Fidelity Sustainable UK Equity Fund

Sustainable, Responsible &/or ESG Policy:

The fund brings together Fidelity’s fundamental and sustainable research - with a focus on quality and valuation discipline - to uncover UK businesses that enable sustainable development and present attractive potential for long-term risk-adjusted returns.

Process:

Investment process

The fund adopts a bottom-up, fundamental approach to stock selection. The investment strategy is built on a repeatable five-stage process having first narrowed down the investment universe to companies enabling a sustainable development:

• Filtering the investment universe.
• Idea generation.
• Idea validation.
• Portfolio construction.
• Risk management.
• Active ownership.

Filtering the investment universe

To filter the investment universe to businesses that enable sustainable development, we go through a two-step process.

The first step of the process is to filter the investment universe by our exclusions framework.

At Fidelity, our fundamental investment philosophy is to favour engagement over exclusion, with exclusion treated as a matter of last resort. However, we acknowledge that there is a requirement to exclude companies involved in harmful activities. When deciding where to exclude, we are guided by international conventions, guidance from the UN and other global regulations.

Firm-wide exclusions

All Fidelity funds are subject to our firm-wide exclusion list which includes:

• Those issuers with involvement in the following categories of controversial weapons the use of which is prohibited by international treaties or conventions:
  • Cluster munitions.
  • Landmines.
  • Biological weapons.
  • Chemical weapons.
  • Blinding laser weapons.
  • Incendiary weapons.
  • Non-detectable fragments.

• In addition, issuers which breach any of the following criteria and are from countries who are non-signatories of the Treaty on the Non-Proliferation of Nuclear Weapons will be excluded:

• • Producers of nuclear warheads and/or whole nuclear missiles.
  • Producers of components developed and/or significantly modified for exclusive use in nuclear weapons.
  • Issuers with more than 5% revenues from nuclear weapon.

Sustainable fund family exclusions

Furthermore, our Sustainable Fund Family has an additional layer of exclusions, which covers the following areas which we judge to be incompatible with our objective to promote sustainable characteristics.

• Weapons - Controversial weapons (revenues from production of weapons, systems and critical components)*; Semi-automatic weapons (involvement in production~, revenues from distribution*).
• Fossil Fuels - Thermal coal (revenues from extraction/mining and power generation)*; Artic Oil and Gas (revenues from extraction)*; Oil Sands (revenues from extraction)*
• Tobacco - Involvement in production~; Revenues from related business activities*.
• Norms-based exclusions - Issuers in violation of UNGC, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles for Business and Human Rights, Responsible Business Conduct and International Labour Organization (ILO) Conventions.
• Sovereign exclusions - Excludes sovereign issuers on the FATF Black List and those that are identified as failing to meet the three principles based on a proprietary assessment and a review of internationally recognised country indicators such as (i) The World Bank’s Worldwide Governance Indicators (WGI) (ii) Countries listed under the UN Security Council Sanctions.

~ Issuers deriving more than 0% revenue from the excluded sector/theme.

* Issuers deriving more than 5% revenue from the excluded sector/theme.

Fund-specific exclusions

The following exclusions also apply to this particular fund:

• Adult entertainment - All issuers that derive more than 5% revenue from adult entertainment activities.
• Alcohol - All issuers that derive more than 20% revenue from the manufacture or sale of alcohol.
• Cannabis - All issuers that derive more than 5% revenue from the manufacture or retail sale of cannabis products.
• Gambling - All issuers that derive more than 5% revenue from gambling activities.
• Palm oil - All issuers that derive more than 10% revenue from the production of palm oil and have less than 50% of their land certified by RSPO.

Aligning investments with UN SDGs

Having excluded harmful companies, we then identify those that make a meaningful contribution to the UN SDGs*. By focusing on ‘what a company does’, we ensure that its products and services make positive environmental and social contributions. SDG alignment focuses the fund on structural growth opportunities in areas such as decarbonisation or health and nutrition, but with more diversification than a purely thematic approach.

