that are active in fragile countries to material ESG integration and impact for the companies. contribute to those areas’ stabilization with additional peacebuilding initiatives.

BHP’s analysts conduct the company assessments, and its senior consultants organise, coordinate and lead the engagement BHP – Brugger and Partners modelled the assessment and meetings. The senior consultants all have extensive expertise engagement approach and have headed the engagement team in advising companies on sustainability issues. Social impact follow-up Social impact partnership - KiKLab Peacebuilding - PeaceNexus Sustainability ESG and financial reports Media and database SENIOR CONSULTANTS – ENGAGEMENT TEAM Company publications and data

THOMAS STREIFF (Head Engagement Team) ANDREA GÄUMANN RAHEL MEYER Ph.D. in Technical Sciences, Lic. phil. in Sociology & Business M.A. in International Affairs M. Sc. Agricultural Sciences ETH University of Zurich University of St. Gall Partner, BHP Consultant, BHP Consultant, BHP. Shareholder dialogue 21 years of CSR experience 9 years of CSR experience 3 year of CSR experience Presentations of findings Suggestions for progress KATHRIN BRUGGER PASCAL LÜTHI TOBIAS FEHR-BOSSHARD MBA / Sustainability Management Lic. phil. in Int. Relations & Media M.A. in International Affairs Selection of material topics Consultant, BHP University of Zurich University of St. Gall, Company specific 12 years of CSR experience CAS in Crisis Communication M.Sc. in Intl. Management , CEMS Portfolio manager decision Consultant, BHP. Consultant, BHP 13 years of CSR experience 5 Years of CSR experience Assessment report ANALYSTS – ENGAGEMENT TEAM Assessment results Gap analysis MARIANA BRANCO MARTIN DOLINSKÝ JANKA RUŽICKÁ Assessment BA, Economics, MA, International Ph.D., M.A. International M.A. Marketing and Communication, TU Wien and Comenius University Preparedness on material topics Cooperation University of Porto Management, TU Graz and Quality of reporting Consultant, World Bank, Washington DC University of Bratislava in Bratislava CEO, EKOrast 6 years of experience Consultant, EKOrast 15 years of CSR experience 8 years of CSR experience

SPECIALIED SOCIAL IMPACT PARTNERS

KOIS Firm specialized in impact investing Charles-Antoine Janssen (Managing Director) & François de Borchgrave (Managing Director) Strong expertise in bridging business and social projects

11/120 Engagement process Engagement process

- SELECTION OF MATERIAL TOPICS

PPT and BHP have condensed all the material issues affecting the companies into nine topics. Together these topics From these nine material topics, we select the most material topics for each company, depending on that company’s encompass all the issues identified by traditional sustainability frameworks such as the UN Global Compact, characteristics and industry sector. Our initial selection will be guided by the company’s materiality matrix or its the Global Reporting Initiative, the UN Guiding Principles and the Sustainable Development Goals. Unlike own definition of its priorities. Next, BHP will challenge the company’s view by analysing the nature of any recent those frameworks, we have allowed the topics to overlap rather than making them mutually exclusive, so as to or recurring media controversies. In the third step, we consider the priorities set by specific sector frameworks target the companies’ most material issues instead of generic categories. Human rights do not appear as a single such as the SASB Materiality Map™. This is an interactive tool that identifies and compares disclosure topics topic. Instead, particularly in the light of the UN Guiding Principles on Human Rights, they are considered across different industries and sectors. The final decision as to the maximum three most material topics is overarching, and are integrated into all nine topics. We believe that application of the UN Guiding Principles made by the portfolio manager, considering the company’s business model and its development strategy. on Business and Human Rights, known as the “Ruggie Principles”, will represent the main challenge for large multinationals. Moreover, these principles rightfully regard climate change as a human-rights issue.

PRODUCT Companies are expected to promote practices such as environmental responsibility, resource PRODUCT PRODUCT ENVIRONMENTAL efficiency and pollution prevention across the full life cycle of their products and services. ENVIRONMENTAL ENVIRONMENTAL IMPACT IMPACT IMPACT

Companies are expected to cut GHG emissions in their own operations and value chains, CLIMATE CHANGE CLIMATE CHANGE CLIMATE CHANGE E foster low-carbon solutions, and mitigate and/or adapt to the impacts of climate change. E IMPACT IMPACT IMPACT

SUPPLIER Companies are expected to apply due diligence in their relationship with SUPPLIER SUPPLIER ENVIRONMENTAL suppliers to prevent and mitigate negative environmental impacts and to ENVIRONMENTAL ENVIRONMENTAL IMPACT engage with them to promote and foster positive environmental impacts. IMPACT IMPACT

Companies are expected to exercise due care and foresight in their management PRODUCT SOCIAL PRODUCT SOCIAL PRODUCT SOCIAL of products and services to systematically prevent potential negative IMPACT IMPACT ATERIALITY EDIA IMPACT social impacts or foster positive impacts along the full life cycle. M M MATRIX CONTROVERSIES

Companies are expected to assess the rights and interests of communities, IMPACT ON IMPACT ON IMPACT ON identify potential positive and negative impacts, avoid or mitigate negative COMMUNITIES COMMUNITIES COMMUNITIES impacts, foster positive impacts and establish engagement procedures. BUSINESS SECTOR MODEL FRAMEWORKS Companies are expected to apply due diligence in their relationship SUPPLIER SOCIAL SUPPLIER SOCIAL SUPPLIER SOCIAL S with suppliers to prevent and mitigate negative social impacts and to S IMPACT IMPACT IMPACT engage with them to promote and foster positive social impacts.

CORE LABOR Companies are expected to exceed core labor standards (freedom of association, CORE LABOR CORE LABOR STANDARDS collective bargaining, forced or child labor, discrimination, health and safety, STANDARDS STANDARDS COMPLIANCE etc.) and not contribute to violations through their business relationships. COMPLIANCE COMPLIANCE

Companies are expected to foster a loyal and diverse workforce DIVERSITY AND DIVERSITY AND DIVERSITY AND by acknowledging, understanding and proactively using differences • Rigorous and transparent process EMPLOYEE LOYALTY EMPLOYEE LOYALTY EMPLOYEE LOYALTY among people to strike a balance that benefits the business. • Select the most material topics • Decision by portfolio manager

Companies are expected to maintain compliance and demonstrate their G BUSINESS INTEGRITY adherence to integrity, governance, and responsible business practices (bribery, G BUSINESS INTEGRITY BUSINESS INTEGRITY money laundering, collusion, tax evasion, fraud, insider trading, etc.).

Human rights do not appear as a single topic. Instead, particularly in the light of the UN Guiding Principles on Human Rights, they are considered overarching, and are integrated into all nine topics.

12/120 Engagement process Engagement process

- SELECTION OF MATERIAL TOPICS

The final decision as to the maximum three most material topics is made by the portfolio manager, considering the company’s business model and its development strategy.

13/120 ngagement process ngagement process ngagement process ngagement process

- ASSESSMENT As mentioned- ASSESSMENT earlier, we also want to motivate European commitment in terms of social impact or social investments, As mentioned earlier, we also want to motivate European commitment in terms of social impact or social investments, - ASSESSMENT companiesAs mentioned to generateearlier, we clea alsor, wantpositive to motivatesocial impact. European This hcommitmentas allocated ded in termsicated ofres socialources impact and is re orp ortisocialng oninvestments, social im- companies to generate clear, positive social impact. This has allocated dedicated resources and is reporting on social im- The- A engagementSSESSMENT process is a robust, comprehensive meth- sustainability is integrated into the company’s overall strategy, involvesAscompanies mentioned stimulating to generateearlier, wethem clea alsor, towantpositive build to motivatesocialeffective, impact. European possibl Thiys pactcommitmenthas alloca partsuntstaedershii ded nainbi pstermsicali tyandted is ofres intheir tegratesocialources effects impactd a ndinto. isAt tre heor pfirs orticsocialompt, ngthea onnyinvestments, co ’sso mocialveralpanie im-l stras tegy, involves stimulating them to build effective, possibly pact partnerships and their effects. At first, the companies odology designed to assess and benchmark a company’s thesusta levelinabi inli tythe is organizationintegrated into with the cultimateompany responsibility’s overall strateg fory, involvessystemiccompanies partnershipsstimulating to generate withthem clea socialr, topositive build enterprises socialeffective, impact.or other possibl Thi keyys strughpactas alloca partgledthent edto ershilevel dedunderstaps icain andtedthend resorganizationtheir outherces effectsnew and n. ot iswithAt ireon pf irs ortiultimateoft, i ngmpacthe on co responsibilitysot,m cialbutpanie im-thes for systemic partnerships with social enterprises or other key struggled to understand the new notion of impact, but the preparedness to address its most material sustainability sustainabilitysuthesta levelinabi inli tythe ismanagement, organizationintegrated into the with t heextent cultimateomp toa nywhich responsibility’s overal the lcompany strateg fory, involvesstakesystemicholde partnershipsstimulatingrs. We start withbythem as socialse tossing build enterprises the eeffective,xtent orto whother possiblich keythey strugUN’spact partg Developmentledsustainabilityn toershi understaps and Goals management,nd their the have effectsne boostedw n the.ot Ati onextent theirfirs oft, i communicationmpactothe which cot,m butpanie the the companys stakeholders. We start by assessing the extent to which the UN’s Development Goals have boosted their communication topics. Preparedness is assessed according to five criteria that involvesthesustainability level andin the engages management, organization its employees the with extent ultimate and to the which responsibilityextent the to company which for it portfosystemicstakeholiolde partnershipscomrs. pWeanies sta rtha withbyve asem socialsebessingdde enterprises dthe social exte ntim ortopac whothert inic hth keytheeir strugonUN’s theg Development ledtopic.involves to Throughundersta and Goalsengagesnd our the havespecific itsne boostedemployeesw nsocialotion their impact of and icommunicationmpac the engagement extentt, but tothe which it portfolio companies have embedded social impact in their on the topic. Through our specific social impact engagement draw heavily on the UN Guiding Principles, particularly the engagessustainabilityinvolves itsand shareholders engages management, its employeesand the other extent stakeholders.and to the which extent the to company which it glostakeportfobahol liostralde comtegy,rs. pWe aniespar sttaic rthau larbyvely asem tsehrbessingoughdde dthe par social etxtnerse ntimhip topacs. wh tF inoric h ththis, theeir weUN’son thehave Development topic.engages witnessed Through its shareholders theGoals our companies’ havespecific boostedand socialdesire other their impact tostakeholders. progresscommunication engagement on the global strategy, particularly through partnerships. For this, we have witnessed the companies’ desire to progress on the operational principles of policy commitment and human-rights involvesengages itsand shareholders engages its employeesand other stakeholders.and the extent to which it weportfoglo bausel liothestra comsitegy,mpple, aniesp arcutmulaic haularvetilyve em four-gthrbeoughdderaded par social scoritnersng imhip syspacs.tem tF inor show ththis,einr topic,onwe thehave especially topic. witnessed Through when the theour companies’ aimspecific is to socialgeneratedesire impact to systemic progress engagement impact, on the we use the simple, cumulative four-grade scoring system shown topic, especially when the aim is to generate systemic impact, due diligence. The five criteria are: materiality; commitment Fiengagesnally, weits assessshareholders quantitat andive lyother how stakeholders. closely companies adhere below.glowe bausel thestraThe sitegy, mptople, scorep arcutmulaic signifiesulartilyve four-gthr thatoughrade the par companyscoritnersnghip sys hass.tem F ormade show this, na workingwetopic, have especiallyFi witnessedwithnally, strategic we when assess the the localcompanies’ quan aim partners.ti istat toive generatedesirely how to closel systemic progressy com impact, onpanies the adhere below. The top score signifies that the company has made a working with strategic local partners. and strategy; objectives and actions; indicators and monitoring; toFinal specificly, we sustainab assess quanilitytitat frameivelywo howrks, closel suchy as c omthepanies UN Gu adidinghere webelow. use theThe si mptople, score cumula signifiestive four-g thatrade the companyscoring sys hastem made show na topic,working especiallyto with specific strategic when sustainab the local aimil itypartners. is frame to generatewo rks, systemic such as the impact, UN Gu iding and achievements. These criteria are used to identify gaps in PriFitonal specificncily,pl wees, sustainab assessthe UN quan ilGloitytitat framebailve Colywo mphowrks,act, closel such they asG c omthelobalpanies UN Re Gupo adidingrhertinge below. The top score signifies that the company has made a workingPri withncipl strategices, the UNlocal Glo partners.bal Co mpact, the Global Reporting the company’s preparedness to address its most material issues. IntoPri itispecificnatciivplees, and sustainab the the UN Sus iltaiGloityna framebablel CoDevelopwomprks,act,ment such the Go asG theloals.bal UN In Re the Gupo caseidingrting of Initiative and the Sustainable Development Goals. In the case of thePriInitin UNGPsatciivplees, and the for the UNin Sstance,us taiGlonaba ba lecompanyl CoDevelopmpact, wouldment the Go Greceiveloals.bal In theRe thepo hi caseghestrting of the UNGPs for instance, a company would receive the highest The assessment of reporting quality comprises six criteria: scoreIntheiti UNGPsat ifiv ite andhad for t adoptedhe in Sstance,ustai thena ba lereportingcompany Develop framework,wouldment Go receiveals. establishedIn the the hi caseghest of a The assessment of reporting quality comprises six criteria: score if it had adopted the reporting framework, established a accessThe assessmentibility, clar ofity, reporting comparab qualityility, accurac comprisesy, rel isixab ilicriteriaty and: humanthescore UNGPs if riitght had sfor po adopted inlicstance,y, perf theormed a reportingcompany due d framework,wouldiligence receive and imestablished theple mhienghestted a accessibility, clarity, comparability, accuracy, reliability and human rights policy, performed due diligence and implemented intTheaccessegr assessmentation,ibility, to cl determar ofity, reporting coinemparab how wequalityilillty, the accurac companycomprisesy, rel’s pubisixab ililicatcriteriaty ionands: ascorehuman remediation if riitght hads po adoptedprocess.licy, perf theormed reporting due d framework,iligence and imestablishedplemented a integration, to determine how well the company’s publications a remediation process. adaccessintdregressation,ib itlithey, tom cl ostdetermarit my,ate coinerimparab howal topic weilills.ty, theWe accurac company want y,to rel ’sma pubiabkeililicat sutyre ionan inds humana remediation rights po process.licy, performed due diligence and implemented address the most material topics. We want to make sure in pintadartdregricuessation,lar the th tomat ostdeterm the m reporteateineri howald topic su westaills. thenabilityWe company want data to ’smaare pubke linkedlicat sureion toins Thea remediation assessments process. of all these individual criteria are based on a particular that the reported sustainability data are linked to The assessments of all these individual criteria are based on a financialadpartdricuesslar t hereports th matost the or m reporte metricsateriald topic (essentiallysustais. nabilityWe wa topnt data line,to maare bottomke linked sure line toin simpleThe assessments four-grade of scoring all these system. individual Every criteria score are comes based with on a financial reports or metrics (essentially top line, bottom line simple four-grade scoring system. Every score comes with a andpfinancialart icurisks).lar reports that the or reporte metricsd (essentiallysustainability top data line, are bottom linked line to commentaryThesimple assessments four-grade by the of scoring allanalysts these system. individualand is quality-checkedEvery criteria score are comes based by BHP’swith on a and risks). commentary by the analysts and is quality-checked by BHP’s financialand risks). reports or metrics (essentially top line, bottom line seniorsimplecommentary consultants.four-grade by the scoringContrary analysts system. and to isbest-in-class quality-checkedEvery score comesinvestments, by BHP’swith a senior consultants. Weand alsorisks). assess each company’s sustainability organization thesecommentarysenior assessments consultants. by the are analysts not primarily and is quality-checked used to select by the BHP’s best We also assess each company’s sustainability organization anWed alsogov ernanceassess each. Fo urco crmpiteraniay’s m sustainabeasure theili exty tenorgt antoi zatwhionich ESGsenior companies consultants. but essentially to make them progress on their and governance. Four criteria measure the extent to which Weand alsogov ernanceassess each. Fo urco crmpiteraniay’s m sustainabeasure theili exty tenorgt antoi zatwhionich identified gaps to best practices. and governance. Four criteria measure the extent to which

PRODUCT ENVIRONMENTAL IMPACT 3 topics SUPPLIER SOCIAL IMPACT

BUSINESS INTEGRITY All the companies in the Cadmos Peace Investment Fund were the Cadmos Peace Investment Fund we can convey the message All the companies in the Cadmos Peace Investment Fund were the Cadmos Peace Investment Fund we can convey the message selectedAll the c omfor pantheiries large in th economice Cadmos footprint Peace Inv ines tmfragileent Fund countries, were thatthe Cadmos peacebuilding Peace Investment is not a new Fund category we can of convey ESG but the an messag extene- selected for their large economic footprint in fragile countries, that peacebuilding is not a new category of ESG but an exten- above-averageAllselected the c omfor pantheiri essensitivity large in th economice Ca dmoto peacebuildings footprint Peace Inv ines tmfragile and,ent Fund abovecountries, w all,ere sion,thethat Cadmos peacebuilding aimed Peaceat strengthening Investment is not a new theFund category practices we can of convey ESGthat contributebut the an messag exten toe- above-average sensitivity to peacebuilding and, above all, sion, aimed at strengthening the practices that contribute to PREPAREDNESS REPORTING QUALITY ORGANIZATION FRAMEWORKS atselectedabove-averagetractive forness their as sensitivity largean inv economicestment to peacebuilding oppfootprintortunity. in fragile Asand, p re abovecountries,paration all, conflictthatsion, peacebuilding aimed prevention at strengthening is and not stabilisationa new the category practices in fragileof ESGthat countries. contributebut an exten For to- attractiveness as an investment opportunity. As preparation conflict prevention and stabilisation in fragile countries. For forabove-averageattract ouri veengageness mas sensitivityent an mee invtinestgsment to, BHP peacebuilding opp assessesortunity. how Asand, the p recomaboveparapantion all,ies exasion,conflictmp aimedle ,prevention sou atrc instrengtheningg po andlicies stabilisation sho ulthed en practicessure in thatfragile that supp countries. contributeliers also taFor keto for our engagement meetings, BHP assesses how the companies example, sourcing policies should ensure that suppliers also take Accessibility Materiality embedatfortract ouri peacebuildingveengageness masent an mee inv in tinesttheirgsment, operationsBHP opp assessesortunity. and how organization. As the p recomparapantion Foiers stepsconflictexamp tole ,avoidprevention sourc procurementing po andlicies stabilisation sho oful conflict-relatedd ensure in thatfragile supp resources;countries.liers also taForandke embed peacebuilding in their operations and organization. For steps to avoid procurement of conflict-related resources; and Clarity Strategy UN Global Compact Commitment & Strategy Comparability Responsability UN SDG’s theforembed ourmost peacebuildingengage recentm engagementent mee in tintheirgs cycle, operationsBHP it assesses used and the how organization.six peacebuildingthe compan Foiers labourexastepsmp tole pract ,avoid souircces procurementin shg poouldlicies inc sholude oful aconflict-relateddff enirmatsurei ve-acthat supption resources; liersprog alrasom tameandkes the most recent engagement cycle it used the six peacebuilding labour practices should include affirmative-action programmes Objectives & Actions Accuracy Employee inclusiveness UN Guiding Principles Indicators & Monitoring bembedtheusi mostness peacebuilding recentcriteria engagement deve inlo theirped cycleby operations the it usedPeaceNe and the organization.sixxus peacebuilding Foundation: For wherebystepslabour to pract avoid populationsices procurement should at inc risk,lude of such aconflict-relatedffirmat as minorities,ive-action resources; womenprogram and, meands business criteria developed by the PeaceNexus Foundation: whereby populations at risk, such as minorities, women and, Reliability Stakeholder inclusiveness Global Reporting Initiative Achievements Integration labour,thebusi mostness sourcing, recentcriteria engagement devecommunityloped cycleby relations, the it usedPeaceNe governance, the sixxus peacebuilding Foundation: products ex-combatants,labourwhereby pract populationsices aresho includeduld at inc risk,lude in such atheffirmat workforce.as minorities,ive-action For womenpro theg racomingm and,mes labour, sourcing, community relations, governance, products ex-combatants, are included in the workforce. For the coming anblabour,usid nsecuriess sourcing, crty.iteria Com devecommunitypanloiespe received by relations, the top PeaceNe sc governance,ores xuson tFoundation:he productsdifferent engagementwherebyex-combatants, populations cycle, are we included haveat risk, fine-tuned in such the workforce.as minorities, the methodology For women the coming based and, and security. Companies receive top scores on the different engagement cycle, we have fine-tuned the methodology based criterialabour,and securi ifsourcing, theyty. repComo communityrtpa onnies their receive po relations,lici estop an scd governance,concreteores on achthe ievproductsdiffemenerentst onex-combatants,engagement the compa cycle,nies’ are fee we includedd haveback fine-tunedan ind the rep workforce.orti theng practices. methodology For the As cominga resbasedult, criteria if they report on their policies and concrete achievements on the companies’ feedback and reporting practices. As a result, inancriteria dfragile securi if t heycountries.ty. repComortpa onCommunicationnies their receive polici estop an scdabout concreteores peacebuildingon achthe ievdiffemeneren istst weengagementon theshall com conpa cycle,cenies’ntra fee weted onhavebac thk fine-tunedanreed crrepitoerrtia:i theng lab practices. methodologyour, sou Asrc inga resbased andult, in fragile countries. Communication about peacebuilding is we shall concentrate on three criteria: labour, sourcing and stillcriteriain fragile immature, if t heycountries. rep sinceort onitCommunication is their not pointegratedlicies an dabout into concrete existing peacebuilding ach ievreportingemen ists communityonwe theshall com conpa relations.cenies’ntra feeted onbac thk anreed crrepitoerrtia:ing lab practices.our, sou Asrc inga res andult, still immature, since it is not integrated into existing reporting community relations. frameworksinstill fragile immature, countries. such since as theitCommunication is Global not integrated Reporting about into Initiative. existing peacebuilding reporting Through is wecommunity shall con relations.centrate on three criteria: labour, sourcing and frameworks such as the Global Reporting Initiative. Through stillframeworks immature, such since as theit is Global not integrated Reporting into Initiative. existing reporting Through community relations. frameworks such as the Global Reporting Initiative. Through

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3.1- -A ssessmenASSESSMENTt of social impact and peacebuilding embeddedness As mentioned earlier, we also want to motivate European commitment in terms of social impact or social investments, - ASSESSMENT As mentioned earlier, we also want to motivate European commitment in terms of social impact or social investments, companies to generate clear, positive social impact. This has allocated dedicated resources and is reporting on social im- - ASSESSMENT Ascompanies mentioned to generateearlier, we clea alsor, wantpositive to motivatesocial impact. European This commitmenthas allocasutstaedi ded nainbi termsicalityted is ofres in tegratesocialources impactd a ndinto is tre heorp orticsocialompnga onnyinvestments, ’sso ocialveral im-l stra tegy, involves stimulating them to build effective, possibly pact partnerships and their effects. At first, the companies sustainability is integrated into the company’s overall strategy, companiesinvolves stimulating to generate them clear, topositive build socialeffective, impact. possibl Thiys hpactas alloca partthented ershilevel dedps icain andtedthe resorganizationtheirources effects and. iswithAt re pf irsortiultimatet, ngthe on co responsibilitysomcialpanie im-s for systemic partnerships with social enterprises or other key struggled to understand the new notion of impact, but the suthesta levelinabi inli tythe is organizationintegrated into with the cultimateompany responsibility’s overall strateg fory, systemicinvolves partnershipsstimulating withthem social to build enterprises effective, or other possibl keyy pactstrug partgledsustainabilityn toershi understaps and management,nd their the effectsnew n the.ot Ati onextent firs oft, i mpactothe which cot,m butpanie the the companys stakeholders. We start by assessing the extent to which the UN’s Development Goals have boosted their communication thesustainability level in the management, organization the with extent ultimate to which responsibility the company for systemicstakeholde partnershipsrs. We start withby as socialsessing enterprises the extent orto whotherich keythe strugUN’sg Developmentledinvolves to understa and Goalsengagesnd the have itsne boostedemployeesw notion their of and icommunicationmpac the extentt, but tothe which it portfolio companies have embedded social impact in their on the topic. Through our specific social impact engagement sustainabilityinvolves and engages management, its employees the extent and to the which extent the to company which it stakeportfoholiolde comrs. pWeanies sta rtha byve asemsebessingdde dthe social exte ntim topac wht inic hth theeir UN’son the Development topic.engages Through its shareholders Goals our havespecific boostedand social other their impact stakeholders. communication engagement global strategy, particularly through partnerships. For this, we have witnessed the companies’ desire to progress on the involvesengages itsand shareholders engages its employeesand other stakeholders.and the extent to which it portfoglobal liostra comtegy,p aniespartic haularvely em thrbeoughdded par socialtners imhippacs. tF inor ththis,eir onwe thehave topic. witnessed Through the our companies’ specific socialdesire impact to progress engagement on the we use the simple, cumulative four-grade scoring system shown topic, especially when the aim is to generate systemic impact, engages its shareholders and other stakeholders. glowe bausel thestra sitegy,mple, p arcutmulaiculartilyve four-gthroughrade par scoritnersnghip syss.tem For show this,n wetopic, have especiallyFi witnessednally, we when assess the the companies’ quan aimti istat toive generatedesirely how to closel systemic progressy com impact, onpanies the adhere below. The top score signifies that the company has made a working with strategic local partners. Finally, we assess quantitatively how closely companies adhere webelow. use theThe si mptople, score cumula signifiestive four-g thatrade the companyscoring sys hastem made show na topic,working especiallyto with specific strategic when sustainab the local aimil itypartners. is frame to generatewo rks, systemic such as the impact, UN Gu iding Fitonal specificly, we sustainab assess quanilitytitat frameivelywo howrks, closel suchy as c omthepanies UN Gu adidinghere below. The top score signifies that the company has made a workingPri withncipl strategices, the UNlocal Glo partners.bal Co mpact, the Global Reporting toPri specificnciples, sustainab the UN ilGloity framebal Cowomprks,act, such the asG thelobal UN Re Gupoidingrting Initiative and the Sustainable Development Goals. In the case of PriInitinatciivplees, and the the UN Sus taiGlonabablel CoDevelopmpact,ment the Go Gloals.bal In Re thepo caserting of the UNGPs for instance, a company would receive the highest Intheiti UNGPsative and for the in Sstance,ustaina ba lecompany Develop wouldment Go receiveals. In the the hi caseghest of The assessment of reporting quality comprises six criteria: score if it had adopted the reporting framework, established a The assessment of reporting quality comprises six criteria: thescore UNGPs if it had for adopted instance, the a reportingcompany framework,would receive established the highest a accessibility, clarity, comparability, accuracy, reliability and human rights policy, performed due diligence and implemented Theaccess assessmentibility, clar ofity, reporting comparab qualityility, accurac comprisesy, rel isixab ilicriteriaty and: scorehuman if riitght hads po adoptedlicy, perf theormed reporting due d framework,iligence and imestablishedplemented a integration, to determine how well the company’s publications a remediation process. accessintegration,ibility, to cl determarity, coinemparab how weilillty, the accurac companyy, rel’s pubiabililicatty ionands humana remediation rights po process.licy, performed due diligence and implemented address the most material topics. We want to make sure in intaddregressation, the tom ostdeterm mateineri howal topic wells. theWe company want to ’sma pubkelicat sureion ins a remediation process. particular that the reported sustainability data are linked to The assessments of all these individual criteria are based on a adpartdricuesslar the th matost the m reporteateriald topic sustais. nabilityWe want data to maareke linked sure toin The assessments of all these individual criteria are based on a financial reports or metrics (essentially top line, bottom line simple four-grade scoring system. Every score comes with a pfinancialarticular reports that the or reporte metricsd (essentiallysustainability top data line, are bottom linked line to Thesimple assessments four-grade of scoring all these system. individual Every criteria score are comes based with on a and risks). commentary by the analysts and is quality-checked by BHP’s financialand risks). reports or metrics (essentially top line, bottom line simplecommentary four-grade by the scoring analysts system. and is quality-checkedEvery score comes by BHPwith ’sa senior consultants. and risks). commentarysenior consultants. by the analysts and is quality-checked by BHP’s We also assess each company’s sustainability organization We also assess each company’s sustainability organization senior consultants. and governance. Four criteria measure the extent to which Weand alsogov ernanceassess each. Fo urco crmpiteraniay’s m sustainabeasure theili exty tenorgt antoi zatwhionich and governance. Four criteria measure the extent to which SOCIAL IMPACT EMBEDDEDNESS PEACEBUILDING EMBEDDEDNESS

Labor 3 Reporting on social impact partnerships including impact

Security Sourcing 2 Allocation of dedicated resources for SE/SI

1 Commitment to SE/SI

No information on company's engagement in social 0 entrepreneurship or social investment (SE/SI) products Community relations

Governance

All the companies in the Cadmos Peace Investment Fund were the Cadmos Peace Investment Fund we can convey the message All the companies in the Cadmos Peace Investment Fund were the Cadmos Peace Investment Fund we can convey the message selected for their large economic footprint in fragile countries, that peacebuilding is not a new category of ESG but an exten- Allselected the c omfor pantheiries large in th economice Cadmos footprint Peace Inv ines tmfragileent Fund countries, were thethat Cadmos peacebuilding Peace Investment is not a new Fund category we can of convey ESG but the an messag extene- above-average sensitivity to peacebuilding and, above all, sion, aimed at strengthening the practices that contribute to selectedabove-average for their sensitivity large economic to peacebuilding footprint in fragile and, abovecountries, all, thatsion, peacebuilding aimed at strengthening is not a new the category practices of ESGthat contributebut an exten to- attractiveness as an investment opportunity. As preparation conflict prevention and stabilisation in fragile countries. For above-averageattractiveness as sensitivity an investment to peacebuilding opportunity. Asand, p reaboveparation all, sion,conflict aimed prevention at strengthening and stabilisation the practices in fragile that countries. contribute For to for our engagement meetings, BHP assesses how the companies example, sourcing policies should ensure that suppliers also take atfortract ouri veengageness masent an mee invtinestgsment, BHP opp assessesortunity. how As the p recomparapantionies conflictexample ,prevention sourcing po andlicies stabilisation should ensure in thatfragile supp countries.liers also taForke embed peacebuilding in their operations and organization. For steps to avoid procurement of conflict-related resources; and forembed our peacebuildingengagement mee in tintheirgs, operationsBHP assesses and how organization. the compan Foiers exastepsmp tole ,avoid sourc procurementing policies sho oful conflict-relatedd ensure that supp resources;liers also taandke the most recent engagement cycle it used the six peacebuilding labour practices should include affirmative-action programmes embedthe most peacebuilding recent engagement in their cycle operations it used and the organization.six peacebuilding For stepslabour to pract avoidices procurement should include of aconflict-relatedffirmative-action resources; program meands business criteria developed by the PeaceNexus Foundation: whereby populations at risk, such as minorities, women and, thebusi mostness recentcriteria engagement developed cycleby the it usedPeaceNe the sixxus peacebuilding Foundation: labourwhereby pract populationsices should at inc risk,lude such affirmat as minorities,ive-action womenprogram and,mes labour, sourcing, community relations, governance, products ex-combatants, are included in the workforce. For the coming blabour,usiness sourcing, criteria devecommunityloped by relations, the PeaceNe governance,xus Foundation: products wherebyex-combatants, populations are included at risk, in such the workforce.as minorities, For women the coming and, and security. Companies receive top scores on the different engagement cycle, we have fine-tuned the methodology based labour,and securi sourcing,ty. Com communitypanies receive relations, top sc governance,ores on the productsdifferent ex-combatants,engagement cycle, are we included have fine-tuned in the workforce. the methodology For the coming based criteria if they report on their policies and concrete achievements on the companies’ feedback and reporting practices. As a result, ancriteriad securi if theyty. repComortpa onnies their receive polici estop an scd concreteores on achthe ievdiffemenerentst engagementon the compa cycle,nies’ fee wed haveback fine-tunedand reporti theng practices. methodology As a resbasedult, in fragile countries. Communication about peacebuilding is we shall concentrate on three criteria: labour, sourcing and criteriain fragile if t heycountries. report onCommunication their policies an dabout concrete peacebuilding achievemen ists onwe theshall com conpacenies’ntra feeted onbac thk anreed crrepitoerrtia:ing lab practices.our, sou Asrc inga res andult, still immature, since it is not integrated into existing reporting community relations. instill fragile immature, countries. since itCommunication is not integrated about into existing peacebuilding reporting is wecommunity shall con relations.centrate on three criteria: labour, sourcing and frameworks such as the Global Reporting Initiative. Through stillframeworks immature, such since as theit is Global not integrated Reporting into Initiative. existing reporting Through community relations. frameworks such as the Global Reporting Initiative. Through

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- ASSESSMENT REPORT - FOLLOW-UP ON SOCIAL IMPACT AND PEACEBUILDING

In the fourth step of the engagement process, we compile a summarised version Social impact is penetrating discussions at board level; and success factors. The Head – the intellectual business case for of our assessment showing the quality and depth of our work. This assessment some companies have begun to make it a core element of their action and the supporting governance and systems – together report is sent to the company’s highest executive and operational bodies. Its aim business strategy for exploring new market opportunities and with the Heart – the conviction, passion and commitment is to concentrate their attention on their company’s strengths and weaknesses and addressing millennials’ expectations. But major SDG’s are too underpinning the action – and the Hands – the capabilities, not on abstract scores or ratings. We focus on the main sustainability gaps and large for any one party to tackle alone. As a growing body of resources and systems that enable implementation – need to improvement suggestions that we want to address direct with the company. evidence shows, social enterprises and corporates are able to be aligned in order to deliver positive, scalable outcomes. The assessment report thus stimulates key company representatives to participate achieve positive social and environmental impact in a way that in a constructive dialogue with the engagement team and the portfolio manager. drives value for both parties, while benefiting the communities Recommended next steps can include executive training, that they serve on a scale not possible when acting alone. capacity building, partnership design, set-up of social impact Furthermore, these partnerships benefit social entrepreneurs, bonds and of course matchmaking with social enterprises. whose aim is to scale their activities, and multinationals alike. The implementation of these initiatives will be managed and The latter can strengthen their purpose, better address the needs financed outside the scope of our mandate, but our aim is to of the bottom of the pyramid, and work towards achieving follow up year after year in order to report to our investors the Sustainable Development Goals. The business case for more tangible impacts from our portfolio companies. As a partnerships is clear. long-term investor, we value positive impact partnerships as a potential means of further strengthening our portfolio With KiKLab’s recognised expertise in impact investing our companies’ competitive advantage while creating social -SHAREHOLDER DIALOGUE aim is to assess the portfolio companies’ readiness to partner impact and contributing to the Sustainable Development with a specifically designed Heart, Head and Hands – HHH Goals. The four preceding steps pave the way for a shareholder dialogue with our portfolio companies. The companies applaud our framework. Successful and failing partnerships have been commitment to performing a thorough annual assessment, followed up by an on-site meeting or conference call. According to studied extensively in order to understand the key determining their feedback, we are the only asset manager to conduct meetings that bring together the financial expertise of the portfolio manager and the sustainability expertise offered by BHP’s senior sustainability consultants. SOCIAL IMPACT FOLLOW-UP At meetings with the companies, we insist on including representatives of both the investor relations and corporate social responsibility departments. By thus conveying a message of sustainability integration we get the attention of the former and strong support from the latter, which is often insufficiently considered in the company’s organization.

Shareholder dialogue

• Led by PPT’s advisor: BHP - Brugger & Partners • Participation of Cadmos portfolio managers • On-site visits or conference calls • Company C-level or board member participation

We apply similar techniques to motivate the portfolio companies Business Criteria - PBBC. Here too, the insights obtained allow Objective in the Cadmos Peace Investment Fund to follow up with the us to make tangible project recommendations. As a long-term • Focus on ﬁnancial materiality — Push for full CSR Integration PeaceNexus Foundation. We suggest that they benefit from the investor we value the increased resilience of companies whose • Gap analysis — Increase awareness to progress foundation’s expertise by accepting a thorough peacebuilding actions are helping to stabilise the fragile countries in which • Progress recommendations — Stimulate best-practices • Raise interest on social impact — Provide support for impact assessment based on PeaceNexus’s proprietary Peacebuilding they operate, even as they contribute to realising SDG 16.

PEACEBUILDING FOLLOW-UP

We focus on enabling progress. Our thorough gap analysis gives credibility to our recommendations and objectives, which are specific, tangible and easily implemented. By providing pragmatic help and advice and emphasising the business case for ESG integration we encourage the companies to better integrate their most material topics into their strategy and operations. During our engagement meetings we also motivate them to set up social impact projects or tangible peacebuilding initiatives wherever relevant. At that stage we propose a follow-up meeting with our partners, who are among the best specialists in their respective areas.

16/120 ngagement process ngagement process

- ASSESSMENT REPORT - FOLLOW-UP ON SOCIAL IMPACT AND PEACEBUILDING

In the fourth step of the engagement process, we compile a summarised version Social impact is penetrating discussions at board level; and success factors. The Head – the intellectual business case for of our assessment showing the quality and depth of our work. This assessment some companies have begun to make it a core element of their action and the supporting governance and systems – together report is sent to the company’s highest executive and operational bodies. Its aim business strategy for exploring new market opportunities and with the Heart – the conviction, passion and commitment is to concentrate their attention on their company’s strengths and weaknesses and addressing millennials’ expectations. But major SDG’s are too underpinning the action – and the Hands – the capabilities, not on abstract scores or ratings. We focus on the main sustainability gaps and large for any one party to tackle alone. As a growing body of resources and systems that enable implementation – need to improvement suggestions that we want to address direct with the company. evidence shows, social enterprises and corporates are able to be aligned in order to deliver positive, scalable outcomes. The assessment report thus stimulates key company representatives to participate achieve positive social and environmental impact in a way that in a constructive dialogue with the engagement team and the portfolio manager. drives value for both parties, while benefiting the communities Recommended next steps can include executive training, that they serve on a scale not possible when acting alone. capacity building, partnership design, set-up of social impact Furthermore, these partnerships benefit social entrepreneurs, bonds and of course matchmaking with social enterprises. whose aim is to scale their activities, and multinationals alike. The implementation of these initiatives will be managed and The latter can strengthen their purpose, better address the needs financed outside the scope of our mandate, but our aim is to of the bottom of the pyramid, and work towards achieving follow up year after year in order to report to our investors the Sustainable Development Goals. The business case for more tangible impacts from our portfolio companies. As a partnerships is clear. long-term investor, we value positive impact partnerships as a potential means of further strengthening our portfolio With KiKLab’s recognised expertise in impact investing our companies’ competitive advantage while creating social -SHAREHOLDER DIALOGUE aim is to assess the portfolio companies’ readiness to partner impact and contributing to the Sustainable Development with a specifically designed Heart, Head and Hands – HHH Goals. The four preceding steps pave the way for a shareholder dialogue with our portfolio companies. The companies applaud our framework. Successful and failing partnerships have been commitment to performing a thorough annual assessment, followed up by an on-site meeting or conference call. According to studied extensively in order to understand the key determining their feedback, we are the only asset manager to conduct meetings that bring together the financial expertise of the portfolio manager and the sustainability expertise offered by BHP’s senior sustainability consultants. SOCIAL IMPACT FOLLOW-UP At meetings with the companies, we insist on including representatives of both the investor relations and corporate social responsibility departments. By thus conveying a message of sustainability integration we get the attention of the former HHH - ALIGNMENTS RECOMMANDATIONS and strong support from the latter, which is often insufficiently considered in the company’s organization.

Executive training

Finance & resources Willingness Knowledge sharing of past success/failures to innovate, Metrics & learn & incentives Shareholder dialogue Objectives share Capacity building for future partnering & outcomes Time horizon • Led by PPT’s advisor: BHP - Brugger & Partners Governance Social or Development impact bonds Culture Communication • Participation of Cadmos portfolio managers & legal & values with stakeholders • On-site visits or conference calls issues Leadership Matchmaking with social enterprises • Company C-level or board member participation commitment

PEACEBUILDING FOLLOW-UP

We focus on enabling progress. Our thorough gap analysis gives credibility to our recommendations and objectives, which PBBC ASSESSMENT RECOMMANDATIONS are specific, tangible and easily implemented. By providing pragmatic help and advice and emphasising the business case for ESG integration we encourage the companies to better integrate their most material topics into their strategy and operations.

During our engagement meetings we also motivate them to set up social impact projects or tangible peacebuilding initiatives Executive training or Knowledge sharing wherever relevant. At that stage we propose a follow-up meeting with our partners, who are among the best specialists in their respective areas. Strategic support for peacebuilding integration Capacity building and best practices

Technical local peacebuilding assistance

17/120 KEY DIFFERENTIATING CHARACTERISTICS Testimonials

Over the years, Cadmos received many testimonials from companies. On this page we list a few examples from the 2017–2018 engagement cycle.

Shareholder engagement and ESG integration are the as a result, they can lead to sub-optimal investment decisions. The readiness assessment for partnerships sounds really interesting and insightful thanks for the sharing the main distinguishing features of the Buy & Care investment The Cadmos Funds portfolio managers are free of external details below. e are currently reviewing our partnerships strategy and will be in touch as this evolvesSonia strategy, whose aim is to generate above-market financial constraints and fully responsible for the Fund’s financial and Thimmiah, Global Sustainability Director, Reckitt Benckiser (United Kingdom) performance and additional, tangible social impacts. The impact performance. This approach calls for a team with the Cadmos Funds’ innovative combination of integration and skills required to integrate the sustainability factors and link engagement strategies presents a number of advantages: them to the classic financial-valuation models. The Buy & Care strategy makes responsible investment attractive to Thank you for the materials and availability we had a great conversation with admos that was very First, our managers are not subject to dogmatic exclusion rules mainstream or institutional investors, who are mainly productive for us. This feedback is very important to us to continuously improve the sustainability management. or possibly arbitrary ESG ratings. Ratings tend to be backward pursuing financial returns. We have achieved our aim of looking, often take insufficient account of the companies’ outperformance with the Cadmos Funds in most market Rafael Mahfud da Silva, Sustentabilidade, Weg (Brazil). business models and are rarely factored into the share price; circumstances.

Impact Investing Many thanks for the recent meeting. n my view the active discussion very well showed the mutual interest and we would like to thank you for openly sharing your views with us. e will continue our efforts to remain a leading player also with regards to sustainability matters. e look forward to keeping the direct contact with you....

CADMOS ESG Integration Jutta Bopp, Investor Relations, Swiss Re (Switzerland)

Engagement …and this extract from Taiwan Semiconductor - TSMC’s 2017 Corporate Social Responsibility Report which does to some extent testify to the quality of Best in Class our relationship as a long-term loyal shareholder on their side. SRI Depth of research and active ownership

Exclusions

Our second advantage: we believe that in all but a few excep- Funds we systematically measure the engagement level of each tional cases, dialogue is preferable to exclusion. Sometimes company, in order to evaluate our engagement progress. Only the Cadmos Funds remain the only responsible investor still when the company reaches level 5, signifying that it has acted on maintaining the dialogue and suggesting areas with potential one of our recommendations or that a suggested social impact for progress on the sustainability issues. We choose soft power or peacebuilding project has become reality do we consider and expertise to open the companies’ doors. Over the years, that we have achieved the desired impact. our experts at BPH, KiKLab and PeaceNexus have won the companies’ respect and trust as competent, demanding but pragmatic sparring partners. One has only to read the testimonials on the following page. By taking care not to ESG Integration engagement ostracise profitable businesses that will probably continue to grow, and by motivating them to progress and generate Level additional social impacts, the Cadmos Funds are often cited e greatly appreciate these testimonials, which among the top investments in liquid equity markets in terms Level Description bear witness to the results that can be obtained of performance and impact. 5 Shows improvements on recommendations 4 Acknowledges recommendations by maintaining an influential dialogue conducted For our third advantage, we could point to this report, which 3 Accepts the principle of a regular dialogue provides a transparent account of Cadmos’s processes, perfor- professionally and courteously. mances and impacts. Unfortunately, only a minority of the 2 Agrees to discuss assessment results funds claiming to engage with companies actually report on 1 Acknowledges receipt of our assessment the non-achievements as well as the successes. For the Cadmos 0 Assessment completed but no meeting was conducted

18/120 KEY DIFFERENTIATING CHARACTERISTICS Testimonials

Over the years, Cadmos received many testimonials from companies. On this page we list a few examples from the 2017–2018 engagement cycle.

Many thanks for the recent meeting. n my view the active discussion very well showed the mutual interest and we would like to thank you for openly sharing your views with us. e will continue our efforts to remain a leading player also with regards to sustainability matters. e look forward to keeping the direct contact with you....

Jutta Bopp, Investor Relations, Swiss Re (Switzerland)

…and this extract from Taiwan Semiconductor - TSMC’s 2017 Corporate Social Responsibility Report which does to some extent testify to the quality of our relationship as a long-term loyal shareholder on their side.

Our second advantage: we believe that in all but a few excep- Funds we systematically measure the engagement level of each tional cases, dialogue is preferable to exclusion. Sometimes company, in order to evaluate our engagement progress. Only the Cadmos Funds remain the only responsible investor still when the company reaches level 5, signifying that it has acted on maintaining the dialogue and suggesting areas with potential one of our recommendations or that a suggested social impact for progress on the sustainability issues. We choose soft power or peacebuilding project has become reality do we consider and expertise to open the companies’ doors. Over the years, that we have achieved the desired impact. our experts at BPH, KiKLab and PeaceNexus have won the companies’ respect and trust as competent, demanding but pragmatic sparring partners. One has only to read the testimonials on the following page. By taking care not to ostracise profitable businesses that will probably continue to grow, and by motivating them to progress and generate additional social impacts, the Cadmos Funds are often cited e greatly appreciate these testimonials, which among the top investments in liquid equity markets in terms Level Description bear witness to the results that can be obtained of performance and impact. 5 Shows improvements on recommendations 4 Acknowledges recommendations by maintaining an influential dialogue conducted For our third advantage, we could point to this report, which 3 Accepts the principle of a regular dialogue provides a transparent account of Cadmos’s processes, perfor- professionally and courteously. mances and impacts. Unfortunately, only a minority of the 2 Agrees to discuss assessment results funds claiming to engage with companies actually report on 1 Acknowledges receipt of our assessment the non-achievements as well as the successes. For the Cadmos 0 Assessment completed but no meeting was conducted

19/120 Cadmos European Engagement

Fund FUND CADMOS ENGAGEMENT EUROPEAN Cadmos European Engagement

Fund FUND CADMOS ENGAGEMENT EUROPEAN FINANCIAL PERFORMANCE PERFORMANCE SINCE INCEPTION The Cadmos European Engagement Fund, managed and markets. The main drivers of the relative performance were 160.00 promoted by PPT, is a sub-fund of the Luxembourg-based industrials, chemicals, technology and most of the financial Cadmos Fund. Christopher Quast, head of European equity stocks. At 31 December 2017, the Fund comprised thirty-seven 140.00 management at PPT since 1999, has managed the Fund since companies, one more than in 2016. During the year it welcomed its inception. In the 2017–2018 engagement cycle, classes A, six new entrants1, while selling five companies.2 Our decisions B and C of the Fund returned +7.1%, +8.0% and +7.4% take account of many factors, such as the sustainability of 120.00 respectively, slightly underperforming for the first time in the business model, the market valuation and the portfolio’s the past 3 years the benchmark index (the Dow Jones Stoxx overall balance. 100.00 50 with net dividends reinvested), which rose +9.0%. The main drivers of the relative performance were industrials, The engagement team continued to engage with the companies 80.00 chemicals, technology and most of the financial stocks. represented in the portfolio, together with the portfolio manager,

who took part in all the dialogues conducted. The information UN D 60.00 Up until May, the market extended the rally seen as of early obtained from this year’s revised engagement process enriched F December 2016, spurred on by accelerating economic growth the investment process and sharpened our insight into the

40.00 and upward revisions to earnings estimates for European sustainability of each company’s business model. oct. 06 oct. 08 oct. 10 oct. 12 oct. 14 oct. 16 companies. The euro’s surge against the dollar weighed on companies’ earnings prospects, explaining in large part the At December 2017 the Fund had outperformed its index Cadmos European Engagement fund (B) STOXX 50 Net Ret. (€) European markets’ underperformance relative to the US by 11.5% in the period since its launch (Class B) in 2006. NG A GEME NT E VOTING TRENDS EA N 25 VOTING

20 During the period under review we expressed an opinion The majority of the resolutions submitted to the vote, that is,

es summa r 15 of voting decisions in Europe following a 30% increase in recent years. Votes on remuneration have almost doubled in Of the total 759 votes that we cast, fifty-six or 7.4% were ADM O

the last four years, rising from sixty-three resolutions in 2013 against management recommendations. Overall, the item C

10 to 118 in 2017. that elicited most of our oppositions was the structure of the board of directors (thirty-one “Against” votes).

