Sustainable, Responsible &/or ESG Policy:

Environmental, Social and Governance (ESG) factors are integrated throughout the investment process to identify companies with strong ESG credentials (a Best-in-Class approach). Sustainability considerations are fully integrated in the investment process and ESG credentials are measured through a range of sustainability indicators.

At least 80% of the Fund is invested directly in equity securities and equity-related securities of companies across any sector and market capitalisation that are domiciled in any country, including Emerging Markets. The Fund has a concentrated portfolio and usually holds fewer than 40 companies. The Fund invests in securities that meet the ESG Criteria and Sustainability Criteria.

The following types of exclusions apply to the Fund’s direct investments:

• Norms-based exclusions: investments that are assessed to be in breach of commonly accepted standards of behaviour related to human rights, labour rights, environment and anti-corruption.
• Sector-based and/or values-based exclusions: investments and/or sectors exposed to business activities that are assessed to be damaging to human health, societal wellbeing, the environment, or otherwise assessed to be misaligned with the Fund’s sector-based and/or values-based criteria.
• Other exclusions: investments assessed to be otherwise in conflict with the ESG Criteria and Sustainability Criteria.

References to “assessed” above mean assessment in accordance with the ESG Criteria and Sustainability Criteria document as disclosed in the ESG Information section below. Further information on the exclusions applicable to the Fund can be found in this document.

The Fund may also invest in other transferable securities, money market instruments, cash and near cash for liquidity purposes, directly and via collective investment schemes (including funds managed by M&G).

Derivatives may be used for Efficient Portfolio Management and hedging.

As explained in the ESG Criteria and Sustainability Criteria document, it may not be practicable to perform ESG analysis on cash, near cash, some derivatives and some collective investment schemes, to the same standards as for the other investments. The fund manager will assess the suitability of such instruments relative to the Fund’s investment objective.

Process:

Identification of watchlist

From the available investment universe, the Fund Manager establishes a watchlist of around 100 well understood sustainable companies, which the Fund Manager ultimately considers for investment. This watchlist corresponds to a reduction of the investment universe on sustainability grounds of more than 90%. It is reasonably stable with research and analysis performed on the list on a continuous basis.

Carbon analysis of watchlist

In order to achieve its sustainable investment objective, the Fund Manager assesses the alignment of potential investments on the watchlist with the Paris Agreement goal to limit global warming. The measurement for this assessment is “carbon intensity” which corresponds to how much CO2 is being emitted per dollar of sales. This carbon intensity figure is compared with the Weighted Average Carbon Intensity (“WACI”) of the Fund’s benchmark.

Companies on the watchlist that have a WACI of less than half of the benchmark’s WACI are considered to be Low Carbon Intensity, and are eligible for investment on this basis. The remaining constituents of the watchlist are those that have a WACI higher than half of the benchmark’s WACI. To become eligible for the portfolio as Reducing Carbon Intensity Companies, they must have science based targets aligned with the Paris Agreement or have committed to have them in place within a defined time period. These companies are identified using the Science Based Targets Initiative Framework1, which was chosen as it aligns with the Paris Agreement goal of limiting global warming to well below 2 degrees Celsius above pre-industrial levels and pursuing efforts to limit warming to 1.5 degrees Celsius.

The Fund Manager will also encourage the Low Carbon Intensity companies to set science based targets but that will not be a mandatory requirement for investment. The expectation is that more than 90% of the Fund’s holdings will have science based targets in place by 2025.

Financial analysis of watchlist

The Fund Manager identifies quality sustainable companies with expected superior returns based on their resilient sustainable business models, robust balance sheets, strong capital discipline, solid cashflows, and stable management teams with a track record of successful execution. Importantly, the analysis does not attempt to establish a ‘buy case’ for a company, but rather seeks to gain a comprehensive picture of its competitive position within the industry in which it operates and looks for high levels of transparency with good access to management.

Applying scenario-based valuation modelling, the Fund Manager determines what it believes to be a company’s intrinsic value.

ESG considerations of watchlist

ESG factors are a central element in the Fund Manager’s investment approach. Because of this, ESG considerations are embedded in every stage of the manager’s investment process. While the Fund Manager reviews reports from external data providers such as MSCI ESG and ISS to flag potential ESG issues, the manager performs its own sustainability assessment by focusing on the financially material ESG factors for each company under review.

Data sources:

We use third party research to aid in our internal ESG methodologies. The third party research forms part of our overall approach to internal ESG research. All our investment teams have access to this range of external ESG data providers, which ensures that the teams have sufficient ESG data and research that can be used by portfolio managers and analysts when engaging with companies on issues material to them.

Our analysts and investment teams also make use of external ESG content for a range of purposes. We have portal and data access with a number of ESG vendors, including MSCI, ISS, Sustainalytics and other specialist advisers.

In addition, we obtain ESG data through authorised aggregators or channels, including Bloomberg, Factset, Refinitiv Eikon and Aladdin. Our ESG Data Strategy records preferred vendors for particular coverage and subject matter requirements. The use of these vendors for different applications should balance the following requirements:

• Data quality and accuracy – whether the vendor’s products deliver accurate, actionable information in the context of the envisaged use case
• Breadth of coverage for particular asset classes

Resources, Affiliations & Corporate Strategies:

The central ESG team at M&G Investments is the Stewardship & Sustainability (S&S) team, which currently comprises of 32 M&G employees. Additionally, there are numerous ESG specialists across the floor, embedded in investment teams. At M&G we believe that ESG integration should occur in all parts of our investment business and to reflect this everyone has an objective to this end.

