Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select stocks based on our assessment of their long-term worth and abilityto outperform the market, without being restricted by a growth or value bias. Our fundamental company research focuses on valuation ,franchise, management quality and risk factors (both financial and non-financial risk).

The Fund aims to invest in companies that advance the transition to a more sustainable economy. Pendal’s view of a sustainable economy is one which is madeup of companies:

– producing or offering products or services that provide social and/or environmental benefits; and/or

– that have leading operational practices with regard to the environment, their employees and community, and conduct their business ethically;

and/or – whose actions, business models and products or services do not cause significant harm.

In managing the Fund, Pendal focuses on sustainable themes(including energy transformation, sustainable environment, human basics and increasing prosperity), and draws on internal and external research to assess companies on their sustainability performance. In addition to employing a sustainability assessment framework, exclusionary screens are applied to avoid exposure to companies with business activities that Pendal considers to negatively impact the environment and/or society.

Exclusionary Screens

In managing the Fund, we avoid investing in companies which:

Fossil Fuels

– directly extract or explore for fossil fuels (specifically, coal, oil and gas); or

– derive 10% or more of their total revenue from fossil fuel-based power generation, or from fossil fuel refinement or distribution (coal, oil and gas)*; or – derive 10% or more of their total revenue from the provision of supplies or services which relate specifically to fossil fuel extraction or exploration(coal, oil and gas)*

*Companies with a climate transition plan may be exempted from this exclusion, provided that they have in place a Paris Agreement aligned transition plan and produce climate-related financial disclosures annually, which in both cases we consider credible.

Uranium

– derive 10% or more of their total revenue from directly mining uranium for the purpose of nuclear power generation Logging

– derive 10% or more of their total revenue from unsustainable forestry or forest products, including non-Forest Stewardship Council certified forest products or non-Roundtable on Sustainable Palm Oil certified palm oil production Gambling

– directly manufacture, own or operate gambling facilities, gaming services or other forms of wagering; or

– derive 10% or more of their total revenue from the indirect provision of gambling (for example, through telecommunications platforms) Pornography – produce pornography; or

– derive 10% or more of their total revenue from the distribution or retailing of pornography

Weapons

– manufacture or distribute controversial weapons (such as cluster munitions, landmines, biological or chemical weapons, nuclear weapons, blinding laser weapons, incendiary weapons, and/or non-detectable fragments); or

– manufacture non-controversial weapons or armaments (including civilian firearms or military equipment); or

– derive 10% or more of their total revenue from the distribution or retailing of non-controversial weapons or armaments (including civilian firearms or military equipment)

Alcohol

– produce alcoholic beverages; or

– derive 10% or more of their total revenue from the distribution or retailing of alcoholic beverages

Tobacco

– produce tobacco (including e-cigarettes and inhalers); or – derive 10% or more of their total revenue from the distribution of tobacco(including e-cigarettes and inhalers) or supply of goods or services specifically related to the tobacco industry (for example, packaging or promotion)

Animal cruelty

– directly undertake animal testing for cosmetic products; or

– directly undertake live animal export Predatory lending practices

– directly provide products or services with lending practices that are unfair or deceptive to ordinary borrowers, including small amount short term loans athigher than commercial rates of interest (for example, payday loans, pawn loansor the use of aggressive sales tactics)

Breaches/ Misconduct

– we consider to have been found to have significant breaches of social or environmental norms or regulations, or are subject to serious and substantiated allegations of unethical conduct, which we consider have not been remedied or adequately addressed. Exclusionary screens are not applied to cash or derivatives.

The use of derivatives may result in the Fund having indirect exposure to the excluded companies from time to time. Pendal actively engages with the management of the companies we invest in to manage risk, effect change and realise potential value over the long term.

Sustainability Assessment Framework

Following the application of the exclusionary screens, the Fund applies our sustainability assessment framework to the companies in the S&P/ASX 200 Index, which draws on both qualitative and quantitative inputs to determine which companies meet our sustainability criteria.

