Fidelity Responsible Asia Equity Fund

Sustainable, Responsible &/or ESG Policy:

At Fidelity, we believe that sustainable investment makes good business sense and helps to protect and enhance investment returns. Consequently, the fund’s investment process takes ESG factors into account as these can have a material impact on investment performance. ESG integration occurs across all sectors and markets in which the portfolio manager invests.

The fund is subject to a firm-wide exclusion list, which includes, but is not limited to, companies involved in the production and/or distribution of cluster munitions and anti-personnel landmines. Besides our firm-wide Exclusion Policy, norms-based screening is performed and includes issuers which the portfolio manager considers have failed to conduct their business in accordance with accepted international norms, including as set out in the United Nations Global Compact (UNGC).

Through the investment management process, the portfolio manager aims to ensure that investee companies follow good governance practices.

A minimum of 70% of the fund’s net assets are invested in securities deemed to maintain sustainable characteristics. Sustainable characteristics are defined by reference to a combination of different measurements such as ESG ratings provided by external agencies or Fidelity’s ESG ratings.

A maximum of 30% of the fund’s net assets are allowed in issuers that are not deemed to maintain sustainable characteristics in accordance with the criteria above, but which demonstrate improving sustainable indicators.

Process:

Investment Process

The fund investment discipline is designed to create a structured and repeatable process aiming to identify and invest in 50–70 high-quality liquid stocks with strong sustainability characteristics and the potential to deliver strong returns. Lead Portfolio Manager, Dhananjay Phadnis, focuses on stocks with strong medium-term growth prospects, but which are trading below their intrinsic value.

The fund has a four-stage investment process covering:

• Idea generation.
• Investment decision.
• Portfolio construction and position sizing.
• Portfolio monitoring and oversight.

Overview of the fund’s investment process

The fundamental investment approach of the fund is the same as of the Fidelity Emerging Asia Fund. Dhananjay has always focused on corporate governance and the selection of companies that can demonstrate sustainable value creation. The investment process is now being augmented to integrate ESG in a more systematic manner, including the application of an enhanced exclusion list and proprietary ESG research and analysis conducted by Fidelity sector analysts for each fund holding. In addition to the engagement with companies in the broader investment universe, a tailored engagement plan has been implemented for holdings identified as laggards with the aim to drive ESG improvements. Flora Wang, Director Sustainable Investing, works alongside Dhananjay to further enhance our engagement with companies on sustainable criteria.

The Portfolio Management Team, consisting of Dhananjay and Flora, adopt a primarily bottom-up investment approach, making use of our extensive global research expertise to identify growth opportunities they believe are mispriced or unrecognised in the market.

The starting point is the firm-level exclusion list. However, being part of our sustainable family of funds, it follows a few more restrictions.

Hard negative screen: The fund has a list of exclusions and focus on sustainable leaders and companies with low carbon activities in the region it invests in. These exclusions are at three levels.

• Firm-wide exclusion: All of our funds exclude companies which actually use, stockpile, produce or transfer cluster munitions and anti-personnel mines, but not companies whose business activities or products only have the potential to be used for these purposes and where these activities or products have not been undertaken or created with these uses in mind.
• Sustainable Family exclusions: In addition to the above exclusions, our Sustainable Fund Family also excludes companies involved in controversial weapons (nuclear weapons, biological weapons, blinding laser), semi-automatic weapons, tobacco producers, thermal coal miners, thermal utilities and companies violating UNGC.
• Fund level exclusions: In addition to the above exclusions, the fund also excludes crude palm oil producers as well as conventional and unconventional oil and gas companies from its investment universe.

The investment discipline is designed to create a structured and repeatable process aiming to identify and invest in 50–70 high-quality liquid stocks with the potential to deliver strong returns. The Portfolio Management Team focuses on stocks with strong medium-term growth prospectus, but which are trading below their intrinsic value.

A minimum of 70% of the fund’s net assets are invested in securities deemed to maintain sustainable characteristics. Sustainable characteristics are defined by reference to a combination of different measurements such as ESG ratings provided by external agencies or Fidelity Sustainability Ratings. Further details on the methodology applied are set out at https://fidelityinternational.com/sustainable-investing-framework/ and may be updated from time to time.

