AMX – Sands – Emerging Markets

Summary

The AMX Master – Sands – Emerging Markets Growth (the “Sub-Fund”) is categorised as an Article 8 product under the Sustainable Finance Disclosure Regulation (“SFDR”). The Sub-Fund’s investment objective is to achieve long-term capital appreciation, alongside promoting specific environmental and social characteristics as detailed below. This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.

Environmental or Social Characteristics of the Financial Product

The environmental and social characteristics promoted by the “Sub-Fund”) consist of (1) reducing the aggregate level of greenhouse gas emissions of portfolio companies relative to the constituent companies of an emerging market equity index; (2) routine engagement with portfolio companies that may promote transparency, change and awareness with respect to environmental, social, and governance (“ESG”) considerations; and (3) the exclusion of investments in issuers that are not aligned with certain social and environmental characteristics, set out below in the Revenue Exclusions and the Human Rights Exclusions.

Investment Strategy

The investment strategy used by the Sub-Fund to attain the environmental and social characteristics described above includes: (1) the application of the Portfolio Manager’s six investment criteria (detailed below); (2) routine engagement; and (3) the application of exclusionary criteria to identify issuers that are not aligned with certain environmental and social characteristics that may negatively affect a business’s long-term value creation.

Proportion of sustainable investments

The maximum relative “carbon intensity” commitment (described below) is with respect to the aggregate portfolio. Therefore, 100% of the Sub-Fund’s assets will promote the associated environmental characteristic. The Sub-Fund does not commit to make sustainable investments.

Monitoring of environmental or social characteristics

The Portfolio Manager monitors the environmental or social characteristics referred to above through numerous processes, seeking to monitor compliance with the carbon intensity commitment, the Revenue Exclusions, and the Human Rights Exclusions on an ongoing basis.

Methodologies

The Portfolio Manager uses the following methodologies to measure how the promoted social and environmental characteristics are met, comprising (1) Maximum Relative Carbon Intensity Commitment; (2) ESG Engagement; and (3) Excluded Investments.

Data sources and processing

The portfolio manager utilizes MSCI for WACI, Revenue Exclusions and Human Rights Exclusions, and an Internal Database for ESG Engagements

Limitations to Methodologies and Data

The Portfolio Manager’s methodologies and data with respect to WACI, the Human Rights Exclusions, and the Revenue Exclusions are each limited by the accuracy of the data the Portfolio Manager receives from third-party sources. It is the Portfolio Manager’s belief that the potential for inaccuracies does not affect the overall attainment of environmental and social characteristics promoted by the Sub-Fund because the data will still provide a reasonable estimation of the relevant indicators.

Due diligence

Engagement Policies

The Portfolio Manager engages with portfolio companies, or potential portfolio companies, (1) to inform the investment case; (2) to exchange perspectives on matters that are relevant to the interests of long-term shareholders, including ESG considerations (examples of which are included above in the sectioned titled “Investment Strategy”); (3) to advocate for corporate change when in the best interest of shareholders, including with respect to ESG considerations; and (4) to discuss ballot proposals and inform our proxy voting decisions.

Designated Reference Benchmark

An index has not been designated as a reference benchmark to meet the environmental or social characteristics promoted by the financial product.

No Sustainable Investment Objective

This financial product promotes environmental or social characteristics but does not have as its objective sustainable investment.

Environmental or Social Characteristics of the Financial Product

The environmental and social characteristics promoted by the “Sub-Fund” consist of (1) reducing the aggregate level of greenhouse gas emissions of portfolio companies relative to the constituent companies of an emerging market equity index; (2) routine engagement with portfolio companies that may promote transparency, change and awareness with respect to environmental, social, and governance (“ESG”) considerations; and (3) the general exclusion of certain issuers that are not aligned with social and environmental characteristics. Additional details are provided below.

