Sustainable, Responsible &/or ESG Policy:

The fund is part of Fidelity’s Sustainable Fund Family and therefore, has enhanced requirements in terms of allocation to issuers with strong ESG characteristics as well as strict company and sector restrictions. Whilst our policy is one of engagement where practical, we apply exclusions that are overseen by the Exclusions Advisory Group who monitor the list to ensure relevance and suitability. Issuers involved in the following activities are not considered for inclusion within the fund:

• Cluster munitions and landmines
• Weapons
• Tobacco
• Thermal coal
• Oil sands, arctic oil and gas
• Exclusion of United Nations Global Compact (UNGC) violators.

A minimum of 70% will be invested in shares of companies that maintain sustainable characteristics, defined by reference to a combination of different measurements such as ESG ratings provided by external agencies or Fidelity’s proprietary ESG ratings.

Fidelity’s proprietary ESG rating leverages our internal research and interactions with issuers. The ratings framework divides the investment universe into approximately 130 subsectors, each of which is mapped to a common set of indicators to address the material ESG factors deemed relevant to that specific industry. This allows for a comprehensive and consistent approach, underpinned by quantitative and qualitative data inputs.

These inputs translate into a forward-looking top line ESG rating (A to E, with A being the highest score) with pillar scores on each of the E, S and G, and scores for underlying indicators, providing granular output and insights. To complement the headline ESG rating, a momentum rating is also assigned to an issuer, which is an assessment of a company’s expected sustainability progress over the next 12 months, relative to peers.

The strategies are designated Article 8 compliant under the Sustainable Finance Disclosure Regulation (SFDR) framework.

Process:

The fund utilises a disciplined, consistent, and repeatable investment process, designed to produce an enhanced fundamental and sustainability profile whilst seeking alpha from stock selection. The fund uses the Europe broad market investable universe as its starting point.

Exclusions

As part of the fund’s inclusion within the Fidelity Sustainable Family, the fund excludes companies that engage in certain activities. We exclude companies involved in the production or distribution of controversial weapons, conventional weapons, semi-automatic weapons, thermal coal, tobacco, arctic oil and gas, and oil sands. This is subject to a revenue threshold of 5%. We also exclude companies in violation of the 10 principles of the UNGC Principles.

Proprietary research

The fund is designed to tilt toward stocks that have a positive fundamental outlook and those that analysts have identified as having strong sustainability credentials. These securities are then over or under weighted while applying sector, regional and stock weight constraints as well as style and beta constraints, relative to the comparative market index.

In addition, relative carbon footprint is a constraint versus the baseline year (2020) emissions, in line with the expectation that it should decline by 50% by 2030. 

The proprietary research provides a fundamental and sustainable outlook as detailed in the below signals:

• Research ratings – buy/outperform recommendations.
• Ratings momentum – upgrades/downgrades signal the direction of recent ratings changes.
• Ratings conviction – signals whether a stock is a high conviction idea within an analyst’s coverage universe.
• Ratings 'recency' – used to amplify the research rating based how recent a rating is at any given point in time.
• Sustainable rating – signals whether a stock is highly rated from a sustainability perspective using Fidelity proprietary sustainable ratings (A-E) as the primary source.
• Sustainability trajectory – signals whether a stock displays improving, stable or deteriorating sustainable credentials using Fidelity proprietary sustainable ratings as a primary source.

Portfolio construction and portfolio management's review

The nature of the investment process ensures a close interaction between the portfolio construction and risk management processes.

Fidelity’s proprietary research is considered as the raw material for the portfolio construction process. An optimisation process allows for the consideration of all objectives concurrently. This is achieved by way of applying mean variance optimisation to optimise the selection of securities. The securities are chosen based on favourable fundamental and sustainable ratings, as well as their forward-looking trajectories. The weights of the securities are determined relative to the relevant comparative market index, with a maximum deviation of +/-1% from the benchmark.

Climate targets are also taken into consideration during the optimisation process. The aim is to maximise stock-specific risk while applying constraints on factors such as sector, country, style, and turnover.

The portfolios typically consist of 100 - 500 stocks, depending on geographical region.

The results of the portfolio construction process are subject to review by the Portfolio Managers.