2012 2013 2014 2015 2016 2017 ero rman

Items per company % Opposing votes per 100 item

SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT IMPACT We engaged with thirty-six companies in the Fund in this We motivate the companies to follow our recommendations

100% reporting cycle, through eight on-site visits and twenty-eight regarding material topics (engagement level 5), social-impact conference calls. Together, these companies represent 92 per partnerships and peacebuilding initiatives. We have reached 30 cent of the thirty-nine that we assessed.3 They include five this ultimate target, having created tangible impacts not 80% of the six new entrants and three of the five companies that only for two out of every three companies but for 90 per exited the portfolio. cent of all the Fund’s long-term holdings.4 20 60% Our engagement targets for the Cadmos European Engagement During the period under review, nine companies acted on our Fund are ambitio us. The first target is to create a dialogue with recommendations and improved on at least one weak point 40% each company within three years. As the table on the next raised the year before.5 This includes Roche and SGS, both 10 page shows, we have now reached this objective (engagement of which also showed progress on social impact partnerships 20% level 2), having engaged with all the companies that have initiated by Cadmos. Roche is considering an impact bond, been in the Fund for at least three years. aimed at improving standards of breast-cancer treatment for 0 0% lower-income patients in India. SGS has set up a pilot training 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 Our long-term (five-year) impact objective is to generate posi- programme for unemployed youth in South Africa through tive additional impacts at a majority of our portfolio companies. its SGS Academy. Nb. of companies with positive Nb. sold companies with % of companies with engagement impacts (5 years rolling) engagement impact engagement impacts

1. Anheuser-Bush Inbev, Capgemini, Infineon, Legrand, Roche Holding and Royal Philips. — 2. Hennes & Mauritz, Luxottica Group, Novartis, Royal Dutch Shell and Swiss Re. — 3. Compass Group, Unilever and one new entrant into the portfolio, Infineon, are the only companies with whom we did 22/ not engage this year. — 4. See the summary table on the following page. Companies are considered long-term if they have reached engagement level 5 120 or have been in the portfolio for five years or more. — 5. Credit Suisse, Danone, Geberit, Nestlé, Novartis, Novo Nordisk, Roche, SGS and Swiss Re. FINANCIAL PERFORMANCE PERFORMANCE SINCE INCEPTION The CCadmosadmos European EnEngagementgagement Fund, manamanagedged andand markets. The main drivers of the relative performance were 160.00 prompromotedoted by PPT, is a ssub-fundub-fund of ththee LuLuxembourg-basedxembourg-based industrials, chemicals, technology and most of the financial Cadmos Fund. Christopher Quast, head of European equity stocks. At 31 December 2017, the Fund comprised thirty-seven 140.00 management at PPT since 1999, has managed the Fund since companies, one more than in 2016. During the year it welcomed its inceptioninception.. In the 2017–2018 engagement cycle, classes A, six new entrants1, while selling five companies.2 Our decisions B aandnd C of the Fund retreturnedurned +7+7.1%,.1%, +8+8.0%.0% and +7+7.4%.4% take account of many factors, such as the sustainability of 120.00 respectively, slightly underperforming for the first timetime inin the business model, the market valuation and the portfolio’s the past 3 years the benchmark index (the StoxxDow J 50on withes Stoxx net overall balance. 100.00 50dividends with net reinvested), dividends which reinvested), rose +9.0%. which The rose main +9.0%. drivers The of mainthe relative drivers performance of the relative were performance industrials, were chemicals, industrials, tech- The engagement team continued to engage with the companies 80.00 chemicals,nology and technology most of the and financial most of stocks. the financial stocks. represented in the portfolio, together with the portfolio manager,

20 During the period under review we expressed an opinion The majority of the resolutions submitted to the vote, that is,

on 759 items on the agendas of annual general meetings. almost 75%, still concern the structure of the board of directors S EU ROP This figure represents a certain stabilisation in the number and the capital structure. es summa r 15 of voting decisions in Europe following a 30% increase in recent years. Votes on remuneration have almost doubled in Of the total 759 votes that we cast, fifty-six or 7.4% were ADM O

the last four years, rising from sixty-three resolutions in 2013 against management recommendations. Overall, the item C

10 to 118 in 2017. that elicited most of our oppositions was the structure of the board of directors (thirty-one “Against” votes).

2012 2013 2014 2015 2016 2017 ero rman

Items per company % Opposing votes per 100 item

SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT IMPACT We engaged with thirty-six companies in the Fund in this We motivate the companies to follow our recommendations

100% reporting cycle, through eight on-site visits and twenty-eight regarding material topics (engagement level 5),5), social-impactsocial impact conference calls. Together, these companies represent 92 per partnerships and and peacebuilding peacebuilding initiatives. initiatives. We We have have reached reached this 30 cent of the thirty-nine that we assessed.3 They include five thultimateis ultima target,te targ havinget, having created cre tangibleated ta impactsngible im notpacts only not for 80% of the six new entrants and three of the five companies that onlytwo out for oftwo every out three of every companies three compani in this engagementes but for 90 cycle per exited the portfolio. centbut for of all90 theper Fund’scent of long-termall the Fund’s holdings. long-term4 holdings.4 20 60% Our engagement targets for the Cadmos European Engagement During the period under review, nine companies acted on our Fund are ambitio us. The first target is to create a dialogue with recommendations and improved on at least one weak point 40% each company within three years. As the table on the next raised the year before.5 This includes Roche and SGS, both 10 page shows, we have now reached this objective (engagement of which also showed progress on social impact partnerships 20% level 2), having engaged with all the companies that have initiated by Cadmos. Roche is considering an impact bond, been in the Fund for at least three years. aimed at improving standards of breast-cancer treatment for 0 0% lower-income patients in India. SGS has set up a pilot training 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 Our long-term (five-year) impact objective is to generate posi- programme for unemployed youth in South Africa through tive additional impacts at a majority of our portfolio companies. its SGS Academy. Nb. of companies with positive Nb. sold companies with % of companies with engagement impacts (5 years rolling) engagement impact engagement impacts

PORTFOLIO MANAGEMENT PERFORMANCE VOTE MEETING ENGAGEMENT IMPACT Portfolio as at 31.12.2017 Contribution 2017 In Universe since Description Resolutions Against Type Level Change Summary Y/N (year) Type ABB 0.38% 2006 Voted 23 2 Conference Call 4 = Acknowledged recommendations and suggested meeting as soon as possible Yes (2015) Various material topics to initiate improvements. ANHEUSER-BUSH INBEV (New) -0.22% 2017 Entry after AGM 0 0 Conference Call 4 +4 First meeting focused on explaining methodology. Acknowledged our recommendations. N/R ASSA ABLOY 0.00% 2015 Voted 10 2 Conference Call 4 +2 Assa Abloy was open to engaging on a regular basis. N/R AXA SA 0.23% 2006 Voted 31 0 Conference Call 4 = Open to critical feedback from assessment. Potential improvements were acknowledged. No (last in 2009) BMW 0.10% 2007 Voted 5 0 Conference Call 3 -2 Discussion was open, but more of a Q&A than a dialogue. No commitments to improve. Yes (2016) Various material topics UN D

BNP PARIBAS 0.23% 2006 Voted 18 0 Conference Call 4 -1 BNP was open to recommendations, including improving already excellent disclosures. Yes (2016) Various material topics F CAPGEMINI (New) -0.04% 2017 Entry after AGM 0 0 Conference Call 4 +4 Particularly interactive and insightful discussion. Acknowledged helpful recommendations. N/R COLOPLAST 0.18% 2014 Voted 23 3 Conference Call 4 -1 Interested in results and methodology. Agreed to revisit decision not to adopt GRI Standards. Yes (2016) Various material topics COMPAGNIE DE SAINT GOBAIN 0.21% 2006 Voted 21 0 Conference Call 4 -1 Lively atmosphere and expressed importance of discussion. Acknowledged recommendations. Yes (2016) Various material topics COMPASS GROUP 0.13% 2010 Voted 28 0 No meeting 0 (4 in 2016) -4 No interest for engagement meeting this year. No CREDIT SUISSE GROUP 0.26% 2006 Voted 34 14 On-Site Meeting 5 +2 One of the three main recommendations (data accessibility) from previous meeting was taken up. Yes (2017) Various material topics

DANONE 0.57% 2006 Voted 25 0 Conference Call 5 = The company made its new «Code of Conduct for Business Partners» publically available. Yes (2017) Various material topics NG A GEME NT

DASSAULT SYSTEMES 0.50% 2016 Voted 23 5 Conference Call 4 +4 First meeting and recommendations acknoweldged (reporting, employee loyaltee, data security). N/R E ESSILOR INTERNATIONAL 0.29% 2006 Voted 40 4 Conference Call 4 = Constructive, with explanation of processes. Emphasized accuracy and value of assessment. Yes (2014) Various material topics

FRESENIUS MEDICAL CARE 0.30% 2009 Voted 5 1 Conference Call 4 = Interested in results of assessment. Elaborated on their Global sustainability initiative. Yes (2013) Various material topics EA N GEBERIT -0.05% 2009 Voted 17 0 Conference Call 5 +4 The previous recommendation to review the code of conduct was taken-up since last brieﬁng. Yes (2017) Various material topics HENNES & MAURITZ (Out) -0.5% 2006 Voted 24 2 Exit Exit Exit N/R Yes (2015) Various material topics HSBC HOLDINGS 0.44% 2006 Voted 31 2 On-Site Meeting 3 -1 HSBC is aware of its challenges and has plans to improve. Reporting needs signiﬁcant changes. No

INFINEON (New) 0.92% 2017 Voted 7 0 No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R S EU ROP LEGRAND (New) 0.46% 2017 Voted 11 0 Conference Call 4 +4 Good ﬁrst call. Investment approach and methodology explained. Company results also addressed. N/R LINDE 0.72% 2008 Voted 6 2 Conference Call 4 -1 Ongoing progress and past implementions of Cadmos recommendations such as Yes (2016) Various material topics

UNGP communication. ADM O L’OREAL 0.28% 2006 Voted 16 1 Conference Call 4 = Great interest in the results of the assessments and the suggestions for improvement. Yes (2015) Various material topics C LUXOTTICA GROUP (Out) 0.01% 2016 Voted 1 Exit Exit Exit N/R N/R NESTLE 0.21% 2006 Voted 28 1 On-Site Meeting 5 +1 Previous recommendations to make their reporting more outcomes/impacts relevant was taken up. Yes (2017) Various material topics NOVARTIS (Out) -0.04% 2006 Exit before AGM 0 0 On-Site Meeting 5 1 Previous years recommendation to improve policy documents and internal Yes (2017) Various material topics compliance mechanisms has been taken-up. NOVO NORDISK 0.98% 2009 Voted 18 1 Conference Call 5 = Code of Conduct was revised and communication on non-achievements was improved. Yes (2017) Various material topics NOVOZYMES 1.11% 2015 Voted 15 0 Conference Call 4 +2 Novozymes is very responsive in taking up engagements. Looking into IIRC-based reporting. N/R PRUDENTIAL PLC 0.48% 2016 Voted 28 0 Conference Call 4 +4 Open discussion and acknowledged recommendations (climate change reporting and ESG objectives). N/R PUBLICIS GROUPE -0.32% 2006 Voted 30 4 Conference Call 4 -1 Open discussion and acknowledged our recommendations. Yes (2016) Various material topics RECKITT BENCKISER GROUP -0.01% 2006 Voted 23 1 Conference Call 3 +2 Interested in assessment results. Discussed potential signing of UN Global Compact Yes (2015) Various material topics and SDG reporting. ROCHE HOLDING (New) 0.03% 2017 No voting rights 0 0 On-Site Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability advisory) Yes (2017) + Social Impact Patnerships were well received. ROYAL DUTCH SHELL (Out) -0.22% 2006 Voted 21 0 Exit Exit Exit N/R Yes (2016) Various material topics ROYAL PHILIPS (New) -0.05% 2017 Voted 2 0 Conference Call 4 +4 Both IR and sustainability representatives present. Complemented and welcomed feedback. N/R SAP 0.53% 2009 Voted 4 1 Conference Call 4 -1 Interested in assessment results. Main point to improve is making diversity policy available. Yes (2016) Various material topics SCHNEIDER ELECTRIC 0.30% 2006 Voted 28 0 Conference Call 4 -1 Highly responsive (past recommendations integrated). We encourage IR to participate. Yes (2016) Various material topics SGS 0.34% 2006 Voted 25 7 On-Site Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships SOCIETE GENERALE -0.08% 2006 Voted 19 0 Conference Call 4 = Showed interest in our new methodology and committed to step-by-step progress. Yes (2015) Various material topics STANDARD CHARTERED 0.25% 2007 Voted 28 0 Conference Call 4 = Stated their reporting will change due to new sustainability aspirations related to SDGs. Yes (2013) Various material topics SWISS RE (Out) -0.1% 2006 Voted 0 0 On-Site Meeting 5 out of 4 admos recommendations were taken-up (publication dates Yes (2017) Various material topics focus on materiality sustainability risk framework). TOTAL -0.01% 2006 Voted 13 1 Conference Call 4 -1 Elaborated on their new 2025 environmental targets. Headed towards more integrated reporting. Yes (2016) Various material topics UBS GROUP 0.16% 2006 Voted 24 1 On-Site Meeting 4 -1 Agrees basically with most of the presented areas of improvements Yes (2016) Various material topics (focus business integrity, materiality). UNILEVER 0.55% 2016 Voted 22 0 No meeting 1 (2 in 2016) -1 Acknowledged receipt of assessment summary, but did not propose suitable time to engage. N/R

24/120 ummar tae ummar tae

DANONE 0.57% 2006 Voted 25 0 Conference Call 5 = The company made its new «Code of Conduct for Business Partners» publically available. Yes (2017) Various material topics NG A GEME NT

25/120 mpementaton o te u Care strateg mpementaton o te u Care strateg

Christopher Quast of PPT, has managed the flagship Cadmos European Engagement Fund according to the Buy & Care® strategy since its inception in 2006. Paolo Bozzo joined him as associate portfolio manager in 2015. Mr Quast has managed European equities at PPT since 1999, outperforming the market in two out of three years.

STEP COMPANY ANALYSIS ® B u re y The investment process is organised as shown on the opposite The financially material ESG issues play an important role a & page. We start by screening the 600 largest investable European in the sustainability of a company’s competitive advantage, C C companies, from which we select only profitable businesses which is why we integrate them into our analytical model. & a with organic growth of at least 5 per cent. Their profitability

Active Ownership Company analysis r and debt level should enable them to finance their growth The delicate task of analysing management quality is made y - Voted by portfolio manager - Quality growth companies e u - Engagement on materiality - Sustained competitive advantage ® while rewarding their shareholders. At this stage we begin to easier by our integrated Buy & Care process. Our visits and - Social impact strategies – SDG’s - Integrated valuation model B integrate the financially material environmental, social and discussions enhance our ability to evaluate the consistency FU ND governance (ESG) issues. We then apply various techniques to between a company’s words and its concrete actions. check that the companies that interest us are not overpriced, before building our portfolio, composed of some thirty-five positions.

Portfolio managament - Convictions (about 30-40 companies) STEP PORTFOLIO MANAGEMENT - Long term (turnover 25%) - Risk Management & selling discipline We select thirty to forty companies with strong potential to finance the activities of the engagement team, which initiates for outperformance in the medium and long term. This and conducts the shareholder engagement for social impact. concentration is desirable in the case of an engagement fund, PEAN ENG A GEME NT since it means that the cost of the shareholder dialogue can be Active ownership is a key component of the Cadmos Funds’ Buy re ® contained. That concentration is combined with an extremely Buy & Care® investment strategy. The strategy is described & Ca low turnover rate, which increases the quality of dialogue. There in detail on pages XYZ. As a responsible shareholder, we S EU RO are three classes: Class A for private investors, Class B for encourage most of the companies in our fund to give greater institutional investors and Class C for impact investors. In all consideration to the tangible financial risks of inaction, negli- classes a significant proportion of the management fees is used gence or even unlawful behaviour. Our ex-ante engagement on ADM O

INVESTMENT PROCESS STEP AND C

Universe of TEP CTIVE OWNERSHIP Market screening S A about 600 Screen for companies exposed to attractive end-markets or secular trends companies the key material topics is designed to reduce the reputational that the businesses in which we invest maintain and strengthen risk of controversy or to price it more accurately. their competitive advantage; hence our deep belief in the value Conpany amalysis of such partnerships. Sustainable competitive advantage, management, The Cadmos European Engagement Fund benefits from a growth prospects, profitability and returns new tailor-made form of shareholder engagement. Launched Some of the European companies in the Cadmos Peace About 100 companies in partnership with KiKLab in 2016, it is designed to connect Investment Fund, namely those with a large economic footprint businesses with strategic social-impact opportunities. We in fragile countries, also benefit from the innovative, productive Valuation now systematically motivate companies to embed positive engagement of the peace-building experts at the PeaceNexus DDM and valuation multiples social impact in their strategies. KiKLab develops innovative, Foundation.6 productive solutions for companies seeking to make an impact 30 to 40 and ready to learn from our expertise. We often recommend The information obtained from this year’s revised engagement companies Portfolio construction joining forces with social entrepreneurs. Such partnerships process continues to enrich the investment process and sharpen Risk management can strengthen the sense of purpose, better address the needs our insight into the sustainability of each company’s business of the bottom of the pyramid and help the company achieve model. the SDG’s. As a long-term shareholder, we want to make sure

26/ 120 6. For further information about the Cadmos Peace Investment Fund ask for its impact report. mpementaton o te u Care strateg mpementaton o te u Care strateg

mpementaton o te u Care strateg mpementaton o te u Care strateg Christopher Quast of PPT, has managed the flagship Cadmos European Engagement Fund according to the Buy & Care® strategy since its inception in 2006. Paolo Bozzo joined him as associate portfolio manager in 2015. Mr Quast has managed European equities at PPT since 1999, outperforming the market in two out of three years.

Christopher Quast of PPT, has managed the flagship Cadmos European Engagement Fund according to the Buy & Care® SstratTEPegy since C itOMPANYs inception inANALYSIS 2006. Paolo Bozzo joined him as associate portfolio manager in 2015. Mr Quast has managed ® B European equities at PPT since 1999, outperforming the market in two out of three years. u re y The investment process is organised as shown on the opposite The financially material ESG issues play an important role a & page. We start by screening the 600 largest investable European in the sustainability of a company’s competitive advantage, C C Scompanies,TEP fromCOMPANY which we selectANALYSIS only profitable businesses which is why we integrate them into our analytical model. & ® B a with organic growth of at least 5 per cent. Their profitability Active Ownership Company analysis u e y r anThed investmentdebt level sh processould enable is organised them asto shown finance on t heirthe opposite growth The financiallydelicate task material of analysin ESGg issuesmana gplayemen ant quimportantality is made role y - Votedr by portfolio manager - Quality growth companies e u -a Engagement on materiality - Sustained competitive advantage& page. We start by screening the 600 largest investable European in the sustainability of a company’s competitive advantage, ® while rewarding their shareholders. At this stage we begin to easier by our integrated Buy & Care process. Our visits and - Social impact strategies – SDG’s - Integrated valuation model B C integrcompanies,ate the from financially which wematerial select environly oprofitablenmental, businessessocial and dwhichiscussi ison whys en wehance integrate our ab themility to into eva ourluate analytical the cons istencymodel. C FU ND & a governancewith organic (ESG) growth issues. of at We least th en5 per apply cent. various Their techniques profitability to between a company’s words and its concrete actions.

Active Ownership Company analysis r checkand de thatbt le thevel companiesshould enable that theminterest to usfina aren cenot their overpriced, growth The delicate task of analysing management quality is made y - Voted by portfolio manager - Quality growth companies e u - Engagement on materiality - Sustained competitive advantage ® beforewhile rewarding building our their portfolio, shareholders. composed At this of stage some we thirty-five begin to easier by our integrated Buy & Care process. Our visits and - Social impact strategies – SDG’s - Integrated valuation model B positions.integrate the financially material environmental, social and discussions enhance our ability to evaluate the consistency FU ND governance (ESG) issues. We then apply various techniques to between a company’s words and its concrete actions. check that the companies that interest us are not overpriced,

Portfolio managament before building our portfolio, composed of some thirty-five - Convictions (about 30-40 companies) positions.STEP PORTFOLIO MANAGEMENT - Long term (turnover 25%) - Risk Management & selling discipline We select thirty to forty companies with strong potential to finance the activities of the engagement team, which initiates for outperformance in the medium and long term. This and conducts the shareholder engagement for social impact.

Portfolio managament PEAN ENG A GEME NT - Convictions (about 30-40 companies) concentrationSTEP P isORTFOLIO desirable in the MANAGEMENT case of an engagement fund, - Long term (turnover 25%) - Risk Management & selling discipline since it means that the cost of the shareholder dialogue can be Active ownership is a key component of the Cadmos Funds’ Buy re ® contained.We selectselect thirty thThatirty concentrationto to forty forty companies com ispan combinedi eswith wi thstrong with strong anpotential extremelypotent forial BuytoThere finance & are Car thethreee® activities in classes:vestme of ntClass the strate engagement A gy.for Theprivate strate team, investors,gy which is descri initiateClassbed Bs & Ca flooutperformanceorw t ournoutperverfor rateman ,in whce thei ch in medium i ncreasesthe medi and theum qualong anlit dterm.y oflon dial gThis togue.er m.concen Ther This-e inandfor deta institutionalconductsil on pa theg esinvestors shareholder XYZ. Asand aengagement Classrespon Csi forble for impact sh socialareh investors.older, impact. we S EU RO PEAN ENG A GEME NT areconcentrationtration three is cldesirableasses is :desirable C inlass the A caseinfor the priof case vatean engagementof investors, an engagement Clfund,ass Bfund,since for encourageIn all classes most a significant of the companies proportion in our of thefund management to give greater fees institutionalsinceit means it means that investors thatthe thecost andcost of Classofthe the shareholder C shareholder for impact dialogue dialogueinvestors. can can In beall considerationActiveis used toownership finance to the theis tangiblea activitieskey component financial of the engagement risksof the of Cadmos inaction, team, Funds’ negli-which ® Buy & are classescontained. a significant That concentration proportion isof combined the management with an fees extremely is used genceBuyinitiates & or C andevenare ®conducts unlawful investme thebehavnt shareholderstrateiour.gy. Our The exengagement. strate-antegy en gagemenis describedt on C loloww tturnoverurnover rate rate,, wh whichich increases increases the quathe litqualityy of dial ofogue. dialogue. There in detail on pages XYZ. As a responsible shareholder, we ADM O S EU RO INVESTMENT PROCESS STEP AND are three classes: Class A for private investors, Class B for encourage most of the companies in our fund to give greater C institutional investors and Class C for impact investors. In all consideration to the tangible financial risks of inaction, negli- classes a significant proportion of the management fees is used gence or even unlawful behaviour. Our ex-ante engagement on

Universe of TEP CTIVE OWNERSHIP ADM O Market screening S A about 600 C Screen for companies exposed to attractive end-markets or secular trends INVESTMENT PROCESS STEP AND companies theActive key ownership material topics is a key is designed component to reduce of the Cadmosthe reputational Funds’ thjoiningat the businessesforces with in social which entrepreneurs. we invest maintain Such and partnerships strengthen riskBuy of& Carecontroversy® investment or to strategy.price it more The strategyaccurately. is described in theircan strengthen competitive the advantage; sense of purpose, hence our better deep address belief in the the needs value Conpany amalysis Universe of detailTEP on pages 8ff.CTIVE As a responsibleOWNERSHIP shareholder, we encourage of suchthe bottom partnerships. of the pyramid and help the company achieve Market screening S A Sustainable competitive advantage, management, about 600 Screen for companies exposed to attractive end-markets or secular trends Themost Ca ofdmos the companies European in En ourgagemen fund tot Fugivend greater benefi tsconsider from a- the SDG’s. As a long-term shareholder, we want to make sure growth prospects, profitability and returns companies newtheation key tailor-made to materialthe tangible topicsform financial of is shareholderdesigned risks to of reduceengagement. inaction, the reputationalnegligence Launched or Soththatatme the of businesses the Eur opin whichean com wep investanies maintainminai ntainthe Ca anddm strengthenos Peace About 100 companies inriskeven partnership of unlawful controversy behaviour.with KiKLabor to priceOur in ex-ante it2016, more it engagement accurately.is designed toon connect the key Intheirvest competitivement Fund, advantage;namely those hence with our a large deep eco beliefnom inic thefootprin valuet Conpany amalysis bmaterialusinesses topics wit his stdesignedrategic socito reduceal-impac thet reputationalopportuniti es.risk We of inof fsuchragile partnerships. countries, als o benefit from the innovative, productive Sustainable competitiveValuation advantage, management, Thenowcontroversy Casystedmosm aticallor Euro to priceyp meanoti it En vmoreategagemen co accurately.mpant Fuies ndto bemenefibedts p fosiromtive a engagement of the peace-building experts at the PeaceNexus growthDDM prospects, and valuation profitability multiples and returns socialnew tailor-made impact in their form strategies. of shareholder KiKLab engagement. develops innovative, Launched Foundation.SoSomeme of of the th e6European European companies, compani esnamely in th thosee Cadm withos aPe largeace About 100 companies prinThe oductivpartnership Cadmose sol utionEuropeanwith sKiKLab for c Engagementompani in 2016,es seek it Fundising designed to benefits make to an connect ifrommpact a Ineconomicvestment footprint Fund, na melyin fragile those countries, with a large also eco benefitnomic f ootprinfrom thet 30 to 40 andbnewusin readytailor-madeesses to w learnith formst fromrateg of ic ourshareholder soci expertise.al-impac engagement. Wet op oftenportu recommend nitiLaunchedes. We Theininnovative frag informaile co untengagementtionries obtained, also bene of from thefit fr thpeacebuildingomis year’sthe inn revisedovat iexpertsve engagement, productiv at thee companies Valuation jnowinoi partnershipnin systeg forcesmaticall withwithy KiKLab socmotiialv ateen int repreneurs.co 2016,mpan it iises designed toSuc emh pbear todt nersh pconnectositiveips processengagementPeaceNexus cont inofFoundation.ues the to peace-building enrich6 the inves expertstment pr ato thecess PeaceNexus and sharpen DDMPortfolio and valuation construction multiples Risk management cansocialbusinesses strengthen impact with in the their strategic sense strategies. of socialpurpose, KiKLab impact better develops opportunities. address innovative, the needs We ourFoundation. insight into6 the sustainability of each company’s business ofprnow oductivthe systematically bottome sol utionof thes motivateforpyramid compani andcompanieses help seek ingthe to tocompany embed make an positive achieve impact model.The information obtained from this year’s revised engage- 30 to 40 theandsocial SDG’s. ready impact to As learnin a theirlong-term from strategies. our shareholder, expertise. KiKLab Wewe develops wantoften to recommend innovative, make sure Thement informa processti oncontinues obtained to from enrich th isthe year’s investment revised engagementprocess and companies Portfolio construction jproductiveoining forces solutions with soc forial companies entrepreneurs. seeking S touc makeh par antnersh impactips processsharpen co ournt ininsightues to intoenrich the the sustainability investment pr ofo cesseach and company’s sharpen Risk management canand strengthenready to learn the sensefrom ourof purpose, expertise. better We oftenaddress recommend the needs ourbusiness insight model. into the sustainability of each company’s business of the bottom of the pyramid and help the company achieve model. the SDG’s. As a long-term shareholder, we want to make sure

6. For further information about the Cadmos Peace Investment Fund ask for its impact report.

6. For further information about the Cadmos Peace Investment Fund ask for its impact report. 27/120 Fnana perormane ortoo management ree

PORTFOLIO MANAGEMENT PERFORMANCE Portfolio as at 31.12.2017 Sector Country Contribution 2017 In Cadmos since In 2017, classes A, B and C of the Fund returned +7.1%, outlook for digitisation across many industrial sectors, from ABB Industrial Goods & Services Switzerland 0.38% 2006 +8.0% and +7.4% respectively, slightly underperforming manufacturing to carmakers, prompted us to invest in Cap ANHEUSER-BUSH INBEV (New) Food & Beverage Belgium -0.22% 2017 for the first time in the past 3 years the benchmark index Gemini and Infineon.

ASSA ABLOY Construction & Materials Sweden 0.00% 2015 (the Dow Jones Stoxx 50 with net dividends reinvested), UN D AXA SA Insurance France 0.23% 2006 which rose +9.0%. Financials outperformed the market, but less than we had F BMW Automobiles & Parts Germany 0.10% 2007 expected: while Credit Suisse, HSBC, Standard Chartered, UBS At 31 December 2017, the Fund comprised thirty-seven and Prudential were robust outperformers, the French contin- BNP PARIBAS Banks France 0.23% 2006 companies, one more than in 2016. During the year it gent of BNP Paribas, Société Générale and Axa disappointed. CAPGEMINI (New) Technology France -0.04% 2017 welcomed six new entrants 7, while selling five companies.8 COLOPLAST Health Care Denmark 0.18% 2014 Our decisions take account of many factors, such as the Healthcare, energy, and some positions in consumer goods COMPAGNIE DE SAINT GOBAIN Construction & Materials France 0.21% 2006 sustainability of the business model, the market valuation and weighed on the Fund’s relative performance. Only Novo

COMPASS GROUP Travel & Leisure United Kingdom 0.13% 2010 the portfolio’s overall balance. Infineon for instance was added, Nordisk, having corrected sharply in 2016 due to sudden severe NG A GEME NT CREDIT SUISSE GROUP Banks Switzerland 0.26% 2006 as the company commands a top 3 pressure on product prices in the E market share in its key end markets, United States, rebounded strongly DANONE Food & Beverage France 0.57% 2006

namely Automotive (40% of reve- in 2017. Investors had adjusted their EA N DASSAULT SYSTEMES Technology France 0.50% 2016 nues), Power (50% of revenues) & n asses expectations, which remain positive ESSILOR INTERNATIONAL Health Care France 0.29% 2006 smart card IC’s (10% of revenues). in the medium term. The other FRESENIUS MEDICAL CARE Health Care Germany 0.30% 2009 Infineon’s high exposure to current and C o te Fund positions in this sector performed in GEBERIT Construction & Materials Switzerland -0.05% 2009 and future per tinent demand drivers line with the market. They include S EU ROP HENNES & MAURITZ (Out) Retail Sweden -0.5% 2006 such as the electrification of the car returned Philips, which we added during the industry and security, enables strong year. HSBC HOLDINGS Banks United Kingdom 0.44% 2006 growth outperformance relative and INFINEON (New) Technology Germany 0.92% 2017 to the semiconductor industry as Despite the upturn in the oil price in ADM O LEGRAND (New) Industrial Goods & Services France 0.46% 2017 respete sgt a whole. Hennes & Mauritz for summer, the energy sector was not C LINDE Chemicals Germany 0.72% 2008 instance lost ground, having failed underperormng a performance driver. The Fund’s L’OREAL Personal & Household Goods France 0.28% 2006 to adapt fast enough to the arrival exposure is confined to Total, LUXOTTICA GROUP (Out) Personal ousehold Goods taly 0.01% 2016 of online retail and the consequent or te rst tme n following our sale of Royal Dutch fall in profits at its dense network of Shell during the year. NESTLE Food & Beverage Switzerland 0.21% 2006 stores. We hence sold this long-term te past ears te NOVARTIS (Out) ealth are Switzerland -0.04% 2006 position during the year. enmar nde te Our positions in consumer goods NOVO NORDISK Health Care Denmark 0.98% 2009 delivered mixed results: L’Oréal, NOVOZYMES Health Care Denmark 1.11% 2015 The main drivers of the relative o ones to Reckitt Benckiser, BMW and PRUDENTIAL PLC Insurance United Kingdom 0.48% 2016 performance were industrials, Anheuser-Busch InBev did not join PUBLICIS GROUPE Media France -0.32% 2006 chemicals, technology and most of t net ddends the general march higher, mainly the financial stocks. for reasons of valuation or doubts RECKITT BENCKISER GROUP Personal & Household Goods United Kingdom -0.01% 2006 renested about their strategies. Hennes & ROCHE HOLDING (New) Health Care Switzerland 0.03% 2017 ABB and SGS, leaders in their rose Mauritz lost ground, having failed ROYAL DUTCH SHELL (Out) Oil Gas Netherlands -0.22% 2006 respective industry sectors, managed to adapt fast enough to the arrival ROYAL PHILIPS (New) Health Care Netherlands -0.05% 2017 to make their growth strategies more of online retail and the consequent SAP Technology Germany 0.53% 2009 credible after a prolonged period fall in profits at its dense network SCHNEIDER ELECTRIC Industrial Goods & Services France 0.30% 2006 of scepticism on the part of investors. Legrand, introduced of stores. We sold this position during the year. In contrast, during the year, continues to prove the solidity of its business Unilever, Danone and Nestlé rose sharply on the back of a SGS Industrial Goods & Services Switzerland 0.34% 2006 model. Linde is buoyed up by the prospect of its merger with takeover bid for Unilever and the idea that the sector might SOCIETE GENERALE Banks France -0.08% 2006 Praxair, the only potential tie-up left in a largely consolidated see another merger. STANDARD CHARTERED Banks United Kingdom 0.25% 2007 industry. Novozymes recovered strongly from the market’s SWISS RE (Out) nsurance Switzerland -0.1% 2006 doubts concerning its business portfolio the year before. Lastly, Assa Abloy, Geberit and Saint-Gobain, leaders in their TOTAL Oil & Gas France -0.01% 2006 respective segments of the construction industry, disappointed UBS GROUP Banks Switzerland 0.16% 2006 Dassault Systèmes and SAP introduced a new generation of for reasons that we believe temporary in the light of their their software for a clientele of large businesses. The promising excellent prospects. UNILEVER Personal & Household Goods Netherlands 0.55% 2016

28/ 7. Anheuser-Bush Inbev, Capgemini, Inﬁneon, Legrand, Roche Holding and Royal Philips. — 8. Hennes & Mauritz, Luxottica Group, Novartis, 120 Royal Dutch Shell and Swiss Re. Fnana perormane ortoo management ree

PORTFOLIO MANAGEMENT PERFORMANCE Portfolio as at 31.12.2017 Sector Country Contribution 2017 In Cadmos since In 2017, classes A, B and C of the Fund returned +7.1%+7.1%,, outlookDassault for Systèmes digitisation and SAPacross introduced many industrial a new generationsectors, from of ABB Industrial Goods & Services Switzerland 0.38% 2006 +8.+8.0%0% and +7.4%+7.4% respectively,respectively, slightlyslightly underperformingunderperforming mtheiranu softwarefacturing for to caa clientelermakers ,of pro largempted businesses. us to in vestThe inprom Cap- ANHEUSER-BUSH INBEV (New) Food & Beverage Belgium -0.22% 2017 for the first timetime inin thethe pastpast 33 yearsyears thethe benchmarkbenchmark indexindex Geminiising outlook and Infineon. for digitisation across many industrial sectors,

ASSA ABLOY Construction & Materials Sweden 0.00% 2015 (the DowStoxx Jo 50n eswith Stoxx net 50dividends with net reinvested), dividends rewhichinveste rosed), from manufacturing to carmakers, prompted us to invest in UN D AXA SA Insurance France 0.23% 2006 which+9.0%. rose +9.0%. FCapina nGeminicials ou andtper Infineon.formed the market, but less than we had F BMW Automobiles & Parts Germany 0.10% 2007 expected: while Credit Suisse, HSBC, Standard Chartered, UBS At 31 DecemberDecember 2017, 2017, the the Fund comprisedcomprised thirty-seven thirty-seven andFinancials Prudential outperformed were robust the outperformers, market, but the less French than weconti hadn- BNP PARIBAS Banks France 0.23% 2006 companies, one more than in 2016. During the year it gentexpected: of BNP while Paribas, Credit Société Suisse, Générale HSBC, and Standard Axa disappointed. Chartered, CAPGEMINI (New) Technology France -0.04% 2017 wwelcomedelcomed six six new new entrants entrant7,s while7, whi sellingle sell infiveg fi companies.ve compan8 Ouries.8 UBS and Prudential were robust outperformers, the French COLOPLAST Health Care Denmark 0.18% 2014 Ourdecisions decisi takeons account take account of many of factors, many factors, such as suchthe sustain as the- Heacontin-lthcare gent, en oferg BNPy, and Paribas, some po Sociétésitions inGénérale consum ander g oodAxas COMPAGNIE DE SAINT GOBAIN Construction & Materials France 0.21% 2006 sustainabilityability of the ofbusiness the business model, model, the market the market valuation valuation and andthe weidisappointed.ghed on the Fund’s relative performance. Only Novo

COMPASS GROUP Travel & Leisure United Kingdom 0.13% 2010 theportfolio’s portfoli o’soverall overal balance.l balance. Infineon Infineon for for instance instance waswas addedadded,, Nordisk, having corrected sharply in 2016 due to sudden severe NG A GEME NT CREDIT SUISSE GROUP Banks Switzerland 0.26% 2006 as the company commands a top 3 Healthcare,pressure on energy,product and pri someces in posi the- E market share in its key end markets, Unitedtions in States, consumer rebounded goods weighedstrongly DANONE Food & Beverage France 0.57% 2006

namnamelyely AutomotAutomotiveive (4(40%0% of rereve-ve- inon 2017. the InvestorsFund’s hadrelative adjusted perfor their- EA N DASSAULT SYSTEMES Technology France 0.50% 2016 nunues),es), PoPowerwer (5(50%0% of revenues)revenues) & “Inn 2017, classesasses A, expectations,mance. Only which Novo remain Nordisk, positive ESSILOR INTERNATIONAL Health Care France 0.29% 2006 smart card IC’s (10% of revenues).revenues). inhaving the medcorrectedium term. sharply The in o2016ther FRESENIUS MEDICAL CARE Health Care Germany 0.30% 2009 Infineon’s high high exposureexposure toto currentcurrent B aandnd CC oof tethe FunFundd positionsdue to sudden in this sector severe performed pressure in GEBERIT Construction & Materials Switzerland -0.05% 2009 and fufutureture perpertinenttinent dema demandnd drivers driv- lionne productwith the pricesmarket. in The they Unitedinclude S EU ROP HENNES & MAURITZ (Out) Retail Sweden -0.5% 2006 suchers such as the as theelectrification electrification of the of carthe rereturnedturned +7.1%, Philips,States, rebounded which we addedstrongly during in 2017. the incard usindustrytry and secanduri security,ty, enables enables strong Investorsyear. had adjusted their expec- HSBC HOLDINGS Banks United Kingdom 0.44% 2006 grostrongwth growth outperfor outperformancemance relat relaive- +8.0% aandnd +7.4% tations, which remain positive in the INFINEON (New) Technology Germany 0.92% 2017 totive t heto thesem semiconductoriconductor ind industryustry as Despitemedium the term. upturn The in other the oil positions price in ADM O LEGRAND (New) Industrial Goods & Services France 0.46% 2017 resperespectively,te sslightlygt aas wa howhole.le. He Hennesnnes & & MaMauritzuritz for summer,in this sector the performedenergy sector in line was with not C LINDE Chemicals Germany 0.72% 2008 iinstancenstance llostost ground, hahavingving faifailedled ununderperformingderperormng athe perf market.ormance They drive includer. The Philips,Fund’s L’OREAL Personal & Household Goods France 0.28% 2006 to adapt ffastast enough to the arrarrivalival whichexposu were addedis con duringfined the to year. Total, LUXOTTICA GROUP (Out) Personal ousehold Goods taly 0.01% 2016 of online retail and the consequent oforr tethe firstrst ttimeme n following our sale of Royal Dutch fall in profits at at its its dense dense network network ofof ShellDespite during the upturn the year. in the oil price in NESTLE Food & Beverage Switzerland 0.21% 2006 stores. We hence sold this long-term tein the past past ea 3 yearsrs te summer, the energy sector was not NOVARTIS (Out) ealth are Switzerland -0.04% 2006 position during thethe year.year. ethenm benchmarkar nde te Oura performance positions indriver. cons uThemer Fund’s goods NOVO NORDISK Health Care Denmark 0.98% 2009 exposuredelivered miis xconfineded results: to L’Oréa Total,l, NOVOZYMES Health Care Denmark 1.11% 2015 The main drivers of the relativerelative oindex o(thenes tStoxxo 50 followingReckitt Benckour saleise ofr, RoyalBMW Dutch and PRUDENTIAL PLC Insurance United Kingdom 0.48% 2016 pperformanceerformance were iindustrials,ndustrials, Anheuser-BuschShell during the year.InBev did not join PUBLICIS GROUPE Media France -0.32% 2006 chemchemicals,icals, tectechnologyhnology anandd momostst of witht netnet ddividendsdends the general march higher, mainly the financial stocks. stocks. forOur reasons positions of valuationin consumer or doubt goodss RECKITT BENCKISER GROUP Personal & Household Goods United Kingdom -0.01% 2006 rereinvested),nested which adeliveredbout the irmixed strat egiesresults:. Hen L’Oréal,nes & ROCHE HOLDING (New) Health Care Switzerland 0.03% 2017 ABB and and SGS, SGS, leaders lea diners their in respec their- roserose +9.0%. MaurReckittitz loBenckiser,st ground, haBMWving faandiled ROYAL DUTCH SHELL (Out) Oil Gas Netherlands -0.22% 2006 respectivetive industry industry sectors, sectors, managed manage tod toAnheuser-Busch adapt fast enou InBevgh to did the not arr joinival ROYAL PHILIPS (New) Health Care Netherlands -0.05% 2017 tomake make their the irgrowth growth strategies strategies moremore ofthe online general retail march and thehigher, consequent mainly SAP Technology Germany 0.53% 2009 credcredibleible after a prolongedprolonged periodperiod falforl reasonsin profits of at valuation its dense or ne doubtstwork SCHNEIDER ELECTRIC Industrial Goods & Services France 0.30% 2006 of scepticismscepticism on the partpart of investors.investors. LegraLegrand,nd, intrintroducedoduced of stores. We sold this positionabout theirduring strategies. the year. InIn contrast, during the year, continues to prove the solidity of its business UniUnilever,lever, DanDanoneone and Nestlé rose sharplsharplyy on tthehe bacbackk of a SGS Industrial Goods & Services Switzerland 0.34% 2006 model. Linde is buoyed up by the prospect of its merger with takeover bid for Unilever and the idea that the sector might SOCIETE GENERALE Banks France -0.08% 2006 Praxair, the only potential tie-up left in a largely consolidated see another merger.merger. STANDARD CHARTERED Banks United Kingdom 0.25% 2007 inindustry.dustry. NoNovozymesvozymes recovererecoveredd strstronglyongly frofromm the market’smarket’s SWISS RE (Out) nsurance Switzerland -0.1% 2006 doubts concerning itsits businessbusiness portfolio portfolio the the year year before. before. Lastly, AssaAssa Abloy, Abloy, Geberit Geberit and and Saint-Gobain, Saint-Gobain, leaders leaders in their in TOTAL Oil & Gas France -0.01% 2006 restheirpect respectiveive segmen segmentsts of the ofcon thestruc constructiontion industry, industry, disappointed disap- UBS GROUP Banks Switzerland 0.16% 2006 Dassault Systèmes and SAP introduced a new generation of forpointed reas oforns reasonsthat we thatbelie weve believetemporar temporaryy in the inlight the oflight thei ofr their software for a clientele of large businesses. The promising excellenttheir excellent prospects. prospects. UNILEVER Personal & Household Goods Netherlands 0.55% 2016

7. Anheuser-Bush Inbev, Capgemini, Inﬁneon, Legrand, Roche Holding and Royal Philips. — 8. Hennes & Mauritz, Luxottica Group, Novartis, Royal Dutch Shell and Swiss Re. 29/120 erormane sne nepton erormane o te European eut maret

For the eurozone economies, 2017 marked a return to slightly reducing the monthly pace in the course of the 160.00 growth. Gross domestic product advanced at a rate of year. Its goals are to consolidate the growth supported

more than 2 per cent, well above its long-term potential. by the monetary stimulus and remove the deflationary UN D F 140.00 Many macroeconomic statistics attest to this rebound, risks. including the purchasing managers’ indices, a leading indicator of the economic cycle (see the PMI chart Political risks played a key role in investor sentiment; 120.00 below). particularly the French presidential election, won by the moderate candidate Emmanuel Macron. In this positive 100.00 At the same time, the unemployment rate fell further. European macroeconomic climate, underpinned by By the end of the year it was down to 8.7 per cent, in growth in all the major regions of the world, European

80.00 a steep drop from its peak of 12 per cent in early 2013. companies delivered earnings growth of more than 10 NG A GEME NT

per cent after several years of stagnation. We also note E 60.00 The cycle’s acceleration owed much to the European a return to growth in business investment, which had

Central Bank’s very accommodative monetary policy. collapsed in the wake of the global financial crisis of EA N

40.00 The bank maintained its asset-purchase programme, 2008–2009. oct. 06 oct. 08 oct. 10 oct. 12 oct. 14 oct. 16

Cadmos European Engagement fund (B) STOXX 50 Net Ret. (€) S EU ROP For te euroone eonomes ADM O

mared a return to grot C

EUROONE PMI PURCHASING MANAGER INDICES European equity markets rose 9 per cent in 2017 (STOXX Europe 50, net dividends reinvested). Up until May, the market extended the rally seen as of early 62 December 2016, spurred on by accelerating economic 60 growth and upward revisions to earnings estimates for European companies. 58

From launch in 2006 to .December 56 Volatility fluctuated between 18 per cent and 13 per 2017, class B of the Fund returned 54 cent during the year, with a downward trend. The only substantial correction, of 8.6 per cent, took place in +37.4%, outperforming its index 52 summer, a period marked by uncertainty as to when 50 the central bank would end its quantitative easing which rose only by 25.9%. programme. The euro’s surge against the dollar weighed 48 on companies’ earnings prospects, explaining in large 46 part the European markets’ underperformance relative to the US markets. 44 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Dec. 17

Source : Markit Germany France Italy Spain

30/120 erormane sne nepton erormane o te European eut maret

80.00 a steep drop from its peak of 12 per cent in early 2013. companies delivered earnings growth of more than 10 NG A GEME NT

per cent after several years of stagnation. We also note E 60.00 The cycle’s acceleration owed much to the European a return to growth in business investment, which had

Central Bank’s very accommodative monetary policy. collapsed in the wake of the global financial crisis of EA N

40.00 The bank maintained its asset-purchase programme, 2008–2009. oct. 06 oct. 08 oct. 10 oct. 12 oct. 14 oct. 16

Cadmos European Engagement fund (B) STOXX 50 Net Ret. (€) S EU ROP For te euroone eonomes ADM O

mared a return to grot C

56 Volatility fluctuated between 18 per cent and 13 per

54 cent during the year, with a downward trend. The only substantial correction, of 8.6 per cent, took place in 52 summer, a period marked by uncertainty as to when 50 the central bank would end its quantitative easing programme. The euro’s surge against the dollar weighed 48 on companies’ earnings prospects, explaining in large 46 part the European markets’ underperformance relative to the US markets. 44 Dec. 13 Dec. 14 Dec. 15 Dec. 16 Dec. 17

Source : Markit Germany France Italy Spain

31/120 otng VOTING REVIEW

PORTFOLIO MANAGEMENT VOTE Portfolio as at 31.12.2017 Description Resolutions Against ABB Voted 23 2 ANHEUSER-BUSH INBEV (New) Entry after AGM 0 0

ASSA ABLOY Voted 10 2 UN D AXA SA Voted 31 0 F BMW Voted 5 0 At the end of December 2017, the portfolio of the Cadmos European BNP PARIBAS Voted 18 0 Engagement Fund comprised thirty-six companies. We were able to vote CAPGEMINI (New) Entry after AGM 0 0 on 100 per cent of the voting equity securities that were in the Fund at the COLOPLAST Voted 23 3 time of the annual general meetings. This meant that we actually exercised COMPAGNIE DE SAINT GOBAIN Voted 21 0 our voting rights on thirty-eight companies, since only Novartis from the

COMPASS GROUP Voted 28 0 five that exited the portfolio did so after their AGMs, while three of the six NG A GEME NT 9 CREDIT SUISSE GROUP Voted 34 14 entrants joined us later. E DANONE Voted 25 0

The information obtained from this year’s AGM season continues to sharpen EA N DASSAULT SYSTEMES Voted 23 5 our insight into the governance of each company. ESSILOR INTERNATIONAL Voted 40 4 FRESENIUS MEDICAL CARE Voted 5 1 For a complete overview of all our voting activities for any portfolio company, GEBERIT Voted 17 0 please contact us at [email protected]. We would be happy to send you our S EU ROP HENNES & MAURITZ (Out) Voted 24 2 integrated performance report for the company concerned, which provides full details on how Cadmos voted at the most recent annual general meeting. HSBC HOLDINGS Voted 31 2 INFINEON (New) Voted 7 0 ADM O LEGRAND (New) Voted 11 0 C LINDE Voted 6 2 L’OREAL Voted 16 1 LUXOTTICA GROUP (Out) Voted 1 NESTLE Voted 28 1 OF THE 759 TOTAL VOTES CAST, NOVARTIS (Out) Exit before AGM 0 0 NOVO NORDISK Voted 18 1 WE VOTED AGAINST MANAGEMENT NOVOZYMES Voted 15 0 RECOMMENDATIONS FIFTY-SIX PRUDENTIAL PLC Voted 28 0 PUBLICIS GROUPE Voted 30 4 TIMES, THAT IS, IN 7.4 PER CENT OF RECKITT BENCKISER GROUP Voted 23 1 CASES. THIS RATE OF OPPOSITION ROCHE HOLDING (New) No voting rights 0 0 ROYAL DUTCH SHELL (Out) Voted 21 0 IS A MARK OF HOW SERIOUSLY ROYAL PHILIPS (New) Voted 2 0 WE TAKE OUR ROLE AS ACTIVE SAP Voted 4 1 SCHNEIDER ELECTRIC Voted 28 0 SHAREHOLDERS. SGS Voted 25 7 SOCIETE GENERALE Voted 19 0 STANDARD CHARTERED Voted 28 0 SWISS RE (Out) Voted 0 0 TOTAL Voted 13 1 UBS GROUP Voted 24 1 UNILEVER Voted 22 0

32/ 120 9. Anheuser Bush, Capgemini and Roche Holding, the latter being a non-voting equity security. otng VOTING REVIEW

PORTFOLIO MANAGEMENT VOTE Portfolio as at 31.12.2017 Description Resolutions Against ABB Voted 23 2 ANHEUSER-BUSH INBEV (New) Entry after AGM 0 0

COMPASS GROUP Voted 28 0 five that exited the portfolio did so after their AGMs, while three of the six NG A GEME NT 9 CREDIT SUISSE GROUP Voted 34 14 entrants joined us later. E DANONE Voted 25 0

9. Anheuser Bush, Capgemini and Roche Holding, the latter being a non-voting equity security. 33/120 otng mpat otng mpat

DISTRIBUTION OF VOTES DISTRIBUTION OF VOTES

Shareholder’s rights 9.6% During the period under review we expressed an With regard to regulation, the European Commission opinion on 759 items on AGM agendas, stabilising highlighted the need for diversity of abilities and views the increase of more than 30 per cent, noted last year, at board level and is planning legislative proposals. In

in the voting decisions over a three-year period. This particular, it intends to improve boards’ gender balance, UN D additional workload was directly related to the greater an aspect that gained widespread media coverage. The F Capital structure transparency demanded by investors, particularly Commission also emphasised that board refreshment 31.1% regarding remuneration. policies specifying the skills required could strengthen Board of directors the board’s monitoring ability. The question remains 43.7% The majority of the resolutions submitted to the vote, as to how and at what level this could be promoted by that is, almost 75 per cent, nevertheless still concern EU regulation. In the meantime, we shall continue our the structure of the board of directors and the capital diligent exercise of our voting rights and do everything

structure. Rightly so, since after the AGM, the board is reasonable to promote independence and diversity of NG A GEME NT

the highest organ of management, defining the strategy experience within boards of directors. E Remuneration 15.5% to follow and appointing the senior management that

will apply it. EA N

MAIN OPPOSITIONS

MAIN OPPOSITIONS S EU ROP 400

31 Of the 759 total votes cast, we voted against manage- have been identified as a major cause of recent corporate ment recommendations fifty-six times, that is, in 7.4 scandals and could become a source of competitive