A maximum of 30% of the fund’s net assets are allowed in issuers that are not deemed to maintain sustainable characteristics in accordance with the criteria above, but which demonstrate improving sustainable indicators.

In addition, the fund endeavours to:

• Have a minimum 70% of the portfolio invested in equity securities rated BBB and above by MSCI.
• Have a lower carbon footprint compared to that of the representative index.
• Assess its underlying holdings for attainment of relevant sustainable development goals.

Idea generation

Idea generation is bottom-up, using first-hand company research to evaluate potential investments.

Stock ideas come from wide-ranging dialogue with as many analysts and colleagues as possible. The team then uses the most interesting and/or best ideas in the fund. Investment ideas coming through from analysts are weighed on their ESG practices, alongside their fundamentals.

The team uses its own extensive experience in the region and also draws on the expertise of the company’s global research network, making extensive use of our strong in-house team of equity research analysts and portfolio managers across eight* offices on the ground in the Asia Pacific region. Dhananjay, Flora and analysts meet on a regular basis to discuss stock ideas and hold sector reviews to discuss prominent stocks and recommendations.

At a macro level, as part of the fund’s risk management approach, Dhananjay pays close attention to the political and macro-economic landscape of a country.

The fund excludes from its universe companies involved in defence and weapons (such as cluster munitions, landmines, semi-automatic firearms and controversial weapons), adult entertainment, companies violating UNGC, tobacco, thermal coal miners, thermal utilities, crude palm oil producers and conventional and non-conventional oil and gas extractors.

*Source: Fidelity International, as at 31 March 2023.

Investment decision

Following the idea generation phase, the research process is further augmented. Selected stocks are appraised using in-depth fundamental quantitative and qualitative analysis in partnership with the relevant analyst. A business needs to tick three boxes to be eligible for investment:  

• Focus on sustainability – From the due diligence stage, the focus is on understanding key ESG issues for industry and company from third party research providers and the company’s internal reports. A positive engagement approach is adopted to discuss ESG issues with the management of the companies we invest, or consider investing in. The information gathered during these meetings are used to form investment decisions as well as to encourage the company’s management to improve procedures and policies. The focus is on companies with strong sustainability characteristics, potential for improvement in ESG characteristics, prospects for constructive engagement and those where we see management’s incentives aligned with the interests of minority shareholders.
• Compounder or 'moat' stock – Firstly a detailed fundamental analysis is carried out to identify compounders or businesses with strong moats that have sustainable growth prospects. Cross-country comparisons are used to understand stages of industries/companies and comparable multiples. Emphasis is on developing a thorough understanding of the demand/supply balance within industries, analysing the entry barriers and determining the potential winners from technological disruptions to assess the sustainability of a firm's competitive advantage.
• Favourable valuation – Once a company fulfils the first two aspects, it is, or can be, a compounder and it has high corporate governance practices and strong management quality, the team would consider whether its valuation is attractive. In particular, the team would favour stocks with a valuation that is disconnected from medium- to long-term fundamentals, owing to short-term market concerns or due to the market’s unwillingness to take a longer-term view. They also prefer high-quality cyclical stocks at trough valuations where fundamentals are beginning to improve.

Portfolio construction and position sizing

The primary driver of portfolio construction is stock selection, where companies with high quality businesses (in terms of business models and cash-flows) are preferred as they tend to offer better risk-adjusted upside and greater liquidity. The final portfolio comprises of 50–70 high-quality liquid names. Position sizes are determined based on the team’s conviction, as well as the stocks’ correlation and liquidity. Active weights are generally +/-10% versus the fund’s comparative market index. The companies with lower ESG scores are assigned a valuation discount versus their better ESG-rated peers and hence typically end up with a lower bet size in the portfolio.

The resulting asset allocation of the portfolio, in terms of sector and market cap size of holdings, is a result of bottom-up stock selection. Although the team may invest across the market capitalisation spectrum, the fund is likely to have a bias towards large- and medium-size companies, as they typically have management teams with proven capabilities and track records. Active sector and country weights are typically +/-10% versus the comparative market index (where China and Hong Kong are considered together). In addition, the team also monitors the funds theme-based exposure, such as exposure to automation, ecommerce, logistics, demographics, health care, as well as macro factor exposures in the portfolio.

