Active Ownership Report Q2 2021 abrdn.com Introduction Contents “Our quarterly ESG report provides a summary of our research, company engagement and Introduction 3 voting activities. The report’s objective is Examples of engagement 6 to inform, disclose and create discussion. ESG voting and engagement summary 7 We welcome comments and observations.” Engagement summary Q2 2021 8 Andrew Mason DiscoverIE Group 12 ESG Stewardship Director Tesco 13 Centamin PLC 14 Engagement summary Q2 2021 Kingspan 15 Credit Suisse 16 Area Company Topics discussed The Goldman Sachs Group Inc 17 UK DiscoverIE Group Climate change, Human JB Hunt Transport Services Inc 18 rights and stakeholders, Labour management Adani Green Energy Limited 19 AC Energy 20 Tesco Labour management InPost 21 Centamin Human rights EU Kingspan Product safety and controls, Community impact Credit Suisse Oversight, Compliance and Escalation mechanisms US Goldman Sachs Labour management JB Hunt Transport Climate change Services Inc EM Adani Green Energy Climate change, Human rights and stakeholders AC Energy Climate change InPost Environment, Labour management and Corporate behaviour Companies chosen are for illustrative purposes only to demonstrate our ESG Investment process and is not intended to be an indication of performance, investment recommendation or solicitation. Active Ownership Report 2 Introduction We continued to see the effects of the global Covid-19 pandemic during the quarter. Our engagement focused on investee companies, where we voted on companies’ remuneration proposals. When considering these proposals, we considered how companies had supported their employees through Covid-19 and what state aid companies had received. In Europe, we also had the option to vote on remuneration proposals for several European companies where this wasn’t previously the standard practice. Over the quarter, we also voted on multiple shareholder proposals that featured climate change, diversity and inclusion proposals. Andy Mason Stewardship Director, ESG Investments There has been a continued focus on China and its 1. We consider human rights risks and opportunities approach to human rights. As part of our investment as a core part of our investment process, whilst process, we research and analyse sustainability and other also seeking good outcomes for our clients. risks arising from the labour and supply chain practices of 2. As active investors, fulfilling our human rights all companies, regardless of where they are based. China responsibilities requires ongoing engagement is integral to the supply chains of many companies and it and effort to drive positive change. has been a focus of our engagement for some time now. Companies we engage with are increasingly aware of, and 3. Upholding human rights often relies on responsive to, investors’ concerns. While we have found voluntary agreements and weak regulation. that many companies have policies on supply chain labour This is inadequate. We need stricter regulation practices, disclosure may be lacking. We believe that and better corporate practices. constructive engagement with, and transparent disclosure 4. Human rights challenges are often complex and by, companies is the best way to drive improvements in persistent. Meaningful, lasting change requires a working practices and employee rights. multi-stakeholder approach that includes businesses, As investors, we recognise the impact of human rights investors, governments, civil society and academia. issues on our investments and the role we play in driving We endorse the United Nations’ (UN) ‘Protect, Respect, progress. As well as the argument for social justice, Remedy’ framework. Our focus on human rights gives there is a strong investment case for promoting human us valuable insights into trends, risks and opportunities. rights. Over the quarter, we produced a document These findings help inform our decisions. detailing our approach to human rights and investment. The approach details our four core beliefs that underpin Reference: abrdn.com/en/insights-thinking-aloud/ our human rights investment approach. article-page/esg-human-rights Active Ownership Report 3 Introduction We do not view human rights in isolation and the The market is responding to these challenges. challenges presented by climate change continue to Assets under management in all investment strategies affect human rights globally. With COP 26 meetings governed by environmental, social and governance planned for November, we believe it will be the most (ESG) principles grew more last year than in the preceding important climate change event in a generation. Few decade. This is particularly evident in the issuance of debt. countries have made good on the promises they made The green bond