Sustainable, Responsible &/or ESG Policy:

The Fund is designed to invest in high yield bonds globally, combined with observing ESG criteria as an ESG Orientated Article 8* Enhanced Strategy. We aim to achieve targeted return by proactively incorporating ESG considerations and by employing a rigorous investment process, driven by high quality proprietary research emphasising capital preservation working in tandem with macro drivers to ensure appropriate levels of beta are contained within our portfolios, while operating within a practical framework of risk controls.

* This Article designation is a self-classification by RBC Global Asset Management (UK) Limited, and effective from 03/2021”

The Global High Yield ESG Bond Fund builds on the firm level ESG components, either by applying an existing approach in a different way or featuring a new component: 

• ESG integration – enhanced (i.e. exclusions based on ESG assessment with minimum ESG requirement): ESG factors are taken into consideration to enhance investment analysis and inform the investment decision-making process. There is a nuanced approach in that depending on the outcome of the issuer ESG evaluation, some issuers may be prohibited from investment independent of whether they represent an ESG risk. This relates to the issuers assigned the worst ESG metrics (exclusion of issuers which have been assigned a Fundamental ESG (Risk) Rating of ‘very high’ and exclusion of those assigned a ‘high’ on a case-by-case basis).

• Stewardship - enhanced: ESG engagement efforts are not limited to a focus only on ESG risks but can also encompass ESG factors more generally. Depending on the sub-asset class there may also be voting exposure;

• Exclusions / negative screening - enhanced: there are more extensive restrictions in place for this Fund, with the scope going beyond that applied at the firm level. A combination of product-based and conduct-based screens are applied.

ESG negative screening includes two elements:

1. Product-based exclusions:

Corporates1,2 – controversial weapons (any production – cluster munitions, landmines, chemical/biological weapons, depleted uranium, nuclear weapons, blinding lasers, non-detectable fragments, incendiary weapons), adult entertainment (>10% revenues – production/distribution/retail), alcohol (>10% revenues – production/distribution/retail), conventional weapons (>10% revenues – production of systems and components), fossil fuels related: arctic oil & gas (0% revenues – production) / conventional & unconventional oil & gas (>5% revenues - production) / oil sands (0% revenues – extraction) / thermal coal* (installed capacity >10,000 MW, mining/power >5% revenues/operations), gambling (>10% revenues – operations/support), nuclear energy* (>5% revenues – mining/production/supply), tobacco (any production, >5% revenues – distribution/retail)

1. Conduct-based exclusions:

Corporates1,2: non-compliance with of UN Global Compact (fail), ESG controversy exposure (worst)

Sovereigns1,3: controversial jurisdictions (Financial Action Task Force (high risk), UN Security Council Sanctions (listed)), Freedom House Index (‘not free’), UN conventions and treaties: corruption convention (not party to) / torture and punishment convention (not party to/no action/not ratified) / Paris Agreement (not ratified)

Notes: 1 As determined by our third party ESG information provider, MSCI ESG Research. Further information is available from MSCI ESG Research; 2 As determined by a) our third party ESG information provider, MSCI ESG Research. Further information is available from MSCI ESG Research, and/or b) Norwegian Government Pension Fund Global/NBIM ESG Ethical Guidelines. Further information is available from NBIM; 3 As determined internally by Investment Compliance. Further information is available upon request.

* Exceptions permitted in specific instances for power utility companies in the case of transmission/distribution/capacity thresholds. Further information is available upon request

Once screened vs the above exclusions, a reduced universe of potential investments is evaluated during the subsequent stages of our investment process to determine absolute and relative attractiveness.

ESG Investment Criteria

ESG negative screening includes product-based exclusions and conduct-based exclusions. Once screened, a reduced universe of potential investments is evaluated during the subsequent stages of our investment process to determine absolute and relative attractiveness.

We source the list of excluded issuers based on two complementary external sources, both consistent in their focus areas. Any issuers listed as restricted based on screening by either data sources will be excluded from investment in the Strategy. In our experience of managing the Strategy so far, there has been a high degree of overlap in issuers restricted on either list.

• Norges Bank Investment Management (NBIM) SRI policy:

The Strategy’s approach to ensuring compliance with the NBIM SRI policy has been arrived at following a review of the best possible approach given the nature of how the NBIM information on excluded companies is communicated publicly. We note that although NBIM publicly disclose the list of excluded issuers on their website, they only publish the list once they have been themselves able to exit their positions in the disclosed issuers in an orderly manner while securing good pricing. The public disclosure on the NBIM website is the first public notification of this information.

Updates to the restricted list are usually made based on recommendations from the Council on Ethics, which informs the SRI policy of the Norwegian government pension fund, which NBIM enforces. The role of the Council on Ethics is to evaluate whether or not the Norwegian Global Pension Fund’s investments in specified companies is inconsistent with its Ethical guidelines.

The following criteria may lead to product-based exclusions including:

• production of weapons that violate fundamental humanitarian principles through normal use;
• tobacco production or tobacco products;
• produce cannabis for recreational use
• sale of weapons or military material to the governments of certain sovereign states.
• mining companies and power producers which themselves or through entities they control derive 30 per cent or more of their income from thermal coal; or base 30 per cent or more of their operations on thermal coal; extract more than 20 million tonnes of thermal coal per year, or  have the capacity to generate more than 10,000 MW of electricity from thermal coal may be excluded.

Conduct-based exclusions may also be applied as follows:

• serious or systematic human rights violations such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other child exploitation;
• serious violations of the rights of individuals in situations of war or conflict;
• the sale of weapons to states engaged in armed conflict that use the weapons in ways that constitute serious and systematic violations of the international rules on the conduct of hostilities
• the sale of weapons or military materiel to states that are subject to investment restrictions on government bonds as described in section 2-1(2)(c) of the Management mandate for the Norwegian Government Pension Fund Global
• severe environmental damage;
• acts or omissions that on an aggregate company level lead to unacceptable greenhouse gas emissions;
• gross corruption or other serious financial crime;
• other particularly serious violations of fundamental ethical norms.

Source: Guidelines for Observation and Exclusion of companies from the Government Pension Fund Global (GPFG)

• Complementary BlueBay Global Fixed Income Platform ESG screening for the Strategy (MSCI ESG)

Whilst the Fund seeks to ensure compliance with the exclusion list resulting from the NBIM SRI policy, BlueBay also independently replicates, where feasible, the NBIM SRI policy by applying ESG screening criteria sourced from a third-party provider to generate a complementary exclusion list, that aligns with the NBIM SRI policy. The rationale for this is to provide an additional and independent (third-party) perspective on what issuers would be excluded based on the ESG screening criteria of the NBIM SRI policy and also to seek to ensure we can continue to manage the portfolio according to the ESG screening criteria of the NBIM SRI policy in the event that NBIM discontinue publicly disclosing their exclusion list. The approach we have taken to managing the process for this is similar to some elements of the internal process employed to seek to comply with the NBIM SRI policy as detailed above. However, we would note that in some cases, we may choose not to apply ESG screening criteria that replicate some aspects of the NBIM policy, where we feel this would be detrimental to the Strategy, or where we are unable to source an appropriate screen from the third-party provider. In such cases, issuers excluded by the criteria of the NBIM SRI policy would continue to be restricted per the detail outlined above.

Essentially:

• We aim to comply with NBIM’s SRI policy, however we note that in some cases we go beyond these restrictions, e.g. coal and tobacco, and in others (as outlined above) may not meet;
• We source the data on excluded issuers (which cover product and conduct based ESG criteria aligned to the NBIM SRI policy) from a third-party ESG provider. We provide the third-party provider with the ESG criteria we have identified to be relevant for the Strategy, which are then applied by the third-party provider to their investment universe;
• On a monthly basis the third-party provider provides BlueBay with an updated list of issuers with involvement in the applicable areas, where we have been able to source an appropriate screen/have chosen to do so vs the criteria of the NBIM SRI policy;

Our Investment Policy function applies the new restricted list to the Strategy, by coding it into the investment trading system.