We look to continuously monitor S&S team resourcing levels to ensure the best quality of service is provided to clients. M&G will also ensure and make it the responsibility of all team members to keep up to date with the rapidly changing landscape of ESG to leverage resources effectively.

The S&S team works collaboratively, both directly and via the analysts, to equip managers to make better-informed decisions, knowing the full spectrum of ESG risks that could impact their portfolios, as well as where these risks may be concentrated within certain issuers or holdings. By working in conjunction with the credit and equity analysts on ESG, the S&S team is able to ensure that ESG risks and opportunities are considered throughout the full investment process, as well as in the monitoring of companies.

Rob Marshall, Head of Sustainable Investments at M&G Investments heads up the S&S team and research

Rob Marshall – Head of Sustainable Investments

Rob was appointed Head of Sustainable Investments in July 2022. Prior to that, Rob served as the Global Head of Research since 2019, responsible for leading M&G’s highly regarded Credit and Equity Research teams. During his time with M&G, Rob has worked as an analyst and credit practitioner across Public and Private asset classes.

Rob joined M&G in 2000. He previously worked as a senior analyst in European structured finance for the credit rating agency DCR, and later for Fitch Ratings. Rob holds a degree in Classics from Christ's College, Cambridge.

Rupert Krefting, Head of Corporate Finance and Stewardship

Rupert Krefting joined M&G in March 2016 and was appointed Head of Corporate Finance and Stewardship, Equities. Rupert has worked in investment banking for more than two decades. Most recently, he was at Numis, where he was a director in its corporate broking and advisory business for 8 years. Prior to his move to Numis, Rupert held senior roles at Investec and Panmure Gordon on the advisory side. He is a chartered accountant.

Ben Constable-Maxwell, Head of Sustainable & Impact Investment

Ben joined M&G in 2003 as a senior investment writer covering global and European equities, before joining the investment specialist team supporting the global equity desk. He is now Head of Sustainable and Impact Investing, responsible for sustainable investing at M&G and for developing M&G’s impact investment activities within our Equities business.

Ben has been central to the development of ESG integration within M&G’s investment processes and has supported the development of ESG client solutions across asset classes. He sits on M&G’s Responsible Investment Advisory Forum, which oversees ESG related activities at M&G, and is a member of the UK Investment Association’s Sustainability & Responsible Investment Committee, chairing the Working Group on non-financial disclosures.

Previous to M&G, Ben spent four years with the Equities team at Invesco Perpetual. Ben graduated from the University of Newcastle-upon-Tyne with an Honours Degree in Classics and has been on M&G’s Staff Charity Fund Committee since 2004. With the launch of the M&G Positive Impact Fund, Ben will be taking the Impact lead alongside fund manager John William Olsen.

John Vercoe

John joined as a Manager in the Policy and Disclosure team in January 2021 from 8 Miles, where he was the Head of ESG and Impact for Bob Geldof’s African Mid Cap Private Equity Firm. With 22 years of environmental and social risk experience, John currently Heads up Sustainability for Public Assets at M&G. John is a chartered environmentalist (C.Env), Member of the Institution of Environmental Sciences (M.IES) and Fellow of the Royal Society of the Arts (F.RSA).

The following is a list of Initiatives and signatories of M&G plc and M&G Investments:

M&G plc

• UN Global Compact
• TCFD
• TNFD Forum
• CDP
• ClimateWise
• ShareAction's Workforce Disclosure Initiative (WDI)
• National Equality Index
• Stonewall's Top 100 Employers
• Department of Work and Pensions - Level 3 Disability Confident Leader
• Say on Climate
• Powering Past Coal Alliance

M&G Investments

• 30% Club Investor Group
• Access to Medicine Foundation
• All Party Parliamentary Corporate Governance Group (APPCGG)
• CDP
• Climate Action 100+ (CA 100+)
• Climate Bonds Initiative
• Climate Bonds Initiative -  Climate Bonds Industry Working Group for Hydropower Investments
• Climate Bonds Initiative - Climate Bonds Industry Working Group for Bioenergy European Green Securities Steering Committee
• Climate Bonds Initiative - Climate Bonds Industry Working Group for Marine Renewable Energy Investments
• European Fund and Asset Management Association (EFAMA)
• FAIRR (Farm Animal Investment Risk and Return)
• Find it, Fix it, Prevent it
• Global Impact Investing Network (GIIN)
• Green Bond Principles
• IA (Investment Association )
• IA Corporate Reporting and Auditing Group (CRAG)
• IA Remuneration and Shares committee
• IA Responsible Investment committee
• IA Stewardship & Governance Committee
• IA Stewardship Reporting Working Group
• Impact Management Project (IMP) [Now Impact Management Platform]
• Institutional Investors Group on Climate Change (IIGCC)
• International Corporate Governance Network
• Investor Forum
• Net Zero Asset Managers Initiative
• Pre-emption Group
• Transition Pathway Initiative (TPI)
• UK Stewardship Code 2020
• UK Sustainable Investment and Finance Association (UKSIF)
• UN PRI

SDR Labelling: Sustainability Improvers label

• Consumer Facing Disclosure link