Our sustainability assessment framework considers a company’s characteristics, including:

• the extent to which its products or services are beneficial to the environment and/or society;

• operational practices which are sustainable towards the environment and society; and

• its management of its environmental, social and governance(ESG) risks and opportunities. To be considered for the Fund’s investments, companies are assessed and must fall into one of the following four categories:

1. Sustainable Product and Services

This category includes:

• Companies producing or offering products and services that are beneficial to the environment and/or society; and

• Companies whose sustainable products are affecting positive change to the environment and/or society.

2. Sustainable Leaders

This category includes:

• Companies conducting activities or product improvements with outcomes that are beneficial to the environment and/or society; and

• Companies with corporate strategies to affect positive change to the environment and/or society.

3. Sustainable Improvement

This category includes:

• Companies with scope to progress their sustainableperformance of their products and services or operations; and

• Companies where Pendal will seek to influence the continued progress of company practices through active engagement.

4. Monitor and Repair

This category includes:

• Companies that have been identified as having elevated ESG risks and are addressing their poor sustainable practices; and

• Companies where Pendal will seek to influence the repair of company practices through active engagement.

The Fund focuses on investing in companies with business activities that Pendal considers have the ability to provide social and/or environmental benefit categorised by us as ‘Sustainable Products and Services’ and ‘Sustainable Leaders’.

The Fund also aims to having its allocation to stocks in ‘Sustainable Products and Services’ exceeding those stocks’ respective benchmark weights in the S&P/ASX 200 Index, as these companies have a key role in advancing the transition to a more sustainable economy.

Pendal considers companies in ‘Sustainable Improvement’ to be producing or offering products and services that do not cause significant harm to the environment and/or society, and companies with operational practices and conduct that are neutral towards the environment and society, that we believe have potential to improve their operational practices or conduct and/or enhance the sustainability of their products or services. Companies that have been previously excluded under ‘Breaches and Misconduct’ exclusionary screens due to their past conduct, but that are taking the necessary steps, in our view, to change their business practices whilst continuing to actively engage with Pendal, are categorised by us as ‘Monitor and Repair’.

Pendal’s engagement strategy and priorities for individual companies is also guided by the Pendal Sustainability Assessment Framework to identify opportunities to enhance the sustainability of their products or services, or operational practices.

Pendal’s investment process for Australian shares is based on our core investment style and aims to add value through active stock selection and fundamental company research. Pendal’s core investment style is to select stocks based on our assessment of their long-term worth and ability to outperform the market, without being restricted by a growth or value bias.

Our fundamental company research focuses on valuation, franchise, management quality and risk factors (both financial and non-financial risk).The Fund aims to invest in companies that advance the transition to a more sustainable economy.

Pendal’s view of a sustainable economy is one whichis made up of companies:

– producing or offering products or services that provide social and/or environmental benefits; and/or

– that have leading operational practices with regard to the environment,their employees and community, and conduct their business ethically; and/or

– whose actions, business models and products or services do not cause significant harm.

In managing the Fund, Pendal focuses on sustainable themes (includingenergy transformation, sustainable environment, human basics and increasing prosperity), and draws on internal and external research to assess companieson their sustainability performance. In addition to employing a sustainability assessment framework, exclusionary screens are applied to avoid exposure to companies with business activities that Pendal considers to negatively impact the environment and/or society. 