Process:

BlueBay Global Fixed Income Platform (BlueBay) has one investment team operating a single investment process across all asset classes. There are 3 intrinsic building blocks to the investment process: Product Design, Alpha Source Decisions and Portfolio Construction.

Product Design

Every portfolio managed at BlueBay has a Product Design, which documents a benchmark, an alpha target (or an absolute return target), the alpha sources expected to contribute to the strategy’s outperformance, and an expected risk contribution and liquidity profile. Based on the inherent properties of the alpha sources, ranges for typical maximum and minimum risk exposures are inferred, which act as internal exposure constraints.

The BlueBay Global High Yield ESG Debt Fund is designed to invest in high yield bonds globally combined with environmental, social and governance (ESG) criteria.

Below we provide an illustrative product design and risk budget for the BlueBay Global High Yield ESG Debt Strategy:

• Term Structure, Alpha Target 20 bps with a range of 0-20%. The risk measure is interest rate duration Yield curve with a target exposure of +/-2.0 years.
• Credit Beta, Alpha Target 40 bps with a range of 0-40%. The risk measure use is Corporate Spread duration with a target exposure of +/-2.0 years.
• Credit Alpha, Alpha Target of 140 bps, with a range of 60-100%. The Risk measures used are Country, Sector, Issuers and Instrument with a target exposure of 100-140 issuers.
• Currency, with an Alpha range of the portfolio being fully hedged. The risk measure is currency with a target exposure of being fully hedged.

Alpha sources

BlueBay’s portfolio construction within leveraged finance more generally and high yield bonds specifically, blends both top down and bottom up inputs in order to create an optimised portfolio. While critical to constructing a robust portfolio, which offers capital preserving credentials, bottom up credit analysis cannot be viewed in isolation and must be undertaken in the context of an understanding of macro themes which drive industry, regional and credit rating themes. A dynamic approach to capturing, exploiting and adapting to these trends is essential in creating a portfolio that can perform in all environments.

With regard to specific credit selection, BlueBay’s high yield debt issuer selection is primarily qualitative, driven by proprietary research involving a detailed analysis of screened credits. The credit screening process provides us with an in-depth understanding of the company's business, capital structure and the risks associated with a potential investment.

Stage 1: Idea Origination

Investment ideas are generated by all members of the investment team and originate from deep and long-established relationships with investment banks, local and international advisory firms and external research providers. BlueBay has a well-established reputation for undertaking comprehensive due diligence and providing arrangers and underwriters with invaluable feedback and structuring advice. As such arrangers and originators are typically very keen to receive BlueBay’s input and consequently, we have access to an unrivalled supply of investment opportunities.

Stage 2: Preliminary screening

During the second stage of the BlueBay Global High Yield ESG Debt Strategy’s investment process, we carry out two complementary components which are part of the preliminary screening process of the potential investment universe:

1. Quantitative investment-based screening - The Strategy’s global high yield investment universe comprises approximately 1500+ issuers including:

• All securities within the preferred benchmark, the ICE BofA Merrill Lynch Global High Yield Investment Grade Countries Index; and
• Other names which meet our investment criteria but may not be part of the index (e.g. unrated issues).

The universe is initially screened using two quantitative screening criteria. We aim to invest in securities with a minimum of two market makers per security, and a minimum issue size of USD250 million. Once the investment universe is established, the portfolio managers and analysts screen new opportunities that meet our minimum threshold requirements using a qualitative process. Investment ideas are sourced from proprietary research which utilises external sources such as third-party research, trade publications, the press and primary issuance documentation. The screens applied to the universe are: liquidity (size of the issue, number of market makers), financial transparency of the issuer, stability of the industry and access to company management. We only invest in companies with which we have an ongoing and sustainable bilateral relationship with the senior management team. If this cannot be established, or circumstances change to preclude its continuation, we will disinvest.

1. Qualitative ESG-based screening - ESG negative screening includes two elements:

Product-based exclusions:

Corporates1,2 – controversial weapons (any production – cluster munitions, landmines, chemical/biological weapons, depleted uranium, nuclear weapons, blinding lasers, non-detectable fragments, incendiary weapons), adult entertainment (>10% revenues – production/distribution/retail), alcohol (>10% revenues – production/distribution/retail), conventional weapons (>10% revenues – production of systems and components), fossil fuels related: arctic oil & gas (0% revenues – production) / conventional & unconventional oil & gas (>5% revenues - production) / oil sands (0% revenues – extraction) / thermal coal* (installed capacity >10,000 MW, mining/power >5% revenues/operations), gambling (>10% revenues – operations/support), nuclear energy* (>5% revenues – mining/production/supply), tobacco (any production, >5% revenues – distribution/retail)

Conduct-based exclusions:

Corporates1,2: non-compliance with of UN Global Compact (fail), ESG controversy exposure (worst)

Sovereigns1,3: controversial jurisdictions (Financial Action Task Force (high risk), UN Security Council Sanctions (listed)), Freedom House Index (‘not free’), UN conventions and treaties: corruption convention (not party to) / torture and punishment convention (not party to/no action/not ratified) / Paris Agreement (not ratified)

Notes: 1 As determined by our third party ESG information provider, MSCI ESG Research. Further information is available from MSCI ESG Research; 2 As determined by a) our third party ESG information provider, MSCI ESG Research. Further information is available from MSCI ESG Research, and/or b) Norwegian Government Pension Fund Global/NBIM ESG Ethical Guidelines. Further information is available from NBIM; 3 As determined internally by Investment Compliance. Further information is available upon request.

* Exceptions permitted in specific instances for power utility companies in the case of transmission/distribution/capacity thresholds. Further information is available upon request

Once screened vs the above exclusions, a reduced universe of potential investments is evaluated during the subsequent stages of our investment process to determine absolute and relative attractiveness.

Stage 3: Pre-investment credit & ESG due diligence analysis

The research effort at stage three focuses on a reduced universe of 350+ issuers. This analysis is carried out by the individual credit research analysts (with support from our Responsible Investment (RI) team where necessary and appropriate) and culminates in research papers with a financial model highlighting key credit risks and relevant ESG risks. The in-depth research of each credit combines:

1. Credit Analysis

The credit analysts perform in-depth financial analysis of each issue focusing on:

1. a) Transaction review – We seek to establish an understanding of the underlying transaction that gave rise to the high yield issue. In particular, we seek to understand the sources and uses of monies, as different uses can be associated with a significantly different risk profile and therefore demand different return requirements.
2. b) Operating review – Historical levels of operating performance are assessed, in conjunction with the competence and the openness of management. We ascertain our level of comfort with regards to the company’s competitive positioning and industry dynamics. Key areas of analysis include historic organic free cash flow generation, stability of margins, volatility of earnings, barriers to entry, industry trends and market share.
3. c) Cash flow analysis – An important area of analysis where we focus on the company’s ability to meet scheduled interest payment and debt amortisations, by employing on-going and regular scenario analysis and stress testing in different macro and industry environments. We assess the level and stability of cash flow generated by the company's operations, and we evaluate the overall liquidity profile and its ongoing access to capital. The evaluation process is specific to each individual issuer as cash flow inputs differ from company to company.
4. d) Capital structure – We examine the company's balance sheet, focusing on an issue’s position within the capital structure. Specifically, we seek to determine our level of legal seniority versus other debt, review any collateral and assess our overall covenant protection. Our principal focus is on the level of equity capital, which is assessed using debt/earnings and enterprise value/debt ratios, as we need to ensure there is a substantial equity cushion beneath us.
5. e) Covenant review – A detailed understanding of the legal documentation underpinning the debt issue is crucial to our analysis. Specifically, we are focused on the issuers’ ability to subordinate us as bond-holders by raising future debt or divesting of assets which are current sources of security. Each of our credit analysts is highly experienced in this type of assessment and we consider this fundamental to our analysis. Should it be required we have on desk legal support for further review and consideration and in addition we actively utilise external subscription-based analysis to supplement our own internal work.
6. f) Management engagement – As noted we will not lend to a company unless we have met with senior management and their equity sponsor should they have one. Such interaction is crucial in determining our alignment with the intentions of the owners of the business. Establishing a relationship with senior management at this stage of the process is also crucial for the ongoing monitoring of our investment.