market has reached US$1 trillion and the in Paris in 2015. Without more ambitious targets and issuance of other debt securities designed around ESG credible actions to back them up, the world will fail to considerations has been gathering pace. New social bond keep the increase in the global average temperatures to issues totalled US$165 billion in 2020, up from US$18 billion well below 2°C above pre-industrial levels, let alone 1.5°C. in 2019. Sustainability bond issuance hit US$75 billion In this note, we identify why progress towards the Paris in 2020, from US$43 billion a year earlier. These are goals has been insufficient and what needs to change positive steps, but we also wish to raise a cautionary in Glasgow to put things right. We have put forward a note. When markets move this far this quickly, inevitably number of recommendations to restore the credibility some corners end up being cut. of the Paris Agreement including: We see a risk that money will flow into investments 1. Countries upgrade their targets to reduce emissions where ESG credentials don’t stand up to closer scrutiny. so that global emissions are compatible with keeping As an active manager, our approach is to consider both temperatures at least 2°C below pre-industrial levels. the issuances and issuer, and to carry out our own due 2. As many advanced economies as possible commit to diligence beyond the views of ESG labels provided by being carbon net-zero by the 2040 targets. This will second-party opinions from ESG ratings agencies. ease the burden on emerging economies and increase Reference: abrdn.com/en/insights-thinking-aloud/ the likelihood that the Paris objectives can be met. article-page/fixed-income-esg-sustainability-linked-bond 3. Governments back up their targets through binding You can find out more about the topics listed above on legislation, including more onerous carbon pricing. our website, along with a series of podcasts outlining our There is a need for joined up policy across all levels of views on ESG issues. Within this report, we provide details government, and greater research and development of our engagement in areas ranging from how UK-based spending for net-zero targets. food retailers treat their employees to how US-based 4. Signatories implement clear climate disclosure logistic companies can improve approaches to climate frameworks and standards in line with the Task-force change. I hope you find it useful, and I welcome your on Climate related Financial Disclosures. comments and observations. COP 26 in Glasgow perhaps represents the last opportunity for governments to set the world on a Paris-aligned pathway. We will play our part in creating the best outcome possible. “The market is responding to these challenges. Reference: abrdn.com/en/insights-thinking-aloud/ Assets under management in all investment article-page/climate-responsible-investing strategies governed by environmental, social and governance (ESG) principles grew more last year than in the preceding decade.” Active Ownership Report 4 “Within this report, we provide details of our engagement in areas ranging from how UK-based food retailers treat their employees to how US-based logistic companies can improve approaches to climate change. ” Andy Mason ESG Stewardship Director Active Ownership Report 5 Examples of engagement Throughout the quarter, we have engaged on a range of issues across multiple geographies. The following section of the report offers further detail on the companies that we have engaged with and the topics discussed. 1 Diversity and Inclusion 5 Labour practices 9 Supply Chain Management The Goldman Sachs Group Inc (USA) Tesco (UK) and GHG Emissions Adani Green Energy Ltd (India) 2 Climate Change 6 Human Rights 10 Climate Change JB Hunt Transport Services Inc (USA) Centamin (UK) AC Energy (Philippines) 3 Business Ethics and Governance 7 Environment, Labour management Kingspan (Ireland) and Corporate behaviour InPost (Poland) 4 Employee engagement process 8 Corporate Governance and Supply Chain Management Credit Suisse (Switzerland) DiscoverIE Group (UK) 3 4 1 5 6 7 8 2 10 9 Source: abrdn, 30 June 2021. Companies selected for illustrative purposes only to demonstrate abrdn engagement with the companies on ESG issues and not as an investment recommendation or indication of future performance. Active Ownership Report 6 ESG voting and engagement summary Engagement statistics: Voting summary Q2 2021 Total During the quarter, we had over 500 company meetings Shareholder meetings at which our 3,997 where ESG topics were discussed. The chart below shows clients' shares were voted the percentage of meetings where ESG topics were Percentage of meetings with at least 58.2% covered. The table opposite offers examples of companies one vote