Exclusionary ScreensIn managing the Fund, we avoid investing in companies which: Fossil Fuels – directly extract or explore for fossil fuels (specifically, coal, oil and gas); or – derive 10% or more of their total revenue from fossil fuel-based power generation, or from fossil fuel refinement or distribution (coal, oil and gas)*; or – derive 10% or more of their total revenue from the provision of supplies or services which relate specifically to fossil fuel extraction or exploration (coal, oil and gas)* *Companies with a climate transition plan may be exempted from this exclusion, provided that they have in place a Paris Agreement aligned transition plan and produce climate-related financial disclosures annually, which in both cases we consider credible. Uranium – derive 10% or more of their total revenue from directly mining uranium for the purpose of nuclear power generation Logging – derive 10% or more of their total revenue from unsustainable forestry or forest products, including non-Forest Stewardship Council certified forest products or non-Roundtable on Sustainable Palm Oil certified palm oil production Gambling – directly manufacture, own or operate gambling facilities, gaming services or other forms of wagering; or – derive 10% or more of their total revenue from the indirect provision of gambling (for example, through telecommunications platforms) Pornography – produce pornography; or – derive 10% or more of their total revenue from the distribution or retailing of pornography Weapons – manufacture or distribute controversial weapons (such as cluster munitions, landmines, biological or chemical weapons, nuclear weapons, blinding laser weapons, incendiary weapons, and/or non-detectable fragments); or – manufacture non-controversial weapons or armaments (including civilian firearms or military equipment); or – derive 10% or more of their total revenue from the distribution or retailing of non-controversial weapons or armaments (including civilian firearms or military equipment) Alcohol – produce alcoholic beverages; or – derive 10% or more of their total revenue from the distribution or retailing of alcoholic beverages Tobacco – produce tobacco (including e-cigarettes and inhalers); or – derive 10% or more of their total revenue from the distribution of tobacco (including e-cigarettes and inhalers) or supply of goods or services specifically related to the tobacco industry (for example, packaging or promotion) Animal cruelty – directly undertake animal testing for cosmetic products; or – directly undertake live animal export Predatory lending practices – directly provide products or services with lending practices that are unfair or deceptive to ordinary borrowers, including small amount short term loans at higher than commercial rates of interest (for example, payday loans, pawn loans or the use of aggressive sales tactics) Breaches/ Misconduct – we consider to have been found to have significant breaches of social or environmental norms or regulations, or are subject to serious and substantiated allegations of unethical conduct, which we consider have not been remedied or adequately addressed.

Exclusionary screens are not applied to cash or derivatives. The use of derivatives may result in the Fund having indirect exposure to the excluded companies from time to time.Pendal actively engages with the management of the companies we invest into manage risk, effect change and realise potential value over the long term.

Sustainability Assessment Framework

Following the application of the exclusionary screens, the Fund applies our sustainability assessment framework to the companies in the S&P/ASX 200 Index, which draws on both qualitative and quantitative inputs to determine which companies meet our sustainability criteria.Our sustainability assessment framework considers a company’s characteristics, including:

•the extent to which its products or services are beneficial to the environment and/or society;

•operational practices which are sustainable towards the environment and society; and

•its management of its environmental, social and governance (ESG) risks and opportunities.To be considered for the Fund’s investments, companies are assessed and must fall into one of the following four categories:

1. Sustainable Product and Services

This category includes:

•Companies producing or offering products and services that are beneficial to the environment and/orsociety; and

•Companies whose sustainable products are affecting positive change to the environment and/or society.

2. Sustainable Leaders

This category includes:

• Companies conducting activities or product improvements with outcomes that are beneficial to theenvironment and/or society; and

• Companies with corporate strategies to affect positive change to the environment and/or society.

3. Sustainable Improvement

This category includes:

• Companies with scope to progress their sustainable performance of their products and services oroperations; and

• Companies where Pendal will seek to influence the continued progress of company practices throughactive engagement.

4. Monitor and Repair

This category includes:

• Companies that have been identified as having elevated ESG risks and are addressing their poorsustainable practices; and

• Companies where Pendal will seek to influence the repair of company practices through active engagement.

The Fund focuses on investing in companies with business activities that Pendal considers have the ability to providesocial and/or environmental benefit categorised by us as ‘Sustainable Products and Services’ and ‘SustainableLeaders’.

The Fund also aims to having its allocation to stocks in ‘Sustainable Products and Services’ exceeding thosestocks’ respective benchmark weights in the S&P/ASX 200 Index, as these companies have a key role in advancing thetransition to a more sustainable economy.

Pendal considers companies in ‘Sustainable Improvement’ to be producing or offering products and services that donot cause significant harm to the environment and/or society, and companies with operational practices and conductthat are neutral towards the environment and society, that we believe have potential to improve their operationalpractices or conduct and/or enhance the sustainability of their products or services.

Companies that have beenpreviously excluded under ‘Breaches and Misconduct’ exclusionary screens due to their past conduct, but that aretaking the necessary steps, in our view, to change their business practices whilst continuing to actively engage withPendal, are categorised by us as ‘Monitor and Repair’.

Pendal’s engagement strategy and priorities for individual companies is also guided by the Pendal Sustainability Assessment Framework to identify opportunities to enhance the sustainability of their products or services, or operational practices.