We also determine the extent to which our interests as bondholders are aligned with the equity sponsors and management.

1. ESG Analysis

Issuer and Issue Analysis

In August 2018, BlueBay implemented an issuer ESG evaluation process which formally reviews issuers on ESG risk factors, considers the quality of ESG risk mitigation and outlines the extent to which we consider ESG risk factors to be relevant to valuations. The ESG evaluation is conducted by our investment analysts for in scope strategies and for specific issuer and security types and certain investment exposures as part of their fundamental credit research, working closely with our in-house Responsible Investment (RI) team, and is intended to inform on portfolio investment decisions. This process enables the quantification and documentation of ESG risks and the assessment of the extent to which ESG risks are considered investment relevant/material. This process has facilitated greater awareness and ownership of ESG by our credit analysts, and enabled greater engagement between RI and credit analysts, as well as Portfolio Managers. Our investment teams have acknowledged the value of considering ESG risks separately to investment risk, as by taking a more holistic ESG assessment of an issuer, and considering not just ESG factors that are directly influencing the price of bonds, they identify potential blind spots that markets are potentially not looking at or pricing correctly.

The issuer ESG evaluation framework results in two proprietary ESG metrics:

• A Fundamental ESG (Risk) Rating which indicates our view on how well the issuer manages its material ESG risks. There can only be one Fundamental ESG (Risk) Rating per issuer (e.g. at the ticker level) across BlueBay.
• An Investment ESG Score which reflects an investment view on the extent to which the ESG risk factors are considered relevant to valuations. The Investment ESG Score is specific to a decision on a security/instrument level (e.g. at the ISIN level). Investment team may assign different Investment ESG Scores meaning there may be multiple Investment ESG Scores for a single issuer. In this way we can allow for different ESG investment materiality over varying time frames and risk-reward profiles. This Investment ESG Score is solely owned by the credit analyst/portfolio manager.

Our issuer ESG evaluation framework  seeks to assign sustainability/ESG materiality and investment materiality separately. This enables us to have a better understanding of the extent to which ESG risks are indeed investment material, and in which circumstances. This level of transparency is especially important in fixed income , given the different nature of the asset class compared to equities, as ESG factors may play out in different ways for various reasons.

The two derived ESG data points enable credit and RI analysts to express their ESG view on an issuer, which is used by portfolio managers to inform on their portfolio construction decisions by taking these data points into account.

Our ESG-orientated strategies seek to go beyond solely a risk focus when engaging, and also consider issues of responsibility and stewardship, and as such decisions can be taken on investments which are not limited to whether the risk is investment material. 

Whilst initially the ESG evaluation framework was developed and housed separately from our conventional credit research process, during early 2020, the analysis was also embedded within our centralised in-house research platform, the Alpha Research Tool (ART), placing all credit and ESG research in one place. Internal ESG data and insights also feed through to Portfolio Insight (Pi), another proprietary tool enabling our investment teams to view ESG metrics for their portfolios and associated benchmarks.

We consider material ESG risks for specific industries/sectors and the extent to which there are cross-cutting themes. The extent to which ESG factors may be considered most investment relevant/material in terms of risk exposure is linked to the nature of the issuer’s business activities, geographical footprint and other factors such as size.

For further details of this process, please see the ESG section below.

3.Relative value and absolute risk and return

Once we have a clear understanding of issuer risks and have identified those credits that offer fundamental value, we then seek to determine how attractive the expected return is relative to other similar opportunities in the same industry and across the entire market. The most important relative value analysis is intra-capital structure, in which we assess which debt instrument within a single company’s capital structure offers the best risk adjusted returns, i.e. bank debt, bonds, credit default swaps (CDS), convertible securities, etc. This process is overlaid by an absolute minimum return requirement for each individual credit based on our knowledge of the market, industry and similar credits.

As part of the due diligence process the credit analysts are required to score each issue based on fundamentals (including ESG), valuations, and technical factors on a +3 (most bullish) to -3 (most bearish) scale, dependent on their expected impact on repricing of the alpha source. These scores then help inform the overall investment conviction score, which is expressed on the same +3 to -3 scale and is reflected for every alpha source in our proprietary ADT. By using the same scoring system for all investment decisions made at BlueBay, we are able to design investment solutions that meet our client’s needs and often span various asset classes.

Alpha specialists are expected to maintain their investible conviction score in the ADT, along with a target and loss review level, an investment summary rationale and an assessment of risk factor associated with their investment idea. They are also expected to make regular comments relating to changes in conviction, alpha source behaviour, significant newsflow or changes in target / loss review levels.

Each credit is reviewed by the team’s via an Investment Committee formed of leveraged finance platform portfolio managers, traders, and analysts. The investment committee considers the merits of the investment in question using the research paper produced by the analyst as a starting point only. Often the process at this stage is an interactive one whereby issues raised by the investment committee will require further discussion and interaction with company management before a decision can be made. The decision to invest is a collective one made by the members of the committee – it is highly likely that this will be a unanimous decision.

Additionally, each potential investment is reviewed in the context of five broad perspectives:

• Consistency with strategic and top down objectives – credit risk profile, relative value, sector weightings and investment horizon;
• Macro perspective – geographic concentrations, duration issues and other risk assets;
• Market technicals – supply vs. demand, Fund flows and participants;
• Prevailing tactical investment themes – preference for high versus low beta securities, tactical sector positioning (e.g. cyclicals vs. staples); and,
• Compliance with the investment and regulatory guidelines, including position limits, issue domicile, currency and ratings.

The decisions regarding the selection of individual credits within the portfolio are taken by the portfolio managers during stage four of the process, portfolio construction.

Stage 4: Execution/portfolio construction

The final portfolio is constructed by the portfolio managers drawing on the product design combined with the research produced during the initial stages of the investment process. Every Strategy and portfolio utilise the Alpha Source Conviction Scores stored in the ADT in conjunction with the Product Design, in order to determine portfolio positioning. Position sizing is assisted by proprietary Quantitative Tools in order to achieve a degree of consistency in position sizing. The objective of Portfolio Construction is to make optimal use of Alpha Source outputs (+3 to -3), in light of the product design, while taking into account risk inputs, including liquidity scores and portfolio sensitivities. It is also an objective to minimise alpha slippage in implementation. Put simply, the alpha is being generated by the investment specialists and the aim of portfolio construction is to get as much of that alpha into portfolios as possible, while controlling risk.