Resources, Affiliations & Corporate Strategies:

At Fidelity, we are dedicated to achieving the best possible risk-adjusted returns for our investors. We believe that high standards of corporate responsibility generally make good business sense and have the potential to protect and enhance investment returns. Consequently, we integrate ESG issues into our research and investment decision-making process; we believe it has the potential to affect the long-term value of the investment.

Our integrated ESG approach is relevant across all asset classes, sectors and markets in which we invest.

ESG integration is carried out at the fundamental research analyst level within our investment teams, primarily through the implementation of Fidelity's proprietary ESG Rating. This rating leverages our internal research capabilities and our engagement with companies to inform our view on a company’s sustainability credentials. Please refer to our response to question B6 for detailed information on Fidelity’s proprietary ESG Rating and other proprietary tools that support our internal research process.

The cornerstone of our investment approach is bottom-up research. As well as studying financial results, our portfolio managers and analysts are dedicated to carrying out additional qualitative analysis of potential investments. They visit companies in person, examining everything that could have an effect on its business, from the shop floor to the boardroom. Customers and suppliers also come in for scrutiny. In this way we can develop a 360-degree view of every company in which we invest and ESG factors are regularly considered in this research process.

Our approach to integrating ESG aspects into our investment processes is detailed in the following policies, with all documents accessible via the following website: https://professionals.fidelity.co.uk/sustainable-investing/our-policies-and-reports:

Sustainable Investing Principles: The document sets out the guiding principles and minimum requirements for Fidelity’s sustainable investing activities across asset classes and geographies. The Sustainable Investing Principles build on our beliefs to set out our sustainable investing frameworks, our approach to sustainable client solutions, exclusions, investment stewardship and engagement, the integration of ESG risks and opportunities across our investment management process, and an overview of compliance with regional sustainability regulations.

Exclusion Framework: Our Exclusion Policy forms part of our sustainable investment policy and defines the main requirements for an effective exclusion framework applicable throughout the organisation.

Engagement Policy: Our Engagement Policy sets out how Fidelity undertakes stewardship and shareholder engagement across our listed equity and fixed income holdings.

Voting Policy: Our sustainable investing voting principles and guidelines document provides information on how we exercise ownership rights through voting to improve sustainable business behaviour and client returns.

Climate Investing Policy: Our Climate Investing Policy details how we plan to work with stakeholders to reduce climate risk across all investment strategies in a way that aligns with our foundation in active, bottom-up research.

We use a combination of internal and external resources.

Internal

The bulk of the engagement and analysis is carried out by our research analysts who strive to go beyond studying just financial results and look to incorporate ESG and other factors into a measured viewpoint. They are supported by our team of 38* sustainable investing specialists who engage with companies on issues like corporate governance (for example, board structure, executive remuneration), shareholder rights (for example, election of directors, capital amendments), changes to regulation (for example, green house gas emissions restrictions, governance codes), physical threats (for example, extreme weather, climate change, water shortages), and so on. Our sustainable investing specialists engage with senior management of investee companies as well as their Socially Responsible Investment (SRI) / ESG professionals. They access external ESG-themed research as well as the company ratings based on ESG factors that an external vendor produces.

Fidelity has developed a proprietary ESG Rating Framework, leveraging our internal research and interactions with issuers. The rating is designed to generate a forward-looking and holistic assessment of ESG risks and opportunities. Analysts qualify the direction of change of companies’ ESG performance (positive, neutral or negative trajectory). The ESG ratings and full company reports are accessible on our centralised research management system, Fidelity Insight, so that each analyst has a first-hand view of how each company under their coverage is rated according to ESG factors. In addition, ESG ratings are included on our analyst research notes. These notes are published internally on Fidelity Insight and form an important part of our investment decision.

Fidelity has also developed an SDG mapping tool, which provides the percentage of an entity’s or portfolio’s alignment with each SDG, and where relevant the underlying targets and indicators. This provides a quantitative, transparent, and consistent approach to measuring the alignment of portfolios against the underlying targets and indicators behind the SDGs.

Additionally, we have been developing our proprietary Climate Rating which utilises our fundamental research capabilities to identify climate risks, net zero investments and targets for transition engagement within the Fidelity investment universe. It assesses which companies are in the best position to transition to net zero, or have a positive trajectory towards transition.

The Climate Rating is designed to complement our broader ESG Ratings, which already incorporate climate change factors.