300 ADM O 10

per cent of cases. This rate of opposition is a mark of disadvantage. C 4 how seriously we take our role as active shareholders. 200 Almost half the fifteen companies that we opposed on 301 In 2017 our main oppositions (thirty-one of a total at least one resolution concerning the board of directors 14 232 fifty-six votes against management) related to the had lacked due diligence with regard to the composition 100 7 structure of the board of directors. of the board or the all-important audit, nomination and 104 66 remuneration committees. But the two struggling most 0 A largely homogenous board with gaps in its skills to equip their boards with the appropriate skills and 1. Board of 3. Capital 4. Shareholder’s 2. Remuneration and experience represents a significant risk of reduced independence were, for, different reasons, the Swiss directors structure rights oversight and increased group thinking. Such attributes companies Credit Suisse and SGS. For Against

VOTING TRENDS

25 VOTING TRENDS

20 The opposite chart shows that while voting items have led to improved corporate governance, particularly increased since 2014, votes against management have among the large European companies comprising the decreased and stabilised. We have exercised our voting universe of the Cadmos European Engagement Fund. 15 rights since 2006, and observed a paradigm shift in But much can still be done to ensure the independence corporate governance in 2014. Increased transparency and appropriate mix of attributes and expertise of some and regulation, better-prepared AGMs and governing companies’ boards. 10 bodies and more active shareholders like Cadmos have

2012 2013 2014 2015 2016 2017

Items per company % Opposing votes per 100 item

34/ 10 . Devine, A. and Shrives, P: “Insights into corporate governance and risk: Exploring systems from Germany, the United States and the United 120 Kingdom”. The Routledge Companion to Accounting and Risk. Routledge Companions in Business, Management and Accounting; 2017. otng mpat otng mpat

DISTRIBUTION OF VOTES DISTRIBUTION OF VOTES

structure. Rightly so, since after the AGM, the board is reasonable to promote independence and diversity of NG A GEME NT

the highest organ of management, defining the strategy experience within boards of directors. E Remuneration 15.5% to follow and appointing the senior management that

will apply it. EA N

MAIN OPPOSITIONS

MAIN OPPOSITIONS S EU ROP 400

300 ADM O 10

VOTING TRENDS

25 VOTING TRENDS

2012 2013 2014 2015 2016 2017

Items per company % Opposing votes per 100 item

10 . Devine, A. and Shrives, P: “Insights into corporate governance and risk: Exploring systems from Germany, the United States and the United Kingdom”. The Routledge Companion to Accounting and Risk. Routledge Companions in Business, Management and Accounting; 2017. 35/120 SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT REVIEW

PORTFOLIO MANAGEMENT ENGAGEMENT IMPACT Portfolio as at 31.12.2017 Type Level Change Summary Y/N (year) Type** ABB Conference Call 4 = Acknowledged recommendations and suggested meeting as soon as possible to initiate improvements. Yes (2015) Various material topics ANHEUSER- Conference Call 4 +4 First meeting focused on explaining methodology. Acknowledged our recommendations. N/R ASSA ABLOY Conference Call 4 +2 Assa Abloy was open to engaging on a regular basis. N/R BUSH INBEV (New)

AXA SA Conference Call 4 = Open to critical feedback from assessment. Potential improvements were acknowledged. No (last in 2009) UN D We engaged with thirty-six companies in the Fund in this reporting cycle, F BMW Conference Call 3 -2 Discussion was open, but more of a Q&A than a dialogue. No commitments to improve. Yes (2016) Various material topics BNP PARIBAS Conference Call 4 -1 BNP was open to recommendations, including improving already excellent disclosures. Yes (2016) Various material topics through eight on-site visits and twenty-eight conference calls. Together, 11 CAPGEMINI (New) Conference Call 4 +4 Particularly interactive and insightful discussion. Acknowledged helpful recommendations. N/R these companies represent 92 per cent of the thirty-nine that we assessed. COLOPLAST Conference Call 4 -1 Interested in results and methodology. Agreed to revisit decision not to adopt GRI Standards. Yes (2016) Various material topics They include five of the six new entrants and three of the five companies that COMPAGNIE DE Conference Call 4 -1 Lively atmosphere and expressed importance of discussion. Acknowledged recommendations. Yes (2016) Various material topics exited the portfolio. Our discussion with Capgemini’s two representatives SAINT GOBAIN was particularly interactive and enlightening. Both representatives said that COMPASS GROUP No meeting 0 (4 in 2016) -4 No interest for engagement meeting this year. No they valued our recommendations and found them helpful in stimulating CREDIT SUISSE GROUP Meeting 5 +2 One of the three main recommendations (data accessibility) from previous meeting was taken up. Yes (2017) Various material topics

internal discussion. They also welcomed the opinions of the fund manager NG A GEME NT DANONE Conference Call 5 = The company made its new «Code of Conduct for Business Partners» publically available. Yes (2017) Various material topics

and the sustainability expert. E DASSAULT SYSTEMES Conference Call 4 +4 First meeting and recommendations acknoweldged (reporting, employee loyaltee, data security). N/R ESSILOR INTERNATIONAL Conference Call 4 = Constructive, with explanation of processes. Emphasized accuracy and value of assessment. Yes (2014) Various material topics

FRESENIUS MEDICAL CARE Conference Call 4 = Interested in results of assessment. Elaborated on their Global sustainability initiative. Yes (2013) Various material topics During the period under review, nine companies implemented our recom- EA N GEBERIT Conference Call 5 +4 The previous recommendation to review the code of conduct was taken-up since last brieﬁng. Yes (2017) Various material topics mendations and improved on at least one weak point raised the previous 12 HENNES & MAURITZ (Out) Exit Exit Exit N/R Yes (2015) Various material topics year. This includes Roche and SGS, both of which also showed progress on HSBC HOLDINGS Meeting 3 -1 HSBC is aware of its challenges and has plans to improve. Reporting needs signiﬁcant changes. No social-impact partnerships initiated by Cadmos. For more on this subject, INFINEON (New) No meeting1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R see the “Engagement impact” and “Social Impact Partnerships” sections of

LEGRAND (New) Conference Call 4 +4 Good ﬁrst call. Investment approach and methodology explained. Company results also addressed. N/R this report on pages 44ff. S EU ROP LINDE Conference Call 4 -1 Ongoing progress and past implementions of Cadmos recommendations such as UNGP communication. Yes (2016) Various material topics L’OREAL Conference Call 4 = Great interest in the results of the assessments and the suggestions for improvement. Yes (2015) Various material topics For a complete overview of all our engagement activities for any portfolio LUXOTTICA GROUP (Out) Exit Exit Exit N/R N/R company, please contact us at [email protected]. We would be happy to send NESTLE Meeting 5 +1 Previous recommendations to make their reporting more outcomes/impacts relevant was taken up. Yes (2017) Various material topics ADM O

you our integrated performance report for the company concerned, which C NOVARTIS (Out) Meeting 5 1 Previous years recommendation to improve policy documents and internal compliance Yes (2017) Various material topics mechanisms has been taken-up. provides full details of our assessments and engagement activities, together NOVO NORDISK Conference Call 5 = Code of Conduct was revised and communication on non-achievements was improved. Yes (2017) Various material topics with the impacts achieved. Samples of companies’ integrated performance NOVOZYMES Conference Call 4 +2 Novozymes is very responsive in taking up engagements. Looking into IIRC-based reporting. N/R reports can be found on pages 102ff. PRUDENTIAL PLC Conference Call 4 +4 Open discussion and acknowledged recommendations (climate change reporting and ESG objectives). N/R PUBLICIS GROUPE Conference Call 4 -1 Open discussion and acknowledged our recommendations. Yes (2016) Various material topics RECKITT BENCKISER Conference Call 3 +2 Interested in assessment results. Discussed potential signing of UN Global Compact Yes (2015) Various material topics GROUP and SDG reporting. ROCHE HOLDING (New) Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability advisory) were well received. Yes (2017) + Social Impact Patnerships ROYAL DUTCH SHELL (Out) Exit Exit Exit N/R Yes (2016) Various material topics ROYAL PHILIPS (New) Conference Call 4 +4 Both IR and sustainability representatives present. Complemented and welcomed feedback. N/R SAP Conference Call 4 -1 Interested in assessment results. Main point to improve is making diversity policy available. Yes (2016) Various material topics SCHNEIDER ELECTRIC Conference Call 4 -1 Highly responsive (past recommendations integrated). We encourage IR to participate. Yes (2016) Various material topics SGS Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships DURING THE PERIOD UNDER SOCIETE GENERALE Conference Call 4 = Showed interest in our new methodology and committed to step-by-step progress. Yes (2015) Various material topics STANDARD CHARTERED Conference Call 4 = Stated their reporting will change due to new sustainability aspirations related to SDGs. Yes (2013) Various material topics REVIEW, NINE COMPANIES SWISS RE (Out) Meeting 5 out of 4 admos recommendations were taken-up (publication dates focus on materiality Yes (2017) Various material topics sustainability risk framework). IMPLEMENTED OUR TOTAL Conference Call 4 -1 Elaborated on their new 2025 environmental targets. Headed towards more integrated reporting. Yes (2016) Various material topics UBS GROUP Meeting 4 -1 Agrees basically with most of the presented areas of improvements (focus business integrity, materiality). Yes (2016) Various material topics RECOMMENDATIONS AND IMPROVED UNILEVER No meeting1 (less 3 years) -1 Acknowledged receipt of assessment summary, but did not propose suitable time to engage. N/R ON AT LEAST ONE WEAK POINT RAISED THE PREVIOUS YEAR.

36/ 11 . Compass Group, Unilever and one new entrant into the portfolio, Inﬁneon, are the only companies with whom we did not engage this 120 year. — 12 . Credit Suisse, Danone, Geberit, Nestlé, Novartis, Novo Nordisk, Roche, SGS and Swiss Re. SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT REVIEW

AXA SA Conference Call 4 = Open to critical feedback from assessment. Potential improvements were acknowledged. No (last in 2009) UN D We engaged with thirty-six companies in the Fund in this reporting cycle, F BMW Conference Call 3 -2 Discussion was open, but more of a Q&A than a dialogue. No commitments to improve. Yes (2016) Various material topics BNP PARIBAS Conference Call 4 -1 BNP was open to recommendations, including improving already excellent disclosures. Yes (2016) Various material topics through eight on-site visits and twenty-eight conference calls. Together, 111 CAPGEMINI (New) Conference Call 4 +4 Particularly interactive and insightful discussion. Acknowledged helpful recommendations. N/R these companies represent 9292 perper centcent ofof thethe thirty-ninethirty-nine that that we we assessed. assessed. COLOPLAST Conference Call 4 -1 Interested in results and methodology. Agreed to revisit decision not to adopt GRI Standards. Yes (2016) Various material topics TheTheyy iincludenclude f ivfivee of theof the six sixnew new entr entrantsants and andthree three of the of fi theve compan five companiesies that COMPAGNIE DE Conference Call 4 -1 Lively atmosphere and expressed importance of discussion. Acknowledged recommendations. Yes (2016) Various material topics exitedthat exited the portfolio. the portfolio. Our For discussion example, with our Capgemini’s discussion with two Capgemini’s representatives two SAINT GOBAIN wasrepresentatives particularly was interactive particularly and interactiveenlightening. and Both enlightening. representatives Both represen said tha-t COMPASS GROUP No meeting 0 (4 in 2016) -4 No interest for engagement meeting this year. No theytatives valued said that our theyrecommendations valued our recommendations and found them and helpful found in them stimulating helpful CREDIT SUISSE GROUP Meeting 5 +2 One of the three main recommendations (data accessibility) from previous meeting was taken up. Yes (2017) Various material topics

internalin stimulating discussion. internal They discussion. also welcomed They also the opinionswelcomed of the the opinions fund manager of the NG A GEME NT DANONE Conference Call 5 = The company made its new «Code of Conduct for Business Partners» publically available. Yes (2017) Various material topics

andfund the manager sustainability and the sustainability expert. expert. E DASSAULT SYSTEMES Conference Call 4 +4 First meeting and recommendations acknoweldged (reporting, employee loyaltee, data security). N/R ESSILOR INTERNATIONAL Conference Call 4 = Constructive, with explanation of processes. Emphasized accuracy and value of assessment. Yes (2014) Various material topics

FRESENIUS MEDICAL CARE Conference Call 4 = Interested in results of assessment. Elaborated on their Global sustainability initiative. Yes (2013) Various material topics During the period under review, nine companies implemented our recom- EA N GEBERIT Conference Call 5 +4 The previous recommendation to review the code of conduct was taken-up since last brieﬁng. Yes (2017) Various material topics mendations and improved on at least one weak point raised the previous 12 HENNES & MAURITZ (Out) Exit Exit Exit N/R Yes (2015) Various material topics year. ThisThis includes Roche and and SGS, SGS, both both of of which which also also showed showed progress progress on HSBC HOLDINGS Meeting 3 -1 HSBC is aware of its challenges and has plans to improve. Reporting needs signiﬁcant changes. No socon socialial-impac impactt par partnershipstnerships initi initiatedated by by Cadmos Cadmos.. For For more more on on t thishis subjecsubject,t, INFINEON (New) No meeting1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R see the “Engagement impact” and “Social Impact Partnerships” sections of

11 . Compass Group, Unilever and one new entrant into the portfolio, Inﬁneon, are the only companies with whom we did not engage this year. — 12 . Credit Suisse, Danone, Geberit, Nestlé, Novartis, Novo Nordisk, Roche, SGS and Swiss Re. 37/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Three key topics stand out as the most financially business targets, on purpose or through negligence. material to the universe of companies in the Fund. The Dishonest or illegal practices such as bribery, money EEnNGgaAGEMENTgement wWITithH cCOMompaniesPANIES onON keyKEY maMATEterialRIAL tTopiOPIcCs first is “product social impact”, a topic that concerns 27 laundering, collusion, tax evasion, fraud and insider per cent of the companies. A company’s products and trading can harm stakeholders and the company itself. services can positively or negatively affect its customers Companies must therefore make every reasonable effort as individuals, with regard to their physical, mental to ensure compliance and demonstrate integrity, good and spiritual well-being, or as a group, in relation to governance, and responsible business practices. their integrity, dignity or heritage. The company must exercise due care and foresight in managing its products Finally, the third most financially material topic is and services throughout their life cycle, to prevent “product environmental impact”, as it concerns 17 negative social impact and foster positive impact. per cent of the companies. These companies must adopt a precautionary approach to local or global “Business integrity and compliance”, which is impor- environmental challenges and promote environmental tant for any firm, comes second with 21 per cent of the responsibility, resource efficiency and pollution companies that have to comply with a variety of external prevention throughout the life cycle of their products rules at national, regional and global levels as well as and services. Here we provide examples of companies with their own internal controls. Compliance concerns that have acted on our recommendations, with their the company’s ability to act according to these rules key topics and performance scores. and prevent employees from crossing the line to reach

GIVAUDAN

For Givaudan, as a manufacturer of flavours, fragrances and active cosmetic ingredients, procurement of raw materials and products from fragile sources is an impor- Supplier environmental impact tant issue. Ensuring Sustainable sourcing and developing Product social impact innovative, environmentally friendly substitutes for Supplier social impact critical substrates also present opportunities. Product 0 10 20 30 40 50 60 70 80 90 100 social impact, especially the issues of quality and safety and particularly, packaging, is another relevant topic.

GEBERIT

For Europe’s market leader in sanitary technology, the Product environmental impact environmental impact of the products is particularly Product social impact relevant: its expertise in water conservation represents an opportunity for developing and diffusing environ- Business integrity and compliance mentally friendly technologies. Through its products, 0 10 20 30 40 50 60 70 80 90 100 Geberit also has a social impact in the areas of customer ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC health and product quality and liability. Its presence in over sixty countries and its exposure to the risk of EMENT F UND Product environmental impact 24% corruption make business integrity and compliance other relevant topics. Climate change impact 3%

Supplier environmental impact 3% PARTNERS GROUP S ENG AG

Product social impact 28% This global private-markets management firm has more than USD 55 billion in assets under management in Impact on communities 1% S S private equity, private infrastructure, private real estate Supplier social impact 3% and private debt. Its main sustainability topics relate Product environmental impact

to its product environmental and social impact, espe- Diversity and employee loyalty Core labor standards compliance 6% cially the integration of ESG criteria into investment

Product social impact ADMO S management. In this highly specialised field, another Diversity and employee loyalty 8% 0 10 20 30 40 50 60 70 80 90 100 C challenge consists of attracting, training and retaining Business integrity and compliance 23% talented people.

38/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Three key topics stand out as the most financially “Business integrity and compliance”, which is important material to the universe of companies in the Fund. The for any firm, is the third most financially material ENGAGEMENT WITH COMPANIES ON KEY MATERIAL TOPIC first is “product social impact”, a topic that concerns 28 topic, affecting 23 per cent of companies in the Fund. per cent of the companies. A company’s products and Companies must comply with a variety of external rules services can positively or negatively affect its customers at national, regional and global levels, as well as their as individuals, with regard to their physical, mental own internal systems of control. Compliance concerns and spiritual well-being, or as a group, in relation to the company’s ability to act according to these rules their integrity, dignity or heritage. The company must and prevent employees from crossing the line to reach

exercise due care and foresight in managing its products business targets, on purpose or through negligence. UN D and services throughout their life cycle, to prevent Dishonest or illegal practices such as bribery, money F negative social impact and foster positive impact. laundering, collusion, tax evasion, fraud and insider trading can harm stakeholders and the company itself. The second most financially material topic is “product Companies must therefore make every reasonable effort environmental impact”, as it concerns 24 per cent of the to ensure compliance and demonstrate integrity, good companies. These companies must adopt a precautionary governance, and responsible business practices. Here approach to local or global environmental challenges we provide examples of companies that have acted

and promote environmental responsibility, resource on our recommendations, with their key topics and NG A GEME NT ELECTION OF KEY TOPICS ELECTION OF KEY TOPICS efficiency and pollution prevention throughout the life Sperformance scores. E S cycle of their products and services. EA N Three key topics stand out as the most financially “Business integrity and compliance”, which is important DANONE material to the universe of companies in the Fund. The for any firm, is the third most financially material ENGAGEMENT WITH COMPANIES ON KEY MATERIAL TOPIC first is “product social impact”, a topic that concerns 28 topic, affecting 23 per cent of companies in the Fund. As a multinational food-products corporation, Danone per cent of the companies. A company’s products and Companies must comply with a variety of external rules

has two main sustainability issues: the environmental Product environmental impact S EU ROP services can positively or negatively affect its customers at national, regional and global levels, as well as their as individuals, with regard to their physical, mental own internal systems of control. Compliance concerns and social impact of its products, especially the provi- Supplier environmental impact sion of healthy, safe, nutrient-rich food, and its access and spiritual well-being, or as a group, in relation to the company’s ability to act according to these rules Product social impact to water. Its suppliers’ environmental impact is also their integrity, dignity or heritage. The company must and prevent employees from crossing the line to reach 0 10 20 30 40 50 60 70 80 90 100 ADM O

exercise due care and foresight in managing its products business targets, on purpose or through negligence. UN D relevant, particularly to the sustainability of its own C agricultural and procurement practices. and services throughout their life cycle, to prevent Dishonest or illegal practices such as bribery, money F negative social impact and foster positive impact. laundering, collusion, tax evasion, fraud and insider trading can harm stakeholders and the company itself. The second most financially material topic is “product Companies must therefore make every reasonable effort GEBERIT environmental impact”, as it concerns 24 per cent of the to ensure compliance and demonstrate integrity, good companies. These companies must adopt a precautionary governance, and responsible business practices. Here For Europe’s market leader in sanitary technology, the approach to local or global environmental challenges we provide examples of companies that have acted

environmental impact of the products is particularly Product environmental impact and promote environmental responsibility, resource on our recommendations, with their key topics and NG A GEME NT

relevant: its expertise in water conservation represents Product social impact efficiency and pollution prevention throughout the life performance scores. E an opportunity for developing and diffusing environ- Business integrity and compliance cycle of their products and services.

mentally friendly technologies. Through its products, 0 10 20 30 40 50 60 70 80 90 100 EA N Geberit also has a social impact in the areas of customer health and product quality and liability. Its presence DANONE ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC in over sixty countries and its exposure to the risk of corruption make business integrity and compliance As a multinational food-products corporation, Danone other relevant topics. has two main sustainability issues: the environmental Product environmental impact S EU ROP

Product environmental impact 4% and social impact of its products, especially the provi- Supplier environmental impact sion of healthy, safe, nutrient-rich food, and its access Product social impact Climate change impact 4% to water. Its suppliers’ environmental impact is also 0 10 20 30 40 50 60 70 80 90 100 ADM O

Supplier environmental impact 0% NOVO NORDISK relevant, particularly to the sustainability of its own C Product social impact 65% agricultural and procurement practices. As a leader in medicines and devices for diabetes Impact on communities 0% care, Novo Nordisk faces the challenge of providing Product environmental impact Supplier social impact 4% affordable access to treatment in the poorest countries, Product social impact Core labor standards compliance 0% with the resulting pricing pressures, and promoting GEBERIT Business integrity and compliance proper product use. Its presence in emerging markets Diversity and employee loyalty 0% 0 10 20 30 40 50 60 70 80 90 100 means that corruption issues could also be relevant. For Europe’s market leader in sanitary technology, the Business integrity and compliance 22% Other important topics are the impact of products and environmental impact of the products is particularly Product environmental impact services throughout their life cycle and the management relevant: its expertise in water conservation represents Product social impact of waste and hazardous materials. an opportunity for developing and diffusing environ- Business integrity and compliance mentally friendly technologies. Through its products, 0 10 20 30 40 50 60 70 80 90 100 Geberit also has a social impact in the areas of customer health and product quality and liability. Its presence ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC in over sixty countries and its exposure to the risk of corruption make business integrity and compliance 39/120 other relevant topics.

Product environmental impact 4%

Climate change impact 4% Supplier environmental impact 0% NOVO NORDISK Product social impact 65% As a leader in medicines and devices for diabetes Impact on communities 0% care, Novo Nordisk faces the challenge of providing Product environmental impact Supplier social impact 4% affordable access to treatment in the poorest countries, Product social impact Core labor standards compliance 0% with the resulting pricing pressures, and promoting Business integrity and compliance proper product use. Its presence in emerging markets Diversity and employee loyalty 0% 0 10 20 30 40 50 60 70 80 90 100 means that corruption issues could also be relevant. Business integrity and compliance 22% Other important topics are the impact of products and services throughout their life cycle and the management of waste and hazardous materials. ASSESSMENT ASSESSMENT GAPS

PREPAREDNESS ON KEY TOPICS PREPAREDNESS ON KEY TOPICS 3% 3% The portfolio companies’ average score for preparedness on key topics is 79 per cent. A score of 100 per cent would reflect absolute 15% best practice by all the companies in the Fund in relation to their 15%

respective key topics (117 in total) according to all five indicators UN D 0%-50% (materiality, commitment and strategy, objective and actions, F 51%-60% indicators and monitoring, and achievements). Half the portfolio

61%-70% companies have scores above 80 per cent and so are already well positioned to manage their key topics. 71%-80%

81%-90% 36% 28% 91%-100% NG A GEME NT E

DANONE EA N

Gap: For all three key challenges analysed i.e. 3%3% 13% UALITY OF REPORTING product environmental impact, supplier envi- UALITY OF REPORTING ronmental impact and product social impact the 21% The portfolio companies’ average score for quality of reporting objectives are rather general, making it hard to S EU ROP 0%-50% is 77 per cent. A score of 100 per cent would reflect absolute best validate achievements and the effectiveness of the 51%-60% practice by all the companies that we assessed, according to all six related actions. indicators (accessibility, clarity, comparability, accuracy, reliability, 61%-70% ADM O

and integration). Today 44 per cent of the companies have scores Recommendation 1: Though Danone is among C 71%-80% 31% above 80 per cent and already count among the businesses that are the leaders in non-financial reporting it could 81%-90% best at communicating about their ESG challenges. optimise its strategy for tackling its main ESG 31% 91%-100% challenges by setting specific short- and long-term objectives.

3% 8% SUSTAINABILITY ORGANIATION 3% SUSTAINABILITY ORGANIATION DASSAULT SYSTMES The portfolio companies’ average score for quality of sustaina- 10% 0%-50% bility organization is 86 per cent. A score of 100 per cent would Gap 1: What is missing is a detailed description 51%-60% reflect absolute best practice by all the companies that we assessed, of how Dassault Systèmes helps its customers 61%-70% according to all four indicators (strategy integration, responsibility, reduce their environmental impact through its 54% employee inclusiveness, and stakeholder inclusiveness). Today 77 applications. 71%-80% per cent of the portfolio companies have scores above 80 per cent 23% 81%-90% and already count among the businesses that are best at integrating Recommendation 1: Dassault should prepare a 91%-100% sustainability into their organization. presentation of the environmental impacts of its solutions and applications.

12% 12% SUSTAINABILITY FRAMEWORKS SUSTAINABILITY FRAMEWORKS 6% HE PORTFOLIO 0%-50% The portfolio companies’ average score for ability to report T according to the principal reporting or impact frameworks is 54 51%-60% per cent. A score of 100 per cent would reflect absolute best practice COMPANIES’ 61%-70% by all the companies that we assessed, according to all four of the 18% AVERAGE SCORE FOR 71%-80% most widely adopted frameworks (UN Global Compact, Sustainable Development Goals, UN Guiding Principles, and Global Reporting PREPAREDNESS ON 81%-90% Indicators). 40 per cent of the portfolio companies have scores above 53% 91%-100% 60 per cent and are already among the businesses communicating KEY TOPICS IS 79 broadly by means of these frameworks. The majority, however, have scores of below 60 per cent and have yet to be persuaded to use them. PER CENT.

40/120 ASSESSMENT ASSESSMENT GAPS

PREPAREDNESS ON KEY TOPICS As these statistics illustrate, the Cadmos European PREPAREDNESS ON KEY TOPICS Engagement Fund is mainly invested in companies that already show above-average sensitivity to 3% 3% The portfolio companies’ average score for preparedness on key financially material ESG topics. Based on the gaps topics is 79 per cent. A score of 100 per cent would reflect absolute identified by the assessments, we formulate at least 15% best practice by all the companies in the Fund in relation to their three recommendations that we believe will have 15%

respective key topics (117 in total) according to all five indicators an impact on the company’s future while being UN D 0%-50% (materiality, commitment and strategy, objective and actions, easy to implement. Here we provide two examples F 51%-60% indicators and monitoring, and achievements). Half the portfolio of gaps and recommendations, presented to two

61%-70% companies have scores above 80 per cent and so are already well of our portfolio companies during our engage- positioned to manage their key topics. ment meetings. One example concerns Danone, 71%-80% a recognised ESG leader, and the other Dassault 81%-90% Systèmes, a software company less familiar with 36% 28% 91%-100% the subject. NG A GEME NT E

DANONE EA N

41/120 Engagement uat Engagement uat

ENGAGEMENT INTENSITY ENGAGEMENT INTENSITY

80% Of the thirty-six companies with whom we held Companies appreciate our practice of conducting a discussions in this engagement cycle, eight received thorough analysis rather than sending out question-

60% on-site visits (22 per cent) and twenty-eight joined naires; especially as we do not restrict our findings to a

us through conference calls (76 per cent). In 2014 we score but instead provide feedback specific to each issue UN D substantially increased the proportion of face-to-face along with pragmatic shareholder recommendations. F 40% meetings relative to conference calls. This helped us The Cadmos Funds’ “soft power” engagement is clearly reach new milestones with companies with whom we conducive to a dialogue that is both influential and

20% had been in discussion for many years. Since then, we constantly constructive. have established solid contact with most of the portfolio companies and monitor their implementation of our The general trend over the years reveals a solid, stable 0% recommendations mainly through conference calls. desire on the part of the companies to engage in the On-site meetings Conference calls No meeting

dialogue, testifying to the credibility that the Cadmos NG A GEME NT

2011-2012 2012-2013 2013-2014 2014-2015 Prior to any conference call or meeting, we send the Funds have acquired in the eyes of European businesses. E

2015-2016 2016-2017 2017-2018 companies an assessment summary of about thirty pages

as a basis for discussion. For more information on our It is gratifying to see that we have maintained such a EA N engagement process, see pages 11ff. high success rate with the companies over the years.

ENGAGEMENT LEVEL OF COMPANIES ENGAGEMENT LEVEL S EU ROP To provide a transparent measure of the impact of Unilever, whom we met in 2016, the year of its entry our engagement with the companies, we assess each into the portfolio; Infineon, who entered the portfolio 2016-2017 2017-2108 Level Description company according to a scale of five engagement levels during this engagement cycle; and Compass Group. ADM O

14 7 5 Shows improvements on recommendations ranging from 0 to 5. We have had five excellent dialogues with Compass C 13 26 4 Acknowledges recommendations in the recent past, and the company reached level 4 in The opposite table provides an overview of the evolu- the previous engagement cycle. Compass recognised 1 3 3 Accepts the principle of a regular dialogue tion in the number of companies having attained each that in some areas its data measurement and collection 3 0 2 Agrees to discuss assessment results level between the engagement cycles of 2016–2017 and remained a work in progress. That applies to the infor- 0 2 1 Acknowledges receipt of our assessment 2017–2018. The engagement targets set for the Cadmos mation on various suppliers, some of which are small 4 1 0 Assessment completed but no meeting was conducted Funds are ambitious. Our first goal is to create a enterprises. We have asked for data on the supplier dialogue with each company within three years. As can audits and details of the actions taken to reduce food be seen from the tables opposite and on the previous waste. It is not unusual for Compass to engage every pages, we engaged with all the companies that had second year, and we look forward to seeing how it has been in the Fund for at least three years. Only three progressed on these important issues in 2018. companies did not participate this year (level 0 or 1):

ENGAGEMENT PROGRESS ENGAGEMENT PROGRESS

4.50 The chart opposite tracks the average engagement level 4.38 Level 5 4.10 over time, with outstanding results since 2010. While 3.77 3.74 3.85 today the average stands at 3.85, it was only 2.10 seven 3.48 Level 4 years ago. This long-term view reveals a continuous …WE ENGAGED WITH uptrend, albeit with some fluctuations, culminating Level 3 ALL THE COMPANIES 2.10 in a record average of 4.50 in 2014–2015. The level plateaued in 2015–2016, before declining slightly, owing Level 2 THAT HAD BEEN IN THE to an increase in the number of new companies entering the portfolio and existing companies that had reached Level 1 FUND FOR AT LEAST level 5 and left. This increased portfolio turnover is THREE YEARS. Level 0 nevertheless modest, as the Fund’s average portfolio turnover has remained below 10 per cent for the past

Average three years. 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 The chart also confirms that the companies approve of the new engagement methodology introduced in 2017-2018.

42/120 Engagement uat Engagement uat

ENGAGEMENT INTENSITY ENGAGEMENT INTENSITY

60% on-site visits (22 per cent) and twenty-eight joined naires; especially as we do not restrict our findings to a

dialogue, testifying to the credibility that the Cadmos NG A GEME NT

2011-2012 2012-2013 2013-2014 2014-2015 Prior to any conference call or meeting, we send the Funds have acquired in the eyes of European businesses. E

2015-2016 2016-2017 2017-2018 companies an assessment summary of about thirty pages

ENGAGEMENT PROGRESS ENGAGEMENT PROGRESS

43/120 ENGAGEMENT IMPACT ENGAGEMENT IMPACT

The table opposite shows the twenty-eight portfolio companies that have implemented our recommendations and UN D

90% F 89% 100% improved on at least one weak point raised in the past five years. They include the nine companies that improved 81% 30 in 2017-2018, as mentioned in the “Engagement review” above. Only three of the long-term holdings did not 69% 80% improve in line with our suggestions over the past five years. 58% Altogether, since the launch of the Fund in 2006, we have recorded 110 instances of positive engagement, resulting 60% 20 in a company’s improving on a specific point in response to a suggestion from Cadmos. This score includes the thirteen companies that were sold but had reached engagement level 5. This includes Roche and SGS, both of

29% 40% which also showed progress on social-impact partnerships initiated by Cadmos. NG A GEME NT

10 E 14% 20% Here we provide examples of Danone, Geberit, Novo Nordisk and Swiss Re. They are among the nine companies

which implemented our recommendations and improved on at least one weak point raised the previous year: EA N

0 0% 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Nb. of companies with positive Nb. sold companies with % of companies with

engagement impacts (5 years rolling) engagement impact engagement impacts S EU ROP DANONE NOVO NORDISK

At the last briefing, in January 2017, we recommended In our last briefing of June 2016, we recommended ADM O

publishing a supplier’s code of conduct, to be developed a review of the compliance framework, focusing on C if necessary. Shortly afterwards, the company brought internal procedures in the case of non-adherence, and out its new Code of Conduct for Business Partners. anti-corruption measures. Since then, the company has revised its Code of Conduct and substantially ENGAGEMENT IMPACT IN THE PAST YEARS improved its internal and external communication, with information on achievements and non-achievements. GEBERIT This year, our discussion, with the vice-president in charge of global triple bottom-line management, was 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 As in previous years, the chief executive and the head of again very constructive: she intends to follow up on environment and sustainability took part in the meeting. several of the recommendations. She also welcomed They appreciated the new methodology and found KiKLab’s input and asked to receive the questionnaire. the main conclusions of the assessment instructive. The chief executive spoke frankly about the task of integrating Sanitec into the Geberit Group and gave direct answers to the Cadmos team’s questions about SWISS RE the company’s approach to market differentiation and growth. Similarly, when our team brought up Following our previous discussion in December 2016, the challenges of social responsibility in relation to Swiss Re has taken up three of the four recommen- 2013-2014 2013-2014 2013-2014 2013-2014 2013-2014 procurement, production and marketing, the subject dations made by the Cadmos engagement team: 1) was well received and led to a fruitful discussion. the Corporate Responsibility Report is now released Geberit has acted on our previous recommendation with the Annual Report; 2) the presentation of the to review the Code of Conduct. company’s and stakeholders’ material topics meets best-in-class requirements; and 3) the sector policy documents from the sustainability risk framework are now publicly available. Again this year, the Swiss Re participants were keen to learn from the assessment. They also found the revised methodology helpful. The company’s senior advisor on Sustainable development contacted the engagement team afterwards, to follow up on some other gaps in the reporting.

44/120 ENGAGEMENT IMPACT ENGAGEMENT IMPACT

Our long-term (five-year) impactimpact objectiveobjective isis toto generate generate positive positive additionaladditional impactsimpacts atat aa majority majority of of our our portfolio portfolio companies. We motivate the companies to follow our recommendations regarding material topics (engagement level 5), socialsocial-imp impactact partnershipspartnerships and and peacebuilding peace-building initiatives. initiative s.This This ultimate ultimat objectivee objectiv hase has been been achieved, achieved, as aswe we have have created created tangible tangible impacts impacts for fortwo twenty-eight out of every threeor 90 companiesper cent of in all this the engagement Fund’s long-term cycle and holdings. twenty- eight companies or 90 per cent of all the Fund’s long-term holdings.

The table opposite shows the twenty-eight portfolio companies that have implemented our recommendations and UN D

90% F 89% 100% improvedThe table opposite on at least shows one weak the twenty-eight point raised portfolio in the past companies five years. that They have include implemented the nine our companies recommendations that improved and 81% 30 inimproved 2017-2018, on at as least mentioned one weak in pointthe “Engagement raised in the pastreview” five above.years. OnlyThey include three of the the nine long-term companies holdings that improved did not 69% 80% improvein 2017-2018, in line as with mentioned our suggestions in the “Engagement over the past review” five years. above. Only three of the long-term holdings did not 58% improve in line with our suggestions over the past five years. Altogether, since the launch of the Fund in 2006, we have recorded 110 instances of positive engagement, resulting 60% 20 inAltogether, a company’s since improving the launch on of a thespecific Fund point in 2006, in response we have recordedto a suggestion 110 instances from Cadmos. of positive This engagement, score includes result the- thirteening in a company’scompanies improvingthat were soldon a butspecific had reachedpoint in engagement response to levela suggestion 5. This includesfrom Cadmos. Roche andThis SGS,score bothincludes of

29% 40% whichthe thirteen also showed companies progress that wereon social-impact sold but had partnerships reached engagement initiated bylevel Cadmos. 5. This includes Roche and SGS, both NG A GEME NT

10 of which also showed progress on social impact partnerships initiated by Cadmos. E 14% 20% Here we provide examples of Danone, Geberit, Novo Nordisk and Swiss Re. They are among the nine companies

whichHere we implemented provide examples our recommendations of Danone, Geberit, and improved Novo Nordisk on at leastand Swissone weak Re. Theypoint areraised among the previousthe nine compayear: - EA N nies which implemented our recommendations and improved on at least one weak point raised the previous year: 0 0% 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Nb. of companies with positive Nb. sold companies with % of companies with engagement impacts (5 years rolling) engagement impact engagement impacts S EU ROP DANONE NOVO NORDISK

At the last briefing, in January 2017, we recommended In our last briefing of June 2016, we recommended ADM O

publishing a supplier’s code of conduct, to be developed a review of the compliance framework, focusing on C if necessary. Shortly afterwards, the company brought internal procedures in the case of non-adherence, and out its new Code of Conduct for Business Partners. anti-corruption measures. Since then, the company has revised its Code of Conduct and substantially ENGAGEMENT IMPACT IN THE PAST YEARS improved its internal and external communication, with information on achievements and non-achievements. GEBERIT This year, our discussion, with the vice-president in charge of global triple bottom-line management, was As in previous years, the chief executive and the head of again very constructive: she intends to follow up on environment and sustainability took part in the meeting. several of the recommendations. She also welcomed They appreciated the new methodology and found KiKLab’s input and asked to receive the questionnaire. the main conclusions of the assessment instructive. The chief executive spoke frankly about the task of integrating Sanitec into the Geberit Group and gave direct answers to the Cadmos team’s questions about SWISS RE the company’s approach to market differentiation and growth. Similarly, when our team brought up Following our previous discussion in December 2016, the challenges of social responsibility in relation to Swiss Re has taken up three of the four recommen- procurement, production and marketing, the subject dations made by the Cadmos engagement team: 1) was well received and led to a fruitful discussion. the Corporate Responsibility Report is now released Geberit has acted on our previous recommendation with the Annual Report; 2) the presentation of the to review the Code of Conduct. company’s and stakeholders’ material topics meets best-in-class requirements; and 3) the sector policy documents from the sustainability risk framework are now publicly available. Again this year, the Swiss Re participants were keen to learn from the assessment. They also found the revised methodology helpful. The company’s senior advisor on Sustainable development contacted the engagement team afterwards, to follow up on some other gaps in the reporting.

45/120 SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP

SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP ENGAGEMENT We conducted a special social impact assessment for thirty-six in following up with our expert at KiKLab and filling in Yes No 94% of our portfolio companies. Our aim was to study the extent the “Readiness to Partner” questionnaire. 86% 82% 82% to which they embedded social impact in their business strategies. We then discussed our findings with thirty-two of In a surprisingly short time, six companies or 18 per cent have the companies. already taken part in the survey and three (Nestlé, Novozymes and Schneider Electric) have been assessed in depth on their

The opposite chart and the table on the following page summarise ability to partner innovative social enterprises along the lines UN D the results. It shows that 80 per cent of our portfolio companies of our HHH – Head, Heart and Hands model. Through our F 18% 18% were not starting from scratch. At least seven companies had privileged contacts, we were able to forgo this process with 14% 6% made some commitment to generating additional social impacts; Roche and SGS and collaborate on the additional social impact fourteen had already allocated some resources and eight had projects as shown on the opposite page. Here we provide Social impact addressed Interested to follow-up In-depth social impact Ongoing additional begun reporting on their social impact partnerships and the examples of Nestlé and Schneider Electric. They are among in engagement meeting on social impact survey conducted social impact projects impacts achieved. Most important, the vast majority, that is, the six companies which KiKLab followed-up with and which twenty-seven or 82 per cent of companies, were interested took part in the HHH Survey. NG A GEME NT

SOCIAL IMPACT EMBEDDEDNESS ASSESSMENT E

NESTL SCHNEIDER ELECTRIC EA N 2017-2108 Level Description (Social Entrepreneurship / Social Investment) 8 3 Reporting on social impact partnerships including impact Nestlé’s reporting demonstrates the company’s strong Our annual engagement dialogue with Schneider Electric 14 2 Allocation of dedicated resources for SE/SI commitment to social impact partnerships. This attitude included an excellent discussion with the company about 7 1 Commitment to SE/SI was reflected in our annual dialogue in which the company’s developing successful partnerships with social enterprises. representatives were keen to learn from our expertise Despite being very advanced in this area, the company’s S EU ROP 7 0 No information on SE/SI to further develop their practices. The opportunity to representatives were keen to learn from our experience complete the Readiness to Partner Assessment for one and keenly welcomed the opportunity to complete the of the company’s existing social impact partnerships was Readiness to Partner Assessment. ADM O

welcomed with enthusiasm. C FLAGSHIP STORIES The company’s representatives chose to carry out the Nestlé selected a key partnership focused on providing assessment for a key partnership within Schneider Electric’s ROCHE measures would include promoting earlier diagnosis farming and business support, and helping to build Access to Energy program. One of the stated aims of with awareness-raising and screening programmes. stronger supply chain linkages, for smallholder farmers this program is to ensure the company’s offerings and Following Roche’s meeting with the Cadmos According to initial estimates, the success rate of in sub-Saharan Africa. The partnership is one of a number business models respond to the energy needs of villages, advisers from KiKLab, Roche asked us to study the breast-cancer treatment could increase from 40 per of initiatives supporting farmer welfare and environmental to support Sustainable economic and social activity, and feasibility of structuring an impact bond, aimed at cent to 70–75 per cent in the selected government stewardship, providing a major opportunity to improve that they include and involve local populations in projects improving the standards of breast-cancer treatment hospitals, saving numerous lives. the livelihoods of thousands of farmers while helping to to guarantee their sustainability in the long term. for lower-income patients in India. build an important source of supply for one of Nestlé’s The DIB also has the potential to prove the economic key brands. The responses provided within the assessment indicate that Breast cancer is the most frequent type of cancer and educational benefits to the children of mothers Schneider Electric has established strong foundations in in women, accounting for some 25 per cent of all whose lives have been saved. It could well become Nestlé’s responses to the assessment indicated that the both its commitment to social impact partnerships and its cancers in women. Indian women present a lower a blueprint for rolling out the highest standard of company has established strong foundations across the capability to successfully deliver on their objectives. The incidence of breast cancer than their western coun- breast-cancer treatment, adopted by the medical majority of the key areas of the Head, Heart and Hands company’s responses indicate that Schneider Electric has terparts; however, India has the highest number community worldwide. framework for partnership alignment, as well as at the strength across all the elements of the Head, Heart, Hands of deaths from breast cancer of any country in the critical intersection of these elements. There were two framework including at the intersection of these elements, world, due to lower awareness, a lower equipment areas within the “Hands” element of the framework, which is critical. The results from this single assessment rate in the screening infrastructure and less-effective related to resources and the use of metrics and incentives, indicate that Schneider is in a good position to successfully treatments. The survival rate for women with breast SGS where the company’s responses indicated that there were scale and replicate social impact partnerships in ways that cancer in India is 66 per cent, compared with 90 per opportunities for improvement. align with the company’s core business focus. cent in the United States and Australia. SGS has been quick to set up a pilot training programme for unemployed youth in South In follow-up discussions Nestlé indicated that the assess- Schneider Electric welcomed the results of the assessment A Development Impact Bond (DIB), backed by Africa through its SGS Academy business line. As ment was very useful, as it prompted holistic thought about with interest and joined a follow-up call with our experts to the combined funding and expertise of businesses, part of this project, the SGS RISKSTAR training the partnerships. There was a constructive discussion about discuss implications and actions to be considered. Following policymakers, investors, social enterprises and qualification addresses the lack of skilled workers the specific areas that the assessment suggested could be this positive dialogue, Schneider Electric indicated their non-profit organizations, could significantly in the areas of health, safety and the environment. improved, both in terms of the reasons for gaps in these intention to hold internal discussions about specific next improve patient outcomes in India, by financing We are currently following-up with SGS in order areas and a strategic discussion around benchmarking to steps. the transmission of best practices to government to scale this first pilot project. support the establishment of best practices improving hospitals throughout the country. The proposed consistency in achieving impact.