BlueBay’s portfolio managers are empowered to leverage the data and insights resulting from the issuer ESG evaluation within portfolio construction decisions and understand ESG investment risk exposure at the portfolio level. For instance, where the ESG signal (Fundamental ESG (Risk) Rating and Investment ESG Score) are negative, it may guide the portfolio manager to be cautious in their asset allocation for that issuer, potentially limiting exposure or follow up with the analysts to understand the reasons. In the opposite case, if the ESG data points are positive, it guides the portfolio manager to consider a greater tilt in allocation to these securities in the portfolio (e.g. Overweight vs the benchmark, larger positions, a core holding etc.). In addition, ‘Very High ESG risk’ issuers are automatically excluded from this Strategy, whilst ‘High ESG risk’ issuers are excluded on a case-by -case basis. The majority of the alpha delivered in our portfolios is typically derived from our alpha sources while the remaining components are attributable to portfolio construction decisions.

While the portfolio construction stage incorporates quantitative aspects such as position limits, geographical concentration, etc., the portfolio managers’ judgment with regard to tactical themes and instruments used adds a qualitative input. It should be noted that bottom up security selection (with a focus on risk-adjusted returns) blended with top-down macro drivers work together to create an optimised portfolio that can perform in all environments.

The tools used to construct the portfolio include fixed income securities, convertible securities, cash pay securities, zero coupon/payment in kind notes, single issuer CDS (long and short) and market index CDS products. It should be noted that the vast majority of the portfolio is comprised of sub-investment grade cash bonds and other instruments are used only on a highly selective basis. The final portfolio is notably more concentrated than the benchmark and typically includes 100-120 issuing companies.

A large portion of the portfolio is typically represented by companies that exhibit low levels of cyclicality, display transparent earnings streams, predictable cash flows and have good equity cushions with strong covenants and quantifiable security.

Additionally, the portfolio may invest in securities or issuers of a more opportunistic nature. Typically, these securities are those where the investment thesis is predicated on the occurrence of a particular event or turnaround at the issuer or wider sector within which the issuer resides. Often these issuers will be in more cyclical sectors such as retail, autos or chemicals. Our exposure to opportunistic securities will often depend on the point in the credit cycle which will typically dictate both the quantum of opportunities available and the valuations of these opportunities. Typically, opportunistic investments are sized more conservatively, and their holding period may well be shorter than those issuers considered to be less cyclical in nature.

We are mindful of trading activity and trading portfolio positions typically occurs when a new alpha source decision is introduced, or there has been a change in an existing alpha source decision. Trading can also result from cash flow into / out of a portfolio, new issue of securities, a perceived change in volatility, or as a result of an overall portfolio risk increase / reduction.

Portfolio construction and trading are at all times governed by our policies related to side by side management of similar portfolios, aggregation and allocation of trades as well as order execution policies. Compliance with investment and regulatory guidelines is reinforced by our compliance monitoring process undertaken through the Charles River Investment Management System (Charles River) Portfolio risk is monitored on an absolute basis by BlueBay’s Risk and Performance Team using our risk management system, RiskManager (from MSCI).

ESG risk oversight is provided across all of BlueBay’s strategies and investment desks through continual analysis and monitoring of firmwide ESG risk exposure. This involves the ESG investment team interacting with investment risk colleagues, utilising investment exposure data, as well as conducting ad-hoc ESG analysis as deemed appropriate. The ESG Investment Working Group (IWG) is charged with the oversight of and ensuring ESG integration within our investment practices. The ESG IWG sets a work programme annually, with progress against these points monitored at each monthly meeting.

Stage 5: Monitoring & Engagement

Ongoing post investment monitoring and engagement is an integral part of the investment process. Activities included in this stage include:

• Monthly/quarterly financial / ESG analysis
• Management review meetings
• Re-appraisal on any relevant news flow
• Top down sector analysis and trends
• On-going re-assessment of sustainability/capital preservation
• Re-appraisal of relative value and risk adjusted returns offered

Following the initial ESG evaluation of an issuer, analysts will continue to monitor and (as and when appropriate) update our records with new ESG insights and developments as they occur, including when ESG engagement activities have taken place. ESG analysis is an important part of our investment process and is ongoing in nature. Moreover, a deep dive, re-working this analysis is formally scheduled within a 2 year period. We may initiate a full ESG review of an issuer before the formal review is due, where we have sufficient cause to question the ongoing validity of the assigned ESG ratings and scores. This may occur as a result of an event or incident which leads us to query the nature of the issuer’s ESG practices and performance. In this way, we ensure our ESG assessment remains relevant and accurate at all times. Our current ESG integration process is subject to ongoing review to ensure it continues to incorporate the latest thinking and good practice, as we view it.

BlueBay maintains a firm-wide database to track engagements, including ESG. This allows us to document and monitor engagement efforts and evaluate our effectiveness across all our Strategies. Information about ESG engagements is recorded in the issuer ESG evaluation engagement section of the Alpha Research Tool (ART), as well as our internal monitoring platforms, Portfolio Insights (Pi).

As part of the routine investment research process, our investment teams also do meet issuers (particularly with primary issuances) and are able to raise questions, including on ESG related matters. BlueBay may proactively initiate dialogue with issuers on ESG matters, or reactively in response to an external event or development. This is particularly relevant where there is a significant incident and we wish to gain greater understanding around how it came to pass and what measures are being implemented as a result. The outcome of ESG engagement efforts (e.g. the degree to which we are reassured and/or successful in our change facilitation efforts) represents an input into our investment thinking and decisions, and can influence whether we have exposure to an issuer, the nature of our positioning and / or whether further action is required. Engagements can be used to gather additional insights into the issuer’s ESG practices or to facilitate change by setting out a request for change/improvement in specific ESG areas.

ESG Investment Management

ESG Investment Approach

RBC BlueBay’s ESG investment approach is rooted in our belief that ESG factors can potentially impact an issuer’s long-term financial performance. Therefore, ensuring our investment risk management approach provides holistic oversight of risks by integrating ESG factors alongside conventional credit analysis is not only prudent but also in line with BlueBay’s fiduciary duty. As debt investors our primary focus is on capital preservation although we believe opportunities exist where ESG risks are not currently being priced or are priced incorrectly by the market.

RBC BlueBay has an ESG Investment Policy which applies to assets managed by the firm and is available via the firm’s corporate website: Approach to RI Brochure 2024 (rbcbluebay.com)

RBC BlueBay's ESG investment approach places strong emphasis on downside risk management, with in-depth proprietary credit research driving the security selection process and ESG research acting as a risk management filter.

On a platform level, BlueBay utilises a range of ESG investment strategies to varying extents across our in scope assets, including:

▪ ESG integration: ESG factors are taken into consideration to enhance investment analysis and inform the investment decision-making process at different levels.

▪ Stewardship: The focus of ESG engagement efforts is on investment-material ESG risk factors. Depending on the sub-asset class there may also be voting exposure.

▪ Exclusions/negative screening: A product-based restriction is in place for all funds, in accordance with BlueBay’s Controversial Weapons Investment Policy. The Policy is available via the BlueBay corporate website.

ESG metrics resulting from the BlueBay ESG evaluation framework disaggregate the management of ESG risks from the investment materiality as we believe that this enables us to better understand the extent to which ESG risks are indeed investment material, and in which circumstances. The two-resulting issuer ESG metrics are recorded appropriately and are fed into the Alpha Decision Tool (ADT), an in-house platform which enables investment teams to capture and monitor trade ideas. In addition, all credit and ESG research is stored together in our central in-house research platform, the Alpha Research Tool (ART). ESG data and insights also feed through to Portfolio Insight (Pi), another proprietary tool enabling our investment teams to view ESG metrics for their portfolios and associated benchmarks. In our view, this level of transparency is especially important in fixed income as the asset class operates differently compared to the equity market, and as a result ESG factors may play out in different ways for various reasons. We believe such insights can inform on our wider knowledge and understanding of ESG fixed income dynamics, and ultimately allow us to make more informed investment decisions.