Dhananjay continuously reviews the stock theses and price targets, and adherence to investment guidelines as well as the ESG characteristics of holdings within the fund. This includes actively engaging with companies, meeting with management, and voting at the relevant company annual general meeting.

Portfolio monitoring and oversight

At the portfolio level, Dhananjay assesses intra-stock correlations and focuses on calibrating position sizes to avoid unintended or concentration risks. He uses the FactSet portfolio analytics system (based on the Barra risk models) which provides access to portfolio risk analysis daily.

Dhananjay participates in a Quarterly Fund Review (QFR) chaired by the relevant Head of Equities, which is also attended by a member of the Portfolio Construction and Risk Team. This review covers portfolio construction, ESG characteristics of the portfolio and individual companies, liquidity, positions, trading activity, characteristics, style, and risk in considerable detail.

Our risk oversight process now includes a Quarterly Sustainability Review (QSR) for sustainable funds. This review is supported by a data pack covering a range of ESG datapoints including rating profiles and disparities (Fidelity and MSCI), engagement, voting, exclusions, carbon and climate data and Principle Adverse Impacts (PAIs). The QSR discussion is currently led by the Sustainable Investing Team, in active dialogue with our portfolio managers, our Chief Investment Officer, the Investment Director, and data analysts. 

The QSR is designed to further strengthen the authentic integration of sustainability throughout our range of strategies, by providing a regular and structured forum for each fund to thoughtfully discuss and debate key sustainability aspects of the portfolio and its holdings, including whether the fund is meeting its sustainability objectives and how the strategy may seek to improve and monitor its outcomes. 

Although not the primary point of compliance or regulatory monitoring, the QSR provides an avenue for additional checks on and discussion of these issues. The QSR works as part of our established QFR process.

The risk management processes described above are further bolstered by independent risk oversight checks and controls. These include daily monitoring of portfolio guidelines and constraints (considering regulatory requirements) by the compliance function, and monthly Investment Risk Committees' (IRCs') evaluations of portfolio risk exposures and their alignment with expectations.

Resources, Affiliations & Corporate Strategies:

As an investment manager, we have a fiduciary duty to act in the best interests of our clients. In the context of sustainable investing, we have developed an approach with three key components (integration, stewardship, and solutions) that aim to provide our clients with investment offerings that meet their financial and non-financial objectives, and to comply with rapidly evolving sustainability regulations for product labelling and disclosure.

Fidelity’s sustainable investing approach is established on the foundation of our integration tools and processes. We believe ESG factors should be integrated into different investment processes. We have designed ratings and tools to identify the relevant risks and opportunities of issuers and established other processes to ensure that ESG factors are integrated consistently in our portfolios. We will also consider research insights from third-party data providers where relevant.

Our integration tools and processes also support the prioritisation of stewardship activities and the development of solutions that meet different regulatory requirements and client objectives. While sustainability ratings and scores allow for easier comparison of company performance, sustainability analysis should be both quantitative and qualitative and its findings should be interpreted in the context of financial performance to provide a holistic picture of a company’s performance.

Proprietary ratings and tools sit at the heart of Fidelity’s sustainable investing approach. They build on Fidelity’s heritage of fundamental research, the contribution from investment analysts and the expertise of the Sustainability Team. These tools include:

ESG Ratings: an assessment of management and mitigation of ESG risks

The Fidelity ESG Ratings aim to provide a forward-looking assessment of the extent to which an issuer’s performance on material sustainability issues either supports, or is likely to impair, long-term value creation for shareholders. The ratings are differentiated in their forward-looking emphasis and their use of issuer interaction and due diligence by Fidelity’s fundamental analysts as the main input to identify and assess the material ESG risks impacting an issuer. 

Our ESG Ratings are integrated into Fidelity’s investment process and are available to all members of the investment team on our internal research platform. Our rating serves as an additional source of insight and as a tool to support investment decisions.

Our ratings comprise a combination of E, S, and G indicators that aim to address the most material issues in each sector, providing a forward-looking view of an issuer’s ESG practices. The ratings’ methodology reflects the evolution of Fidelity’s ESG integration approach, founded on the principle of ‘double materiality’, focusing on ESG both from a business risk perspective and in terms of the environmental and societal implications of the issuer’s operations.