46/120 SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP SOCIAL IMPACT PARTNERSHIPS FOLLOW-UP

SOCIAL IMPACT EMBEDDEDNESS ASSESSMENT E

47/120 oa mpat partnersps summar tae oa mpat partnersps summar tae

PORTFOLIO MANAGEMENT SOCIAL IMPACT EMBEDDEDNESS SOCIAL IMPACT PARTNERSHIP FOLLOW-UPS Portfolio as at 31.12.2017 Score Addressed in specific meeting Interested Survey Impact summary Impact project ABB 3 Yes No No Although the company has expressed interest, more information was requested and a follow-up email containing our Readiness to Partner survey has yet to be sent. No ANHEUSER-BUSH INBEV (New) 1 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No ASSA ABLOY 0 Yes Yes No Showed great interest in taking the Readiness to Partner survey, and should get back to us soon, No particularly given the willingness of the company to engage on a very regular basis. AXA SA 2 Yes Yes No A follow-up email containing the survey was sent, however it has yet to be completed due to time constraints. No BMW 3 Yes Yes No Although the company has expressed interest, more information was requested and the company has not yet had the chance to complete the questionnaire. No BNP PARIBAS 3 Yes Yes Yes Despite an already excellent disclosure, the company once again showed great openness when discussing possibilities for further engagement and No collaboration on social partnerships at our engagement meeting, and in fact completed our Readiness to Partner Assessment. Unfortunately, a follow-up

meeting to debrief and discuss the results of the survey and the progress of our recommendations could not yet be scheduled due to timing constraints. UN D CAPGEMINI (New) 2 Yes Yes No Showed interest in taking our Readiness to Partner Assessment, particularly on account of their considerable activities and potential for cooperation in India. No F COLOPLAST 0 Yes No No While a follow-up meeting regarding the topic has not been scheduled, Coloplast does maintain a high potential to achieve No positive social outcomes around the globe moving forward. COMPAGNIE DE SAINT GOBAIN 0 Yes Yes No A follow-up discussion will be held with the company as soon the questionnaire is completed to debrief the results and potential devise strategies for further engagement. No COMPASS GROUP 2 No N/R N/R Although we engaged with the company fairly recently we have not had the opportunity as of yet to directly discuss social impact embeddedness in particular. N/R CREDIT SUISSE GROUP 2 No N/R N/R We engaged with the company on various topics but could not specifically address its social impact embeddedness score and potential. N/R DANONE 3 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No DASSAULT SYSTEMES 0 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No

ESSILOR INTERNATIONAL 3 Yes Yes Yes Our first engagement meeting with the company revolving around social impact was interactive and constructive, with both the Chief Sustainability Officer and No NG A GEME NT Investor Relations Manager reacting openly to the addressed gaps and proposed improvements. They subsequently emphasized that the assessment of their activities E and social impact strategy is accurate, and already highly valuable in triggering internal changes and reflection within Essilor. The company completed our Readiness to Partner Assessment, however a follow-up meeting to discuss the results and progress of the recommendations could not yet be scheduled. FRESENIUS MEDICAL CARE 0 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No EA N GEBERIT 0 Yes No No Declined to participate in our Readiness to Partner survey at this time. No HSBC HOLDINGS 2 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No INFINEON (New) 2 No N/R N/R We engaged with the company on various topics but could not specifically address its social impact embeddedness score and potential. N/R LEGRAND (New) 1 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No LINDE 1 Yes No No Declined to participate in our Readiness to Partner survey at this time. No S EU ROP L’OREAL 2 Yes No No Receptive to our team’s input and suggestions but would like to simply clarify precisely what information and No sources they will need to provide in order to take the assessment. NESTLE 3 Yes Yes Yes The company showed interest to know more about the Fund’s social impact methodology and was keen to learn from our expertise in managing corporate and social No enterprises partnerships for societal impact. Nestlé provided their responses to the Readiness to Partner Assessment in respect to one of their partnership. A follow up

call was held as well as subsequent discussions of possible assistance. Across the organization, Nestlé is currently engaged in a large number of partnerships with social ADM O

enterprises and other institutions. Nestlé has an excellent opportunity to enhance and potentially replicate the organization’s social impact, building on the company’s C existing commitment to partnering. Possible further follow-ups on benchmarking of social impact partnership best practices. NOVO NORDISK 1 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No NOVOZYMES 2 Yes Yes Yes Novozymes was extremely receptive to the idea of partnering at our engagement meeting regarding the topic of social impact, and was willing to send additional No information required in order to begin collaborating and partnering with a more precise, focused social impact strategy. Company representatives were thus willing to take our Readiness to Partner Assessment, which was shortly followed-up on. In the ensuing call, further information on the findings of the Partnership for Good Reporting were discussed, in addition to ways of improving the reporting of impact metrics at a consolidated level. PRUDENTIAL PLC 1 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No PUBLICIS GROUPE 2 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No RECKITT BENCKISER GROUP 1 Yes No No Receptive to our team’s input and suggestions but would like to simply clarify precisely what information and sources they will need No to provide in order to take the assessment. ROCHE HOLDING (New) N/R No Yes No It was unfortunately not possible to conduct a formal social impact embeddedness assessment with Roche throughout this engagement cycle. The group is nevertheless Yes highly aware of its social impact regarding access to medicine and healthcare. Roche executives did show great interest in our methodology and in creating tangible results during our annual engagement meeting. The company is currently working, in collaboration with our partners at KOIS, to develop a tangible social impact project. ROYAL PHILIPS (New) 2 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No SAP 2 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No SCHNEIDER ELECTRIC 2 Yes Yes Yes Schneider Electric remains very open and responsive to our recommendations and showed interest in the Fund’s unique social impact methodology, with representatives No from the company being keen to adapt their social impact strategy according to our expertise in managing corporate and social enterprise partnerships for a societal impact. The company subsequently completed our Readiness to Partner Assessment, leading to a final follow-up discussion pertaining to more systematic benchmarking and how to better profile Schneider’s work to the public. SGS 1 Yes Yes No In early 2017, we engaged with the company on the topic of social impact embeddedness and were pleased to encounter great interest on their behalf in developing, Yes as a collaboration with us, innovative solutions specifically adapted to their business model. Although SGS expressed interest in taking our Readiness to Partner Assessment, they have not been able to entirely complete the questionnaire as of yet. Nonetheless, the company has engaged in a recent relevant impact project, as they setup a pilot training program for unemployed youth in South Africa via their SGS Academy business line. The SGS RISKSTAR Training Qualification was proposed in this context as a qualification to address the skills gap in terms of safety, health, and the environment that exists in the workplace. SOCIETE GENERALE 3 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No STANDARD CHARTERED 0 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No TOTAL 2 Yes Yes No Due to time constraints, the company has not yet had the chance to complete the questionnaire. No UBS GROUP 2 Yes Yes Yes During our social impact embeddedness engagement meeting with company representatives, we learned that UBS is willing to further engage with us on issues relating both No to their general social impact strategy, and their partnerships, while they contemporaneously expressed their interest in, and completed, our Readiness to Partner questionnaire. A follow-up meeting will be setup as soon as time permits in order to discuss the results, and the affiliated recommendations. UNILEVER 3 No N/R N/R We have not had the opportunity as of yet to directly discuss social impact embeddedness in particular with Unilever. N/R

48/120 oa mpat partnersps summar tae oa mpat partnersoaps msummarpat part tanerse ps summar tae oa mpat partnersps summar tae

PORTFOLIO MANAGEMENT SOCIAL IMPACT EMBEDDEDNESS SOCIAL IMPACT PARTNERSHIPPORTFOLIO FOLLOW-UPS MANAGEMENT SOCIAL IMPACT EMBEDDEDNESS SOCIAL IMPACT PARTNERSHIP FOLLOW-UPS Portfolio as at 31.12.2017 Score Addressed in specific meeting InterestedPortfolio asSurvey at 31.12.2017 Impact summary Score Addressed in specific meeting Interested Survey ImpactImpact summary project Impact project ABB 3 Yes No ABB No Although the company 3has expressed interest, more informationYes was requested and a follow-upNo email containingNo our Readiness to Partner survey has yet to be sent. Although the No company has expressed interest, more information was requested and a follow-up email containing our Readiness to Partner survey has yet to be sent. No ANHEUSER-BUSH INBEV (New) 1 Yes Yes ANHEUSER-BUSHNo INBEV (New) Due to time constraints,1 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No ASSA ABLOY 0 Yes Yes ASSA ABLOYNo Showed great interest in0 taking the Readiness to Partner survey,Yes and should get back to us soon,Yes No Showed greatNo interest in taking the Readiness to Partner survey, and should get back to us soon, No particularly given the willingness of the company to engage on a very regular basis. particularly given the willingness of the company to engage on a very regular basis. AXA SA 2 Yes Yes AXA SANo A follow-up email containing2 the survey was sent, however Yesit has yet to be completed due toYes time constraints. No A follow-up emailNo containing the survey was sent, however it has yet to be completed due to time constraints. No BMW 3 Yes Yes BMW No Although the company 3has expressed interest, more informationYes was requested and the companyYes has not yet hadNo the chance to complete the questionnaire. Although theNo company has expressed interest, more information was requested and the company has not yet had the chance to complete the questionnaire. No BNP PARIBAS 3 Yes Yes BNP PARIBASYes Despite an already excellent3 disclosure, the company once againYes showed great openness whenYes discussing possibilitiesYes for further engagement and Despite an alreadyNo excellent disclosure, the company once again showed great openness when discussing possibilities for further engagement and No collaboration on social partnerships at our engagement meeting, and in fact completed our Readiness to Partner Assessment. Unfortunately, a follow-up collaboration on social partnerships at our engagement meeting, and in fact completed our Readiness to Partner Assessment. Unfortunately, a follow-up

meeting to debrief and discuss the results of the survey and the progress of our recommendations could not yet be scheduled due to timing constraints. meeting to debrief and discuss the results of the surveyUN D and the progress of our recommendations could not yet be scheduled due to timing constraints. UN D CAPGEMINI (New) 2 Yes Yes CAPGEMININo (New) Showed interest in taking2 our Readiness to Partner Assessment,Yes particularly on account of theirYes considerable activitiesNo and potential for cooperation in India. Showed interestNo in taking our Readiness to PartnerF Assessment, particularly on account of their considerable activities and potential for cooperation in India. No F COLOPLAST 0 Yes No COLOPLASTNo While a follow-up meeting0 regarding the topic has not been Yesscheduled, Coloplast does maintainNo a high potentialNo to achieve While a follow-upNo meeting regarding the topic has not been scheduled, Coloplast does maintain a high potential to achieve No positive social outcomes around the globe moving forward. positive social outcomes around the globe moving forward. COMPAGNIE DE SAINT GOBAIN 0 Yes Yes COMPAGNIENo DE SAINT GOBAIN A follow-up discussion 0will be held with the company as soonYes the questionnaire is completedYes to debrief the resultsNo and potential devise strategies for further engagement. A follow-up discussion No will be held with the company as soon the questionnaire is completed to debrief the results and potential devise strategies for further engagement. No COMPASS GROUP 2 No N/R COMPASSN/R GROUP Although we engaged with2 the company fairly recently we haveNo not had the opportunity as ofN/R yet to directly discussN/R social impact embeddedness in particular. Although weN/R engaged with the company fairly recently we have not had the opportunity as of yet to directly discuss social impact embeddedness in particular. N/R CREDIT SUISSE GROUP 2 No N/R CREDITN/R SUISSE GROUP We engaged with the company2 on various topics but could notNo specifically address its socialN/R impact embeddednessN/R score and potential. We engaged withN/R the company on various topics but could not specifically address its social impact embeddedness score and potential. N/R DANONE 3 Yes Yes DANONENo Due to time constraints,3 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No DASSAULT SYSTEMES 0 Yes Yes DASSAULTNo SYSTEMES Due to time constraints,0 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No

ESSILOR INTERNATIONAL 3 Yes Yes ESSILORYes INTERNATIONAL Our first engagement 3meeting with the company revolving Yesaround social impact was interactiveYes and constructive,Yes with both the Chief Sustainability Officer and Our first engagementNo meeting with the company NG A GEME NT revolving around social impact was interactive and constructive, with both the Chief Sustainability Officer and No NG A GEME NT Investor Relations Manager reacting openly to the addressed gaps and proposed improvements. They subsequently emphasized that the assessment of their activitiesInvestor Relations Manager reacting openly to the addressed gaps and proposed improvements. They subsequently emphasized that the assessment of their activities E E and social impact strategy is accurate, and already highly valuable in triggering internal changes and reflection within Essilor. The company completed our Readinessand social impact strategy is accurate, and already highly valuable in triggering internal changes and reflection within Essilor. The company completed our Readiness to Partner Assessment, however a follow-up meeting to discuss the results and progress of the recommendations could not yet be scheduled. to Partner Assessment, however a follow-up meeting to discuss the results and progress of the recommendations could not yet be scheduled. FRESENIUS MEDICAL CARE 0 Yes Yes FRESENIUSNo MEDICAL CARE Due to time constraints,0 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No EA N EA N GEBERIT 0 Yes No GEBERITNo Declined to participate in0 our Readiness to Partner survey atYes this time. No No Declined to participateNo in our Readiness to Partner survey at this time. No HSBC HOLDINGS 2 Yes Yes HSBC HOLDINGSNo Due to time constraints,2 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No INFINEON (New) 2 No N/R INFINEONN/R (New) We engaged with the company2 on various topics but could notNo specifically address its socialN/R impact embeddednessN/R score and potential. We engaged withN/R the company on various topics but could not specifically address its social impact embeddedness score and potential. N/R LEGRAND (New) 1 Yes Yes LEGRANDNo (New) Due to time constraints,1 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No LINDE 1 Yes No LINDE No Declined to participate in1 our Readiness to Partner survey atYes this time. No No Declined to participateNo in our Readiness to Partner survey at this time. No S EU ROP S EU ROP L’OREAL 2 Yes No L’OREALNo Receptive to our team’s 2input and suggestions but would likeYes to simply clarify precisely whatNo information and No Receptive to ourNo team’s input and suggestions but would like to simply clarify precisely what information and No sources they will need to provide in order to take the assessment. sources they will need to provide in order to take the assessment. NESTLE 3 Yes Yes NESTLEYes The company showed interest3 to know more about the Fund’sYes social impact methodology andYes was keen to learnYes from our expertise in managing corporate and social The companyNo showed interest to know more about the Fund’s social impact methodology and was keen to learn from our expertise in managing corporate and social No enterprises partnerships for societal impact. Nestlé provided their responses to the Readiness to Partner Assessment in respect to one of their partnership. A followenterprises up partnerships for societal impact. Nestlé provided their responses to the Readiness to Partner Assessment in respect to one of their partnership. A follow up

call was held as well as subsequent discussions of possible assistance. Across the organization, Nestlé is currently engaged in a large number of partnerships with socialcall was held as well as subsequent discussions of possibleADM O assistance. Across the organization, Nestlé is currently engaged in a large number of partnerships with social ADM O

enterprises and other institutions. Nestlé has an excellent opportunity to enhance and potentially replicate the organization’s social impact, building on the company’senterprises and other institutions. Nestlé has an excellentC opportunity to enhance and potentially replicate the organization’s social impact, building on the company’s C existing commitment to partnering. Possible further follow-ups on benchmarking of social impact partnership best practices. existing commitment to partnering. Possible further follow-ups on benchmarking of social impact partnership best practices. NOVO NORDISK 1 Yes Yes NOVO NORDISKNo Due to time constraints,1 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No NOVOZYMES 2 Yes Yes NOVOZYMESYes Novozymes was extremely2 receptive to the idea of partneringYes at our engagement meeting regardingYes the topic ofYes social impact, and was willing to send additional Novozymes wasNo extremely receptive to the idea of partnering at our engagement meeting regarding the topic of social impact, and was willing to send additional No information required in order to begin collaborating and partnering with a more precise, focused social impact strategy. Company representatives were thus willinginformation required in order to begin collaborating and partnering with a more precise, focused social impact strategy. Company representatives were thus willing to take our Readiness to Partner Assessment, which was shortly followed-up on. In the ensuing call, further information on the findings of the Partnership for Goodto take our Readiness to Partner Assessment, which was shortly followed-up on. In the ensuing call, further information on the findings of the Partnership for Good Reporting were discussed, in addition to ways of improving the reporting of impact metrics at a consolidated level. Reporting were discussed, in addition to ways of improving the reporting of impact metrics at a consolidated level. PRUDENTIAL PLC 1 Yes Yes PRUDENTIALNo PLC Due to time constraints,1 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No PUBLICIS GROUPE 2 Yes Yes PUBLICISNo GROUPE Due to time constraints,2 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No RECKITT BENCKISER GROUP 1 Yes No RECKITTNo BENCKISER GROUP Receptive to our team’s 1input and suggestions but would likeYes to simply clarify precisely whatNo information and Nosources they will need Receptive to ourNo team’s input and suggestions but would like to simply clarify precisely what information and sources they will need No to provide in order to take the assessment. to provide in order to take the assessment. ROCHE HOLDING (New) N/R No Yes ROCHENo HOLDING (New) It was unfortunately notN/R possible to conduct a formal social Noimpact embeddedness assessmentYes with Roche throughoutNo this engagement cycle. The group is nevertheless It was unfortunatelyYes not possible to conduct a formal social impact embeddedness assessment with Roche throughout this engagement cycle. The group is nevertheless Yes highly aware of its social impact regarding access to medicine and healthcare. Roche executives did show great interest in our methodology and in creating tangiblehighly results aware of its social impact regarding access to medicine and healthcare. Roche executives did show great interest in our methodology and in creating tangible results during our annual engagement meeting. The company is currently working, in collaboration with our partners at KOIS, to develop a tangible social impact project.during our annual engagement meeting. The company is currently working, in collaboration with our partners at KOIS, to develop a tangible social impact project. ROYAL PHILIPS (New) 2 Yes Yes ROYAL NoPHILIPS (New) Due to time constraints,2 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No SAP 2 Yes Yes SAP No Due to time constraints,2 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No SCHNEIDER ELECTRIC 2 Yes Yes SCHNEIDERYes ELECTRIC Schneider Electric remains2 very open and responsive to our Yesrecommendations and showed interestYes in the Fund’sYes unique social impact methodology, with representatives Schneider ElectricNo remains very open and responsive to our recommendations and showed interest in the Fund’s unique social impact methodology, with representatives No from the company being keen to adapt their social impact strategy according to our expertise in managing corporate and social enterprise partnerships for a societalfrom impact. the company being keen to adapt their social impact strategy according to our expertise in managing corporate and social enterprise partnerships for a societal impact. The company subsequently completed our Readiness to Partner Assessment, leading to a final follow-up discussion pertaining to more systematic benchmarking The company subsequently completed our Readiness to Partner Assessment, leading to a final follow-up discussion pertaining to more systematic benchmarking and how to better profile Schneider’s work to the public. and how to better profile Schneider’s work to the public. SGS 1 Yes Yes SGS No In early 2017, we engaged1 with the company on the topic of Yessocial impact embeddedness andYes were pleased to encounterNo great interest on their behalf in developing, In early 2017,Yes we engaged with the company on the topic of social impact embeddedness and were pleased to encounter great interest on their behalf in developing, Yes as a collaboration with us, innovative solutions specifically adapted to their business model. Although SGS expressed interest in taking our Readiness to Partner Assessment,as a collaboration with us, innovative solutions specifically adapted to their business model. Although SGS expressed interest in taking our Readiness to Partner Assessment, they have not been able to entirely complete the questionnaire as of yet. Nonetheless, the company has engaged in a recent relevant impact project, as they setup a theypilot have not been able to entirely complete the questionnaire as of yet. Nonetheless, the company has engaged in a recent relevant impact project, as they setup a pilot training program for unemployed youth in South Africa via their SGS Academy business line. The SGS RISKSTAR Training Qualification was proposed in this contexttraining program for unemployed youth in South Africa via their SGS Academy business line. The SGS RISKSTAR Training Qualification was proposed in this context as a qualification to address the skills gap in terms of safety, health, and the environment that exists in the workplace. as a qualification to address the skills gap in terms of safety, health, and the environment that exists in the workplace. SOCIETE GENERALE 3 Yes Yes SOCIETENo GENERALE Due to time constraints,3 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No STANDARD CHARTERED 0 Yes Yes STANDARDNo CHARTERED Due to time constraints,0 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No TOTAL 2 Yes Yes TOTAL No Due to time constraints,2 the company has not yet had the chanceYes to complete the questionnaire.Yes No Due to time constraints,No the company has not yet had the chance to complete the questionnaire. No UBS GROUP 2 Yes Yes UBS GROUPYes During our social impact2 embeddedness engagement meetingYes with company representatives, Yeswe learned that UBSYes is willing to further engage with us on issues relating During both our socialNo impact embeddedness engagement meeting with company representatives, we learned that UBS is willing to further engage with us on issues relating both No to their general social impact strategy, and their partnerships, while they contemporaneously expressed their interest in, and completed, our Readiness to Partner questionnaire.to their general social impact strategy, and their partnerships, while they contemporaneously expressed their interest in, and completed, our Readiness to Partner questionnaire. A follow-up meeting will be setup as soon as time permits in order to discuss the results, and the affiliated recommendations. A follow-up meeting will be setup as soon as time permits in order to discuss the results, and the affiliated recommendations. UNILEVER 3 No N/R UNILEVERN/R We have not had the opportunity3 as of yet to directly discussNo social impact embeddedness inN/R particular with Unilever.N/R We have not N/Rhad the opportunity as of yet to directly discuss social impact embeddedness in particular with Unilever. N/R

49/120 Cadmos Emerging Markets Engagement Fund CADMOS EMERGING MARKETS ENGAGEMENT FUND CADMOS EMERGING MARKETS ENGAGEMENT Cadmos Emerging Markets Engagement Fund CADMOS EMERGING MARKETS ENGAGEMENT FUND CADMOS EMERGING MARKETS ENGAGEMENT FINANCIAL PERFORMANCE PERFORMANCE SINCE INCEPTION The Cadmos Emerging Markets Engagement Fund, promoted constitute obvious risks for those investing in the indices in by PPT, is a sub-fund of the Luxembourg-based Cadmos Fund. 2018. 280.00 Comgest has managed the Fund since its inception in 2009. In 2017, classes A and B of the Fund returned +38.4% and The proceeds of the profits made on the winning tech stocks +39.6% respectively, outperforming the benchmark index (the were reinvested in companies in a variety of sectors, but mainly 230.00 MSCI Emerging Markets Index – Net Return), which rose in finance. Top of our list were life insurers, who are benefiting only by +37.3%. greatly from the booming demand of a large and growing middle class in Asia, Europe, the Middle East and Africa, and 180.00 Since 2011 we invested in a series of solid fast-growing internet Latin America. They offer both attractive valuations, thanks franchises, leading us to be overweight in the technology sector to the low interest rates, and rapid operational growth of their relative to the index. We have kept a cool head, taking our profits business. 130.00 if valuations were becoming stretched, even when the growth outlook was still bright. The portfolio is now underweight in At December 2017 the Fund had slightly outperformed its technology compared with the index, whose performance is index by +2.1% per cent in the period since its launch (Class

80.00 currently dominated and dictated by Tencent and Alibaba. In B) in 2009. our view, the concentration and the high level of expectations

Mar. 09 Oct. 09 Mar. 10 Oct. 10 Mar. 11 Oct. 11 Mar. 12 Oct. 12 Mar. 13 Oct. 13 Mar. 14 Oct. 14 Mar. 15 Oct. 15 Mar. 16 Oct. 16 Mar. 17 Oct. 17

Cadmos - Emerging Markets Engagement Fund (B) MSCIlégende EM manquante - Net Returns $

VOTING TRENDS VOTING

25 During the period under review we expressed an opinion The overall proportion of opposing votes remains significant. on 409 items on the agendas of the annual general meetings Of the total 409 votes that we cast, seventy-nine or 19.3% of thirty-three companies. Contrary to the developed world, were against management recommendations. The lack 20 the emerging-market countries saw no substantial rise in the of independent boards of directors and remuneration are FU ND umma r number of resolutions submitted to the vote in the past years. proportionally the issues of greatest concern in the emerging s Nevertheless, corruption or sanitary scandals at businesses markets. These two topics combined drew nearly three times

es 15 from Brazil to China are increasing the pressure on companies as many oppositions as in most developed markets. everywhere to improve their governance practices. EMEN T

10 The majority of the resolutions submitted to the vote, that is, almost 73%, still concern the structure of the board of directors and the capital structure.

2013 2014 2015 2016 2017 ero rman KETS EN GAG

Items per company % Opposing votes per 100 item G MA R SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT IMPACT We engaged with ten companies in the Fund during this objective (engagement level 2), having engaged with 75 12 65% 70% reporting cycle. Together, these companies represent 43 per percent of the companies that have been in the Fund for 1

cent of the twenty-three companies we assessed. This is a at least three years. EMER GIN 10 53% 53% 60% fair level of engagement for emerging-market companies, 50% considering that in the last three years twenty new compa- Our long-term (five-year) impact objective is to generate posi- 50% 8 nies have entered the portfolio. Furthermore, in the same tive additional impacts at a majority of our portfolio companies.

40% period eighteen other companies left, ten of whom had acted We motivate the companies to follow our recommendations ADMO S

6 on some of our progress recommendations. regarding material topics (engagement level 5), social impact C 27% 30% partnerships and peacebuilding initiatives. We have reached 4 Our engagement targets for the Cadmos Emerging Markets this ultimate target, having created tangible impacts for 53 20% Engagement Fund are ambitious. The first target is to create per cent of all the Fund’s long-term holdings.14 2 a dialogue with half the companies within three years. As the 10% table on the next page shows, we have now reached this 0 0% 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Nb. of companies with positive Nb. sold companies with % of companies with engagement impacts (5 years rolling) engagement impact engagement impacts

52/ 13 . See the summary table on the following page. — 14 . See the summary table on the following page. Companies are considered long-term if they have 120 reached engagement level 5 or have been in the portfolio for ﬁve years or more. FINANCIAL PERFORMANCE PERFORMANCE SINCE INCEPTION The Cadmos EmerEmergingging MarMarketskets EnEngagementgagement Fund,Fund, prpromotedomoted constitute obvious risks for those investing in the indices in by PPT, is a susub-fundb-fund of the LLuxembourg-baseduxembourg-based CadmosCadmos Fund.Fund. 2018. 280.00 ComgComgestest has manmanagedaged the Fund sisincence its ininceptionception in 2009. In 2017,2017, classesclasses AA andand BB ofof thethe FundFund returnedreturned +3+38.4%8.4% andand The proceeds of the profits made on the winning tech stocks ++39.6%39.6% respectrespectively,ively, out outperformingperforming the the benc benchmarkhmark index index (the were reinvested in companies in a variety of sectors, but mainly 230.00 MSCI(the MSCI Emerg Emerginging Mark Marketsets Index Index – Net – NetRetur Return),n), whic whichh rose in finance. Top of our list were life insurers, who are benefiting onlyrose onlyby +37.3%. by +37.3%. greatly from the booming demand of a large and growing middle class in Asia, Europe, the Middle East and Africa, and 180.00 Since 2011 we invested in a series of solid fast-growing internet Latin America. They offer both attractive valuations, thanks franchises, leading us to be overweight in the technology sector to the low interest rates, and rapid operational growth of their relative to the index. We have kept a cool head, taking our profits business. 130.00 if valuations were becoming stretched, even when the growth outlook was still bright. The portfolio is now underweight in At December 2017 the Fund had slightly outperformed its technology compared with the index, whose performance is index by +2.1% per cent in the period since its launch (Class

80.00 currently dominated and dictated by Tencent and Alibaba. In B) in 2009. our view, the concentration and the high level of expectations

Mar. 09 Oct. 09 Mar. 10 Oct. 10 Mar. 11 Oct. 11 Mar. 12 Oct. 12 Mar. 13 Oct. 13 Mar. 14 Oct. 14 Mar. 15 Oct. 15 Mar. 16 Oct. 16 Mar. 17 Oct. 17

Cadmos - Emerging Markets Engagement Fund (B) légende manquante

VOTING TRENDS VOTING

25 During the period under review we expressed an opinion The ooverallverall propo proportionrtion of of op opposingposing vo tesvotes rem remainsains signi signifficant-. on 409 items on the agendas of the annual general meetings Oficant. the Of total the 409 total votes 409 that votes we that cast, we seventy-nine cast, seventy-nine or 19.3% or of thirty-three companies. Contrary to the developed world, w19.3%ere a gawereinst against manageme managementnt recommen recommendations.dations. The lacThek 20 the emerging-market countries saw no substantial rise in the oflack independent of independent boards boards of directorsof directors and and remuneration remuneration areare FU ND umma r number of resolutions submitted to the vote in the past years. proproportionallyportionally the issuesissues of ggreatestreatest coconcernncern in thethe emergiemergingng s Nevertheless, corruption or sanitary scandals at businesses marmarkets.kets. These twotwo totopicspics combcombinedined ddrewrew nnearlyearly three timetimess es 15 from Brazil to China are increasing the pressure on companies as many oppositionsoppositions as as in in most most developed developed markets. markets. everywhere to improve their governance practices. EMEN T

10 The majority of the resolutions submitted to the vote, that is, almost 73%, still concern the structure of the board of directors and the capital structure.

2013 2014 2015 2016 2017 ero rman KETS EN GAG

Items per company % Opposing votes per 100 item G MA R SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT IMPACT We enengagedgaged wwithith ten compcompaniesanies in the FFundund dduringuring thithiss objective (engagement level 2), having engaged with 75 12 65% 70% reporting cycle. Together, these companies represent 43 per percent of the companies that have been in the Fund for 1 13

cent ofof thethe twenty-threetwenty-three companies companies we we assessed. assessed. This This is isa at least three years. EMER GIN 10 53% 53% 60% afair fair level level of of engagement engagement for for emerging-market emerging-market companies,companies, 50% considering that that in in the the last last three three years years twenty twenty new new companies compa- Our long-term (five-year) impact objective is to generate posi- 50% 8 nieshave haveentered entered the portfolio. the portfolio. Furthermore, Furthermore, in the samein the period same tive additional impacts at a majority of our portfolio companies.

40% peighteeneriod eig otherhtee ncompanies other com left,pani tenes ofleft whom, ten of had who actedm had on asomected We motivate the companies to follow our recommendations ADMO S

6 onof our some progress of our recommendations.progress recommendations. regarding material topics (engagement level 5), social impact C 27% 30% partnerships and peacebuilding initiatives. We have reached 4 Our engagement targets for the Cadmos Emerging Markets this ultimate target, having created tangible impacts for 53 20% Engagement Fund are ambitious. The first target is to create per cent of all the Fund’s long-term holdings.14 2 a dialogue with half the companies within three years. As the 10% table on the next page shows, we have now reached this 0 0% 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018

Nb. of companies with positive Nb. sold companies with % of companies with engagement impacts (5 years rolling) engagement impact engagement impacts

13 . See the summary table on the following page. — 14 . See the summary table on the following page. Companies are considered long-term if they have reached engagement level 5 or have been in the portfolio for ﬁve years or more. 53/120 ummar tae ummar tae

PORTFOLIO MANAGEMENT MANAGEMENT PERFORMANCE PERFORMANCE VOTEVOTE MEETINGMEETING ENGAGEMENTENGAGEMENT IMPACT IMPACT Portfolio as at 31.12.2017 Contribution 2017 In Cadmos since Description Resolutions Against Type Level Change Summary Y/N (year) Type Portfolio as at 31.12.2017 Contribution 2017 In Universe since Description Resolutions Against Type Level Change Summary Y/N (year) Type AIA GROUP 0.91% 2015 Voted 9 2 Not assessed (2 in 2015) N/R Company not in the priority list. N/R B3ABB - BRASIL BOLSA BALCAO 0.38%0.52% 20062016 VotedVoted 2340 23 ConferenceNot assessed Call N/R4 N/R = Company Acknowledged not in therecommendations priority list. and suggested meeting as soon as possible YesN/R (2015) Various material topics BAIDU 1.20% 2012 No vote 0 0 No meeting 0 (2 in 2016) -2 Companyto initiate did improvements. not agree to have an engagement. No ANHEUSER-BUSHBB SEGURIDADE PARTICIPACOES INBEV (New) -0.22%0.21% 20172016 Entry afterVoted AGM 11 0 02 ConferenceConference Call Call 34 +4+1 Constructive First meeting second focused meeting on explaining with the intent methodology. to understand Acknowledged our methodology our andrecommendations. progress. N/RN/R BHARATASSA ABLOY HEAVY ELECTRICALS (Out) 0.00%0.27% 20152009 Exit beforeVoted AGM 100 20 ConferenceExit Call Exit4 Exit +2 N/RAssa Abloy was open to engaging on a regular basis. N/RN/R BHARTI AIRTEL 1.15% 2015 Voted 11 3 Not assessed N/R N/R Company not in the priority list. N/R AXA SA 0.23% 2006 Voted 31 0 Conference Call 4 = Open to critical feedback from assessment. Potential improvements were acknowledged. No (last in 2009) BHARTI INFRATEL (Out) 0.61% 2014 Voted 7 1 Exit Exit Exit N/R N/R BMW 0.10% 2007 Voted 5 0 Conference Call 3 -2 Discussion was open, but more of a Q&A than a dialogue. No commitments to improve. Yes (2016) Various material topics

BRF BRASIL FOOD -0.86% 2012 Voted 9 2 No meeting 0 = Company did not agree to have an engagement. No UN D

BNPCHINA PARIBAS LIFE INSURANCE COMPANY 0.23%0.97% 20062009 VotedVoted 1813 01 ConferenceNo meeting Call 0 (4 in4 2016) -4 -1 Company BNP was did open not to agree recommendations, to have an engagement. including improving already excellent disclosures. Yes No(2016) Various material topics F CAPGEMINICHINA MOBILE (New)(Out) -0.04%0.17% 20172009 Entry afterVoted AGM 11 0 04 ConferenceExit Call Exit4 Exit +4 N/R Particularly interactive and insightful discussion. Acknowledged helpful recommendations. Yes N/R (2016) Various material topics CIA DE CONCESSOES RODOVIARIAS 0.27% 2009 Voted 26 1 Conference Call 4 = Acknowledge recommendations (Business Integrity transparency). Commited to GRI. Yes (2015) Various material topics COLOPLAST 0.18% 2014 Voted 23 3 Conference Call 4 -1 Interested in results and methodology. Agreed to revisit decision not to adopt GRI Standards. Yes (2016) Various material topics CIELO (Out) 0.01% 2011 Exit before AGM 0 0 Exit Exit Exit N/R N/R COMPAGNIECK HUTCHISON DE HOLDINGS SAINT GOBAIN 0.21%0.23% 20062015 VotedVoted 2114 08 ConferenceNo meeting Call 0 (less 43 years) -3 -1 Company Lively atmosphere did not agree and to expressed have an engagement. importance of discussion. Acknowledged recommendations. YesN/R (2016) Various material topics COMPASSCOCA-COLA GROUP FEMSA 0.13%0.10% 20102015 VotedVoted 281 01 ConferenceNo meeting Call 0 (4 in3 2016) +1 -4 OpenNo interest and constructive for engagement conversation. meeting First this integrated year. report this year (GRI standards). N/RNo COCA-COLACREDIT SUISSE HBC GROUP 0.26%0.60% 20062009 NoVoted vote 340 140 On-SiteNot assessed Meeting (5 in 52015) N/R +2 Company One of the not th inree the main priority reco list.mm endations (data accessibility) from previous meeting was taken up. YesYes (2017)(2015) VariousVarious material material topics topics COGNIZANT TECHNOLOGY SOLUTIONS (New) 0.44% 2017 Voted 17 5 Not assessed (Late entry) New New Company not in the priority list. N/R

DANONE 0.57% 2006 Voted 25 0 Conference Call 5 = The company made its new «Code of Conduct for Business Partners» publically available. Yes (2017) Various material topics NG A GEME NT COMGEST GROWTH LATIN AMER. 0.41% N/R Fund 0 0 Fund Fund Fund N/R N/R

DASSAULTCOMGEST GROWTH-GEM SYSTEMES PROM. 0.50%0.31% 2016N/R VotedFund 230 50 ConferenceFund Call Fund4 Fund +4 N/R First meeting and recommendations acknoweldged (reporting, employee loyaltee, data security). N/RN/R E COMGESTESSILOR GROWTH-GROWTHINTERNATIONAL INDIA 0.29%0.36% 2006N/R VotedFund 400 40 ConferenceFund Call Fund4 Fund = N/R Constructive, with explanation of processes. Emphasized accuracy and value of assessment. YesN/R (2014) Various material topics

FRESENIUSDISCOVERY MEDICAL CARE 0.30%1.72% 20092015 VotedVoted 20 5 16 ConferenceConference Call Call 34 = Interested in in our results findings. of assessment. Company was Elaborated aware of many on their of the Global points sustainability raised. initiative. YesN/R (2013) Various material topics EA N EMPRESAS COPEC 0.90% 2009 Voted 5 0 Not assessed (5 in 2015) N/R Company not in the priority list. Yes (2015) Various material topics GEBERITFEMSA -0.05%0.65% 20092014 VotedVoted 178 02 ConferenceNot assessed Call (4 in 52015) N/R +4 Company The previous not in recommendation the priority list. to review the code of conduct was taken-up since last brieﬁng. YesN/R (2017) Various material topics HENNESHANGZHOU & HIKVISIONMAURITZ (Out) -0.5%3.61% 20062016 NoVoted vote 240 20 No Exitmeeting 1 (lessExit 3 years) Exit-1 The N/R company acknowledged receipt of our assessment but no engagement meeting this year. YesN/R (2015) Various material topics HSBCIENOVA HOLDINGS 0.44%0.29% 20062016 VotedVoted 315 22 On-SiteNot assessed Meeting N/R3 N/R -1 Company HSBC is awarenot in theof itspriority challenges list. and has plans to improve. Reporting needs signiﬁcant changes. N/R No

INFOSYS 0.32% 2011 Voted 12 1 No meeting 1 +1 The company acknowledged receipt of our assessment but no engagement meeting this year. No S EU ROP INFINEON (New) 0.92% 2017 Voted 7 0 No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R INNER MONGOLIA YILI 2.63% 2015 No vote 0 0 No meeting 0 (less 3 years) = Company did not agree to have an engagement. N/R KROTONLEGRAND EDUCACIONAL (New) (New) 0.46%0.07% 20172017 VotedVoted 112 01 NotConference assessed (Late Call entry) New4 New +4 N/R Goo d ﬁrst call. Investment approach and methodology explained. Company results also addressed. N/RN/R KWEICHOWLINDE MOUTAI COMPANY 0.72%1.86% 20082015 NoVoted vote 0 6 20 ConferenceNot assessed Call N/R4 N/R -1 Company Ongoing notprogress in the andpriority past list. implementions of Cadmos recommendations such as YesN/R (2016) Various material topics

LENTA -0.64% 2016 Voted 8 4 Not assessed N/R N/R CompanyUNGP communication. not in the priority list. N/R ADM O L’OREALLG HOUSEHOLD & HEALTHCARE (New) 0.28%0.59% 20062017 EntryVoted after AGM 160 10 ConferenceNot assessed Call N/R4 N/R = Company Great interest not in in the the priority results list. of the assessments and the suggestions for improvement. YesN/R (2015) Various material topics C LOCALIZA RENT A CAR 1.24% 2013 Voted 21 1 Conference Call 4 = Signed Global Compact in 2017 and new head sustainability. Improvements to be expected. Yes (2015) Various material topics LUXOTTICA GROUP (Out) 0.01% 2016 Voted 1 Exit Exit Exit N/R N/R LUPIN (New) -0.18% 2017 Voted 1 1 Not assessed (Late entry) New New N/R N/R NESTLEMAIL.RU GROUP 0.21%0.70% 20062014 VotedVoted 288 12 On-SiteNot assessed Meeting (2 in 52015) N/R +1 CompanyPrevious reconot inmm theen prioritydations list. to make their reporting more outcomes/impacts relevant was taken up. YesN/R (2017) Various material topics MTNNOVARTIS GROUP (Out) -0.04%1.20% 20062009 Exit beforeVoted AGM 23 0 03 On-SiteConference Meeting Call 45 1= Acknowledged Previous years recommendations. recommendation Some to improve reporting policy ammendments documents already and internal in effect in 2017. YesYes (2017)(2014) VariousVarious material material topics topics NASPERS 1.90% 2009 Voted 34 12 Conference Call 4 +4 Interestedcompliance in mechanismsour findings. Clearlyhas been en taken-up. route to comprehensive, integrated reporting. No NOVONCSOFT NORDISK 0.98%2.05% 20092016 VotedVoted 186 10 ConferenceNo meeting Call 0 (less 53 years) = CompanyCode of Conduct did not agree was to revised have an and engagement. communication on non-achievements was improved. YesN/R (2017) Various material topics NETEASE 2.55% 2014 Voted 8 0 No meeting 0 = Company did not agree to have an engagement. N/R NOVOZYMES 1.11% 2015 Voted 15 0 Conference Call 4 +2 Novozymes is very responsive in taking up engagements. Looking into IIRC-based reporting. N/R ODONTOPREV (Out) -0.14% 2012 Exit before AGM 0 0 Exit Exit Exit N/R Yes (2016) Various material topics PINGPRUDENTIAL AN INSURANCE PLC 0.48%3.28% 20162012 VotedVoted 2810 02 ConferenceNo meeting Call 04 +4= CompanyOpen disc diduss ionotn anagreed ack to nohavewl edan gedengagement. recommendat ions (climate change reporting and ESG objectives). N/RNo POWERPUBLICIS GRID GROUPE INDIA -0.32%0.70% 20062014 VotedVoted 3013 40 ConferenceNo meeting Call 04 -1= CompanyOpen discussion did not agree and toacknowledged have an engagement. our recommendations. YesN/R (2016) Various material topics SAIC MOTOR 1.11% 2015 No vote 0 0 No meeting 0 (2 in 2015) = Company did not agree to have an engagement. N/R RECKITT BENCKISER GROUP -0.01% 2006 Voted 23 1 Conference Call 3 +2 Interested in assessment results. Discussed potential signing of UN Global Compact Yes (2015) Various material topics SAMSUNG LIFE INSURANCE 0.85% 2011 Voted 8 1 No meeting 0 = Companyand SDG didreporting. not agree to have an engagement. No SANLAM 1.81% 2012 Voted 22 4 Conference Call 3 (4 in 2016) -1 Constructive, open discussion with many answered questions. No ROCHE HOLDING (New) 0.03% 2017 No voting rights 0 0 On-Site Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability advisory) Yes (2017) + Social Impact Patnerships SOFTBANK (New) -0.16% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R were well received. SUZUKI MOTOR 1.17% 2016 Voted 13 4 Not assessed N/R N/R Company not in the priority list. N/R TAIWANROYAL SEMICONDUCTORDUTCH SHELL (Out) TSMC -0.22%2.05% 20062009 VotedVoted 216 00 ConferenceExit Call Exit4 Exit-1 Interested N/R in assessment details, strong past improvements. Various departments on call. YesYes (2016)(2016) VariousVarious material material topics topics ROYALTELEKOMUNIKASI PHILIPS INDONESIA(New) (New) -0.05%0.07% 20172017 EntryVoted after AGM 0 2 00 NotConference assessed (Late Call entry) New4 New +4 N/RBoth IR and sustainability representatives present. Complemented and welcomed feedback. N/RN/R VIPSHOPSAP HOLDINGS -0.15%0.53% 20092016 NoVoted vote 0 4 10 ConferenceNot assessed Call N/R4 N/R -1 CompanyInterested not in inassessment the priority results. list. Main point to improve is making diversity policy available. YesN/R (2016) Various material topics WEG 1.10% 2011 Voted 7 0 Conference Call 3 -1 Receptive to feedback in open discussion. No participation from IR, only sustainability. Yes (2015) Various material topics SCHNEIDER ELECTRIC 0.30% 2006 Voted 28 0 Conference Call 4 -1 Highly responsive (past recommendations integrated). We encourage IR to participate. Yes (2016) Various material topics WEIFU HIGH-TEC (Out) 0.04% 2015 No voting rights 0 0 Exit Exit Exit N/R N/R SGS 0.34% 2006 Voted 25 7 On-Site Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships SOCIETE GENERALE -0.08% 2006 Voted 19 0 Conference Call 4 = Showed interest in our new methodology and committed to step-by-step progress. Yes (2015) Various material topics STANDARD CHARTERED 0.25% 2007 Voted 28 0 Conference Call 4 = Stated their reporting will change due to new sustainability aspirations related to SDGs. Yes (2013) Various material topics SWISS RE (Out) -0.1% 2006 Voted 0 0 On-Site Meeting 5 out of 4 admos recommendations were taken-up (publication dates Yes (2017) Various material topics focus on materiality sustainability risk framework). TOTAL -0.01% 2006 Voted 13 1 Conference Call 4 -1 Elaborated on their new 2025 environmental targets. Headed towards more integrated reporting. Yes (2016) Various material topics UBS GROUP 0.16% 2006 Voted 24 1 On-Site Meeting 4 -1 Agrees basically with most of the presented areas of improvements Yes (2016) Various material topics (focus business integrity, materiality). UNILEVER 0.55% 2016 Voted 22 0 No meeting 1 (2 in 2016) -1 Acknowledged receipt of assessment summary, but did not propose suitable time to engage. N/R

54/120 ummar tae ummar tae

PORTFOLIO MANAGEMENT MANAGEMENT PERFORMANCE PERFORMANCE VOTEVOTE MEETINGMEETING ENGAGEMENTENGAGEMENT IMPACT IMPACT Portfolio as at 31.12.2017 Contribution 2017 In Cadmos since Description Resolutions Against Type Level Change Summary Y/N (year) Type Portfolio as at 31.12.2017 Contribution 2017 In Universe since Description Resolutions Against Type Level Change Summary Y/N (year) Type AIA GROUP 0.91% 2015 Voted 9 2 Not assessed (2 in 2015) N/R Company not in the priority list. N/R B3ABB - BRASIL BOLSA BALCAO 0.38%0.52% 20062016 VotedVoted 2340 23 ConferenceNot assessed Call N/R4 N/R = Company Acknowledged not in therecommendations priority list. and suggested meeting as soon as possible YesN/R (2015) Various material topics BAIDU 1.20% 2012 No vote 0 0 No meeting 0 (2 in 2016) -2 Companyto initiate did improvements. not agree to have an engagement. No BBANHEUSER-BUSH SEGURIDADE PARTICIPACOES INBEV (New) -0.22%0.21% 20172016 Entry afterVoted AGM 11 0 02 ConferenceConference Call Call 34 +4+1 Constructive First meeting second focused meeting on explaining with the intent methodology. to understand Acknowledged our methodology our andrecommendations. progress. N/RN/R BHARATASSA ABLOY HEAVY ELECTRICALS (Out) 0.00%0.27% 20152009 Exit beforeVoted AGM 100 20 ConferenceExit Call Exit4 Exit +2 N/RAssa Abloy was open to engaging on a regular basis. N/RN/R BHARTI AIRTEL 1.15% 2015 Voted 11 3 Not assessed N/R N/R Company not in the priority list. N/R AXA SA 0.23% 2006 Voted 31 0 Conference Call 4 = Open to critical feedback from assessment. Potential improvements were acknowledged. No (last in 2009) BHARTI INFRATEL (Out) 0.61% 2014 Voted 7 1 Exit Exit Exit N/R N/R BMW 0.10% 2007 Voted 5 0 Conference Call 3 -2 Discussion was open, but more of a Q&A than a dialogue. No commitments to improve. Yes (2016) Various material topics

BRF BRASIL FOOD -0.86% 2012 Voted 9 2 No meeting 0 = Company did not agree to have an engagement. No UN D

CHINABNP PARIBAS LIFE INSURANCE COMPANY 0.23%0.97% 20062009 VotedVoted 1813 01 ConferenceNo meeting Call 0 (4 in4 2016) -4 -1 Company BNP was did open not to agree recommendations, to have an engagement. including improving already excellent disclosures. Yes No(2016) Various material topics F CHINACAPGEMINI MOBILE (New)(Out) -0.04%0.17% 20172009 Entry afterVoted AGM 11 0 04 ConferenceExit Call Exit4 Exit +4 N/R Particularly interactive and insightful discussion. Acknowledged helpful recommendations. Yes N/R (2016) Various material topics CIA DE CONCESSOES RODOVIARIAS 0.27% 2009 Voted 26 1 Conference Call 4 = Acknowledge recommendations (Business Integrity transparency). Commited to GRI. Yes (2015) Various material topics COLOPLAST 0.18% 2014 Voted 23 3 Conference Call 4 -1 Interested in results and methodology. Agreed to revisit decision not to adopt GRI Standards. Yes (2016) Various material topics CIELO (Out) 0.01% 2011 Exit before AGM 0 0 Exit Exit Exit N/R N/R CKCOMPAGNIE HUTCHISON DEHOLDINGS SAINT GOBAIN 0.21%0.23% 20062015 VotedVoted 2114 08 ConferenceNo meeting Call 0 (less 34 years) -3 -1 Company Lively atmosphere did not agree and to expressed have an engagement. importance of discussion. Acknowledged recommendations. YesN/R (2016) Various material topics COCA-COLACOMPASS GROUP FEMSA 0.13%0.10% 20102015 VotedVoted 281 01 ConferenceNo meeting Call 0 (4 in3 2016) +1 -4 OpenNo interest and constructive for engagement conversation. meeting First this integrated year. report this year (GRI standards). N/RNo COCA-COLACREDIT SUISSE HBC GROUP 0.26%0.60% 20062009 NoVoted vote 340 140 On-SiteNot assessed Meeting (5 in 52015) N/R +2 Company One of the not th inree the main priority reco list.mm endations (data accessibility) from previous meeting was taken up. YesYes (2017)(2015) VariousVarious material material topics topics COGNIZANT TECHNOLOGY SOLUTIONS (New) 0.44% 2017 Voted 17 5 Not assessed (Late entry) New New Company not in the priority list. N/R

COMGESTDASSAULT GROWTH-GEM SYSTEMES PROM. 0.50%0.31% 2016N/R VotedFund 230 50 ConferenceFund Call Fund4 Fund +4 N/R First meeting and recommendations acknoweldged (reporting, employee loyaltee, data security). N/RN/R E COMGESTESSILOR GROWTH-GROWTHINTERNATIONAL INDIA 0.29%0.36% 2006N/R VotedFund 400 40 ConferenceFund Call Fund4 Fund = N/R Constructive, with explanation of processes. Emphasized accuracy and value of assessment. YesN/R (2014) Various material topics

DISCOVERYFRESENIUS MEDICAL CARE 0.30%1.72% 20092015 VotedVoted 20 5 16 ConferenceConference Call Call 34 = Interested in in our results findings. of assessment. Company was Elaborated aware of many on their of the Global points sustainability raised. initiative. YesN/R (2013) Various material topics EA N EMPRESAS COPEC 0.90% 2009 Voted 5 0 Not assessed (5 in 2015) N/R Company not in the priority list. Yes (2015) Various material topics FEMSAGEBERIT -0.05%0.65% 20092014 VotedVoted 178 02 ConferenceNot assessed Call (4 in 52015) N/R +4 Company The previous not in recommendation the priority list. to review the code of conduct was taken-up since last brieﬁng. YesN/R (2017) Various material topics HANGZHOUHENNES & HIKVISIONMAURITZ (Out) -0.5%3.61% 20062016 NoVoted vote 240 20 No Exitmeeting 1 (lessExit 3 years) Exit-1 The N/R company acknowledged receipt of our assessment but no engagement meeting this year. YesN/R (2015) Various material topics IENOVAHSBC HOLDINGS 0.44%0.29% 20062016 VotedVoted 315 22 On-SiteNot assessed Meeting N/R3 N/R -1 Company HSBC is awarenot in theof itspriority challenges list. and has plans to improve. Reporting needs signiﬁcant changes. N/R No

LENTA -0.64% 2016 Voted 8 4 Not assessed N/R N/R CompanyUNGP communication. not in the priority list. N/R ADM O LGL’OREAL HOUSEHOLD & HEALTHCARE (New) 0.28%0.59% 20062017 EntryVoted after AGM 160 10 ConferenceNot assessed Call N/R4 N/R = Company Great interest not in in the the priority results list. of the assessments and the suggestions for improvement. YesN/R (2015) Various material topics C LOCALIZA RENT A CAR 1.24% 2013 Voted 21 1 Conference Call 4 = Signed Global Compact in 2017 and new head sustainability. Improvements to be expected. Yes (2015) Various material topics LUXOTTICA GROUP (Out) 0.01% 2016 Voted 1 Exit Exit Exit N/R N/R LUPIN (New) -0.18% 2017 Voted 1 1 Not assessed (Late entry) New New N/R N/R MAIL.RUNESTLE GROUP 0.21%0.70% 20062014 VotedVoted 288 12 On-SiteNot assessed Meeting (2 in 52015) N/R +1 CompanyPrevious reconot inmm theen prioritydations list. to make their reporting more outcomes/impacts relevant was taken up. YesN/R (2017) Various material topics MTNNOVARTIS GROUP (Out) -0.04%1.20% 20062009 Exit beforeVoted AGM 23 0 03 On-SiteConference Meeting Call 45 1= Acknowledged Previous years recommendations. recommendation Some to improve reporting policy ammendments documents already and internal in effect in 2017. YesYes (2017)(2014) VariousVarious material material topics topics NASPERS 1.90% 2009 Voted 34 12 Conference Call 4 +4 Interestedcompliance in mechanismsour findings. Clearlyhas been en taken-up. route to comprehensive, integrated reporting. No NCSOFTNOVO NORDISK 0.98%2.05% 20092016 VotedVoted 186 10 ConferenceNo meeting Call 0 (less 35 years) = CompanyCode of Conduct did not agree was to revised have an and engagement. communication on non-achievements was improved. YesN/R (2017) Various material topics NETEASE 2.55% 2014 Voted 8 0 No meeting 0 = Company did not agree to have an engagement. N/R NOVOZYMES 1.11% 2015 Voted 15 0 Conference Call 4 +2 Novozymes is very responsive in taking up engagements. Looking into IIRC-based reporting. N/R ODONTOPREV (Out) -0.14% 2012 Exit before AGM 0 0 Exit Exit Exit N/R Yes (2016) Various material topics PINGPRUDENTIAL AN INSURANCE PLC 0.48%3.28% 20162012 VotedVoted 2810 02 ConferenceNo meeting Call 04 +4= CompanyOpen disc diduss ionotn agreeand ack to nohavewl edan gedengagement. recommendat ions (climate change reporting and ESG objectives). N/RNo POWERPUBLICIS GRID GROUPE INDIA -0.32%0.70% 20062014 VotedVoted 3013 40 ConferenceNo meeting Call 04 -1= CompanyOpen discussion did not agree and toacknowledged have an engagement. our recommendations. YesN/R (2016) Various material topics SAIC MOTOR 1.11% 2015 No vote 0 0 No meeting 0 (2 in 2015) = Company did not agree to have an engagement. N/R RECKITT BENCKISER GROUP -0.01% 2006 Voted 23 1 Conference Call 3 +2 Interested in assessment results. Discussed potential signing of UN Global Compact Yes (2015) Various material topics SAMSUNG LIFE INSURANCE 0.85% 2011 Voted 8 1 No meeting 0 = Companyand SDG didreporting. not agree to have an engagement. No SANLAM 1.81% 2012 Voted 22 4 Conference Call 3 (4 in 2016) -1 Constructive, open discussion with many answered questions. No ROCHE HOLDING (New) 0.03% 2017 No voting rights 0 0 On-Site Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability advisory) Yes (2017) + Social Impact Patnerships SOFTBANK (New) -0.16% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R were well received. SUZUKI MOTOR 1.17% 2016 Voted 13 4 Not assessed N/R N/R Company not in the priority list. N/R TAIWANROYAL SEMICONDUCTORDUTCH SHELL (Out) TSMC -0.22%2.05% 20062009 VotedVoted 216 0 ConferenceExit Call Exit4 Exit-1 Interested N/R in assessment details, strong past improvements. Various departments on call. YesYes (2016) VariousVarious material material topics topics TELEKOMUNIKASIROYAL PHILIPS INDONESIA(New) (New) -0.05%0.07% 20172017 EntryVoted after AGM 0 2 0 NotConference assessed (Late Call entry) New4 New +4 N/RBoth IR and sustainability representatives present. Complemented and welcomed feedback. N/RN/R VIPSHOPSAP HOLDINGS -0.15%0.53% 20092016 NoVoted vote 0 4 10 ConferenceNot assessed Call N/R4 N/R -1 CompanyInterested not in inassessment the priority results. list. Main point to improve is making diversity policy available. YesN/R (2016) Various material topics WEG 1.10% 2011 Voted 7 0 Conference Call 3 -1 Receptive to feedback in open discussion. No participation from IR, only sustainability. Yes (2015) Various material topics SCHNEIDER ELECTRIC 0.30% 2006 Voted 28 0 Conference Call 4 -1 Highly responsive (past recommendations integrated). We encourage IR to participate. Yes (2016) Various material topics WEIFU HIGH-TEC (Out) 0.04% 2015 No voting rights 0 0 Exit Exit Exit N/R N/R SGS 0.34% 2006 Voted 25 7 On-Site Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships SOCIETE GENERALE -0.08% 2006 Voted 19 0 Conference Call 4 = Showed interest in our new methodology and committed to step-by-step progress. Yes (2015) Various material topics STANDARD CHARTERED 0.25% 2007 Voted 28 0 Conference Call 4 = Stated their reporting will change due to new sustainability aspirations related to SDGs. Yes (2013) Various material topics SWISS RE (Out) -0.1% 2006 Voted 0 0 On-Site Meeting 5 out of 4 admos recommendations were taken-up (publication dates Yes (2017) Various material topics focus on materiality sustainability risk framework). TOTAL -0.01% 2006 Voted 13 1 Conference Call 4 -1 Elaborated on their new 2025 environmental targets. Headed towards more integrated reporting. Yes (2016) Various material topics UBS GROUP 0.16% 2006 Voted 24 1 On-Site Meeting 4 -1 Agrees basically with most of the presented areas of improvements Yes (2016) Various material topics (focus business integrity, materiality). UNILEVER 0.55% 2016 Voted 22 0 No meeting 1 (2 in 2016) -1 Acknowledged receipt of assessment summary, but did not propose suitable time to engage. N/R

55/120 mementation o te u Care strateg mementation o te u Care strateg

Wojciech Stanislawski and Juliette Alves of Comgest have managed the Cadmos Emerging Markets Engagement Fund since its inception in 2009. Comgest has managed the flagship emerging-markets fund Magellan since 1994. Mr Stanislawski joined the firm in 1999 and now heads up the investment team of eighteen analysts. He and Ms Alves are both senior portfolio managers and have nineteen years and twelve years of financial-market expertise respectively. The Cadmos Emerging Markets Engagement Fund is managed according to the principles of the Buy & Care® strategy.

