Responsible Investments Report 2021

Our Responsible Investment approach

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ESG research approach – howwe assess an ESG investment

Our strategy is to find the most sustainable investment: those who make money by creating long-term value. Our analysis approach is augmented by a materiality-focused review of ESG risk, governance, environmental footprint and social impacts.

Materiality led A key part of our process is identification of financially material ESG issues – those which are likely to influence the financial performance of the company or a country. We weigh these issues flexibly, according to their materiality for the specific sector and geographical location. We use the materiality map of SASB as a guideline to determine materiality, but we supple- ment it with our own insight into the workings of the company. Both which issues we consider material and the weight we assign to them will vary by sector. A software company, for example, will have a relatively low environmental footprint, be dependent on skilled labour and intellectual property (social), and be vulnerable to data privacy regulation such as the GDPR (business ethics). A mining company, on the other hand, will have a high environmental footprint and will also need solid relations with its labour force (social). And exposure to univer- sal risks such as climate change will also be different. Company specific Part of our ESG analysis is to interact and engage with compa- nies, through management meetings and systematic engage- ment. The outcome and knowledge of these activities flows into our assessment of the companies. Reputational risk and exposure to controversy is also something we consider at the company or country-specific level. Responsiveness to investor concern, tone from the top, and company culture are important

parts of final evaluation. This allows us to produce forward- looking ESG scores that include the direction a company is moving in, dimensions that are not found in traditional external ESG ratings.

Business model alignment with the UN Sustainable Development Goals (SDG’s) We consider how a company’s business aligns with the SDG’s, whether the service or product the company offers contributes positively to society, how significant aligned activities are as a proportion of revenue, how much capex is directed into them, and whether they are a visible driver of growth. This is relevant both because the SDG’s present large and durable business opportunities, and because SDG alignment – or the lack thereof – is an indicator of a company’s material impact on the world around it. This way, our research takes into account both sides of the so-called “double materiality”. Our assessment of the business model is weighted at 30% in our internal scoring pro- cess. (Governance is also fixed – at 10%.) In other words, both how a company makes money and how it is run always matter.

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