Four key principles underpin our ESG Ratings:

• Consideration of both non-financial and financial impacts ('double materiality'). A focus on absolute impacts allows comparison across sectors and geographies.
• Providing a forward-looking perspective that is complementary to our financial forecasts, helping to inform the long-term prospects of an individual issuer. 
• Consideration of material impact across more than 100 individual subsectors for a more focused and relevant set of indicators.
• Flexible output for different use cases. Individual E, S, and G scores provide guidance for determining an overall ESG score at the issuer level and trajectory ratings.

Our ESG Ratings framework is reviewed regularly to help identify the most material ESG factors for each sector. We aim to provide training on the ratings framework as it evolves and on specific themes and sectors to help enhance understanding of the material ESG factors required for analysis, and to enhance the quality and consistency of ratings. The in-depth nature of our approach means that our coverage is not as broad as a third-party provider, therefore we also use external research and rating providers, such as MSCI and Institutional Shareholder Services (ISS), to complement our internal research process and for the construction of our funds with specific sustainability objectives. Where possible and practical, we aim to use our own ESG ratings as a preferred data source for fundamental insight and measurement of product-level characteristics.

Climate Ratings: alignment to the outcome of net zero carbon emissions by 2050

Our Climate Ratings assess an issuer’s operational alignment to the objectives of the Paris Agreement, providing a holistic view of climate-related risks and opportunities.

To facilitate our assessment of an issuer’s net zero transition, we have developed a Climate Rating that assesses an issuer’s operational alignment to the objectives of the Paris Agreement (to limit global average temperature rise this century well below 2°C and to drive efforts to limit the temperature increase even further to 1.5°C above pre-industrial levels). The Climate Rating is designed to be used in conjunction with our other ESG and climate tools to provide a more holistic view of an issuer’s exposure to climate-related risks and opportunities. 

Assessment criteria cover three key areas: 

• Carbon emissions disclosure: This assessment focuses on disclosure of Scope 1, Scope 2 and material Scope 3 (based on the definition of the Greenhouse Gas (GHG) Protocol). 
• Emissions reduction targets: This assessment concentrates on the issuer’s current emissions, net zero GHG emissions ambitions, targets and carbon reduction targets. 
• Climate governance: This assessment analyses executive remuneration plans linked to climate ambitions; governance responsibilities for climate at executive level; and board committees with responsibility for oversight of climate change policies. 

For high impact sectors, additional criteria may be included to take into account the unique requirements of certain hard-to-abate sectors in relation to achieving net zero. The Climate Rating does not rely on a single climate change model or scenario. The assessment undertaken takes into account a wide range of data sources including companies’ disclosure, inputs from the Carbon Disclosure Project (CDP), ISS Climate data (e.g., Implied Temperature Rise), and the Science Based Targets initiative (SBTi).

SDG Tool: an assessment of positive contribution to the UN Sustainable Development Goals (SDGs)

Fidelity’s SDG Tool aims to provide an assessment of an issuer’s positive contribution to environmental and social outcomes. It is intended to complement Fidelity’s ESG Ratings which provide an assessment of an entity’s management of adverse impacts arising from ESG issues. The SDG Tool also supports Fidelity’s definition of ‘sustainable investments’ under Europe’s Sustainable Finance Disclosure Regulation (SFDR). We aim to provide a separate analysis of the positive and negative issues an issuer may be exposed to, to help prevent the signal value from identifying a risk being offset by an unrelated positive contribution (e.g., poor corporate governance and a catastrophic tailing-dam failure are not mitigated by selling products that help the energy transition).

Primary use cases for the output of the model are: 

• Issuer and entity-level assessment: The model provides an assessment of the percentage of an issuer’s revenue that contributes to each SDG. This can be used as an input to help define a thematic investment universe. 
• SFDR: Under SFDR, there is a requirement to identify issuers that make a positive contribution to an environmental or social outcome and can qualify as ‘sustainable investments’. The SDG Tool is a key input in this process. 
• Reporting: The SDG Tool provides the ability to report the contribution of a fund’s investments to the SDGs to our clients on a consistent and scalable basis

Quarterly Sustainability Reviews (QSR): an internal forum to review relevant quantitative and qualitative metrics and discuss sustainability integration in specific strategies