The two internal ESG metrics enable credit and RI analysts to express their ESG view on an issuer. Furthermore, the decision output from this analysis is considered by the portfolio managers during the portfolio construction phase of the investment process. Issuer who are assigned a ‘Very High Fundamental ESG (Risk) Rating based on the BlueBay ESG evaluation framework are excluded from this Strategy.

Consideration of ESG sectoral/regional issues & themes

Complementing issuer level ESG analysis, is analysis which is more geared towards sectors, regions or themes. On the corporate side, where we have credit analysts across different investment teams covering the same sector/industries, we work to promote a joined up and consistent level of understanding and knowledge, whilst also being able to highlight particular areas of differences in dynamics, challenges or opportunities. Issue or thematic ESG analysis supports the ability to identify global, cross-cutting, ESG risks which may not necessarily be apparent when taking a more narrow issuer or sectoral focus.

Dynamic monitoring and engagement

Ongoing post investment monitoring and engagement is an integral part of the investment process. Following the initial full ESG evaluation of an issuer, analysts will continue to monitor and update our records with new ESG insights as and when appropriate, including when ESG engagement activities have taken place. ESG analysis is at the heart of our investment process and is ongoing in nature. A full deep dive re-working of the ESG analysis is formally scheduled within a 2-year period but we may initiate a full ESG review of an issuer before the formal review is due, where we have sufficient cause to question the ongoing validity of the assigned ESG ratings and scores which may occur as a result of an event or incident which leads us to query the nature of the issuer’s ESG practices and performance. In this way, we ensure our ESG assessment remains relevant and accurate at all times and it means we can identify and manage ESG incidents that may arise and take appropriate action. This is a collaborative effort between our ESG function and the investment teams, primarily led by the credit analyst covering the sector/region. BlueBay maintains a firm-wide database for formally tracking engagements, including ESG. This allows us to document and monitor engagement efforts and evaluate our effectiveness across our Strategies. These feed through the issuer ESG evaluation engagement section of the Alpha Research Tool (ART), as well as our internal monitoring platforms, Portfolio Insights (Pi).

As part of the routine investment research process, our investment teams also meet issuers (particularly with primary issuances) and are able to raise questions, including on ESG related matters. BlueBay may proactively initiate dialogue with issuers on ESG matters, or reactively in response to an external event or development. This is particularly relevant where there is a significant incident and we wish to gain greater understanding around how it occurred and what measures are being implemented as a result, as well as to ensure portfolio companies respond appropriately to any material ESG incidents. The outcome of the ESG engagement efforts (e.g., the degree to which we are reassured and/or successful in our change facilitation efforts) represents an input into our investment thinking and investment decisions and can influence whether we have exposure to an issuer, the nature of our positioning and / or whether further action is required.

Engagements can be used to gather additional insights into the issuer’s ESG practices or to facilitate change by setting out a request for change/improvement in specific ESG areas.

BlueBay manages Environmental, Social and Governance (ESG) factors within its Investment Risk management framework for all its pooled funds and segregated accounts. The firm makes use of a range of ESG-related strategies, including ESG integration and engagement (all assets), ESG negative screening (the pooled funds apply a Controversial Weapons Investment policy), and proxy voting where applicable. BlueBay considers ESG-related risks at various levels of the investment process, including issuer specific, sector, portfolio and firm-wide. ESG risks are considered pre-investment and post-investment, and are prioritised by taking into account factors such as investment exposures, and the materiality of the issue and the issuer’s performance track record. BlueBay uses a combination of external and internal, open access and fee-paying ESG resources to support its efforts. Oversight of the ESG investment risk is provided by the Market Risk Committee on a regular basis. BlueBay communicates publicly about its ESG investment efforts its website www.rbcbluebay.com and provides ESG reporting to segregated account clients.

External ESG Data

BlueBay employs data from a number of specialist third-party providers and utilises other ESG data related products and services from external providers.

These tools are used daily as part of BlueBay’s ESG risk assessment of individual issuers, as part of sector analysis, or at strategy level. In line with BlueBay’s active management philosophy, they are incorporated at both:

▪ Top-down macro level: analysing and evaluating trends and development at a global/regional/country level in terms of the political, legal and regulatory, environmental and social megatrends shaping the operating environment of governments and economic development, and which set the stage for corporate activities; and

▪ Bottom-up micro level: at the corporate level, this involves fundamental analysis and evaluation of ESG management and performance trends and developments for a given industry.

Resources, Affiliations & Corporate Strategies:

In terms of third-party portfolio rating measurements, BlueBay Global Fixed Income Platform sources issuer ESG data from a number of specialist third-party providers and utilises other ESG data-related products and services from external stakeholders to help in the ESG integration process, which are made available to the investment teams.

Specifically, we source issuer ESG data from specialist third parties:

• Corporates: MSCI ESG Research, RepRisk, NASDAQ, the Upright Project, Impact Cubed
• Sovereigns: Verisk Maplecroft; MSCI ESG Research, Eurasia Group, NASDAQ

Ultimately the external resources input into our views but do not define them. BlueBay Global Fixed Income Platform uses a combination of internal and external ESG data/ratings/insights to inform on our issuer ESG view, with a trend towards greater focus on our proprietary ESG insights, with the external data as inputs. Whilst we consider third-party insight to be a valuable input in terms of understanding ESG risks and insights, we believe it is critical that we develop our own views on an issuer’s ESG risk exposure. This is particularly pertinent in the case of issuers for which we have access to insights and other resources that go beyond those which data providers may be able to access. Where, however, we understand the methodology and basis for a third-party's views, we can incorporate them in an informed way.

RBC Global Asset Management (RBC GAM) Responsible Investment (RI) team

The RBC Global Asset Management (RBC GAM) Responsible Investment (RI) team is comprised of 17 dedicated full-time employees who sit within the investment platform. The RI team members have a mix of investment, ESG, risk management, data engineering, and legal expertise. Team members’ individual compensation is directly related to RBC GAM’s responsible investment and stewardship activities.

The Head of RI reports directly to the RBC GAM CIO and sits on a number of executive committees, including the RBC GAM Leadership Committee and the RBC Climate Steering Committee, which provides coordination on RBC’s climate strategy and its implementation.

As a centralised function, the RI team’s primary responsibility is to lead responsible investment activities and stewardship across the firm.

Our Approach to Responsible Investment document is reviewed on an annual basis by the Responsible Investment (RI) team, with input on any changes provided by the RBC GAM Leadership Committee (Leadership Committee), and ultimate approval by RBC GAM’s CIO.

RBC GAM’s CIO, CEO, and relevant Boards of Directors oversee the performance of firm-wide strategic initiatives, including responsible investment, on a quarterly and annual basis. Responsibility for strategic initiatives is delegated to the appropriate executives, whose direct annual compensation includes an assessment of performance on those initiatives. In addition, performance on strategic initiatives can also contribute to the overall firm-level performance factor that is applied to all employees’ annual variable compensation. The RBC GAM Leadership Committee has identified the continued enhancement of ESG integration into the investment teams’ processes as a strategic objective for the organisation.