Maximum Relative Carbon Intensity Commitment

The Portfolio Manager will manage the Sub-Fund’s portfolio such that its weighted average carbon intensity (“WACI”) will remain at less than half of the MSCI Emerging Markets Index’s (the “Index”), as measured on a quarterly basis. This metric indicates the portfolio’s exposure to portfolio companies with significant carbon dioxide emissions relative to that of the benchmark. Accordingly, this commitment will promote the environmental characteristic of reducing the impact of greenhouse gas emissions as it will ensure that the Sub-Fund’s holdings remain in portfolio companies that, in the aggregate, emit less than half as much carbon dioxide per revenue dollar as other companies in the Sub-Fund’s investment universe.

ESG Engagement

The Portfolio Manager views dialogue focused on a company’s ESG risks and opportunities with its management team or board of directors (“ESG Engagement”) as a valuable tool to better understand each portfolio company’s long-term strategic vision. The Portfolio Manager will undertake ESG Engagement with at least 35% of the Sub- Fund’s portfolio companies each year.

ESG Engagement provides both an opportunity to learn more about portfolio companies’ ESG initiatives and, when merited, a forum for the Portfolio Manager to proactively express its views regarding, among other stakeholder issues, ESG considerations. Examples of ESG considerations that may be raised during ESG Engagement include:

Environmental

Environmental policy and strategy
Energy use and efficiency
Pollution and waste management
Water use and efficiency
Greenhouse gas emissions or climate change strategy
Materials use and sourcing
Compliance with applicable law and regulation

Social

Data security and privacy
Human capital management
Human rights
Labour rights
Product safety and impact
Diversity and inclusion
Compliance with applicable law and regulation

Governance

Ownership and control
Audit and accounting
Board structure or composition
Capital structure
Executive compensation
Related-party transactions
Shareholder protection and rights
Management accountability
Increasing transparency and disclosure
Compliance with applicable law and regulation

The Portfolio Manager uses information learned through ESG Engagement to inform investment decisions with respect to the Sub-Fund’s holdings. When merited, the Portfolio Manager may seek commitments for improved disclosure or policy changes. Additionally, the Portfolio Manager may reduce the Sub-Fund’s position in a portfolio company if the company’s management is unable or unwilling to address the Portfolio Manager’s ESG concerns.

Through regular ESG Engagement, the Portfolio Manager leverages the Sub-Fund’s assets to promote positive environmental and social characteristics among its portfolio companies, in addition to encouraging good governance.

Excluded Investments

The Sub-Fund will not hold investments in any issuers that are in breach of the UN global compact or for which the Portfolio Manager has cause to believe they rely materially on the use of forced or child labour (the “Human Rights Exclusions”).

The Sub-Fund will invest no more than 10% of its capital assets, excluding cash and cash equivalents, in issuers that (i) derive more than 20% of their annual revenues from any of the following business activities: coal mining, coal power generation, oil and gas exploration, conventional and unconventional oil and gas, or the production or sale of tobacco, or (ii) derive any amount of revenue from the production or sale of controversial weapons (the “Revenue Exclusions”).

Investment Strategy

The investment strategy used by the Sub-Fund to attain the environmental and social characteristics described above includes: (1) the application of the Portfolio Manager’s six investment criteria (namely: sustainable above-average earnings growth; leadership position in a promising business space; significant competitive advantages; clear mission and value-added focus; financial strength; and rational valuation relative to the market and business prospects), which tends, in the Portfolio Manager’s experience, to lead to investment in companies that are in less carbon-intensive industries; (2) routine engagement, which is an integral aspect of the Portfolio Manager’s deep, business-focused approach and provides a platform to promote ESG-related changes, where appropriate; and (3) the application of exclusionary criteria to identify issuers that are not aligned with certain environmental and social characteristics that may negatively affect a business’s long-term value creation.

The Portfolio Manager will assess the good governance practices of investee companies as part of the integration of sustainability risks into its investment process, and through the commitment to routine ESG Engagement. Examples of governance issues that may be considered during these process include: ownership and control, audit and accounting, board structure or composition, capital structure, executive compensation, related-party transactions, shareholder protection and rights, management accountability, increasing transparency and disclosure, and the company’s history of compliance with applicable regulations. The Portfolio Manager also routinely screens whether any portfolio company may have breached the UN global compact or whether there is cause to believe any portfolio company relies materially on the use of forced or child labour.