® B u TEP OMPANY ANALYSIS re y S C a & C C Comgest begins by identifying businesses with earnings growth company analyses. To do so it adopted a risk-based approach. & a of more than 10 per cent, above-average profit margins and Evaluating the risks associated with the ESG factors serves to

Active Ownership Company analysis r return on equity, a sound balance sheet and low debt. It then strengthen the fundamental-analysis model. Two dedicated y - Voted by portfolio manager - Quality growth companies e u - Engagement on materiality - Sustained competitive advantage ® analyses the quality of the companies as franchises, as indicated analysts assign a level of ESG risk to each company. The level - Social impact strategies – SDG’s - Integrated valuation model B in the investment process shown below. Last, a five-year fore- is adjusted continuously as new information is obtained. casting model based on systematic use of discounted profits At present, the results of the ESG analysis are incorporated and dividends leads to the selection of reasonable valuations qualitatively, by the financial analyst, into the overall assessment in this universe. of each company’s risks.

In 2011 Comgest launched a programme aimed at integrating the environmental, social and governance criteria into its

Portfolio managament - Convictions (about 30-40 companies)

- Long term (turnover 25%) FU ND - Risk Management & selling discipline STEP PORTFOLIO MANAGEMENT

Comgest follows a pure stock-picking approach, without And that concentration is combined with an extremely low reference to the composition of the benchmark index. It may turnover rate, which increases the quality of the dialogue. EMEN T Buy re ® favour or avoid certain industries or regions. The sectoral and & Ca geographic allocations are reviewed only after the stocks are There are two classes: Class A for private investors and Class identified. Constructing the portfolio involves the selection B for institutional investors. In both classes a significant of thirty to forty companies with strong potential for outper- proportion of the management fees is used to finance the formance in the medium and long term. This concentration activities of the engagement team, which initiates and is desirable in the case of an engagement fund, since it means conducts the shareholder engagement. KETS EN GAG INVESTMENT PROCESS STEP AND that the cost of the shareholder dialogue can be contained.

Market screening Universe of G MA R Screen for investment cnadidates demonstrating solid financial, about 300 TEP CTIVE OWNERSHIP management and governance performance companies S A

Active ownership is a key component of the Cadmos Funds’ can strengthen the sense of purpose, better address the needs Conpany amalysis Buy & Care® investment strategy. The strategy is described of the bottom of the pyramid and help the company achieve Regular management meetings, in-depth analysis, in detail on pages 8ff. As a responsible shareholder, we the SDG’s. As a long-term shareholder, we want to make sure EMER GIN investment universe definition encourage most of the companies in our fund to give greater that the businesses in which we invest maintain and strengthen About 150 companies consideration to the tangible financial risks of inaction, negli- their competitive advantage; hence our deep belief in the value gence or even unlawful behaviour. Our ex-ante engagement on of such partnerships. Valuation

the key material topics is designed to reduce the reputational ADMO S Upside/downside potential

risk of controversy or to price it more accurately. Some of the Emerging Markets companies in the Cadmos C Peace Investment Fund, namely those with a large economic 30-40 The Cadmos Emerging Markets Engagement Fund benefits footprint in fragile countries, also benefit from the innovative, companies Portfolio construction from a new tailor-made form of shareholder engagement. productive engagement of the peace-building experts at the Risk management Launched in partnership with KiKLab in 2016, it is designed to PeaceNexus Foundation.15 connect businesses with strategic social impact opportunities. We now systematically motivate companies to embed positive The information obtained from this year’s revised engagement social impact in their strategies. KiKLab develops innovative, process continues to enrich the investment process and sharpen productive solutions for companies seeking to make an impact our insight into the sustainability of each company’s business and ready to learn from our expertise. We often recommend model. joining forces with social entrepreneurs. Such partnerships

56/ 120 15 . For further information about the Cadmos Peace Investment Fund ask for its impact report. mementation o te u Care strateg mementation o te u Care strateg

In 2011 Comgest launched a programme aimed at integrating the environmental, social and governance criteria into its

Portfolio managament - Convictions (about 30-40 companies)

- Long term (turnover 25%) FU ND - Risk Management & selling discipline STEP PORTFOLIO MANAGEMENT

Comgest follows a pure stock-picking approach, without And that concentration is combined with an extremely low reference to the composition of the benchmark index. It may turnover rate, which increases the quality of the dialogue. EMEN T Buy re ® favour or avoid certain industries or regions. The sectoral and & Ca geographic allocations are reviewed only after the stocks are There are two two classes: classes :Class Class A A for for private private investors investors and and Class Clas Bs identified. Constructing the portfolio involves the selection Bfor f orinstitutional institutio investors.nal invest Inors. both In classesboth classes a significant a signi proporficant- of thirty to forty companies with strong potential for outper- proportiontion of the management of the management fees is used fees to financeis used tothe finance activities the of formance in the medium and long term. This concentration actheti engagementvities of the team, engag whicheme initiatesnt team, and whic conductsh init iathetes share and- is desirable in the case of an engagement fund, since it means conductsholder engagement. the shareholder engagement. KETS EN GAG INVESTMENT PROCESS STEP AND that the cost of the shareholder dialogue can be contained.

Market screening Universe of G MA R Screen for investment cnadidates demonstrating solid financial, about 300 TEP CTIVE OWNERSHIP management and governance performance companies S A

the key material topics is designed to reduce the reputational ADMO S Upside/downside potential

risk of controversy or to price it more accurately. Some ofof the the Emerging Emerging Markets Marke companies,ts companies namely in the those Cadmos with C Peacea large Investment economic footprintFund, namely in fragile those countries,with a large also economic benefit 30-40 The Cadmos Emerging Markets Engagement Fund benefits footprintfrom the innovativein fragile countries, engagement also of benefit the peacebuilding from the innovative, experts companies 15 Portfolio construction from a new tailor-made form of shareholder engagement. productiveat the PeaceNexus engagement Foundation. of the peace-building experts at the Risk management Launched in partnership with KiKLab in 2016, it is designed to PeaceNexus Foundation.15 connect businesses with strategic social impact opportunities. The information obtained from this year’s revised engage- We now systematically motivate companies to embed positive Thement informa processti oncontinues obtained to from enrich th isthe year’s investment revised engagementprocess and social impact in their strategies. KiKLab develops innovative, processsharpen co ournt ininsightues to intoenrich the the sustainability investment pr ofo cesseach and company’s sharpen productive solutions for companies seeking to make an impact ourbusiness insight model. into the sustainability of each company’s business and ready to learn from our expertise. We often recommend model. joining forces with social entrepreneurs. Such partnerships

15 . For further information about the Cadmos Peace Investment Fund ask for its impact report. 57/120 Finania erormane ortoio management reie

PORTFOLIO MANAGEMENT PERFORMANCE Portfolio as at 31.12.2017 Sector Country Contribution 2017 In Cadmos since AIA GROUP Insurance Hong-Kong 0.91% 2015 In 2017, classes A and B of the Fund returned +38.4% and technology sector relative to the index. Over the last three B3 - BRASIL BOLSA BALCAO Financial Services Brazil 0.52% 2016 +39.6% respectively, outperforming the benchmark index years, however, the portfolio’s weighting of that sector has been BAIDU Technology China 1.20% 2012 (the MSCI Emerging Markets Index – Net Return), which broadly stable. We have kept a cool head, taking our profits BB SEGURIDADE PARTICIPACOES Insurance Brazil 0.21% 2016 rose only by +37.3%. if valuations were becoming stretched, even when the growth BHARAT HEAVY ELECTRICALS (Out) ndustrial Goods Services ndia 0.27% 2009 outlook was still bright. Overall, this has worked in our favour. BHARTI AIRTEL Telecommunications India 1.15% 2015 The Fund performed well in 2017 despite the uncertainties BHARTI INFRATEL (Out) Telecommunications ndia 0.61% 2014 that emerged in January following Donald Trump’s election. In line with that disciplined approach, the portfolio is now BRF BRASIL FOOD Food & Beverage Brazil -0.86% 2012 It delivered one of its strongest gains of recent years. This underweight in technology compared with the index, whose CHINA LIFE INSURANCE COMPANY Insurance China 0.97% 2009 CHINA MOBILE (Out) Telecommunications hina 0.17% 2009 trend was all the more remarkable given that while the index performance is currently dominated and dictated by Tencent CIA DE CONCESSOES RODOVIARIAS Industrial Goods & Services Brazil 0.27% 2009 owed some 40 per cent of its rise to a single sector (technology) and Alibaba. In our view, the concentration and the high level CIELO (Out) inancial Services razil 0.01% 2011 and particularly some shares that are not in the portfolio, our of expectations constitute obvious risks for those investing in CK HUTCHISON HOLDINGS Industrial Goods & Services Hong-Kong 0.23% 2015 results sprang direct from our stock picking. Some of our key the indices in 2018. COCA-COLA FEMSA Food & Beverage Mexico 0.10% 2015 positions, notably in China, South Africa, Korea and Taiwan, COCA-COLA HBC Food & Beverage United Kingdom 0.60% 2009 far exceeded our expectations. The proceeds of the profits made on the winning tech stocks COGNIZANT TECHNOLOGY SOLUTIONS (New) Technology USA 0.44% 2017 were reinvested in companies in a variety of sectors, but mainly COMGEST GROWTH LATIN AMER. Fund Other 0.41% N/R At 31 December 2017, the Fund comprised forty-one companies in finance. Top of our list were life insurers, who are benefiting COMGEST GROWTH-GEM PROM. Fund Other 0.31% N/R as in the previous year. Six companies nevertheless entered in greatly from the booming demand of a large and growing middle COMGEST GROWTH-GROWTH INDIA Fund Other 0.36% N/R 2017, while six were sold . One new entrant is Cognizant, an class in Asia, Europe, the Middle East and Africa, and Latin DISCOVERY Insurance South Africa 1.72% 2015 IT outsourcing company registered America. They offer both attractive EMPRESAS COPEC Oil & Gas Chile 0.90% 2009 FU ND FEMSA Food & Beverage Mexico 0.65% 2014 in the United States but with 85 per valuations, thanks to the low interest HANGZHOU HIKVISION Industrial Goods & Services China 3.61% 2016 cent of its workforce and 90 per cent rates, and rapid operational growth IENOVA Utilities Mexico 0.29% 2016 of its assets in India. We expect to see n asses of their business. INFOSYS Technology India 0.32% 2011 a steady acceleration in the growth INNER MONGOLIA YILI Food & Beverage China 2.63% 2015 of the company’s earnings per share and o te Fund The stock markets make up a EMEN T KROTON EDUCACIONAL (New) Retail Brazil 0.07% 2017 over the coming years, fuelled by a smaller share of our exposure to the KWEICHOW MOUTAI COMPANY Food & Beverage China 1.86% 2015 solid competitive position in health- returned and financial sector. In this area too, the LENTA Retail Russia -0.64% 2016 care and other sectors. resetie competition is limited; and growth, LG HOUSEHOLD & HEALTHCARE (New) Personal & Household Goods South Korea 0.59% 2017 while hard to predict, benefits from LOCALIZA RENT A CAR Retail Brazil 1.24% 2013 We also bought Kroton Educacional, the increasing sophistication of the LUPIN (New) Health Care India -0.18% 2017 outerorming te the leader in private education underlying economies and financial MAIL.RU GROUP Technology Russia 0.70% 2014 KETS EN GAG MTN GROUP Telecommunications South Africa 1.20% 2009 in Brazil and the largest publicly enmark inde systems. In many regions, notably NASPERS Media South Africa 1.90% 2009 traded educational company. The te MC Emerging EMEA and Latam, the stock markets NCSOFT Personal & Household Goods South Korea 2.05% 2016 volatility of the share price, triggered present attractive valuations after NETEASE Technology China 2.55% 2014 by rejection of Kroton’s proposed Markets nde et several difficult years. Companies G MA R ODONTOPREV (Out) ealth are razil -0.14% 2012 takeover of competitor Estacio, such as Brazil’s B3 have the advantage PING AN INSURANCE Insurance China 3.28% 2012 provided an entry point. We closed eturn i rose of high barriers to entry and strong POWER GRID INDIA Utilities India 0.70% 2014 our positions in Cielo, a Brazilian free cash flows; features typical of SAIC MOTOR Automobiles & Parts China 1.11% 2015 payment-systems company, in the on the stocks that we seek. SAMSUNG LIFE INSURANCE Insurance South Korea 0.85% 2011

light of the share’s splendid run EMER GIN SANLAM Insurance South Africa 1.81% 2012 and the weakening of its growth The Fund’s current exposure to SOFTBANK (New) Telecommunications Japan -0.16% 2017 prospects, due to regulatory changes. financial stocks is the highest for SUZUKI MOTOR Automobiles & Parts Japan 1.17% 2016 TAIWAN SEMICONDUCTOR TSMC Technology Taiwan 2.05% 2009 We also exited Bharat Heavy Electrical, following a prolonged several years. If that seems strange, the choice should be seen

TELEKOMUNIKASI INDONESIA (New) Telecommunications Indonesia 0.07% 2017 period of disappointing growth and norms revisions that could in the light of the two billion consumers who make up the ADMO S

VIPSHOP HOLDINGS Retail China -0.15% 2016 bode ill for the future. emerging-market countries’ middle class. These people enjoy C WEG Industrial Goods & Services Brazil 1.10% 2011 steadily rising incomes but lack the insurance products needed WEIFU HIGH-TEC (Out) Automobiles Parts hina 0.04% 2015 To analyse the portfolio’s current positioning, we must first go to protect their new standard of living. As always, we looked back a few years. In about 2011, we began to look more closely for companies with conservative balance sheets (acceptable at the internet sector as a means of capturing the growth in debt levels and the minimum exotic investments) and good spending by the middle class. We invested in a series of solid visibility as regards their earnings growth, this last fuelled in fast-growing franchises, leading us to be overweight in the large part by continuous growth in contract sales.

58/120 Finania erormane ortoio management reie

TELEKOMUNIKASI INDONESIA (New) Telecommunications Indonesia 0.07% 2017 period of disappointing growth and norms revisions that could in the light of the two billion consumers who make up the ADMO S

59/120 erormane sine inetion PERFORMANCE OF THE EMERGING MARKETS

Global economic growth is staging the strongest and most generalised comeback seen in the last ten years, liquidity conditions are favourable, companies’ 280.00 earnings growth is satisfactory; and equities seem cheap relative to bonds. Along with this dynamic, some emerging markets may benefit from looser monetary policies than do the developed countries (rates continue to fall in 230.00 Russia and Brazil and could decline in Mexico and South Africa) together with steadily accelerating growth of earnings per share and valuations that are attractive compared with those of the developed markets.

180.00 Bear in mind, however, that those arguments represent the market consensus, and it is always wise to consider the opposing view as well.

130.00 To summarise the “glass half full” scenario: the developed markets’ economic cycle is nearing maturity, as can be seen from the flattening of the yield curve; several central banks are beginning to unwind their ultra-loose monetary 80.00 policies, so that liquidity conditions will soon become less favourable; and the prices of most financial assets are at historical highs. In the emerging markets Mar. 09 Oct. 09 Mar. 10 Oct. 10 Mar. 11 Oct. 11 Mar. 12 Oct. 12 Mar. 13 Oct. 13 Mar. 14 Oct. 14 Mar. 15 Oct. 15 Mar. 16 Oct. 16 Mar. 17 Oct. 17 excluding Asia, domestic growth, while perking up, remains timid; and the Cadmos - Emerging Markets Engagement Fund (B) MSCIlégende EM manquante - Net Returns $ many elections taking place in 2018 in the emerging –market countries could FU ND derail the progress on reforms. EMEN T

oa eonomi grot is KETS EN GAG staging te strongest and most generaised omeak seen in G MA R te ast ten ears iuidit From aun in to eemer onditions are aourae ass o te Fund returned omanies earnings grot is EMER GIN outerorming its inde satisator and euities seem

i rose ea reatie to onds ADMO S C

60/120 erormane sine inetion PERFORMANCE OF THE EMERGING MARKETS

180.00 Bear in mind, however, that those arguments represent the market consensus, and it is always wise to consider the opposing view as well.

130.00 To summarise the “glass half full” scenario: the developed markets’ economic cycle is nearing maturity, as can be seen from the flattening of the yield curve; several central banks are beginning to unwind their ultra-loose monetary 80.00 policies, so that liquidity conditions will soon become less favourable; and the prices of most financial assets are at historical highs. In the emerging markets Mar. 09 Oct. 09 Mar. 10 Oct. 10 Mar. 11 Oct. 11 Mar. 12 Oct. 12 Mar. 13 Oct. 13 Mar. 14 Oct. 14 Mar. 15 Oct. 15 Mar. 16 Oct. 16 Mar. 17 Oct. 17 excluding Asia, domestic growth, while perking up, remains timid; and the Cadmos - Emerging Markets Engagement Fund (B) légende manquante many elections taking place in 2018 in the emerging –market countries could FU ND derail the progress on reforms. EMEN T

In othea emerging eonomi markets grot is KETS EN GAG excludingstaging te Asia, strongest domestic and most growth,generaise whiled omea perkingk seen up, in G MA R remainste ast timid;ten ears and theiu manyidit From aun in to eemer electionsonditions taking are a placeoura ine ass o te Fund returned 2018om anin ithees ear emergingnings gr –marketot is EMER GIN outerorming its inde countriessatisator could and derail euit iesthe see m

i rose progressea re onati ereforms. to onds ADMO S C

61/120 oting VOTING REVIEW

PORTFOLIO MANAGEMENT Portfolio as at 31.12.2017 Description Resolutions Against AIA GROUP Voted 9 2 Voting review B3 - BRASIL BOLSA BALCAO Voted 40 3 BAIDU No vote 0 0 At the end of December 2017, the portfolio of the Cadmos Emerging Markets BB SEGURIDADE PARTICIPACOES Voted 11 2 Engagement Fund comprised forty-one companies. We were able to vote on BHARAT HEAVY ELECTRICALS (Out) Exit before AGM 0 0 all the companies that were in the Fund at the time of their annual general BHARTI AIRTEL Voted 11 3 meetings except Coca-Cola HBC. For this last, Comgest would have been BHARTI INFRATEL (Out) Voted 7 1 required to block the shares, which, at the time of the AGM, the portfolio BRF BRASIL FOOD Voted 9 2 manager deemed was not in the Fund’s best interest. This meant that we actually CHINA LIFE INSURANCE COMPANY Voted 13 1 CHINA MOBILE (Out) Voted 11 4 exercised our voting rights on thirty-three companies, since three entered the 16 17 CIA DE CONCESSOES RODOVIARIAS Voted 26 1 portfolio after their AGMs ; three exited the portfolio before their AGMs ; 18 CIELO (Out) Exit before AGM 0 0 and our shares in seven others do not carry voting rights. CK HUTCHISON HOLDINGS Voted 14 8 COCA-COLA FEMSA Voted 1 1 The information obtained from this year’s AGM season continues to sharpen COCA-COLA HBC No vote 0 0 our insight into the governance of each company. COGNIZANT TECHNOLOGY SOLUTIONS (New) Voted 17 5 COMGEST GROWTH LATIN AMER. Fund 0 0 For a complete overview of all our voting activities for any portfolio company, COMGEST GROWTH-GEM PROM. Fund 0 0 please contact us at [email protected]. We would be happy to send you our COMGEST GROWTH-GROWTH INDIA Fund 0 0 integrated performance report for the company concerned, which provides DISCOVERY Voted 20 6 full details on how Cadmos voted at the most recent annual general meeting. EMPRESAS COPEC Voted 5 0 FU ND FEMSA Voted 8 2 HANGZHOU HIKVISION No vote 0 0 IENOVA Voted 5 2 INFOSYS Voted 12 1 INNER MONGOLIA YILI No vote 0 0 EMEN T KROTON EDUCACIONAL (New) Voted 2 1 KWEICHOW MOUTAI COMPANY No vote 0 0 OF THE 409 VOTES CAST, WE LENTA Voted 8 4 LG HOUSEHOLD & HEALTHCARE (New) Entry after AGM 0 0 VOTED AGAINST THE BOARDS OF LOCALIZA RENT A CAR Voted 21 1 LUPIN (New) Voted 1 1 DIRECTORS’ RECOMMENDATIONS MAIL.RU GROUP Voted 8 2 SEVENTY NINE TIMES THAT IS IN KETS EN GAG MTN GROUP Voted 23 3 - , , NASPERS Voted 34 12 PER CENT OF CASES HIS IS NCSOFT Voted 6 0 19.3 . T NETEASE Voted 8 0 SLIGHTLY ABOVE THE AVERAGE G MA R ODONTOPREV (Out) Exit before AGM 0 0 PING AN INSURANCE Voted 10 2 RATE THAT WE HAVE OBSERVED POWER GRID INDIA Voted 13 0 SAIC MOTOR No vote 0 0 OVER THE LAST FOUR YEARS, AGAIN SAMSUNG LIFE INSURANCE Voted 8 1 EMER GIN SANLAM Voted 22 4 REFLECTING THE SLOW PACE OF SOFTBANK (New) Entry after AGM 0 0 SUZUKI MOTOR Voted 13 4 GOVERNANCE IMPROVEMENTS IN TAIWAN SEMICONDUCTOR TSMC Voted 6 0

TELEKOMUNIKASI INDONESIA (New) Entry after AGM 0 0 EMERGING MARKETS. ADMO S

VIPSHOP HOLDINGS No vote 0 0 C WEG Voted 7 0 WEIFU HIGH-TEC (Out) No voting rights 0 0

62/ 16 . LG Household & Healthcare, Softbank, Telekomunikasi Indonesia. — 17 . Bharat Heavy Electricals, Cielo and Odontoprev. — 18 . Baidu, 120 Hangzhou Hikvision, Inner Mongolia Yili, Kweichow Moutai Company, SAIC Motor, Vipshop Holding and WEIFU High-Tec. oting VOTING REVIEW

PORTFOLIO MANAGEMENT Portfolio as at 31.12.2017 Description Resolutions Against AIA GROUP Voted 9 2 VotingAt the end review of December 2017, the portfolio of the Cadmos Emerging Markets B3 - BRASIL BOLSA BALCAO Voted 40 3 Engagement Fund comprised forty-one companies. We were able to vote on BAIDU No vote 0 0 Atall the endcompanies of December that were 2017, in the the portfolio Fund at of the the time Cadmos of their Emerging annual Markets general BB SEGURIDADE PARTICIPACOES Voted 11 2 Engagementmeetings except Fund Coca-Cola comprised HBC. forty-one For thiscompanies. last, Comgest We were would able tohave vote been on BHARAT HEAVY ELECTRICALS (Out) Exit before AGM 0 0 alrequiredl the compan to blockies tthehat shares,were in which, the Fund at the at timethe ti ofme the of AGM,their annu the alportfolio general BHARTI AIRTEL Voted 11 3 meetingsmanager deemed except wasCoca-Cola not in the HBC. Fund’s For best this interest. last, Comgest This meant would that we have actually been BHARTI INFRATEL (Out) Voted 7 1 requiredexercised toour block voting the rights shares, on which,thirty-three at the companies, time of the since AGM, three the entered portfolio the BRF BRASIL FOOD Voted 9 2 managportfolioer d aftereemed their was AGMs not in th16;e three Fund exited’s best ithenterest. portfolio This mbeforeeant th theirat we AGMs actual17ly; CHINA LIFE INSURANCE COMPANY Voted 13 1 18 CHINA MOBILE (Out) Voted 11 4 exercisedand our shares our voting in seven rights others on thirty-three do not carry companies, voting rights. since three entered the 16 17 CIA DE CONCESSOES RODOVIARIAS Voted 26 1 portfolio after their AGMs ; three exited the portfolio before their AGMs ; 18 CIELO (Out) Exit before AGM 0 0 andThe ourinformation shares in obtained seven others from do this not year’s carry AGM voting season rights. continues to sharpen CK HUTCHISON HOLDINGS Voted 14 8 our insight into the governance of each company. COCA-COLA FEMSA Voted 1 1 The information obtained from this year’s AGM season continues to sharpen COCA-COLA HBC No vote 0 0 ourFor ainsight complete into overview the governance of all our of voting each company. activities for any portfolio company, COGNIZANT TECHNOLOGY SOLUTIONS (New) Voted 17 5 please contact us at [email protected]. We would be happy to send you our COMGEST GROWTH LATIN AMER. Fund 0 0 Forintegrated a compl performanceete overview reportof all our for vo theting company activities concerned, for any port whichfolio co providesmpany, COMGEST GROWTH-GEM PROM. Fund 0 0 plfullease details con tacton how us at Cadmos cadmos@ votedppt.ch at the. We most would recent be annualhappy togeneral send meeting.you our COMGEST GROWTH-GROWTH INDIA Fund 0 0 integrated performance report for the company concerned, which provides DISCOVERY Voted 20 6 full details on how Cadmos voted at the most recent annual general meeting. EMPRESAS COPEC Voted 5 0 FU ND FEMSA Voted 8 2 HANGZHOU HIKVISION No vote 0 0 IENOVA Voted 5 2 INFOSYS Voted 12 1 INNER MONGOLIA YILI No vote 0 0 EMEN T KROTON EDUCACIONAL (New) Voted 2 1 KWEICHOW MOUTAI COMPANY No vote 0 0 OF THE 409 VOTES CAST, WE LENTA Voted 8 4 LG HOUSEHOLD & HEALTHCARE (New) Entry after AGM 0 0 VOTED AGAINST THE BOARDS OF LOCALIZA RENT A CAR Voted 21 1 LUPIN (New) Voted 1 1 DIRECTORS’ RECOMMENDATIONS MAIL.RU GROUP Voted 8 2 SEVENTY NINE TIMES THAT IS IN KETS EN GAG MTN GROUP Voted 23 3 - , , NASPERS Voted 34 12 PER CENT OF CASES HIS IS NCSOFT Voted 6 0 19.3 . T NETEASE Voted 8 0 SLIGHTLY ABOVE THE AVERAGE G MA R ODONTOPREV (Out) Exit before AGM 0 0 PING AN INSURANCE Voted 10 2 RATE THAT WE HAVE OBSERVED POWER GRID INDIA Voted 13 0 SAIC MOTOR No vote 0 0 OVER THE LAST FOUR YEARS, AGAIN SAMSUNG LIFE INSURANCE Voted 8 1 EMER GIN SANLAM Voted 22 4 REFLECTING THE SLOW PACE OF SOFTBANK (New) Entry after AGM 0 0 SUZUKI MOTOR Voted 13 4 GOVERNANCE IMPROVEMENTS IN TAIWAN SEMICONDUCTOR TSMC Voted 6 0

TELEKOMUNIKASI INDONESIA (New) Entry after AGM 0 0 EMERGING MARKETS. ADMO S

VIPSHOP HOLDINGS No vote 0 0 C WEG Voted 7 0 WEIFU HIGH-TEC (Out) No voting rights 0 0

16 . LG Household & Healthcare, Softbank, Telekomunikasi Indonesia. — 17 . Bharat Heavy Electricals, Cielo and Odontoprev. — 18 . Baidu, Hangzhou Hikvision, Inner Mongolia Yili, Kweichow Moutai Company, SAIC Motor, Vipshop Holding and WEIFU High-Tec. 63/120 oting imat oting imat

DISTRIBUTION OF VOTES DISTRIBUTION OF VOTES During the period under review we expressed an European companies today. While some companies Shareholder’s rights opinion on 409 items on AGM agendas, representing - fewer each year - still fail to observe the most basic 13.2% an average of slightly more than twelve items per governance principles, such as disclosure of the names company. Contrary to the developed countries, the of the proposed directors prior to the general meeting, emerging-market countries have seen no significant rise others are pressing on with their efforts, described in the number of resolutions submitted to the vote in in previous reports, to catch up and provide greater recent years (see chart “Evolution of Cadmos votes in transparency. We also note progress at the country Emerging Markets” in opposing page). Nevertheless, level. For example, most Brazilian companies still Capital structure Board of directors corruption or sanitary scandals at businesses from elect their board of directors as a group. In our fund, 29.1% 43.8% Brazil to China are increasing the pressure on compa- this was the case for three out of seven companies19. nies everywhere to improve their governance practices. Cadmos usually opposes such votes and demands that each member of the board be elected individually. In More than 72 per cent of the resolutions submitted 2017, Brazil implemented the long-awaited Instruction to the vote still concern the structure of the board 561, which will solve this problem as well as improve Remuneration of directors and the capital structure. In both these overall corporate governance. 13.9% areas, the standards continue to lag behind those of

MAIN OPPOSITIONS MAIN OPPOSITIONS

Of the 409 votes cast, we voted against the boards in Europe. Regarding the structure of the board of FU ND 200 40 of directors’ recommendations seventy-nine times, directors, independence remains a key issue. Most of that is, in 19.3 per cent of cases. This is slightly above our dissenting votes concerned the lack of independent 150 the average rate that we have observed over the last board members, on boards and committees. We view four years, again reflecting the slow pace of governance tackling this problem as the absolute priority for the EMEN T 17 improvements in emerging markets. emerging-market companies. Regarding remuneration, 100 the rate of opposition increased from 29 per cent to 35 139 The opposite chart shows that the board’s structure per cent in 2017. In South Africa we had to oppose all 20 102 2 and independence is still one of the two greatest three pay-related resolutions submitted at Discovery. 50 points of contention (forty votes or 22.3 per cent We voted against the proposed new board compensation 52 37 against management’s recommendations). The other which was significantly increased and hence exceeded KETS EN GAG 0 is remuneration (twenty votes or 35.1 per cent against fees paid to Chairs of other companies within the sector. 1. Board of 3. Capital 4. Shareholder’s 2. Remuneration management’s recommendations). The proportion of We also voted against a sign-on bonus for the new directors structure rights opposing votes in those two critical categories indicates CEO which was granted without any explanation to For Against that, on average, we cast twice to three times as many justify the award. G MA R votes against management in the emerging markets as

VOTING TRENDS VOTING TRENDS EMER GIN 25 The opposite chart shows that the evolution of corpo- of the Cadmos portfolio, make it difficult to draw rate governance in the emerging markets is volatile and any other conclusions. From a portfolio management

20 decoupled from that in the developed markets. Cadmos perspective, it is important to integrate that specific

has exercised its voting rights in the emerging markets identified risk and try to expose the portfolio to lesser ADMO S

since 2009 and has not observed anything like the fluctuations by selecting on average companies with C 15 paradigm shift in corporate governance seen in Europe. better corporate governance. A direct engagement with The rate of votes against management has remained high these companies also allows to better understand their for the last eight years. But widely differing culture and functioning and look beyond the obvious lack of public 10 regulatory requirements, together with the evolution transparent information.

5 2013 2014 2015 2016 2017

Items per company % Opposing votes per 100 item

64/ 120 19 . B3 Brasil Bolsa Balcao, BB Seguridade Participacoes and Kroton Educacional. oting imat oting imat

DISTRIBUTION OF VOTES DISTRIBUTION OF VOTES DuDuringring the periodperiod underunder review we exexpressedpressed an European companies today. While some companies Shareholder’s rights opinion onon 409409 i temitemss on on A GMAGM agenda agendas,s, re prerepresentsenting- - fewer eacheach year - stillstill failfail toto observeobserve thethe mostmost basic 13.2% aning avaner averageage of ofslightly slightly more more than than twelve twelve itemsitems peperr gogovernancevernance principles,principles, such as disclosuredisclosure of the nanamesmes comcompany.pany. ContraryContrary toto the developeddeveloped countries,countries, the of the propoproposedsed didirectorsrectors priprioror toto thethe gegeneralneral meetingmeeting,, emeremerging-marketging-market coun countriestries ha haveve see seenn no nosig nifisignificantcant rise others areare pressing pressing on on with with their their efforts, efforts, described described in inrise the in numberthe number of resolutions of resolutions submitted submitted to theto the vote vote in inprevious previous reports, reports, to catch to catch up and up provide and provide greater greater trans- recentin recent years years (see (see chart chart “Evolution “Voting trends” of Cadmos in opposing votes in transparency.parency. We also We note also progressnote progress at the at country the country level. Emergingpage). Nevertheless, Markets” incorruption opposing orpage). sanitary Nevertheless, scandals leveFor example,l. For ex ampmostle, Brazilian most Br companiesazilian com stillpa electnies their still Capital structure Board of directors corruptionat businesses or from sanitary Brazil scandals to China at are businesses increasing fro them electboard their of directors board of as directors a group. Inas aour group. fund, In this our was fund, the 29.1% 43.8% Brazilpressure to Chinaon companies are increasing everywhere the pressure to improve on compa- their thiscase forwas three the caseout of for seven three companies out of seven19. Cadmos companies usually19. ngovernanceies everywh practices.ere to imp rove their governance practices. Cadmosopposes suchusually votes opposes and demands such votes that and each demands member that of eachthe board member be elected of the individually. board be elected In 2017, individually. Brazil imple In- More than 72 per centcent ofof thethe resolutionsresolutions submittedsubmitted 20mented17, Brazil the long-awaitedimplemented tInstructionhe long-awa 561,ited Inswhichtruc tionwill to the vote still concernconcern thethe structurestructure of the board 561,solve which this problem will solve as thiswell problem as improve as well overall as improve corpo- Remuneration of directorsdirectors andand thethe capitalcapital structure.structure. In both these overallrate governance. corporate governance. 13.9% areas, the standards continuecontinue toto laglag behind those of

MAIN OPPOSITIONS MAIN OPPOSITIONS

Of the 409 votes cast, we voted against the boards in Europe. Regarding the structure of the board of FU ND 200 40 of directors’ recommendations seventy-nine times, directors, independence remains a key issue. Most of that is, in 19.3 per cent of cases. This is slightly above our dissenting votes concerned the lack of independent 150 the average rate that we have observed over the last board members, on boards and committees. We view four years, again reflecting the slow pace of governance tackling this problem as the absolute priority for the EMEN T 17 improvements in emerging markets. emerging-market companies. Regarding remuneration, 100 the rate of opposition increased from 29 per cent to 35 The opposite chart shows that the board’s structure per cent in 2017. In South Africa we had to oppose all 20 2 and independence is still one of the two greatest three pay-related resolutions submitted at Discovery. 50 points of contention (forty votes or 22.3 per cent We voted against the proposed new board compensation against management’s recommendations). The other which was significantly increased and hence exceeded KETS EN GAG 0 is remuneration (twenty votes or 35.1 per cent against fees paid to Chairs of other companies within the sector. 1. Board of 3. Capital 4. Shareholder’s 2. Remuneration management’s recommendations). The proportion of We also voted against a sign-on bonus for the new directors structure rights opposing votes in those two critical categories indicates CEO which was granted without any explanation to For Against that, on average, we cast twice to three times as many justify the award. G MA R votes against management in the emerging markets as

20 decoupled from that in the developed markets. Cadmos perspective, it is important to integrate that specific

has exercised its voting rights in the emerging markets identified risk and try to expose the portfolio to lesser ADMO S

5 2013 2014 2015 2016 2017

Items per company % Opposing votes per 100 item

19 . B3 Brasil Bolsa Balcao, BB Seguridade Participacoes and Kroton Educacional. 65/120 SHAREHSHAREHOLDESOLHAREHRDE ENGAGEMENR ENGAGEMENOLDER ENGAGEMENT ANTD AN IMDP ACIMTTP ANACDT IMPACT ENGAGEMENENGAGEMENETNGAGEMEN REVIET REVIEW WT REVIEW

PORTFOLIOPORTFOLIO MANAGEMENT MANAGEMENTPORTFOLIO MANAGEMENTENGAGEMENTENGAGEMENT ENGAGEMENT IMPACT IMPACT IMPACT Portfolio asPortfolio at 31.12.2017 as at 31.12.2017 Portfolio as at 31.12.2017 Type Type Level TypeLevel Change Change Summary Level Summary Change Summary Y/N (year)Y/N (year) Type TypeY/N (year) Type AIA GROUPAIA GROUP AIA GROUP Not assessedNot assessed (2 in 2015)Not assessed(2 in 2015) N/R Company N/R(2 in Company2015)not in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R B3 - BRASILB3 - BOLSA BRASIL BALCAO BOLSAB3 BALCAO - BRASIL BOLSA NotBALCAO assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R BAIDU BAIDU BAIDU No meetingNo meeting 0 (2 in 2016)No 0meeting (2 in 2016) -2 Company -2 0 (2 in Companydid 2016) not agree did -2tonot have agree an Company toengagement. have andid engagement. not agree No to have Noan engagement. No BB SEGURIDADEBB SEGURIDADE PARTICIPACOES PARTICIPACOESBB SEGURIDADE PARTICIPACOESConferenceConference Call Call Conference3 3 Call +1 Constructive+1 3 Constructive second meeting +1second with meeting Constructive the intent with tothe second intentN/R meeting to withN/R the intent to N/R understandunderstand our methodology our methodology andunderstand progress. and ourprogress. methodology and progress. We engagedWe engaged with ten with companiesWe ten engaged companies in with the Fund tenin the companies in Fund this reporting in thinis the reporting Fund cycle. in T cycle.ogethethis reporting Tr,ogethe r, cycle. Together, BHARAT BHARATHEAVY ELECTRICALS HEAVY ELECTRICALSBHARAT (Out) HEAVY (Out) ELECTRICALS Exit (Out)Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R N/R N/R N/R BHARTI AIRTELBHARTI AIRTEL BHARTI AIRTEL Not assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R these comptheseani compes reanipresentthesees rep 43compresent perani cent 43es p er ofre centptheresent twent of the 43y ptwent-threeer centy we-three of athessesse we twent da.ssesse Thisy-three d. This we assessed. This BHARTI INFRATELBHARTI INFRATEL (Out) BHARTI (Out) INFRATEL (Out)Exit Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R N/R N/R N/R is a fairis level a fair of level eng agofisemen eang fairagt femenlevelor emerg tof for enging emergag-maremeningkett-mar fcoorm ketemergpan coiesming,pan co-marnsiiesdket, erico ngnsicom deripanngies , considering BRF BRASILBRF FOOD BRASIL FOODBRF BRASIL FOOD No meetingNo meeting 0 No meeting0 = Company= 0 Companydid not agree did to =not have agree an Company toengagement. have andid engagement. not agree No to have Noan engagement. No that in thethat last in the three last years threethat twentyin years the last twenty new three companies new years companies twenty have entered new have companies entered the portfolio. the have portfolio. entered the portfolio. CHINA LIFECHINA INSURANCE LIFE INSURANCE COMPANYCHINA LIFECOMPANY INSURANCE No meeting COMPANYNo meeting 0 (4 in 2016)No 0meeting (4 in 2016) -4 Company -4 0 (4 in Companydid 2016) not agree did -4tonot have agree an Company toengagement. have andid engagement. not agree No to have Noan engagement. No Furthermore,Furthermore, in the same inFurthermore, the period same periodeighteen in the eighteen othersame periodcompanies other eighteencompanies left, tenother left, of companieswhom ten of whom left, ten of whom CHINA MOBILECHINA (Out)MOBILE (Out)CHINA MOBILE (Out) Exit Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R Yes (2016) Yes Various (2016) material Various topics materialYes (2016) topics Various material topics had actedhad on acted some on of somehad our acted ofprogress our on progress some recommendations. of recommendations. our progress During recommendations. During the period the period During the period CIA DE CONCESSOESCIA DE CONCESSOES RODOVIARIASCIA RODOVIARIASDE CONCESSOES Conference RODOVIARIASConference Call Call Conference4 4 Call = Acknowledge= 4 Acknowledge recommendations =recommendations Acknowledge(Business (Business recommendationsYes (2015) Yes Various (2015) (Business material Various topics materialYes (2015) topics Various material topics under revieunderw, revie nonew, of undernone the coof revie mthepanw, coi esnonem panim profieso theved im pr coonom vedthepan onwieseak theim poi prwoeaknvedts poira onisen thetsd ra wiseeakd points raised Integrity transparency).Integrity transparency). CommitedIntegrity Commited to GRI. transparency). to GRI. Commited to GRI. the previousthe previous year, but year,the five butprevious are five on courseare year, on butcourseto do five so, to are havingdo on so, course havingacknowledged to acknowledged do so, having this acknowledgedthis this CIELO (Out)CIELO (Out) CIELO (Out) Exit Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R N/R N/R N/R year’s recommendations.year’s recommendations.year’s20 recommendations.20 20 CK HUTCHISONCK HUTCHISON HOLDINGS HOLDINGSCK HUTCHISON HOLDINGSNo meetingNo meeting 0 (less 3 Noyears) 0 meeting(less 3 years) -3 Company -3 0 (less 3 Companydid years) not agree did -3tonot have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R COCA-COLACOCA-COLA FEMSA FEMSACOCA-COLA FEMSAConference Conference Call Call Conference3 3 Call +1 Open+1 and 3 Openconstructive and constructive conversation.+1 Open conversation. First and constructive FirstN/R conversation.N/R First N/R integrated integratedreport this report year (GRI this yearintegratedstandards). (GRI reportstandards). this year (GRI standards). For a coFormple a cote movpleervteFiew orov ervaof co iewallm ourple of te allen ov gaourervgem eniewenga tofgem ac alltiviten ourties ac entivitforga iesanygem f orportfoen tany activit liportfoo ies flioro any portfolio COCA-COLACOCA-COLA HBC HBCCOCA-COLA HBC Not assessedNot assessed (5 in 2015)Not assessed(5 in 2015) N/R Company N/R(5 in Company2015)not in the prioritynot N/R in the list. priority Company list. not in theYes priority(2015) Yes list. Various (2015) material Various topics materialYes (2015) topics Various material topics company,company, please contactpleasecompany, contact us at [email protected]. pleaseus at [email protected]. contact us We at [email protected]. We wouldbe happy be to happyWe send would to send be happy to send COGNIZANTCOGNIZANT TECHNOLOGY TECHNOLOGYCOGNIZANT TECHNOLOGYNot assessedNot (Late assessed entry) (Late entry)Not New assessed (Late New New entry) Company New New Companynot in the prioritynot New in the list. priority Company list. not in theN/R priority list.N/R N/R you ouryou inte ogurrat inedte gprateryouformaed opurernce formain tereporgratnceedt rfor eporper tformahet forcom ncethepany rcoepor mcopanyncet forrned cothence, cowhrnedmichpany, wh coichnce rned, which SOLUTIONSSOLUTIONS (New) (New)SOLUTIONS (New) COMGESTCOMGEST GROWTH GROWTH LATINCOMGEST AMER. LATIN AMER. GROWTH LATINFund AMER.Fund Fund FundFund Fund N/R Fund Fund N/R Fund N/R N/R N/R N/R providesprovides full details full detailsofprovides our ofassessments ourfull assessmentsdetails and of engagementour and assessments engagement activities, and activities, engagement together together activities, together COMGESTCOMGEST GROWTH-GEM GROWTH-GEM PROM.COMGEST PROM. GROWTH-GEM Fund PROM. Fund Fund FundFund Fund N/R Fund Fund N/R Fund N/R N/R N/R N/R with thewith impac thets impac achiewithtsv edachie .the Samplesv iedmpac. Samples ofts achiecompanies’ ofved companies’. Samples integrate ofintegrate dcompanies’ perford manceper fiorntegrate manced performance FU ND FU ND FU ND COMGESTCOMGEST GROWTH-GROWTH GROWTH-GROWTHCOMGEST INDIA GROWTH-GROWTH INDIA Fund Fund INDIA Fund FundFund Fund N/R Fund Fund N/R Fund N/R N/R N/R N/R reportsreports can be foundcan be onreportsfound pages on can 102ff. pages be found 102ff. on pages 102ff. DISCOVERYDISCOVERY DISCOVERY ConferenceConference Call Call Conference3 3 Call = Interested= 3 Interestedin our findings. in our= Company findings. Interested Companywas aware in our was findings. awareN/R CompanyN/R was aware N/R of many ofof the many points of theraised. points ofraised. many of the points raised. EMPRESASEMPRESAS COPEC COPECEMPRESAS COPEC Not assessedNot assessed (5 in 2015)Not assessed(5 in 2015) N/R Company N/R(5 in Company2015)not in the prioritynot N/R in the list. priority Company list. not in theYes priority(2015) Yes list. Various (2015) material Various topics materialYes (2015) topics Various material topics

FEMSA FEMSA FEMSA Not assessedNot assessed (4 in 2015)Not assessed(4 in 2015) N/R Company N/R(4 in Company2015)not in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R EMEN T EMEN T EMEN T HANGZHOUHANGZHOU HIKVISION HIKVISION HANGZHOU HIKVISIONNo meeting No meeting 1 (less 3 Noyears) 1 meeting(less 3 years) -1 The -1 1 company(less 3 The years) acknowledged company -1acknowledged receipt The ofcompany ourreceipt acknowledgedof ourN/R receiptN/R of our N/R assessmentassessment but no engagement but no engagement meetingassessment this meeting butyear. no this engagement year. meeting this year. IENOVA IENOVA IENOVA Not assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R INFOSYSINFOSYS INFOSYS No meetingNo meeting 1 No meeting1 +1 The+1 company 1 The acknowledged company+1 acknowledged receipt The ofcompany ourreceipt acknowledgedof ourNo receiptNo of our No assessmentassessment but no engagement but no engagement meetingassessment this meeting butyear. no this engagement year. meeting this year. INNER MONGOLIAINNER MONGOLIA YILI INNER YILI MONGOLIANo YILI meeting No meeting 0 (less 3 Noyears) 0 meeting(less 3 years) = Company = 0 (less 3 Companydid years) not agree did to =not have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R KROTONKROTON EDUCACIONAL EDUCACIONAL (New)KROTON (New) EDUCACIONAL Not assessedNot (Late (New)assessed entry) (Late entry)Not New assessed (Late New New entry) N/R New New N/R New N/R N/R N/R N/R

KWEICHOWKWEICHOW MOUTAI MOUTAICOMPANYKWEICHOW COMPANY MOUTAI Not COMPANY assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R KETS EN GAG KETS EN GAG KETS EN GAG LENTA LENTA LENTA Not assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R LG HOUSEHOLDLG HOUSEHOLD & HEALTHCARE &LG HEALTHCARE HOUSEHOLD (New) (New) &Not HEALTHCARE assessedNot assessed (New) N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R LOCALIZALOCALIZA RENT A CARRENT ALOCALIZA CAR RENT ConferenceA CAR Conference Call Call Conference4 4 Call = Signed= Global4 Signed Compact Global =in Compact 2017 Signedand in new 2017 Global head and CompactnewYes head (2015) in 2017 Yes Various (2015)and new material Various head topics materialYes (2015) topics Various material topics

sustainability.sustainability. Improvements Improvements to besustainability. expected. to be expected. Improvements to be expected. G MA R G MA R G MA R LUPIN (New)LUPIN (New) LUPIN (New) Not assessedNot (Late assessed entry) (Late entry)Not New assessed (Late New New entry) N/R New New N/R New N/R N/R N/R N/R MAIL.RUMAIL.RU GROUP GROUP MAIL.RU GROUP Not assessedNot assessed (2 in 2015)Not assessed(2 in 2015) N/R Company N/R(2 in Company2015)not in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R MTN GROUPMTN GROUP MTN GROUP ConferenceConference Call Call Conference4 4 Call = Acknowledged= 4 Acknowledged recommendations.= recommendations. Acknowledged Some Some recommendations.Yes (2014) Yes Various (2014) Some material Various topics materialYes (2014) topics Various material topics reporting ammendmentsreporting ammendments alreadyreporting in effectalready in ammendments in 2017. effect in 2017. already in effect in 2017. NASPERSNASPERS NASPERS ConferenceConference Call Call Conference4 4 Call +4 Interested+4 4 Interestedin our findings. in our+4 Clearly findings. Interested en Clearlyroute into enour route findings.No to ClearlyNo en route to No comprehensive,comprehensive, integrated integratedreporting.comprehensive, reporting. integrated reporting. EMER GIN EMER GIN EMER GIN NCSOFT NCSOFT NCSOFT No meetingNo meeting 0 (less 3 Noyears) 0 meeting(less 3 years) = Company = 0 (less 3 Companydid years) not agree did to =not have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R NETEASENETEASE NETEASE No meetingNo meeting 0 No meeting0 = Company= 0 Companydid not agree did to =not have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R ODONTOPREVODONTOPREV (Out) (Out)ODONTOPREV (Out) Exit Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R Yes (2016) Yes Various (2016) material Various topics materialYes (2016) topics Various material topics PING ANPING INSURANCE AN INSURANCE PING AN INSURANCENo meetingNo meeting 0 No meeting0 = Company= 0 Companydid not agree did to =not have agree an Company toengagement. have andid engagement. not agree No to have Noan engagement. No