Climate Ratings have been assigned to over 2,000 issuers so far, with the objective to further scale up this coverage over time. We will use various approaches, including the Climate Rating, to set individual fund decarbonisation targets appropriate to each fund’s investment strategy and universe. We will gradually increase targets to reach 100% alignment with the Paris Agreement in every fund by 2050.

Carbon emissions data is available via Insight and is accessible to all analysts and portfolio managers. This data includes (but is not limited to) portfolio carbon emissions and intensity, weighted average carbon intensity, top emitting holdings, emissions attribution analysis, scenario analysis, physical risk assessment, fossil fuel reserves and green/brown share of electricity generation (from held utilities).

*Source: Fidelity International, as at 31 March 2024. Excludes China AMC resources.

External

Fidelity is a signatory to many industry initiatives such as the Principles for Responsible Investing (PRI), UK Stewardship Code and the Japanese Stewardship Code. We are also active members of the Asian Corporate Governance Association, Assogestioni, the UK Sustainable Investment and Finance Association, the UK Investor Forum and many other trade and industry bodies around the world.

Fidelity uses a number of external research sources globally that provide ESG-themed reports, research, ratings and data on themes such as corporate involvement in verified or alleged failures to respect international norms, for example the Ten Principles of the United Nations Global Compact (UNGC) as well as on carbon emission, fossil fuel and power generation. The coverage of companies varies by provider and the providers currently cover more than 10,000 companies globally.

We also subscribe to a number of corporate governance and voting advisory services, including products supported by Institutional Shareholder Services (ISS) and Glass Lewis, to MSCI for ESG data and to ISS for carbon footprint metrics.

We constantly explore new data sets and approaches that can provide enhanced insights into companies.

Sustainable Investing Team

Fidelity has a Sustainable Investing Team, which includes sustainability and stewardship professionals covering various subject matter areas and competencies. The Sustainable Investing Team is part of Fidelity’s Investment Team and it supports Fidelity’s investment analysts and portfolio managers to monitor, analyse, and engage with investee companies.

Fidelity’s Sustainable Investing Team has expanded to 38* members (2020: 13 members) to meet the growing demands for sustainable research, thought leadership and support for analysts and portfolio managers. The scope of the team’s work now covers a broad array of activities related to ESG integration, engagement, policy, product development and sales and marketing, as well as proxy voting.

Located in seven locations across Europe and the Asia Pacific region the Sustainable Investing Team covers a broad range of skills, including research, policy, climate science and governance. The team has a broad range of professional experience and diversity of tenure. Some specialists of the team have worked in similar roles throughout their career, while others have transitioned to sustainability over the course of their career development. The team is also diverse in terms of gender and national origin. When adding new members to the team, we have prioritised improving the team’s skillset to support our organisational stewardship objectives, as well as supporting the development of young talent in the firm, through our graduate intake.

The continued build out of our Sustainable Investing Team ensures that we remain able to meet the evolving needs of our clients and other stakeholders. New members have brought skills to complement and add to the existing capabilities of the team, including legal expertise, thematic expertise (for example, climate), client and distribution expertise and additional governance expertise.

The team will continue to evolve based on our sustainable investing strategy and aim to service all areas of the business. For example, we are planning to hire experienced asset class leads, growing the breadth and depth of our sustainable investing process and product offering. Fidelity’s investment analysts are responsible for researching companies under their coverage, leveraging the expertise of the Sustainable Investing Team as appropriate. Under this approach, ESG is fully integrated in the investment process. This collaboration has improved quality and outcomes of engagement across asset classes.

*Source: Fidelity International, as at 31 March 2024. Excludes China AMC resources.

Oversight of ESG at Fidelity

The following individuals and teams are responsible for maintaining and integrating Fidelity’s ESG policies:

• The board members of FIL Limited (the ultimate holding company of the group that trades as Fidelity International) have oversight and accountability for sustainable investing. The Sustainable Investing Team reports to the board on its activities at least once per year. The board approves any changes or amendments to our Sustainable Investing Principles, including our voting guidelines.
• A Sustainable Investing Operating Committee (SIOC) was formed in 2017. The purpose of the group is to ensure a comprehensive oversight of all ESG matters within the company across all jurisdictions and business areas. The group is comprised of members of our senior management team representing all asset classes. The SIOC meets monthly to review any ESG company policy changes, industry developments, client requirements, new product innovations and regulatory updates, and will ensure the alignment of all active ESG initiatives across the company. Ad-hoc meetings may be called to address pressing issues that may arise that need addressing in advance of the next scheduled meeting.
• Andrew McCaffery, our Global Co-Chief Investment Officer Fixed Income, Multi Asset and Private Assets (and a member of our Global Operating Committee (GOC)) also has oversight and accountability for our sustainable investing strategy and activities globally.
• Jenn-Hui Tan, our Chief Sustainability Officer, oversees Fidelity’s strategy and policies on engagement, voting and ESG integration across our active product range. He manages our dedicated Sustainable Investing Team that is comprised of 38* sustainable investing specialists, based in London, Singapore, Hong Kong, Shanghai, Melbourne, Sydney and Tokyo, who work closely with the investment management teams globally across all asset classes. They are responsible for consolidating our approach to ESG integration, engagement and voting.
• Our heads of research are also directly involved in the implementation of sustainable investing principles and procedures in the company. Specifically, our global head of research has final approval on which external ESG research vendors we engage.
• Fidelity’s research analysts have overall responsibility for analysing and rating the ESG performance of the companies and buildings in which we invest. Our portfolio managers are also active in analysing the potential effects of these factors when making investment decisions, ensuring that each stock in the final portfolio adheres to the strategy’s and clients’ ESG requirements.
• The Compliance Monitoring Team monitors the portfolios with screening criteria systematically through hard-coded restrictions in the investment guidelines.

*Source: Fidelity International, as at 31 March 2024. Excludes China AMC resources.

Industry collaboration

Fidelity recognises the importance of networks and information platforms to share tools, pool resources, and make use of investor reporting as a source of learning. Fidelity is a member or signatory to the following:

• #10000 Black Interns
• 30% Club Australia
• 30% Club Hong Kong
• 30% Club Investors Group
• 30% Club Japan
• 40:40 Vision
• Asia Investor Group on Climate Change (AIGCC)
• Asia Securities Industry and Financial Markets Association (ASIFMA)
• Asia Research & Engagement (ARE)
• Asian Corporate Governance Association (ACGA)
• Assogestioni
• BBBA Talent Accelerator
• Black North Initiative
• Black Young Professionals
• Bright Network Women in Leadership
• Catalyst After School Programme (CASP)
• CDP (formerly Carbon Disclosure Project)
• Climate Bonds Initiative (CBI)
• Climate Investment Summit (CIS)
• Coalition for Climate Resilient Investment (CCRI)
• Corporate Governance Forum (CGF)
• Council for Sustainable Business (CSB)
• Disability:IN
• Diversity Project
• Edinburgh Airport Sustainability Pledge
• Environment management system standard ISO 14001
• European Public Real Estate Association (EPRA)
• European Sustainable Investment Forum (EUROSIF)
• Farm Animal Investment Risk and Return (FAIRR)
• Finance for Biodiversity
• Finance for Biodiversity Pledge
• Glasgow Financial Alliance for Net Zero (GFANZ)
• Global Standard on Responsible Corporate Climate Lobbying
• Green Finance Industry Taskforce Singapore
• Green Praxis biodiversity
• Hong Kong Green Finance Association (HKGFA)
• Hong Kong Principles of Responsible Ownership (Stewardship code)
• Inspiring More Sustainability (IMS)
• Institutional Investors Group on Climate Change (IIGCC)
• International Corporate Governance Network (ICGN)
• International Regulatory Strategy Group (IRSG)
• Investment Association (IA)
• Investor Agenda
• Investor Forum (in the UK)
• Investor Group on Climate Change (IGCC)
• Investors Against Slavery and Trafficking Asia-Pacific (IAST Asia Pacific)
• Japanese Stewardship Code
• LGBT Great
• Lord Mayor's Appeal
• Lord Mayor's Appeal - We Can Be (Previously 'She Can Be')
• Maastricht University & (GRESB)
• Mental Health First Aid Training (MHFA)
• MSDUK
• (Minority Supplier Development UK)
• Natural Capital Investment Alliance (NCIA - part of Sustainable Markets Initiative)
• Net Zero Asset Managers Initiative (NZAMI) (led by IIGCC)
• One Planet Asset Manager initiative (OPAM) [One Planet Sovereign Wealth Fund (OPSWF)]
• OutBritain
• Partnership for Carbon Accounting Financials (PCAF)
• Point Zero Carbon Programme
• Powering Past Coal Alliance (PPCA)
• President’s Challenge Enabling Employment Pledge and Enabling Mark
• Principles for Responsible Investing (PRI)
• Purposeful Company
• Race at Work Charter
• Responsible Investment Association Australasia (RIAA)
• Social Enterprise UK (SEUK)
• Social Mobility Foundation (SMF)
• Stonewall
• Sustainable Trading
• Taiwan Stock Exchange’s Stewardship Principles for Institutional Investors
• Taskforce on Nature-related Financial Disclosures (TNFD) Forum
• Trans in the City - Campaign Trans Rights are Human Rights
• Transition Pathway Initiative (TPI)
• World Benchmarking Alliance (WBA)
• UK Stewardship Code
• (Financial Reporting Council (FRC))
• UK Sustainable Investment and Finance Association (UKSIF)
• European Sustainable Investment Forum (EUROSIF)
• UN Climate Change Conference (COP26)
• UNFCCC - Signatory to COP26 Financial Sector Commitment on Eliminating Agricultural Commodity-Driven Deforestation
• (Initiative re-named to Forest Sector Deforestation Action FSDA)
• Valuable 500
• Veteran Owned UK
• WeConnect International (Social Enterprise UK)
• WEF Stakeholder Capitalism Metrics
• Women in Finance Charter
• Women on Boards
• WorkWell Leaders