Daily implementation of our Approach to Responsible Investment has been delegated to our RI and investment teams. As such, our RI team members’ individual compensation is entirely related to RBC GAM’s responsible investment and stewardship activities. Our investment teams are regularly evaluated on their teams’ ESG integration processes, including as one component of their annual variable compensation.
Specific executive management oversight responsibilities include:

• The CEO sets the strategic direction of RBC GAM and oversees the firm’s performance of all strategic initiatives and Approach to Responsible Investment. The CIO and the COO report to the RBC GAM CEO.
• The CIO oversees the investment strategies, policies, and performance across all affiliates. The heads of all investment teams and the RI team report to the CIO. The CIO of BlueBay reports directly to the CIO.
• The COO oversees all operational strategies, policies, risks, and initiatives across all affiliates.
• The Head of RI is responsible for all responsible investment activities across RBC GAM, and for the implementation of these strategies by RBC GAM’s centralised RI team.
• The heads of global investment teams are responsible for the establishment and implementation of ESG integration processes for applicable strategies.
• The heads of the institutional and retail businesses oversee product development, with review by a Product Committee and oversight by the CIO and CEO. Review and input on new products is provided by the COO, the Head of RI, and members of the Investment Risk, Investment Policy, Compliance, and Legal teams.

This governance structure was chosen to ensure that the level of oversight of responsible investment and stewardship is commensurate with its importance to RBC GAM’s overall business strategy. The combination of executive oversight and responsibility over these initiatives helps ensure that responsible investment and stewardship is effectively executed and continuously improves.

Bios of the RI team members are provided below:

Melanie Adams: J.D., Law, University of Toronto; B.Sc., University of Waterloo
Melanie is Managing Director & Head of the Responsible Investment (RI) team at RBC GAM and a member of the Leadership Committee. The Responsible Investment team supports RBC GAM’s investment teams in integrating environmental, social and governance factors into the investment process, engages in active stewardship and provides meaningful client reporting on responsible investment. Melanie serves on the Board of Directors of the Responsible Investment Association as Vice-Chair, the Public Policy Committee of the Canadian Coalition for Good Governance, the Policy Committee of the International Corporate Governance Network, in addition to other responsible investment committees. Melanie joined RBC GAM in 2014 and has also held roles in Fund Governance and Strategy, which included evaluating and executing on corporate acquisitions/mergers. Prior to working at RBC GAM, Melanie was Senior Counsel, Litigation for another large financial institution, and Enforcement Counsel at the Ontario Securities Commission.

Research & Policy

Maia Becker: MBA, Rotman, University of Toronto; Master in Forest Conservation, MFC University of Toronto; B.Sc. Queen’s University; GHG Inventory Quantifier (GHG-IQ) and LEED® Accredited Professional (LEED AP)
Maia is Senior Director on the Responsible Investment (RI) team for RBC GAM and leads ESG research and policy as part of the RI team. In this role, Maia works closely with global investment and distribution teams to provide strategic advice, insights and research on the integration of ESG factors into the investment approach, with a key focus on RBC GAM’s approach to climate change and net zero ambition. Maia is a member of the Environmental and Social Committee of the Canadian Coalition for Good Governance (CCGG), and Chair of the Technical Committee for Climate Engagement Canada. Maia first joined the Royal Bank of Canada (RBC) in 2016, playing a lead role in RBC’s environmental and social risk management program. Prior to joining RBC, Maia spent over ten years working with governments, companies, and non-profit organizations leading sustainability strategy, policy, and program development. She has also been recognized as one of Canada's Clean50 2019 for advancing climate risk management within Financial Institutions.

Matt Carthy: CFA, BCom., University of Guelph
Matt is a Senior Analyst for the Responsible Investment (RI) team at RBC GAM, supporting ESG research and policy initiatives. In this role, Matt works closely with global investment teams to provide insights and research on the integration of ESG factors into their investment approach, with a key focus on RBC GAM’s approach to climate change. Prior to joining RBC GAM in 2013, Matt worked in the retail banking arm of RBC, which is where he started his career in 2010.

Sanja Sretenovic: CFA, BCom., McGill University
Sanja is a Senior Analyst on the Responsible Investment (RI) team at RBC GAM, focused on ESG research and policy initiatives. In this role, Sanja works with global investment and distribution teams to provide strategic advice, insights, and research on the integration of ESG factors into the investment approach. Prior to joining the team in 2019, Sanja worked at a large provincial investment management corporation, where she held multiple roles in cross-asset class strategic investment research, global thematic public equity investments, and ESG integration and stewardship. Sanja began her career in the investment industry in 2014.

Equities

Derek Butcher: MBA, Odette School of Business, University of Windsor; Masters in Environment and Sustainability, University of Western Ontario; B.Sc (Hons) – Biological Sciences, University of Windsor
Derek is Senior Manager on the Responsible Investment (RI) team at RBC GAM, responsible for assisting the investment teams with their ESG integration processes, participating in ESG engagements with issuers and overseeing the firm’s proxy voting. Prior to joining RBC GAM in 2015, Derek worked as a researcher for one of the world’s leading responsible investment research providers, conducting ESG research across markets and providing clients with customized responsible investment products. Derek serves on the Board of Directors of the Investor Stewardship Group, in addition to other responsible investment committees. Derek is a CFA® charterholder.

Nureen Nagra: CFA; BComm, University of British Columbia
Nureen is a Senior Analyst on the Responsible Investment (RI) team at RBC GAM, responsible for various RI initiatives including supporting investment teams with ESG integration, conducting RI analysis and research, participating in ESG engagements with issuers and executing on the firm’s proxy voting activities. Nureen joined RBC GAM in 2015 and has worked with retail and institutional clients in varying roles. Prior to working at RBC GAM, Nureen worked with institutional and high-net-worth clients at another large financial institution.

Yousef Abushanab: MSc (International Business) (2016), Maastricht University, Netherlands; BSc (2013), York University
Yousef is a Senior Analyst on the Responsible Investment (RI) team at RBC GAM. Prior to joining RBC GAM in 2017, Yousef worked for a global ESG research and ratings institution in Amsterdam, is where he started his career in 2016. In this role, he conducted research on governance practices of publicly listed companies and assisted with ratings analysis.

Alan Weider: CFA; MEng., (Hons) Chemical Engineering, University of Birmingham; Diploma in Investment Management (ESG), CFA UK
Alan is a Senior Analyst on the Responsible Investment (RI) team at RBC GAM. In this role, he assists investment teams with the integration of ESG considerations into the investment process, conducts analysis, and executes proxy voting activities for RBC GAM funds and client accounts. Prior to joining the team in 2022, Alan held a range of roles within RBC GAM and RBC Wealth Management globally, first joining RBC in 2015. Previous roles focused on portfolio management and wealth planning. Alan began his career in the investment industry in 2012.

Andrew Hakes: MGA, Munk School of Global Affairs & Public Policy, University of Toronto; B.A. (Hons), University of Western Ontario
Andrew is an Analyst on the Responsible Investment (RI) team at RBC GAM. In this role, he assists investment teams with the integration of ESG considerations into the investment process, conducts analysis, and executes proxy voting activities for RBC GAM funds and client accounts. Prior to joining the firm in 2022, Andrew worked for a research organization focused on sustainable finance and as an analyst at a consultancy firm focused on corporate sustainability.

Winnie Hu: MBA, John Molson School of Business, Concordia University; B.A , McGill University
Winnie is an Analyst with the Responsible Investment (RI) team at RBC GAM, assisting investment teams with their ESG integration processes, proxy voting, and engagement efforts. She previously held the role of an Analyst within RBC GAM’s Global Fixed Income & Currencies team where she researched and traded interest rates products for global developed markets. Winnie held a range of roles within RBC GAM, first joining RBC in 2019.

Data & Analysis

Mark Tang: CFA, MBA, Western University; B.Com., University of Toronto
Mark is Manager on the Responsible Investment (RI) team for RBC Global Asset Management (RBC GAM) and leads on data and analysis. Mark provides support for the RI team for: data strategy, data implementation, product management, and quantitative research. Mark joined RBC Wealth Management as part of the Wealth Management Generalist Program in 2019 and has completed short duration rotations in business technology, and quantitative investments. Prior to working at RBC WM, Mark held various accounting, investment performance & operations roles at numerous financial institutions.