POWER GRIDPOWER INDIA GRID INDIAPOWER GRID INDIANo meetingNo meeting 0 No meeting0 = Company= 0 Companydid not agree did to =not have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R ADMO S ADMO S ADMO S SAIC MOTORSAIC MOTOR SAIC MOTOR No meetingNo meeting 0 (2 in 2015)No 0meeting (2 in 2015) = Company = 0 (2 in Companydid 2015) not agree did to =not have agree an Company toengagement. have andid engagement. not agree N/R to have N/R an engagement. N/R C C C SAMSUNGSAMSUNG LIFE INSURANCE LIFE INSURANCESAMSUNG LIFE INSURANCENo meetingNo meeting 0 No meeting0 = Company= 0 Companydid not agree did to =not have agree an Company toengagement. have andid engagement. not agree No to have Noan engagement. No SANLAMSANLAM SANLAM ConferenceConference Call Call 3 (4 inConference 2016) 3 (4 in Call2016) -1 Constructive, -1 3 (4 in Constructive, 2016) open discussion -1open discussionwith Constructive, many with manyopen discussion No withNo many No answered questions.answered questions. answered questions. SOFTBANKSOFTBANK (New) (New) SOFTBANK (New)Not assessedNot (Late assessed entry) (Late entry)Not New assessed (Late New New entry) N/R New New N/R New N/R N/R N/R N/R SUZUKI MOTORSUZUKI MOTOR SUZUKI MOTOR Not assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R TAIWAN TAIWANSEMICONDUCTOR SEMICONDUCTORTAIWAN TSMC SEMICONDUCTOR TSMC ConferenceConference Call TSMC Call Conference4 4 Call -1 Interested-1 4 Interestedin assessment in assessment -1details, strong Interested details, past strongin assessment pastYes (2016) details, Yes Various (2016)strong material past Various topics materialYes (2016) topics Various material topics improvements.improvements. Various departments Variousimprovements. departments on call. onVarious call. departments on call. TELEKOMUNIKASITELEKOMUNIKASI INDONESIATELEKOMUNIKASI INDONESIA (New) Not(New) assessed INDONESIA Not (Late assessed entry) (New) (Late entry)Not New assessed (Late New New entry) N/R New New N/R New N/R N/R N/R N/R VIPSHOPVIPSHOP HOLDINGS HOLDINGS VIPSHOP HOLDINGSNot assessedNot assessed N/RNot assessedN/R N/R Company N/R N/R Companynot in the prioritynot N/R in the list. priority Company list. not in theN/R priority list.N/R N/R WEG WEG WEG ConferenceConference Call Call Conference3 3 Call -1 Receptive-1 3to Receptive feedback to in feedback-1 open discussion. Receptivein open discussion. to feedbackYes (2015) in open Yes Various discussion. (2015) material Various topics materialYes (2015) topics Various material topics No participationNo participation from IR, only from sustainability.No IR, participation only sustainability. from IR, only sustainability. WEIFU HIGH-TECWEIFU HIGH-TEC (Out) WEIFU(Out) HIGH-TEC (Out)Exit Exit Exit ExitExit Exit N/R Exit Exit N/R Exit N/R N/R N/R N/R

66/ 120 20 . Cie de20 Concessoes. Cie de Concessoes Rodoviarias20 . Cie Rodoviarias de - CCR,Concessoes Localiza - CCR, Rodoviarias Localiza Rent a Car, Rent - CCR, MTN a Car, Localiza Gr MTNoup, Naspers, RentGrou ap, Car, Naspers, Taiwan MTN Semiconductor Taiwan Group, Semiconductor Naspers, - TSMC Taiwan - TSMC Semiconductor - TSMC SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT REVIEW

PORTFOLIO MANAGEMENT ENGAGEMENT IMPACT Portfolio as at 31.12.2017 Type Level Change Summary Y/N (year) Type AIA GROUP Not assessed (2 in 2015) N/R Company not in the priority list. N/R B3 - BRASIL BOLSA BALCAO Not assessed N/R N/R Company not in the priority list. N/R BAIDU No meeting 0 (2 in 2016) -2 Company did not agree to have an engagement. No BB SEGURIDADE PARTICIPACOES Conference Call 3 +1 Constructive second meeting with the intent to N/R understand our methodology and progress. We engaged with ten companies in the Fund in this reporting cycle. Together, BHARAT HEAVY ELECTRICALS (Out) Exit Exit Exit N/R N/R BHARTI AIRTEL Not assessed N/R N/R Company not in the priority list. N/R these companies represent 43 per cent of the twenty-three we assessed. This BHARTI INFRATEL (Out) Exit Exit Exit N/R N/R is a fair level of engagement for emerging-market companies, considering BRF BRASIL FOOD No meeting 0 = Company did not agree to have an engagement. No that in the last three years twenty new companies have entered the portfolio. CHINA LIFE INSURANCE COMPANY No meeting 0 (4 in 2016) -4 Company did not agree to have an engagement. No Furthermore, in the same period eighteen other companies left, ten of whom CHINA MOBILE (Out) Exit Exit Exit N/R Yes (2016) Various material topics had acted on some of our progress recommendations. During the period CIA DE CONCESSOES RODOVIARIAS Conference Call 4 = Acknowledge recommendations (Business Yes (2015) Various material topics under review, none of the companies improved on the weak points raised Integrity transparency). Commited to GRI. the previous year, but five are on course to do so, having acknowledged this CIELO (Out) Exit Exit Exit N/R N/R year’s recommendations.20 CK HUTCHISON HOLDINGS No meeting 0 (less 3 years) -3 Company did not agree to have an engagement. N/R COCA-COLA FEMSA Conference Call 3 +1 Open and constructive conversation. First N/R integrated report this year (GRI standards). For a complete overview of all our engagement activities for any portfolio COCA-COLA HBC Not assessed (5 in 2015) N/R Company not in the priority list. Yes (2015) Various material topics company, please contact us at [email protected]. We would be happy to send COGNIZANT TECHNOLOGY Not assessed (Late entry) New New Company not in the priority list. N/R you our integrated performance report for the company concerned, which SOLUTIONS (New) COMGEST GROWTH LATIN AMER. Fund Fund Fund N/R N/R provides full details of our assessments and engagement activities, together COMGEST GROWTH-GEM PROM. Fund Fund Fund N/R N/R with the impacts achieved. Samples of companies’ integrated performance FU ND COMGEST GROWTH-GROWTH INDIA Fund Fund Fund N/R N/R reports can be found on pages 102ff. DISCOVERY Conference Call 3 = Interested in our ﬁndings. Company was aware N/R of many of the points raised. EMPRESAS COPEC Not assessed (5 in 2015) N/R Company not in the priority list. Yes (2015) Various material topics

FEMSA Not assessed (4 in 2015) N/R Company not in the priority list. N/R EMEN T HANGZHOU HIKVISION No meeting 1 (less 3 years) -1 The company acknowledged receipt of our N/R assessment but no engagement meeting this year. IENOVA Not assessed N/R N/R Company not in the priority list. N/R INFOSYS No meeting 1 +1 The company acknowledged receipt of our No assessment but no engagement meeting this year. INNER MONGOLIA YILI No meeting 0 (less 3 years) = Company did not agree to have an engagement. N/R KROTON EDUCACIONAL (New) Not assessed (Late entry) New New N/R N/R

KWEICHOW MOUTAI COMPANY Not assessed N/R N/R Company not in the priority list. N/R KETS EN GAG LENTA Not assessed N/R N/R Company not in the priority list. N/R LG HOUSEHOLD & HEALTHCARE (New) Not assessed N/R N/R Company not in the priority list. N/R LOCALIZA RENT A CAR Conference Call 4 = Signed Global Compact in 2017 and new head Yes (2015) Various material topics

sustainability. Improvements to be expected. G MA R LUPIN (New) Not assessed (Late entry) New New N/R N/R During the period under MAIL.RU GROUP Not assessed (2 in 2015) N/R Company not in the priority list. N/R MTN GROUP Conference Call 4 = Acknowledged recommendations. Some Yes (2014) Various material topics review, none of the companies reporting ammendments already in effect in 2017. NASPERS Conference Call 4 +4 Interested in our ﬁndings. Clearly en route to No improved on the weak points comprehensive, integrated reporting. EMER GIN NCSOFT No meeting 0 (less 3 years) = Company did not agree to have an engagement. N/R raised the previous year, but NETEASE No meeting 0 = Company did not agree to have an engagement. N/R ODONTOPREV (Out) Exit Exit Exit N/R Yes (2016) Various material topics five are on course to do so, PING AN INSURANCE No meeting 0 = Company did not agree to have an engagement. No POWER GRID INDIA No meeting 0 = Company did not agree to have an engagement. N/R having acknowledged this ADMO S SAIC MOTOR No meeting 0 (2 in 2015) = Company did not agree to have an engagement. N/R C SAMSUNG LIFE INSURANCE No meeting 0 = Company did not agree to have an engagement. No year’s recommendations. SANLAM Conference Call 3 (4 in 2016) -1 Constructive, open discussion with many No answered questions. SOFTBANK (New) Not assessed (Late entry) New New N/R N/R SUZUKI MOTOR Not assessed N/R N/R Company not in the priority list. N/R TAIWAN SEMICONDUCTOR TSMC Conference Call 4 -1 Interested in assessment details, strong past Yes (2016) Various material topics improvements. Various departments on call. TELEKOMUNIKASI INDONESIA (New) Not assessed (Late entry) New New N/R N/R VIPSHOP HOLDINGS Not assessed N/R N/R Company not in the priority list. N/R WEG Conference Call 3 -1 Receptive to feedback in open discussion. Yes (2015) Various material topics No participation from IR, only sustainability. WEIFU HIGH-TEC (Out) Exit Exit Exit N/R N/R

20 . Cie de Concessoes Rodoviarias - CCR, Localiza Rent a Car, MTN Group, Naspers, Taiwan Semiconductor - TSMC 67/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Three key topics stand out as the most financially bu“Busisinnessess tar integets,grity on and pu comrpoplianse orce t”,hr woughhich isneg impoligenrtacent. material to the universe of companies in the Fund. The Dishonestfor any firm or, illegalis the practicesthird most such fi nancas bribery,ially materia moneyl EEnNGgaAGEMENTgement wWITithH cCOMompaniesPANIES onON keyKEY maMATEterialRIAL tTopiOPIcCs first is “product social impact”, a topic that concerns 2728 laundering,topic, affecting collusion, 23 per centtax evasion,of companies fraud in and the inside Fund.r per cent of the companies. A company’s products and tradingCompan canies muharmst comp stakeholdersly with a and varie thety ofcompany externa litself. rules services can positively or negatively affect its customers Coat national,mpanies mregionalust therefore and global make everylevels, reas as owellnabl ase efftheirort as individuals, with regard to their physical, mental toown ensure inter nalcompliance systems ofand co demonstratentrol. Compli integrity,ance con cergoodns and spiritual well-being, or as a group, in relation to thegovernance, company’s and ability responsible to act businessaccording practices. to these rules their integrity, dignity or heritage. The company must and prevent employees from crossing the line to reach

exercise due care and foresight in managing its products Fibunasinlly,ess the tar gets,third on most pur pofinanciase or llthry oughmater negial ligtopenicce is. UN D and services throughout their life cycle, to prevent Dishonest“product en orvir illegalonm epracticesntal imp suchact”, asas bribery,it concerns money 17 F negative social impact and foster positive impact. laundering,per cent of collusion,the comp ataxnies evasion,. These fraudcompanies and inside musrt tradingadopt a can pre harmcauti stakeholdersonary appro andach theto lcompanyocal or g itself.lobal The“Business second integrity most financially and compliance”, material topic which is “productis impor- environmentalCompanies must challenges therefore andmake promote every reas environmentalonable effort entantvir foron meanyn talfirm, im comespact”, as second it con cerwithns 21 24 per per centcent of the responsto ensureibi compliancelity, resource and demonstrateefficiency anintegritd polluy, goodtion ccoompmpaanniieses. that These have co mtopan comiesply m ustwith ado a vptarie a precaty ofuti exonarternayl governance,prevention throughout and responsible the life business cycle of practices. their products Here rulesapproach at national, to local regionalor global and environmental global levels challenges as well as weand proservices.vide exaHeremp weles provideof comp examplesanies tha oft hcompaniesave acted

wiandth promo their owten en invirteronnalme contntalro resls. Cponompsibliaility,nce resoconcerurcnse thaon to haur vereco actedmm onendati ouron recs, owithmmen thdeirat ionkeys, towipicsth t heanird NG A GEME NT

theeffic comiencypa any’snd po abilityllutio nto p revenact acctionord thringoughou to theset the ru lilesfe keyperformance topics and scores. performance scores. E andcycle prevent of their employees products andfrom services. crossing the line to reach EA N

DANONE GIVAUDAN As a multinational food-products corporation, Danone

Forhas twoGivau maindan, sustainability as a manufacturer issues: of flavtheours, environmental fragrances Product environmental impact S EU RO Supplier environmental and socialactive impactcosmetic of itsingredients, products, procurementespecially the ofprovi- raw Supplier environmental impact msionater ofials healthy, and produ safe,cts nutrient-rich from fragile sofood,urces and is anits im accesspor- impact Product social impact tanto watet issue.r. EnsuIts suppliers’ring Sustai environmentalnable sourcing andimpact deve islop alsinog Product social impact 0 10 20 30 40 50 60 70 80 90 100 ADM O

innovrelevanatt,ive, part enviroicularlynme ton tathelly sus fritenainabilidly sutybs oftitu itstes ow forn C criticalagricultural substrates and procurement also present practices.opportunities. Product Supplier social impact social impact, especially the issues of quality and safety 0 10 20 30 40 50 60 70 80 90 100 and particularly, packaging, is another relevant topic.

GEBERIT GEBERIT For Europe’s market leader in sanitary technology, the Forenvironmental Europe’s market impact leader of the in productssanitary technology, is particularly the Product environmental impact Product environmental impact environmentalrelevant: its expertise impact in of water the productsconservation is particularly represents Product social impact Product social impact relevant:an opportunity its expertise for developing in water conservation and diffusing represents environ- Business integrity and compliance Business integrity and compliance anmentally opportunity friendly for technologies. developing and Through diffusing its products, environ- 0 10 20 30 40 50 60 70 80 90 100 Gebermentallyit als friendlyo has a soctechnologies.ial impact in Through the areas its of products,customer 0 10 20 30 40 50 60 70 80 90 100 Geberhealth itand als op hrodas auct soc qialual impity actand in liability. the areas Its of cuspresenctomeer ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC hinea overlth and sixty p rodcountriesuct qual andity itsand exposure liability. to Its the presenc risk ofe incorruptio over sixtyn make countries busin andess iitsntegr exposureity and to co thempl riskianc ofe EMENT F UND Product environmental impact 4% corruptioother relevantn make topics. business integrity and compliance

Product environmental impact 4% other relevant topics. Climate change impact 4% Climate change impact 4% Supplier environmental impact 0% PARTNERS GROUP S ENG AG Supplier environmental impact 0% NOVO NORDISK Product social impact 65% Product social impact 65% This global private-markets management firm has more thanAs a USDleader 55 in billion medicines in assets and under device managements for diabetes in Impact on communities 0%0% SI S privatecare, Novo equity, Nordisk private faces infrastruct the challengeure, priv ateof providingreal estate Product environmental impact Supplier social impact 4% Supplier social impact 4% andaffordable private access debt. to Its treatment main sustainability in the poorest topics countries, relate Product environmentalProduct social impact impact Core labor standards compliance 0% towith its theproduct resul environmentalting pricing press andu res,social and impact, promoting espe- BusinessDiversity integrity and employee and compliance loyalty Core labor standards compliance 0% propercially the product integration use. Its of presence ESG criteria in emerging into investment markets

Diversity and employee loyalty 0% Product social impact 0 10 20 30 40 50 60 70 80 90 100 ADMO S meamanagement.ns that corr Inuption this highly issues specialised could also field, be rele anothervant. Diversity and employee loyalty 0% 0 10 20 30 40 50 60 70 80 90 100 C Business integrity and compliance 22% Otherchallenge important consists topics of attracting, are the impact training of andproducts retaining and Business integrity and compliance 22% sertalentedvices t people.hroughou t their life cycle and the management of waste and hazardous materials.

68/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Two key topics stand out as the most financially material Companies must comply with a variety of external rules to the universe of companies in the Fund. The first at national, regional and global levels, as well as their is “product social impact”, a topic that concerns 65 own internal systems of control. Compliance concerns per cent of the companies. A company’s products and the company’s ability to act according to these rules services can positively or negatively affect its customers and prevent employees from crossing the line to reach as individuals, with regard to their physical, mental business targets, on purpose or through negligence. and spiritual well-being, or as a group, in relation to Dishonest or illegal practices such as bribery, money their integrity, dignity or heritage. The company must laundering, collusion, tax evasion, fraud and insider exercise due care and foresight in managing its products trading can harm stakeholders and the company itself. and services throughout their life cycle, to prevent Companies must therefore make every reasonable effort negative social impact and foster positive impact. to ensure compliance and demonstrate integrity, good governance, and responsible business practices. Here “Business integrity and compliance”, which is important we provide examples of the descriptions of key topics for any firm, is the second most financially material and the performance scores of companies that have topic, affecting 22 per cent of companies in the Fund. acknowledged our recommendations.

CIE DE CONCESSOES RODOVIARIAS - CCR

As an infrastructure company, managing thousands of

kilometres of roads in addition to trains, subways and Business integrity and compliance

boats, CCR deals with contracts in the public sector. 0 10 20 30 40 50 60 70 80 90 100 This triggers risks of bribery and corruption. FU ND

LOCALIA RENT A CAR EMEN T For this company, the key sustainability topic is its vehicles’ environmental impact. The main issues are Product environmental impact use of materials, energy-efficient cars, and carbon 0 10 20 30 40 50 60 70 80 90 100 emissions. The environmental footprint is another issue, but can also be an opportunity. KETS EN GAG MTN

As a multinational telecommunications group, operating G MA R in countries in Africa and the Middle East, MTN faces challenges regarding business integrity and compliance, Business integrity and compliance especially in the areas of unfair competition, corruption, 0 10 20 30 40 50 60 70 80 90 100 tax evasion, executive pay, and fraud. EMER GIN

NASPERS

Product social impact is a relevant topic for Naspers. ADMO S

Data privacy and use of customer data are particularly C Product social impact important for the company, together with data security 0 10 20 30 40 50 60 70 80 90 100 and management of cyber-security threats.

TAIWAN SEMICONDUCTOR TSMC

For TSMC, the world’s largest dedicated independent pure-play semiconductor foundry, a major topic is its Supplier social impact supplier social impact. Supply-chain management, 0 10 20 30 40 50 60 70 80 90 100 including labour norms and human rights, is a critical challenge for the company.

69/120 ASSESSMENT ASSESSMENT GAPS

PREPAREDNESS ON KEY TOPICS Based on the gaps identified by the assessments, PREPAREDNESS ON KEY TOPICS we formulate at least three recommendations that we believe will have an impact on the company’s The portfolio companies’ average score for preparedness on key future while being easy to implement. Here we 4% topics is 42 per cent. A score of 100 per cent would reflect absolute provide two examples of gaps and recommenda- 9% best practice by all the companies in the Fund in relation to their tions, presented to two of our portfolio companies respective key topics (23 in total) according to all five indicators during our engagement meetings. There is TSMC,

0%-50% (materiality, commitment and strategy, objective and actions, a recognised ESG leader; and Weg, a Brazilian indicators and monitoring, and achievements). Only about half company producing and marketing capital goods, 51%-60% the portfolio companies have scores above 50 per cent, which is particularly electric motors. Weg is less mature 57% 61%-70% already above the norm for the emerging-markets. Ten companies as regards integrating and communicating about

71%-80% are already well positioned to manage their key topics while thirteen ESG issues. others barely mention theirs in their communication. 30% 81%-90%

91%-100% TSMC

Gap 1: Supplier sustainability management is placed high on the materiality matrix. However, the relevance, risks and opportunities could be UALITY OF REPORTING better explained. Information on non-achieve- 4% Quality of reporting 9% ments would also improve the communication The portfolio companies’ average score for quality of reporting on this topic. FU ND 0%-40% is 41 per cent. A score of 100 per cent would reflect absolute best 41%-60% practice by all the companies that we assessed, according to all six Gap 5: Employee inclusion is advanced, one 26% 48% 61%-70% indicators (accessibility, clarity, comparabili ty, accuracy, reliability, example being the Core Value Survey in 2016. and integration). Only about half the portfolio companies have However, there seem to be no individual perfor- EMEN T 71%-80% scores above 40 per cent. For the emerging markets, they already mance targets or incentives (MBO) for senior and 81%-90% count among the businesses doing best at communicating about top management, linked to the comp any’s ESG 13% 91%-100% their ESG risks. But the majority of the portfolio companies can goals. still make considerable progress. Recommendation 1: The engagement team recommends describing in more detail the risks KETS EN GAG SUSTAINABILITY ORGANIATION and opportunities relating to supplier social impact 9% Sustainability organization and also the non-achievements in the area of The portfolio companies’ average score for quality of sustaina- challenges and targets. 0%-40% 17% bility organization is 47 per cent. A score of 100 per cent would G MA R 41%-60% reflect absolute best practice by all the companies that we assessed, Recommendation 5: To raise employee inclusion 43% 61%-70% according to all four indicators (strategy integration, responsibility, to the next level, the company could consider 4% 71%-80% employee inclusiveness, and stakeholder inclusiveness). Only about setting individual performance targets related to 60 per cent of the portfolio companies have scores above 40 per cent. the ESG goals. 13% 81%-90%

For the emerging markets, they already count among the businesses EMER GIN 13% 91%-100% doing best at integrating sustainability into their organization. But here again, the majority of the portfolio companies still have plenty of room for progress. WEG ADMO S

SUSTAINABILITY FRAMEWORKS Gap 1: The report does not present tangible C Sustainability frameworks objectives for business integrity and compliance. 26% 0%-40% The portfolio companies’ average score for ability to report Gap 5: The report does not make clear where the according to the principal reporting or impact frameworks is ultimate responsibility lies. 41%-60% 19 per cent. A score of 100 per cent would reflect absolute best 61%-70% practice by all the companies that we assessed, according to all four Recommendation 1: The engagement team

71%-80% of the most widely adopted frameworks (UN Global Compact, recommends defining tangible objectives Sustainable Development Goals, UN Guiding Principles, and for business integrity and compliance. 81%-90% 74% Global Reporting Indicators). Only about one quarter the portfolio Recommendation 5: The engagement team 91%-100% companies have scores above 40 per cent, which is unfortunately recommends spelling out who has the ultimate the norm for emerging-market companies. responsibility for sustainability.

70/120 ASSESSMENT ASSESSMENT GAPS

71%-80% are already well positioned to manage their key topics while thirteen ESG issues. others barely mention theirs in their communication. 30% 81%-90% TSMC

bility organization is 47 per cent. A score of 100 per cent would G MA R reflect absolute best practice by all the companies that we assessed, Recommendation 5: To raise employee inclusion according to all four indicators (strategy integration, responsibility, to the next level, the company could consider employee inclusiveness, and stakeholder inclusiveness). Only about setting individual performance targets related to 60 per cent of the portfolio companies have scores above 40 per cent. the ESG goals.

For the emerging markets, they already count among the businesses EMER GIN doing best at integrating sustainability into their organization. But here again, the majority of the portfolio companies still have plenty of room for progress. WEG ADMO S

SUSTAINABILITY FRAMEWORKS Gap 1: The report does not present tangible C objectives for business integrity and compliance. The portfolio companies’ average score for ability to report Gap 5: The report does not make clear where the according to the principal reporting or impact frameworks is ultimate responsibility lies. 19 per cent. A score of 100 per cent would reflect absolute best practice by all the companies that we assessed, according to all four Recommendation 1: The engagement team of the most widely adopted frameworks (UN Global Compact, recommends defining tangible objectives Sustainable Development Goals, UN Guiding Principles, and for business integrity and compliance. Global Reporting Indicators). Only about one quarter the portfolio Recommendation 5: The engagement team companies have scores above 40 per cent, which is unfortunately recommends spelling out who has the ultimate the norm for emerging-market companies. responsibility for sustainability.

71/120 Engagement uait Engagement uait

ENGAGEMENT INTENSITY Engagement intensity We engaged with ten companies in the Fund in this Prior to any conference call or meeting, we send the 60% reporting cycle. Together, these companies represent companies an assessment summary of about thirty pages 43 per cent of the twenty-three we assessed. This as a basis for discussion. For more information on our 50% is a fair level of engagement for emerging-market engagement process, see XYZ on pages XX ff. Companies companies, considering that in the last three years appreciate our practice of conducting a thorough analysis 40% twenty new companies have entered the portfolio. rather than sending out questionnaires; especially as we 30% Furthermore, in the same period eighteen other do not restrict our findings to a score but instead provide companies left, ten of whom had acted on some of feedback specific to each issue along with pragmatic 20% our progress recommendations. In recent year, we shareholder recommendations. The Cadmos Funds’ “soft increased the proportion of on-site face to face meetings power” engagement is clearly conducive to a dialogue 10% relative to conference calls. This helped us reach new that is both influential and constantly constructive.

0% milestones with companies with whom we had been On-Site Meetings Conference Calls No Meeting in discussion for many years. Since then, we have The general trend over the years reveals a solid, stable established solid contact with most of the portfolio desire on the part of the companies to engage in the 2014-2015 2015-2016 2016-2017 2017-2018 companies and monitor their implementation of our dialogue, testifying to the credibility that the Cadmos recommendations through conference calls. Funds have acquired in the eyes of Emerging Markets businesses.

ENGngAGEMENTagement leLEVELvel oOFf cCOMompaniesPANIES (#) ENGAGEMENT LEVEL FU ND To provide a transparent measure of the impact of previous pages, we engaged with 75 per cent of the our engagement with the companies, we assess each companies that had been in the Fund for at least 2016-2017 2017-2108 Level Description company according to a scale of five engagement levels three years. Only six companies did not participate

21 EMEN T 3 0 5 Shows improvements on recommendations ranging from 0 to 5. this year (level 0 or 1). 10 5 4 Acknowledges recommendations The opposite table provides an overview of the evolu- Among them, only two companies present below- 0 5 3 Accepts the principle of a regular dialogue tion in the number of companies having attained each average scores for preparedness and reporting quality, but 4 0 2 Agrees to discuss assessment results level between the engagement cycles of 2016–2017 Comgest followed these companies closely, focusing 0 2 1 Acknowledges receipt of our assessment and 2017–2018. The engagement targets set for the the discussions on governance and management, in 19 11 0 Assessment completed but no meeting was conducted Cadmos Funds are ambitious. Our first goal is to create particular with Power Grid India in the second quarter KETS EN GAG a dialogue with half the companies within three years. of 2017 and Netease in the third quarter. As can be seen from the tables opposite and on the G MA R

Engagement progress: 2010 - 2018 ENGAGEMENT PROGRESS EMER GIN

Level 5 The chart opposite tracks the average engagement level over time, with outstanding results since 2010. While today the average stands at 1.61, it was only 0.78 Level 4 WE ENGAGED WITH seven years ago. This long-term view reveals the level … ADMO S

2.53 2.59 Level 3 plateaued between 2011–2016, before declining slightly, C 2.36 2.31 PER CENT OF THE 2.23 owing to an increase in the number of new companies 75 1.85 1.61 Level 2 entering the portfolio and existing companies that COMPANIES THAT HAD had reached level 5 and left. This increased portfolio 0.78 Level 1 turnover is nevertheless modest, as the Fund’s average BEEN IN THE FUND FOR portfolio turnover has remained below 15 per cent for Level 0 the past three years. AT LEAST THREE YEARS.

Average The chart also confirms that the companies approve 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 of the new engagement methodology introduced in 2017-2018.

72/ 120 21 . BRF Brasil Food, Infosys, Netease, Ping An Insurance, Power Grid India and Samsung Life Insurance. Engagement uait Engagement uait

ENGAGEMENT INTENSITY

We engaged with ten companies in the Fund in this PriPrioror to any conference callcall or meeting,meeting, we send thethe repreportingorting cycle.cycle. Together,Together, these companies representrepresent cocompaniesmpanies an assessmentassessment summarysummary of aboutabout thirtythirty pagespages 43 perper centcent of of the the twenty-three twenty-three we we assessed. assesse Thisd. This is a as a basisbasis for discussion.discussion. For moremore informationinformation on ourour isfair a levelfair levelof engagement of engagement for emerging-market for emerging-marke compat- engagement process,process, see see XYZ pages on 11ff. pages Companies XX ff. Companie appre-s companies,nies, considering considering that in the that last inthree the years last threetwenty years new appreciateciate our practiceour practice of conductingof conducting a athorough thorough analysis analysis twentycompanies new have companies entered the have portfolio. entered Furthermore, the portfolio. in rather than sendingsending out questionnaires;questionnaires; especiallyespecially as we Furthe sametherm periodore, in eighteen the same other pe companiesriod eighte left,en otheten ofr do not resrestricttrict our findingsfindings toto aa scorescore bubutt iinsteadnstead provprovideide companieswhom had actedleft, tenon someof whom of our had progress acted onrecommen some of- feedback specific toto eacheach issueissue alonalongg wiwithth prapragmaticgmatic ourdations. pro gressIn recent recomme year, ndations.we increased In recethe ntproportion year, we shshareholderareholder recommendations.recommendations. The Cadmos Funds’Funds’ “soft“soft increasedof on-site t heface propor to facetion meetings of on-sit relativee face to to face conference meetings popower”wer” engagementengagement is clearlyclearly conduciveconducive to a dialoguedialogue relativecalls. This to helped conference us reach calls. new This milestones helped us with reach compa new- that isis bothboth influentialinfluential andand constanconstantlytly construcconstructive.tive. milestonesnies with whom with companieswe had been with in discussionwhom we forhad many been inyears. discussi Sinceon then, for manwe havey years established. Since th soliden, we contact have The general trend over the years reveals a solid, stable eswithtab lmostished ofsolid the contactportfolio wi thcompanies most of theand por monitortfolio ddesireesire on the ppartart of the compcompaniesanies to enengagegage in ththee companiestheir implementation and monitor of our their recommendations implementation through of our dialogue, testifying to the credibility that the Cadmos recommendationsconference calls. through conference calls. Funds have acquired in the eyes of Emerging Markets businesses.

ENGAGEMENT LEVEL OF COMPANIES ENGAGEMENT LEVEL FU ND To provide a transparent measure of the impact of previous pages, we engaged with 75 per cent of the our engagement with the companies, we assess each companies that had been in the Fund for at least 2016-2017 2017-2108 Level Description company according to a scale of five engagement levels three years. Only six companies did not participate

ENGAGEMENT PROGRESS EMER GIN The chart opposite tracks the average engagement level over time, with outstanding results since 2010. While today the average stands at 1.61, it was only 0.78 WE ENGAGED WITH seven years ago. This long-term view reveals the level … ADMO S plateaued between 2011–2016, before declining slightly, PER CENT OF THE C owing to an increase in the number of new companies 75 entering the portfolio and existing companies that COMPANIES THAT HAD had reached level 5 and left. This increased portfolio turnover is nevertheless modest, as the Fund’s average BEEN IN THE FUND FOR portfolio turnover has remained below 15 per cent for the past three years. AT LEAST THREE YEARS.

The chart also confirms that the companies approve of the new engagement methodology introduced in 2017-2018.

21 . BRF Brasil Food, Infosys, Netease, Ping An Insurance, Power Grid India and Samsung Life Insurance. 73/120 ENGAGEMENT IMPACT ENGAGEMENT IMPACT

Our long-term (five-year) impact objective is to generate positive additional impacts at a majority of ODONTOPREV our portfolio companies. We motivate the companies to follow our recommendations regarding material topics OdontoPrev maintained level 5 from 2015 to 2017, (engagement level 5), social-impact partnerships and having continued to implement our experts’ recom- peace-building initiatives. This ultimate objective has mendations for two years in a row. As a healthcare 12 65% 70% been achieved, as we have created tangible impacts provider (dental insurer) OdontoPrev faces a number of for nine or 53 per cent of all the Fund’s long-term sustainability challenges: hygiene, recycling of amalgam 10 53% 53% 60% 50% holdings. and other materials, energy- and resource efficiency, 50% anti-corruption and regulation. 8 The table opposite shows the nine portfolio companies 40% that have implemented our recommendations and We have held five discussions with the company since 6 27% improved on at least one weak point raised in the past its entry into our portfolio, each time spurring it on to 30% five years. Only eight of the long-term holdings did higher ESG standards. Prior to the last meeting with the 4 20% not improve in line with our suggestions over the past chief executive, we conducted a comparative study, to five years.22 help OdontoPrev discover the multinational companies’ 2 10% best practices in its field. The head of investor relations Altogether, since the launch of the Fund in 2009, we said that it was “a dream to be able to learn from the 0 0% have recorded 29 instances of positive engagement, best peers such as Novo Nordisk and Natura which 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 resulting in a company’s improving on a specific point were constituents of the Cadmos Funds” and that the

Nb. of companies with positive Nb. sold companies with % of companies with in response to a suggestion from Cadmos. This score engagement team’s assessment had played a key role engagement impacts (5 years rolling) engagement impact engagement impacts includes the six companies that were sold but had in drawing the attention of the board of directors and FU ND reached engagement level 5. Here we provide examples senior management to the company’s own ESG issues. of OdontoPrev and Taiwan Semiconductor. EMEN T

TAIWAN SEMICONDUCTOR ENGAGEMENT IMPACT IN THE PAST YEARS Based in Taiwan, TSMC is the world’s leading manufacturer of semiconductors. ETRACT FROM TSMC’S CSR REPORT KETS EN GAG Through its partnership relations with 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 customers and excellent cost control, TSMC owns a 30 per cent share of the

global market, three times more than its G MA R closest competitor. Since 2009, year of the Fund’s inception and starting point of our investment in TSMC shares, we have held seven productive engagement meetings.

In each of the last three meetings, at least EMER GIN seven representatives took part in the discussion, demonstrating the impor- 2013-2014 2013-2014 2013-2014 2013-2014 2013-2014 tance placed on our regular assessment.

They had implemented in 2016-2017 ADMO S

the previous year’s recommendations, C publishing the Supplier Code of Conduct and introducing specific performance goals. In addition, they reported in accordance with GRI G4 for the first time. TSMC’s 2017 Corporate Social Responsibility Report appears here. The report also testifies, indirectly, to the quality of our relationship with the company as a long-term loyal shareholder.

74/ 120 22 . Baidu, BRF Brasil Food, China life, Infosys, Naspers, Ping An Insurance, Samsung Life and Sanlam. ENGAGEMENT IMPACT ENGAGEMENT IMPACT

Our long-term (five-year) impact objective is to generate positive additional impacts at a majority of our portfolio Ourcompanies. long- tWeerm motivate (five-year the) companies impact ob toject followive is our to recommendations regarding material topics (engagement gelevelnera 5),te social positi impactve additional partnerships impac tsand at peacebuildinga majority of initiatives.ODONTO This ultimatePREV objective has been achieved, as ourwe haveportf olicreatedo companies. tangible We impacts motiva tefor the nine companies or 53 per to cent of all the Fund’s long-term holdings. follow our recommendations regarding material topics OdontoPrev maintained level 5 from 2015 to 2017, (enThegageme table oppositent level shows5), soc theial-imp nineac portfoliot partners companieships and that havehaving implemented continued our to imrecommendationsplement our ex perandt s’improved recom- peace-on at leastbuild oneing weakinitia tipointves. This raised ultimate in the past object fiveive hasyears. Onlymendat eighti onsof the for long-term two years holdings in a row. did As not a heaimprovelthcar ine 12 65% 70% beenline with achieved, our suggestions as we have over created the past tangible five years.impacts22 provider (dental insurer) OdontoPrev faces a number of for nine or 53 per cent of all the Fund’s long-term sustainability challenges: hygiene, recycling of amalgam 10 53% 53% 60% 50% holdings.Altogether, since the launch of the Fund in 2009, we have andrecorded other 29 materials instances, ener of positivegy- and engagement,resource effi ciencresulty,- 50% ing in a company’s improving on a specific point in responseanti-corruption to a suggestion and from regulation. Cadmos. This score includes 8 Thethe six tab companiesle opposite thatshows were the sold nine but port hadfoli reachedo compa engagementnies level 5. Here we provide examples of OdontoPrev 40% thatand Taiwanhave implemented Semiconductor. our recommendations and We have held five discussions with the company since 6 27% improved on at least one weak point raised in the past its entry into our portfolio, each time spurring it on to 30% five years. Only eight of the long-term holdings did higher ESG standards. Prior to the last meeting with the 4 20% notOdon improvet oinP linere withv our suggestions over the past chief executive, we conducted a comparative study, to five years.22 higherhelp Odonto ESG Prevstandards. discov Priorer the muto theltin atilastona meetingl compan withies’ 2 10% OdontoPrev maintained level 5 from 2015 to 2017, bestthe chief prac tiexecutive,ces in its fiweeld. conducted The head a of comparative investor relations study, havingAltogether, continued since theto implementlaunch of the our Fund experts’ in 2009, recom- we saidto help that OdontoPrev it was “a dream discover to bethe able multinational to learn from compa the- 0 0% hamendationsve recorded for 29 two instances years in of a prow.ositi veAs ena gagemhealthcareent, bestnies’ peersbest practicessuch as Novo in its Nordiskfield. The and head Natura of investor which 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 resultingprovider (dental in a company’s insurer) OdontoPrev improving on faces a specific a number point of wererelations constituents said that ofit wasthe Cadmos“a dream Funds” to be able and tothat learn the

Nb. of companies with positive Nb. sold companies with % of companies with insustainability response to challenges: a suggestion hygiene, from recyclingCadmos. of This amalgam score engagementfrom the best team’s peers suchassessment as Novo had Nordisk played and a key Natura role engagement impacts (5 years rolling) engagement impact engagement impacts incland uotherdes the materials, six comp energy-anies thandat resourcewere sol defficiency, but had inwhich drawing were the constituents attention of of the the board Cadmos of directors Funds” and FU ND reacanti-corruptionhed engageme andnt leregulation.vel 5. Here we provide examples seniorthat the management engagement to team’s the company’s assessment own had ESG played issues. a of OdontoPrev and Taiwan Semiconductor. key role in drawing the attention of the board of direc- We have held five discussions with the company since tors and senior management to the company’s own its entry into our portfolio, each time spurring it on to ESG issues. EMEN T

TAIWAN SEMICONDUCTOR ENGAGEMENT IMPACT IN THE PAST YEARS Based in Taiwan, TSMC is the world’s leading manufacturer of semiconductors. ETRACT FROM TSMC’S CSR REPORT KETS EN GAG Through its partnership relations with customers and excellent cost control, TSMC owns a 30 per cent share of the

In each of the last three meetings, at least EMER GIN seven representatives took part in the discussion, demonstrating the importance placed on our regular assessment.

They had implemented in 2016-2017 ADMO S

22 . Baidu, BRF Brasil Food, China life, Infosys, Naspers, Ping An Insurance, Samsung Life and Sanlam. 75/120 Cadmos Swiss Engagement Fund CADMOS SWISS ENGAGEMENT FUND CADMOS SWISS ENGAGEMENT Cadmos Swiss Engagement Fund CADMOS SWISS ENGAGEMENT FUND CADMOS SWISS ENGAGEMENT FINANCIAL PERFORMANCE Performance since inception The Cadmos Swiss Engagement Fund, promoted by PPT, is a and strong free cash flow generation. This reporting period 140 sub-fund of the Luxembourg-based Cadmos Fund. Alexandre saw twelve new stocks joined the portfolio in 2017, while one Stucki has managed the Fund since its inception.23 In 2017, was sold. Most of the twelve newcomers are cyclical stocks, in 130 classes A and B of the Fund returned +20.6% and +22.7% companies with geographically diversified activities. They are respectively, outperforming the benchmark index (the Swiss therefore well placed to benefit from the growth of the global

120 Leader Index - SLI), which rose only by +17%. economy and the euro’s rise against the Swiss franc.

For the financial markets, 2017 was a stellar year. The bull-run At December 2017 the Fund had significantly outperformed 110 continued almost unabated, save for a slight pullback in summer its index by 29.7 per cent in the period since the launch of due to geopolitical pressure. the Fund (Class B) in 2014. 100 The Fund invests in companies that present steady earnings 90 growth, a sound balance sheet, a high return on invested capital Cadmos - Swiss Engagement Fund (B) SLI Index SPI Index TR

31.03.2014 31.12.2014 30.09.2015 30.06.2016 31.03.2017 31.12.2017

Voting trends VOTING

During the period under review we expressed an opinion The majority of the resolutions submitted to the vote, that is,

25 on 684 items on the agendas of annual general meetings, almost 79 per cent, still concerned the structure of the board of representing an average of nearly more than twenty-three directors and the capital structure. items per company. This is nearly twice the level in 2013, 20 when the average was twelve items for the Swiss companies in Of the 684 votes cast, we voted against managements’ which we were invested. This additional workload is directly recommendations sixty-four times, that is, in 9.4 per cent 15 related to the greater transparency demanded by investors, of cases. It was the structure of the board of directors (forty- and particularly the adoption of the Minder Initiative. Since eight “Against” votes) and the remuneration issues (twelve 10 then, Swiss listed companies have had to implement annual “Against” votes) that prompted most of our oppositions. binding votes on executive and non-executive compensation amounts and abandon severance payments, sign-on awards 5 and transfer bonuses. 2012 2013 2014 2015 2016 2017

Items per company % Opposing votes per 100 item Performances summary

SHAREHOLDER ENGAGEMENT AND IMPACT Engagement Impact We engaged with thirty companies in the Fund in this 100 % 100 % 100 % 100 % reporting cycle, through twenty on-site visits and ten EMENT F UND 30 conference calls. Together, these companies represent 91 100 % 28 30 per cent of the thirty-three that we assessed. 24 They include 26 24 80 % three of the twleve new entrants in the portfolio. 22 20 22 18 60 % Our engagement targets for the Cadmos Swiss Engagement During the period under review, eight companies acted on our 16 S ENG AG 14 Fund are ambitious. The first target is to create a dialogue with recommendations and improved on at least one weak point 15 12 40 % 26 10 12 12 each company within three years. As the table on the next page raised the year before. This includes Roche and SGS, both 8 11 shows, we have now reached this objective (engagement level of which also showed progress on social impact partnerships 6 20 % SWI S 4 6 6 2), having engaged with all the companies that have been in initiated by Cadmos. Roche is considering an impact bond, 2 3 3 0 0 % the Fund for at least three years. aimed at improving standards of breast-cancer treatment for 2010-2011 2011-2012 2012-2013 2013-2014 lower-income patients in India. SGS has set up a pilot training Our long-term (five-year) impact objective is to generate posi- programme for unemployed youth in South Africa through tive additional impacts at a majority of our portfolio companies. its SGS Academy. ADMO S Nb. of companies with positive engagement impacts (5 years rolling) Nb. of positive engagement impacts (cumulative since launch) C We motivate the companies to follow our recommendations Nb. sold companies with engagement impact % of companies with engagement impacts

23 . Alexandre Stucki Investment Management - ASIM — 24 . Conzzeta, EMS Chemie and Swatch Group are the only companies we whom we did not 78/ engage with this year. — 25 . See the summary table on the following page. Companies are considered long-term if they have reached engagement level 120 5 or have been in the portfolio for ﬁve years or more. — 26 . Geberit, Givaudan, Nestlé, Novartis, Partners Group, Roche, SGS and Swiss Re. FINANCIAL PERFORMANCE

The Cadmos Swiss Engagement Fund, promoted by PPT, is a and strong free cash flow generation. This reporting period sub-fund of the Luxembourg-based Cadmos Fund. Alexandre saw twelve new stocks joined the portfolio in 2017, while one Stucki has managed the Fund since its inception.23 In 2017, was sold. Most of the twelve newcomers are cyclical stocks, in classes A and B of the Fund returned +20.6% and +22.7% companies with geographically diversified activities. They are respectively, outperforming the benchmark index (the Swiss therefore well placed to benefit from the growth of the global Leader Index - SLI), which rose only by +17%. economy and the euro’s rise against the Swiss franc.

For the financial markets, 2017 was a stellar year. The bull-run At December 2017 the Fund had significantly outperformed continued almost unabated, save for a slight pullback in summer its index by 29.7 per cent in the period since the launch of due to geopolitical pressure. the Fund (Class B) in 2014.

The Fund invests in companies that present steady earnings growth, a sound balance sheet, a high return on invested capital

VOTING

During the period under review we expressed an opinion The majority of the resolutions submitted to the vote, that is, on 684 items on the agendas of annual general meetings, almost 79 per cent, still concerned the structure of the board of representing an average of nearly more than twenty-three directors and the capital structure. items per company. This is nearly twice the level in 2013, when the average was twelve items for the Swiss companies in Of the 684 votes cast, we voted against managements’ which we were invested. This additional workload is directly recommendations sixty-four times, that is, in 9.4 per cent related to the greater transparency demanded by investors, of cases. It was the structure of the board of directors (forty- and particularly the adoption of the Minder Initiative. Since eight “Against” votes) and the remuneration issues (twelve then, Swiss listed companies have had to implement annual “Against” votes) that prompted most of our oppositions. binding votes on executive and non-executive compensation amounts and abandon severance payments, sign-on awards and transfer bonuses.

SHAREHOLDER ENGAGEMENT AND IMPACT

We engaged with thirty companies in the Fund in this regarding material topics (engagement level 5), social impact reporting cycle, through twenty on-site visits and ten partnerships and peacebuilding initiatives. Performance on conference calls. Together, these companies represent 91 this ultimate objective will be measurable only next year, but EMENT F UND per cent of the thirty-three that we assessed. 24 They include we are on course: after four years, we have already created three of the twleve new entrants in the portfolio. tangible impacts for twelve companies.25

Our engagement targets for the Cadmos Swiss Engagement During the period under review, eight companies acted on our S ENG AG Fund are ambitious. The first targettarget isis toto createcreate aa dialoguedialogue withwith recommendations and improved on at least one weak point each ccompanyompany wi withinthin th threeree years years.. As As the the tabl tablee on theon nextthe nextpage raised the year before.26 This includes Roche and SGS, both shows,page shows, we have we now have reached now reached this objective this objective (engagement (engage levelof which also showed progress on social impact partnerships SWI S 2),ment having level engaged 2), having with engaged all the companieswith all the that companies have been that in initiated by Cadmos. Roche is considering an impact bond, thehave Fund been for in atthe least Fund three for years. at least three years. aimed at improving standards of breast-cancer treatment for lower-income patients in India. SGS has set up a pilot training Our long-term (five-year) impact objective is to generate posi- programme for unemployed youth in South Africa through tive additional impacts at a majority of our portfolio companies. its SGS Academy. ADMO S C We motivate the companies to follow our recommendations

23 . Alexandre Stucki Investment Management - ASIM — 24 . Conzzeta, EMS Chemie and Swatch Group are the only companies we whom we did not engage with this year. — 25 . See the summary table on the following page. Companies are considered long-term if they have reached engagement level 5 or have been in the portfolio for ﬁve years or more. — 26 . Geberit, Givaudan, Nestlé, Novartis, Partners Group, Roche, SGS and Swiss Re. 79/120 Summa tae Summa tae

PORTFOLIO MANAGEMENT PERFORMANCE VOTE MEETING ENGAGEMENT IMPACT Portfolio as at 31.12.2017 Contribution 2017 In Cadmos since Description Resolutions Against Type Level Change Summary Y/N (year) Type ACTELION (Out) 0.59% 2014 Voted 2 1 Exit Exit Exit N/R N/R BELIMO HOLDING 0.47% 2016 Voted 18 3 Meeting 4 +4 CEO/CFO appreciate our methodology and acknowledge our recommendations. N/R BELL -0.05% 2014 Voted 18 4 Meeting 4 +4 First engagement meeting. Agreement to improve transparency and data. N/R BKW (New) 0.01% 2017 Entry after AGM 0 0 Meeting 4 +4 Acknowledged recommendations to be included in planning for the Executive Board. N/R BOSSARD HOLDING (New) 0.16% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R COMPAGNIE FINANCIERE 0.42% 2014 Voted 33 3 Meeting 4 -1 Regular dialogue and recognises our recommendations (shared with CFO). Yes (2016) Various material topics RICHEMONT CLARIANT (New) 0.24% 2017 Entry after AGM 0 0 Conference Call 4 +4 Acknowledges various recommendations (deﬁne objectives particularly for H&S). N/R CONZZETA (New) 0.03% 2017 Entry after AGM 0 0 No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R DAETWYLER HOLDING (New) 0.08% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R DKSH HOLDING (New) 0.05% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R DORMAKABA (New) 0.14% 2017 Voted 23 1 Meeting 4 +4 Acknowledged recommendations which they commented as appropriate and relevant. N/R EMMI 0.24% 2014 Voted 21 0 Meeting 4 +1 Actively engages in constructive discussions, ready for progress and openly shared insights. N/R EMS CHEMIE 0.38% 2016 Voted 11 0 No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no engagement meeting this year. N/R FLUGHAFEN ZURICH 0.41% 2014 Voted 19 5 Conference Call 4 = Interactive discussion with insights on scope of reporting and environmental targets. N/R GALENICA -0.27% 2014 No AGM (IPO) 0 0 Meeting 4 +1 CFO and Head of Sustainability displayed openness to better integrated ESG in core business. N/R GEBERIT 0.37% 2014 Voted 17 0 Meeting 5 +5 The previous recommendation to review the code of conduct was taken-up since last brieﬁng. Yes (2017) Various material topics GEORG FISCHER (New) 0.02% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R GIVAUDAN 0.91% 2014 Voted 20 1 Meeting 5 = Extended “Responsible Sourcing Policy” and «principles of conduct» are now published. Yes (2017) Various material topics HELVETIA HOLDING 0.03% 2014 Voted 23 2 Not assessed N/R N/R Company not in the priority list. N/R JULIUS BAER (New) 0.00% 2017 Entry after AGM 0 0 Not assessed (Late entry) New New N/R N/R KUEHNE & NAGEL 0.86% 2014 Voted 24 3 Conference Call 4 +1 Continued willingness to engage and follow-up. Open to hear critical recommendations. N/R LINDT & SPRUENGLI 0.25% 2014 No voting rights 0 0 Meeting 4 -1 Positively acknowledged critical yet constructive recommendations (executive board). Yes (2016) Various material topics LOGITECH 0.49% 2016 Voted 26 2 Conference Call 3 +3 First meeting and showed interest to learn more about methodology and recommendations. N/R LONZA GROUP 1.29% 2015 Voted 27 0 Conference Call 3 +1 Open engagement, but no real discussion developed. No commitments to improve. N/R NESTLE 1.01% 2014 Voted 28 1 Meeting 5 +1 Previous recommendations to make their reporting more outcomes/impacts relevant was taken up. Yes (2017) Various material topics NOVARTIS 0.53% 2014 Voted 27 1 Meeting 5 +1 Previous year’s recommendation to improve policy documents and internal Yes (2017) Various material topics compliance mechanisms has been taken-up. PARTNERS GROUP HOLDING 1.80% 2014 Voted 21 6 Meeting 5 +1 Released code of conduct and will apply GRI core for its CSR reporting as recommended. Yes (2017) Various material topics ROCHE HOLDING 0.52% 2014 No voting rights 0 0 Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability advisory) were well received. Yes (2017) + Social Impact Patnerships SFS GROUP (New) 0.30% 2017 Voted 21 4 Conference Call 3 +3 Most recommendations were challenged or duly noted without any commitments N/R for future improvements. SGS 0.65% 2014 Voted 25 7 Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships SIKA 2.09% 2014 Voted 33 7 Meeting 4 -1 Very interactive, sharing progress on recommendations. Bringing SDGs into practice. Yes (2016) Various material topics STRAUMANN HOLDING 3.40% 2014 Voted 20 0 Conference Call 3 = Interesting and transparent discussion focused on explaining our approach. N/R SWATCH GROUP (New) 0.02% 2017 Voted 23 9 No meeting 0 (less 3 years) New No interest for engagement meeting this year. N/R EMENT F UND SWISS LIFE HOLDING 0.56% 2014 Voted 24 0 Meeting 4 +2 Acknowledged recommendations. We expect improvements in CSR approach by the adoption of CSR standard. N/R SWISS RE -0.12% 2014 Voted 30 0 Meeting 5 = 3 out of 4 Cadmos recommendations were taken-up (publication dates, Yes (2017) Various material topics focus on materiality, sustainability risk framework). TEMENOS 1.59% 2016 Voted 21 1 Conference Call 3 +3 First meeting. Open discussion and dialogues. N/R S ENG AG UBS GROUP 0.65% 2014 Voted 24 1 Meeting 4 -1 Agrees basically with most of the presented areas of improvements Yes (2016) Various material topics (focus business integrity, materiality). VAT GROUP 2.48% 2016 Voted 24 2 Conference Call 4 +2 Open to recommendations and acknowledged shortcomings as newly listed company. N/R SWI S VIFOR PHARMA (New) 0.65% 2017 Voted 20 0 Not assessed (Late entry) New New No meeting was pursued yet. N/R VZ HOLDING 0.16% 2014 Voted 15 0 Conference Call 4 +3 Explicitely mentioned the usefulness of the discussed recommendations (CSR and communication). N/R ZURICH INSURANCE GROUP 0.29% 2014 Voted 26 0 Meeting 4 +1 Cadmos assessment were well received and commented as plausible N/R

(gaps in ESG integration in underwriting and AM). ADMO S C

80/120 Summa tae Summa tae

(gaps in ESG integration in underwriting and AM). ADMO S C

81/120 mementation o te u Cae stateg mementation o te u Cae stateg

Alexandre Stucki and Nathalie Kappeler at Alexandre Stucki Investment Management have managed the Cadmos Swiss Engagement Fund since its inception in 2014. ASIM was founded in 2006 and is devoted solely to managing Swiss equities. Mr Stucki and Ms Kappeler each have more than twenty years’ investment experience, including more than ten years dedicated to the Swiss market. The Cadmos Swiss Engagement Fund is managed according the principles of the Buy & Care® strategy.