The QSR is a component of the Quarterly Fund Reviews (QFRs) which cover performance risk, liquidity, etc. The QSR is a quantitative and qualitative exploration of a product’s sustainability profile, and may include aspects such as ESG ratings, engagement activity, climate characteristics, impact indicators and other datapoints. Attendees may include representatives from the Sustainability Team, the asset class CIO, portfolio manager(s), and risk professionals. The discussion is supported by a data pack which draws together various ESG data sources. The targeted scope of QSRs is actively managed products with a higher level of ESG integration, which may include certain EU SFDR Article 8 and Article 9 products, and UK SDR Labelled and ESG Promoted (unlabelled) products. Products disclosing under SFDR Article 6 are not subject to the QSR process. SI-related investment mandates could be covered by QSR on an optional basis or at the request of clients.

Our integration tools and processes also support the prioritisation of stewardship activities and the development of solutions that meet different regulatory requirements and client objectives. Furthermore, we promote active ownership as the stewards of our clients’ assets, supporting real world sustainability outcomes that help us to fulfil our fiduciary duty. Effective and outcomes-focused stewardship combines bottom-up corporate engagement, top-down thematic engagement, and system-wide stewardship. This approach is essential to drive change and encourages regular engagement and dialogue which we believe is more efficient than exclusions because this simply diverts the problem elsewhere. We believe that monitoring the progress of engagements is as important as initiating them to assess change over time. The outcomes (or lack of outcomes) resulting from our engagements can be reflected by investment analysts in our ESG ratings and used to inform investment decisions. Our Voting Principles and Guidelines sets out our minimum expectations for our investee companies in key areas including climate change, deforestation, and gender diversity. 

For further details, please refer to our Sustainable Investing Principles sustainable-investing-principles.pdf. 

Sustainability Team

As an active bottom-up research house, we have always looked beyond financial reporting to gauge the value of an investment. This involves maintaining ongoing dialogue with investee companies, staying vigilant to the evolving regulatory landscape, and monitoring other factors that could influence sustainable cash flows over our investment horizon, including those currently categorised as ESG. We began formally integrating ESG considerations into our investment and research processes since becoming a signatory to the Principles for Responsible Investment in October 2012. 

As a logical consequence of our focus on sustainability, we established our Sustainability Team over a decade ago. Initially a small group based in London, the team has now grown to include 30* professionals with the global presence spanning London, Singapore, Tokyo, Hong Kong, Shanghai, Sydney and Luxembourg. Members of our Sustainability Team bring a diverse skill set, including expertise in research, climate science, and governance, with many boasting over a decade of experience.

*Source: Fidelity International, as at 31 December 2025.

The team’s scope now encompasses a wide range of activities related to ESG integration, engagement, policy, product development, sales and marketing, proxy voting as well as corporate sustainability. New members have contributed additional skills in legal and thematic areas, client and distribution expertise, and governance. 

The Sustainability Team functions across Fidelity in several ways:

• Collaborates closely with the broader investment team, supporting analysts in producing ESG research and conducting company-specific engagements, driving thematic engagement outcomes with sector analysts' input, and assisting portfolio managers in integrating ESG into their investment processes through proprietary tools, training, and frameworks.
• Works in tandem with the product team to develop sustainable investing frameworks and strategies in compliance with ESG regulations and tailored to diverse investor needs.
• Assists client-facing teams and clients with sustainable investing requirements and needs, including client communications, questionnaires, reporting, and training.

The team continues to evolve based on Fidelity's sustainable investing strategy, ensuring comprehensive support for all business areas and improving the quality and outcomes of engagement across asset classes.

Industry collaboration

Fidelity recognises the importance of networks and information platforms for sharing tools and pooling resources, using investor reporting as a source of learning. Our Sustainability Team keeps its current and potential membership of investor organisations under constant review. We monitor all international treaties, supranational organisations and other sustainability memberships to ensure we are up to date with market trends and to stay involved in the debate. We are proactive in strengthening our links within the investment industry, to determine effective ESG initiatives, maintain ethical standards, and attend seminars and conferences to integrate ESG into the investment process. Additionally, our Sustainability Team speaks publicly at industry events on responsible investment practices and promotes transparency in corporate governance issues. Please refer to the following list of our memberships, affiliations and signatories, listed by category:

Social Disparities

• 30% Club Australia (2021)
• 30% Club Hong Kong (2022)
• 30% Club Investors Group (2020)
• 30% Club Japan (2019)
• 40:40 Vision (2020)
• Armed Forces Covenant (2019)
• BBBA Talent Accelerator (2020)
• Business in the Community, Race at Work Charter (2020)
• Diversity Project (2017)
• DWP Disability Confident Scheme (2022)
• Find it, Fix it, Prevent it (CCLA) (2020)
• Global Business Collaboration Leadership Pledge (2022)
• If not now, then when? Campaign on Racial Diversity (2020)
• Investor Initiative on Human Rights Data (2024)
• Investors Against Slavery and Trafficking Asia-Pacific (2020)
• Investor Alliance for Human Rights (2025)
• Lord Mayor's Appeal - We Can Be (2019)
• LGBT Great (2019)
• Luxembourg National Diversity Charter (2020)
• Mental Health First Aid Training (2017)
• Minority Supplier Development UK (2020)
• Mindforward Alliance (2022)
• OutBritain (2022)
• President’s Challenge Enabling Employment Pledge and Enabling Mark (2023)
• PRI Reference Group on Human Rights and Social Issues (2025)
• Progress Together (2022)
• Purple Space (2019)
• Social Mobility Foundation (2021)
• Social Enterprise UK (2021)
• Stonewall (2016)
• Talent-Wise Employment Charter and Inclusive Organisations Recognition Scheme (2022)
• UN LGBTI Standards of Conduct in Business (2019)
• Valuable 500 (2019)
• Veteran-owned UK (2021)
• WEConnect International (2021)
• Women in Finance Charter (2017)
• WorkWell Leaders (2023)
• #10000 Black Interns (2020)

Climate Change:

• Asia Investor Group on Climate Change (2020)
• CDP - formerly Carbon Disclosure Project (2019)
• China Climate Engagement Initiative (2023)
• Climate Action 100+ (2019)
• Climate Bonds Initiative (2019)
• Coalition for Climate Resilient Investment (2019)
• Financial Services Development Council (2022)
• Global Standard on Responsible Corporate Climate Lobbying (2022)
• Green Finance Industry Taskforce Singapore (2020)
• Glasgow Financial Alliance for Net Zero (2021)
• Institutional Investors Group on Climate Change (2020)
• Investor Group on Climate Change (2021)
• Net Zero Asset Managers Initiative (NZAMI) (2020)
• One Planet Asset Manager Initiative (2021)
• Partnership for Carbon Accounting Financials (2022)
• Point Zero Carbon Programme (2022)
• Powering Past Coal Alliance (2021)
• Singapore Sustainable Finance Association (2024)
• Transition Pathway Initiative (2021)
• UK Sustainable Investment and Finance Association (2010)

Good Governance:

• Asia Securities Industry and Financial Markets Association (2015)
• Asian Corporate Governance Association (2004)
• Assogestioni (2007)
• Corporate Governance Forum (2009)
• European Sustainable Investment Forum (2017)
• European Public Real Estate Association (2023)
• Hong Kong Green Finance Association (2020)
• Hong Kong Principles of Responsible Ownership (2017)
• International Corporate Governance Network (2005)
• Investment Association (2010)
• Investor Agenda (2021)
• Investor Forum - UK (2014)
• Japanese Stewardship Code (2014)
• Principles for Responsible Investing (2012)
• Responsible Investment Association Australasia (2020)
• Taiwan Stock Exchange’s Stewardship Principles for Institutional Investors (2016)
• Transition Finance Council (2025)
• UK Stewardship Code (2010)
• World Benchmarking Alliance (2020)

Nature Loss:

• Ceres - Valuing Water Finance Initiative (2022)
• Farm Animal Investment Risk and Return (2020)
• Finance for Biodiversity Pledge (2021)
• Green Praxis Biodiversity (2022)
• Investor Policy Dialogue on Deforestation (2024)
• Natural Capital Investment Alliance (2021)
• Nature Action 100 (2023)
• Taskforce on Nature-related Financial Disclosures Forum (2021)
• Finance Sector Deforestation Action (2021)

SDR Labelling:

Unlabelled - promotes sustainable characteristics (has CFD)

SDR Literature:

• Consumer Facing Disclosure