Dialshifter

Our organisation is helping to support the Paris Climate Agreement and the Race to Net Zero by…

We take a pro-active approach to minimising our own environmental footprint. We are committed to achieving net zero emissions by 2030 for Fidelity International’s operational emissions (including all Scope 1, 2 and 3 emissions we have direct control over). Our focus will be on the reduction of emissions through operational changes and investment in operational efficiencies, on-site renewals and purchasing of renewable energy whilst offsetting those we are unable to eradicate.

The goal at Fidelity is to conduct current and future business operations in a sustainable manner which helps create a better future for the environment. Fidelity ensures Environmental Sustainability is managed as any other critical business activity in an integrated, systematic way. The framework is designed to ensure Pollution Prevention, Carbon Reduction, Waste minimisation, responsible use of resources and compliance with legislation through good practice and continuous improvement.

Fidelity’s Commitment: 

• Manage Environmental Sustainability requirements in a systematic way aligned to the environmental management system standard ISO 14001;
• Develop carbon, Natural Resources and Waste data systems to effectively monitor and analyse performance; 
• Continuous improvement through setting realistic objectives to ensure sustainability management is improved in line with resources;
• Complying with legal and other mandatory requirements in relation to sustainability issues;
• Providing adequate control of environmental risks arising from our work activities and operations, including Pollution Prevention;
• Develop an environmentally sustainable culture where every employee can contribute towards Fidelity International goal to create a better future for the environment;
• Ensure effective communication and consultation on Environmental Sustainability with employees keeping them informed, motivated, and suitably trained;
• Ensure that business strategies, via the Environmental Sustainability Group, integrate Environmental Sustainability requirements;
• Reduce our consumption of resources (energy, water, materials, packaging), where feasible;
• Minimise Waste through a commitment to the Waste hierarchy to reduce, re-use, recover or recycle Waste, where feasible;
• To pursue Energy Efficiency in the design, maintenance, management and operation of our owned/operated buildings;
• Seek to use products that have the least possible environmental impact; and
• Reviewing and revising this policy, as necessary, at regular intervals.

Reports on environmental performance are produced covering a range of areas including energy management, carbon footprint, waste reduction, water usage and recycling. This data is collated on a monthly basis and communicated to Senior Management on a regular basis.

Our environmental management policy is based around our ability to obtain regular, accurate information on our environmental performance, not only in energy use and waste management, but also areas such as monitoring our carbon emissions in (for instance) air travel.

We receive regular reports from our incumbent service providers, and collate these for review. We then hold regular meetings with them to investigate areas for improvement. Where the meetings produce ideas which may help reduce the environmental impact of our operations, they are implemented and monitored. Where successful, they are incorporated into our procedures.

Fidelity’s corporate sustainability team have initiated carbon footprinting for a number of offices in recent years and are consolidating that in 2020 to produce global carbon emissions for Fidelity’s activities.

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