Proportion of sustainable investments

The maximum relative “carbon intensity” commitment (described in binding element (1) above) is with respect to the aggregate portfolio. Therefore, 100% of the Sub-Fund’s assets will promote the associated environmental characteristic.

The Human Rights Exclusions require that the Sub-Fund will not invest in any issuers that have certain identifiable human rights issues. Therefore, 100% of the Sub-Fund’s assets will promote the associated social characteristics.

The Revenue Exclusions require that no more than 10% of the Sub-Fund’s total assets, exclusive of cash and cash equivalents, can be invested in portfolio companies that derive more than 20% of their revenues from the enumerated business activities that have negative environmental or social consequences. Therefore, at least 90% of the Sub-Fund’s assets, exclusive of cash and cash equivalents, will promote the associated environmental and social characteristics.

The ESG Engagement commitment requires that in any given year, the Portfolio Manager will attain ESG Engagement with up to 35% of the Sub-Fund’s portfolio companies. Therefore, at least 35% of the Sub-Fund’s portfolio companies will promote the associated environmental and social characteristics. The percentage of the Sub-Fund’s assets this corresponds to will vary. There may be no ESG Engagement with up to 65% of the Sub-Fund’s portfolio companies each year. This is to account for the natural cycle of engagement topics among portfolio companies and the Sub-Fund’s strategy of long-term investment. The Portfolio Manager does not apply a standard slate of engagement topics or themes across all portfolio businesses each year. Rather, portfolio company engagement topics are dynamic from company to company and from year to year.

In addition, certain minimum environmental and social safeguards will be applied to all investments, by virtue of the integration of sustainability risks into the investment process.

Monitoring of environmental or social characteristics

The Portfolio Manager monitors the environmental or social characteristics referred to above through numerous processes. The Portfolio Manager’s resources and personnel include a centralized stewardship team, a centralized compliance team, and a decentralized approach employed by all investment professionals. The stewardship and the compliance teams use data provided by MSCI to monitor compliance with the carbon intensity commitment, the Revenue Exclusions, and the Human Rights Exclusions on an ongoing basis. In addition to reviewing the Sub-Fund’s WACI relative to the benchmark, the Portfolio Manager uses more granular data provided in MSCI Carbon Portfolio Analytics reports to identify individual portfolio companies that are driving trends in the portfolio-level carbon metrics. That information is also shared with the relevant investment professionals.

With respect to ESG Engagement, the lead analyst for a given portfolio company has primary responsibility for engaging with the business, but every investment professional is involved in evaluating portfolio businesses on ESG-related attributes based on the Portfolio Manager’s six investment criteria. Each investment team member has access to an Internal Research Notes (“IRN”) database, which contains internally generated ESG-related information as well as third-party research reports. Analysts are expected to report regularly on relevant ESG factors affecting businesses under their coverage and produce proprietary ESG reports that are saved to the IRN database and are accessible to all members of the team. Additionally, ESG Engagements are tracked through the IRN database. Through these tools, the centralized stewardship team and compliance teams can monitor environmental and social characteristics attained by the Sub-Fund, along with positive and negative contributions of portfolio companies.

Methodologies

The Portfolio Manager uses the following methodologies to measure how the promoted social and environmental characteristics are met:

Maximum Relative Carbon Intensity Commitment

At the end of each quarter, the Portfolio Manager divides (x) the Sub-Fund’s then-current WACI by (y) the Index’s then-current WACI to calculate the percentage of WACI. So long as the percentage is less than 50%, the Sub-Fund will be deemed as attaining the environmental characteristic promoted.

ESG Engagement

At the end of each calendar year, the Portfolio Manager divides (x) the total number of Sub-Fund portfolio companies with which the Portfolio Manager attained ESG Engagement in the previous 12 months by (y) the total number of portfolio companies held by the Sub-Fund Fund in the previous 12 months to calculate the percentage of portfolio company ESG Engagement. So long as the percentage is greater than 35%, the Sub-Fund will be deemed as attaining the environmental and social characteristics promoted.