® B u TEP OMPANY ANALYSIS re y S C a & C C The investment objective is to obtain steady, sustained capital longer-term vision of the company’s strategy and the challenges & a growth over the long term. ASIM selects high-quality businesses that it may face, for example when procuring natural resources.

Active Ownership Company analysis r that reply to a set of quantitative and qualitative criteria. It also Since the launch of the Fund in 2014, the engagement process y - Voted by portfolio manager - Quality growth companies e u - Engagement on materiality - Sustained competitive advantage ® studies the companies’ publications, meets their management and the integration of environmental, social and governance - Social impact strategies – SDG’s - Integrated valuation model B regularly and talks to their competitors. The discussions held factors have played an important role in ASIM’s qualitative with the companies in partnership with the engagement team analysis and have certainly contributed to the outstanding to understand the sustainability issues can then be used to fine- financial performance of the Fund. tune the analysis. This additional ESG insight also provides a

Portfolio managament STEP PORTFOLIO MANAGEMENT - Convictions (about 30-40 companies) - Long term (turnover 25%) - Risk Management & selling discipline The investment universe is the Swiss Performance Index (SPI) The investment strategy is based solely on stock-picking. Its of 250 stocks. Between thirty and forty stocks are selected investment horizon is typically eighteen to thirty-six months. from slightly more than a hundred with sufficient liquidity. The fund is actively managed, based on alpha generation and The Fund does not seek to replicate its benchmark, the SLI valuation to cope with the different market phases. There (Swiss Leader Index of the thirty most liquid SPI stocks). This are two classes: Class A for private investors and Class B for Buy re ® concentration is desirable in the case of an engagement fund, institutional investors. In both classes a significant proportion & Ca since it means that the cost of the shareholder dialogue can be of the management fees is used to finance the activities of the contained. That concentration is combined with an extremely engagement team, which initiates and conducts the shareholder low turnover rate, which increases the quality of the dialogue. engagement.

INVESTMENT PROCESS STEP AND STEP ACTIVE OWNERSHIP

Market screening Universe of Active ownership is a key component of the Cadmos Funds’ can strengthen the sense of purpose, better address the needs Screen for companies exposed to attractive end-markets or secular trends, about 250 Buy & Care® investment strategy. The strategy is described of the bottom of the pyramid and help the company achieve primary and secondary research companies in detail on pages 8ff. As a responsible shareholder, we the SDG’s. As a long-term shareholder, we want to make sure encourage most of the companies in our fund to give greater that the businesses in which we invest maintain and strengthen Conpany amalysis consideration to the tangible financial risks of inaction, negli- their competitive advantage; hence our deep belief in the value Regular management meetings, quantitative and gence or even unlawful behaviour. Our ex-ante engagement on of such partnerships. EMENT F UND qualitative analysis, growth prospects and strategy the key material topics is designed to reduce the reputational About 100 companies risk of controversy or to price it more accurately. Some of the Swiss companies in the Cadmos Peace Investment Fund, namely those with a large economic footprint in fragile Valuation The Cadmos Swiss Engagement Fund benefits from a new countries, also benefit from the innovative, productive Test – DDM and valuation multiples S ENG AG tailor-made form of shareholder engagement. Launched in engagement of the peace-building experts at the PeaceNexus partnership with KiKLab in 2016, it is designed to connect Foundation.27 30 to 40 businesses with strategic social impact opportunities. We companies SWI S Portfolio construction now systematically motivate companies to embed positive The information obtained from this year’s revised engagement Risk management social impact in their strategies. KiKLab develops innovative, process continues to enrich the investment process and sharpen productive solutions for companies seeking to make an impact our insight into the sustainability of each company’s business and ready to learn from our expertise. We often recommend model. joining forces with social entrepreneurs. Such partnerships ADMO S C

82/ 120 27 . For further information about the Cadmos Peace Investment Fund ask for its impact report. mementation o te u Cae stateg mementation o te u Cae stateg

AlAlexandreexandre StuckiStucki andand NatNathaliehalie KaKappelerppeler at AlexaAlexandrendre StStuckiucki InInvestmentvestment ManagementManagement have managedmanaged thethe Cadmos SwSwississ EnEngagementgagement Fund since its inception in 2014. ASIM was founded in 2006 and is devoted solely to managing Swiss equities. Mr Stucki and Ms Kappeler each have more than twenty years’ investment experience, including more than ten years dedicated to the Swiss market. The Cadmos SwissSwiss EngagementEngagement Fund Fund is ismanaged managed according according the the principles principles of the of theBuy Buy & Care & Care® strategy.® strategy.

INVESTMENT PROCESS STEP AND STEP ACTIVE OWNERSHIP

Market screening Universe of Active ownership is a key component of the Cadmos Funds’ can strengthen the sense of purpose, better address the needs Screen for companies exposed to attractive end-markets or secular trends, about 250 Buy & Care® investment strategy. The strategy is described of the bottom of the pyramid and help the company achieve primary and secondary research companies in detail on pages 8ff. As a responsible shareholder, we the SDG’s. As a long-term shareholder, we want to make sure encourage most of the companies in our fund to give greater that the businesses in which we invest maintain and strengthen Conpany amalysis consideration to the tangible financial risks of inaction, negli- their competitive advantage; hence our deep belief in the value Regular management meetings, quantitative and gence or even unlawful behaviour. Our ex-ante engagement on of such partnerships. EMENT F UND qualitative analysis, growth prospects and strategy the key material topics is designed to reduce the reputational About 100 companies risk of controversy or to price it more accurately. SSomeome ofof the the Sw Swississ co mpcompanies,anies in the namely Cadmo thoses Peace with Investment a large Fund,economic namely footprint those inwith fragile a large countries, economic also footprint benefit in from fragile the Valuation The Cadmos Swiss Engagement Fund benefits from a new coinnovativeuntries, engagementalso benefit of from the peacebuildingthe innovative, experts produc at ttheive Test – DDM and valuation multiples S ENG AG tailor-made form of shareholder engagement. Launched in engagementPeaceNexus ofFoundation. the peace-building27 experts at the PeaceNexus partnership with KiKLab in 2016, it is designed to connect Foundation.27 30 to 40 businesses with strategic social impact opportunities. We The information obtained from this year’s revised engage- companies SWI S Portfolio construction now systematically motivate companies to embed positive Thement informa processti oncontinues obtained to from enrich th isthe year’s investment revised engagementprocess and Risk management social impact in their strategies. KiKLab develops innovative, processsharpen co ournt ininsightues to intoenrich the the sustainability investment pr ofo cesseach and company’s sharpen productive solutions for companies seeking to make an impact ourbusiness insight model. into the sustainability of each company’s business and ready to learn from our expertise. We often recommend model. joining forces with social entrepreneurs. Such partnerships ADMO S C

27 . For further information about the Cadmos Peace Investment Fund ask for its impact report. 83/120 Finania eomane otoio management eiew

PORTFOLIO MANAGEMENT PERFORMANCE Portfolio as at 31.12.2017 Sector Contribution 2017 In Cadmos since In 2017, classes A and B of the Fund returned +20.6% and The technology sector enjoyed an outstanding year. VAT, ACTELION (Out) ealth are 0.59% 2014 +22.7% respectively, outperforming the benchmark index the world’s leading producer of vacuum valves, is thriving on BELIMO HOLDING Construction & Materials 0.47% 2016 (the Swiss Leader Index - SLI), which rose only by +17%. strong demand from the semiconductor and flat-screen markets. BELL Food & Beverage -0.05% 2014 Logitech continues to deliver double-digit sales growth while BKW (New) Utilities 0.01% 2017 This reporting period saw several changes made to the port- keeping a tight rein on costs. Temenos beat expectations, largely BOSSARD HOLDING (New) Construction & Materials 0.16% 2017 folio’s composition. Twelve new stocks joined the portfolio due to improved execution in the United States. in 201728, while Actelion was sold. The number of positions COMPAGNIE FINANCIERE RICHEMONT Personal & Household Goods 0.42% 2014 rose from twenty-nine at the end of 2016 to forty at the end Rising key rates in the United States and Europe boosted the CLARIANT (New) Chemicals 0.24% 2017 of December 2017. Most of the newcomers are cyclical stocks, banking sector. Earnings at UBS beat the market’s expectations, CONZZETA (New) Industrial Goods & Services 0.03% 2017 in companies with geographically diversified activities. They particularly in wealth management and investment banking. DAETWYLER HOLDING (New) Industrial Goods & Services 0.08% 2017 are therefore well placed to benefit from the growth of the Partners Group also surprised on the upside, with robust results DKSH HOLDING (New) Industrial Goods & Services 0.05% 2017 global economy and the euro’s rise against the Swiss franc. This throughout the year, fuelled by the surge in performance fees. DORMAKABA (New) Industrial Goods & Services 0.14% 2017 applies to Bossard, Clariant, Conzzeta, Daetwyler, DKSH, Dormakaba, Georg Fischer, Julius Baer and SFS. Exporters rallied with the euro’s appreciation against the Swiss EMMI Food & Beverage 0.24% 2014 franc. Sika was able to improve its profitability despite the EMS CHEMIE Chemicals 0.38% 2016 Only one position left the portfolio with a profit: Actelion, uptrend in commodity prices. It pressed on with its expansion FLUGHAFEN ZURICH Industrial Goods & Services 0.41% 2014 following its acquisition by Johnson & Johnson early in 2017. while also increasing its margins. GALENICA Retail -0.27% 2014 GEBERIT Construction & Materials 0.37% 2014 In 2017, most of the shares rose in response to the improving Natural disasters related to hurricanes Irma and Harvey weighed GEORG FISCHER (New) Industrial Goods & Services 0.02% 2017 economic conditions. Companies’ fundamentals played a on the insurance companies. Swiss Re and Helvetia lost ground key role in how their stock fared. The top performers were in August, as did most reinsurers. Swiss Life won through, with GIVAUDAN Chemicals 0.91% 2014 businesses that had reported strong results throughout the year. a fine performance in 2017, powered by increasing revenue from HELVETIA HOLDING Insurance 0.03% 2014 management fees. It is buoyed up by JULIUS BAER (New) Banks 0.00% 2017 Straumann soared, proving the the success of its asset management KUEHNE & NAGEL Industrial Goods & Services 0.86% 2014 astuteness of its strategy and the division, which has some CHF 61 LINDT & SPRUENGLI Food & Beverage 0.25% 2014 quality of the execution. It raised IN 2017, CLASSES A billion under management. It also LOGITECH Technology 0.49% 2016 its 2017 targets and expects to see offers an attractive dividend yield of organic revenue growth of 13–15 about 3.5 per cent. LONZA GROUP Health Care 1.29% 2015 AND B OF THE FUND per cent. Straumann has entered NESTLE Food & Beverage 1.01% 2014 the orthodontic market through RETURNED +20.6% AND Food companies moved in positive NOVARTIS Health Care 0.53% 2014 its acquisition of ClearCorrect in territory but underperformed the PARTNERS GROUP HOLDING Financial Services 1.80% 2014 America and a stake in Geniova, a +22.7% RESPECTIVELY, market. Shares in Nestlé marched ROCHE HOLDING Health Care 0.52% 2014 Spanish company. OUTPERFORMING THE higher despite disappointin g results. SFS GROUP (New) Industrial Goods & Services 0.30% 2017 Investors were reassured by plans to Lonza announced strong half-yearly revamp the product portfolio and by SGS Industrial Goods & Services 0.65% 2014 BENCHMARK INDEX (THE numbers, particularly as regards the chief executive’s clear goals for SIKA Construction & Materials 2.09% 2014 profitability. It confirmed the smooth SWISS LEADER INDEX - the company’s future. STRAUMANN HOLDING Health Care 3.40% 2014 integration of Capsugel and signs SWATCH GROUP (New) Personal & Household Goods 0.02% 2017 of the first commercial synergies SLI), WHICH ROSE ONLY Large pharmaceuticals also traded EMENT F UND SWISS LIFE HOLDING Insurance 0.56% 2014 in the areas of sports nutrition and BY +17%. in positive territory but below the SWISS RE Insurance -0.12% 2014 consumer health. market. Earnings at Novartis were higher than expected, particularly TEMENOS Technology 1.59% 2016 Givaudan was able to raise its prices to offset the increase in its third-quarter sales from Sandoz and Alcon. Novartis has S ENG AG UBS GROUP Banks 0.65% 2014 commodity prices. It confirmed its targets for 2020, namely put off any decision about Alcon and has not ruled out the VAT GROUP Industrial Goods & Services 2.48% 2016 sales growth of 4–5 per cent and average free cash flow of creation of a limited company. Roche fluctuated according to VIFOR PHARMA (New) Health Care 0.65% 2017 12–17 per cent of sales, which will enable it to maintain its the news from its pipeline. SWI S VZ HOLDING Financial Services 0.16% 2014 current dividend policy. ZURICH INSURANCE GROUP Insurance 0.29% 2014 ADMO S C

84/ 120 28 . BKW, Bossard, Clariant, Conzzeta, Daetwyler, DKSH, Dormakaba, Georg Fischer, Julius Baer, SFS, Swatch and Vifor Pharma Finania eomane otoio management eiew

28 . BKW, Bossard, Clariant, Conzzeta, Daetwyler, DKSH, Dormakaba, Georg Fischer, Julius Baer, SFS, Swatch and Vifor Pharma 85/120 eomane sine inetion PERFORMANCE OF THE SWISS EQUITY MARKET

For the financial markets, 2017 was a stellar year. The bull-run continued almost 140 unabated, save for a slight pullback in summer due to geopolitical pressure. Leading indicators confirmed the uptrend in global economic growth, while the central banks maintained their accommodative monetary policies. The 130 Swiss market ended the year well into positive territory on the back of the strengthening world economy. Standard benchmarks as the SMI Index TR 120 returned 17.9% while the SPI Index TR returned 19.9%.

110 World economic growth was more vigorous than foreseen. These robust global conditions are feeding through to the Swiss economy and particularly 100 its exporters. The fall in the Swiss franc should continue to boost exports. Switzerland’s domestic demand also remains solid; investment spending should

90 increase and the employment market improve. Cadmos - Swiss Engagement Fund (B) SLI Index SPI Index TR At the beginning of the year, the Swiss National Bank held the three-month 80 London Interbank Offered Rate in Swiss francs at minus 0.75 per cent and the target range at minus 1.25 per cent to minus 0.25 per cent. It still considered

31.03.2014 31.12.2014 30.09.2015 30.06.2016 31.03.2017 31.12.2017 the Swiss franc overvalued, despite the recent drop against the euro.

Investors may have to continue increasing their equity weighting in 2018 to obtain the minimum return, since interest rates in Switzerland seem destined to languish in negative territory or close to zero for a while yet. Investors should continue to seek solid businesses paying high dividends.

FROM LAUNCH IN 2014 TO DECEMBER 2017, CLASSES A AND B OF THE FUND RETURNED 36.6% AND 46.5% RESPECTIVELY, OUTPERFORMING Fo te inania maets EMENT F UND SIGNIFICANTLY ITS INDEX WHICH ROSE was a stea ea ONLY BY 16.8%. URING THE SAME PERIOD THE UND D , F S ENG AG ALSO SIGNIFICANTLY OUTPERFORMED

BY 5.5% AND 15.4% RESPECTIVELY THE SWI S SWISS PERFORMANCE INDEX TR WHICH ROSE ONLY BY

31.1%. ADMO S C

86/120 eomane sine inetion PERFORMANCE OF THE SWISS EQUITY MARKET

For the financial markets, 2017 was a stellar year. The bull-run continued almost unabated, save for a slight pullback in summer due to geopolitical pressure. Leading indicators confirmed the uptrend in global economic growth, while the central banks maintained their accommodative monetary policies. The Swiss market ended the year well into positive territory on the back of the strengthening world economy. Standard benchmarks as the SMI Index TR returned 17.9% while the SPI Index TR returned 19.9%.

World economic growth was more vigorous than foreseen. These robust global conditions are feeding through to the Swiss economy and particularly its exporters. The fall in the Swiss franc should continue to boost exports. Switzerland’s domestic demand also remains solid; investment spending should increase and the employment market improve.

At the beginning of the year, the Swiss National Bank held the three-month London Interbank Offered Rate in Swiss francs at minus 0.75 per cent and the target range at minus 1.25 per cent to minus 0.25 per cent. It still considered the Swiss franc overvalued, despite the recent drop against the euro.

BY 5.5% AND 15.4% RESPECTIVELY THE SWI S SWISS PERFORMANCE INDEX TR WHICH ROSE ONLY BY

31.1%. ADMO S C

87/120 oting VOTING REVIEW

PORTFOLIO MANAGEMENT Portfolio as at 31.12.2017 Sector Description Resolutions Against At the end of December 2017, the portfolio of the Cadmos Swiss Engagement ACTELION (Out) ealth are Voted 2 1 Fund comprised forty companies. Once more, we were able to vote on 100 per BELIMO HOLDING Construction & Materials Voted 18 3 cent of the companies that were in the Fund at the time of the annual general BELL Food & Beverage Voted 18 4 meetings. This meant that we actually exercised our voting rights on thirty 29 BKW (New) Utilities Entry after AGM 0 0 companies, since one company exited the portfolio after its AGM ; eight new 30 BOSSARD HOLDING (New) Construction & Materials Entry after AGM 0 0 entrants joined after their AGMs ; and our shares in three other companies did not carry voting rights (see Summary of results in 2017–2018)31. COMPAGNIE FINANCIERE RICHEMONT Personal & Household Goods Voted 33 3 CLARIANT (New) Chemicals Entry after AGM 0 0 The information obtained from this year’s AGM season continues to sharpen CONZZETA (New) Industrial Goods & Services Entry after AGM 0 0 our insight into the governance of each company. DAETWYLER HOLDING (New) Industrial Goods & Services Entry after AGM 0 0 DKSH HOLDING (New) Industrial Goods & Services Entry after AGM 0 0 For a complete overview of all our voting activities for any portfolio company, DORMAKABA (New) Industrial Goods & Services Voted 23 1 please contact us at [email protected]. We would be happy to send you our integrated performance report for the company concerned, which provides EMMI Food & Beverage Voted 21 0 full details on how Cadmos voted at the most recent annual general meeting. EMS CHEMIE Chemicals Voted 11 0 FLUGHAFEN ZURICH Industrial Goods & Services Voted 19 5 GALENICA Retail No AGM (IPO) 0 0 GEBERIT Construction & Materials Voted 17 0 GEORG FISCHER (New) Industrial Goods & Services Entry after AGM 0 0 GIVAUDAN Chemicals Voted 20 1 HELVETIA HOLDING Insurance Voted 23 2 JULIUS BAER (New) Banks Entry after AGM 0 0 KUEHNE & NAGEL Industrial Goods & Services Voted 24 3 F THE VOTES CAST WE LINDT & SPRUENGLI Food & Beverage No voting rights 0 0 O 684 , LOGITECH Technology Voted 26 2 VOTED AGAINST MANAGEMENT’S LONZA GROUP Health Care Voted 27 0 RECOMMENDATIONS SIXTY FOUR NESTLE Food & Beverage Voted 28 1 - NOVARTIS Health Care Voted 27 1 TIMES, THAT IS, IN 9.4 PER CENT OF PARTNERS GROUP HOLDING Financial Services Voted 21 6 CASES HIS RATE OF OPPOSITION ROCHE HOLDING Health Care No voting rights 0 0 . T SFS GROUP (New) Industrial Goods & Services Voted 21 4 IS A MARK OF HOW SERIOUSLY SGS Industrial Goods & Services Voted 25 7 WE TAKE OUR ROLE AS ACTIVE SIKA Construction & Materials Voted 33 7 STRAUMANN HOLDING Health Care Voted 20 0 SHAREHOLDERS. SWATCH GROUP (New) Personal & Household Goods Voted 23 9 EMENT F UND SWISS LIFE HOLDING Insurance Voted 24 0 SWISS RE Insurance Voted 30 0 TEMENOS Technology Voted 21 1

UBS GROUP Banks Voted 24 1 S ENG AG VAT GROUP Industrial Goods & Services Voted 24 2 VIFOR PHARMA (New) Health Care Voted 20 0 SWI S VZ HOLDING Financial Services Voted 15 0 ZURICH INSURANCE GROUP Insurance Voted 26 0 ADMO S C

88/ 29 . Actelion — 30 . BKW, Bosshard Holding, Clariant, Conzzeta, Daetwyler Holding, DKSH Holding, Georg Fischer and Julius Baer. — 31 . Lindt & 120 Sprungli, Roche Holding and Galenica ( new IPO). oting VOTING REVIEW

29 . Actelion — 30 . BKW, Bosshard Holding, Clariant, Conzzeta, Daetwyler Holding, DKSH Holding, Georg Fischer and Julius Baer. — 31 . Lindt & Sprungli, Roche Holding and Galenica ( new IPO). 89/120 oting imat oting imat

DISTRIBUTION OF VOTES

Distribution of votes During the period under review we expressed an opinion increasingly commonplace during the 2017 season, this shows on 684 items on AGM agendas, representing an average of that investors are staying firm in their desire for a strong link slightly more than twenty-two items per company. This is between pay and performance and increasingly willing to reject Shareholders' rights nearly twice as many as in 2013, when the average was twelve any unexplained deviations from best practice. 5.7% items for the Swiss companies in which we were invested. The additional workload is directly related to the greater transpar- The majority of the resolutions submitted to the vote, that ency demanded by investors, and particularly the adoption is, almost 79 per cent, still concern the structure of the board Capital structure 16.1% of the Minder Initiative. Since then, Swiss listed companies of directors and the capital structure. Fortunately, the have had to implement annual binding votes on executive and increased transparency that we enjoy today greatly improves non-executive compensation amounts and abandon severance our ability to assess the correspondence between the company’s payments, sign-on awards and transfer bonuses. performance and the remuneration proposed. This positive Board of directors 62.6% development means that our portfolio manager is better Votes on remuneration have more than tripled since 2013, equipped to judge whether senior managements’ interests are rising from a low average of fewer than one resolution per aligned with our own. We encourage the companies to work Remuneration 15.6% company to a total of hundred and seven (3.6 per company) in with two types of capped variable pay. The annual bonus 2017, representing nearly 16 per cent of total votes. The issue rewards individual performance during the year but must is still newsworthy and will remain contro versial as long as also depend on the company’s results. However, we prefer these pay packages are not truly aligned with the shareholders’ long-term remuneration plans, paid in shares or options, based interests and understood by the public. Indeed, it seems that on demanding performance targets tied to the company’s results a 15% opposition to compensation proposals are becoming in the following three years. Main oppositions

500 MAIN OPPOSITIONS 48 400 Of the 684 votes cast, we voted against management’s shortcomings of key committees. Audit, nomination and remu- recommendations sixty-four times, that is, in 9.4 per cent neration committees should comprise a majority, at least, of 300 of cases. This rate of opposition is a mark of how seriously independent board members. Almost half the twelve companies

200 380 we take our role as active shareholders. In 2017, our main that we opposed on at least one resolution concerning the 12 1 oppositions (forty-eight of a total sixty-four) concerned the board of directors had lacked due diligence with regard to the 100 structure of the board of directors. composition of these all-important committees. At Swatch, 3 95 109 we opposed half the 14 items presented at the AGM linked to 36 0 Although this rate of opposition is high compared with else- the independence of the company’s board of directors. Four

1. Board of directors 2. Remuneration 3. Capital structur 4. Shareholder’s rights where in Europe, it has declined somewhat in the last four of the six board members are affiliated with the Company or years, reflecting an improvement in the transparency and are insiders. Cadmos is perfectly aware that the Hayek Pool independence of Swiss boards of directors. beneficially owns 40.1% of the Company’s total voting rights, For Against but we do always promote boards with a lower percentage of Nevertheless, we remain unconvinced of the independence affiliates and insiders in order to increase the board’s ability of some companies’ boards and are concerned about the to perform a proper oversight role. Voting trends VOTING TRENDS EMENT F UND 25 From the opposite chart, it is interesting to note the simulta- governing bodies and more active shareholders like Cadmos 20 neous increase of voting items and the decrease and stabilization have led to better corporate governance in particular within of votes “against management” since 2014. Cadmos exercises the universe of the Cadmos Swiss Engagement Fund. Much S ENG AG 15 its voting rights since 2006 but we clearly observed a paradigm can still be done to improve the real independence and the change regarding corporate governance in 2014 linked to the appropriate mix of certain attributes and areas of expertise at introduction of the Minder initiative. Increased transparency some companies’ boards. SWI S 10 and regulatory requirements, better prepared AGM’s and

2012 2013 2014 2015 2016 2017 ADMO S C

Items per company % Opposing votes per 100 item

90/ 120 1. B3 Brasil Bolsa Balcao, BB Seguridade Participacoes and Kroton Educacional. oting imat oting imat

DISTRIBUTION OF VOTES

During the period under review we expressed an opinion increasingly commonplace during the 2017 season, this shows on 684 items on AGM agendas, representing an average of that investors are staying firm in their desire for a strong link slightly more than twenty-two items per company. This is between pay and performance and increasingly willing to reject nearly twice as many as in 2013, when the average was twelve any unexplained deviations from best practice. items for the Swiss companies in which we were invested. The additional workload is directly related to the greater transpar- The majority of the resolutions submitted to the vote, that ency demanded by investors, and particularly the adoption is, almost 79 per cent, still concern the structure of the board of the Minder Initiative. Since then, Swiss listed companies of directors and the capital structure. Fortunately, the have had to implement annual binding votes on executive and increased transparency that we enjoy today greatly improves non-executive compensation amounts and abandon severance our ability to assess the correspondence between the company’s payments, sign-on awards and transfer bonuses. performance and the remuneration proposed. This positive development means that our portfolio manager is better Votes on remuneration have more than tripled since 2013, equipped to judge whether senior managements’ interests are rising from a low average of fewer than one resolution per aligned with our own. We encourage the companies to work company to a total of hundred and seven (3.6 per company) in with two types of capped variable pay. The annual bonus 2017, representing nearly 16 per cent of total votes. The issue rewards individual performance during the year but must is still newsworthy and will remain contro versial as long as also depend on the company’s results. However, we prefer these pay packages are not truly aligned with the shareholders’ long-term remuneration plans, paid in shares or options, based interests and understood by the public. Indeed, it seems that on demanding performance targets tied to the company’s results a 15% opposition to compensation proposals are becoming in the following three years.

MAIN OPPOSITIONS

Of the 684 votes cast, we voted against management’s shortcomings of key committees. Audit, nomination and remu- recommendations sixty-four times, that is, in 9.4 per cent neration committees should comprise a majority, at least, of of cases. This rate of opposition is a mark of how seriously independent board members. Almost half the twelve companies we take our role as active shareholders. In 2017, our main that we opposed on at least one resolution concerning the oppositions (forty-eight of a total sixty-four) concerned the board of directors had lacked due diligence with regard to the structure of the board of directors. composition of these all-important committees. At Swatch, we opposed half the 14 items presented at the AGM linked to Although this rate of opposition is high compared with else- the independence of the company’s board of directors. Four where in Europe, it has declined somewhat in the last four of the six board members are affiliated with the Company or years, reflecting an improvement in the transparency and are insiders. Cadmos is perfectly aware that the Hayek Pool independence of Swiss boards of directors. beneficially owns 40.1% of the Company’s total voting rights, but we do always promote boards with a lower percentage of Nevertheless, we remain unconvinced of the independence affiliates and insiders in order to increase the board’s ability of some companies’ boards and are concerned about the to perform a proper oversight role.

VOTING TRENDS EMENT F UND

From the opposite chart, it is interesting to note the simulta- governing bodies and more active shareholders like Cadmos neous increase of voting items and the decrease and stabilization have led to better corporate governance in particular within of votes “against management” since 2014. Cadmos exercises the universe of the Cadmos Swiss Engagement Fund. Much S ENG AG its voting rights since 2006 but we clearly observed a paradigm can still be done to improve the real independence and the change regarding corporate governance in 2014 linked to the appropriate mix of certain attributes and areas of expertise at introduction of the Minder initiative. Increased transparency some companies’ boards. SWI S and regulatory requirements, better prepared AGM’s and ADMO S C

1. B3 Brasil Bolsa Balcao, BB Seguridade Participacoes and Kroton Educacional. 91/120 SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT REVIEW

PORTFOLIO MANAGEMENT ENGAGEMENT IMPACT Portfolio as at 31.12.2017 Type Level Change Summary Y/N (year) Type ACTELION (Out) Exit Exit Exit N/R N/R BELIMO HOLDING On-Site Meeting 4 +4 CEO/CFO appreciate our methodology and acknowledge our recommendations. N/R BELL On-Site Meeting 4 +4 First engagement meeting. Agreement to improve transparency and data. N/R BKW (New) On-Site Meeting 4 +4 Acknowledged recommendations to be included in planning for the Executive Board. N/R BOSSARD HOLDING (New) Not assessed (Late entry) New New N/R N/R We engaged with thirty companies in the Fund in this reporting cycle, COMPAGNIE FINANCIERE RICHEMONT On-Site Meeting 4 -1 Regular dialogue and recognises our recommendations (shared with CFO). Yes (2016) Various material topics through twenty on-site visits and ten conference calls. Together, these CLARIANT (New) Conference Call 4 +4 Acknowledges various recommendations (deﬁne objectives particularly for H&S). N/R companies represent 91 per cent of the thirty-three that we assessed.32 They CONZZETA (New) No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no N/R engagement meeting this year. include three of the twelve new entrants in the portfolio. Our discussion with DAETWYLER HOLDING (New) Not assessed (Late entry) New New N/R N/R BKW was particularly interactive and insightful. They showed great interest in DKSH HOLDING (New) Not assessed (Late entry) New New N/R N/R the analysis and appreciated the recommendation, which was acknowledged DORMAKABA (New) On-Site Meeting 4 +4 Acknowledged recommendations which they commented as appropriate and relevant. N/R as appropriate and relevant. At the end of the meeting BKW’s representatives EMMI On-Site Meeting 4 +1 Actively engages in constructive discussions, ready for progress and N/R asked for a management summary of the gaps and recommendations discussed, openly shared insights. for inclusion in the sustainability-planning document for the executive board. EMS CHEMIE No meeting 1 (less 3 years) +1 The company acknowledged receipt of our assessment but no N/R engagement meeting this year. FLUGHAFEN ZURICH Conference Call 4 = Interactive discussion with insights on scope of reporting and environmental targets. N/R During the period under review, eight companies implemented our recom- GALENICA On-Site Meeting 4 +1 CFO and Head of Sustainability displayed openness to mendations and improved on at least one weak point raised the previous better integrated ESG in core business. N/R year.33 Later we provide examples for Givaudan, Geberit, Partners Group and GEBERIT On-Site Meeting 5 +5 The previous recommendation to review the code of conduct was taken-up Yes (2017) Various material topics since last brieﬁng. Swiss Re. This includes Roche and SGS, both of which also showed progress GEORG FISCHER (New) Not assessed (Late entry) New New N/R N/R on social impact partnerships initiated by Cadmos. For more on this subject, GIVAUDAN On-Site Meeting 5 = Extended “Responsible Sourcing Policy” and «principles of conduct» Yes (2017) Various material topics see the “Engagement impact” section of this report on pages 100ff and “Social are now published. Impact Partnerships” section on pages 46ff. HELVETIA HOLDING Not assessed N/R N/R Company not in the priority list. N/R JULIUS BAER (New) Not assessed (Late entry) New New N/R N/R KUEHNE & NAGEL Conference Call 4 +1 Continued willingness to engage and follow-up. N/R For a complete overview of all our engagement activities for any portfolio Open to hear critical recommendations. company, please contact us at [email protected]. We would be happy to send LINDT & SPRUENGLI On-Site Meeting 4 -1 Positively acknowledged critical yet constructive recommendations (executive board). Yes (2016) Various material topics you our integrated performance report for the company concerned, which LOGITECH Conference Call 3 +3 First meeting and showed interest to learn more about methodology N/R provides full details of our assessments and engagement activities, together and recommendations. with the impacts achieved. Samples of companies’ integrated performance LONZA GROUP Conference Call 3 +1 Open engagement, but no real discussion developed. No commitments to improve. N/R NESTLE On-Site Meeting 5 +1 Previous recommendations to make their reporting more outcomes/impacts Yes (2017) Various material topics reports can be found on pages 102ff. relevant was taken up. NOVARTIS On-Site Meeting 5 +1 Previous year’s recommendation to improve policy documents and internal Yes (2017) Various material topics compliance mechanisms has been taken-up. PARTNERS GROUP HOLDING On-Site Meeting 5 +1 Released code of conduct and will apply GRI core for its CSR Yes (2017) Various material topics reporting as recommended. ROCHE HOLDING On-Site Meeting 4 +3 Profound discussion. Recommendations (SDG focus and sustainability Yes (2017) + Social Impact Patnerships advisory) were well received. SFS GROUP (New) Conference Call 3 +3 Most recommendations were challenged or duly noted without any N/R commitments for future improvements. SGS On-Site Meeting 4 = Intensive and open discussion. Most of the suggested improvements were well received. Yes (2017) + Social Impact Patnerships DURING THE PERIOD UNDER SIKA On-Site Meeting 4 -1 Very interactive, sharing progress on recommendations. Bringing SDGs into practice. Yes (2016) Various material topics STRAUMANN HOLDING Conference Call 3 = Interesting and transparent discussion focused on explaining our approach. N/R REVIEW, EIGHT COMPANIES SWATCH GROUP (New) No meeting 0 (less 3 years) New No interest for engagement meeting this year. N/R EMENT F UND SWISS LIFE HOLDING On-Site Meeting 4 +2 Acknowledged recommendations. We expect improvements in CSR approach N/R IMPLEMENTED OUR by the adoption of CSR standard. SWISS RE On-Site Meeting 5 = 3 out of 4 Cadmos recommendations were taken-up (publication dates, Yes (2017) Various material topics RECOMMENDATIONS AND IMPROVED focus on materiality, sustainability risk framework). TEMENOS Conference Call 3 +3 First meeting. Open discussion and dialogues. N/R ON AT LEAST ONE WEAK POINT S ENG AG UBS GROUP On-Site Meeting 4 -1 Agrees basically with most of the presented areas of improvements Yes (2016) Various material topics (focus business integrity, materiality). RAISED THE PREVIOUS YEAR. VAT GROUP Conference Call 4 +2 Open to recommendations and acknowledged shortcomings as newly listed company. N/R

VIFOR PHARMA (New) Not assessed (Late entry) New New No meeting was pursued yet. N/R SWI S VZ HOLDING Conference Call 4 +3 Explicitely mentioned the usefulness of the discussed recommendations N/R (CSR and communication). ZURICH INSURANCE GROUP On-Site Meeting 4 +1 Cadmos assessment were well received and commented as plausible N/R (gaps in ESG integration in underwriting and AM). ADMO S C

92/ 32 . Conzzeta, EMS Chemie and Swatch Group were the only companies we did not engage with this year. — 33 . Geberit, Givaudan, Nestlé, Novartis, 120 Partners Group, Roche, SGS and Swiss Re. SHAREHOLDER ENGAGEMENT AND IMPACT ENGAGEMENT REVIEW

32 . Conzzeta, EMS Chemie and Swatch Group were the only companies we did not engage with this year. — 33 . Geberit, Givaudan, Nestlé, Novartis, Partners Group, Roche, SGS and Swiss Re. 93/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Three key topics stand out as the most financially “buBusisinnessess tar integets,grity on and pu comrpoplianse orce t”,hr woughhich isneg impoligenrtacent. material to the universe of companies in the Fund. The forDishonest any firm or, illegalis the practicesthird most such fi nancas bribery,ially materia moneyl EEnNGgaAGEMENTgement wWITithH cCOMompaniesPANIES onON keyKEY maMATEterialRIAL tTopiOPIcCs first is “product social impact”, a topic that concerns 2827 topic,laundering, affecting collusion, 23 per centtax evasion,of companies fraud in and the inside Fund.r per cent of the companies. A company’s products and Cotradingmpan canies muharmst comp stakeholdersly with a and varie thety ofcompany externa litself. rules services can positively or negatively affect its customers atCo national,mpanies mregionalust therefore and global make everylevels, reas as owellnabl ase efftheirort as individuals, with regard to their physical, mental ownto ensure inter nalcompliance systems ofand co demonstratentrol. Compli integrity,ance con cergoodns and spiritual well-being, or as a group, in relation to thegovernance, company’s and ability responsible to act businessaccording practices. to these rules their integrity, dignity or heritage. The company must and prevent employees from crossing the line to reach

exercise due care and foresight in managing its products buFinasinlly,ess the tar gets,third on most pur pofinanciase or llthry oughmater negial ligtopenicce is. UN D and services throughout their life cycle, to prevent Dishonest“product en orvir illegalonm epracticesntal imp suchact”, asas bribery,it concerns money 17 F negative social impact and foster positive impact. laundering,per cent of collusion,the comp ataxnies evasion,. These fraudcompanies and inside musrt tradingadopt a can pre harmcauti stakeholdersonary appro andach theto lcompanyocal or g itself.lobal The“Business second integrity most financially and compliance”, material topic which is “productis impor- Coenvironmentalmpanies must challenges therefore andmake promote every reas environmentalonable effort entantvir foron meanyn talfirm, im comespact”, as second it con cerwithns 21 24 per per centcent of the torespons ensureibi compliancelity, resource and demonstrateefficiency anintegritd polluy, goodtion cocompmpaanniieses. that These have co mtopan comiesply m ustwith ado a vptarie a precaty ofuti exonarternayl governance,prevention throughout and responsible the life business cycle of practices. their products Here approachrules at national, to local regionalor global and environmental global levels challenges as well as weand proservices.vide exaHeremp weles provideof comp examplesanies tha oft hcompaniesave acted

awindth promo their owten en invirteronnalme contntalro resls. Cponompsibliaility,nce resoconcerurcnse ontha to haur vereco actedmm onendati ouron recs, owithmmen thdeirat ionkeys, towipicsth t heanird NG A GEME NT

efthefic comiencypa any’snd po abilityllutio nto p revenact acctionord thringoughou to theset the ru lilesfe performancekey topics and scores. performance scores. E cycleand prevent of their employees products andfrom services. crossing the line to reach EA N

DANONE GIVAUDAN As a multinational food-products corporation, Danone

hasFor twoGivau maindan, sustainability as a manufacturer issues: of flavtheours, environmental fragrances Product environmental impact S EU O Supplier environmental and socialactive impactcosmetic of itsingredients, products, procurementespecially the ofprovi- raw Supplier environmental impact msionater ofials healthy, and produ safe,cts nutrient-rich from fragile sofood,urces and is anits im accesspor- impact Product social impact totan watet issue.r. EnsuIts suppliers’ring Sustai environmentalnable sourcing andimpact deve islop alsinog Product social impact 0 10 20 30 40 50 60 70 80 90 100 ADM O

releinnovvanatt,ive, part enviroicularlynme ton tathelly sus fritenainabilidly sutybs oftitu itstes ow forn C agriculturalcritical substrates and procurement also present practices.opportunities. Product Supplier social impact social impact, especially the issues of quality and safety 0 10 20 30 40 50 60 70 80 90 100 and particularly, packaging, is another relevant topic.

GEBERIT GEBERIT For Europe’s market leader in sanitary technology, the environmentalFor Europe’s market impact leader of the in productssanitary technology, is particularly the Product environmental impact Product environmental impact relevant:environmental its expertise impact in of water the productsconservation is particularly represents Product social impact Product social impact relevant:an opportunity its expertise for developing in water conservation and diffusing represents environ- Business integrity and compliance Business integrity and compliance anmentally opportunity friendly for technologies. developing and Through diffusing its products, environ- 0 10 20 30 40 50 60 70 80 90 100 Gebermentallyit als friendlyo has a soctechnologies.ial impact in Through the areas its of products,customer 0 10 20 30 40 50 60 70 80 90 100 hGeberealth itand als op hrodas auct soc qialual impity actand in liability. the areas Its of cuspresenctomeer ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC inhea overlth and sixty p rodcountriesuct qual andity itsand exposure liability. to Its the presenc risk ofe corruptioin over sixtyn make countries busin andess iitsntegr exposureity and to co thempl riskianc ofe EMENT F UND Product environmental impact 17% othercorruptio relevantn make topics. business integrity and compliance

Product environmental impact 4% other relevant topics. Climate change impact 3% Climate change impact 4% Supplier environmental impact 9% PARTNERS GROUP S ENG AG Supplier environmental impact 0% NOVO NORDISK Product social impact 27% Product social impact 65% This global private-markets management firm has more Asthan a USDleader 55 in billion medicines in assets and under device managements for diabetes in Impact on communities 0%1% SWI S care,private Novo equity, Nordisk private faces infrastruct the challengeure, priv ateof providingreal estate Product environmental impact Supplier social impact 4% Supplier social impact 6% affordableand private access debt. to Its treatment main sustainability in the poorest topics countries, relate Product environmentalProduct social impact impact Core labor standards compliance 0% withto its theproduct resul environmentalting pricing press andu res,social and impact, promoting espe- BusinessDiversity integrity and employee and compliance loyalty Core labor standards compliance 10% propercially the product integration use. Its of presence ESG criteria in emerging into investment markets

Diversity and employee loyalty 0% Product social impact 0 10 20 30 40 50 60 70 80 90 100 ADMO S meamanagement.ns that corr Inuption this highly issues specialised could also field, be rele anothervant. Diversity and employee loyalty 6% 0 10 20 30 40 50 60 70 80 90 100 C Business integrity and compliance 22% Otherchallenge important consists topics of attracting, are the impact training of andproducts retaining and Business integrity and compliance 21% sertalentedvices t people.hroughou t their life cycle and the management of waste and hazardous materials.

94/120 SELECTION OF KEY TOPICS SELECTION OF KEY TOPICS

Three key topics stand out as the most financially business targets, on purpose or through negligence. material to the universe of companies in the Fund. The Dishonest or illegal practices such as bribery, money ENGAGEMENT WITH COMPANIES ON KEY MATERIAL TOPIC first is “product social impact”, a topic that concerns 27 laundering, collusion, tax evasion, fraud and insider per cent of the companies. A company’s products and trading can harm stakeholders and the company itself. services can positively or negatively affect its customers Companies must therefore make every reasonable effort as individuals, with regard to their physical, mental to ensure compliance and demonstrate integrity, good and spiritual well-being, or as a group, in relation to governance, and responsible business practices. their integrity, dignity or heritage. The company must exercise due care and foresight in managing its products Finally, the third most financially material topic is and services throughout their life cycle, to prevent “product environmental impact”, as it concerns 17 negative social impact and foster positive impact. per cent of the companies. These companies must adopt a precautionary approach to local or global “Business integrity and compliance”, which is impor- environmental challenges and promote environmental tant for any firm, comes second with 21 per cent of the responsibility, resource efficiency and pollution companies that have to comply with a variety of external prevention throughout the life cycle of their products rules at national, regional and global levels as well as and services. Here we provide examples of companies with their own internal controls. Compliance concerns that have acted on our recommendations, with their the company’s ability to act according to these rules key topics and performance scores. and prevent employees from crossing the line to reach

GIVAUDAN

GEBERIT

For Europe’sEurope’s market market leader leader in sanitary in sanitary technology, technology, the envi the- Product environmental impact environmentalronmental impact impact of the products of the products is particularly is particularly relevant: its Product social impact relevant:expertise inits water expertise conservation in water represents conservation an opportunity represents anfor opportunitydeveloping and for diffusingdeveloping environ- and diffusing mentally environ- friendly Business integrity and compliance mentallytechnologies. friendly Through technologies. its products, Through Geberit also its hasproducts, a social 0 10 20 30 40 50 60 70 80 90 100 Geberimpactit in als theo hareasas a soc of customerial impact health in the andareas product of cust omequal-r ENGAGEMENT INTENSITY BY KEY MATERIAL TOPIC hityea andlth liability.and prod Itsuct presence quality in and over liability. sixty countries Its presenc and itse inexposure over sixty to the countries risk of corruption and its exposure make business to the integrity risk of EMENT F UND Product environmental impact 24% corruptioand compliancen make other busi relevantness integr topics.ity and compliance other relevant topics. Climate change impact 3%

Supplier environmental impact 3% PARTNERS GROUP S ENG AG

Product social impact 28% This global private-markets management firm has more than USD 55 billion in assets under management in Impact on communities 1% SWI S private equity, private infrastructure, private real estate Supplier social impact 3% and private debt. Its main sustainability topics relate Product environmental impact

to its product environmental and social impact, espe- Diversity and employee loyalty Core labor standards compliance 6% cially the integration of ESG criteria into investment

95/120 ASSESSMENT ASSESSMENT GAPS

PREPAREDNESS ON KEY TOPICS As these statistics indicate, the Cadmos Swiss Preparedness on key topics Engagement Fund is mainly invested in companies that already show above-average sensitivity to The portfolio companies’ average score for preparedness on key financially material ESG topics. They also reveal

6% topics is 59 per cent. A score of 100 per cent would reflect absolute some significant disparities, particularly among the best practice by all the companies in the Fund in relation to their small- and medium-sized companies. Based on the 15% respective key topics (99 in total) according to all five indicators gaps identified by the assessments, we formulate 0%-50% (materiality, commitment and strategy, objective and actions, at least three recommendations that we believe 36% 51%-60% indicators and monitoring, and achievements). About half the will have an impact on the company’s future while

61%-70% portfolio companies have scores of more than 60 per cent, which being easy to implement. Here we provide two is already above the norm, considering that the portfolio mainly examples of gaps and recommendations, presented 71%-80% comprises small or medium-sized companies. The 20 per cent with to two of our portfolio companies during our 81%-90% scores above 80 per cent are mostly large companies already well engagement meetings. There is Geberit, now a 21% 91%-100% positioned to manage their key topics. mature exponent of ESG, and there is BKW, still at an emerging level despite being a highly exposed 9% 12% energy utility company. Indeed, the smaller Swiss companies frequently lag behind.

UALITY OF REPORTING GEBERIT uality of reporting Q The portfolio companies’ average score for quality of reporting 21% is 53 per cent. A score of 100 per cent would reflect absolute best Gap 1: Though employees are required to take an 0%-40% practice by all the companies that we assessed, according to all six e-learning course, and the company has internalised 41%-60% indicators (accessibility, clarity, comparability, accuracy, reliability, a formal compliance audit, the disclosure remains 39% 9% 61%-70% and integration). About half the portfolio companies have scores too generic as regards relevance; targets and related above 60 per cent. These companies are already communicating measures and indicators; and achieved adherence 71%-80% quite well as regards their ESG challenges. Much progress can still or dismissals in connection with business integrity. 81%-90% 18% be made, but mainly on the part of our medium- and small-sized 12% 91%-100% companies. Recommendation 1: We suggest specifying the related objectives in order to measure or evaluate the improvement or impact systematically. Similarly, SUSTAINABILITY ORGANIATION reporting of achievements (or non-achievements) could be improved by publishing the target Sustainability organization The portfolio companies’ average score for quality of sustaina- achievement rates where applicable. 24% bility organization is 59 per cent. A score of 100 per cent would 27% 0%-40% reflect absolute best practice by all the companies that we assessed, 41%-60% according to all four indicators (strategy integration, responsibility, 61%-70% employee inclusiveness, and stakeholder inclusiveness). About BKW 6% half the portfolio companies have scores above 60 per cent. These 71%-80% companies are already doing quite well at integrating sustainability Gap 1: In its previous Sustainability Report, the

18% 81%-90% EMENT F UND 15% into their organization. Here again, much progress can still be made, company announced that it would develop and 9% 91%-100% tub ylniam no eht trap fo ruo -llams dna dezis-muidem .seinapmoc introduce specific sustainability objectives. In the last report it states that owing to other priorities it did not do so. SUSTAINABILITY FRAMEWORKS S ENG AG Recommendation 1: Breaches of trust should be 6% Sustainability frameworks The portfolio companies’ average score for ability to report prevented, because they cause a loss of credibility. 15% according to the principal reporting or impact frameworks is 24 More generally, BKW should take care not to 0%-40% SWI S per cent. A score of 100 per cent would reflect absolute best practice be categorised as a “green washer”; this seems 41%-60% by all the companies that we assessed, according to all four of the to be a risk at present, in view of the imbalance 61%-70% most widely adopted frameworks (UN Global Compact, Sustainable between the stated commitments and the meagre Development Goals, UN Guiding Principles, and Global Reporting information on concrete objecti ves, measures and

71%-80% ADMO S Indicators). Only about twenty-one per cent of the portfolio companies (non-) achievements. 81%-90% C 79% have scores above 40 per cent. On the other hand, 6 per cent of 91%-100% the portfolio companies – mostly the larger ones – have scores of more than 80 per cent, meaning that they are already communicating broadly by means of these most widely adopted frameworks.