Fixed Income

My-Linh Ngo: Level 4 Certificate in Investment Management Certificate (IMC), CFA UK; MProf., Leadership for Sustainable Development, Middlesex University/Forum for the Future; M.Sc., and B.Sc., (Hons) Environmental Sciences, University of East Anglia
My-Linh is Senior Director & Impact-Aligned Strategist in the Responsible Investment (RI) team for RBC GAM, with lead responsibility for ESG integration and stewardship across the firm’s global fixed income assets, including BlueBay fixed income. She is also a sustainability strategist for the impact-aligned bond strategy managed on the BlueBay fixed income investment platform. My-Linh represents RBC GAM and RBC BlueBay externally in a range of committees and working groups focused on driving RI best practice in the fixed income asset class. She has over two decades of experience working in the RI industry, joining BlueBay Asset Management (which is now part of RBC GAM) in 2014. Prior to this, My-Linh was at Schroders Investment Management Ltd as an ESG Analyst, and at Henderson Global Investors as an Associate Director – SRI Research.

Lucy Byrne: M.Sc., Environmental Technology and M.Sci., in Environmental Geoscience, Imperial College London
Lucy is a Senior Manager in the Responsible Investment (RI) team for RBC GAM, with a focus on ESG incorporation across the firm’s global fixed income assets, including BlueBay fixed income. She joined BlueBay Asset Management (which is now part of RBC GAM) in July 2018 as an ESG Analyst and was made a Senior ESG Analyst in January 2020. Lucy is an experienced environmental and sustainability consultant, and prior to BlueBay, was an Assistant Manager, Sustainability Services at KPMG where she worked with financial institutions and companies across a range of sectors and geographies, on their sustainability strategies and reporting and assurance activities.

Ian Clarke: Business and Climate Change certification, University of Cambridge (CISL); Chartered Management Accountant (CIMA); BA., (Hons) Accounting and Finance, De Montfort University
Ian is a Senior Analyst in the Responsible Investment (RI) team for RBC GAM, involved in ESG integration and stewardship across the firm’s global fixed income assets, and a focus on climate. He is an experienced financial services management consultant, advising on strategy and transformation, and since 2018, has been specialising in sustainability, ESG and climate change. During his eight years at Baringa Partners, most recently as a Senior Manager, Ian worked with clients across banking, asset management and private equity industries. Prior to this, Ian spent 10 years as an accountant for various international financial services companies.

Younes Hassar: MA, Business Management (Major in Finance) and B.Sc., Economics, SKEMA Business School (Paris)
Younes is a Senior Analyst in the Responsible Investment (RI) team for RBC GAM, involved in ESG integration and stewardship across the firm’s global fixed income assets, with a focus on macro/sovereign ESG. With over 14 years’ experience in the financial services industry, Younes has held various in-house, as well consultancy, roles which have ranged from product management to macro analysis, to ESG and sustainability-oriented ones within the last decade at BNP Paribas, HSBC, Aviva Investors, and most recently at Federated Hermes.

Emir Beganovic: MBA, Kellogg School of Management – Northwestern University; CFA Charterholder; BA, Economics and German Studies, Macalester College
Emir is an Analyst in the Responsible Investment (RI) team for RBC GAM. Based in the US, Emir is involved in ESG integration and stewardship across the firm’s global fixed income assets, with a particular focus on strategies managed in North America. Emir joined RBC GAM (US) in 2022. Prior to that, he led the ESG program for the asset management division of a Fortune 500 insurance company where he also gained experience as an investment product manager with a focus on fixed income strategies. Emir has previously been employed at RBC, having started his career with RBC Wealth Management, working in various roles from 2010 to 2016.

Vibha Lad: Certificate in ESG Investing and Level 4 Certificate in Investment Management Certificate (IMC), CFA UK; CIMA Diploma MA; B.Sc., (Hons) Economics, Brunel University
Vibha is an Analyst in the Responsible Investment (RI) team for RBC GAM. She held Fund Accountant roles at BlueBay Asset Management (which is now part of RBC GAM) from 2015. During 2022, she moved to specialise in ESG investing as an ESG Investment Operations Manager, supporting ESG data infrastructure and operational aspects of the BlueBay fixed income investment platform. During 2023 Vibha has been transitioning to an RI analyst role, supporting ESG integration and stewardship across RBC GAM’s global fixed income assets. Vibha began her career in the investment industry in 2014 and held roles at PwC and Schroders - Cazenove Capital Wealth Management.

Active stewardship

As stewards of our clients’ assets, we encourage the issuers in which we invest to act in alignment with the best interests of our clients.
We address topics such as board structure, executive compensation, gender diversity, and climate change with issuers and regulatory bodies, where material. We do this by employing the following three methods: proxy voting, engagement, and participating in collaborative initiatives.

Proxy Voting

Voting responsibly at the meetings of issuers in our portfolios is an important way we act in the best interest of our clients. We make each voting decision independently, in accordance with our Proxy Voting Guidelines (rbcgam.com). These custom guidelines provide an overview of the principles we support and how we will generally vote on particular issues. They are updated yearly to reflect our views on emerging trends in corporate governance and responsible investment. Our guidelines are applied for companies based in Canada, the United States, the United Kingdom, Ireland, Australia, and New Zealand. As stated in our guidelines, in all other markets, RBC GAM uses the local proxy voting policies of Institutional Shareholder Services (ISS).

Engagement

We believe that issuers that manage their material ESG risks and opportunities effectively are more likely to outperform on a risk-adjusted basis over the long term. Our approach to engagement reflects this belief, as we engage in dialogue with issuers over time and participate in initiatives that increase transparency and foster fair and efficient markets for the benefit of all investors and clients globally.

Our investment teams and RI team may meet with the issuers in which we invest on an ongoing basis. The specific ESG factors we engage on differ based on sector, asset class, and geography, as engagement cases are prioritized based on the materiality of the ESG issue to the specific investment. Teams may also prioritize their engagement efforts based on the size of the investment and/or the level of ESG risk within the portfolio. As a firm, we recognize that corporate governance and climate change are of particular relevance to us. We seek to understand each issuer individually and through the lens of local norms and the laws and regulations of the market(s) in which it operates.

Typically, the objectives of our ESG-related engagements include:

▪ Information gathering on material ESG risks and opportunities and the steps the issuer is taking to address them;
▪ Seeking better public disclosure of material ESG risks and opportunities and the steps the issuer is taking to address them;
▪ Encouraging more effective management of material ESG factors, when we believe they may impact the value of the investment; and
▪ Where an issuer is lagging its peers on a material ESG issue, requesting a commitment for change, monitoring any changes, and encouraging continued improvements that are expected to positively impact the long-term value of the investment.

Collaborative initiatives

We participate in initiatives that work to increase transparency, protect investors, and foster fair and efficient capital markets. We recognize that advocating for regulatory and legal reform can be more effective when market participants work together. Where interests are aligned, collaboration with like-minded investors can give us greater influence on issues specific to our investments and on broader, market-wide considerations. In either case, we work to encourage changes that are in the best interests of our clients.

30% Club Canadian Investor Group
RBC GAM is a signatory to the 30% Club Canadian Investor Group, a coalition of Canada’s largest institutional investors, which calls on publicly-traded companies to take prompt and considered action to achieve and exceed the 30% gender diversity target and to enhance the presence of other underrepresented groups on their boards and at the executive management level. The coalition has instigated numerous engagements, for which RBC GAM may engage, provide inputs, and/or provide feedback.

