This Fund's investment process, with respect to ESG factors, may differ to other funds managed by the Investment Manager. With respect to this Fund, the Investment Manager employs an eight step investment process: (1) screening; (2) fundamental research; (3) value ranking model; (4) quality ranking model; (5) sustainability analysis; (6) stock selection; (7) macro risk management; and (8) portfolio construction.

ESG analysis is integrated into the investment process through step 4: the quality ranking model and step 5: sustainability analysis. Together, the total quality scores and the sustainability analysis for each stock are informed and determined by the fundamental research, analysis and engagement carried out by the Investment Manager.

Quality ranking model

The quality ranking model consists of 25 criteria that the Investment Manager utilises. A score out of ten is assigned to each criterion (with ten being the maximum and one the minimum) giving each stock a maximum potential total score of 250. ESG factors are captured both explicitly, through the respective scores assigned to the criteria ‘Environmental’, ‘Social’ and ‘Governance’ (further detail on these three ESG criteria are below), and implicitly, where ESG factors are relevant to the other criteria considered by the Investment Manager and that are not strictly ‘ESG’ criteria (such as the Disruption criterion, which may involve consideration of whether a utility is investing in renewable generation, at the expense of its older thermal generation fleet).

In determining the respective quality scores for the Environmental, Social and Governance criteria, the Investment Manager considers ESG factors it believes may affect an investment’s return. These factors include, but are not limited to, the following:

— Environmental factors: an entity’s carbon emissions; its share of non-renewable energy consumption and production; activities negatively affecting biodiversity-sensitive areas; and emissions to water.

— Social factors: an entity’s compliance with the UN Global Compact principles, and the OECD’s Guidelines for Multinational Enterprises; its record and approach to

workplace health and safety; and Board gender diversity levels.

— Governance factors: an entity’s board structure (which may include factors such as board independence, the separation of chairman and CEO roles and audit and remuneration

committee independence) and the protection of minority interests.

The total quality score, combined with the value score (being step 3 of the investment process, which ranks stocks according to the Investment Manager’s view on potential mispricing), provides an overall ranking of the stocks. This overall ranking is used to inform stock selection. All else being equal, a lower ranking generally makes it harder for a stock to be selected for inclusion within the portfolio. It is possible that a stock with low ESG-related quality scores may still be considered eligible for inclusion in the portfolio – subject to the outcome of the sustainability analysis, described below.

The emphasis placed by the Investment Manager on a particular ESG factor when determining each Environmental, Social and Governance criterion’s quality score, is based on the Investment Manager’s assessment of the extent to which that factor is likely to have an impact on the returns of the relevant stock over the long-term. As a result, consideration of a particular ESG factor may vary by sector and/or region, as well as being influenced by stock specific details.

Sustainability analysis

The sustainability analysis (being step 5 of the investment process) is explained below.

Sustainable Development

The Investment Manager considers the extent to which each company contributes to, or benefits from, sustainable development, which is assessed by reference to the United Nations' SDGs. Typically, this analysis involves looking at the forecast capital expenditure of each company, and then mapping this expenditure against the SDGs to determine whether a positive, neutral or negative contribution is being made. In undertaking this assessment, the Investment Manager considers the following SDGs to be the most relevant to infrastructure companies: SDG 6: Clean Water and Sanitation; SDG 7: Affordable and Clean Energy; SDG 9: Industry, Innovation and Infrastructure; SDG 11; Sustainable Cities and Communities; SDG 12: Responsible Consumption and Production; and SDG 13: Climate Action.

The Fund will only invest in stocks which the Investment Manager believes contribute to, or benefit from, sustainable development, which is assessed by reference to the UN SDGs (as explained above).

Other ESG-related parameters

Another aspect of the sustainability analysis involves the consideration of other ESG-related parameters. For example, the Fund seeks to invest in:

— utilities that can demonstrate a declining carbon intensity over rolling five year periods (as measured by tons of carbon

emitted per MWh of electricity generated)3 ; or that can demonstrate carbon intensity of at least 25% below the

average of utility companies in the Investment Manager’s

investment universe; and

— utilities where coal generation assets represent less than 20% of the company’s overall assets.

The Fund also monitors for adherence to the OECD Guidelines for Multinational Enterprises4 and the UN Global Compact. Any failures to meet other ESG-related parameters considered by the Investment Manager or breaches of the OECD Guidelines for Multinational Enterprises or the UN Global Compact identified are reviewed and assessed by the Investment Manager. Such failures or breaches do not automatically prevent the Fund from investing in the relevant company, or lead to divestment from the company by the Fund. Rather, the Investment Manager will monitor and assess the situation and, where deemed necessary, engage with entity management to determine how the entity is responding to the relevant failure or breach. Persistent or systematic failures or breaches may lead to divestment by the Fund, in circumstances where the Investment Manager considers that an entity has not responded adequately to the engagement process.

Infrastructure assets are large scale, long life, tangible assets having significant environmental footprints and social licenses to operate.  This means that small changes to the way a company operates can have meaningful changes to people, the planet and its ability to generate sustainable economic returns.  First Sentier’s Global Listed infrastructure strategy was established in 2007, integrating ESG factors into its investment process from the start.  

Since then, our experienced team of specialists has built up detailed, proprietary knowledge of how these factors can affect the companies we invest in, and of the various stakeholders that a company needs to consider in order to manage these factors appropriately. The First Sentier Responsible Listed Infrastructure strategy was established in 2017, placing additional emphasis on sustainability-related criteria in its investment process and seeking to identify listed infrastructure companies that can contribute to or benefit from sustainable development. This approach reflects our belief that a focus on sustainability can help to reduce risk, as well as helping to achieve positive long term return outcomes, within the listed infrastructure asset class.