Excluded Investments

On an ongoing basis, the Portfolio Manager will divide (x) total dollar value of assets of the Sub-Fund portfolio companies that are captured by Revenue Exclusions by (y) the total asset value of the Sub-Fund after subtracting any cash or cash equivalents held by the fund at that time to calculate the percentage of its assets that are captured by the Revenue Exclusions. So long as that percentage remains under 10%, the Sub-Fund will be deemed as attaining the environmental and social characteristics promoted.

On an ongoing basis, the Portfolio Manager will monitor if any portfolio companies held by the Sub-Fund are in breach of the principles of the UN Global Compact or for which the Portfolio Manager has cause to believe they rely materially on the use of forced or child labour. So long no portfolio companies are in breach or are believed to meet this criterion, the Sub-Fund will be deemed as attaining the social characteristic promoted.

Data sources and processing

The data sources used to assess the identified sustainability indicators are described below:

Maximum Relative Carbon Intensity Commitment

The Sub-Fund’s WACI is a measure of the portfolio’s exposure to carbon-related potential market and regulatory risks. Carbon intensity measures the carbon efficiency of an issuer by comparing its total carbon emissions against its sales. Because the metric adjusts for the size of the issuer it is a more accurate measurement of efficiency of output when compared to absolute carbon footprint. Each issuer’s total carbon emissions are calculated by MSCI as the sum of the issuer’s Scope 1 and 2 emissions. Scope 1 emissions are those directly occurring from sources that are owned and controlled by the institution while Scope 2 emissions are indirect emissions generated in the production of electricity consumed by the institution. The percentage of portfolio companies for which data is available will be disclosed with each periodic report. When there is no reported data from the issuer, MSCI estimates the company’s Scope 1 and 2 emissions based on historical disclosures and industry segment comparisons. Additional information about these models can be found at MSCI ESG Research’s website. Once the Carbon Intensity of each portfolio company is calculated, the Sub-Fund’s portfolio WACI is calculated by taking the carbon intensity of each portfolio company and multiplying this against the portfolio weight of the investment. The portfolio-level WACI is then the sum product of all the Sub-Fund’s portfolio companies’ weights and their carbon intensities. These data points are provided directly from MSCI.

ESG Engagement

ESG Engagements are tracked by the Portfolio Manager using its IRN Database where analysts are able to tag their research notes as an ESG Engagement and highlight the specific type of engagement (e.g., shareholder rights, board structure, human capital management). This tool allows members of the investment team to record and track the qualitative outcomes of individual engagements and serves as a reporting record to inform future engagements to measure progress. Data is transcribed from the IRN Database to the Portfolio Manager’s proprietary data warehouse and output into an analytics dashboard. This dashboard displays engagement metrics and can be filtered by time, analyst, and engagement topic. Methods to ensure data quality include quarterly review by analysts and a dedicated communication channel.

Excluded Investments

With respect to the Revenue Exclusions, the Portfolio Manager relies on revenue data collected and analysed by MSCI. MSCI analyses the financial statements of each portfolio company and categorises revenues according to several criteria. These categories allow the Portfolio Manager to determine whether a portfolio company derives more than 20% of its revenues from coal mining, coal power generation, oil and gas exploration, conventional oil and gas, unconventional oil and gas, or sale of tobacco. Additionally, MSCI provides data that allows the Portfolio Manager to determine whether an issuer derives any revenues from the production or sale of controversial weapons.

With respect to the Human Rights Exclusions, the Portfolio Manager relies on MSCI’s Global Norms Screening to provide assessments of whether any of the Sub-Fund’s portfolio companies are in breach of UN Global Compact Principles. MSCI monitors company disclosures, government, media and NGO sources to determine if a company has faced a significant controversy related to the UN Global Compact Principles. MSCI provides the Portfolio Manager an overall pass, fail or watch list assessment of each portfolio company based on the severity of any related alleged violations in which a company is implicated. The Portfolio Manager deems any issuer that is assessed as “failing” by MSCI as excluded pursuant to the Human Rights Exclusions.