Alternative Investment Management Association
We are a member of the Alternative Investment Manager Association (AIMA), the global representative of the alternative investment industry. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programs and sound practice guides.

Canadian Coalition for Good Governance
RBC GAM is a founding member of the Canadian Coalition for Good Governance (CCGG), which promotes good governance practices in Canadian public companies and works to improve the regulatory environment to best align the interests of boards and management with their shareholders. Members of RBC GAM’s RI team serve on the Public Policy and Environmental & Social committees.

CDP
We are signatories to the CDP, formerly known as the Carbon Disclosure Project. The CDP runs the global disclosure system that enables entities to measure and manage their environmental impacts and strives to advance environmental disclosure.

Climate Action 100+
We are signatories to the Climate Action 100+, an investor-led initiative that focuses on active engagement with the world’s largest publicly traded and systemically important carbon emitters, or companies with significant opportunity to drive the transition to a low-carbon economy.

Climate Engagement Canada
We are a founding participant of Climate Engagement Canada (CEC), is a finance-led initiative that drives dialogue between the financial community and corporate issuers to promote a just transition to a net-zero economy. This is a national engagement program in Canada, akin to Climate Action 100+. A member of RBC GAM’s RI team is Chair of the Technical Steering Committee.

Council of Institutional Investors
RBC GAM is a member of the Council of Institutional Investors (CII). The CII aims to promote effective corporate governance, strong shareowner rights and vibrant, transparent and fair capital markets.

Emerging Markets Investor Alliance
We are a member of the Emerging Markets Investor Alliance EMIA), which aims to enable institutional emerging market investors to support good governance, promote sustainable development, and improve investment performance in the governments and companies in which they invest.

European Leveraged Finance Association
One of our investment teams is a member of the European Leveraged Finance Association. The ELFA aims to seek a more transparent, efficient, and resilient leveraged finance market.

Farm Animal Investment Risk & Return
We are a member of the Farm Animal Investment Risk & Return (FAIRR). FAIRR is a collaborative investor network that raises awareness of the ESG risks and opportunities brought about by intensive livestock production.

FX Global Code
RBC GAM is signatory to the FX Global Code July 2021, a set of global principles of good practice in the foreign exchange market, developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. It was developed by a partnership between central banks and Market Participants from 20 jurisdictions around the globe. The Global Foreign Exchange Committee promotes, maintains and updates the Code regularly. RBC GAM’s Head of Global Fixed Income & Currencies is a member of the Canadian FX Committee.

Global Impact Investing Network
RBC GAM is a member of the Global Impact Investing Network (GIIN). The GIIN is the global champion of impact investing, dedicated to increasing the scale and effectiveness of impact investing around the world.

Green Bond Transparency Platform (GBTP)
One of our investment teams is a supporter of the Inter-American Development Bank (IDB)’s Green Bond Transparency Platform (GBTP), an innovative open access digital tool that brings greater transparency to the Latin American and Caribbean green bond market and aims to provide a benchmark for best practice disclosure and support to all market actors. We provided feedback and input into the platform.

International Corporate Governance Network
RBC GAM is a member of the International Corporate Governance Network (ICGN). The ICGN aims to promote effective standards of corporate governance and investor stewardship to advance efficient markets and sustainable economies worldwide. A member of RBC GAM’s RI team is on the ICGN’s Global Governance Committee.

IFRS Sustainability Alliance
We are a member of the IFRS Sustainability Alliance, a global membership program for sustainability standards, integrated reporting, and integrated thinking. Upon the Value Reporting Foundation’s consolidation into the IFRS Foundation, the IFRS Foundation’s International Sustainability Standards Board (ISSB) assumed responsibility for the SASB Standards. The ISSB has committed to build on the industry-based SASB Standards and leverage SASB’s industry-based approach to standards development. The ISSB encourages preparers and investors to continue to use SASB Standards. A member of RBC GAM’s RI team is on the Investor Advisory Group.

Investor Stewardship Group
RBC GAM is a founding member of the Investor Stewardship Group (ISG). The ISG is a collective of institutional investors brought together to establish a framework of basic standards of investment stewardship for institutional investors and corporate governance principles for U.S. listed companies. A member of RBC GAM’s RI team is on the ISG board.

Investment Association
We are a member of the Investment Association. The Investment Association is the United Kingdom’s membership association for investment managers. One of our investment teams participates on the Fixed Income Stewardship Working Group of the IA.

Investors Policy Dialogue on Deforestation (IPDD)
RBC GAM is a supporting investor of the IPDD in Brazil, which is co-chaired by the BlueBay Fixed Income Investment platform. The IPDD initiative aims to coordinate a public policy dialogue with authorities and monitor developments to assess exposure to financial risks arising from deforestation.

Japanese Stewardship Code
RBC GAM is a signatory to the Japanese Stewardship Code. The Code sets out the principles that institutional investors should adhere to in order to fulfill their stewardship responsibilities to clients, beneficiaries and investee companies.

Mission Investors Exchange
RBC GAM is a member of the Mission Investors Exchange, the leading impact investing network for foundations dedicated to deploying capital for social and environmental change.

Responsible Investment Association
RBC GAM is a sustaining member of the Responsible Investment Association (RIA). The RIA is Canada’s membership association for responsible investment. A member of RBC GAM’s RI team is the Vice-Chair of the RIA board.

Standards Board for Alternative Investments
We are a member of the Standards Board for Alternative Investments (SBAI). The SBAI aims to help institutional investors and alternative investment managers better understand how responsible investment can be applied in different alternative investment strategies, as well as the specific challenges and questions that arise in these contexts. A member of the RI team participates in the Responsible Investment Working Group, which aims to help institutional investors and alternative investment managers better understand how responsible investment can be applied in various alternative investment strategies.

UK Stewardship Code
RBC GAM is a signatory to the UK Stewardship Code 2020 (the Code). The code aims to enhance the quality of engagement between asset managers and companies to help improve long-term risk-adjusted returns to shareholders. RBC GAM’s 2022 Annual Stewardship Report met the expected standard of reporting of the Financial Reporting Council (FRC). RBC GAM’s 2023 Annual Stewardship Report is currently under review by the FRC.*

* In 2023, RBC GAM consolidated the activities of two regulated legal entities in the United Kingdom (UK), RBC GAM-UK and BlueBay Asset Management LLP (BlueBay), into RBC GAM-UK. BlueBay has not filed a separate 2022 Annual Stewardship Report. BlueBay’s stewardship activities are incorporated throughout RBC GAM’s 2022 Annual Stewardship Report.

UN Principles for Responsible Investment
RBC GAM is a signatory to the UN Principles for Responsible Investment (PRI)*. The PRI is a global network for investors committed to incorporating ESG considerations into their investment practices and ownership policies. We are committed to putting the PRI’s six Principles of Responsible Investment into practice and believe that they are aligned with our existing approach to responsible investment. A member of RBC GAM’s Responsible Investment team sits on the Policy Committee.

We are also a signatory to the PRI Statement on ESG in Credit Ratings, which encourages credit rating agencies to proactively take ESG factors into consideration for relevant issuers.

*In 2023, RBC GAM consolidated the activities of two regulated legal entities in the United Kingdom (UK), RBC GAM-UK and BlueBay Asset Management LLP (BlueBay), into RBC GAM-UK. BlueBay was previously a separate signatory to the UN PRI. RBC GAM’s most recent PRI Transparency Report is inclusive of BlueBay.

US SIF - The Forum for Sustainable and Responsible Investment
RBC GAM is an institutional member of US SIF. US SIF is the leading voice advancing sustainable, responsible and impact investing across all asset classes. Its mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.

SDR Labelling: Not eligible to use label