96/120 ASSESSMENT ASSESSMENT GAPS

PREPAREDNESS ON KEY TOPICS As these statistics indicate, the Cadmos Swiss Engagement Fund is mainly invested in companies that already show above-average sensitivity to The portfolio companies’ average score for preparedness on key financially material ESG topics. They also reveal topics is 59 per cent. A score of 100 per cent would reflect absolute some significant disparities, particularly among the best practice by all the companies in the Fund in relation to their small- and medium-sized companies. Based on the respective key topics (99 in total) according to all five indicators gaps identified by the assessments, we formulate (materiality, commitment and strategy, objective and actions, at least three recommendations that we believe indicators and monitoring, and achievements). About half the will have an impact on the company’s future while portfolio companies have scores of more than 60 per cent, which being easy to implement. Here we provide two is already above the norm, considering that the portfolio mainly examples of gaps and recommendations, presented comprises small or medium-sized companies. The 20 per cent with to two of our portfolio companies during our scores above 80 per cent are mostly large companies already well engagement meetings. There is Geberit, now a positioned to manage their key topics. mature exponent of ESG, and there is BKW, still at an emerging level despite being a highly exposed energy utility company. Indeed, the smaller Swiss companies frequently lag behind.

UALITY OF REPORTING GEBERIT The portfolio companies’ average score for quality of reporting is 53 per cent. A score of 100 per cent would reflect absolute best Gap 1: Though employees are required to take an practice by all the companies that we assessed, according to all six e-learning course, and the company has internalised indicators (accessibility, clarity, comparability, accuracy, reliability, a formal compliance audit, the disclosure remains and integration). About half the portfolio companies have scores too generic as regards relevance; targets and related above 60 per cent. These companies are already communicating measures and indicators; and achieved adherence quite well as regards their ESG challenges. Much progress can still or dismissals in connection with business integrity. be made, but mainly on the part of our medium- and small-sized companies. Recommendation 1: We suggest specifying the related objectives in order to measure or evaluate the improvement or impact systematically. Similarly, SUSTAINABILITY ORGANIATION reporting of achievements (or non-achievements) could be improved by publishing the target The portfolio companies’ average score for quality of sustaina- achievement rates where applicable. bility organization is 59 per cent. A score of 100 per cent would reflect absolute best practice by all the companies that we assessed, according to all four indicators (strategy integration, responsibility, employee inclusiveness, and stakeholder inclusiveness). About BKW half the portfolio companies have scores above 60 per cent. These companies are already doing quite well at integrating sustainability Gap 1: In its previous Sustainability Report, the into their organization. Here again, much progress can still be made, company announced that it would develop and EMENT F UND .seinapmoc dezis-muidem dna -llams ruo fo trap eht no ylniam tub ylniam no eht trap fo ruo -llams dna dezis-muidem .seinapmoc introduce specific sustainability objectives. In the last report it states that owing to other priorities it did not do so. SUSTAINABILITY FRAMEWORKS S ENG AG Recommendation 1: Breaches of trust should be The portfolio companies’ average score for ability to report prevented, because they cause a loss of credibility. according to the principal reporting or impact frameworks is 24 More generally, BKW should take care not to SWI S per cent. A score of 100 per cent would reflect absolute best practice be categorised as a “green washer”; this seems by all the companies that we assessed, according to all four of the to be a risk at present, in view of the imbalance most widely adopted frameworks (UN Global Compact, Sustainable between the stated commitments and the meagre Development Goals, UN Guiding Principles, and Global Reporting information on concrete objecti ves, measures and Indicators). Only about twenty-one per cent of the portfolio companies (non-) achievements. ADMO S C have scores above 40 per cent. On the other hand, 6 per cent of the portfolio companies – mostly the larger ones – have scores of more than 80 per cent, meaning that they are already communicating broadly by means of these most widely adopted frameworks.

97/120 Engagement uait Engagement uait

ENGAGEMENT INTENSITY Engagement intensity Of the thirty companies with whom we held Companies appreciate our practice of conducting discussions in this engagement cycle, twenty received a thorough analysis rather than sending out question- 80% on-site visits (66 per cent) and ten joined us through naires; especially as we do not restrict our findings to a 70% conference calls (33 per cent). For reasons of proximity score but instead provide feedback specific to each issue 60% and the portfolio manager’s preference for face-to-face along with pragmatic shareholder recommendations. 50% meetings at the companies’ premises, we have always The Cadmos Funds’ “soft power” engagement is clearly 40% maintained a high proportion of physical meetings conducive to a dialogue that is both influential and 30% (more than 60 per cent) for the Cadmos Swiss constantly constructive. 20% Engagement Fund. This has allowed us to establish 10% solid contacts with most of the portfolio companies The general trend over the years reveals a solid, stable 0% and achieve substantial progress rapidly. desire on the part of the companies to engage in the On-Site Meetings Conference Calls No Meeting dialogue, testifying to the credibility that the Cadm os Prior to any conference call or meeting, we send the Funds have acquired in the eyes of Swiss businesses.

2014-2015 2015-2016 2016-2017 2017-2018 companies an assessment summary of about thirty pages as a basis for discussion. For more information It is gratifying to see that we have maintained such a on our engagement process, see pages 11ff. high success rate with the companies over the years.

ENGAGEMENT LEVEL OF COMPANIES ENGAGEMENT LEVEL

2016-2017 2017-2108 Level Description 7 6 5 Shows improvements on recommendations 5 19 4 Acknowledges recommendations 8 5 3 Accepts the principle of a regular dialogue 4 0 2 Agrees to discuss assessment results 0 2 1 Acknowledges receipt of our assessment 4 1 0 Assessment completed but no meeting was conducted

Engagement progress: 2014 - 2018 ENGAGEMENT PROGRESS EMENT F UND

Level 5

3.73 Level 4

3.11 3.04 S ENG AG Level 3

2.13 Level 2 SWI S Level 1

Level 0

Average ADMO S C

2014-2015 2015-2016 2016-2017 2017-2018 …WE ENGAGED WITH ALL THE COMPANIES THAT HAD BEEN IN THE FUND FOR AT LEAST THREE YEARS.

98/120 Engagement uait Engagement uait

ENGAGEMENT INTENSITY

Of the thirty companies with whom we held Companies appreciate our practice of conducting discussions in this engagement cycle, twenty received a thorough analysis rather than sending out question- on-site visits (66 per cent) and ten joined us through naires; especially as we do not restrict our findings to a conference calls (33 per cent). For reasons of proximity score but instead provide feedback specific to each issue and the portfolio manager’s preference for face-to-face along with pragmatic shareholder recommendations. meetings at the companies’ premises, we have always The Cadmos Funds’ “soft power” engagement is clearly maintained a high proportion of physical meetings conducive to a dialogue that is both influential and (more than 60 per cent) for the Cadmos Swiss constantly constructive. Engagement Fund. This has allowed us to establish solid contacts with most of the portfolio companies The general trend over the years reveals a solid, stable and achieve substantial progress rapidly. desire on the part of the companies to engage in the dialogue, testifying to the credibility that the Cadm os Prior to any conference call or meeting, we send the Funds have acquired in the eyes of Swiss businesses. companies an assessment summary of about thirty pages as a basis for discussion. For more information It is gratifying to see that we have maintained such a on our engagement process, see pages 11ff. high success rate with the companies over the years.

ENGAGEMENT LEVEL OF COMPANIES ENGAGEMENT LEVEL

To provide a transparent measure of the impact of previous pages, we engaged with all the companies our engagement with the companies, we assess each that had been in the Fund for at least three years. 2016-2017 2017-2108 Level Description company according to a scale of five engagement levels Only three companies did not participate this year 7 6 5 Shows improvements on recommendations ranging from 0 to 5. (level 0 or 1): EMS Chemie, which had entered the 5 19 4 Acknowledges recommendations portfolio the previous year but was assessed for the The opposite table provides an overview of the evolu- first time in 2017. Conzzeta and Swatch Group, both 8 5 3 Accepts the principle of a regular dialogue tion in the number of companies having attained each of which entered the portfolio during this engage- 4 0 2 Agrees to discuss assessment results level between the engagement cycles of 2016–2017 ment cycle. Concerning Swatch Group, we expect 0 2 1 Acknowledges receipt of our assessment and 2017–2018. The engagement targets set for the the dialogue to be more difficult, as the company has 4 1 0 Assessment completed but no meeting was conducted Cadmos Funds are ambitious. Our first goal is to create stated that it is its general policy not to take part in a dialogue with each company within three years. As such meetings. can be seen from the tables opposite and on the

ENGAGEMENT PROGRESS EMENT F UND

The chart opposite tracks the average engagement level The data are also encouraging as regards the next few over time, with outstanding results since 2014. While years, since nineteen companies reached level 4 and today the average stands at 3.73, it was only 2.13 three acknowledged our recommendations. We can expect years ago. This long-term view reveals a continuous some of those nineteen to make further progress in the S ENG AG uptrend, albeit with some fluctuations owing to an coming engagement cycle, including the six companies increase in the number of new companies entering the that implemented some of our recommendations in portfolio. This increased portfolio turnover is neverthe- the current cycle. SWI S less modest, as the Fund’s average portfolio turnover has remained below 10 per cent for the past three years. The chart also confirms that the companies approve of the new engagement methodology introduced in 2017-2018. ADMO S C

…WE ENGAGED WITH ALL THE COMPANIES THAT HAD BEEN IN THE FUND FOR AT LEAST THREE YEARS.

99/120 ENGAGEMENT IMPACT ENGAGEMENT IMPACT

Our long-term (five-year) impact objective is to generate positive additional impacts at a majority of our portfolio companies. We motivate the companies to follow our recommendations regarding material topics (engagement level 5), social impact partnerships and peacebuilding initiatives. Performance on this ultimate objective will be measurable only next year, but we are on course: after four years, we have already created tangible impacts for twelve companies. 100 % 100 % 100 % 100 % 30 100 % The table opposite shows the twelve portfolio companies that have implemented our recommendations and improved 28 30 26 on at least one weak point raised. This score includes three companies that were sold but had reached engagement 24 80 % 22 level 5. This includes Roche and SGS, both of which also showed progress on social-impact partnerships initiated 20 22 by Cadmos. For more on this subject, see the “Social Impact Partnerships” section on pages XYZ. Altogether, since 18 60 % 16 the launch of the Fund in 2014, we have recorded 30 instances of positive engagement, resulting in a company’s 14 12 15 40 % improving on a specific point in response to a suggestion from Cadmos. 10 12 12 8 11 6 20 % Here we provide examples of Givaudan, Geberit, Partners Group and Swiss Re. They are among the eight companies 4 6 6 2 3 3 which implemented our recommendations and improved on at least one weak point raised the previous year: 0 0 % 2010-2011 2011-2012 2012-2013 2013-2014

Nb. of companies with positive engagement impacts (5 years rolling) Nb. of positive engagement impacts (cumulative since launch)

% of companies with engagement impacts Nb. sold companies with engagement impact GIVAUDAN PARTNERS GROUP

In the previous engagement meeting our team suggested Since the last meeting Partners Group has released its that Givaudan review its Code of Conduct of 2009. At Code of Conduct on its website, as recommended by the end of 2016 the company released a comprehensive the engagement team. It also now applies the GRI core Responsible Sourcing Policy, and since then it has option for its social-responsibility reporting, another published the extended and personalised principles of suggestion made at that time. Both the co-head of conduct on its website. It has confirmed that engage- group finance and corporate development and the ment with Cadmos triggered these actions. communication officer in charge of social responsibility ENGAGEMENT IMPACT SINCE LAUNCH expressed their appreciation of the “useful assessment results and constructive feedback”. They welcomed the presentation of the gaps and spoke frankly about GEBERIT some organizational and operational issues. This not 2014-2015 2015-2016 2016-2017 2017-2018 only helped our team to understand the reasons for As in previous years, the chief executive and the head of the weaknesses identified, but also confirmed our environment and sustainability took part in the meeting. impression that the company is always keen to improve. They appreciated the new methodology and found the main conclusions of the assessment instructive. The chief executive spoke frankly about the task of integrating Sanitec into the Geberit Group and gave SWISS RE direct answers to the Cadmos team’s questions about EMENT F UND the company’s approach to market differentiation Following our previous discussion in December 2016, and growth. Similarly, when our team brought up Swiss Re has taken up three of the four recommen- 2013-2014 2013-2014 2013-2014 2013-2014 the challenges of social responsibility in relation to dations made by the Cadmos engagement team: 1) procurement, production and marketing, the subject the Corporate Responsibility Report is now released S ENG AG was well received and led to a fruitful discussion. with the Annual Report; 2) the presentation of the Geberit has acted on our previous recommendation company’s and stakeholders’ material topics meets to review the Code of Conduct. best-in-class requirements; and 3) the sector policy SWI S documents from the sustainability risk framework are now publicly available. Again this year, the Swiss Re participants were keen to learn from the assessment. They also found the revised methodology helpful. The company’s senior advisor on Sustainable development ADMO S C contacted the engagement team afterwards, to follow up on some other gaps in the reporting.

100/ 120 1. Baidu, BRF Brasil Food, China life, Infosys, Naspers, Ping An Insurance, Samsung Life and Sanlam. ENGAGEMENT IMPACT ENGAGEMENT IMPACT

The tabletable opposite opposite sh showsows the the twelve twelve por tfoportfoliolio comp companiesanies that h avethat imp havelemented implemented our recomm our erecommendationsndations and improv anded onimproved at least oneon at weak least point one weak raised. point This raised. score includes This includes three companiesRoche and that SGS, were both sold of whichbut had also reached showed engagement progress onlevel social 5. This impact includes partnerships Roche and initiated SGS, both by Cadmos. of which For also more showed on this progress subject, on see social-impact the “Social Impactpartnerships Partnerships” initiated bysection Cadm onos. pages For mo46ff.re Altogether,on this subjec sincet, see the the launch “Social of Im thepact Fund Par tninersh 2014,ips” we sec havetion recorded on pages 30 XYZ. instances Altoget ofhe positiver, since theengagement, launch of resultingthe Fund in in a 2014, company’s we have improving recorded on30 ainstances specific of point positive in response engagement, to a suggestion resulting in from a company’s Cadmos. improvingThis score includeson a specific three point companies in response that were to a suggestionsold but had from reached Cadmos. engagement level 5.

Here we provide examples of Givaudan, Geberit, Partners Group and Swiss Re. They are among the eight companies which implemented our recommendations and improved on at least one weak point raised the previous year:

GIVAUDAN PARTNERS GROUP

In the previous engagement meeting our team suggested Since the last meeting Partners Group has released its that Givaudan review its Code of Conduct of 2009. At Code of Conduct on its website, as recommended by the end of 2016 the company released a comprehensive the engagement team. It also now applies the GRI core Responsible Sourcing Policy, and since then it has option for its social-responsibility reporting, another published the extended and personalised principles of suggestion made at that time. Both the co-head of conduct on its website. It has confirmed that engage- group finance and corporate development and the ment with Cadmos triggered these actions. communication officer in charge of social responsibility ENGAGEMENT IMPACT SINCE LAUNCH expressed their appreciation of the “useful assessment results and constructive feedback”. They welcomed the presentation of the gaps and spoke frankly about GEBERIT some organizational and operational issues. This not only helped our team to understand the reasons for As in previous years, the chief executive and the head of the weaknesses identified, but also confirmed our environment and sustainability took part in the meeting. impression that the company is always keen to improve. They appreciated the new methodology and found the main conclusions of the assessment instructive. The chief executive spoke frankly about the task of integrating Sanitec into the Geberit Group and gave SWISS RE direct answers to the Cadmos team’s questions about EMENT F UND the company’s approach to market differentiation Following our previous discussion in December 2016, and growth. Similarly, when our team brought up Swiss Re has taken up three of the four recommen- the challenges of social responsibility in relation to dations made by the Cadmos engagement team: 1) procurement, production and marketing, the subject the Corporate Responsibility Report is now released S ENG AG was well received and led to a fruitful discussion. with the Annual Report; 2) the presentation of the Geberit has acted on our previous recommendation company’s and stakeholders’ material topics meets to review the Code of Conduct. best-in-class requirements; and 3) the sector policy SWI S documents from the sustainability risk framework are now publicly available. Again this year, the Swiss Re participants were keen to learn from the assessment. They also found the revised methodology helpful. The company’s senior advisor on Sustainable development ADMO S C contacted the engagement team afterwards, to follow up on some other gaps in the reporting.

1. Baidu, BRF Brasil Food, China life, Infosys, Naspers, Ping An Insurance, Samsung Life and Sanlam. 101/120

Integrated Performance Reports

The content of the following integrated performance reports of companies was produced mainly by the engagement team, the portfolio managers, the Cadmos coordination team and their engagement partners. It provides an account of the investment, voting and engagement activities conducted on behalf of the Cadmos Funds with selected companies in the portfolio as at 31 March 2018. The company presented here (Geberit, Schneider Electric and TSMC) are representative of our portfolio. The complete set of integrated performance reports for all the companies in the Fund is available on request. Integrated Performance Report Geberit 2017-2018

Investment case

Sector: Construction & Materials Performance Industry: Building Products 1Y: 7.60% Country: Switzerland 3Y: 35.90% ISIN: CH0030170408 5Y: 141.40%

Geberit Group is the European market leader in sanitary technology. The company encompasses three product areas: Sanitary Systems, Piping Systems and Ceramics Products, the former having been added as a result of Geberit’s acquisition of Sanitec. This addition enhances Geberit’s products, enabling a cleaner direct contact with the ﬁnal customer. Geberit can command large margins due to its stellar reputation, allowing it to implement premium pricing strategies, as well as through its economies of scale resulting from leading positions in its core markets of Germany, Switzerland, Austria, Italy and Benelux. Additionally, Geberit generates a high free cash ﬂow which enables the company to pay attractive dividends.

Voting review

2017: 17 votes total, 0 opposing Cadmos approved or voted with management on all items presented for vote to shareholders in 2017. All items were approved with a large majority.

Engagement review

Notes on last engagement Level of engagement As in previous years, the CEO and the Head of Envi- 8th engagement cycle and 4th discussion with the ronment and Sustainability participated actively in the company since its entry into the portfolio. meeting. They appreciated the new methodology and Type of meeting: Virtual Meeting. were interested to learn from the main conclusions of the assessment. The CEO explained transparently the challenges related to the integration of Sanitec into the Geberit Group and answered the questions of the 2 portfolio managers related to company’s market diﬀerentiation and growth non-euphemistically. ESG challenges related to procurement, production and marketing addressed by the Cadmos representatives were positively received and thoroughly discussed. The previous recommendation to review the CoC was taken-up since last brieﬁng.

2017-2018 Engagement Cycle 1 Integrated Performance Report Integrated Performance Report Geberit 2017-2018 Geberit 2017-2018

Investment case Preparedness on key topics

Sustainability focus Sector: Construction & Materials Performance As the market leader in sanitary technology in Europe, Industry: Building Products 1Y: 7.60% Geberit’s product environmental impact is relevant: wa- Product environmental Country: Switzerland 3Y: 35.90% impact ISIN: CH0030170408 5Y: 141.40% ter eﬃciency is an opportunity for developing and diffusing environmentally friendly technologies. With its Product social impact

products, Geberit has also a social impact due to cus- Business integrity and tomer health, product quality and liability. With the compliance Geberit Group is the European market leader in sanitary technology. The company encompasses three product areas: company’s presence in over 60 countries and exposure to 0 10 20 30 40 50 60 70 80 90 100 Sanitary Systems, Piping Systems and Ceramics Products, the former having been added as a result of Geberit’s risk of corruption, also business integrity and compliance acquisition of Sanitec. This addition enhances Geberit’s products, enabling a cleaner direct contact with the ﬁnal are relevant topics. customer. Geberit can command large margins due to its stellar reputation, allowing it to implement premium pricing strategies, as well as through its economies of scale resulting from leading positions in its core markets of Germany, Product environmental impact Materiality Switzerland, Austria, Italy and Benelux. Additionally, Geberit generates a high free cash ﬂow which enables the company Geberit’s reporting on product environmental impact is to pay attractive dividends. on a very good level. The information is comprehensive,

covering specific aspects of environmentally friendly prod- Commitment & Achievements ucts and services (especially regarding water efficiency, Strategy but also regarding lifecycle impacts). Materiality is de- Voting review scribed in detail and the company clearly commits to the development of water-saving and sustainable products. Geberit also informs on the strategy, objectives, actions, 2017: 17 votes total, 0 opposing Indicators & Objectives & indicators and monitoring related to the management of Monitoring Actions Cadmos approved or voted with management on all items product environmental impact. presented for vote to shareholders in 2017. All items were approved with a large majority. Product social impact Materiality Geberit has also a social impact through its products especially due to customer health, product quality and Commitment & Achievements liability. While the environmental impact of products Strategy Engagement review is outlined quite comprehensively, the social impact of products is less extensively described. Customer health is considered a material topic and it is covered on a good Notes on last engagement Level of engagement level. The materiality of product quality and liability and Indicators & Objectives & As in previous years, the CEO and the Head of Envi- 8th engagement cycle and 4th discussion with the the related commitment, strategy, and operative aspects Monitoring Actions ronment and Sustainability participated actively in the company since its entry into the portfolio. are addressed only fractionally. meeting. They appreciated the new methodology and Type of meeting: Virtual Meeting. were interested to learn from the main conclusions of Business integrity and compliance Materiality the assessment. The CEO explained transparently the Geberit’s communication of business integrity and com- challenges related to the integration of Sanitec into the pliance is sound. Especially the commitment and the Commitment & Geberit Group and answered the questions of the 2 portfo- Achievements strategies to manage this topic are well described. The Strategy lio managers related to company’s market differentiation formulation of objective and actions is lagging behind, and growth non-euphemistically. ESG challenges related as there are mostly short term, qualitative objectives. to procurement, production and marketing addressed by There is a general description of monitoring and a selec- the Cadmos representatives were positively received and tive presentation of performance indicators with regard to thoroughly discussed. The previous recommendation to Indicators & Objectives & business integrity and compliance. Positive achievements Monitoring Actions review the CoC was taken-up since last briefing. are described.

2017-2018 Engagement Cycle 1 2017-2018 Engagement Cycle 2 Integrated Performance Report Geberit 2017-2018

Quality of reporting

Geberit’s quality of sustainability communication is on a very good level. It is systematic and well organized. The provided information and data is clear and understandable. Comparability and consistency of information is given, some key ﬁgures can even be compared to the Geberit past ten years. Information on measurement techniques is given on the level of speciﬁc topics. A stakeholder Benchmark panel comprised of independent members reviewed the 0 10 20 30 40 50 60 70 80 90 100 sustainability strategy for the third time in 2016. This Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration adds to the reliability of the reporting. Sustainability information is included in a separate chapter in the An- nual Report, but not fully integrated based on IIRC or similar.

Sustainability organization

Geberit’s sustainability organization is on a very good Strategy level. Sustainability is integrated at least with some aspects in the business strategy. The ultimate responsi- Responsibility bility for non-ﬁnancial issues is clearly deﬁned. A particular strength is Geberit’s stakeholder panel that was Employee inclusiveness conducted with external stakeholders for the third time in September 2016 aiming to provide feedback on the Stakeholder Inclusiveness materiality analysis and the sustainability strategy. 0 1 2 3

Reference to sustainability frameworks

UNGC: Geberit is a signatory to the UN Global Com- pact and its COP qualiﬁes for the Global Compact Active level. UNGC SDG: Geberit refers to several SDGs and explains their relevance to the company, but does not formulate tangible SDGs goals that are explicitly linked to these. UNGP: Geberit publicliy commits to the UN Guiding UNGP Principles, but does not conduct speciﬁc due diligence to identify, prevent, mitigate and account for its human GRI rights impacts. 0 1 2 3 GRI: Geberit has prepared its report in accordance with GRI G4: Comprehensive option.

2017-2018 Engagement Cycle 3 Integrated Performance Report Integrated Performance Report Geberit 2017-2018 Geberit 2017-2018

Quality of reporting Gaps and Recommendations

Geberit’s quality of sustainability communication is on Gap 1: Though the employees have to undergo an e-learning and a formal compliance audit has been a very good level. It is systematic and well organized. internalized the disclosure on the relevance, targets and related measures and indicators as well as achieved The provided information and data is clear and under- adherence/dismissals concerning business integrity remains too generic. standable. Comparability and consistency of information Recommendation 1: In its Annual Report 2016 the company is presenting comprehensively its sustainability is given, some key figures can even be compared to the Geberit strategy. Compliance is one of the eleven concrete modules which strengthen the business model and the added past ten years. Information on measurement techniques value for its key stakeholders. It is suggested to specify related objectives in order to measure or systematically is given on the level of specific topics. A stakeholder Benchmark evaluate improvement or impact respectively. Similarly, reporting on achievements (or non-achievements) could panel comprised of independent members reviewed the 0 10 20 30 40 50 60 70 80 90 100 be improved by publishing the target achievement rates where applicable. sustainability strategy for the third time in 2016. This Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration Gap 2: Compared to environmental issues, Geberit is not specifying on its social challenges related to its adds to the reliability of the reporting. Sustainability products and services though they are explicitly addressed in the overview of company’s material issues and information is included in a separate chapter in the An- technical details are provided in the integrated annual report. nual Report, but not fully integrated based on IIRC or Recommendation 2: Health risks related to Geberit’s drinking water and sanitation systems for residential similar. and office buildings such as corrosion linked with the arise of a (pathogenic) biofilm habitat that can emerge due to infrequent use, noise of flushing systems, hygienic and ergonomic aspects of water closet systems should Sustainability organization be addressed more systematically and quantitatively in company’s disclosure. From an investor’s perspective this sort of information could also further strengthen company’s position in the market. Geberit’s sustainability organization is on a very good Strategy level. Sustainability is integrated at least with some aspects in the business strategy. The ultimate responsi- Responsibility Social impact partnerships bility for non-financial issues is clearly defined. A particular strength is Geberit’s stakeholder panel that was Employee inclusiveness Social impact embeddedness conducted with external stakeholders for the third time in September 2016 aiming to provide feedback on the Stakeholder Inclusiveness Geberit aims to achieve sustained improvement in the materiality analysis and the sustainability strategy. 0 1 2 3 quality of individuals’ lives, particularly with its focus on sanitary products. The company engages in philanthropy and supports corporate volunteering. However, Geberit Reference to sustainability frameworks does not systematically support social investments or entrepreneurial initiatives. UNGC: Geberit is a signatory to the UN Global Com- pact and its COP qualifies for the Global Compact Active Follow-up meetings and progress level. UNGC SDG: Geberit refers to several SDGs and explains their The company was very receptive of our analysis and recommendations during our engagement meeting on social impact, relevance to the company, but does not formulate tangible SDGs and Geberit showed interest in holding more interactions of the sort in the future. They declined, however, to participate goals that are explicitly linked to these. in our Readiness to Partner survey at this time, and thus no follow-up email was sent. UNGP: Geberit publicliy commits to the UN Guiding UNGP Principles, but does not conduct specific due diligence to identify, prevent, mitigate and account for its human GRI rights impacts. 0 1 2 3 GRI: Geberit has prepared its report in accordance with GRI G4: Comprehensive option.

2017-2018 Engagement Cycle 3 2017-2018 Engagement Cycle 4 Integrated Performance Report Schneider Electric 2017-2018

Investment case

Sector: Industrial Goods & Services Performance Industry: Electrical Equipment 1Y: 10.30% Country: France 3Y: 28.30% ISIN: FR0000121972 5Y: 50.60%

World leader in electrical equipment (both high and medium voltage) and automation and industrial control solutions. In particular, Schneider Electric is a global specialist in electricity distribution and automated management. The firm occupies the first or second position worldwide across all of its products and services, which cover the residential, buildings, industry, energy and infrastructure markets. Paramount to its long term success is the robust growth experienced in the emerging-market countries. Operating margins have increased consistently, primarily thanks to excellent execution in terms of cost management and productivity. The firm is well positioned to further succeed in the longer term with its focus on growing its digital business.

Voting review

2017: 28 votes total, 0 opposing Cadmos approved or voted with management on all items presented for vote to shareholders in 2017. All items were approved with a large majority.

Engagement review

Notes on last engagement Level of engagement For the Cadmos Funds we have been engaging with SE for 10th engagement cycle and 8th discussion with the some years now. They are responsive and always attend company since its entry into the portfolio. with at least three thematic experts. Participation by Type of meeting: Virtual Meeting. Investor Relations should be encouraged. We will take stock next year to see to what extent they respond to recommendations under the new methodology. (At this point they have been inﬂuenced by our recommendation two years earlier to initiate Integrated Reporting.) They are clearly intrigued by the new peacebuilding approach. The company’s ranking triggered some questions and a desire for further understanding. There is a clear willingness to learn more about the PIF methodology.

2017-2018 Engagement Cycle 1 Integrated Performance Report Integrated Performance Report Schneider Electric 2017-2018 Schneider Electric 2017-2018

Investment case Preparedness on key topics

Sustainability focus Sector: Industrial Goods & Services Performance With its specialization in energy management and au- Industry: Electrical Equipment 1Y: 10.30% tomation solutions, spanning hardware, software, and Country: France 3Y: 28.30% Climate change impact ISIN: FR0000121972 5Y: 50.60% services, climate change is a crucial topic for Schneider Electric, as its products and services allow using energy Core labor standards more efficiently and lay the basis for alternative sources compliance of energy. With employees in approximately 100 coun- Product social impact World leader in electrical equipment (both high and medium voltage) and automation and industrial control solutions. tries worldwide and an important turnover in emerging 0 10 20 30 40 50 60 70 80 90 100 In particular, Schneider Electric is a global specialist in electricity distribution and automated management. The markets, ensuring the compliance with core labor stan- firm occupies the first or second position worldwide across all of its products and services, which cover the residential, dards is an issue. Product social impact is releveant due buildings, industry, energy and infrastructure markets. Paramount to its long term success is the robust growth to the importance of product quality and safety. experienced in the emerging-market countries. Operating margins have increased consistently, primarily thanks to excellent execution in terms of cost management and productivity. The firm is well positioned to further succeed in the Climate change impact Materiality longer term with its focus on growing its digital business. With its focus on an integrated offer of technologies and solutions in energy management, importantly to advance

energy efficiency and clean energy technologies, all that Commitment & Achievements Strategy Voting review SE sells is related to climate mitigation. The climate issue is clearly one of opportunity for the company. It notes that its own industrial processes are not very energy intensive, and the main source of its carbon footprint lies 2017: 28 votes total, 0 opposing with purchase of raw materials and equipment. Its most Cadmos approved or voted with management on all items Indicators & Objectives & important climate contribution lies with use by clients Monitoring Actions presented for vote to shareholders in 2017. All items were of its technologies and solutions. approved with a large majority. Core labor standards compliance The company is aware of the value of a committed and Materiality talented workforce. This applies both internally and ex- Engagement review ternally. Internally it has important initiatives on for Commitment & Achievements example gender equity, and among others provides ex- Strategy Notes on last engagement Level of engagement tensive scope for engagement and continued learning by employees. Externally its work with suppliers on perfor- For the Cadmos Funds we have been engaging with SE for 10th engagement cycle and 8th discussion with the mance and for example use of the ISO 26000 standard some years now. They are responsive and always attend company since its entry into the portfolio. is important. To watch will be any employee issues in with at least three thematic experts. Participation by Type of meeting: Virtual Meeting. Indicators & Objectives & those new economies where it acquires a majority share Monitoring Actions Investor Relations should be encouraged. We will take or takes over new companies, for example Electroshield-T stock next year to see to what extent they respond to Samara in Russia. recommendations under the new methodology. (At this point they have been influenced by our recommendation Product social impact Materiality two years earlier to initiate Integrated Reporting.) They While SE has no significant information to report related are clearly intrigued by the new peacebuilding approach. to the safety of its own products and services, a significant

The company’s ranking triggered some questions and quality dimension lies with the socio-economic beneﬁts Commitment & Achievements a desire for further understanding. There is a clear that follow from use of its technologies and services. Strategy willingness to learn more about the PIF methodology. This is especially evident in its Bottom-of-the-Pyramid initiatives, considering that the company views emerging markets as its key growth geography. Various examples

can be found in the Annual Report, related to its Energy Indicators & Objectives & Access Programme and SE Foundation, of initiatives in Monitoring Actions emerging markets.

2017-2018 Engagement Cycle 1 2017-2018 Engagement Cycle 2 Integrated Performance Report Schneider Electric 2017-2018

Quality of reporting

The company provides a wealth of information, including online on a well developed and userfriendly company website. What will need to be improved in future is Schneider Electric the quality of its Integrated Report(ing). Currently the company produces a very long AR with extensive in- Benchmark formation on various initiatives, including separate SD 0 10 20 30 40 50 60 70 80 90 100

/ Governance / Finance chapters, and a short IR that Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration comes across as a short version of the AR that seeks to speak to the general public.

Sustainability organization

Especially evident related to climate and energy, it is clear that SE has embedded sustainability in its business strategy. It is also recognised for its performance in this respect by many initiatives and ratings awards. It Strategy recognises challenges, such as raw material supplies and risky content, and responds by among others referencing Responsibility recognised requirements. In the process compliance also Employee inclusiveness becomes innovation, and risk is turned into opportunity.

On the social agenda, it may need to report separately Stakeholder Inclusiveness on its Foundation activities so that philantrophic work and core business work do not get confused in an inappro- 0 1 2 3 priate way (versus being systematic and clear in deﬁning “shared value” initiatives).

Reference to sustainability frameworks

UNGC: The company is a signatory to the UN Global Compact communicating on its progress at ‘Advanced’ level. UNGC SDG: The company refers to the SDGs with a clear commitment but is not presenting tangible own goals SDGs and actions derived from SDGs. Page 60 of its AR does present SE initiatives and accomplishments related to UNGP selected SDGs. UNGP: The company has instituted a policy on human GRI rights, grievance mechanism is planned for 2017. 0 1 2 3 GRI: The company report has been prepared in accordance with the GRI Standards: Core option.

2017-2018 Engagement Cycle 3 Integrated Performance Report Integrated Performance Report Schneider Electric 2017-2018 Schneider Electric 2017-2018

Quality of reporting Gaps and Recommendations

The company provides a wealth of information, including Gap 1: On core labor standards, gaps exist with respect to longer-term objectives and achievements. The online on a well developed and userfriendly company current labour-related objectives as reﬂected in the Planet & Society Barometer only target 2017, and objectives website. What will need to be improved in future is Schneider Electric for the longer term are missing. Non-achievements or challenges are not reported, for example challenges the quality of its Integrated Report(ing). Currently the associated with new acquisitions in emerging markets. company produces a very long AR with extensive in- Benchmark Recommendation 1: The company should be encouraged to report longer term objectives on core labour standards. This includes objectives related to health and safety, gender equity in equal pay, as well as future formation on various initiatives, including separate SD 0 10 20 30 40 50 60 70 80 90 100

/ Governance / Finance chapters, and a short IR that Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration targets for greater employee shareholding (for example new employees in emerging markets). It should also be comes across as a short version of the AR that seeks to encouraged to report challenges associated with the integration of employees from newly acquired companies in speak to the general public. countries such as Russia and Brazil. Gap 2: On product social impact, we found gaps related to the quality and broader socio-economic impact of Sustainability organization their products and solutions. Indicators and progress reported was not clearly comprehensive, the reporting rather giving details of various activities without overall strategic focus. The reporting can improve also in Especially evident related to climate and energy, it is giving indicators of broader impact (outcomes) versus only outputs (e.g. x thousand people trained). Reporting clear that SE has embedded sustainability in its busi- on non-achievements and challenges in this area was also coming short. ness strategy. It is also recognised for its performance in Recommendation 2: The company should be encouraged to bring more strategic focus in how it reports on this respect by many initiatives and ratings awards. It Strategy Product Social Impact. This is also related to its disclosures on Maturity of Social Impact. It can be recommended recognises challenges, such as raw material supplies and to rather report philantrophic activities of the Schneider Foundation separately, so that philantropic information risky content, and responds by among others referencing Responsibility does not get mixed / confused with core business, leading to lack of strategic focus and comprehensive indicators recognised requirements. In the process compliance also on outcomes of use of their products and solutions. Working on this has to be part of their improvement on Employee inclusiveness becomes innovation, and risk is turned into opportunity. how they frame their Shared Value and Bottom-of-the-Pyramid activities. On the social agenda, it may need to report separately Stakeholder Inclusiveness Gap 3: On quality of reporting, we found shortcomings related to Comparability and Integration. On some of on its Foundation activities so that philantrophic work 0 1 2 3 the material topics reflected in their Materiality Matrix, our analysts did not find comparabile data of at least and core business work do not get confused in an inappro- three years. This raises an important question on how or whether formulation of indicators (KPIs) are based priate way (versus being systematic and clear in defining on all material topics prioritised in their materiality determination process. On Integration, their Integrated “shared value” initiatives). Report (IR) reads more like a summary extract of their Annual Report and not a true IR. Also, it seems to address the general public and not specifically the providers of financial capital / investors. Reference to sustainability frameworks Recommendation 3: The company should be encouraged to improve disclosure of comparable, time series data of at least 3 years, showing use of key indicators related to specified key material topics. Also, it should be encouraged to improve use of the IIRC Framework so that their integrated reporting is more strategic and UNGC: The company is a signatory to the UN Global addresses specifically financial stakeholders as target audience. A concise and strategic IR has to complement Compact communicating on its progress at ‘Advanced’ their lengthy sustainability and annual reporting. level. UNGC SDG: The company refers to the SDGs with a clear commitment but is not presenting tangible own goals SDGs and actions derived from SDGs. Page 60 of its AR does Social impact partnerships present SE initiatives and accomplishments related to UNGP selected SDGs. Social impact embeddedness UNGP: The company has instituted a policy on human GRI rights, grievance mechanism is planned for 2017. 0 1 2 3 Social impact initiatives revolve around access to energy, GRI: The company report has been prepared in accor- social investment, the SE Foundation and contributions dance with the GRI Standards: Core option. to social development, with some related results being summarised. Nevertheless, the results signal "outputs" rather than outcomes or impact, and need to be contex- tualised.

Follow-up meetings and progress

Schneider Electric remains very open and responsive to our recommendations and showed interest in the Fund’s unique social impact methodology, with representatives from the company being keen to adapt their social impact strategy according to our expertise in managing corporate and social enterprise partnerships for a societal impact. The company subsequently completed our Readiness to Partner Assessment, leading to a ﬁnal follow-up discussion pertaining to more systematic benchmarking and how to better proﬁle Schneider’s work to the public.

2017-2018 Engagement Cycle 3 2017-2018 Engagement Cycle 4 Integrated Performance Report Schneider Electric 2017-2018

Contribution to peacebuilding

Labor

Peacebuilding embeddedness Security Sourcing The company is operational in fragile states such as Syria, Yemen, Nigeria, Kenya, and Pakistan. However, its communication does not speciﬁcally describe what it does to adapt to the unstable situations in these countries. SE Community Products is starting to address human rights and conﬂict minerals. Relations

Governance

Peacebuilding ambitions The reporting acknowledged here only relates to their generic commitment to promoting social responsibility (e.g. ISO26000 in the supply chain), combat corruption (aware of Transparency International assessments), advance human rights and prevent involvement in con- ﬂict minerals (including related recommendations by e.g. OECD). Reporting on how they promote these in speciﬁ- cally the ten or more fragile states they operate in will need to be introduced.

Follow-up meetings and progress

Schneider Electric is ranked 39th in the PBBI ranking and was in the peacebuilding pilot conducted before launching the Fund in January 2018. Schneider is clearly intrigued by the new peacebuilding approach presented in our ﬁrst discussion regarding the topic. The company’s ranking triggered some questions and a strong desire for further understanding of the Fund’s underlying methodology. A subsequent follow-up meeting with the Sustainability Performance Manager was even more encouraging, as they reacted favorably to Schneider’s inclusion in the Fund, while remarking that the PBBI criteria correspond well with their existing sustainability priorities and framework. This is extremely promising for the future, particularly given that peacebuilding has, to this point, seldom been the primary lens that Schneider has looked at its actions and responsibilities through. Ultimately, the meeting resulted in an interest from Schneider to pursue a proposal to articulate SDG16 contributions, and clearly demonstrate peacebuilding’s place in their sustainability framework.

The peacebuidling assessment and engagement has been conducted in cooperation with the PeaceNexus Foundation.

2017-2018 Engagement Cycle 5 Integrated Performance Report Integrated Performance Report Schneider Electric 2017-2018 Taiwan Semiconductor 2017-2018

Contribution to peacebuilding Investment case

Labor Sector: Technology Performance 1Y: 42.30% Industry: Semiconductors & Semiconductor Equipment 3Y: 95.80% 5Y: 168.30% Peacebuilding embeddedness Security Sourcing Country: Taiwan (Province of China) The company is operational in fragile states such as ISIN: US8740391003 Syria, Yemen, Nigeria, Kenya, and Pakistan. However, its communication does not specifically describe what it does to adapt to the unstable situations in these countries. SE Taiwan Semiconductor is the world’s leading manufacturer of semiconductors. It owns a 30% share of the global market, Community Products namely three times more than its closest competitor. The company is constantly gaining market share, be it through its is starting to address human rights and conflict minerals. Relations unique relationship with customers, who actively participate in the product development process, or through excellent cost control. An additional argument to explain these gains is the company’s high-end execution of a highly complex Governance manufacturing process. TSMC has been able to patent its manufacturing processes, limiting the ability of competitors to copy its success. Meanwhile, barriers to entry are considered fit to increase, as the cost of building a fabrication plant continues to increase as chip manufacturing scales down to smaller geometries. Peacebuilding ambitions The reporting acknowledged here only relates to their generic commitment to promoting social responsibility (e.g. ISO26000 in the supply chain), combat corrup- Voting review tion (aware of Transparency International assessments), advance human rights and prevent involvement in conflict minerals (including related recommendations by e.g. 2017: 6 votes total, 0 opposing OECD). Reporting on how they promote these in specifi- Cadmos approved or voted with management on all items cally the ten or more fragile states they operate in will presented for vote to shareholders in 2017. need to be introduced.

Follow-up meetings and progress Engagement review Schneider Electric is ranked 39th in the PBBI ranking and was in the peacebuilding pilot conducted before launching the Fund in January 2018. Schneider is clearly intrigued by the new peacebuilding approach presented in our ﬁrst discussion regarding the topic. The company’s ranking triggered some questions and a strong desire for further understanding of Notes on last engagement Level of engagement the Fund’s underlying methodology. A subsequent follow-up meeting with the Sustainability Performance Manager was Again this year, various representatives from diﬀerent 8th engagement cycle and 7th discussion with the even more encouraging, as they reacted favorably to Schneider’s inclusion in the Fund, while remarking that the PBBI departments joined the engagement call. The assessment company since its entry into the portfolio. criteria correspond well with their existing sustainability priorities and framework. This is extremely promising for the details were taken up with great interest and any gaps Type of meeting: Virtual Meeting. future, particularly given that peacebuilding has, to this point, seldom been the primary lens that Schneider has looked were discussed with a strong focus on further improve- at its actions and responsibilities through. Ultimately, the meeting resulted in an interest from Schneider to pursue ment on a already high level. The company representa- a proposal to articulate SDG16 contributions, and clearly demonstrate peacebuilding’s place in their sustainability tives made clear that they do not compare their company framework. with benchmarks from emerging economies, but with the best from the European market.

The peacebuidling assessment and engagement has been conducted in cooperation with the PeaceNexus Foundation.

2017-2018 Engagement Cycle 5 2017-2018 Engagement Cycle 1 Integrated Performance Report Taiwan Semiconductor 2017-2018

Preparedness on key topics

Sustainability focus For TSMC, the world’s largest dedicated independent (pure-play) semiconductor foundry, a major topic is its Supplier social impact supplier social impact. Supply chain management, includ- 0 10 20 30 40 50 60 70 80 90 100 ing labor norms and human rights, is a critical challenge for the company. Supplier social impact Reporting on supplier social impact is on an excellent Materiality level. TSMC describes its materiality process in detail including number of stakeholders engaged, their issues Commitment & Achievements and communication channels. Supplier sustainability Strategy management is placed in materiality matrix as topic with high priority. Detailed commitments to responsible supply chain are expressed in the TSMC Supplier Code of Conduct. The company sets speciﬁc goals for 2017 Indicators & Objectives & and 2020. Finally, supplier sustainability management is Monitoring Actions described including monitoring, actions, indicators and achievements in 2016.

Quality of reporting

TSMC’s reporting quality is on a high level. Accessibility of sustainability information is advanced. Clarity is also good, with information that is understandable, complete, and objective. Data can be compared for a period of at Taiwan Semiconductor least 3 years for all material topics, and methods used Benchmark to gather, compile, and analyze data are explained in necessary detail. Sustainability information is audited 0 20 40 60 80 100 by an independent third party. CR topics are integrated Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration in the Annual Report in form of a CSR chapter without following the IIRC guidelines.

Sustainability organization

Sustainability is an integral part of TSMC s business strategy and the company’s products and innovations respond to key sustainability challenges (e.g. energy eﬃ- Strategy ciency). The Chief Financial Oﬃcer serves as Chairper- son of the CSR Committee and reports annually to the Responsibility Board of Directors. The company engages its employees on sustainability, e.g. through engagement surveys and Employee inclusiveness volunteering activities. TSMC regularly engages with its stakeholders based on the AA 1000 stakeholder engage- Stakeholder Inclusiveness ment standards (SES). Further, the company has also 0 1 2 3 R&D partnerships with various suppliers (e.g. Versum Materials) and universities.

2017-2018 Engagement Cycle 2 Integrated Performance Report Integrated Performance Report Taiwan Semiconductor 2017-2018 Taiwan Semiconductor 2017-2018

Preparedness on key topics Reference to sustainability frameworks

Sustainability focus UNGC: The company is not a signatory to the UN For TSMC, the world’s largest dedicated independent Global Compact, but they publish a United Nations Global Compact Comparison Table in their CSR report. (pure-play) semiconductor foundry, a major topic is its Supplier social impact supplier social impact. Supply chain management, includ- SDG: The company presents tangible own current goals UNGC 0 10 20 30 40 50 60 70 80 90 100 (Vision 2020) and actions (Sustainable Management Ac- ing labor norms and human rights, is a critical challenge SDGs for the company. tion) towards meeting 7 SDGs. UNGP: The company has instituted Code of Conduct UNGP Supplier social impact in alignment with the UN Guiding Principles on Business Materiality Reporting on supplier social impact is on an excellent and Human Rights. TSMC also formally established its GRI Human Rights Policy in 2016 and makes human rights level. TSMC describes its materiality process in detail 0 1 2 3 including number of stakeholders engaged, their issues assessment at the corporate level and at the facility level. Commitment & Achievements and communication channels. Supplier sustainability Strategy GRI: The company report has been prepared in accor- management is placed in materiality matrix as topic dance with the GRI G4: Comprehensive option. with high priority. Detailed commitments to responsible supply chain are expressed in the TSMC Supplier Code of Conduct. The company sets speciﬁc goals for 2017 Gaps and Recommendations Indicators & Objectives & and 2020. Finally, supplier sustainability management is Monitoring Actions Gap 1: There is good description of a corporate approach towards supplier social impact and the materiality described including monitoring, actions, indicators and process is described in detail. Supplier Sustainability Management is placed high on the materiality matrix. achievements in 2016. However, the relevance, risks, and opportunities could be better explained. Further, the reporting of non- achievements would complement the communication regarding this topic. Quality of reporting Recommendation 1: The Engagement Team recommends describing in more detail the risks and opportunities regarding supplier social impact and communicating also about challenges and targets that were not achieved. TSMC’s reporting quality is on a high level. Accessibility of sustainability information is advanced. Clarity is also Gap 2: TSMC’s reporting quality is on a high level. However, some policy documents are not available as good, with information that is understandable, complete, downloads but only online (e.g. TSMC Human Rights Policy). Others lack formal aspects such as publication and objective. Data can be compared for a period of at Taiwan Semiconductor dates and responsibilities (e.g. date (e.g. TSMC Corporate Social Responsibility Procedure). least 3 years for all material topics, and methods used Recommendation 2: The Engagement Team recommends structuring the policy documents and making them Benchmark to gather, compile, and analyze data are explained in available as downloads. necessary detail. Sustainability information is audited 0 20 40 60 80 100 by an independent third party. CR topics are integrated Accessibilit y Clarit y Comparability Accuracy Reliabilit y Integration Gap 3: All in all, the clarity of reporting is on a good level. However, the aspect of balance has some limitations, in the Annual Report in form of a CSR chapter without with a focus mostly on positive and favorable aspects. following the IIRC guidelines. Recommendation 3: To further improve balance of reporting, it is recommended to report also on negative/unfavorable aspects and discuss speciﬁc challenges transparently.

Sustainability organization Gap 4: In 2016, TSMC examined the relationship between SDGs and the company’s operations. SDG 4, SDG 6, SDG 7, SDG 8, SDG 9, SDG 12 and SDG 13 were identified as primary directions. TSMC integrated each of these SDGs in a mission, sustainable management actions, and vision 2020. However, the specific targets are Sustainability is an integral part of TSMC s business not referred to. strategy and the company’s products and innovations Recommendation 4: For the future reporting on SDGs, the Engagement Team recommends to further explore respond to key sustainability challenges (e.g. energy effi- Strategy how to embed the SDGs in the overall company strategy and in particular to take up the specific targets. ciency). The Chief Financial Officer serves as Chairper- son of the CSR Committee and reports annually to the Responsibility Gap 5: Employee inclusion is advanced (e.g. Core Value Survey in 2016). However, no individual performance Board of Directors. The company engages its employees targets/incentives (MbO) for senior and top management linked to the company’s sustainability goals could be on sustainability, e.g. through engagement surveys and Employee inclusiveness found. volunteering activities. TSMC regularly engages with its Recommendation 5: To bring employee inclusion on a next level, it could be considered to formulate individual Stakeholder Inclusiveness stakeholders based on the AA 1000 stakeholder engage- performance targets related to sustainability goals. ment standards (SES). Further, the company has also 0 1 2 3 R&D partnerships with various suppliers (e.g. Versum Materials) and universities.

2017-2018 Engagement Cycle 2 2017-2018 Engagement Cycle 3

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