Limitations to Methodologies and Data

The Portfolio Manager’s methodologies and data with respect to WACI, the Human Rights Exclusions, and the Revenue Exclusions are each limited by the accuracy of the data the Portfolio Manager receives from third-party sources. For these indicators, the Portfolio Manager relies on third parties to collect and analyse ESG-related data, and those third parties in turn rely on self-reported or estimated data. While the Portfolio Manager cannot ensure the accuracy of the data it receives, it is the Portfolio Manager’s belief that the potential for inaccuracies does not affect the overall attainment of environmental and social characteristics promoted by the Sub-Fund because the data will still provide a reasonable estimation of the relevant indicators.

The Portfolio Manager conducts regular dialogue with data service providers, such as MSCI to assess the nature of their data offerings, including any limitation.

Due diligence

The Portfolio Manager takes a fundamental, business-focused research approach in its investment process with respect to analysing each potential investment. As part of this investment process, the Portfolio Manager considers all financial risks that it deems relevant in its investment decisions and evaluates these on an ongoing basis. In doing so, all sustainability risks that it deems relevant are also taken into account. As such, when considering sustainability risks, its approach is materiality-based. The Portfolio Manager places emphasis on the risks that it considers to be most important to each portfolio company and its stakeholders, which may depend on the region, country, or industry in which the portfolio company operates. The Portfolio Manager’s analyst teams may leverage external frameworks such as the Sustainability Accounting Standards Board standards as a reference to identify financially-material sustainability risks or may consult ESG ratings and research provided by specialised rating agencies such as Sustainalytics and MSCI, though the Portfolio Manager’s analyst teams will always maintain independence in the execution of their research.

Examples of sustainability risks that the Portfolio Manager may consider in its due diligence process include:

• Environmental risks, particularly in energy intensive industries that are particularly sensitive to changing environmental regulations;

• Social risks, including in relation to human capital management, supply chain management, and product safety and impact; and

• Governance risks, including in relation to the quality of the management team, executive compensation and alignment of incentive structures with stated long-term objectives, board composition, quality of disclosures and capital structure, ownership control and shareholder protections and rights.

This is an indicative list only, and the Portfolio Manager recognises that the universe of relevant sustainability risks will evolve and grow over time and adjusts its due diligence procedures accordingly.

Engagement Policies

The Portfolio Manager engages with portfolio companies, or potential portfolio companies, to advance the following primary objectives: (1) to inform the investment case; (2) to exchange perspectives on matters that are relevant to the interests of long-term shareholders, including ESG considerations (examples of which are included above in the sectioned titled “Investment Strategy”); (3) to advocate for corporate change when in the best interest of shareholders, including with respect to ESG considerations; and (4) to discuss ballot proposals and inform our proxy voting decisions. As the Portfolio Manager collectively advises clients that, in the aggregate, are frequently among a portfolio company’s largest shareholders, this enables the Portfolio Manager to engage constructively on ESG and other issues that can impact a company’s long-term strategy and stakeholder stewardship. With respect to ESG Engagement, the Portfolio Manager seeks to:

understand the ESG issues that impact companies in which the Sub-Fund is invested;
evaluate a company’s particular policies and practices in relation to relevant ESG considerations;
encourage companies to align with best practice on ESG considerations, where appropriate;
enter into constructive dialogue and engagement where a company’s approach or practices on relevant ESG matters is below investor expectations;
leverage investor rights to push for desired outcomes from portfolio companies; and
align votes at general meetings with stated engagement objectives.

Engagements may take the form of in-person meetings, conference calls, or written correspondence, and are company-specific. The Portfolio Manager does not establish an engagement template that is applied across all portfolio companies. Instead, the Portfolio Manager makes judgements about the issues that could have a material impact on investments. When merited, the Portfolio Manager may seek commitments for improved disclosure or policy changes. Additionally, the Portfolio Manager may reduce the Sub-Fund’s position in a portfolio company if the company’s management is unable or unwilling to address ESG-related concerns.

Designated Reference Benchmark