Fidelity’s Sustainability Team has developed a proprietary SDG tool that maps the segmental revenue of companies to the SDG goals, targets and indicators. This assessment is independent of the investment team.

At least 70% of the fund will comprise of issuers that contribute more than 50% revenues to the SDGs.

*The SDGs are a series of goals published by the United Nations that recognise that ending poverty and other deprivations must go hand-in-hand with improvements in health and education, economic growth, and a reduction in inequalities, all while tackling climate change and working to preserve the planet’s oceans and forests.

Idea generation: establishing our shortlist of ideas

After deriving the universe of sustainable investments, two further filters are applied to identify companies with quality and sustainable characteristics and get to the shortlist of investable ideas.

 Quality businesses, sustainable returns

The portfolio managers leverage Fidelity’s deep research network to identify quality businesses, which they define as those that can earn high and sustainable returns on capital. They use a proprietary quality checklist - assessing attributes such as competitive advantages, pricing power and strong cash generation - to identify companies that meet their quality threshold for inclusion in the fund.

Strong ESG characteristics

By focusing on ‘how a company operates’, they assess whether a company’s practices and policies meet their high ESG hurdles, considering factors such as its path to net zero and appropriate executive remuneration. Working closely with the Sustainability Team and leveraging Fidelity’s corporate access, they actively engage on ESG risks and opportunities identified through their fundamental research process.

Idea validation

Once they have established their shortlist of investable ideas, the portfolio managers work in conjunction with the analysts to perform further due diligence and assess a company’s fundamental outlook and valuation. This typically involves company meetings, expert calls, site visits as well as meetings with competitors and other key members of the value chain.

The companies on the shortlist are then scored on positive impact (based on SDG alignment), ESG practices, Quality/Franchise, Fundamentals, Valuation and Change (when relevant), and ranked from highest to lowest scoring companies. The portfolio managers’ valuation discipline is integral to their investment process and helps inform the scorecard ranking. While a business may demonstrate world-leading sustainable qualities, it may be a poor investment if they pay more than its intrinsic value. The scorecard methodology provides a robust and consistent framework for evaluating and comparing companies within, and across, sectors.

Portfolio construction

• Position sizing and risk considerations: The portfolio construction process aims to create the optimal combination of stocks scoring highest on the scorecard criteria. The scorecard approach helps with dynamically recycling capital between high and low scoring stocks. The result is a relatively concentrated portfolio of 30-40 ideas. Position sizes are viewed on an absolute basis and are a function of liquidity and upside/downside to target price. The fund’s aggregate exposures are monitored, to ensure sufficient diversification and no inadvertent risks at a portfolio level for example to specific macro factors or unwanted stylistic biases. Having a clear view of the value of a company and setting upside and downside price targets enables the managers to take advantage of opportunities that arise through market mispricing. By buying stocks when they are trading at the lower end of the range, the portfolio managers maximise the potential for upside, while minimizing downside risk.
• Execution: Transactions are directed by the portfolio managers through a global trading platform and implemented by a group of specialist traders in conjunction with the Portfolio Services Group (PSG). Overseeing every transaction is Compliance.

Risk Management - Portfolio monitoring and oversight

The portfolio managers are responsible for building portfolios that are consistent with the risk expectations and investment guidelines set for the fund. They have access to desktop risk management systems daily to analyse risk within portfolios. Reports typically include measures of tracking error, volatility, concentration and other relevant measures.

A dedicated Portfolio Construction and Risk Team helps the portfolio managers understand and manage the risks associated with their portfolios through the provision of reporting and expertise.

The risk management processes described above are further bolstered by risk oversight checks and controls. These include daily monitoring of portfolio guidelines and constraints by the Compliance function, and monthly Investment Risk Committee 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:

Sustainability Focus label

SDR Literature:

• Consumer Facing Disclosure